Robert Howe is an independent management consultant.
While “may you live in interesting times” may be a curse of apocryphal Chinese origins, the COVID-19 pandemic is certainly not. Although the full economic consequences are far from clear, we can be sure there will be lasting, if not permanent changes to global trade. As we proceed from the onset of the crisis to recovery, we can also expect a massive shake-up of markets, dwarfing that of the 2008 crash. Fueled by bloated private equity funds, the resultant M&A feeding frenzy will rapidly differentiate weak businesses from the strong, slow businesses from the smart. In these extreme business conditions, leadership becomes about adapting, being agile and making judgment calls based on experience and belief.
Pre-crisis, industrial digitalization was an important subject on the strategic to-do list of many manufacturing companies. Increased productivity, lower production costs, faster time to market and the ability to quickly and profitably respond to changing consumer demands – the most-touted benefits of Industry 4.0 – were powerful arguments for its adoption. But equally, the very vagueness of the term Industry 4.0 obfuscated the apparent value of industrial digital transformation. Many business managers simply couldn’t make a connection between the benefits of Industry 4.0 and the operations of their organization.
To bridge this gap, many businesses attempted to base their approach to digitalization on a credible cost analysis of the return on technology investment. However, traditional ROI calculation methods based on speculative business cases don’t work well for investments in ‘soft’ propositions such as increased productivity or faster time to market. There is simply too much room for the inherent guesswork and opinion to be incessantly debated within an organization, leading to digital transformation becoming bogged down.
This has been the status quo for many industrial companies, with market surveys indicating that while the majority recognize the potential of Industry 4.0, a small minority have actually been successful at doing anything about it. After all, in the old world everyone was busy with normal life and there was no particular urgency.
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But now the world has changed and for many businesses, the situation has become nothing if not urgent. As is the nature of these things, at a time when business managers typically retreat from pursuing new initiatives, the benefits of Industry 4.0 have moved from “nice to have” to “essential for survival.” Realistically, there is no longer time to debate the assumptions underlying a speculative business case for digital transformation. An Industry 4.0 initiative can’t be treated as just another IT project or plant-level initiative. Furthermore, a vital part of Industry 4.0 is about achieving continuous, flexible scalability towards changing circumstances and new business opportunities.
To deal with this, the leadership of a company must adopt an entrepreneurial state of mind: recognize that the company’s frame of reference has changed, that uncertainty is the order of the day; believe that digitalization offers the company a path through the chaos, a way of competing and prospering in unpredictable circumstances ahead of specific supporting evidence.
And yet, even in the new world, the company’s business management still may not be able to make a connection between the needs of their business, digital transformation, Industry 4.0 and its underlying technologies. However, that’s a problem that can be solved by working with industry experts who can help analyze the objectives of a business and devise appropriate digital transformation initiatives. We’re not talking grand plans here, either. Successful digitalization programs focus on addressing low-hanging fruit and achieving short-term wins: involve, pilot, evaluate, deploy, repeat.
Attempting to use business cases and ROI calculations to justify digital transformation was always a time-consuming work of fiction. In the new world, there’s no time for fiction. The fact is that industrial digitalization breeds its own success. It gives birth to new and potentially surprising business opportunities. It’s the gateway to surviving and competing in the new world. Therefore, business cases should be the consequence of industrial digitalization and not a justification for it.