Digital Transformation and the Digitalization Process in Industry
Digital Transformation involves paradigm shifts related to consumer behavior expectations and cultural changes in companies and society brought about by the revolution of new media in the digital medium itself, with all the innovations created since the advent of the internet, social media and mobile devices. All of this is magnified by the implications of the convergence of Artificial Intelligence, Blockchain and new technologies such as 5G and satellite communications.
The first Digitalization initiatives in Companies took place in the mid-1980s and during the 1990s they gained greater scale, and basically involved the identification within the activity flows in organizations, the tasks in which there was a lot of manual information checking, which they are subject to errors due to human error, and if they could be broken down into smaller and repetitive activities, they could be automated at a later stage using new technologies that retire the use of paper.
It is interesting to highlight the exponential nature of the Digitalization process when adopted by organizations, which is something intrinsic to the technology itself, which presents a considerable acceleration when compared to traditional analog linear processes, and this represents a paradigm shift, as it is more scalable while providing a higher quality, through the use of algorithms that encode within themselves the best practices for the execution of a specific process of Digitalization.
However, not all tasks can be fully automated, due to this some processes are semi-automated, and through sophisticated Artificial Intelligence algorithms, those activities that were pending verification by a person, are separated and forwarded to a queuing system, which the person with specific knowledge and who is qualified to perform the task, can allow the checking of the items waiting in that queue.
This results in scalable quality gains, with greater quality standardization of the intermediate stages of the processes in organizations due to automation, while as counter intuitive as it may seem, it offers greater customization, which became known as mass customization, since a production line can be programmed to respond to the unique characteristics of each order, without the entire production line having to be changed to meet the requirements of each order going into production.
And finally, it ends up generating a virtuous cycle of accelerated feedback, which makes the organization itself obtain gains in the form of qualitative leaps in its learning process and in the organization’s intellectual capital.
Technological convergence as a disruption factor
The accelerated expansion of Digitization in companies in all sectors is no longer optional, but a need that is increasingly felt.
Incredibly, the single most prevalent factor for digitizing companies’ business models in 2020 was Pandemic, which spurred millions of companies to accelerate the process of adapting to the so-called “new normal”.
Digitalization projects that were on hold, had to be resumed abruptly during the year 2020, precisely because the change was a requirement of the new post-pandemic competitive environment.
Most companies that are working remotely during Social Distancing and Lockdown policies in many countries are from sectors that have already experienced a first wave of adoption of Digital Platforms in recent years.
A study published by Forrester in 2018, showed that 56% of companies had Digital Transformation initiatives in place. It is unlikely that this scenario has changed long before the current crisis, which has greatly accelerated this process.
The combination of mobile technologies, information from social media, systems in the cloud (Cloud Computing), the communication among the most diverse sensors of equipment in the homes of people and companies, has greatly increased the importance of Big Data analysis in understanding the behavior of the new digital consumer.
And within this context, there are gains that can be measured quickly, the so-called “quick wins”, which are isolated processes, which once digitalized provide considerable gains, and those that are systemic and require process reengineering, in a way to generate perennial gains.
Benefits generated by Digitization in companies
In terms of cost reduction, the benefits of avoiding “rework” related to data entry redundancy for online and offline workflows, are significant.
With activity flows moving from paper to an entirely digital flow, there are efficiency gains from using a “single central repository” of data representing a “single source of data truth”.
In practice, it means reusing information inserted in previous stages of workflows, in a concatenated manner and making use of analytical software that prevents the proliferation of spreadsheets on each computer in the organization in such a way, that in addition to providing productivity gains related to time saving to search for information and check its veracity, they process the information and aggregate the data, thus generating insights that allow an absurd improvement in the quality of the decisions made.
In addition, there is still the gain of everyone adopting a single point of consultation as a reference, providing greater visibility so that more people will have access to data in a transparent and actionable way, making business decisions more responsive, thus providing reduction with the optimization of internal processes.
Vehicle manufacturers are the most striking example of this evolution of Digital technology in companies, in which dealerships have started to act more like a Showroom and that consumers can from the comfort of their home or through the Mobile device itself, access the automaker’s website and find a system that allows them to choose the vehicle model, set of accessories, colors, and customizations of the most diverse, without this impacting the delivery time of the vehicle, precisely by the integration of systems that allows the visibility of the order, the management of the supply chain in order to satisfy the requested items and their journey from the production phase to delivery, in a process on demand and with a high degree of efficiency in a fluid manner, which provides a better experience for the consumer.
Transformation of analog to digital processes in industrial organizations
Digitization itself, in addition to involving automation itself, which allows the aforementioned scalable and customizable quality gains, enables initiatives to create true innovation platforms, by bringing together the convergence of different technologies that combined bring considerable synergy gains, thus enabling the interoperability of these technologies in an integrated manner in business models that enhance these platforms, promoting the continuous generation of value for industrial organizations.
A Digitalization Strategy for Industries should aim at mapping all the processes at the head of the business units, where the operation occurs in all its variability and complexity. With this, they have a more accurate view of the real potential impacts brought by this new way of operating workflows, integrating the entire digital ecosystem that makes up the organization’s value chain.
From the sensors installed on the edge (Edge Computing) that can perform local processing and then send to the Cloud, be it interoperability with 5G Telecommunications networks that will be increasingly present in the industrial environment, due to its low latency and communication with the so-called M2M (Machine-To-Machine) systems, which in a reality of IIoT (Industrial Internet of Things), will be pervasively present in order to guarantee the distributed and effective communication of this entire ecosystem that will promote innovation in industrial organizations.
According to a paper published in IEEE on Industry 4.0 (Leitão, P. et al, 2020), a recent survey of 2000 companies from different industrial areas, showed that industrial companies by the year 2020, will achieve an increased level of digitization and degree of connectivity from 33% to 72%.
The paper (Leitão, P. et al, 2020) also mentions that among the benefits generated by the adoption of the technologies of Industry 4.0, it is stated that only in Europe the gains from the use of these technologies are estimated at an additional 110 Billion Euros per year for the European Industry.
While it is mentioned by the same paper (Leitão, P. et al, 2020) that the expected productivity gains are in the range of 45–55% in the automation of knowledge-based functions, reduction in the range of 30–50% of the time total machine downtime, a reduction in the range of 20–50% in time to market and a reduction in the range of 10–40% in maintenance costs.
Gains in Agility in Internal Processes
A classic example cited in the book “Jack: straight from the gut”, pinpoints that, in a Digitalization process, the rationalization of “contact points” where someone have to make use of paperwork for the approval process, could provide an estimated savings of around 30%, in the case of the eventual full digitization of the process.
The same gain is also achieved in different industries, since they all have the human being in common in the decision loop of tasks that, if analyzed from the perspective of a flow of activities, can be rationalized and scaled to obtain a greater degree of automation and effectiveness with systemic gains for organizations that decide to transform themselves digitally.
This gain provided by Digitization, allows administrative functions, with low added value to stop being performed and allows time to be better allocated to activities with higher added value, such as, for example, sales professionals being able to act in a more consultative way, in order to focus on the success of the client’s business.
Thus, Digitization also allows an indicator strategy to be adopted with true market benchmarks, thus allowing to estimate when an effort can be made for a certain productivity gain and the corresponding cost-benefit ratio.
And yet with the additional benefit, once the indicators have been calculated, analytical solutions can be used to be able to intelligently track time, with projections of developments, early problem diagnoses and action recommendations to optimize the results.
References:
- https://go.forrester.com/blogs/the-sorry-state-of-digital-transformation-in-2018/
- Paper: (Leitão, P. et al, 2020) — Quo Vadis Industry 4.0? Position, Trends, and Challenges — IEEE Journals & Magazine
- “Jack Definitivo” — Translation to Portuguese of the book “Jack: straight from the gut” (2001) — Editora Campus — Welch, Jack; Byrne, John — ISBN: 85–352–0878-X
About the Author — Renato Azevedo Sant Anna
Digital Business & Insights Consultant, Thinker and Curator about the VUCA World, with a natural curiosity about the World and its complexity, multidisciplinary knowledge and the ability to produce actionable recommendations and insights about the competitive landscape.
Also a Mentor, Content producer (content writer), Instructor and Speaker on topics related to Innovation, Entrepreneurship, Technology, Future of Work, Artificial Intelligence Applications for Business and Consumer Behavior on digital channels.
More information about me in my Linkedin profile: https://www.linkedin.com/in/renatosantanna
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