If business leaders understand that future value is highly likely to come from emerging technologies, why aren’t they rapidly progressing pilot programs? Because there’s a disconnect between how technology initiatives and old school projects receive funding. Dr Gary Hanniffy, Beca’s Business Director for Industrial Advisory, explains why traditional business cases are no longer fit for purpose, and furthermore how COVID-19 impacts are forcing manufacturers to re-consider their digital investment strategy, sharpen the pencil & prioritise investments.
Whenever I talk to our clients about the business value of Industry 4.0 and smart manufacturing, our clients usually recognise that significant value exists for their organisation into the future. And yet, these same organisations often knock back business cases after successful pilots – or even can’t persuade the business to see the value in the pilots themselves.
It’s made me realise that people are still using outdated business cases – with traditional assumptions – to evaluate emerging digital technology projects.
How does Industry 4.0 differ from typical capital projects?
- Multiple applications: Almost every relevant emerging technology will create value across our client’s organisations. Yet, most business cases only calculate return on investment (ROI) from a specific application in one business function or silo. If you only evaluate the likely return on using AR for training, the pilots normally won’t get going. But if you also account for its value in improving operational productivity, enhancing safety, boosting commercial outcomes, enabling immersive online experiences and remote collaboration or reducing the cost of preventative maintenance to name a few further benefits, the case is understandably strengthened.
- Strategy enablers: If you’ve defined your future 4.0 business model, there’s a very strong chance that some of the emerging technologies you intend to harness will be enablers of business growth, allowing your organisation to quickly capitalise on opportunities. For example, AI (Artificial Intelligence) is a new factor of production, with the potential to introduce additional sources of growth, changing both how work is done and the role of people in delivering value. No single-project business case can capture the potential opportunity here. Either you invest in AI and remain competitive, or you don’t and your business becomes irrelevant.
- Innovation drivers: Similarly, many of the emerging technologies swirling through Industry 4.0 are catalysts for innovation. How do you measure the business case of a technology investment that sparks ideas for a profitable new product – or changes your culture to be truly customer centric?
- Synergies: Few Industry 4.0 technologies exist in isolation. Most augment each other. AI improves the ROI return on investment (ROI) of robotics automation; digital engineering improves the ROI of AR. There is little reason why the 3D design technology you invest in to help design and build your plant can’t be repurposed, used to support operation and maintenance activities or for a very timely example, shift your manufacturing operations to produce high demand items (I.e. hand sanitiser or face masks).
One of our clients owns a very expensive, largely automated facility. Initially, designers used Augmented Reality (AR) to ‘walk through’ the envisaged plant before it was built to look at design flaws from a distance. Today, the same AR tools are used to remind the few remaining plant workers of the correct series of steps in their work instructions, avoiding expensive delays that occur if people make mistakes.
- Future value: Traditional business cases measure ROI in terms of today’s strategy. Enabling Industry 4.0 technologies, such as digital engineering, will only come into their own when today’s forms of the technologies are built on, refined and combined with other technologies - such as AR and simulation forming a pillar of your future state operating model such as a true ‘digital twin’.
Their value in your current business model may not be compelling, but in your future business it could be essential – especially as trends favouring remote working and collaboration accelerate in light of the COVID-19 crisis response. Operational processes are also consistently evolving themselves and good technology adoption programs will consider this changing environment and identify how staged or modular investment methodologies revise business case decisions.
- Dynamic costs and inputs: Every day, technologies are becoming cheaper and more developed. By the time a business case reaches an executive, the pricing assumptions applied to the technology investment will be out of date. By the time an executive pushes the button and the trial begins, the technology input the business case was predicated on will be available in a different, more powerful or more tailorable form.
How do we assess the true value of emerging technology to manufacturing businesses?
It’s time to ask different questions when assessing the value of an emerging technology to your business.
- What key operational problems are you trying to solve?
- How important are these problems towards achieving your business strategy?
- What technologies can help address them? Where are the synergies?
- What’s the commercial value to your entire organisation?
- How can you plan a technology investment to add value to future operations?
- What role will the technology play in your future state?
- Will it support innovation or culture change? Will it enable growth?
- What is the value of getting the right data in front of the right people at the right time?
The way we think about business cases needs to change.
To ensure the correct level of investment now, you need to be able to assess the value of Industry 4.0 technologies into the future. That means understanding how they will integrate with your business operations and workflows and how they will underpin your future model. In my experience, once our clients get a handle on these ideas, their approach to investing in emerging technologies changes dramatically.
This article was originally published in November 2018 and has since been updated to reflect the unique challenges and opportunities we face as a result of COVID-19. For our latest insights and advice on navigating this new world, visit our Business Resilience and Continuity page.
Dr Gary Hanniffy
Business Director - Industrial Advisory