Only 10% of global manufacturing companies are championing digital transformation – PwC

8th May 2018

By: Marleny Arnoldi

Deputy Editor Online

     

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Industry 4.0 is rapidly transforming the manufacturing sector and digital transformation has been on many a CEO’s agenda for a number of years, but despite this, only a small group of companies is in a position to gain real competitive advantage from this operations revolution, says PricewaterhouseCoopers (PwC).

PwC’s ‘Strategy & Global Digital Operations Study 2018’ shows that only 10% of global manufacturing companies are considered to be ‘digital champions’, while almost two-thirds have barely or not yet begun the digital journey.

The study surveyed 1 155 executives at global manufacturing companies in 26 countries, including South Africa, and asked them about their views on Industry 4.0 and digital operations.

Based on the outcomes, PwC developed a digital maturity index to explore the role of frontrunners, or ‘digital champions’, and what distinguishes them from their competitors.

PwC advisory services partner and Industry 4.0 South Africa head Pieter Theron says digital champions are noteworthy because they view digitisation in ways that are far-reaching and aggressively innovative, well beyond automation and networking.

“It is disappointing to note that none of the manufacturing companies we surveyed in South Africa are digital champions and most fall into the digital novice category, which includes the least digitally mature companies.

From a regional perspective, Asia Pacific is the most advanced, with 19% of respondents from that region being in the digital champion category.

These companies are championing the digitisation and end-to-end integration of their operations, introducing digital products and services and connecting new technologies across their organisations at a much faster rate than their peers in the Americas and the Europe, Middle East and Africa (Emea) regions. 

Digital champions are already deriving more than 50% of their revenue from digital or related services instead of traditional products.

Asia-Pacific companies expect 17% growth in digital revenue over the next five years, compared with the 13% growth anticipated by Emea region companies.

That gap is expected to continue to widen, as 32% of Asian companies plan to have established mature digital ecosystems in the next five years, compared with 15% in Emea and 24% in the Americas. 

“This is not good news to South African manufacturers, as it will result in a growing competitive gap that will become increasingly difficult to bridge,” Theron adds.

Moreover, digitisation will lead to an increase in production in mature markets, as it reduces operational costs and enables companies to rely less on labour arbitrage. However, companies in the Emea region, including South Africa, mostly do not get beyond a medium level of supply chain integration and are often lacking high automation and connectivity in their manufacturing operations.

The PwC study finds that compared with their Asia-Pacific counterparts, Emea companies also more often fail to connect their strategic, operational, technological and people-related capabilities, and less often incorporate partners in their business models to create customer value.

Consequently, and while already being behind, Emea companies only expect their investments in new technologies and digital ecosystems to result in 12.7% growth in digital revenue over the next five years, compared with 16.6% growth among Asian companies.

Theron comments that although the growth expectation for South African companies are similar than two years ago when PwC first did the survey, South African companies often do not have the advantage of setting up robust digital operations from essentially a blank slate in terms of factory automation, workforce and even organisational information technology networks as a whole, owing to numerous complex legacy systems and facilities to upgrade, integrate or discard.

“Additionally, Asian companies appear to be keener to try new business models and develop innovative products and services. We require a radical new approach to digital transformation [among] South African manufacturers,” avers Theron.

Further, 90% of the digital champions surveyed have implemented, piloted or planned around current technologies, including the Internet of Things and advanced robotics or artificial intelligence. Only about one-third of digital novices have adopted the most common operational technologies, such as predictive maintenance and integrated supply chain planning.

“In South Africa, we need to challenge popular belief and learn from other industries and digital champions,” Theron concludes.

Edited by Creamer Media Reporter

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