Industry 4.0 is in the spotlight. And rightly so. The possibilities are great: higher productivity, a better customer experience, lower costs and perhaps a new business strategy with innovative products and services. And there is an outright need: without Industry 4.0 a company has a limited future. Unfortunately, many Industry 4.0 implementations get stuck. Let’s find out why this happens and how to prevent it happening to you.
DATA
There can be three issues with data: not good, not available, poor quality. This is often due to IT systems not being set up properly, data not being entered or being entered incorrectly, log switches to register log data not being set correctly, or the data entered being of poor quality.
In addition, the knowledge of business processes is seldom up to standard. How do processes behave in daily practice? How should they run? This means that people are unclear as to which data should be captured and how the data should be managed.
It is therefore important to know the business processes and how they work both in theory and in practice. This is the basis for a good KPI and reporting structure. Getting this right will ensure clarity around which data must be collected, which information is required for whom at what time and how to manage the processes for maximum effect. It will also mean that data availability and quality will increase – thus building the foundation for Industry 4.0.
ORGANISATIONAL SILOS
Many companies still have a strong departmental orientation instead of an end-to-end process focus. This leads to limited insight into and understanding of the interdependencies between functions and departments. A strong departmental orientation also means that data is locked up in silos.
Industry 4.0 focuses on the integrated control of the end-to-end processes that run through various departments and even across company boundaries. That is why departments are asked to work together seamlessly and to share data and information. An effective IT infrastructure facilitates this.
CAPABILITIES TO COLLECT AND USE DATA
The introduction of Industry 4.0 requires a significantly higher level of knowledge of the
industry, of business processes and of analysis applications. At every level in the company and within every position, people must be able to handle data well and be skilled in its analysis.
The technical structure of these cyber-physical systems is becoming more complex, and more and more decisions are being made by algorithms. Therefore, it is important that companies develop the knowledge and skills to build applications and assess the behaviour of algorithms and the insights they provide. The introduction of Industry 4.0 requires intensive collaboration between departments and disciplines to develop people and resources at pace.
VISION AND ORGANISATIONAL ALIGNMENT
The introduction of Industry 4.0 affects all aspects of an operating model. The top team needs a shared vision about the value that is required for various stakeholders, and how that value is delivered – the operating model.
Too often, a joint vision is ill-considered and not adequately thought through, resulting in insufficient alignment with the roadmap. In such a situation, an implementation inevitably comes to a standstill.
THE HUMAN FACTOR
The biggest challenge in an Industry 4.0 implementation is not so much choosing the right technology, but dealing with the absence of a data-based and digital performance culture and the corresponding skills gap in the organisation. Investing in the right technologies is important – but success or failure ultimately does not depend on specific sensors, algorithms or analysis programs. The crux lies in a wide range of people-oriented factors.
Since Industry 4.0 transcends not only internal departments but also the boundaries of the company, its success is predominantly dependent on skillful change management.
CONCLUSION
In essence, the reasons why Industry 4.0 implementations get stuck are no different than with other company-wide transformations whose aim is to create a sustainably high-performing organisation. It will not surprise you that the chance of failure is roughly the same: 70%.
Therefore, in the first instance, do not focus too much on just the technical side of the transformation. Instead, concentrate on skilful change management. The technological content side of the transformation is not your main problem. The development of a data-based and digital performance culture and the corresponding skills set is.
Inevitably, after every recession the economy grows again. Research by Bain & Company, Harvard Business Review, Deloitte, and McKinsey shows that the best companies continue to grow their EBIT during a recession and also accelerate faster after it when compared to other companies (see Figure 1). Let’s take a look at what the winners do differently to accelerate their profitability during and after a recession.
Figure 1. “Winning companies accelerated profitability during and after the recession, while losers stalled” (Source: Bain & Company).
7 KEY ACTIONS TO ACCELERATE YOUR PROFITABILITY DURING AND AFTER A RECESSION
We’ve integrated this research material to generate a clear picture of the 7 key actions you need to take for success.
1. CREATE CLARITY OF DIRECTION AND ORGANISATIONAL ALIGNMENT
How do you want your company to look and run in three to five years from now? And in one year? What are the vital few strategic initiatives to focus on? Make sure your leadership team is committed and fully aligned.
2. UNDERSTAND YOUR STRATEGIC AND FINANCIAL POSITION
Mapping out your plans depends on your strategic and financial position
(see Figure 2).
Figure 2. Mapping out your plans requires an assessment of your company’s strategic and financial position (Source: Bain & Company).
3. FREE UP “CURRENCY”
This is not about blunt cost cutting; the focus is on aligning your spending with your vision and strategic initiatives. Zero-based Alignment / Budgeting is a good way to select and make lean those activities that are fully aligned. The “currency” you free up can strengthen your balance sheet and support your investment agenda.
4. RETAIN YOUR CUSTOMERS
Retaining your customers is so much cheaper than acquiring new ones. The margin impact is significant. Explore ways to help your customers through the downturn and strengthen your relation with them. And be sure to focus on the right customers.
5. PLAN FOR VARIOUS SCENARIOS
Nobody knows when and how a downturn will unfold and when the economy will start to grow again. The winners have developed various scenarios, and they know how they should act in each scenario. This allows them to move quickly and decisively.
6. ACT QUICKLY AND DECISIVELY
Winning companies act quickly and decisively, both in the downturn and particularly in the early upturn when the opportunities start to arise. They have already created the “currency” to invest.
Not all companies have been equally aggressive in adopting new technologies. There are many opportunities here for improving efficiency or generating more value and thereby gaining a competitive advantage. The current COVID19 pandemic could well be an important catalyst.
This means that you have to be prepared for an economic downturn to come out as one of the winners. It should be noted that in these key actions, there is, in fact, no difference between being prepared for an economic downturn and running a business for continuous and maximum success. This picture is consistent with one that emerges from one of our other articles “How to create value in Industrials?”.
CHALLENGE
Our client was a Europe-based company developing and manufacturing key electronic components for customers in the consumer electronics; based mainly in Asia.
They were in the ramp-up phase of a new product, and growth was explosive. However, they were suddenly confronted with catastrophic product failure affecting 40% – 60% of the production output.
APPROACH
With senior management we worked on strategic and operational alignment with global market conditions. Together with cross-functional / level teams, we set an aggressive 23-week action plan for bringing production under control.
In production, we focussed on solving the quality problems, increasing the availability of production equipment and improving delivery reliability.
Through collaboration and knowledge transfer, we ensured that employees were empowered and accountable for the delivery of their improvement areas. We helped them to apply the relevant tools they had been trained apply in a skilled manner.
Together with the teams we introduced a new Performance Management System to support their new ways of working. By involving employees in the design, they developed a strong co-ownership of the changes, their unit and its results.
CHALLENGE
A second tier supplier of metal components for the automotive industry experienced great pressure upon its cost structure – and hence its prices. But a low price is not necessarily the decisive criterion. For many clients quality, speed and reliability are more important.
Meeting these criteria required not only a different approach to quality management, but also a simplification of the underlying processes. In fact, a “step change” was needed.
APPROACH
Our analysis was not about using a set of ratios to define the potential for improvement, we looked at the real details. We used a combined top-down and bottom-up approach.
Top-down goals were set that would determine the success of the business. Together with people involved in the business processes, we uncovered what was working well and needed to retained and what needed to be improved. Specific and measurable targets were set together with the managers involved; thus ensuring their buy-in.
In a joint team with client task-forces the implementation of required changes were addressed. Our distinctive approach ensured positive energy, local ownership and sustainability of results.
Many companies need to work hard to protect their bottom line. Driving down costs is a sine qua non – but done wrongly, it will damage the business. At the same time, growth drivers need funding to provide the means for future growth. Smart cost cutting will prune a company back to health and free up the cash to provide oxygen for growth drivers. Let’s explore how this is done.
Be explicit about value delivery
Be clear on the value to be delivered to your stakeholders both now and in the future. Design a strategy that enables resilience, irrespective of economic conditions. What products and services should you deliver? Work out an appealing vision that is also explicit about the mindset and behaviours that will create its success – this is a crucial factor that is all too often overlooked.
Align cost structure with vision
Once you have formulated your new vision, you will need to map out and understand the current activities and cost structures in detail. Work with five main questions: What activities can you not live without? What activities can you stop? What activities can you simplify or aggregate? Where can you redefine demand for activities? What new activities do you need?
Be clear on the must-haves and eliminate unnecessary or nice-¬to-¬have services and activities. Decide what can be outsourced, offshored or insourced, and how procurement can be rationalised.
Align and digitise the operating model
Design lean end-to-end processes
Answers to the questions listed above are the input for an iterative process that starts with the redesign of end-to-end business processes. Process mining is a tool that provides great insights into your current processes and will help you decide what to keep and what to adapt.
Drive down organisational complexity
Using the redesigned processes, assign responsibilities and accountabilities as low as possible in the organisation. Design logical, complete functions and think process flow, not department. Automate activities through software robots and integrate them as virtual employees with roles, accountabilities and reporting lines in the organisation. Create additional organisational layers only if they add value.
Create an effective reporting and meeting structure
Reduce the number of meetings held. Keep them focused and as short as possible. To improve a meeting’s effectiveness, be clear on what the meeting is for, who has to attend (and who not) and what information needs to be made available for the meeting. Each attendee should have the information that is required to do a good job – no more and no less.
Digitise
Capitalise to the max on the opportunities that intelligent automation provides and optimise the technology landscape. This drives down cost and improves both quality and speed.
Implement decisively
Design a roadmap from the current state to the future state and act decisively. Identify activities, but focus on results. If the activities don’t deliver the planned results, adapt the activities, not the timing of results delivery. Reinforce and develop the employees in their organisational roles – align their accountabilities and the implementation deliverables. The way the implementation is done shapes the mindset and behaviours in the organisation. Be sure this is in line with how the vision is formulated.
Maintain a relentless focus on cash and margin
Identify and deliver immediate operational cost measures to start generating cash. Move continuously from quick wins to more complex opportunities. Stabilise the supply chain, optimise working capital and optimise the supply chain processes. Keep on driving operational efficiency. Address the top line: address product and service offerings in line with your strategy and optimise pricing. Maintain a relentless focus on cash and margin throughout.
Provide oxygen for your growth drivers
Ensure that the growth drivers are well-positioned on the management agenda and the required resources are assigned and protected. Keep on driving their growth towards stretching KPI targets.
CHALLENGE
A chemicals company wanted to increase production capacity and reduce costs in sites across Europe. The company was struggling due to a prolonged downturn in the market. Profit margins were all but gone and they wanted to take the opportunity drive down the cost breakeven point, make a step change in operational performance and prepare for the next upturn of the market.
APPROACH
Conducted a detailed four-week Analysis & Design at one site to fully understand the issues and identify the improvement potential.
After 6 weeks of Implementation, we conducted Quick Scans at the other sites to check local improvement potential. After 4 months, we started a European rollout that was completed within 24 months and addressed all 8 sites: we simplified ways of working, implemented aligned operating models, drove up the OEE and eliminated fixed costs. Whilst still working on this assignment we identified major improvement opportunities in new product development and introduced a product innovation improvement programme.
CHALLENGE
A global manufacturer of engineering plastics was struggling to improve safety performance at its largest site.
APPROACH
Six-week Analysis & Design to understand the requirements, get a good insight into the blockages of moving forward and to co-create an approach for the Implementation.
During the eight-month Implementation we created the space and conditions for change, removed blockages (mainly top team behaviour), reconnected the various organisational layers, simplified the HSE processes and system, and conducted on-the-job coaching built upon brain-based safety principles.
CHALLENGE
An engineered capital goods company was struggling with ever-changing priorities and was slow to innovate.
APPROACH
Together with the top team we conducted two short workshops on vision and strategic goals, identified the KPIs and set the targets.
We then aligned the organisation vertically and horizontally through a strategy deployment process down to the shopfloor. KPIs and targets were integrated in the management system to ensure actual delivery.
CHALLENGE
A high-tech and consumer electronics company wanted to train and coach green belts and black belts in Lean Six Sigma.
APPROACH
Carry out in-house training with focus on personal and value-add projects of the participants.
Coach the participants over a longer period to make sure knowledge is transferred into changed behaviour.
Coach black belts to become master black belts and thus anchor Lean Six Sigma in the organisation.
CHALLENGE
A high-tech and consumer electronics company wanted to train and coach engineers and developers in Design for Six Sigma.
APPROACH
Carry out in-house training with focus on personal and value- add projects of the participants.
Coach the participants over a longer period to make sure knowledge is transferred into changed behaviour.
Coach the engineers and developers and thus anchor Design for Six Sigma in the organisation
