Industrial digital transformation: Using AWS to win freedom from pilot purgatory
Digital transformation is not a buzzword anymore. In fact, the last 18 months of the COVID-19 pandemic have upended the very nature of work to the extent that we are currently experiencing what many are calling the “Great Resignation.” The new normal is quite different; remote work is here to stay. If companies do not embrace digitalization of their core business operations and maintain worker productivity in the changing work culture, they will self-inflict an imminent existential threat in the not-so-distant future.
Organizations have been experimenting with digital transformations for the better half of the last decade. Senior executives are convinced of its value, making it conspicuous in corporate strategies: 87 percent of senior business leaders say digitalization is a company priority (Gartner), while 76 percent of executives agree that organizations need to dramatically reengineer the experiences that bring technology and people together in a more human-centric manner (Accenture). However, the initiatives, to date, have not yielded particularly impressive results: only 16 percent of executives say their company’s digital transformation efforts are succeeding (McKinsey & Company [McKinsey]), while 72 percent of strategists say their company’s digital efforts are missing revenue expectations (Gartner). Contrary to popular wisdom that equates digital transformation primarily to the implementation of digital technologies, the challenges are more telling in the organizational culture and leadership willingness to adopt the operations of a digitally transformed business. The reality, though, is that most, if not all, digital transformation initiatives start with some form of a proof of technology, also known as a technology pilot or a proof of concept. A McKinsey report found that less than 30 percent of pilots are starting to scale while 84 percent of companies were stuck in pilot mode for over 1 year and 28 percent for over 2 years—the famed “pilot purgatory” that all organizations are familiar with as a reason behind slow or failed adoption of digital transformation.
The AWS Viewpoint
At Amazon Web Services (AWS), we attribute the lack of success in digital transformation for industrial organizations to a few overarching organizational factors:
- Lack of clarity on digital strategy—either senior leadership is unclear or divided on a clear digital strategy or the clarity is not articulated down and across the organization; business units and the workforce construct their own siloed understanding of “digital” and go on with their own approaches to implementation.
- Follow-through from strategy to investment—the vision and strategy is not followed through with a committed investment to spend, primarily owing to the lack of a clear road map to value realization.
- Lack of a business case—the inability to quantify the value of digital transformation that either reduces the bottom-line spend or grows the top-line revenue, deterring the commitment for long-term strategic investment that is imperative to sustain the implementation of a digital transformation.
- Lack of alignment with operations—industrial firms are typically very engineering and process driven. Above and beyond being heavily dependent on a complex supply-chain environment, they work with greasy industrial machines on a shop floor. Digital transformations that often decline into glorified IT transformations typically help IT but not the core operations. Transformation approaches that align with core operational processes are imperative for success and are often the missing link.
- IT–operational technology (OT) architecture—industrial organizations are different from industries like financial services or retail in terms of the former’s dependence on heavy equipment and industrial assets that form the core of their production operations. Working with near-real-time systems (for example, supervisory control and data acquisition systems and programmable logic controllers) puts a heavy premium on latency constraints. As such, a cloud-only architecture needs to be integrated with a shop-floor and (potentially) edge systems architecture to form a tight alignment between the IT-OT architecture. Solutions that are designed as cloud-only environments are often suboptimal in value creation.
- Pilot purgatory—it’s problematic to engage in a series of eternal experimentations with new digital technologies without a quantified business case that justifies a true business rationale for the initiatives needed to scale across the enterprise.
The AWS Approach
Having analyzed some of the root causes for the lack of success, we at AWS Professional Services— a global team of experts that customers can use to realize desired business outcomes on AWS—have developed a structured and programmatic approach that our customers can use to successfully implement true business-driven digital transformation initiatives. Our approach, code-named Industrial Transformation Acceleration Framework (iTAF), uses a shift-left strategy that takes the initial attention away from technology pilots and identifies the operational processes that can take advantage of digitalization to save operating costs. The approach also determines whether and how new digital products and services can create revenue streams through new digital channels and enhanced customer experiences. The approach is packaged into a practical offering that consolidates a rich portfolio of learning from across Amazon delivered through a set of hardened assets that brings consistency and speed of implementation across a diverse set of our industrial customer profiles.
One of the principles that we follow is that, if our customers can use our help to gain the required strategic alignment, clear road map, and clear and quantified business value for the transformation, then the rest of the work that is needed to implement and launch the digital solution at scale is already supported on AWS. It is the upfront work that is critical to make any serious transformation start with the right foot forward instead of getting stuck in “pilot purgatory.”
iTAF takes a seven-step approach to delivering strategy alignment, executive sponsorship, and investment commitment. Using this approach, customers’ industrial digital transformation programs can be run as corporate initiatives. Here are the highlights of the seven steps:
1. Readiness Assessment—perform a maturity assessment across a subset of the operational functions (strategic planning, strategic sourcing, logistics, production asset optimization, quality management, sales and order management, worker safety and productivity, and sustainability) across the operations value chain. Assess maturity and readiness as it pertains to processes, technology, workforce capabilities, and business commitment to the transformation.
2. North Star Vision—develop the future-state vision of the business (in the transformed state) and develop the progressive pathway that needs to be followed to get to the envisioned result. This is documented through the press release and frequently asked questions (PRFAQ) process used by AWS.
3. Business Case—develop a quantitative business model that quantifies the return on investment (ROI) for the opportunity; it consolidates the opportunity value for each of the areas in the operations value chain that are in the scope of the transformation.
4. MVP Catalog and Use Cases—develop a formal definition of the capabilities that will be developed in the first iteration of the product, or minimum viable product (MVP), for each of the functional areas that are confirmed to be in the scope of the transformation.
5. Use Case Catalog—for each MVP, identify and document the set of use cases that will collectively realize the capabilities of the MVP; focus primarily on the functional capabilities that will be implemented as a combination of digital technologies and process refinements.
6. High-Level Solution Architecture—develop a high-level solution architecture that identifies the technical components and their network placements (cloud, on premises, edge) required to support the implementation of the MVPs.
7. Program Road Map & Implementation Plan—develop a timeline-driven progression pathway of iterative capability maturity toward the transformation goal; focus on the next 12–18 months.
As stated above, our approach addresses the overall operations value chain. The major functional areas of operations that get addressed are the following:
1. Smart Product Design—typically a growth lever through which an organization can determine a new set of digital products or services that may be developed and offered through various innovative digital touchpoints and channels to market.
2. Strategic Sourcing—a cost optimization component based on supplier network and parts fulfillment capacities. This area also influences customer experience metrics based on timeliness of order (typically of parts) fulfillment.
3. Strategic Planning—involves the long-term planning of production as it relates to historic demand signals and seasonality, thereby aligning production planning with demand forecasts and sourcing constraints and dynamics.
4. Quality Management—a cost optimization component based on the effectiveness of the cost-of-poor-quality metric, affected by quality of sourced component parts, quality of the final product, and the quality of the process used to manufacture or assemble the components.
5. Production & Asset Optimization—a cost optimization component based on the efficiency of the production operations, typically on the manufacturing shop floor and typically measured by the APQ metric, which is the product of availability, performance, and quality. Usually, there exists a significant opportunity to increase operational efficiencies leading to better and more predictable productions.
6. Inventory and Warehousing—a cost optimization component that is based on optimizing the inventory-on-hand metric and subsequently the optimization of space allocation in the warehouses, which influences the ability to fulfill customer orders.
7. Logistics—a cost optimization component that takes into account multiple complex requirements around the type of freight (land, sea, and air), the choice of third-party logistics providers, and the optimization of the network routes to the distribution centers, retailers, and customers, all of which maximize the on-time-in-full metric.
8. Sales & Order Management—both a revenue growth as well as a cost optimization component. Revenue uplifts from innovative cross-sell and up-sell opportunities and cost optimization from the efficient fulfillment of demand by using both the internal resources as well as system partners (for example, logistics providers).
9. Work Productivity & Safety—a worker and workplace safety and productivity component that influences overall insurance costs and focuses on safety metrics that influence brand image.
10. Sustainability—a cost optimization component that involves revamping existing processes to use clean energy and reduce carbon footprint. Sustainability is a key imperative, and industrial organizations are increasingly under regulatory compliance mandates.
While iTAF is exhaustive, its application is almost always tailored. We design our transformation approach with flexibility and adaptability in mind, to meet our customers where they are in their journeys. There are multiple levers to tailor the implementation. To cite a customer example, an industrial and packaging solutions company wanted to focus their first major transformation on the optimization of its supplier capacity and customer lead time. For this customer, we tailored our approach to focus on 2 of the 10 functional areas, namely the strategic sourcing and sales and order management, and provided a lightweight version of the delivery approach. After it’s tailored, the rest of the implementation aligns around the chosen areas of prioritization.
One of the differentiators of this AWS offering is the rich set of assets that are used in the actual deliverables that stem out of the seven-step approach used for strategic alignment. These assets, built from the rich experiences and lessons learned from inside Amazon and coupled with the deep industry subject-matter expertise in AWS Professional Services, are the secrets behind our ability to perform the strategic alignment within a very accelerated timeline—in a matter of a few weeks!
After the seven-step approach is implemented—on an accelerated timescale—the program is ready for implementing and launching the MVPs, measuring their ROI, and putting the necessary change management and operating models in place for seamless adoption both inside our customer’s organization as well as with our customer’s customers.
While designing and launching the MVPs, we analyze the nature of the scale that is required to deploy the transformation components. The analysis helps us design the scale phase of the transformation. By working alongside AWS, a very collaboration-friendly organization, our partners can scale the transformation for our customers depending upon the actual needs. The joint collaboration of our customers and a scale partner, alongside AWS, supports the right outcomes for our customers—it is one of our core tenets: being ‘customer obsessed’.
To summarize, industrial customers can use the iTAF approach from AWS to strategically align, design, implement, and scale their digital transformation initiatives. The approach is deeply ingrained with the industrial disciplines and the distinct qualities, nuances, and idiosyncrasies of industrial manufacturing and the supply chain while having multiple levers for flexibility and adaptability to meet our customers where they are in their transformation journey so that they can accelerate their true value realization.
As next steps, you may contact us directly today to learn more about working alongside AWS, to leverage AWS’ pace and culture of innovation, to succeed in your digital transformation initiatives. You may also visit here to get in touch with us!