Manufacturing leadership in the age of digital disruption
It’s a fascinating time to be involved in manufacturing. During the 1980s and 1990s many manufacturers were radically rethinking their approach to manufacturing. Total Quality Management, Lean Manufacturing and Business Process Engineering were all the rage. Then the focus shifted to incremental business improvement: becoming more productive, driving out waste and improving quality and responsiveness.
Now we find ourselves on the brink of a new manufacturing revolution. And revolutions always have implications for leaders. This new digital revolution raises three key questions: what might happen to manufacturing because of new digital technologies and processes? What are the implications of these changes for manufacturing leaders? Do you have the leadership capabilities you need to ensure the success and survival of your firm?
We are living in an age where customers are shifting their focus from products to solutions. Firms are increasingly selling on the basis of the outcomes they provide, rather than the outputs they produce.
In this context, there are five things manufacturing leaders need to do.
1. Get a new perspective
The first critical capability is being able to re-imagine the future and your own organisation’s business model – in particular, its role in the wider ecosystem. We define an ecosystem as ‘the wider network of firms and organisations that can or could influence the way the focal firm creates and captures value through the provision of a product or service’. This ecosystem perspective is important because increasingly competition is being played out not at the level of individual firms but at the level of ecosystems.
Take the example of laptop manufacturers. Apple retains around 60 to 70% of the money paid for one of its machines, while HP keeps only around 30%. Why the difference? Well, Apple uses its own operating system, while HP relies on Microsoft. Microsoft has significant power in the ecosystem and is therefore able to capture a significant proportion of the money paid for the laptop. Apple, with its proprietary operating system, does not have to pay Microsoft (at least for the operating system), so it is able to retain more of the money paid. Clearly, Microsoft is not the only reason for the difference between Apple and HP’s ability to capture value, but it raises an interesting question for HP - namely what should HP do about Microsoft? Should HP seek to compete with Microsoft, perhaps by developing its own operating system? Perhaps this would have been possible thirty years ago, but not now.
An alternative strategy would be for HP to work with one of the open source competitors to Microsoft. If HP invests in Linux and makes Linux a more appealing operating system and more and more people start using Linux, then Microsoft’s power in the ecosystem decreases and its ability to capture value is eroded. Of course, if you follow this logic through, then you would argue that HP should collaborate with Compaq, Dell and Lenovo – its traditional competitors – as it is in the interests of all laptop manufacturers for Linux to become a more appealing operating system. When taking the ecosystem perspective, you have to think much more broadly about the role of different organisations and in which domains they are competitors and in which they are collaborators.
2. Keep learning
Beyond broader strategic thinking, the second leadership implication of the digitalisation of manufacturing is the need for manufacturing leaders to understand and keep track of digital processes and technologies. It is clear that their rate of development is rapid. Everyone talks about Moore’s Law, in which the number of transistors in a dense integrated circuit doubles approximately every two years. Think just of the developments in mobile phones over the last twenty to thirty years. The first mobile phones that many of us saw were ‘bricks’, small suitcases that carried both the phone and the associated battery. They are virtually unrecognisable as the forebears of today’s smart phones. It is not just the speed of technological development, but also the range of capabilities that are bewildering.
Manufacturing leaders have to consider carefully how they build the capability to track and monitor the pace of technological development. And to do that, they need to understand its trajectory and potential.
3. Keep innovating
The third implication of digitalisation is the need to innovate constantly. Unless your firm keeps pace with the technological innovations made by others you will fall by the wayside. A particular challenge here is that digital disruption in the business to consumer world is shaping
and changing consumer expectations and attitudes. We are now used to seamless customer experiences - the apps on my iPhone are so easy and intuitive to use - that I constantly question why many of my professional interactions are not so straightforward. Keeping pace with this level of innovation is crucial for manufacturing firms in the 21st century.
4. Keep collaborating
A fourth implication arises from the increased emphasis on collaboration and communication. Particularly with digital technologies and processes, it is rare that a single firm has all of the capabilities needed to deliver them successfully. Hence firms need to partner much more directly with a diverse range of different companies and organisations. The intention is to pool capability across traditional organisational boundaries.
5. Keep evolving
A fifth and final implication is the need to evolve constantly. Clearly this links back to the issue of innovation, but the point about constant evolution is that we do not live in a world of ‘punctuated equilibrium’, periods of stability that are occasionally shocked through innovation. Instead the process is continuous - organisations are constantly striving to look for new and better ways of helping deliver the outcomes their customers want and nobody can afford to stand still.
We do not live in a world of ‘punctuated equilibrium’, periods of stability that are occasionally shocked through innovation. Instead the process is continuous
Do you have the capabilities needed to ensure the success and survival of your firm?
Manufacturing leaders now need to ask themselves and their leadership teams some tough questions. Digital disruption raises five critical issues: thinking strategically at the level of the ecosystem; keeping track of technological development given its pace and scale; innovating using technology - breaking old paradigms and barriers; collaboration - building relationships and pooling capabilities across organisations; and constant evolution.
To audit your own organisation’s manufacturing leadership capabilities I would recommend asking yourself the following questions:
- Do we have the balance right in our strategic discussions – are we thinking about our strategy in parallel with the broader ecosystem strategy?
- How good are we at keeping pace with technological developments, understanding changes in both manufacturing processes and enabling technologies that might help us innovate our business model?
- How clearly have we defined our digitalisation strategy, considering how manufacturing technologies and processes will allow us and our ecosystem partners to innovate our business models so we are better able to deliver the outcomes our customers want?
- How good are we at partnering with others, capitalising on their strengths and defining win-win collaborations for all involved in the ecosystem?
- Do we constantly question our existing approach, incrementally innovating and improving it so that we are forever pushing back the boundaries of the possible?
If you can answer these five questions positively it seems you have many of the manufacturing leadership capabilities in place that will be needed to survive and thrive in an age of digital disruption.
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