Boston Consulting Group recently released a three-part series on digital maturity in the manufacturing sector. SAMA reached out to series co-author Jonathan Van Wyck, a partner and managing director at BCG, to ask him what suppliers can do to make themselves indispensable to their strategic customers’ digital transformation journeys. This conversation has been lightly edited for length and clarity.
SAMA: I think people may have a narrow view of what we’re talking about when we talk about digitization. Can you lay out the full scope of what we mean by digitization?
JVW: When we think about digital transformation broadly, we think about a couple of different avenues. There’s one leg of it that’s saying, “How do you reengineer the customer experience, leveraging digital technologies, to support the projects and products you are offering?” The second is, “How do you actually leverage digitization as an opportunity to drive new growth and launch new solutions and new businesses?” And then there’s digitizing your internal operations, which is taking the internal lens and asking, “How do I take my manufacturing process, my supply chain, my customer service and support, and my sales processes, and leverage digital technologies to reengineer — either at a lower cost or to drive more effectiveness — those internal processes?” We have a framework off the shelf on that if that’s helpful to share.
SAMA : Can you talk about what you set out to study and what you learned?
JVW: What we’ve been seeing is that everybody’s talking about digital operations, and everyone feels a high degree of conviction that this is the future. But when you take that and contrast it with the progress that we see with our clients, there’s a disconnect. What we’ve found is that they’re taking almost a project-based approach to digitization, where they’re working with individual vendors who have a cool technology to pilot it in a specific location. Or they have an internal project around some component of digital — a plant scheduling tool or something like that — but they’re not able to drive it at scale and really capture the full benefit.
So we took a step back and started thinking about what we have learned from doing this with a bunch of companies to sort of bridge that gap between what we talk about as the opportunity versus the reality of where companies are — and then move from point solutions and individual projects or applications to actually driving value at scale.
SAMA: So what you’re saying is, there are a lot of pilot projects out there that can prove themselves out, but the companies, for any of a number of reasons, don’t manage to scale the solution and really capture the full value.
JVW: Exactly. When you look at past industrial revolutions, I’m sure it took the same stages in development. But the challenge here is that the way of working is so fundamentally different from traditional approaches. We’re talking about another revolution in terms of the types of talent, way of working from an agile standpoint — but also building the infrastructure to be able to support these use cases. I see our third paper as the most critical one. It’s about the organization and way of working to drive this at scale, which is ultimately what I think is the issue.
It’s not like companies don’t have great ideas, and it’s not like companies don’t have an idea of what the right use cases are. It’s really about, “How do you actually build the organizational capability, the funding model and the talent to be able to do this?”
SAMA: I’m thinking about the manufacturing environment, in which great plants are typically run by very seasoned people who have been doing this forever. And to do a pilot project, you’ve got to bring in data scientists and a bunch of under-30 digital natives who can actually make it happen.
JVW: Also, company processes are oriented towards waterfall I.T. projects and are not set up to support this type of innovation. Because a traditional funding model is, “Submit a capital request with your full plan, the milestones all laid out, the exact financial investment that you’re looking for from the company, and then we’ll have a meeting with our senior leadership and debate it, probably cut your funding a little bit, and then approve it.” Whereas here, you don’t actually know the challenges, and actually laying out a full roadmap and waterfall set of milestones is actually counterproductive to what you actually need to do to experiment quickly, which is to assume that 25 percent of what you do is really going to work. So you do the 75 percent that will fail very cheaply, and then rapidly scale the 25 percent that does work. You just don’t know all that stuff in advance, and so it doesn’t fit with traditional processes.
So there’s a challenge from a talent standpoint, but I don’t think it’s just about hiring more people under 30. It’s about thinking about your internal processes and, in some cases, modifying your approach to how you drive digital operations. And this applies more broadly, not just within operations but to your traditional funding, project management and approval.
SAMA: So to a certain extent, you have to invest and pray and then say, “OK. How can we take this 25% percent [that’s actually working] and really put more effort into those and get more benefits faster?”
JVW: You just need to set it up to say, “We’re going to have an outside-in view of what the opportunity is. And we’ll have a long list of use cases, roughly mapped to that opportunity, and an idea of what that’s likely going to cost.” And then in your next meeting, a month later, you’re going to have a much more refined view. And then a month later, it will be even more refined.
So it’s a journey from more ambiguity to more specificity, but you just can’t shortcut that journey and have the specificity at the beginning.
That’s really challenging for companies that are used to having that specificity, which in reality is false specificity because projects overrun 80 percent of the time and take longer, et cetera. It’s a mindset shift.
SAMA: In my career, we had a hurdle rate that you had to exceed. If your project didn’t have better than a two-year ROI and proven, financially sound waterfall, you didn’t even submit the project because it was never going to get funded. Is that mentality bumping up against how you have to approach the digitization project?
JVW: There is a set of infrastructure that needs to be put in place to support use cases: You need to set up a cloud infrastructure. You need to build a data lake. You need to invest in a certain number of technologies, et cetera.
The challenge is where I’ve seen companies burdening those first set of use cases with the cost of all that infrastructure, even though that infrastructure could support 100 use cases.
This problem can be unlocked by doing it at scale and having conviction around the strategic relevance for your overall company and the total value on the table, versus taking it piecemeal and starting with three or four use cases in one factory.
SAMA: In a normal plant environment, there’s a plant manager, there’s a division leader, there’s probably some subject-matter experts, et cetera. But with this kind of thing, it sounds like you need to go above that traditional manufacturing decision-making process and get C-level buy-in?
JVW: Typically it’s at the C-level.
SAMA: From the supplier perspective, do you see them being a catalyst by bringing some of these ideas forward, or is it all internal to the customer itself?
JVW: I think the more stakeholders you can involve in the ideation process, the better. I’m a big proponent of involving suppliers, but I like to first recommend that companies internally align on what the pain points are and a high-level view of what a solution could look like before they go down that path.
SAMA: Are there any kind of best practices that you see good suppliers doing to really help this process work?
JVW: Recognizing that the process needs to start with the pain points and value levers. Don’t lead with your technologies, but facilitate a workshop around a specific process that’s relevant to them. That can be really powerful. It’s also about being open to collaboration and sharing of data. Because one of the other challenges I see is that it’s so hard to share data across companies.
SAMA: Are there any observations on who typically leads that so-called ecosystem to create a common data lake? Do you sometimes see a supplier that takes that on for the manufacturing company to help pull all these disparate entities together?
JVW: It’s typically a manufacturer, but wherever the supplier has the scale I don’t see why they couldn’t take the lead in their specific swim lane.
SAMA: We teach our customers to say, “It takes a village to solve the problem, and if you can become the leader of that village, there’s a lot of value.“
JVW: I think that’s the next frontier: How do you digitize the value chain and start working with your suppliers and working with your customers to take waste out of the system looking holistically? Whoever can lead that ecosystem is in a pretty interesting position.
SAMA: Say I’m the strategic account manager for 3M going into a factory and trying to bring value to them. Any advice you’d give?
JVW: First, I think it’s so much easier to do that if you have a business model or an offering where you’re a solution provider versus an individual product provider. That’s one piece. And then the other piece is, map out the customer journey associated with your product or solution, and what that looks like — where the frictions or pain points are along that journey. If you don’t have that, then you’re not going to be able to add value to your customer. Having that approach embedded into the strategic account playbook becomes really valuable because it allows you to have a different level of discourse with your customers.
SAMA: Say you’re a SAM who just got assigned to a new customer. Is there a typical spot that you might want to start inside your customer, or is that really company by company, organization by organization?
JVW: It is very case by case. Some organizations will have a manufacturing strategist. Some may have a digital organization already set up. Some may be decentralized, with the plant manager driving the decision making. Some may be more centralized. That’s why you need to be able to map the organization of your customer and understand where the decision makers are.
SAMA: Typically, when this first meeting happens, is the customer expecting the supplier to bring people that have subject-matter expertise?
JVW: Yes, you can also look horizontally — because you may not have the whole scope of technology required to solve this pain point.
You need to be humble in recognizing that you may not have the capabilities to solve the entire pain point, and so you may need to work with your peers to build a solution that you can then bring to your customer.
And if you’re the one actually orchestrating that, it can be really value-additive, versus just bringing your customer a specific technology.
Say for example that you have the best programmable logical controllers, and then maybe you partner with the analytics provider who does the analysis on top of that, and then — oh by the way — you partner with a robotics company. I haven’t seen many suppliers do this effectively, but that could be very differentiating to be able to offer as the supplier. And then, by the way, you’re the one with the overall solution, versus [just being] one piece of it. That’s a much more powerful position to be in from a margin standpoint.
You can find BCG’s how-to guide to digitization here. Parts two and three can be found here and here.