It’s been nearly a decade since the vision for Industry 4.0, the digitization of manufacturing, was announced. What progress have manufacturers made in the past ten years toward making this vision a reality? New research from Accenture Strategy suggests not nearly as much as they could have—or need to.

By Max Blanchet, Jeff McKinny, and Russ Rasmus, Accenture

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Accenture study explains: What is the status of the digital transformation of end-to-end manufacturing operations? | Image: Accenture

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Digital maturity: From PoCs to scaling up

Digital maturity varies widely by industry. The most mature capabilities tend to be found where digital or data-driven solutions are critical to performance. Or they are found where there’s significant potential for productivity increases.

Digital maturity lags in industries where there’s little potential for productivity gains because operations are already lean. Or where digital for operations isn’t as high a priority as other concerns. For instance, highly efficient automotive OEMs today are focused on developing connected and electric cars. This is being done in place of digitizing their already automated assembly lines.

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The digital maturity index enables us to evaluate the extent to which companies in our study were deploying the 40 key digital capabilities—from not started, to proofs of concepts (PoCs), to pilots, to scaling up, to fully deployed. | Image: Accenture

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There is another factor that inhibits digital deployment in certain industries. It occurs when the overall product cost represents a relatively small share of sales. In this instance, it diminishes the impact of cost reduction on the P&L. This is the case for consumer goods or life sciences. In both, digital operations are more aimed at improving flexibility, personalization, and time to market than pure cost efficiency.

 

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About the research

As part of our research, we surveyed 600 companies globally. Our goal was to evaluate the status of the digital transformation of end-to-end manufacturing operations. We found that the average digital maturity of manufacturers’ end-to-end operations overall is only 39 percent. This on a scale where 100 percent indicates all capabilities are deployed and rolled out. Most surveyed companies are past the proof-of-concept stage. They are now in actual pilots with partial scaling up.

Our assessment also identified a small group of manufacturers. This group has separated from the rest of the pack. We call these companies value makers. They represent a cross-section of industries. And they illustrate a deep commitment to digital technologies and solutions. This is combined with significant investment. They also have an unwavering focus on key enablers. Ultimately, the actions they take create substantial and sustainable value.

Their experiences offer other manufacturers guidance on what it takes to accelerate their digital transformation. They show how companies can reap the benefits of a more connected and intelligent enterprise.

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Investment and ROI: More begets more

When it comes to financial dimension, size does matter. We found a strong, inescapable correlation between what manufacturers invested in digital capabilities and the resulting impact on their operating income. This is true for both infrastructure and platforms.

The scale effect on digital investments acts as an advantage to large companies. Those with the highest annual revenues enjoy a slightly larger average return. However, even smaller companies can realize significant short- and mid-term savings. But they must invest substantially in digital (as a percentage of their overall sales). If they do, they can see an average mid-term impact of four percent lift on operating income (as a percentage of their overall sales).

A good balance is when a specific year’s savings fund the investments of the next set of solutions. In other words, done right, digital generates a rolling ROI of about one year. This makes the economics more attractive than classic IT programs with a long payback horizon.

 

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Large companies must invest substantially in digital. If they do, they can see an average mid-term impact of four percent lift on operating income.

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We also found a significant relationship between current digital operations maturity and planned level of investment or expected savings when considering our panel’s industry and country.

Those spending the most have the most mature digital capabilities. And they were most likely to reap greater benefits. These are, respectively, the upstream oil and gas, aerospace and defense, and high-tech industries; and the United States, Singapore, and India.

Overall, the goal is to boost asset utilization, workforce productivity and service. This will significantly improve ROCE. It results in higher EBIT (from greater cost efficiency and better pricing of digital offerings) and reduced capital employed (from greater asset utilization and lower inventory). This is why digital transformation of operations can be a major creator of shareholder value.

 

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A complete digital transformation of operations requires a lot of money—but the payoff is equally substantial.

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Change and enablers: Skills, leadership, and governance

Digital transformation is a big financial commitment. And it isn’t as straightforward as some companies would hope. Success is achieved by embracing digital operations transformation at scale. This requires significant attention to key enablers, which are essential for ensuring digital readiness.

Skills

Digital capabilities must be staffed with the right number of people with the required skills. Our survey indicates that these resources should represent around one percent of a company’s staff in the mid-term and up to 1.8 percent in the future. As could be expected, larger companies in our study have larger teams with digital skills, on average, than smaller companies.

However, the latter look to be aggressive in building such skills. They plan to boost the average size of digitally-skilled teams by 84 percent in the next five years. This is a much bigger increase than what’s expected by the largest companies in our study (64 percent). Overall, companies plan to increase their digital capabilities teams by more than 75 percent.

 

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Transformation readiness across key enablers. | Image: Accenture

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Leadership

Digital transformation can’t be scaled if leaders don’t embed it in their leadership role. Why? Because if leaders aren’t fluent in using data-driven analysis to make decisions, digital transformations will fail to live up to their potential. Here, companies in our study have a lot of work still to do. Only 13 percent of companies have more than half of their leaders trained to use analytics to help drive their decisions.

Governance

Digital transformation must be driven at the highest level of governance possible. But that’s not common among a majority of companies in our research. Digital transformation led by the executive committee or the board is in only 38 percent of companies.

 

Value makers versus traditionalists

Just like industries and countries, individual companies aren’t progressing at the same pace or getting the same results. Our assessment identified a small group of companies—17 percent of our survey panel. They have highly mature digital operations capabilities that drive significant value (as measured by revenue and productivity).

 

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The race for digital operations transformation is creating greater polarization between value makers and traditionalists.

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These companies, which we dubbed Value Makers, have invested extensively in digital platforms and infrastructure. And they have paid special attention to those that leverage advanced digital capabilities. Consequently, Value Makers have enjoyed a substantial, positive impact on their operating income.
In contrast, a group we call Traditionalists, which comprises 39 percent of our panel, have weak digital capabilities. This includes basic, foundational ones. They’ve invested comparatively less in them and have seen scant improvement in operating income.

Value Makers are winning the race for digital operations. Traditionalist still struggle to implement even rather fundamental capabilities. But Value Makers have moved beyond this stage. They are now deploying more advanced capabilities.

The top 10 capabilities where traditionalists lag the most include:

  1. Product life cycle 360-degree feedback
  2. Analytics to identify quality problems
  3. Digital workstations, instruction, alerts, aids and guiding, poka-yoke to conduct Operator task facilitation
  4. Dynamic/digital production planning and scheduling
  5. Digital tracking of flows and inventories based on tracking networks
  6. Common platforms to continuously share and source data from ecosystem
  7. Adjacent digital services
  8. Digital and Internet of Things platform
  9. Digital continuity/thread across design, manufacturing and service
  10. Data governance

 

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The top 10 capabilities where value makers lead the most include:

  1. Rapid prototyping capabilities
  2. AI-based design tools generative design
  3. Smart deliverables management
  4. Augmented/virtual reality-based platforms for training
  5. Remote expert supporting using augmented reality platforms
  6. Flow automation–based on AGVs, drones and cobot (picking), warehouse automation
  7. Readiness for 5G
  8. Data quality
  9. Academy programs
  10. Reskilling programs

 

The time for experimenting is over

As our research shows, progress toward the vision of Industry 4.0 remains slow in most companies. This comes despite nearly a full decade having passed since its launch. Only a select group of manufacturers, the Value Makers, have forged ambitiously ahead. They’re in pole position to lead their respective industries for years to come.

Value Makers will deliver extreme customer centricity and usage-based offerings. They’ll customize locally to precisely meet customers’ needs. They’ll be extremely agile and masters of execution. They’ll continually capitalize on opportunities to boost their bottom and top lines. And they’ll have a strong and open culture. This will enable them to attract and retain the best and brightest people.

The gap between Value Makers and Traditionalists is constantly growing. Without immediate and significant action and investment, many Traditionalists may never be able to catch up.

 

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The race for digital operations is truly well under way, and manufacturers that take too long to enter it are taking a big risk in the long term.

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Digital and Sustainable Plant

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About the authors

 

Max Blanchet, Jeff McKinney, and Russ Rasmus

Max is Managing Director, European practice lead within Accenture Strategy for Industry X and Supply Chain, including manufacturing, engineering, and aftermarket service strategies. Max has more than 25 years of experience in the industry and has conducted numerous strategic and operational assignments for top executives of industrial firms, governments and industry associations. He has authored multiple publications in Industry 4.0. Meet him on LinkedIn

Jeff is Managing Director, North American practice area lead within Accenture Strategy for Industry X. He has more than 20 years of operations experience with deep skills in planning, design, and implementation of transformation projects with particular focus on production operations, reliability, maintenance, planning, and network optimization. Get in touch with him via LinkedIn

Russ is Managing Director and Global Practice Lead for Accenture Strategy's Industry X and Manufacturing Practices. With his more than 27 years of experience he has extensive experience in strategy formulation, strategy implementation and operational management of complex global supply chains across the consumer goods, industrial, aerospace, chemicals, life sciences and high tech industries. Start a conversation with him on LinkedIn

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Acknowledgements

The authors of the article thank the following for providing valuable insights:

  • Mario F. Diaz, Director, Offering Development, Industry X. Meet Mario on LinkedIn.
  • Nicolas Moreau, Director, Strategy and Industry X. Get in touch with Nicolas via LinkedIn
  • Jeff Wheless, Principal Director, Global Industry X Research. Follow him on LinkedIn

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