IDC ANALYST CONNECTION Sponsored by: GE Digital

Digital Transformation: A Primer for Industrial Organizations September 2019

Questions posed by: GE Digital

Answers by: Stacy Crook, Research Director, Internet of Things, and Reid Paquin, Research Director, Manufacturing IT Priorities and Strategies

The opportunity for digital transformation (DX) is massive, but maturity is still lacking. What is holding industrial organizations back?

IDC's research finds that over the past year, global organizations have spent more than $1 trillion on DX, with industrial organizations (manufacturing, oil and gas, utilities) contributing more than a third of this spending. We have found that the top reason companies adopt a DX strategy is to increase their adaptability and agility, resulting in the ability to quickly seize new opportunities. By providing real-time information on the status of things, people, and processes in industrial environments, the Internet of Things (IoT) serves as a key enabler of these goals.

However, transformation is an organizationwide exercise in change management, and companies inevitably hit some bumps on the road as they work through this process. According to IDC's 2018 Digital Transformation Executive Sentiment Survey, the top challenges industrial companies typically encounter within their DX initiatives include:

» Integrating digital projects across the organization (53.8%)

» Building the right organizational structure (48.7%)

» Developing digital capabilities and skills (48.2%)

» Finding key performance indicators (KPIs) to measure digital success (46.1%)

» Creating a strategic road map for digital investments (44.4%)

» Lack of infrastructure to support a digital enterprise (29.5%)

Beyond the challenges involved with building a DX strategy, an IoT technology implementation can also come with additional issues such as concerns about cost, security, and technology stability.

For industrial organizations, digital transformation (DX) drives operating efficiencies, improved customer experiences and, ultimately, revenue growth. By providing real-time data on the status of assets, processes, and people, the Internet of Things serves as a key enabler of these DX goals.

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IDC ANALYST CONNECTION Digital Transformation: A Primer for Industrial Organizations

As the industrial environment becomes increasingly connected, how do you manage all the data and keep it secure?

Industrial organizations often start out by connecting a single asset; leveraging IoT data to enable a full transformation requires a much broader data set. While a single asset is a good place to start, the goal would be to connect larger groups of assets so that an organization can understand how an entire process runs from start to finish and then, eventually, how those processes compare from site to site. Such comparisons can be made only if all the data is streaming into a common data processing and analysis platform.

Therefore, organizations that are serious about leveraging IoT to digitally transform should evaluate highly scalable industrial IoT platforms that can seamlessly support the cloud/edge/endpoint continuum. These platforms typically have mechanisms to manage devices and data as well as to secure data in motion and at rest. Organizations should seek out API-driven platforms that allow them to securely integrate data with other key systems of record or engagement that they already have in their environment. This will allow them to trigger the appropriate action based on the IoT event data.

Who leads the DX processes and projects — IT or the line of business?

When it comes to DX, IT is putting forth the largest amount of effort as a group within industrial organizations, but that is shifting. More and more, industrial companies are relying on the lines of business (LOBs) to maximize their transformation efforts. In fact, IDC estimates that by 2023, 45% of LOB leaders will internally develop technology applications (sometimes augmenting commercially sourced applications), shifting the development cost and investment from IT to LOB.

Industrial organizations have tended to operate in silos, but that is beginning to change. As companies become more mature from a DX perspective, well-managed IT/LOB collaboration becomes increasingly paramount to success. One of the best tools these groups can leverage to ensure alignment is a converged IT/LOB governance plan. Creation and proper execution of this plan are critical steps; in fact, IDC believes CIOs who cannot manage to bridge the current governance, strategy, and operations divides between LOB and IT will fail professionally. In contrast, organizations that manage to successfully bridge this divide will be able to create a holistic end-to-end view of a dynamic business ecosystem made of processes, workflows, things, people, suppliers, partners, and client demands. This holistic viewpoint is key to enabling comprehensive business transformation.

As companies become more mature from a DX perspective, well-managed IT/LOB collaboration becomes increasingly paramount to success.

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IDC ANALYST CONNECTION Digital Transformation: A Primer for Industrial Organizations

When choosing a technology provider, what are the top selection criteria to consider?

It is important to assess the products and services the vendor is bringing to market, the ecosystem the vendor is building around its offerings, and the vendor's level of industry expertise.

Many industrial companies have already made technology selections for their operational technology (OT) environments and traditional IT back-end systems, and these systems can't just be replaced. The new component that they will be adding into the mix will be the IoT technology, which will act as the connection point between the OT and IT systems. As mentioned previously, organizations need highly scalable and secure IoT systems that can gather data from any asset, anywhere, and analyze it in near real time to enable better decision making and, over time, more autonomous systems.

Next, companies should assess the ecosystem they are building around their platform. IoT technology generally requires several companies to come together and work harmoniously; therefore, strong partnerships between vendors can help speed implementation times. Look for an ecosystem that can support your transformation efforts in the near term and that aligns with your long-term objectives.

We recommend assessing the level of expertise that a potential technology provider has within your industry. This knowledge can be leveraged to guide organizations to the most valuable use cases within their industry. In addition, the provider may be well positioned to build semantic graphs of assets, which are used as the basis for digital twin design.

DX sounds like a daunting task. Where should I start?

Although the investment for DX is high, most industrial companies still approach it in a siloed manner, sticking to pilots or proof of concepts (POCs). Currently, less than 15% of all industrial organizations have DX initiatives in production enterprisewide, which is the only way to truly transform. Using a road map framework is essential to help industrial organizations across any industrial value chain articulate a vision for DX, prioritize use cases that meet pressing business goals, and identify the necessary IT, financial, and talent resources. At the same time, organizations must ensure they are fostering the proper environment to act on these plans. To drive employee engagement, industrial organizations must create tangible connections between how individual employee roles contribute to DX goals and the benefit of those outcomes. These are particularly important steps to take in the industrial environment, which is often resistant to change. Without prioritization and clear change management plans across stakeholder groups, industrial companies run the risk of squandering time and resources attempting to implement DX through unorganized, uncoordinated one-off projects that won't scale.

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IDC ANALYST CONNECTION Digital Transformation: A Primer for Industrial Organizations

IDC has built out DX use case taxonomies for each industry that can serve as templates for companies looking to begin their transformation journey. IDC's road map for industrial DX use cases can be divided into three time horizons:

» Immediate (Horizon 1). Use cases are being deployed today, and the underlying technology to support them is readily available to the industry. An example would be providing connectivity throughout the plant and tools to analyze this data.

» Midterm (Horizon 2). Use cases are being incubated. They build on capabilities established in Horizon 1, but they are more advanced and may use tools such as mobility, advanced analytics, and machine learning. The combination of real-time data access and powerful analytical tools allows for optimized decision making across manufacturing outcomes (e.g., cost, productivity, quality).

» Long term (Horizon 3). Horizon 3 imagines the "blue sky" possibilities. Starting from this point, an organization may place some bets on the underlying capabilities supporting these use cases. Accordingly, this helps prioritize which use cases to focus on in Horizon 2 and, in turn, Horizon 3. Horizon 3 use cases tend to revolve around artificial intelligence and autonomous decision making.

About the Analysts

Stacy Crook, Research Director, Internet of Things Stacy Crook is a Research Director with IDC's Internet of Things Ecosystem and Trends research practice. In this role, she provides coverage of key software trends across the IoT landscape, including the platforms organizations leverage to manage IoT endpoint devices and connectivity; collect, process, visualize, and analyze IoT data; and integrate IoT data into other applications, systems, and services.

Reid Paquin, Research Director, Manufacturing IT Priorities and Strategies

Reid Paquin is Research Director for IDC Manufacturing Insights responsible for the IT Priorities and Strategies (ITP&S) practice. Mr. Paquin's core research coverage includes IT investments made across the manufacturing industry and manufacturers' progress with digital transformation. Based on his background covering the manufacturing space, Mr. Paquin's research also includes an emphasis on the technology enablers that help manufacturing executives make better-informed operational decisions.

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IDC ANALYST CONNECTION Digital Transformation: A Primer for Industrial Organizations

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