June 2, 2020
Kevin Prouty, Group Vice President, IDC Energy & Manufacturing Insights
Through most of the latter half of the 20th century, the operations of companies across most industries have been driven by increasing efficiency and reducing waste. Whether through Lean, Six-Sigma, or any other type of continuous improvement philosophy, factories, banks, hospitals, stores, etc. have benefited from this organized and aggressive push for operational excellence.
But as Digital Transformation (DX) has become the norm for the drive to change how companies adopt technology and react to market disruption, operational organizations have continued to be locked in on driving efficiencies while not fully embracing DX. That is all changing. Companies like Ford, GE Healthcare, Georgia Pacific, etc. are already using digital capabilities in a drive to build resilient operations that can shift quickly to meet market demands, global events, supplier disruptions, etc.
In short, the Future of Operations is the transformation in operations from an efficiency focus to being resiliency-driven to support the increasing market demand for customization and experiences. That doesn’t mean that efficiency and operational excellence are going away, but the key is becoming resilient on top of being efficient.
The five key tenants of the Future of Operation are:
- Evolve beyond continuous improvement, lean, and six-sigma to resiliency and market focus
- Embrace complexity in products, services, and markets while minimizing complications
- Resilience in adapting to changing markets and demands without losing the core operational purpose
- Use digital capabilities to build a resilient organization and operation
- Develops a converged IT and Operations Technology (OT) function in Digital Engineering
The future of operations depends on companies being able to transform their operations from siloed groupings with limited digital interconnections and disjointed data governance to digitally enabled and resilient decision-making machines.
Future of Operations and Resilient Decision-Making
The Future of Operations becomes reality when companies build on their current infrastructure and digital capabilities to develop resilient decision-making. Resilient decision-making is defined as having the ability to use all available data and information to rapidly and effectively make decisions that keep your operations aligned with customer expectations and demands.
One of the critical aspects of the evolution of resilient decision-making is assuring all the critical data and information is ingested, contextualized, organized, and visualized for key decision-makers. The core goal is the unification of the operational data stream with the data from the rest of the enterprise. Traditionally, operational data has been siloed by both technology and organization. Systems have typically been in place to pull critical financial and compliance information from operations by the IT organization. And those same systems push down orders and demands as gathered by the IT systems. It’s then up to the operation to have processes and systems in place to turn that flow into an executed business function. The drive to the Future of Operations rests on having the ability to move beyond the push/pull nature of information flow.
In future operations, as it does today, IT supports business information and process management. Data coming in from customers, partners, financial institutions, etc. is ingested and organized for business decision-making. While DX here is relatively well understood, on the operations-side of the enterprise, data is siloed and tends to be isolated to local or specific functional needs. With only aggregated data being pushed back up to decision-makers.
A Focus on the Digital Organization
IDC has seen several companies take that first step towards digital engineering. They develop an organization responsible for digitizing operations. These efforts are typically around some very specific capabilities, like production asset health, Industry 4.0 assessments, medical device management, warehouse automation, etc. The core of the group is usually operation staff, with IT staff assigned to support infrastructure and security needs. In many cases, 3rd party service provider staff is also assigned to support both the operational staff and the IT staff.
Initially, the groups are temporary expediency to get around organizational challenges of a collaborative work environment. As the projects develop, more and more responsibilities are placed on that group. While all this is happening, the management structure is usually a matrix with operations and IT staff still reporting into their current management structure in IT and operations.
The next step in maturity is some of the staff become permanent members and begin developing more skills operations, IT, and digital. At this point, you begin to see some of the staff lose their original affiliation. These staffers are people that have developed competencies in both IT and OT. The management structure begins to shift also. The reporting lines begins to skew more heavily to the operations’ line of business management structure, with IT management being a dotted line. The final transition is into a full digital engineering organization that is staffed by the following:
- Operations technical staff and domain experts that have developed IT and digital skills
- IT staff that have developed competencies in operations technology
- 3rd party service provider staff that develop skills and relationships to support operations and IT
- Original Equipment Manufacturers (OEM) staff that support critical assets on-premise or remotely.
While the term digital engineer is not yet commonplace, its function is becoming not only common, but critical in manufacturing and other industrial verticals.
Prioritizing Digital Investments
IDC, through our research, has determined that the priorities for any manufacturing company are as listed in Figure 1.
Source: IDC Manufacturing Insights report, COVID-19 Industry Impact: Manufacturing
These areas of investment are where any manufacturing company on the path to Industry 4.0 must prioritize:
- Modernize remote work capabilities – Investment in collaboration platforms, video, and AI-driven quality inspections to minimize human exposure
- Remote monitoring and diagnostics of operations and assets – Development of central data management and organizational structure to allow remote monitoring and diagnostics on assets and processes.
- Heavy investment in process automation – Acceleration of development of resilient decision-making processes through AI, Machine Learning, and Robotic Process Automation (RPA)
- Remote product service as key part of product innovation – Increase in deployment of connected products and robotics to improve and service products at customer site
- Resilient supply chain – Investment in Manufacturing as a Service that can rapidly and effectively restructure supplier networks to meet volatile risk environments.
All of these share some common traits: AI-enabled, connected, collaborative, and a shift to ecosystems. Coming back to the Future of Operations in manufacturing and Industry 4.0, it’s all about organizing and prioritizing for the digital world.
Kevin Prouty is Group Vice President for IDC Energy and Manufacturing Insights. He is responsible for managing a group of analysts that provide research-based advisory and consulting services that will enable energy executives in oil and gas and utilities to maximize the business value of their technology investments and minimize technology risk through accurate planning. Kevin’s research specialties are Utilities, Manufacturing, Enterprise Applications, and Product Innovation research.