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.
