Transform Without Breaking The Bank

These tactics will help small- and medium-sized manufacturers implement digital transformation.

By Eric Whitley, L2L

As a result of the recent pandemic and geo-political events, many small- and medium-sized manufacturers (SMMs) are looking to reduce costs, increase capacity, and improve operational efficiency. While digital transformation promises these benefits it’s not hard to understand business reticence when SMMs hear that success is difficult to identify. Recent surveys reveal only 26% of companies successfully implement digital-transformation strategies.

The benefits of a successful digitalization strategy are clear, but how can SMMs leverage those benefits without a negative impact on profit margins? These five tactics can help SMMs implement digital transformation in a targeted, effective, and financially prudent manner.

Clearly define digital transformation

Introducing new software to enhance legacy systems is not digital transformation. Moving your physical server to a cloud-based provider is only a small part of a transformation program. April Walker, National Director of the U.S. Microsoft Technology Centers, describes digital transformation as, “a deliberate, strategic repositioning of one’s business in today’s digital economy”. Think of new business paradigms rather than an enhanced status quo. What are the main obstacles to increased revenue, improved quality, or production efficiency? If you were just setting up your organization today, how would you use technology to solve major business constraints or bottlenecks?

Digital transformation requires organizations to create a digital business environment that allows their workers and assets to connect digitally in near real-time, reducing training time, empowering employees with real-time insights, and improving operational efficiency. 

It includes data collection and analysis using advanced analytical software to spot patterns, identify linkages or causality, and provide better insight to inform tactical action. It might include redesigning and transforming your supply chain for greater visibility and improved effectiveness.

While each company’s transformation path differs, digitally reimagining an organization requires strategic analysis, brainstorming, and insight. You’ll need extensive planning and communication, with expertise in organizational design, current technologies, and future trends.

Have digitally minded leaders

The responsibility of existing company leaders is to establish a new business strategy and develop a set of digital-transformation objectives. On the other hand, they’ll rarely have a hand in designing the new platform, selecting the appropriate tools, and executing their integration. They’re likely to seek assistance from experts for such tasks. 

In a McKinsey Global Survey on digital transformations, almost 70% of respondents changed their senior leadership teams to include people familiar with digital technologies. The past 10 years have seen a dramatic rise in organizations appointing a Chief Digital Officer to unpick the business needs and implement an appropriate plan. The same survey found that those who added such expertise to their teams were far more likely to consider their digital transformation successful. 

Digital leaders must be bold and action-oriented, with well-developed leadership capabilities, to keep people with them on the inevitably challenging journey. Select these leaders carefully, as they must pragmatically bridge the old working methods to new digital approaches that drive desired business outcomes. 

Start small with focused changes

Digital transformation poses risks to business continuity, as well as employee and customer acceptance. While having an overarching implementation plan is important, the gradual rollout of changes provides many practical benefits:

• It allows people to adapt and integrate new processes and systems into daily tasks. 

• Technology acceptance improves as stakeholders see previously intractable problems alleviated. 

• Continual stakeholder communication on incremental changes builds trust and loyalty while accelerating outcome achievement.

• Segmented digital integration is flexible and agile, allowing you to stop tactics that fail to deliver benefits or create unacceptable dissonance within the organization. 

• The incremental nature of each change allows the business to pause, take stock, and pivot to new solutions rapidly and at smaller costs than what would be possible with wholesale change.

• Customer experience is enhanced by the rapid identification and rectification of minor problems, mitigating major impacts on the customer.

• Cost management improves with smaller, targeted investments over time rather than one large, costly upgrade.

• Returns occur sooner because solving smaller, more pressing issues will deliver value rapidly and cost-effectively.

You don’t have to be a large company to benefit from the power of digital transformation.

Reconstruct your business processes

When deciding on a strategy and objectives for digitally transforming an organization, avoid making top-down declarations, rushing to decisions, or being too anchored by your previous business model. 

Many managers consider digital transformation to be a simple application of technology to business processes, yet true digital transformation can be so much more. Your business model, classification, and organizational structure can all radically change, differentiating you from your competitors while offering more revenue-earning opportunities.

If such a fundamental cultural shift is to be successful, it will require the involvement and assistance of middle-management and front-line managers. Consult extensively at your workplace and outside, speak to customers, and spend time with your employees in brainstorming sessions. Play out scenarios, analyze historical data, and benchmark competitors, where possible. Broadening your perspective beyond how you currently do things helps identify opportunities that would otherwise be missed.

Your customers must be at the core of this process. While gaining internal efficiencies or cost savings is useful to your business, the real competitive advantage occurs when your digital transformation benefits your customers through new or improved products, services, and processes.

Use meaningful KPIs to measure success

When implementing digital transformation, avoid narrowing your focus on how smoothly the processes are operating, the rate of employee uptake, or the speed of the technology rollout. While these measures are useful in a project management sense, they fail to provide a business justification for your investment. 

It’s important to implement data-driven KPIs that link back to corporate strategy and allow you to calculate the return on your digital-transformation investment. To create these KPIs, revisit the strategies and objectives that necessitated your digital transformation. 

From these, choose several business categories to gain insight into the organization’s performance. These categories should include internal and external metrics to provide a holistic view. Then select one or two relevant KPIs from each that will accurately reflect the impact of the digital transformation. Don’t capture these in percentage terms; quantify their impact empirically with KPIs such as the value gained in incremental revenue, increased margin, cost reductions, or improved capital management.

Organizations should not underestimate the complexity, resources, and time involved in effecting a digital transformation. Doing nothing is not an option. The secret for cash strapped SMMs is to approach the transformation as a long-term project, requiring small but ongoing investment. Clearly understand and articulate why you’re making the change and document the expected results.

Then, buy in the expertise you need, start small, and monitor and adjust as you go, banking the quick wins and facilitating the cultural adjustment and acceptance process. By taking a data-driven and systematic approach, you can ensure your organization is among the 26% of successful digital transformations. EP

Eric Whitley is Director of Smart Manufacturing at L2L, Salt Lake City (L2L.com), where he helps clients learn and implement a pragmatic and simple approach to corporate digital transformation. In addition to many publications and articles, he played a leading role in the Total Productive Maintenance effort at Autoliv ASP and in the Management Certification programs at The Ohio State Univ., where he served as an adjunct faculty member.