Digitising the industrial company

Technology-enabled industrial products are transforming the way manufacturers and customers do business. Many companies are unsure not only of how to meet the challenge, but also of how to distribute responsibility for it. In our view, if digitisation is going to be a significant component of growth, if the company wants to be a leader in its field, or if it faces complex cross-boundary challenges, appointing a chief digital officer will almost certainly make sense.
(Financial Times ‘The Connected Business’ guest column)

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MONDAY JULY 8 2013

The Connected Business

Digitising the industrial company
By Kumar Krishnamurthy and Marian Mueller
For manufacturers and engineered-product companies, it really is a new world. Let’s look at a few examples. In the utility industry, smart electric meters are enabling timeof- day pricing. This is allowing utility companies to match load demands more efficiently with generation capacity, and to improve customer service via automated outage notification and power-quality monitoring. In the auto industry, automakers are investing in telematics technologies to provide customers with new services, such as driving information and infotainment. Across a wide range of industries, commercial vehicle fleets are using real-time driver data to reduce their insurance costs. On shop floors and in industrial plants, sophisticated machinery equipped with sensors and Internet connectivity is allowing the companies that produced the machines to monitor and troubleshoot their performance remotely. Everywhere, it seems, commercial and industrial equipment is smarter and more communicative than it was just a few years ago. This “digitisation” of the industrial landscape is being driven by four broad trends: the integration of technology sensors and devices into equipment and machinery, advancements in the ability to analyse huge amounts of worksite information (that is, “big data”) to improve operating costs, expectations that the technologies we take for granted in our personal lives also belong in the workplace, and demand for solution-based services from end-users of industrial products. Although they don’t garner as many headlines as the newest smartphones or the latest social media phenomena, technologyenabled industrial products are transforming the way manufacturers and customers do business. For companies long known more for their big physical presence than their prowess with bits and bytes, these trends are creating pressure to integrate digital capabilities into existing products, operations, and distribution channels. Not surprisingly, many companies are struggling with the challenge, unsure not only of how to meet it, but also of how to distribute responsibility for it. Many have thus far assigned digital leadership to multiple teams of people, each with discrete responsibilities, rather than to one executive. Some companies at the forefront of this trend have centralised their activities, creating centers of excellence to coordinate digitisation efforts across the enterprise. However, in our view, digitisation strategies that are integral to corporate strategy should be “owned” by a C-level executive: the chief digital officer. This person can help companies leverage digital information to drive differentiated strategies and solutions across the value chain. Whether a company can find a leader with the right skill set to lead a digitisation strategy depends in part on its digital business model, which will typically emphasise one of these four areas: e-commerce, where the focus is on online business; online marketing, which seeks to raise brand awareness; business analytics, where the goal is to transform data into a strategic asset; or digital solutions, where the aim is to extend the company’s product strategy to the digital world. For most manufacturing and industrial companies, the focus will be on business analytics and digital solutions. A manufacturer of heavy machinery, for example, might find that remotely monitoring its customers’ machinery can further both its own goals, such as strengthening its marketing efforts and sales forecasts, and its customers’ goals, such as becoming more proactive in scheduling maintenance or gaining access to crucial usage and performance data about their machinery. An automaker marketing to retail consumers, by contrast, might focus not only on digital solutions and business analytics but also on online marketing. At least one major automaker already devotes about 25 percent of its marketing budget to digital and social media engagement. In deciding whether they need a chief digital officer—and who should fill that role if the answer is yes—companies should consider not only what their digital strategy is, but how good they need to be at executing it. Do they want to become the digitisation bellwether in their industry? Or will aspiring to be average suffice? Do they expect digital products and services to make up a significant portion of their revenue growth in the medium term—say, more than 10 percent? And do they face any particular difficulties in executing digitisation initiatives across organisational boundaries, which could lead to misaligned or duplicated investments, or inordinately long implementation times? If digitisation is going to be a significant component of growth, if the company wants to be a leader in its field, or if it faces complex cross-boundary challenges, appointing a chief digital officer will almost certainly make sense. Companies that conclude they don’t need a chief digital officer (at least not yet) aren’t entirely off the hook. For them, it’s important to ensure that the chief executive is monitoring the company’s digital and service landscape to ensure that leadership exists within the current organisational structure to exploit digital opportunities as they arise. If the CEO is doing that, he or she will know when it is time to bring a new partner - the new chief digital officer - into the ‘C’suite ranks. Many will find that time to be sooner rather than later.

Kumar Krishnamurthy is a partner in the Digital Business & Technology practice at Booz & Company, and Marian Mueller is a partner in the firm’s Engineered Products & Services practice.

© THE FINANCIAL TIMES LIMITED 2013