Insights

Driving competitive advantage through transformative technologies

The IfM’s Centre for International Manufacturing has been working with a Consortium of international manufacturing companies to develop strategic approaches to digitalisation across production and supply chains, focused on driving competitive advantage. Dr Jag Srai and Dr Paul Christodoulou provide insights into the Consortium’s work, including developing the decision criteria for implementing incremental or radical transformations…

As the industrial landscape is transformed by digital technologies, abundant opportunities are emerging for organisations who can identify and capitalise on the opportunities it presents. But the ‘right’ path forward is not clearly signposted, may be untrodden by others, and is fraught with risk.

For organisational decision-makers, on the one hand the range of technology options can be so overwhelming as to result in paralysis, and on the other hand there can be perceived urgency to implement change across several operating areas of the business at once, in a rush to avoid being left behind by fast-moving competitors.

So how can decision-makers get to grips with where their priorities should lie, and set a strategic direction focused on delivering improved business performance and customer experience?

Incremental or radical transformation

Priorities for digitalisation are unique to each company, depending on their sector, strategic objectives, and existing capabilities. In our research into the transformation programmes being implemented by manufacturing firms, two distinct types of digitalisation project emerge: incremental and radical.

For most organisations, the initial forays into digitalisation are typically cautious – small-scale ‘pilots’ and low risk. They may involve implementation of relatively localised applications, maybe in one geographic location, or in one limited operational area. Perhaps they will follow in the footsteps of external partners or competitors who have implemented similar applications with evidence of improvement.

These projects are valuable in helping to identify attractive opportunities. They also enable a test-bed approach, trying something out without too hefty an investment or too great an uncertainty, identifying and ironing out issues. These then form ‘use cases’, which can be used to demonstrate return on investment.

For senior executives, these are the most obvious development projects to back – with scope to demonstrate their ability to deliver successful projects and to be more confident from the outset that the results will be good. Projects with initially limited scope can then be extended across sites or operating areas. Incremental progress is made towards digitalisation, risk is managed, and the business case is strengthened.

But what about taking a more radical approach? And why would seeking out more difficult projects, with associated higher risk and uncertainty, be an appealing path?

Difficult, radical projects are more experimental, usually requiring higher investment and carrying higher risk of things going wrong. But as a result, they also provide greater opportunities to strike out ahead of the competition. This type of implementation is where pioneering companies like Amazon and Uber thrive. And when they get it right, the results can be much bigger than if they had stuck within the ‘safer’ boundaries of easier, incremental development. Radical digitalisation projects offer the potential to create a sustained competitive advantage by doing something which is difficult for competitors to replicate.

Choosing priority areas for digital initiatives

So what evidence is there about the projects already being undertaken? At the Centre for International Manufacturing in Cambridge, we have been working for the past three years with a Consortium of multinational companies to look at digital transformation of their manufacturing supply chains. We are guiding firms to think about the range of digitalisation options available to them, and to achieve this we have developed ten ‘Digital Transformation Scenarios’ spanning the end-to-end supply chain. This provides a starting point for considering the technologies that could be implemented.

Since developing the framework, we have analysed technology interventions of these manufacturers by partnering with each of our Consortium members, helping them to undertake an assessment of their current ‘digital maturity’ within each of the ten scenarios (see Figure 1).

These assessments have enabled identification of particular digital applications being developed by our partner companies in each of the scenarios, and an articulation of the business benefits of those applications.

These can be split into four broad areas: inbound, internal, outbound and end-to-end. Crucially, in each of these areas, the focus must be on implementing technologies to deliver on clearly defined business needs and benefits.

Identifying uniqueness

It is vital that each firm recognises its uniqueness and the need to chart its own route rather than simply following in the wake of others. This is the real nub of the issue: making appropriate decisions and identifying the firm’s unique priorities is a complex matter. But it is only by doing so that creating a sustained competitive advantage is possible.

From our assessments of digital maturity in the Consortium, we have been able to identify two important patterns. The first is that each company has its own combination of areas in which it is focusing its effort. These are determined by the firm’s business strategy and understanding where it can make the biggest improvements. As shown in Figure 2, Firm A’s combination of priorities, shown in green, is distinct from Firm B’s priorities, shown in blue.

Secondly, we have seen the emergence of ‘hot spots’ where companies with similar product supply chain configurations are clustered around certain priority areas. For example, a business-to-consumer producer of household products is likely to have a different focus from a manufacturer of industrial machinery, or a pharmaceuticals manufacturer. But even where sector clusters emerge, nevertheless each company will have different priorities depending on its current digital maturity and its unique business objectives.

Industry Example: IKEA’s route to digital transformation

Per Berggren, Industrial Strategy Manager at IKEA Industry, has been working as part of the Institute for Manufacturing’s Digital Supply Chains Consortium. He shares his perspective on IKEA’s technological transformation strategy…

We are running an extensive digitalisation programme at IKEA to introduce Industry 4.0 capabilities. Our journey has led us from exploration of technology options, through development, into piloting and now going into roll out across our 40 manufacturing plants.

Digitalisation for us is about helping our customers, making it easier for them to buy from us, and making the interactions between shop floor and customers as smooth as possible. Our promise to our customers is to be a low-price retailer with creative products which improve everyday lives. As a business we serve mass consumer markets, and we want to grow our reach, and digitalisation can certainly help us to do both of these better.

We have four key strategic objectives for our digitalisation programme. Our first objective is to improve the customer experience, reduce cost and friction, reach more people, and keep our prices low. Secondly, digitalisation brings more stable processes, which in turn bring improved quality service capability. Thirdly, digitalisation enables us to ‘meet’ customers in new ways – making sure we become more accessible and more relevant to customers. Fourthly, we have been considering digitalisation strategies across our supply chain, and how we can improve the flow of goods between supply chain partners as well as integration of systems.

To create the most value from the potential of digital technologies we need to look across the supply chain at integrated solutions. This is a monster undertaking, but we have prioritised steps towards achieving it!

Looking at digitalisation only in terms of operational improvements will provide limited advantage for a short period, maybe two to five years – mainly because a lot of companies are still struggling with introducing digital technologies. But to achieve a sustained advantage for a longer-term period, companies need to make more fundamental changes and re-engineer their business models.

Digital backbone and the value of data

Both radical and incremental digitalisation projects will be more effective if underpinned with robust data foundations, constructed from well-developed digital platforms that can span and connect business areas and share data between locations and across supply chain partners. The real value lies in specific data relevant to a given manufacturing supply chain, so how can the data be meaningfully exploited?

Here the concept of the ‘digital backbone’ is valuable, referring to connected data and architecture across different business functions. Investing in one shared data infrastructure which supports numerous applications can be  a much more efficient and cost effective approach than treating each application development separately with separate data infrastructures. Develop robust data architecture once, and it can be extended across the different applications.

The digital backbone itself becomes the interconnectedness, facilitating different systems across the business to be built on a common, connected platform.

As part of our current research, we are working towards improved identification of where these interconnections may lie. This will help companies to think strategically about what applications a digital backbone needs to support within each unique company context. We have been developing a gamification app to identify such connections across digitalisation application projects, which we are refining by drawing on the real industrial experiences and challenges of Consortium members. The app helps to identify pair-wise comparisons to provide a view of how closely different sub-elements of our ten scenarios model are connected, ultimately identifying opportunities to capitalise on these connections through informed design of the digital backbone.

The most creative disruptors are capitalising on the power of connections, and looking for ways to enable radical digital transformation. Navigating successfully through the myriad of transformative technologies is challenging, but it involves avoiding paralysis through never ending pilots, but seeking connections, combining incremental improvement with bolder strategic plays that support competitive advantage.

Looking forward, the next phase of our research is focusing on understanding the barriers to implementing the more radical supply chain transformations that might underpin sustainable competitive advantage. Indications are that these barriers include prerequisite supply chain capabilities, digital skills and assets, and upstream/downstream connectivity: an expanded Consortium provides a valuable vehicle for testing these research concepts and also supporting members with their transformation programmes.

About the article

This article draws on research by Dr Jag Srai, Dr Ettore Settanni and Dr Harri Lorentz, and on work from the Digital Supply Chain Consortium hosted by the Centre for International Manufacturing. To find out more about the work of the Consortium, please contact Dr Paul Christodoulou: pac46@cam.ac.uk

Dr Jag Srai is Co-Chair of the World Economic Forum’s Global Future Council on Advanced Manufacturing and Production. For more information about the work of this WEF platform, please visit: www.weforum.org/platforms/shaping-the-future-of-production

A recent World Economic Report from this platform, ‘Supply Chain Collaboration through Advanced Manufacturing Technologies’, November 2019, co-authored by Jag, can be found here: www.weforum.org/whitepapers/supply-chain-collaboration-through-advanced-manufacturing-technologies