Connecting Commerce. Manufacturing industry confidence in the digital environment. Written by
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1 Connecting Commerce Manufacturing industry confidence in the digital environment Written by
2 About the research This article is part of the Connecting Commerce research programme from The Economist Intelligence Unit, commissioned by Telstra. The analysis is based on a survey of 2,620 executives in 45 cities across eleven industries conducted in June and July C-level respondents account for 42% of the survey sample, with the balance being other senior executives. Based on the survey, The Economist Intelligence Unit created a digital cities barometer for industry to assess and compare confidence in the digital transformation environment across industries. Business confidence is a highly subjective measure of a state of affairs, based on attitudes, and is not necessarily an indication of an industry s actual level of digital development. Manufacturing executives have a high level of confidence in the overall digital transformation environment supporting their organisations (ranking second out of 11 industries in the digital industry barometer). Given the rapid rise of the fourth industrial revolution (also known as Industry 4.0), countries around the world are making manufacturing a priority to remain competitive. In Germany, the government is supporting the industry to retain its standing as Europe s manufacturing powerhouse. The Industry 4.0 initiative within the country s High-Tech Strategy 2020 aims at helping Germany remain competitive in a digital world, and provides several incentives for the development of digital manufacturing. 1 In China, president Xi Jinping has said that the country must rely on innovation in order to achieve sustainable economic development. 2 As a result, innovation in manufacturing is a key area to move up the value chain as part of the government s 13th Five-Year Plan (2016). 3 The move from labourintensive manufacturing, a staple of the country s success to date, towards more information-intensive development will require a greater role for automation through robotics. As an indication of this, data from the International Federation of Robotics (IFR) shows enormous growth in sales of industrial robots in China over the past decade. It predicts that sales will continue to increase by 15% to 20% a year between 2018 and Figure 1: Overall barometer readings manufacturing Score (out of 10) Rank (out of 11) Overall environment Innovation and entrepreneurship nd th Financial environment rd People and skills th Development of new technologies th ICT infrastructure rd Telstra Connecting Commerce The Economist Intelligence Unit Limited
3 Benefits beyond robots Digital transformation in manufacturing is not just highlighted by government support of robots. It also extends far beyond this to technologies such as artificial intelligence (AI), big data and analytics, and cloud computing, to enable a range of benefits, internally and externally. We believe digital transformation brings operational efficiencies, ROADS experience, [which stands for real-time, on-demand, all-online, DIY andsocial] to create a better user experience, says Yun Ma, chief data officer & director of corporate data management, quality, business processes and IT management department at Huawei. In every step of the business process from operations to customer engagement we have data that can help us make better decisions in terms of data analytics and data mining. About three years ago, Huawei started to improve overall data quality by assigning all data to an owner. The company has a data quality team and publishes a data quality report every six months to ensure appropriate measurement. It has designated the chief financial officer as the overall data owner. It helps to change the mindset, as data quality is now at the top leadership level, says Mr Ma. A different challenge The data and skills challenge For a traditional manufacturing company, the most important part of digitisation is know-how, says Mr Ma. Using sensors and analysing data, manufacturing companies can improve their business models to achieve more efficient production and customer engagement. At Huawei, for example, the aim is to have all aspects of operations digitised in the next three years and leverage AI widely to help customers with their own digital transformation. At the same time, the industry as a whole faces a challenge to seize this opportunity, according to survey respondents. Despite their industry ranking second overall in terms of the support for the digital transformation environment, manufacturing respondents rank seventh in their belief of support in the people and skills subcategory. For a traditional manufacturing company, the most important part of digitisation is know-how There are two benefits to digital transformation in manufacturing, says Mr Ma. First, operational efficiency, and second, a better customer experience. Gaining these benefits, however, requires people who can understand business processes and customers. For companies doing business online, data is their main asset. But for traditional manufacturing companies it is the physical product, and this requires a different blend of skills. The challenge is to find people who understand manufacturing and bring with them digital skills. If we change to a digital [manufacturing] world, 3D printing is still just a physical product, says Mr Ma. The whole business concept needs to change. We must have new ways to design, test and build in the digital world. The capability to integrate and implement data architecture, analytics and mining in terms of how to collect, search and share that data completely changes the traditional manufacturing process. Automation is one thing, says Mr Ma, but digitisation is another. Digitisation requires an understanding of data beyond automation. People don t understand or see this as a big challenge, says Mr Ma. In companies doing business online, data scientists can make mistakes and learn from them. In manufacturing, however, a faulty model put into real production can have huge ramifications. This is a big challenge for data scientists [in manufacturing], as data also depends on data quality and how much you can collect, says Mr Ma. 4 Telstra Connecting Commerce The Economist Intelligence Unit Limited
4 Large regional differences There are large differences in perception when it comes to the supporting environment for digital transformation in manufacturing across the regions. In terms of confidence in the overall environment, the US is number one, scoring 7.30 on a scale of 1-10, whereas in Australia the figure dips to However, Asia, EMEA and Australia all claim top places in various subcategories. In 2016 five countries accounted for 74% of the total robot sales volume China, South Korea, Japan, the US and Germany according to the IFR. 4 The annual supply of industrial robots to Asia is greater than to North America and Europe, an indication that the region led by China is looking to automation for innovation. It may also be one reason why Asian executives deem the environment for innovation and entrepreneurship especially strong (the region is ranked first in this subcategory). The US, by contrast, is a study in contradiction. Despite being first overall, the country fares poorly in individual subcategories. In 2011 the then US president, Barack Obama, announced the National Robotics Initiative, a multiagency initiative to support research and development in robotics. 5 However, version 2.0 is still under development, and may be one reason US executives deem the support for their digital transformation environment low in all the subcategories except for one (the US is at the bottom in four out of five subcategories). The reason for the discrepancy between ranking first in the overall environment and not well in individual categories is that survey respondents are asked to rate each separately. Figure 2: Barometer readings by region manufacturing OVERALL ENVIRONMENT US 7.30 INNOVATION AND ENTREPRENEURSHIP ASIA 6.92 FINANCIAL ENVIRONMENT EMEA 6.93 Regional takeaways for manufacturing firms ASIA 6.88 EMEA 6.90 US 6.93 EMEA 6.80 AUS 6.64 AUS 6.76 AUS 6.74 US 6.63 ASIA 6.72 PEOPLE AND SKILLS DEVELOPMENT OF NEW TECHNOLOGIES ICT INFRASTRUCTURE EMEA 6.77 AUS 6.64 AUS 6.84 ASIA 6.81 EMEA 6.97 ASIA ASIA 6.50 EMEA 6.77 AUS 6.74 US 6.40 US 6.63 US 5.88 US manufacturing executives rate their digital transformation environment higher than all the other regions overall, but are last in four (out of five) subcategories; EMEA, by contrast, is third in the overall environment but number one in three subcategories. Australian respondents are more positive about their digital transformation environment in terms of the development of new technologies compared with other regions. Asian executives rate their industry s supporting environment for innovation and entrepreneurship ahead of that of other regions Telstra Connecting Commerce The Economist Intelligence Unit Limited
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