How to Build a Successful Digital Transformation Roadmap for Industrial Companies
A few years ago, digital transformation for industrial companies was still considered an option that could be put off until a later date. Nowadays, it’s an outright necessity for the company’s survival. Without a reasonable degree of digitization, companies won’t be able to keep up with emerging market demands and would be forced to go out of business.
According to a recent report by McKinsey, the pandemic has accelerated the digitization of supply-chain and customer interactions by four years on average (Fig. 1), with most companies reporting drastic changes in days (or weeks) as opposed to months and years.
Fig. 1: Acceleration of digitization of customer interactions as a result of COVID pandemic: Average share of customer interactions that are digital, %. Source: McKinsey.
While companies in the industrial sector have been relatively slower at digitization than other industries, they are the most exposed to the changes that digitization is producing thanks to the emergence of new technologies such as the Internet of Things (IoT), artificial intelligence (AI), cloud computing and big data, among others. However, investing in technologies without implementing fundamental changes to operations (just like changing the operations without investing in adequate technology) will only get the industrial companies so far: Digital transformation is not just a matter of capital investment but also of developing strategies and accepting cultural change.
In this article, we’ll look at why so many companies still fail at digital transformation and why it’s important to persevere in trying to attain your company’s digitization goals. Specifically, we’ll look at the strategies that industrial companies can adopt to help them succeed in their digitization efforts.
In this article, you’ll learn:
Definitions Used In This Article
Industrial sector companies include companies that produce equipment, supplies and machinery used in construction and manufacturing. These companies are closely tied to the economy, meaning that booms and recessions directly affect their business volume, even though individual subsectors perform differently.
Digital transformation is the application of digital technologies to create new or modify existing business processes and assets with the intention of improving business efficiency. It also navigates through new revenue opportunities.
Industrial digital transformation refers to a set of transition solutions that typically include three main areas, such as automation, manufacturing processes and product optimization.
Top 3 Benefits of Digital Transformation
The top 3 benefits that executives recognize and expect from digital transformation include:
36% faster time to market
35% ability to meet customer expectations
*% of all respondents
Unsurprisingly, increased operational efficiency is one of the distinct benefits that are easily knowledgeable: The integration of technologies and digitalization of manual processes result in overall process optimization. Replacing or eliminating unnecessary tasks with more efficient processes ultimately leads to cost-effective production, whereas using technology instead of manual labor allows for more accurate calculations and, in turn, better budgeting.
Another benefit, which also really showed during the pandemic, is connected with the decentralized management and production that digital transformation allows. Fully remote working systems enabled production to continue to function even when the rest of the business could not. Since some of those systems can work without stop-offs, digitally mature businesses could function with little to no disruption even during the first major outbreak whereas digital laggards were forced to close their operations.
Fig. 2: Benefits of digital transformation
The digitization of business processes also increases the company’s overall flexibility and responsiveness. If there’s a problem at a production facility, responsible parties receive an automatic warning so they can deal with the problem as soon as possible, which dramatically reduces downtimes. As a result, repairs, modifications and maintenance occur less frequently and are largely automated. Also, smart technology allows devices to interconnect and communicate machine-to-machine, which, in turn, enables decentralized and independent decision-making where a physical entity doesn’t necessarily have to be present.
Moreover, the responsiveness of digital systems facilitates business agility: Menial tasks can be automated, goods produced with predefined customized patterns, decisions made on the spot and tasks rescheduled in minutes. The regained speed and energy previously spent on undigitized operations can now be spent on exploring new revenue opportunities. Access to real-time data, and skilled use of big data and AI allow companies to experiment, forecast new developments, analyze market trends, and design new products and services.
Among other important benefits of digital transformation, business leaders name improved customer satisfaction and customer experience (Fig. 2). According to McKinsey, digital transformation and a focus on customer experience can generate a 20-30% increase in customer satisfaction and economic gains of 20-50%.
Digital Transformation Roadmap
To establish a strong B2B online marketplace, most industrial companies have yet to accelerate their digitization efforts. Even through digital leaders, those who invested early in automation and ecommerce have already achieved impressive total returns and taken up a significant market share; other industrials still have unique opportunities to become early adopters in their respective sectors.
Although the funding for digital initiatives is perennially increasing, most of the spending ends up being wasted because the company was not prepared for change. That is, it didn’t have a reliable long-term strategy. Having a defined roadmap and a long-term digital strategy can help industrial companies embark on a digital journey and successfully transform their businesses beyond simple technological upgrades.
While circumstances differ, transformation roadmaps are relatively straightforward. Below is our proposed roadmap for industrial companies adopted from McKinsey’s six building blocks of digitization for industrials.
Fig. 3: Digital transformation roadmap blocks
Before embarking on a digital journey, it’s obvious that companies need to thoroughly assess their capabilities and resources, an estimation of which will directly affect the contemplated strategy. In a similar fashion, any proposed initiative shall be assessed for its potential value.
Rethinking Relationships With Distributors, Prices, and Talent Acquisition
When developing a roadmap, industrial companies need to consider the implications that their digitization will bring to other supporting businesses, particularly distributors, and address any possible channel conflicts. Some problems and questions to tackle include:
- Determining the roles the distributors will play with the new digital channels (Some industrials might choose to eliminate the distributors, keep offline and online businesses separate, or strive to create an omnichannel experience by engaging distributors in new roles.)
- Deciding which distributors will be close partners and given access to a B2B ecommerce platform (including access to analytics and other services) and which will be kept at a distance (but, if need be, rerouted to the platform for specific services)
- Negotiating new partnership terms and conditions with distributors, and supporting them during the transition
- Deciding how to pair customers and distributors (and determining whether to encourage relationships with distributors), and developing a pairing logic that might be based on a customer’s location, order volume or any other particular criteria.
A part of the solid digital strategy shall be dedicated to pricing issues: In particular, companies need to determine which prices will be shown on the website to guest visitors and which after logging in. Pricing transformations can rely on technological solutions such as Configure Price Quote (CPQ), pricing modules and virtual catalogs, quote management, and business intelligence packages. The selection of appropriate technology largely depends on the company’s goals and the whole pricing context; Ideally, a B2B ecommerce platform of choice has built-in pricing solutions that can be integrated with the supporting third-party systems.
Finally, for the roadmap, the leaders of industrial companies need to assess their current labor resources and identify key areas where either new talent needs to be hired or existing talent re-trained. Moreover, since the ultimate success of a digital transformation depends on inter-collaboration between teams and the willingness of employees to continuously learn and adapt to ever-changing market realities, leaders need to spend time ensuring there’s no resistance from employees to adopt new technologies or change existing processes.
Talent has always been one of the scarcest resources, so it’s no wonder that in a recent Business Insider survey, 51% of respondents chose talent and hiring as the main driver of transformation to invest in 2021, followed by AI and machine learning (Fig. 4).
Fig. 4: Top 5 drivers of transformation that leaders will invest in 2021, %. Source: Business Insider.
When it comes to talent, different companies will address the hiring and retraining of personnel differently. For example, while some will focus on select groups and business lines, others will probably need to rethink their whole talent strategy.
During the evaluation stages, leaders need to identify the existing knowledge gaps and develop a strategy to fill them in by external hires, upskilling existing employees, outsourcing certain functions, or forming partnerships to compensate for the lack of particular skills.
The next logical step in addressing talent issues will be designing a new deployment model to integrate new team members into the company and new roles to oversee the digitization of business processes. The supervisors of digital initiatives (be it a CIO, CTO or CEO) might come up with new ecommerce metrics (such as those related to conversion rates or acquiring new users) and incentive systems to encourage employees to deliver on those metrics.
Adoption of innovative applications for teamwork and workflow management can help reduce issues with onboarding or overseeing employees, as well as foster productive dialog and collaboration. Among other talent initiatives might be an organization of digital learning programs, webinars, and conferences with invited guest experts and thought leaders.
Voting for Reliable and Innovative Technological Solutions in Digital Transformation
At the core of digital transformation, unsurprisingly, lies the innovative technology and its timely adoption. And although the research has shown that 93% of companies agree that innovative technologies are necessary for achieving their digital transformation goals (Forrester), nearly 43% of executives believe they don’t have the right technology to implement them (PwC).
While the alignment of strategy and leadership is certainly one of the deciding factors for transformation, technology plays a critical role in its success. To ensure the technology’s gradual but timely adoption, companies are often recommended to follow an agile development methodology that allows for quick and iterative testing of new concepts and technologies.
When it comes to choosing a B2B ecommerce platform, industries should pay closer attention to the following criteria:
- integration with third-party services (ERP, CMS, CRM, etc.)
- flexibility, modularity and composability (B2B ecommerce platform needs to be flexible enough to allow building extra modules on top of the out-of-the-box solution, scaled up or down depending on demand changes)
- customizable catalog, order, quote and price management (B2B ecommerce solution has to have a reliable, scalable, easily manageable catalog and pricing modules, and accommodate different order management logic that reflects order movement through a supply chain)
- customizable account/user management, approval workflows and access levels (B2B ecommerce platform needs to allow for granular access levels and permissions, and support different degrees of account complexity)
Partnering with technology vendors is extremely important because some of the required technical expertise might not be available internally. It’s critical for industries to establish long-term partnerships with their technology vendors to ensure seamless integration between old and new systems.
The adoption of any technology is perhaps the most difficult part of digitization. That is why it’s important to continuously re-evaluate the company’s priorities, solutions and use cases. By gradually and incrementally testing and implementing new concepts, companies can achieve organic user adoption that brings many benefits, including an increase in both employee and customer satisfaction and loyalty. A phased approach to implementation allows companies to deliver self-service, ecommerce functionality in batches and see how it performs in any given circumstances before rolling out more sophisticated features.
The post-pandemic reality dictates new rules of the game: Companies who fail will be those that don’t seek to invest in technology and take advantage of data. However, those companies that will prioritize investment in smart technologies will ultimately succeed. Even though industries might still be lagging behind in their digitization efforts, there’s plenty of time to catch up. Instead of building from scratch, adopt already-established best practices and learn from someone else’s mistakes.
Thinking of transforming your company now? Virto Commerce can help you transition, achieve your transformation goals and support you along your digitization journey. Contact us or schedule a demo now, and we’ll be in touch shortly to help you get started.