The Only Way Manufacturers Can Survive
Digital transformation is no longer optional for industrial companies. The problem is it’s really, really hard.
Leading a corporate transformation of any kind is difficult, and it hasn’t become any easier over time. But starting and sustaining a digital transformation in a manufacturing company? That’s tougher than managing any other change initiative — from total quality management to Six Sigma to lean manufacturing — and, believe us, we’ve lived through, or seen, them all over the last three decades.
Becoming digital is a requisite for survival today. However, while waves of technology — automation, additive manufacturing, AI — are washing over the corporate world, redefining the nature of work and productivity, there are no playbooks and few best practices for manufacturers’ digital transformation. Few industrial companies even paid attention to digital technologies until recently. Just nine years ago, for instance, General Electric didn’t track them closely, never thought about how they could fit in with the machines it manufactured, and, above all, didn’t realize it could make money from them. Digitalization was far removed from GE’s industrial reality.
Even today, although most manufacturers are beginning to flirt with digital technologies, not one has successfully pulled off a digital transformation. CEOs still have to figure out its art — and science — forcing them to draw up their game plans on the fly, which inevitably leads to tension and trauma. Some business leaders have been criticized for kicking off digital transformations prematurely; others for delaying them; and still others have been sacked for not sustaining them.
One of us spearheaded several transformations between 2001 and 2017 — including a digital transformation — at GE, a well-established global corporation. The other has been studying innovation and change in large companies, including GE, for decades. We’re both convinced that executing a digital transformation is not only the most complex but also the most critical challenge that any manufacturer faces today. That’s why we came together to coauthor this article, which illuminates why digital transformation is so tough for manufacturers and shares some key learnings from our experience.
GE was probably the first manufacturer to internalize that digital technologies could disrupt its businesses. However, that happened only after a GE scouting team searching for megatrends serendipitously figured out through its online research that some incumbents, such as IBM, and several high-tech startups were gathering data from GE’s customers to develop novel data-based services in sectors such as aviation and power.
1. The insights and data in this article come from the authors’ direct experience working with GE for many years.
2. “Digital Transformation of Industries: Digital Enterprise,” white paper, World Economic Forum and Accenture, New York, January 2016; and W. Ruh, keynote presentation (Minds + Machines 2016 conference, San Francisco, Nov. 15-16, 2016). The $6.8 trillion figure is based on the World Economic Forum white paper, but was extrapolated to represent the amount that only applied to GE’s then-businesses.
3. V. Govindarajan, The Three-Box Solution: A Strategy for Leading Innovation (Boston: Harvard Business Review Press, 2016).
Rui Martins de Almeida