Most industrial sectors are likely waiting for a ‘tipping point’ in digital transformation because the financial risk stops them from a making meaningful investment in change, says engineering industry executive Franz Kufner.
Kufner’s comments come off the back of the recent Frost & Sullivan report, Leveraging Digital Transformation for Growth, which surveyed more than 206 respondents across industrial sectors, including oil & gas, minerals & mining, engineering, procurement and construction, petrochemicals and more.
Most report respondents (55%) say they are in a testing, ideation or learning phase – with a significant portion in “wait-and-see” mode, which Kufner says is inviting disaster.
“There’s a lot more risk in doing nothing. Chances are companies who do nothing won’t be around in 5 years. Particularly for mid-sized organisations – this could mean life and death,” he says.
“People are aware of digital transformation, but there is no breakthrough yet. People just aren’t moving fast enough – they want to see somebody else fail and learn from that.”
The report also shows most organisations (69%) allocate less than $USD 10 million in budget toward transformation efforts, while 35% invest $USD 1 million or less.
Kufner says APAC’s investment in digital transformation shows the region’s maturity is still in its infancy, with most organisations engaging in ‘trial and error’ strategies. Rather, focus should be on digitising one specific process and expanding from there.
“You need to look at your overall strategy and how do I improve these business processes so that it impacts my costs, my schedules. Companies need to be faster and the way to get there is with digital technology, but you need to tackle this problem in small increments.
“People will give up quickly if the job is too large or too daunting, nor will they be engaged if they can’t see results quickly – those people will either resist the change or be hesitant to fund it. Nobody will change if their lives, or KPIs, don’t get better.”
Complicated, confusing and costly?
Digital adoption is a complicated and costly journey if you attempt it all at once because the risk increases with the size of the investment, which most organisations in the traditionally conservative industrial sectors are not prepared to do.
However, the real danger is in doing nothing which can “doom” your company, says Kufner.
Companies are too focused on the big-ticket digital transformation items, such as big-data analytics, artificial intelligence and the industrial internet of things, which are all outcomes of effectively digitizing at the micro level. Accordingly, most organizations put the cart before the horse.
“Don’t worry about AI and machine learning before you even have the ability to gather the data.If your data is rubbish, it doesn’t give you any benefit,” says Kufner.
‘Focus on what you do best’
Most APAC companies build internal software solutions to their existing business challenges to keep the data and benefits in-house, says Kufner. However, those organisations are dividing their expertise between what their core competency and software development.
This division of resources erodes a long-term competitive edge as more and more resource needs to be dedicated to the maintenance, usability and sustainability of the ‘home-brew’ solution, he says.
While developing in-house can cut costs in the short-term, over time the hidden costs of these solutions add up and it is no longer viable.
“Sooner or later, the homegrown solution dies,” he says. Instead, a better use of an IT department’s skill set is to act as the bridge between a vendor and the business side of a company.