Digital Transformation in Manufacturing: Findings from the 2017 State of Initiative Report

June 2017

A lack of business impact understanding influences digital transformation, and human resources and talent is a major challenge in digital technology adoption. These are just two of the findings in the Smart Industry State of Initiative Report — an annual poll of businesses in the manufacturing sector. Now in its third year, the survey measures perceptions of digital transformation in the engineering, oil and gas, and transportation verticals, with a focus on the latest technologies changing the industry. Here are some of the key findings from the study and a brief overview of digital transformation.

What Is Digital Transformation in Manufacturing?
Digital transformation is the adoption of digital technologies in the manufacturing sector. These techniques might include software that optimizes processes in the supply chain, or 3D printing applications that help companies design and produce products. Recent digital technology trends in manufacturing include augmented reality, robotics and the Internet of Things (IoT). All of these trends facilitate manufacturing processes, helping small, medium and large brands save resources and money. Improved efficiency, better decision making, and greater profitability are among the many benefits of digital transformation.

The manufacturing landscape has changed dramatically over the last few years. Technology has automated many decades-old manufacturing processes, and companies have had to adopt new machinery and mechanics to keep up with marketplace demands. As a result, more manufacturing companies find themselves spending vast sums of money on technological innovations. In fact, the manufacturing industry spends the second largest amount of money on technology.

Obstacles to Digital Transformation
According to the 2017 State of Initiative Report, a lack of business impact understanding affects digital transformation, with 43.4 percent of survey respondents citing it as a major hurdle. This is 2.7 percent less than last year. Participants also cite security concerns (41.5 percent), a lack of employee knowledge (40.4) and workforce skills gaps (40.4) as obstacles to digital technology adoption.

About 34.9 percent of people reference a weakness in technical infrastructure as a barrier to digital transformation in 2017 — 9.2 percent more than last year. General economic uncertainty (33.1 percent), a lack of senior management knowledge (28.7), senior management commitment (26.8), data privacy regulations (22.4) and immaturity of standards (21.7) round out the top ten biggest obstacles to digital transformation.

When discussing the greatest challenges companies face when adopting digital transformation initiatives, 30 percent cite talent and human resources — up from 24.6 percent in 2016. Securing funds is the next biggest difficulty (27.4 percent), followed by leadership support (24.2) and idea creation (18.4).

The Impact and Benefits of Digital Transformation
Digital transformation has a massive impact on the manufacturing sector. Just 16.6 percent of participants in the 2017 State of Initiative Report say their organization will remain unaffected by the latest digital technology — 1.7 percent fewer than in 2016. On the other hand, 69.4 percent of people say that digital transformation will have a “high” or “critical” impact on their business in 2017 —10 percent more people than last year.

When asked to name the biggest benefit of digital transformation in 2017, 89.1 percent of these respondents agree on increased productivity — a jump of 10.4 percent from 2016. Cost reductions, utilization, and an enhanced customer experience are the next three biggest benefits, according to 87.2, 86.1 and 80.3 percent of respondents, respectively. Enhanced safety (75.5 percent), new business models and revenue streams (68.6), and improved sustainability (67.9) finish out the top seven benefits of digital transformation in 2017.

Digital Transformation Implementation
Smart Industry’s study reveals that more businesses have adopted digital transformation initiatives than ever before. In fact, 35.7 percent of respondents (versus 41.3 percent in 2016) say their organization is “at the starting gate, with a focus on learning and exploration.”

More businesses are engaged in identifying pilots — 36.1 percent in 2017, compared to 34.5 percent in 2016 — and investing in applications. In fact, 3.9 percent more companies are actively investing in applications than last year. It seems businesses have an increased awareness of the significance of digital transformation.

Only 18.8 percent of the businesses surveyed do not have a digital transformation strategy in place. This is a decrease of 9.5 percent from last year, and 25.4 percent from 2015.

Moreover, 33 percent of companies currently have an informal digital transformation strategy, and 21.4 percent have a one- to two-year strategy. Plus, 26.8 percent have at least a three-year strategy — up from 19.1 percent in 2016 and 11.6 percent in 2015. This suggests more companies are thinking about long-term plans for digital transformation.

Confidence in digital transformation initiatives has also skyrocketed. Around 33 percent of businesses say they are “somewhat confident” with their current digital transformation strategy. More than 40 percent are “very confident” they can capitalize on digital transformation in the next five or more years.

A total of 278 industry professionals took part in this year’s State of Initiative Report, with the bulk of respondents working in engineering. Although these participants still have concerns over digital transformation — businesses will face a number of challenges during digital adoption, for example — many are confident they can benefit from new technologies in the future.

Contact Goldin Peiser & Peiser for advice on how to help your manufacturing company run more effectively for greater profitability.

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