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Connect and optimize: The new world of digital operations

Executive summary

The shift to the industrial Internet is rapidly gathering steam, yet most of the focus has been on making connected products and services for customers. Much less attention has been paid to how and to what degree the industrial Internet will transform companies’ internal operations, as it certainly will.

The changes wrought by the digitization of industrial operations can best be broken down into four key areas: manufacturing, capital asset management, the supply chain, and product innovation and development. Suppliers are already busy developing digital solutions to cover many “use cases” for each of these key areas — the jobs to be done and the resulting value creation opportunities — even as the number of use cases themselves is multiplying quickly.

If companies are to take full advantage of the great promise of the industrial Internet, they must develop an overall strategy for how to go about it, and then gain a full understanding of the ecosystem of solutions emerging around each of the four areas. That will allow them to build the business cases needed to determine the value of each use case they hope to implement, and then to develop the capabilities required and the road map that will get them to their goal.

Companies setting out on this journey must remember that there is no perfect technology solution. Success will require that companies focus not on the technologies themselves, but rather on the operational problem, or problems, they are trying to solve. Most important, they need to start now.

The operational imperative

Variously called Industry 4.0, the industrial Internet, or simply digitization, the emergence of machine-to-machine interactions, human-to-machine interactions, robust data and analytics capabilities, and cheaper, more ubiquitous sensors is pushing the Internet of Things (IoT) into the core operations of more and more companies. The convergence of the IoT and analytics is generating a new world of big data. And big data, in turn, is enabling new capabilities such as tailored customer offerings, predictive solutions, and the like.

Together, these technologies are rapidly transforming how companies interact with customers, develop and manufacture new products, and conduct operations in every part of their businesses. The end-to-end experience is changing rapidly.

The effect of these technologies will be profound, with long-term implications for companies, along with their executives, employees, business partners, and customers. The results of our recent survey on how companies are progressing toward full digitization, “Industry 4.0: Opportunities and challenges of the industrial Internet,” indicate that the benefits, in terms of connected new products, tighter ties with customers, and more efficient operations, will be equally significant. But so will the risks, as companies struggle to learn how to take advantage of it all — and how to pay for it — especially given the market’s current hype and confusion regarding this transformation.

A key aspect of the coming transformations is how they will affect core operations, especially at companies that produce physical products, engage in physical supply chains, and depend on asset-based production schemes. Digital operations are already beginning to transform how these companies develop, make, and distribute their products and services to their customers, whether as sellers, buyers, or users of these new technologies — or all three at once.

Four tightly interwoven and interrelated business operations are especially ripe for transformation enabled by digital and IoT capabilities: next-generation manufacturing, optimized capital assets, smart supply chain and service, and connected product development. How, and how quickly, companies devise and implement their strategy for moving forward along the path to digital operations will significantly affect just how competitive they are in the next few years.

This report offers guidance on the critical questions raised by operations executives in our Global Operations Survey: How can companies monetize the value of digital operations? What does the current ecosystem of digital operations technology look like? And how should companies develop a road map that ensures rapid progress without the risk of implementing costly solutions that soon become obsolete?


The field of digital operations is entering a new, significantly more mature phase. Enablers and engagers are offering an ever-growing range of solutions for digitizing every element of operations, and the market is growing fast.

However, focusing solely on the solutions on offer, and their technological implications, will only lead to confusion and paralysis. Instead, think in terms of problem statements and value creation opportunities, and the corresponding use case categories that will enable the proper solution. Then work back to evaluate the current market landscape for each of those categories.

Finally, don’t wait for the perfect solution for each use case category, or the right answers to the many questions surrounding digital operations. There is no silver bullet for your company. It will be a journey. Begin now by developing your strategy, the distinctive capabilities, and the people and processes that can give you a right to win in the digital future. And remember that the first movers will command a great advantage.

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Stephen Pillsbury

Principal, Strategy& US

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