Nearly a decade after smart manufacturing was introduced, the manufacturing industry is still dealing with many challenges to fully implement and benefit from this new way of working. The current situation and the future for Industry 4.0 were discussed during “Digital Transformation in Manufacturing: Connecting Theory to Practice,” a roundtable jointly hosted by The Economist and DXC Technology in Stuttgart, Germany in July 2018.

Changing, adapting and aligning the entire organizational culture with the new smart connected manufacturing and digital transformation plans, training employees to gain new skills to work with the new technology and under the new strategy, as well as the questions of how to deal with the issue of an aging workforce in Europe are just some of the key challenges that were raised during the discussion in Stuttgart. In this article, Martin Rainer and Wolfgang Lucny, DXC’s manufacturing industry experts, talk about the challenges that lie ahead for the industry, some key steps manufacturers should be taking to fully dive into smart manufacturing, and the importance of partnership and cooperation in Industry 4.0.

Not yet a revolution: How fast is Smart Connected Manufacturing progressing?

Martin Rainer: When it comes to digital transformation in manufacturing, it is still a relatively slow progress. It feels as if digital transformation is not yet a revolution, but more of an evolution — an evolution that’s an enhanced continuation of automation efforts that have been around for decades and are now accelerated, thanks to the tremendous opportunities provided by digital technology. However, if we look at the overall maturity level and the degree of digitization we find in the manufacturing industry, we can conclude that it’s still relatively low.

Wolfgang Lucny: It’s not just a question of having the right technology. Even back in the ’90s we had sensors in some big machines that could measure things, so those elements have been around for a while. Today, it’s more a matter of creating added value for the end consumer, defining new business models to differentiate oneself from the competitors, and reducing the cost base to produce customized products at the cost of a mass product. I think this is what most of the manufacturers are still struggling with. Yes, the technology has advanced; it’s getting smaller, faster, edgier, but in the end the big question is still: “How do I, as a manufacturer, create additional value and is my end customer willing to pay for it?”

Key challenges manufacturers face today

MR: I would say the No. 1 challenge is the complexity, which is a given with any digital transformation initiative. Organizational complexity is a challenge because you always need to combine what used to be quite siloed — vertical functions, for example — and you need to integrate those functions within the organization into a pretty seamless initiative. Also, governance, budget and everything around funding are not always aligned with the smart manufacturing strategy. It’s essential to rethink the organization, to form new alliances and establish a new framework of responsibilities.

Another big hurdle is the legacy environment. Every manufacturer has a legacy environment that is complex — or at least complicated — in its own way, and it may not offer the maturity and the level of standards needed to take the next step. You need to rely on a certain degree of standardization, and what you need at least is digital technology that can cater to that standardization or translation. You have a variety of machine protocols in a production environment, and those different machine protocols need to be translated into unique code before you can actually utilize the data generated in the process.

WL: Another challenge manufacturers point out is connectivity. Digitalization in manufacturing means you need to connect either smart products or machines to a central platform to ingest the data, or to get insights from the data. Since we have neither connectivity standards nor common communication protocols, you have to deal with a multitude of factors when you connect machines from different manufacturers into your environment.

Adjusting the existing business models and trying to find new ones to deliver competitive advantage is another sensitive area to address. This also requires a different understanding and insight from senior-level management. Let’s take a simple light bulb as an example. In the past, it was easy to calculate its production costs. It was about the supply chain, the production effort, maybe some sales and marketing costs, but once the product was sold, it didn’t create any additional cost for the manufacturer. When the same product becomes “smart,” it will generate additional costs throughout its full life cycle, ranging from incremental costs due to the software layer to the efforts needed to update its functionality once it’s sold. Just think about the Tesla car, where with software updates you get additional functionality — most of the time free of charge.

The key question the manufacturer has to answer up front is how to cover those incremental costs. For example, should there be a premium fee charged for the added value, or can the costs be covered by increasing the efficiency of the internal production process, etc.? Whatever the right answer might be, manufacturing companies and especially their leaders need to have a solid understanding of the potential implications digital transformation will bring — in particular, the implications on their current business model.

 

How do I, as a manufacturer, create additional value and is my end customer willing to pay for it?

 

Educating, motivating and engaging employees — the key to a successful transformation

MR: There is a cultural dimension and a very factual skill dimension to the question of engaging the workforce in the digital transformation process. Let’s start with the skill dimension. The skills needed to work in a converged world, i.e., a world where operational technology is converging with information technology, require a completely new working style and methodology. Traditional waterfall approaches have to be replaced with agile methodologies covering both the development phase and the operations (DevOps) in a true end-to-end approach. Switching to an agile method also enables a higher degree of innovation and pace, as smaller chunks of work can be validated faster in a real-life environment. In addition, any required adjustments can be integrated early in the process.

The cultural dimension is even more complex because we have to deal with the reality of an aging workforce, especially in Europe. Europe is faced with the challenge of having an older workforce that will still be active for the next 10 to 15 years. Companies need to find a way to mobilize these people and turn their tremendous experience, know-how and skills into this new way of working. This can be done by training sessions and learning on the job, as well as formal education, but it can also be accomplished by the way teams are created and combined.

What I mean is that companies should create diverse teams by having young, digital employees working side by side with more seasoned, experienced people on the same initiative, so that you can bring the best of both worlds together. The deep and profound knowledge many people have in the basics of engineering, production and automation is all still valid and invaluable in the digital world. Driving diversity into the teams and switching to an agile working style can help companies cope with the two dimensions: skills and culture.

WL: I strongly advise leaders not to forget to cover all the change management aspects for digital transformation projects exactly in the same way they would have done it for any other large transformation project in the past. For the employees, a change of this magnitude brings a great deal of uncertainty and worries about the future. In the beginning there is resistance — people don’t know what the change will mean for them personally, or for the working environment in general. Then they start learning, begin to understand the future changes, get motivated and finally start performing again.

Yes, many jobs will change, but most likely in the sense that there will be fewer people working in more traditional areas such as mechanics. On the other hand, we will see an increased demand for people with skills in technology, IT and software. At the end, it needs to be a solid combination, a balance of new and old skills, because one without the other will not fly. It’s up to the leaders to remember to keep the balance and to show a bright future for both groups, keep them motivated and guide them through the journey of change.  

Martin Rainer is DXC Technology’s manufacturing industry leader and general manager for the North & Central Europe Region.

Wolgang Lucny is DXC Technology’s global account executive and manufacturing innovation leader.

 

You can find the Transformation Manufacturing Summary paper from the Economist here.