Industry data analyses conducted by LNS
Research indicate that more than two-thirds
of industrial organizations are committed
to an Industrial Transformation (IX)
program. LNS Research defines IX as “the
proactive and coordinated approach in leveraging
digital technologies to create step change
improvement across the value chain.”
Despite lingering impacts of the COVID-19
pandemic and current economic uncertainty, IX
shows no signs of slowing down. In fact, LNS
Research states that 83% of companies say they
are maintaining or even increasing their IX initiatives
in the face of all of 2023’s economic
uncertainties. Why? Early adopters have realized
significant return on investment (ROI) from their
efforts. These leaders account for the top 20% of
companies reporting real success or significant
progress in IX—and their results are evident.
For example, LNS Research reports that more
than 80% of IX Leaders were able to reduce their
cost of goods sold and/or improve operating margins
and/or grow revenues by at least 3% as a result
of their IX programs.
On the flip side of this are the “IX Followers.”
These are organizations engaged in IX that
find themselves stuck or stalled in their progress.
LNS Research reports that more than 75% of
companies are not yet realizing any value in their
transformation programs. But why?
According to Tom Comstock, research fellow
at LNS Research, the obstacle to realizing value
is the “transformation chasm”—the gap between
what is required to initiate a program and what is
required to sustain transformation. “The staffing,
processes, strategies, and methodologies
needed to get an IX program going eventually
become a burden to long-term success,” Comstock
explained.
Don’t get stuck
To prevent getting stuck in the transformation
chasm, Comstock suggests that manufacturers
cannot simply refine the structure of their program
as it matures. Instead, they must rearchitect
or pivot within that structure.
“Evidence increasingly shows that IX programs—
especially successful ones—must restructure
their efforts mid-flight to achieve, sustain,
and grow the ROI from their transformational
investments,” Comstock said. “At LNS Research,
we call this program restructuring the ‘Pivot to
Value,’ as meaningful improvement in the financial
performance of the company is dependent on
these changes.”
LNS Research has found that the benefits of
transformation begin to accrue quickly as IX ramps
up early on in the “Vision Stage,” but unless the
organization pivots dramatically, those benefits
will not grow or sustain over time. The IX efforts
made early on may be lost long-term, according
to Comstock, because “businesses tend to revert
to the mean unless the program is restructured.”
Pivoting scales IX with a more holistic approach
across the organization. Early on, for example, the
organization may be focusing on departmental
challenges and avoiding some of the bigger organizational
issues that lie ahead. But long-term,
this narrow departmental focus will provide dwindling
returns. According to Comstock, “IX Leaders
pivot and are twice as likely to focus on problematic
business models and supply chain restructuring
that are too difficult to address in the earlier
stages of transformation.
So how can organizations avoid stagnating in
the transformation chasm and pivot to value as
Comstock suggests?
Confront the bigger challenges
One of the most important shifts a manufacturer
can make in their program is to model IX Leaders
and not be afraid to tackle the big stuff in your
pivot. These leaders are focused on both the bigger
picture and problems and are willing to invest in
solving these large challenges even without immediate
payback.
Another key aspect involves incorporating
your IX program into your organization’s culture.
This takes a more holistic approach that
may include changes such as making digital competencies
part of performance appraisals, having
robust IX training programs throughout the
entire company, combining IX within continuous
improvement programs and teams, and making IX
not simply a program but an ingrained, standard
way of doing business.
While there are many elements to pivoting
from vision to value within IX and avoiding the
dreaded chasm, one final area Comstock touches
on is technology. He states that IX leaders are not
hyper-focused on new digital or emerging technologies;
they’ve moved past the new tech testing
phase and have already determined what will work
best for their needs. This has allowed them to shift
their focus to improving business processes via
those technologies.“
For leaders, it is about applying technology
to reorchestrate business processes, breakdown
organizational silos, and innovate agility and resiliency,”
Comstock said.
