Meeting the challenge of Digital Transformation

When it comes to digitalisation, it turns out it’s the mind and not the machine that really matters. Barry MCall reports.

Digitalisation is no longer an option for organisations, it is a prerequisite for survival in a digital world. It also presents massive opportunities for those businesses willing to embrace change and digital transformation. It offers businesses opportunities to become more efficient, improve quality, scale faster, gain competitive advantage, and win new customers. Yet, according to a recent survey carried out by Siemens Ireland, almost one third of Irish companies have no strategy for this.

In addition, more than 60 per cent of respondents were unclear of the benefits and more than 70 per cent felt that too much money or effort was required to get to the data they needed.

This is despite the fact that that the so-called Internet of Everything (IoE) will be worth up to $19 trillion by 2022 according to research carried out by Cisco. McKinsey has put the value of IoT and digitalisation to manufacturers at up to $3.7 trillion by 2025. Furthermore, since 2009 there have been more “things” connected to the internet than people and Gartner has estimated that there are currently more than 9 billion IoT devices in operation around the globe with the number set to grow to 20 billion by 2020.

Siemens Ireland CEO Gary O’Callaghan believes there are three recurring issues that present stumbling blocks on the route to digitalisation: understanding the technologies that are available, addressing concerns about digital skills gap within an organisation, and how to build and evaluate the investment case around new business models.

Fear is also an issue according to Brendan Sheppard, CEO of Limerick based industrial digitalisation specialist firm SmartFactory. “Many of companies are really good at innovating with new products, but their production processes haven’t changed in years”, he says. “When it comes to the Internet of Things (IoT) and Industry 4.0, lots of them are doing nothing, because they think doing nothing is better than spending a lot of money doing something and getting it wrong.”

A VUCA world

But doing nothing is not an option for O’Callaghan. “We are living in a VUCA world. It is volatile, unpredictable, complex and ambiguous. Despite this, the digitalisation of Ireland’s industrial landscape presents a window of opportunity for boosting competitiveness by increasing productivity and enabling Irish companies to achieve greater integration into the global value chain.” 

He agrees that many companies in Ireland still have a way to go when it comes to implementing a holistic digitalisation strategy and should seek to improve their internal processes, productivity and cooperation with suppliers and customers. “Times are changing and we all have to change with them,”, he says.

The digitalisation of Ireland’s industrial landscape presents a window of opportunity for boosting competitiveness by increasing productivity and enabling Irish companies to achieve greater integration into the global value chain

The results of the survey led Siemens to join forces with IRDG Innovation to hold a major conference on the topic during the summer. The conference, held in Dublin’s Croke Park, heard from a wide range of speakers from industry, government organisations, and academia, who explored a variety of digitalisation themes. These included the need to view digital transformation as a set of strategies for a digital world rather than as a digital strategy, the fact that digitalisation is fundamentally about people rather than technology, the technologies that which will be at the heart of the new digital era, the requirement to place the value proposition front and centre in digital initiatives, and how a vibrant digital ecosystem is taking shape here in Ireland.

Transformation imperative

In his address to the conference IRDG managing director Denis Hayes also pointed to the absolute requirement for firms to digitalise. “Eighty per cent of current business processes and practices will either be changed or eliminated by 2025,”, he noted. “That makes digital transformation a must. It’s an imperative. Technologies like data analytics, artificial intelligence, blockchain, augmented reality, and virtual reality will give us new capabilities to analyse, personalise, predict, correct in real time, automate, and reduce risk. That will offer new opportunities to engage customers, empower employees, optimise operations, develop new products and services, and create new business models.”

In this context it is at the very least puzzling why Irish based manufacturing industry has yet to fully embrace digitalisation. Brendan Sheppard believes it is a question of mindset. “Some people feel threatened by digital transformation”, he says. “They have grown comfortable with the way they are doing things. Their focus is on producing quality products rather than on the efficiency of the process.”

However, even in Lean environments which are generally regarded as highly efficient process engineers can spend up to 14 hours a week just preparing documents for the daily management meeting. “We put one of our solutions in on a pilot basis for a medtech client recently”, Sheppard adds. “We were expecting a 3 per cent improvement, and hoped for 5 per cent, but a 13 per cent increase in output was achieved.”

Swiss-based digital transformation advisor and author Ralf Günthner agrees. “If you want to have Enterprise 4.0 then you need to have your organisational structure, technology, and people mindset all at 4.0. If you just focus on technology and not organisation and people you will end up with Enterprise 3.1.”

Günthner, who has just co-authored a new book on digitalisation with his wife “Brain 1.0 meets Industry 4.0”, points out that digitalisation is nothing new. “Technology comes in waves. We have moved from e-commerce and the Internet at the beginning of the century to IoT now and are moving towards AI and robotics and then to brain computer interfaces.”

Speed

The main difference between now and previous advances in industrial technology is speed. Günthner dates the first industrial revolution to 1784 and the invention of the mechanical loom. The second, which was characterised by mass production, assembly lines, and the replacement of steam by electricity, started in 1870 with the first flowing ribbon. 1969 and the introduction of computerisation to the factory floor saw the birth of Industry 3.0 and we are now on the cusp of Industry 4.0 with the digitalisation and cyberphysical systems being the key enabling technologies.

It took more than two centuries to progress from the first industrial revolution to the third and less than three decades to get to the fourth. But companies have nothing to fear if they take the right approach, Günthner contends.

“You don’t need a highly sophisticated digital strategy”, he advises. “You can take an incremental approach to using technology on the factory floor. It’s not about using every possible technology in the production process. Start by making parts of the process more efficient. That way people in the factory can touch the technology and see it working. You can introduce new way of working by showing it in small areas. You have to make it tangible and not about a lot theory.”

Organisations need to look for quick wins to demonstrate the value of the technology. “People need to understand the differences between the past and the potential of the future.”

Technological advances are the driving force, naturally. “If things are smart and can gather data and exchange data with each other that changes the way you can make products”, he adds. “In the past humans fed computers with keyboards, bar codes or punch cards. Humans get tired after eight hours but IoT never gets tired and works 24/7. Using predictive analytics and machine learning you can visualise what’s happening and always know the status of the machine. You can combine the data with ERP systems to predict the future and use that in the value chain to enhance collaboration with partners and customers. Companies are looking for new business models. They are not just selling products anymore.”

The new oil

Those new business models are seeing the mass customisation of products and services where the end customer becomes part of the design and manufacturing process while suppliers become much more deeply integrated as well. Products themselves will become smart with embedded sensors connecting to manufacturers throughout their lifecycle.

“When you take that data and combine it with other data it’s very valuable”, says Günthner. “It’s the new oil, the gold where you can create most value.”

The good news is that this resource will be available to organisations of all sizes. “The question is the speed of adoption”, he continues. “The big companies in the market are investing billions into digitisation. They are building huge departments to handle it and they are building incubators for new technology. But they are still struggling because they are only focusing on technology. They are not taking care of their organisational structures. And they are not working on changing mindset of their people. That’s why their struggling.”

Fear

And then there is that question of fear. “The small ones are afraid to jump in. They are in their comfort zone at the moment. They are making money, earnings are good, and they are fully booked with orders. That is why they are slow. But from a technology perspective small companies can benefit in the same ways as larger ones.”

That happy situation won’t last forever or even for very long, however. “These companies face a big danger. Over the past 10 to 15 years we have had a growth market in Asia and so on. We now see it turning around and China and India will be more and more competitive with Europe. European companies will have to invest in the industrial internet of things (IIoT) if they want to remain competitive. They need to start digital transformation now.”

The lack of progress is also explained by a somewhat insular mentality. “My personal opinion is that there may be a lack of understanding and education”, says Günthner. “People don’t take the time to see how technology can benefit them in reducing costs and becoming more efficient. They need to spend more time educating themselves.”

For those organisations intent on digitalising, the key lies in their people and organisational structures rather than the technology employed. “What we did in the past was build hierarchical structures in companies where we told people what to do”, he says. “It was very black and white. Organisations asked their employees to stop thinking. This is your box; just do what we tell you. This is the mindset of the past when managers managed, and workers did what they were told.

Leadership structure

“There were KPIs to monitor employees who were treated as a basic resource and ERP systems worked well in this hierarchical situation. But when with the speed of change and technology coming in future we can’t afford these structures. Companies need to use the full potential of their employees and they can only achieve that if they move away from hierarchy. But you have to combine hierarchy intelligently with other frameworks. You will always have to keep some form of leadership structure. But organisations need to be agile as well and need to define where they need to be agile. Hierarchies and fixed job descriptions and treating employees as resources slows everything down. These structures are not built for speed.”

Choosing the right organisational structure is important. “There are a lot of new organisational frameworks and every company needs to understand what ones are available and what best fit its needs. No one size fits all.”

Having decided on the structure it is then a question of working on the people part of the equation. Interestingly, this is directly linked to the organisation piece. “Douglas McGregor defined the theory of X and Y employees”, explains Günthner. “Theory X held that employees dislike work, lack ambition, avoid responsibility, and must be directed and coerced to perform. Theory Y, on the other hand, assumes that employees like work, seek responsibility, are capable of making decisions, and exercise self-direction and self-control when committed to a goal. The X theory is Industry 3.0; we need to shift to Y if we are to move to Industry 4.0.”

A lot of jobs that are here today will not be here in five years. If an employee is doing the same thing every day, you know they will be replaced by technology

But that shift brings its own challenges and fear crops up once again. “The fear to jump into new world. It starts at the top of a company. There is a fear that they will lose power and that decisions will be taken away from them. New organisational structures mean less hierarchy and more power with the people. Ideally, you would make the shift in parallel; convince management that the old way of working is not meeting the new challenge of change at the same as working at the bottom to identify areas where the benefits of change can have a large impact.

“Use small pilots with small teams to demonstrate the benefit of change and new ways of working. There is no need for big projects. It’s a question of taking small steps, learning from them and being agile. It’s a step by step approach, not a big bang. It takes time. The changes may take two to three years, not weeks. A lot of different things have to come together.

Curious and open

“Don’t fear, be curious, be open. Try to find out where you can educate yourself. But remember, everything that can be digital will be digital. A lot of jobs that are here today will not be here in five years. If an employee is doing the same thing every day, you know they will be replaced by technology. And it won’t be robots that look like humans. It will be software taking over the roles. People have to ask how they can overcome these challenges and educate themselves.”

The central role of people in digitalisation was the central message delivered by Alessandro Rimassa, co-founder of the Talent Garden Innovation School when he addressed the Siemens conference. Talent Garden is a coworking network for a community of digital innovators with centres across mainland Europe.

“Digital transformation is putting people at the core,” he said. “It is about using technology to create a better experience for people and doing it in a smarter way. It means a better experience for customers and more money for the company. But it has to be a human-centred solution. Digital transformation is not about technology. It also changes values, in companies and society.”

He believes there will be five core values in the digital era: transparency, feedback, change, beta, and trust. “Leaders will have to be crystal clear when speaking to people. Transparency wins in the new era. They must also give continuous feedback and help people be better tomorrow. Promoting change and failure is important: you mustn’t think that every new product will be perfect. You know that some will fail. If you don’t have failures, you won’t have a business. You have to work in beta-mode and learn as you go. You have to give and ask for trust if you want to promote change. Finally, you must put feedback at the centre of working and believe in the future of your company as one that is centred on people.”

The Fourth Industrial Revolution poses great risks for those who stand on the sidelines, who rather wait and see, and who get stuck in endless discussions

Gary O’Callaghan points out that Siemens will be investing a record €5.6 billion in research and development in the current financial year. “This money is flowing into future technologies such as blockchain technology, autonomous machines, and distributed energy systems, all of which are crucial for ensuring the viability of our company in the digital future. The Fourth Industrial Revolution poses great risks for those who stand on the sidelines, who rather wait and see, and who get stuck in endless discussions. But it offers great opportunities for those who actively shape it. I think we should seize these opportunities.”