Dr Shaun West of Luzern University offers us some insight into the barriers to digital transformation - one of the biggest areas of focus within the field service sector globally...

I believe digital transformation is difficult for manufacturers to design and develop, before considering its execution or delivery. I will draw from published materials, an unpublished survey and study, and personal experience to help understand the challenges we face, and suggest realistic actions firms can use to help them overcome the barriers and develop new value positions and solutions.

The motivation for our research came from a Swiss study that identified the drivers, barriers and risks for digital transformation (Figure 1 below).

The Need for Digital Transformation:

Why do we need to make this transition? Within a Swiss context, a recent survey by Swissmem confirmed the importance of the development of new digital solutions. The Swiss State Secretariat for Education, Research and Innovation report “Research and Innovation in Switzerland 2020” expanded further: they anticipate “that future revenue models for these new digitally enabled solutions will be mainly driven by data and platform exchanges and will become output focused (e.g., pay-per use)”. It is clear that even in an economy focused on manufacturing there is an ongoing shift from a goods-dominated world to a services-dominated world.

Reading the newspapers, it would appear that digital transformation is all about technology and within ten years we will all be out of jobs as robots and AI will have taken over. Read beyond the hype, and it becomes clear that the development of new digital solutions within a product service system environment is as much about organization change as technology.

"Digital transformation has a wider impact than most companies see, and this creates barriers within firms..."

Much of the new technology will allow us to redesign our current work and the way in which we deliver it. Netflix evolved from a DVD subscription model based on postal services to an internet-based model. As Netflix evolved, they removed the physical material from their system, improved the efficiency of the service delivered, and increased the value in their offer (anyone who watched UK television in the 1970s would be amazed by Netflix today).

Digital transformation has a wider impact than most companies see, and this creates barriers within firms. Digital has a clear impact on production (e.g., MES, ERP), IT (e.g., cloud services) and marketing (e.g., big data behaviour insights), but it has a hidden impact on other parts of the business, often in unexpected ways (e.g., your customers have more information on status than your service personnel). Perhaps a better way to view digital’s potential impact is to consider the technology, people and processes involved. Think how we moved to faxes, then email, then to WhatsApp, now to Zoom and workflows; we have absorbed each new technology and changed processes and our behaviours, as Table 1 shows.

Examples of the digital transition:

Before examining our survey in detail, it is useful to consider some cases. Table 2 gives insights into a range of firms and the barriers they encountered: Piaggio is undergoing a servitization journey with a product-centric mindset; Kone have wide range of technologies within their installed base; FAVI’s workforce resisted empowerment; Unilever built their own data-lake with a massive amount of data; Mass Mutual moved to real-time fraud detection; Domino’s integrated production technologies into a manual process; Cannon faced challenges connecting machines; Allianz moved from operational silos to a process driven business. No firm is alone in the digital transition, many face similar challenges, and all firms should look to others for lessons.

Survey and interview insights

We conducted a survey with 124 respondents from different-sized firms, the majority (+90%) of which were industrial. Most information was provided by middle management, with over 2/3 of the respondents being from the firms’ headquarters.

When we asked what was driving digitization in each company, we discovered firms wanted to improve internal process efficiency, develop new customer value propositions and use both to deliver new business models. Some companies expressed concerns with hiring Gen-Y or millennial staff, as they felt they were “somewhat old-fashioned and not an attractive employer” but they confirmed they needed Millennials. We were concerned that many firms were only interested in internal efficiency improvements, rather than wishing to build new digitally-enabled value propositions.

The barriers firms were facing were based around weak/no vision from the leadership, existing/legacy IT, the lack of skilled talent, and general resistance to change. Lack of vision from leadership was considered a major barrier, the interviews showed flip/flopping with direction and application of digital was an issue.

"The lack of skilled talent matches with the lack of leadership vision: how can you hire the right people when you have no clear vision?"

I have some sympathy for this as it’s hard for a second-tier manufacturer to be able to create a clear and viable strategy and vision when it comes to digital – just look at the challenge VW Group are facing today with this. Existing IT systems were considered next most important, as in the new world IT skills become core to value creation and capture, rather than just being a business cost. The lack of skilled talent matches with the lack of leadership vision: how can you hire the right people when you have no clear vision? Resistance to change and an organization’s silo mentality cannot be broken without clear leadership.

Respondents strongly agreed that business development should lead the digital transformation, as it’s not a technology development program but rather a business and cultural change program that has impacts across the business. Treating it as an IT project means it will fail; treating it as a technology play means it will fail. Treating digital transformation as a change management program (that is even more transformational internally and externally than Lean) means it may well succeed.

The respondents confirmed that digital will impact on all areas of the business, however service was considered to be the area most affected. Most thought the firm’s internal infrastructure would be impacted, and this is one of the most visible aspects of the transformation– in effect the whole business will change.

Over 330 individual comments were left by the respondents, demonstrating how important this topic is to the community. Analysis showed that ‘people aspects’ were more commonly mentioned (80%) as barriers to a successful digital transformation:

• Strategy: lack of vision & mission from the leadership, transformation roadmap.
• Leadership: resources, sponsorship and management conception, and fear of losing power
• Culture: customer centricity, openness and willingness to change, silo management, hierarchy vs network.
• People: capabilities, expertise, roles, adaptability.
• Governance: communication and collaboration, KPIs, alignment.
• Middle management: as a key role between leadership and workforce.
• The workforce: knows that they need to update, but Leadership does not understand where to start.
• Education: is key for long-term sustainable implementation.
• Digital transformation never starts at C-Level: provide evidence that it can be profitable
• Build teams – members must have digital skills, flexibility (intellectual) and the capability to do abstract work.

Technology must always be applied in tandem with effective, well-designed processes. These converge into a “single system” where data is shared, processed, and integrated across the organization. Technology and process barriers (20%) were based around:

• Automation and connectivity (ICT infrastructure, cyber-physical products).
• Intelligence (processing and analyzing data).
• Operations, supply chain, product lifecycle (channel and business practices/processes, agility, Integration and data exchange).
• Select a technology that fits with your value chain.
• No technologies are perfect.
• Missing customer voice: Involvement of customers in product development.

When it comes to implantation in the business, we found that:

• Legacy systems are a barrier: How to digitalize all company levels? Not only buy technology but adapt products and processes accordingly.
• DT costs money and time.
• New jobs/ functions as a DT consequence.
• Start small, and if it works, go ahead; if not, change strategy.

Companies must adapt their organizational structures and processes to allow their workforce to drive and deliver Industry 4.0 initiatives. This must be done within a clear vision set out by the leadership. Some new ways of working will fail, and some will be successful. The lessons learned need to be openly shared within the firm. Companies should encourage cross functional and cross business collaborations on smaller projects rather than large formal “IT” projects which generally lack long-term business impact. The overview of the transformation should be led by business development and be close to, but separate from, the operational business.

Teams need to try out new technologies, such as cloud computing and machine learning. Assets and equipment need to be integrated with the enterprise system, to monitor and analyze the performance on both a technical and an operational base. As processes within production, services, sales, supply chain and the product lifecycle become integrated, they will converge allowing data to be shared, processed, and integrated across the business. Figure 2 (below) provides graphically the complex environment in which we live and the considerations we have to take when designing Smart digitally-enabled services.

How can you help your firm overcome barriers preventing digitalization?

Knowing where to start isn’t easy, however the survey sheds some light on the barriers preventing or slowing digitization. Our view of the future is shown in figure 3 (below)and knowing where you and your firm sits within this ecosystem is the key. Three ways you could help your firm, based on our insights from the study:

1. Develop a digital strategy, vision and road map for your team or business and communicate it clearly inside and outside the team. Ask at every team meeting how digital will impact and change the business and discuss opportunities and risks.
2. Use small mixed teams to develop digital solutions with impact within the firm. Learn from these teams what works and what doesn’t in your business environment.
3. Share your digital lessons learnt from the projects within the firm, with your customers and your suppliers. Work with suppliers to improve operational efficiency: work with customers to develop, prototype and test new digitally-enabled solutions and value propositions.

Acknowledgements

I would like to thank Lucerne University of Applied Sciences and Arts for providing the funding for the study as well as my colleagues (Günter Zepf, Ute Klotz, Barbara Kummler, Pilar Gil Fombella and Paolo Gaiardelli).

Further Reading:

• Read more about digital transformation @ www.fieldservicenews.com/digital_transformation
• Read more articles from Dr West @ https://www.fieldservicenews.com/blog/author/shaun-west
• Read more articles from academia @ https://www.fieldservicenews.com/blog/tag/academic
• Connect With Dr West on LinkedIn @ https://www.linkedin.com/in/shaunwest