An industrial manufacturer’s model for transformation

When a certain German heavy equipment manufacturer started down the digital transformation pathway, it had an experienced guide to show it the way.

There are five fundamental elements that tend to be present in successful digital transformation efforts.

That guide wasn’t a high-end consultant or a CIO hired away from another organization, but rather a figment of the digital imagination, a model company created solely as a reference case for ‘real’ companies to follow to accelerate their journey to becoming an intelligent digital enterprise. From initial discovery through to adoption, the model removed much of the legwork and guesswork from the transformation process, giving the German company pre-configured, ready-to-run reference solutions for enterprise-level digital infrastructure and processes. Along the way, it also provided business process documentation, configuration guides, test scripts and other resources tailored to the industry in which the company operates and designed to accelerate the transformation process.

Guided by the model industrial machinery company, the ‘real’ manufacturer sped through business process validation, scoping and blueprinting to reach the actual realization phase in a mere 12 weeks. Having access to a ready-to-consume model, and involving business users right from the start of the process, made for a fast transition to the realization phase.

Estimated $7.4 trillion to be spent on digital transformation

As much as companies are spending on digital transformation — an estimated $7.4 trillion over the next four years, according to IDC — having a model, or at least a set of reference points, for the process is invaluable, particularly in light of the mixed results those transformation investments have yielded to this point. According to recent research by the Everest Group, 73 percent of enterprises failed to realize sustained returns on their digital investments.

Wherever your organization stands in the digital transformation process, there’s something to learn from the failures and the successes others have experienced during that process. Here, drawing on SAP’s experience helping a wide variety of industrial manufacturers evolve into intelligence enterprises, are five fundamental elements that tend to be present in successful digital transformation efforts:

1. Customer centricity. Within five years, industrial equipment companies will earn a majority of their revenue from services rather than from the products they make. Already, industrial manufacturers are reimagining their businesses by packaging their products with the intelligent services that help customers to operate more efficiently and cost-effectively, which in turn helps manufacturers to forge stronger, lasting relationships with those customers. MAPAL, which offers precision tools and machining solutions, was well aware of the challenges its customers face in managing and maintaining tools. So the company created a “data highway” in the cloud where customers and partner suppliers are linked and can access all data related to a tool throughout its lifecycle — master, transaction, process and inventory. The open cloud platform, called c-COM, also features a native app that tool managers can use to access relevant information about a tool, to remotely view its condition, create a service report if needed, then send that report straight to the supplier. The app also can generate a purchase order for a tool that needs replacing.
2. Serving the segment of one. As more customers demand products tailored to their specific needs, manufacturers are developing mass-customization, “segment of one” production capabilities to be able to profitability deliver customized products. Doing so requires a digital platform on which various entities along the supply chain (manufacturer, component supplier, customer, etc.) can collaborate to co-develop products (and product/service bundles; more on that in a moment). With embedded machine learning and artificial intelligence tools in the cloud, plus data from sources along the supply chain, such a platform can enable a manufacturer to differentiate core production processes, and to speed and improve decision-making during the collaborative design and development processes.
3. Digital smart products. Manufacturers are making smart products that are connected to the real world, self-aware and capable of collecting data that customers can leverage in a variety of ways. Stara S/A Industria de Implementos Agricolas, a major Brazilian agricultural machinery and services provider, has transformed itself from purely an equipment manufacturer into a provider of customer-focused precision farming solutions. By equipping its farm equipment with IoT-connected sensors, customers can monitor farming processes in real time to operate more efficiently. For example, they can access and analyze live data to determine the optimal quantity of seeds to plant based on varying soil characteristics at different points in the field. Now, more than 20 percent of Stara’s revenues comes from computer hardware and software.
4. Digital supply chain and smart factory. The industrial Internet of Things, in tandem with the right digital analytics tools, has empowered companies such as Caterpillar to optimize, extend and transform their business, from R&D to the factory floor, all the way out to customer equipment deployed in the field. Not only has Caterpillar automated its factories with IoT-connected equipment, it is equipping the products it builds at those factories with IoT sensors that gather data the customer and the manufacturer can share to improve predictive maintenance, increase overall product uptime and extend lifecycle.
5. Servitization and new business models. Today’s customers want their equipment to come “as-a-service,” where they pay for the usage or outcome surrounding a connected product, with remote monitoring, analytics, preventative maintenance, real-time issue resolution, etc., part of the service package. Not only does the end customer get the desired outcome, they shift what can be an onerous capital expense into an operating expense. For example, Kaeser Kompressoren, which provides compressed air solutions for a range of applications, now offers compressed air as a service, so instead of investing in a full compressor station, customers pay only for the compressed air they use. Under the Sigma service, Kaeser builds, installs, operates and maintains the system on the customer’s behalf. The customer pays a fixed price for the air but leaves maintenance, monitoring, parts replacement, etc., to Kaeser.

As successful as Kaeser’s Sigma service, as well as other digitally-driven, cloud-focused initiatives by Mapal, Stara and Caterpillar, are proving to be, they serve as real-life models for how to execute digital transformation to benefit the customer and the manufacturer’s own bottom line.

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Patrick Lamm is senior director of the industrial machinery & components business unit at SAP. He has more than 20-years’ experience in discrete manufacturing at leading global companies.