ROKLive DX Strategists Conference: Manufacturing Digitalization Keys to Success

Summary

Digitalization remains a key factor when working toward manufacturing success, especially during disruptive times, such as the COVID-19 pandemic the world is now weathering, digital transformation evangelist Tony Saldana said at the ROKLive DX ( Digital Transformation) Strategist Conference. Saldana highlights the opportunities successful digitalization offers and outlines the skills, actions and mindsets manufacturing companies need to thrive during not only the pandemic but also, in a broader sense, the Fourth Industrial Revolution Era.

About Tony Saldanha

Tony Saldanha, retired Procter & Gamble, VP, now industry advisor, speaks from 27 years of experience with Procter & Gamble including 14 roles, covering all aspects of shared services, including running the company’s GBS (Global Business Services) and IT operations in every region across the world.  Tony is currently President of Transformant a consulting organization that advises companies including over 20 of the Fortune 100 companies around the world in digital transformation and global business services.

He is also a founder of two blockchain and AI companies and serves as an adviser to venture capital companies. His book, Why Digital Transformations Fail was released globally in July 2019 and ranked #1 on Amazon’s New Releases for Organizational Change, was listed on publisher Berrett-Koehler’s best-sellers for July 2019, and was recommended by various publishing forums like CEO-Reads, Book-Pal, CEO Library and others. Forbes contributor Michelle Greenwald called it the “best business book ever that you’re yet to read.”
 

What is Digital Transformation?

Digital Transformation involves the migration of enterprises and societies from the Third to the Fourth Industrial Revolution Era. This is accomplished by rewiring the company business models, processes and people so companies successfully compete in the Third Industrial Revolution are successful in the Fourth Industrial Revolution. The Fourth Industrial Revolution in the corporate and public-sector landscapes disrupts, transforms and creates opportunities. Important factors for successful digitalization:

• Language: Agree on an operational definition of digitalization within your organization. If people are unclear regarding what digitalization means‑-some people think it is technology; others think it is a new solution--in reality, it should mean rewiring of business models, products and internal operations to succeed in the 4th Industrial Revolution.

• Execution: Proper execution of the transformation is critical for success.

• Committed Leader Ownership Essential: Successful organizations must garner support not only from senior leaders but also commitment to personal implementation. A large gap exists between sponsoring an idea and completely committing to it. “Lack of senior leadership commitment is a major factor leading to 70% digitalization failures,” Saldanha noted.

How digitalization impacts various aspects of the industry

Fortunately, awareness is growing among manufacturing company leadership that digitalization is essential to remain successful, profitable and competitive. Leaders understand that the five top 10 companies in the world by market capitalization in 2018 were technology companies--excluding Amazon and Alibaba, which are classified as “consumer services.” Conversely, just eight years ago, Microsoft was the only technology company in the top 10.  Saldanha then provided additional insights regarding technology’s impacts in the various aspects of the industry:

• Supply Chains: Supply chains are changing with algorithm-based supply chain planning, dramatically shrinking product inventories and lead times. For example, fashion retailer Zara has been delivering fashion from designer ideas to retail stock within two weeks for several years now. In addition, Chinese cell phone manufacture Xiaomi ships newly designed batches of phones every week, and each new design possesses superior capabilities to the last. Research and development is becoming rapid and iterative.

• Financial Services: By 2025, 10% of all wealth being managed by financial planners will use a combination of AI and humans.

• Computing Power & Affordability: By 2027, machine literacy--the ability for computers to be above basic human literacy levels--will exceed that of 24 million US people. Moore’s Law of continuing exponential computing power at lower costs continues to drive innovation. Ray Kurzweil, American inventor and futurist, predicts that by 2023, the cost of computing roughly the equivalent of one human brain will cost $1,000.

• Labor: Forty to fifty percent of jobs in the manufacturing, transportation and retail sectors could be done by hardware or software robots by 2030. Later, 3D printing will disrupt manufacturing robots, as consumers print products at home. Saldanha, who serves as a consultant for many companies, including 20 of the Fortune 100 corporate boards and CEOs, says the number one question they ask is: “If I have to make organizational people choices for the future between getting $1,000 dollar computers and people, what do I do?”

Digitalization Opportunities Amid the Pandemic

Saldanha believes a huge opportunity exists for companies that sustainably increase productivity and profitability during the pandemic-driven economic crisis to outpace others after the crisis. We can see this type of success is possible by remembering the 2008 financial downturn, when some companies took offensive action early enough to achieve 14% CAGR (Compound Annual Growth Rate) greater EBIT (Earnings Before Interest And Taxes) from 2007 to 2017. “That is the fourth Industrial Revolution at work,” Saldanha said. “We are in the midst of a revolution.”

Disruption Empowerment - How Do You Get Your Organization to Think 10 X?

Companies must employ different strategies during these strange times, during this Industrial Revolution, than they would during normal times. Saldanha indicated that companies need three buckets of strategy. “Everything you learned in MBA school about two buckets of strategy--day-to-day operations and continuous improvement--does not work in times of Industrial Revolutions.”  Google uses the 70-20-10 Model, which means 70% of capacity focuses on running operations, 20% of capacity focuses on continuous improvement, and 10% of capacity focuses on disruptive innovation to gain 10X results. The ratios may be different in your organization. “At Procter & Gamble, my ratio was more like 80%, 19.9%, and 0.1%,” Saldanha said. 
 

Change Model

Saldanha commented that every day is different, particularly during the pandemic. “There is never an easy straight line between point A to point B; it is the people that are agile and creative that thrive in times of change,” he said. Saldanha views the state of our world through the lens of the4S Model Economic Model of Change, noting that we are in stage two in a four-stage recovery.

• Stage 1: Scrambling, getting people working online  (i.e. Zoom and other tools)

• Stage 2: Stabilization & keeping systems running

• Stage 3: Streamlining to achieve cost-effective systems enabling business productivity

• Stage 4: Transforming systems & business models  

FOBI Strategy

Saldanha discussed using the FOBI (Fund - Offensive - Big Bet - Invest ) model to understand how to approach digital transformation based on your company’s market share and financial strength.



If you have high financial strength and high market share, you can concentrate on investing in digital transformation. If your company has low market share and low financials strength, he suggests finding a way “to save to reinvest” by reducing cost. This enables you to make forward investments in digitalization.

Regardless of the approach, Saldanha believes digital transformation is key for success in this is a time of tremendous opportunity to leverage digital transformation to take a leadership position in your industry. 

Benchmarking is Ineffective & Misleading

Saldanha characterized benchmarking as an “ironic problem” in times of major technological change that misleads companies into thinking they are on the right path for the future. He noted benchmarking yourself against peers that you believe is your competition misleads companies because in times of change, such as Digitalization and Industry 4.0, the real competition are startups. “They have 10 times the agility and two times internal cost advantages in addition to having newer business models,” he explained. “People still focus too much on winning the 3rd Industrial Revolution and not enough on winning the next one.”

10X Thinking

Saldanha said, “It is not sufficient to deliver 10% year on year improvement any longer; you have to deliver 10X.”  Thinking more broadly this led him to insights and questions for creating 10X ideas:

• In today’s world of data, why would you ever force employees to do travel expense reports? You have all the data (credit card, etc.) streamline the process and improve productivity.

• The world still operates its supply chain on MRP II, demand forecasting, demand planning, transportation, etc.  The problem is that this is a linear sequential batch process. In today’s world, you can run your supply chain in real-time end to end. “ So, if a factory in some part of the world has a problem, you can recalculate the supply chain inventory and plan for a given product across the world in real-time.”

• How can purchasing be accomplished more efficiently leveraging artificial intelligence?

• Can artificial intelligence improve results and productivity for call centers, accounts receivable, legal, self-healing IT, etc.?

• How do we achieve hundred percent master data accuracy?

Edge Organization Employees Willing to Pursue 10X Change

Create an Edge Organization--like Google X--that operates on the fringes of the organization with exponential employees. Empower your Edge Organization to take high risks and bring in high returns. Edge Organization employees must have a disruptive mindset to pursue 10X change leveraging Moore’s law and other new technologies and concepts. “To succeed, you must manage this organization like a venture capitalist, understanding that you are creating a portfolio of solutions,” Saldana said.

The Edge Organization requires a different reward system from the current day-to-day organization so it needs to be kept separate. This group needs to be firewalled from traditional organizational processes and requirements--for example, if you take three months qualifying a new vendor that will not work when you’re working with high-tech companies and startups. He characterized this as an amnesty from processes including human resources, IT, purchasing, legal, etc. Later when these are successful the full force of existing processes can be applied. This is essential for the period of ideation to achieve 10X results.

Ecosystems

Today’s digital world is filled with extremely successful pilot tests that go nowhere. Saldanha noted that to be successful in this arena, you need to build an ecosystem in the organization which has elements illustrated by in his approach:

• Subject Matter Experts and Influencers (approximately 12 people): Start with a handful of most credible middle managers in the 10X team (i.e. not technologists or innovation leaders alone).

• Startups: Reach out to startups. P&G used a network of 10 venture capital firms to identify and connect to start-ups.

• Global IT Services Partners (5-6): HP, Ernst & Young, etc. were required to staff up at their own cost to provide people for this ecosystem.

• Create a methodology: Define or acquire 10X project and portfolio management methodologies

• Venture capitalist: Run the 10X team as a “venture capitalist.”

The P&G Edge Team analyzed and targeted the largest 10X opportunities based on pain points and identifying digital leverage points. This was used to approach startups looking for the biggest disruption technology that is ready in a small way but not quite ready to scale. Then he went to the large Global IT Services Partners and offered P&G as a playground to scale up those solutions. These partners were not paid but provided the resulting intellectual property they could sell to anyone in the world except P&G competition. They pursued 25-30 ideas.

“We in large companies worry about technology readiness, but startups worry about use cases,” Saldanha said. “If there is a use case solution, startups will apply it quickly.”

Skills Needed for Successful Digital Transformation

Saldanha commented that there are three essential professional skills for successful digital transformation:

• Change Management

• Digital Literacy

• Strong Process/Product skills

Ninety percent of DT failure is due to change management. You don't need to be a technical expert; you just need to know how to convert technology to successful use cases. And the third skill of understanding your company’s core processes and products.  

Overall, Tony Saldana made a convincing presentation that to be successful, companies need to embrace Digitalization and the Fourth Industrial Revolution. ”Today, we live in a world where opportunity is not the problem; instead, these are unprecedented times in terms of opportunity,” he said. “Smart people have a very bright future.”