IFS research reveals that 32 percent of manufacturers are yet to derive value from servitization
IFS, the global enterprise applications company, today announces the manufacturing industry-specific results of its Digital Change Survey. The study concludes that the industry is using a wide range of digital technologies to drive commercial growth as servitization efforts take hold, but that skills shortages, aversion to change and reluctance to collaborate externally remain key challenges.
Servitization drives change
The strategic shift from manufacturing products towards creating new services through ‘servitization’ is a key factor behind the imperative for digital transformation. 68 percent of respondents claim that servitization is either ‘well-established and is already paying dividends’ or ‘in progress and is receiving appropriate executive attention and support’. However almost one in three manufacturing companies are still to derive value from servitization.
“The servitization of the manufacturing sector is being driven partly by competitive pressures, but also from customers who are demanding more and wanting everything faster,” said Antony Bourne, VP of Global Industry Solutions at IFS. “The manufacturers that have not yet adopted a service-centric business model are missing out on revenue streams and new ways to develop their offerings. To be successful in their response to customer needs and increasing demands, manufacturers must compress time to market, taking an idea through from design to a saleable item as quickly as possible. New digital technologies can help with this.”
Unlike those in other sectors, who view digital change primarily as an efficiency play, manufacturers see it as a key to unlocking commercial growth. Some 37 percent identified ‘accelerating innovation’ as a driver for change – more than in any other industry – while competitive differentiation (32 percent) was also a top five factor. In fact, these two can be seen as almost comparable with more common organizational drivers: ‘internal process efficiencies’ (40 percent) and ‘cost savings’ (33 percent).
A digitally mature sector
The manufacturing sector is taking full advantage of a range of new technologies to accelerate growth, with 83 percent of respondents identifying themselves as ‘enabled’, ‘exploratory’ or ‘enhanced’ and not a single one in the ‘nascent’ stages. North American firms are at the vanguard with 55 percent identifying as ‘enhanced’ or ‘optimized’; much higher than EMEA (29 percent) and APAC (21 percent) respondents.
However, 84 percent of manufacturers said they think funding is ‘adequate’ or ‘advantageous’, the lowest of any sector. Furthermore, 12 percent described funding as ‘excessive’, something not seen in any other industry. It is clear that manufacturing firms are not always allocating budget effectively, or getting value for money.
However, the report also highlighted cultural challenges which may impede digital transformation efforts, especially openness and willingness to share with external third parties. Almost a third (31 percent) of respondents said they wanted to increase collaboration, identifying ‘aftermarket/estimating’, ‘supply chain’ and ‘sales/bid management’ as key areas. With 57 percent reporting a very strong level of internal integration and cross-departmental work, external collaboration seems to be the area where there is room for improvement.
Servitization offers new job opportunities for manufacturing employees currently focused on production-only tasks. However, nearly a quarter (23 percent) of respondents claimed that a lack of skills and talent currently present a barrier to change, with AI/robotics and business intelligence the two areas most deeply affected. In fact, there’s a sizeable opportunity for manufacturing organisations to better communicate the fact that servitization and the proliferation of machines in the workplace can create new jobs: currently 49 percent of workers cite aversion to change as the biggest barrier to digital transformation.
Nevertheless, 71 percent of respondents are taking proactive steps to upskill their existing talent, while 29 percent are also looking to hire externally.
Lacking data-driven insight
Big data and analytics is identified as the number one digital technology for investment by respondents. However, just a quarter (26 percent) are actually harnessing data-driven insight successfully to deliver faster time to innovation. It seems that most manufacturing firms have yet to work out how to derive value from their data. In fact, 58 percent claimed they are only ‘beginning to utilize data-driven insight, which is starting to have a positive impact on time to innovation, but it is not yet a competitive advantage’.
Accelerating digital transformation
That said, there are signs that manufacturing firms are embracing automation – which was identified as the most disruptive force facing the industry – and new ways of using data to stay competitive and innovative. Over half of respondents (55 percent) have already transitioned to smart manufacturing, with a further 26 percent expecting to do so within two years. To stay ahead of the competition, firms will need to accelerate their adoption of digital transformation, and third-parties can help here by bringing in much-needed skills and resources. Some 81 percent of manufacturing respondents say ‘the company’s current third-party vendors are equipped to provide for future digital needs’. The report reveals that manufacturers see third parties playing key roles in ‘digital organization and operations’, ‘performance analytics and reporting’, and ‘digital strategy’.
About the IFS Digital Change Survey
This survey was commissioned by IFS to assess maturity of digital transformation across industries on a global scale. The cross-industry report can be found here. It was conducted as in-depth interviews by the research company Raconteur, who took in the views of 750 decision makers in 16 countries in the oil and gas, aviation, construction and contracting, manufacturing, and service industries. Within manufacturing, 150 respondents participated in the survey. Countries surveyed were USA, Canada, the UK, Sweden, Germany, France, China, Japan, Australia, Norway, Denmark, the Netherlands, Spain, Poland, the Middle East (as a region), and India.