How to build a business case for digital transformation

By Anthony Loy, VP, Industrial Digital Transformation Consulting at Schneider Electric.

  • Thursday, 4th July 2024 Posted 2 weeks ago in by Phil Alsop

Ever since the COVID-19 pandemic thrust a digital divide between the haves and have-nots, digital transformation (DX) has become a non-negotiable for almost every type of business. Companies that had already invested in DX were able to introduce much-needed applications, such as remote monitoring and operations, to ensure continued performance in an environment under stricter guidelines. Meanwhile, many companies that were unprepared have since accelerated their DX project investments in order to make up for lost progress. 


Today, research from OMDIA, in partnership with Schneider Electric, shows that 94% of industrial companies perceive DX to have an impact on operations in the next two to three years. A majority (60%) expect the impact to be considerable. As quoted in the report, DX is becoming increasingly critical for businesses because “they are looking to implement data-driven solutions and improve operational and business performance. While access to data has always been important, the scale and complexity of operations have increased and now include plants distributed across multiple geographies and industry domains.” But just because DX is important doesn’t mean that it’s easy to achieve. 


The obstacles to transformation                              


The main pluses to a successful digital transformation are greater productivity, energy and resource and quality. However, numerous barriers can block paths to these rewards. The OMDIA study shows that cost of implementation is considered the most important challenge, in terms of integrating DX capabilities with the respondents' control system, followed by the identification of the right partner. In fact, more than half of companies identified this as a top three challenge. Contrasting the viewpoints of different business lines, cost of implementation was the most common challenge amongst operational technology (OT) managers, whilst partner identification and technology resonated amongst IT management respondents. 


There are also significant concerns around understanding what technologies to invest in, and by extension, the challenges in identifying the right partners, across program design, execution, and system deployment. As part of developing a DX strategy, end users should first identify whether projects are application or technology-led, and then look to partners that can support this development. They must have a clear roadmap to how they (or an ecosystem of partners) can support manufacturers’ business needs to meet the technology solutions. This preparation is key—according to Boston Consulting Group, almost three-quarters (70%) of digital transformation projects fail to deliver real business value. Ultimately, the biggest challenge surrounding DX is getting the entire business to buy into the project. So, how can this be accomplished? 


Understand business priorities


Any digital transformation process must begin with the mapping out of business priorities. What do you most want to achieve out of it? What paint points are having the biggest impacts on your organisation? Why are you willing to carry out a disruptive DX project, whether that’s increasing capacity, improve productivity or optimize time to market?


The first step to understanding DX priorities is to uncover which process improvements are most urgently required by the organisation. Here, leaders will need to capture data from their process silos and then analyse that data to break down these silos—driving resilience and agility, boosting productivity, and cutting carbon emissions. Lead with applications, not technology; identify business pain points to be resolved, THEN consider the applicable technologies.


A digital transformation is also the perfect opportunity to introduce equally important business change initiatives, such as sustainability, cybersecurity, and supply chain integration. Many of these initiatives are closely intertwined with DX, enabling the establishment of a holistic and inclusive business value programme. For instance, if a business wants to be more energy efficient, it will first need to measure its energy consumption by collecting data across geographically-disperse assets. This could potentially increase digital risks to the business—so leaders will need to address both their sustainability and cybersecurity performance. 


Build a team to lead and iterate the transformation


The divisions in businesses are clearer than ever—in a hybrid world, HR, IT, finance, and other departments rarely have clear oversight over the challenges each is facing. A digital transformation can’t only be pinned on engineers; projects can only work if you bring teams together from departments and sites. DX is a cross-business function project, so a successful transformation will require cross group collaboration and involvement between IT, OT, Engineering Technology (ET), finance, the C-Suite, HR, and more. Ultimately, people supersede technology. Be sure to provide clear messaging, training and support so that people are equipped to use the technology and trust it won’t have a negative impact on their role. 


A team with wide-ranging expertise will be able to bring as much background knowledge to a transformation as possible. However, a DX will always involve a leap of faith to some extent. When purchasing a first data platform to capture data from silos, for instance, you need to trust that digital tools and operations can make as big a, if not a bigger, difference to your business as hardware upgrades.


Hardware has set applications that are hard to evolve. With digital solutions, there’s a level of adaptability, agility, and visibility between departments, enabling you to continuously tweak their operations. You also need your teams to share this trust, so they can also commit to achieving the same desired results. Though the figures may show that you haven’t achieved a return on investment in the first few months, it’s crucial to keep faith in the process. Once you have more experience with your transformation, and you know what does and doesn’t work best, its next stages will become far more effective and innovative with an even speedier return on investment. 


Measuring ROI during implementation


Usually, you’ll have more than one DX project occurring at any one time. So, how can you track, manage, and be clear about the results of different projects? Often, you’ll need to choose and prioritise around two or three operational metrics, such as number of assets connected, number of users actively using an application, number of events—the fewer, the better. These can be lagging – business results, such as productivity or capacity, or leading – future-looking indicators, such as active users or connectivity. When building a business case for a DX, defining how you will follow the performance of the case is crucial. Your organization will need the capacity to track all these costs and datapoints to unlock a full picture of progress. So, keep it simple and be clear with what success would look like.


Financial metrics and costs are always critical, but so too are qualificative metrics. Remember to consider the impact of the projects on your sustainability, resilience, cybersecurity including more visibility, IT costs and shadow IT, managing legacy systems, and employees (from upskilling to attractiveness to new staff). After all, OMDIA research shows that almost all (96%) of employees will be required to retrain to some extent following the installation of new workplace technology. 


Look outwards for direction and support


Most companies know how they operate and are improving. But they don’t always have the external viewpoint of how they are performing against others. Sometimes, they simply don’t know what they don’t know. This is where professionals often have difficulty in building a business case: they have little access to performance data. The best digital transformation projects take into account the incremental performance improvements and benefits it will bring to the overall value chain. If leaders only choose simple improvements that have a fast ROI, they are not addressing the big picture or future of the company. The same goes if they expect the DX to take place over a set amount of time, like six months. 


The process will require continuous iterations and therefore need decision-makers’ continuous support and flexibility. After all, an organisation might begin using a data platform with machine connectivity and analytics with around five use cases in mind, but you can almost guarantee that this number will spiral once more performance data is uncovered. That’s why it’s recommended to take a ‘platform’ approach, in which a modular digital transformation can begin and then accelerated and built on top of if necessary. If possible, visit top-performing sites, such as World Economic Forum Lighthouses, to see how they’re run. This way, you’ll be able to tangibly compare the benefits of a highly digitised plant to your own more traditional environment and identify areas of optimisation to achieve your goals. 


A DX will also require benchmarking. Not just your own performance this year vs. last year, but also against industry benchmarks and more. Building this business case will often include a trade-off between in-house work and partnerships with vendors or suppliers, and benchmarking against the wider world may require the support of an expert external consultancy. These specialists can bring a library of performance models for efficiency, quality, lead time, capacity management, workforce management, and then assess how you match up against them. Via a combination of qualitative and quantitative data, they can translate this progress in terms of financial savings. Finally, you’ll need to identify partners and vendors that can provide a clear technology and business roadmap for DX (both directly and through their ecosystem) that aligns with your goals and objectives (e.g., a transition to cloud native software) and support your different business functions. It’s simply the most effective way to build a case for - and achieve - a successful digital transformation and make that leap of faith as risk proof as possible.

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