Financing and Budgeting for a Digital Factory

Digital Factories are key drivers for accelerating the digitization of business and the economy. They help companies meet digital consumers’ increasingly pressing and urgent demands.

Post co-written by Khaled Boudraa, Radoine Douhou, and Sébastien Roques

Digital Factories are key drivers for accelerating the digitization of business and the economy. They help companies meet digital consumers’ increasingly pressing and urgent demands.

In previous posts in this series, we discussed why to create a digital factory, including several examples of the digital explosion and how the proper use of data can be a source of innovation and, as a result, unprecedented business disruption. We also looked at the three different digital factory types based on the approach used: internal digital factories, external digital factories, and transverse digital factories (learn more about the different digital factory types)

Digital Factory Mission Statement

As stated earlier, the digital factory’s mission is to accelerate the company’s transition from business to IT. In this role, the digital factory must build its own budget based on its responsibilities. Companies develop their strategy based on three approaches: defensive, offensive, or new business.

Defensive Approach

Some sports, such as rugby, teach us that we must constantly practice the basics. These don’t guarantee victory, but they make it possible! This must be reflected in the defensive strategy. This defense, without being passive, is like an impenetrable wall that repels attacks while moving forward. An offensive tackle or interception frequently makes all the difference. Similarly, the company must strengthen and modernize its core business. This is where the digital factory comes into its own, rethinking the company’s core processes and tools. This strategy involves a great deal of structuring and organization.

Offensive Approach

The most spectacular victories are the most dramatic. This strategy is based on establishing a perimeter and a level of aggression. A simple analogy is the Brazilian soccer team, who put their all into the attack hoping to score more goals than their opponent. In our case, the digital factory must be relentless, take risks and lead powerful and rapid assaults. This risk-taking occurs at all levels: technical, organizational, financial, and legal. This strategy requires a great deal of perseverance.

New Business Approach

“Creativity is seeing what others see and thinking what no one else has ever thought.” This Albert Einstein quote sums up the new business strategy. The aim is to use existing assets to create new products within perimeters completely outside the company’s business strategy. The digital factory is positioned as a source of business and technological innovation in this scenario. This strategy requires enormous creativity.

These strategies cannot be implemented separately, or the company will be at risk. Managers must therefore balance them based on the context and the company’s capabilities.

Digital Factory Budget: the Heart of the Matter

Objectives vs. Costs

A digital factory’s vision, strategy, and roadmap define the why, what, and expectations in terms of business and products. To achieve these, we must first address the “how.” The first elements to answer this question are the digital factory type and its missions. The next step is to define exactly what the digital factory needs to meet its goals. In other words, the planned investments. However, the astuteness required to perform this exercise must not detract from its purpose and, thus, from the expected return on investment. What do I need, and how will it help me achieve my ultimate goal?

Regardless of the digital factory type, there are four main areas of fundamental investment:

• Know-how
• Tools
• Communications
• Platforms

Know-How: A Must for the Digital Factory

In a previous post, we explained how to organize your teams in a digital factory. In that article, we focused on the major skill families and the know-how required to create innovative products and platforms. It’s a question of who will:

• Build and maintain the platforms and middleware underlying the products
• Highlight, formalize, design, and develop the business value
• Ensure that everything is in line with the digital factory’s purpose through methods and processes

These skills are only the tip of the iceberg. With the IT world under unprecedented strain, experts with these skills are in high demand, and extra effort is required to attract them. Using a Talent Acquisition team within the digital factory would be the first step to attracting them internally or externally.

The hard work begins once talents have been recruited within the digital factory. In practice, the digital factory must cultivate its appeal by establishing a culture that encourages the continuous learning of new technologies. On the one hand, attracting new talent is a constant endeavor to respond to the numerous projects the digital factory must handle. On the other, it’s a vector for adopting new technologies and a model for organizational innovation. To initiate change and generate momentum, the digital factory needs competent, motivated individuals who are willing to share their knowledge. Sharing is a fundamental value in creating a culture that fosters employee commitment.

Developing team expertise is a significant challenge for several reasons:

• Attracting and retaining talent, as mentioned earlier. An organization that invests in skills development has a better chance of retaining a high-quality technical workforce.
• The rapid pace of the technological transformation means that significant investment in training is needed to ensure that the skills repository among employees does not become outdated and unable to fulfill one of the digital factory’s primary functions: innovation. Collaboration with training organizations or publishers may be beneficial to leverage their expertise and accelerate technical evangelism among employees.

Equipping the Digital Factory

The equipment is a critical factor in a digital factory. It helps to define the structure and make it more attractive for developers. The cloud has become essential. It has many advantages, such as fostering strong partnerships with major publishers, being highly attractive to resources, or even being a continuous source of new features.

In terms of budget, the cloud is a real investment that must be measured and managed. The opportunity that the cloud presents for the continuous provision of functionality requires budget planning to keep up with these changes. Aside from the cloud, other tools and services must be evaluated, and you must define the level of partnership to implement. The digital factory’s goal is to find ways to attract resources, communication and marketing facilities, and financial benefits, such as discounts, in these partnerships.

Communication Is Key

Communication is an essential component of a digital factory. Making people aware of a digital factory’s existence, operation, and tremendous capacity for innovation adds to its appeal. This communication has several target audiences:

• Clients: in tandem with the Customer Success Manager to establish and maintain the support of business lines (especially within an internal digital factory type) and customers.
• Teams within the digital factory: internal marketing can highlight the teams and their skills. Above all, it can establish communication channels with the rest of the company. The digital factory is an integral part of the organization.
• The market/ecosystem: an organization that sets up a digital factory must promote it for a variety of reasons, including being competitive (standing out in terms of transformation), attracting talent, and projecting an image of a company committed to a digital approach.

Large-scale investment in the marketing and communication team is required to ensure the broadest possible communication about the digital factory and its activities.

Partnering with Experts

One of the most important factors in developing new products, as with any new structure, is selecting the right partners. Identifying these partners hinges firstly on the digital factory’s maturity and on the target audience for the partnership objective. Partnerships with an IT partner are divided into four categories of expertise:

• The Single-Service Expert: This type of expertise is used in extremely specific frameworks with clearly defined needs. However, there is a risk because multiple suppliers are needed to build a solution that fits.
• The Strategist: This expertise provides the tools for defining and structuring the company’s technological vision. This category includes Chief Information Officers (CIOs) and Chief Technical Officers (CTOs) who act as consultants and guides within the company. The profiles that make up this area require reliance on one person and the support of a team to implement the vision.
• The Generalist: The goal is to provide a wide range of capabilities that are ideal for implementing a specific vision or maintaining the system. The horizontal nature of these partnerships means they lack technological depth and vision in areas of expertise.
• The Comprehensive Team: This expertise includes general and strategic skills within complete, turnkey solutions. The disadvantage with this type of partner is that it’s difficult to fine-tune the solution to the company’s context.

These partners are essential for developing robust tools and ensuring resilience. These tools must be scalable to keep up with demand and attract new talent. Behind the technological modules of these tools are multinationals and/or communities that will become future technological partners for the digital factory. It’s essential to choose them wisely because they can act as a springboard for promoting the digital factory, and your entity’s image will be associated with them.

These two levels of technology partners become marketing and communication partners, particularly in the critical area of recruitment.

There are other partnership types, particularly with the new business strategy, that will allow the digital factory to collaborate with a wide range of parties not traditionally associated with the company’s sector. These technological and financial partners play a significant role in driving innovation.

Funding Sources: How to Finance a Digital Factory?

A digital factory’s financing is a key element of its success.

Financial Autonomy of the Digital Factory

The financing of a digital factory is critical to its success. It must be financially independent when establishing its foundations and running its operations: people, processes, and equipment.

It’s essential for this type of structure to have its own operating budget, at least in part, rather than relying solely on project budgets.

As stated earlier, some of the funding will come from projects that the digital factory can complete. This requires the structure to have the capabilities (methodology and experience) to provide a turnkey service for the projects, including costing, planning, implementation, and monitoring.

Business teams no longer have to worry about bewildering project budgets. Instead, they can focus on arranging the purchase of an end product that is much easier to manage and understand.

It’s a matter of creating a consulting service within an organization to strike a balance between delivering a competitive quality service (compared to an external agency) and generating revenue to fund its model. Remember that the digital factory’s goal is to add value to the business with a faster time to market rather than being viewed as a cost center.

As a result, the business plan concepts mentioned earlier and budget allocation strategy are essential for the digital factory’s long-term viability:

• Capacity vs. project funding
• Sharing responsibilities and digital factory vs. business costs
• Degree of funding by projects

Innovation and digital factory revenue

It’s not only a matter of making the digital factory sustainable, but also of securing it in its own operation (as opposed to the company’s previous operation), team, and budget. If every decision made within the digital factory has to be approved through traditional channels, the factory’s main advantage, its agility, is lost.

Digital Factory Financing, a Cultural Affair

A digital factory’s success also depends on the ability of organizations to change their corporate financing practices and fully commit to an internal transformation. In terms of methodology, the organization is becoming more agile in product development and financing this activity in stages.

To streamline efforts and avoid unnecessary budget waste (a lean approach), the digital factory presents the progress of the works to demonstrate the benefits, added product value, and, thus, the merits of the structure (empirical approach).

Further Reading

Regardless of type, funding a digital factory requires paradigm shifts and several requirements that organizations must address. To reap the benefits of this structure, it must be accompanied by cultural and process changes within the company, whether in terms of the digital factory’s mandate (budget autonomy), the business model, or project monitoring and invoicing strategy.

Do you want to learn more about digital factories? Have a look at the rest of the posts in this series:

• Why and How to Create a Digital Factory?
• What is the Best Strategy and Approach for Your Digital Factory?
• Digital Factory: Feedback from Saint-Gobain – Aari
• How Do I Organize Teams in a Digital Factory?
• Digital Factory: Which Technical Foundation?
• Digital Factory: Nexan’s Experience