Digital transformation at SME-manufacturers – getting the basics right first

29 October 2019

Written by Valerija Olsevska

Virtually any business initiative can be linked back to digital transformation, whether it falls under the umbrella of “Industry 4.0,” “Industrial Internet of Things,” “smart manufacturing,” or is just limited to application of robotics, machine learning, and the move to the cloud. Digital transformation is all about the integration of digital technologies to create new — or modify existing — business processes, business model, and customer experiences to meet changing market requirements. It leads to a totally different level of manufacturing productivity and flexibility’ and new models of connectivity with business value chain partners regarding product development and supply chain planning.

For SMEs digital transformation is a heavy lift. While big players have a comprehensive digitalization program, SMEs need to be very pragmatic in their investment choices. According to McKinsey research, some companies simply don’t know where to start or how to deploy digital technologies, thus investing in the wrong places or investing too much/too little in the right ones [1]. It is not a rare case, when an abstract idea of a new piece of technology gets into the business agenda, let’s say robotization or new ERP, the project gets similar name but the final goal of an initiate is simply lost, or the gap between prior expectations and results is so large it is considered almost a failure.

What gets wrong? The emphasis sometimes is involuntarily put on “digital” instead of transformation, and technology thinking gets priority rather than business thinking. Before deciding what digital tools to use and how to use them, the leaders need to go back to the fundamentals: understanding their organization and processes and defining which business outcomes they are trying to achieve with digital opportunities. You cannot get into every nook and cranny of the organization with only a project structuring. Line management must be involved in building a picture of business.

Blueprint of business – finding the “why” of transformation

The first question before considering any investment is “Can my company model its existing processes?” The organization cannot go through transformation if there is no common understanding of how organization operates and serves its customers – what are process flows and actors, which systems are used, where are redundancies, pain points and silos, information gaps, and which limitations (were) are still present. Lots of ideas behind the digitalization are about making the end-to-end business processes as efficient as possible. However, not all processes are broken or obsolete and should be saved by “digital”. If there are adequate operations in place, digital technology most likely will bring a barely noticeable improvement.

Understanding how we work now, is the starting point for understanding where digital capabilities can be improved to drive growth. And it should not be neglected, a holistic end-to-end blueprint of an organization is powerful communication tool to align an organization, pinpoint touch points with customers and is a starting point of designing how the company will operate tomorrow.

Vision of an organization – picking the right “why” of transformation

Another clichéd but fundamental question is “What is the business trying to achieve?” A business strategy should guide digital transformation to reduce the likelihood of investing in initiatives that have no or wrong business impact. SME’s leading management is seriously challenged to create a vision of company’s future leveraging the opportunities of digitalization. A useful tip is to create a focus team including young potentials. After a concrete strategy and desired outcomes are established, the company decides on where it will allocate its time and resources –, do we need to reduce production lead times or engineering lead time or improve information exchange in the global supply chain to deliver faster and improve customer experience, – only then the talks about which digital tools to adopt can start.  Integrated digital technologies should enhance the business outcomes such as revenue growth, efficiency, competitiveness, innovativeness. It is not a straightforward task to understand how digitalization will contribute to desired business outcomes, and certainly requires some iterations and learning to scope and arrive to viable options. After all, the number of available investment options into digital is overwhelming, but it is too expensive to make a wild guess.

While SMEs cannot tackle an expansive organizational transformation with digital, the alternative is to leverage existing technology infrastructure and find opportunities to maximize value in the most reasonable way. To avoid short-term gain that can be quickly offset by competition, the picked opportunity should be motived by the blueprint and the vision of an organization. Whether it is digital or any other type of transformation it is primarily about building the capability of making right choices.

[1] McKinsey Quarterly, The case for digital reinvention, February 2017, Available: https://www.mckinsey.com/business-functions/mckinsey-digital/our-insights/the-case-for-digital-reinvention

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