What Happens When Digital Transformation Hits Your Industry

Jonathan Melnick, Ph.D. Director, Research

Apply learnings from the successes and failures in other industries

Digital transformation is happening, regardless of whether companies embrace it or deny it. There is general agreement that digital transformation is important, but few agree on what it means, particularly for traditional, nondigital industries like energy, automotive, food, and healthcare and their supply chains. Is it more a threat or an opportunity? What parts of the business are ready to be digitally transformed? As the digital transformation of physical products, markets, and operations progresses, incumbent players risk losing market share to peers who successfully integrate digital tools into their organization and perhaps even to new, digital-native competitors. Traditional companies need to figure out when to start, what to prioritize, what digital will change, and how to proliferate.  

When to Start: 

In most cases, if you are in a traditionally nondigital industry and haven't already started, you need to move forward now and think about how to make up ground on competitors that have a multiyear head start. Across physical industries, digital transformation follows a similar path, meaning that many learnings from one industry can apply to another. The path to digital transformation starts with a bigger portion of the traditional product and process mix becoming increasingly digitized, pushing traditional companies further and further outside of their core expertise. This shift creates an opening for digital-native companies, such as Apple and Google, to gain market entry. For example, the share of electronics and software in the total cost of automobiles has gone from 4% in 1970 to over 30% today and will reach 50% in 2030.

Blog Image_ DT of Transformation - Auto Costs

This digital transformation of automobiles has accelerated recently with vehicle infotainment systems, and now rides the vehicle digitalization wave further in autonomous vehicles. Even in 2015, when this shift was well underway, not all automotive companies saw the transformation going on in their industry, and their attitudes reflected that sentiment, leaving some to play catch-up. 

Blog Image_ DT of Transformation

Where to Prioritize:  

Many traditional companies currently focus their digital transformation efforts on operational efficiency and target use cases like cold chain monitoring, predictive maintenance, materials informatics, robotic process automation, and customer analytics. While such projects focusing on operational efficiency are necessary, the benefits from such projects will likely erode over time as peers start implementing similar initiatives. The companies should start looking at their core expertise as not only their industry-specific knowledge, but also their industry-specific data access, as the true value of digital lies in being able to monetize data. With this data in mind, companies should use the data strategies of digital natives like Google, Amazon, and Facebook to use multiple internal data streams to derive insights, tightly integrate customer and operational data, add external data streams to their proprietary mix, and leverage data streams with weak signals. 

What Digital will Change: 

Fundamentally, there are six core ways that digital adds value:

  1. Uncovering invisible insights
  2. Predicting the future
  3. Optimizing
  4. Upskilling humans
  5. Making information accessible
  6. Automating

 

These elements combine into cross-industry use cases like design optimization, optimized operations, and peer-to-peer sharing. Understanding these core elements and cross-industry use cases enables companies to track the trends and progress of digital transformation over time, identify use cases that have not yet hit their industry where opportunities may exist, and learn from implementations in other industries that may have tackled challenges similar to those they face. For one example focused on Augmented Reality (AR) implementation in enterprise applications, check out our webinar Augment Your Business with AR 

Digital transformations are fundamentally similar cross-industry in what they change, achieving the same core outcomes but with different underlying technologies, applications, and business impacts. For example, predictive maintenance, while well-known in industrial applications since the mid-1900s, has recently experienced a renaissance as sensors, connectivity, and analytics technologies have advanced. However, the healthcare industry is starting to see predictive maintenance as well, applied to the human body – for example, in pressure ulcer prevention and diabetes prevention

DTX - Predictive Maintenance Across Industries

How to Proliferate: 

Companies need to build the right team responsible for proliferating digital transformation. The team should be cross-functional and include CEO buy-inToo often, individual groups or business units attempt their own digital transformations, which are extremely difficult to scale and integrate with other parts of the organization. That cross-functional team must then find the right technology for cross-organizational priorities, bringing the right capabilities in-house or developing the right partnerships to become not only digital-literate, but digital-forward. Finally, this team needs to act like a digital-native company within their organization, adopting faster, more agile processes. 

Understanding the path of when, where, what, and how digital transformation will change your industry and organization is critical to being prepared for its impact. In doing so, organizations can turn the digital transformation of their industry into an opportunity and true competitive differentiation rather than a disruptive threat. 

 

FURTHER READING

- Recent report: The Digital Transformation of Power (available to Lux members only)
- Recent report: Strategies for Monetizing Data (available to Lux members only)
- Recent webinar: Augment Your Business with AR