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Have you heard of “digital transformation” yet? Just kidding… of course you have. You likely have an Amazon Alexa and/or fitbit. You create beautiful pictures with your mobile phone that are automatically enhanced and categorized. You may even have shoes that can reorder pizza at the click of a button. You recognize, appreciate, and perhaps fear how technology is changing the way we work and live.

If you are like many of the manufacturing executives I’ve worked with over the last few years, you might struggle to make the connection between this broad digital hype and the business you run. Of course, digital isn’t new– your operations and supply chain are heavily dependent on ERP and Operational Technology (OT) systems. And, your Information Technology (IT) colleagues are eagerly trying to understand how information will empower business value. But, why is Digital so important now? What is all the buzz about? And, most importantly, what do you need to recognize and understand?

The purpose of this short article is simple: distill hundreds of executive conversations and thought leadership articles into a few salient points that should resonate with executives responsible for leading businesses that manufacture products. Here goes…

1. What is digital transformation? In the last three or so years, incredible technology has become available and affordable. Computing power, cloud capabilities, sensors, communications networks, etc. have all matured and now enable companies to tap into five key capabilities. These capabilities then empower organizations to rethink (or disrupt) the way they go to market (business model), they way they operate (business process), or the way they work.

2. Why is this important to my role? Simply put, the size of the prize is just too great to ignore. Consider the chemicals industry: according to the World Economic Forum, digital will drive $310-$500 billion in incremental economic value through 2025. What is your fair share of this? We are already seeing dramatic breakthroughs in productivity, quality, and customer engagement. Most of the significant value is being driven when business leaders themselves are willing to rethink their business models, processes, and work. Digital transformation is a strategic agenda topic.

3. What are the largest areas of opportunity? Every company is different. However, it is clear that most can drive top line revenue growth (volume and/or pricing) by better meeting the needs of their customers. “Digital” is redefining how companies engage with their customers to improve the value delivered and captured. Digital transformation leaders are also achieving breakthrough benefits by improving their core operations. Machine learning based algorithms are now making it possible to drive huge improvements in yield, quality, safety, asset utilization, inventory, and overall supply chain efficiency.

4. How can I begin? One of the biggest challenges facing business executives is the overwhelming volume of information, solutions, and hype. The second challenge is that most executives simply don’t know what they don’t know and struggle to envision how digital can impact their specific business. At SAP, we have found very good success overcoming these challenges by facilitating Executive Innovation Experience (EIX) workshops with senior business executives focused on two outcomes. Firstly, align senior executives on what is possible by bringing relevant insights and examples from thousands of interactions across 25 industries applied to their specific situation. Secondly, use design thinking to identify high potential opportunities and priorities for a company to pursue.

4. What lessons have already been learned by others? As you probably expect, things are a bit different in the “digital world” and others have learned some valuable lessons. A few things to keep in mind include:

  • Digital transformation is not an IT initiative. IT plays a critical role–but transformation needs to be led from the business to be successful.
  • Start with addressing large business opportunities and involve your ecosystem. All too often, companies approach digital with an mindset of incremental improvements to existing problems. The new business capabilities enable by digital can and should help you aim high and consider value opportunities beyond the walls of your company. Challenge convention and question old rules. And, involve your customers, suppliers, and partners where appropriate.
  • Leverage design thinking. Solving business problems ultimately comes down to humans and a human-centric approach to understanding needs and work is more critical then ever. Design thinking has proven itself as a key enabler to delivering value.
  • Capture that information. It may feel that your organization is sitting on a pile of data that never gets used. And, you are right. But, the power of machine learning is in many ways contingent on the information that can be harnessed. This area is growing so rapidly that we can’t envision all the potential applications. But, they will come. Collect the data now.

Obviously, this article only scratches the surface. As always, I’m happy to engage and share more specific insights. Share your feedback!

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