What is the Best Strategy and Approach for Your Digital Factory?
Since 2020, we have been receiving more and more requests for help setting up digital factories. The acceleration of the digital transformation brought about by the pandemic is causing IT departments to rethink their structure and processes. In particular, these changes should meet the business’ growing need to disrupt the industry, encourage professional growth among members of the IT department and seek out new challenges.
Degrees of Digitization within the Industry
Growing competition in the market means companies need to improve their customer-centric approach. Getting closer to your clients means you can respond to their changing needs and preferences quicker. Abandon Taylorism concepts completely in favor of tailor-made production. Redesigning your production chain and digital or physical supply chain is part of this initiative to customize and personalize your product and service portfolio. Product and delivery customization and time-to-market are the main reasons companies decide to implement a digital factory.
Creating internal digital factories has become a popular strategy for accelerating the adoption of digital technology. Digital factories provide end-to-end capabilities for developing and deploying digital products and services. They achieve this through:
- A client-centric approach
- Agile delivery
- A start-up mindset
A digital factory helps transform your existing activities, not reinvent them or replace them entirely. You should start by defining your digital factory strategy to set clear goals that everyone can understand.
The aims of a digital transformation, through a digital factory or otherwise, are often made so complicated, it can be difficult to put them into practice. When this happens, confused teams then focus on looking busy instead of on impactful results. You need to restructure your project portfolios into clearly defined missions that are directly linked to your corporate strategy to bring about real change within your organization. The word “mission” is key here since it indicates and highlights the importance of the objective.
Why You Should Implement a Digital Factory
Before we look at how to implement a digital factory, let’s first come back to the “why” quickly. Why should you create a different structure rather than simply using your company’s existing IT resources? This is a sensitive issue because it can lead to value judgments about existing organizations, which is not the aim here. So, sticking to the facts: quite simply, because the missions of the various existing structures are not compatible with those set out above. The IT department is responsible for the company’s IT infrastructure, security, and service quality. It is structured and optimized for this purpose. These structures are in the process of transformation but it could take time for them to be able to fully assume their new role as a strategic adviser on digital matters. With this in mind, creating a new structure allows the existing organization to adapt without posing any threat to it.
Learn more about what is a Digital Factory on our previous post.
What are the Main Problems when Implementing a Digital Factory?
We have seen many problems when implementing innovative structures. These mainly occur in the following areas:
Problem #1: Getting Everyone on the Same Page
When you set up a digital factory, we often recommend you implement clear governance and organization to ensure the structure’s independence: that way, the factory can achieve its own targets (and only its targets) and avoid any issues involving different viewpoints, limitations, and conflicting interests between the parties involved. This requires you to define clear roles and responsibilities and simple processes to govern interactions between the various entities, keeping in mind the digital factory’s position within the company (more on that later).
Problem #2: Lack of Expertise
Another stumbling block we often see when creating a digital factory is reluctance by some companies to get help setting up the new structure. Being aware of your in-house knowledge and expertise is crucial. This allows you to assess your strengths and weaknesses so you can rely on the former and compensate for the latter by seeking out specialized partners initially and then, afterward, working on skills acquisition for your in-house teams. In addition to setting up the structure, this support also includes help later on with making sure the factory is working well and with scaling.
Digital transformation road maps clearly state the infrastructure requirements, the desired equipment automation, and the integration process. Most road maps do not cover the “personnel” aspect; however, which is crucial for the success of this journey. Training employees in new skills so they can use the new technology effectively, change management to integrate those new skills, and addressing the concerns and requirements of end users during development of the solution are all key aspects that are often overlooked during the planning stage.
The human strategy is just as important as the hardware and software strategy!
Problem #3: Out-of-Control Budgets
One of the most common problems when setting up a digital factory is budget management. A lack of investment and fear of failure often go hand in hand with this type of project. Then there are the overcautious measures that waste time and money, such as excessively long market analyses which will always be wrong, especially where disruption is concerned. Add to these half-hearted actions without any effective support or leadership backing. These opportunist strategies are demotivating for the teams involved and cause the project to lose its impetus. You need to adopt a longer-term approach to make this type of project a success.
Problem #4: Unclear Definitions
When we talk to managers about what they understand “digital” to mean, the definitions vary. Some consider it a generic term for their IT department’s activities. Others focus on digital marketing or sales. Very few have a broad and holistic view of what digital actually means, however.
We believe digital is the virtually instantaneous, free, and seamless ability to connect people, devices, and physical objects anywhere.
It is estimated that, by 2025, 20 billion devices will be connected – that’s almost three times the global population. Over the past two years, these devices have supplied 90% of the data produced. Using this data greatly increases analytical power which, in turn, leads to more automated processes and decision-making. The result is completely new business models.
Think about the opportunities that telematics has created for the insurance sector. Connected cars collect information in real time about a policyholder’s driving behavior. Insurers use this data to set prices automatically, and with greater accuracy, based on the risk associated with a driver. They can then offer direct, pay-as-you-go cover, bypassing brokers altogether.
Without a clear definition of digital, companies struggle to find the connection between their digital strategy and their activities which leaves them floating aimlessly in the fast-moving waters of digital transformation and adoption.
Developing digital capabilities is not a guaranteed solution to your problems: your company’s digital strategy still needs to be flexible.
Problem #5: Digital Technologies are not a Magic Wand!
Technology is a tool to help reduce or eliminate production issues and achieve operational targets but it needs to be used effectively by employees. You can roll out this technology faster but training employees, effective use of technological tools for problem-solving, and taking preventive action is the next stage and takes time. You must define your expectations at the start of the transformation process.
Can technology solve complex problems? Without doubt. But first, you should consider identifying the right solution for the challenges facing your company and for your particular situation.
There may be a cutting-edge technology solution that works for many companies but it might not work with your existing systems or it might not be designed for your particular field of activity or business operations. All too often, companies rush into implementing technologies that are not right for their specific needs. Although it might work in some instances or projects, a technology solution needs to be scalable and capable of adapting to your company’s requirements to ensure maximum return on your investment and maintain the progress of your digital transformation.
It is easy to be blinded by the power of technology and get carried away with implementing it in your environment. That might seem exciting in the beginning but without a thorough and verified cost-benefit analysis, the value it creates and its impact on sales will often not take you past the pilot phase. Identify and rank the business problems you need to solve and choose the appropriate technology. The process before the tool and not the other way around!
Problem #6: Following a Long-Term Digital Road Map
One trap a lot of companies fall into is starting to roll out a technology solution without considering its scalability, the product road map, its integration with other IT platforms, and its compatibility with the long-term IT road map. You must devise a long-term digital transformation plan that follows a platform-based strategy and is self-funding for a certain time to make your digital factory initiative a success. Consider brief, intensive bursts of activity to create value rapidly then reinvest to continue your transformation journey. Adopt a platform-based approach that ensures scalability, flexibility, and integration capabilities.
Short-term gains are absolutely possible, and they generally give the initiative momentum, but you should aim for a 2- to 5-year plan, maybe even longer, for your digital transformation strategy.
The technology scene is constantly changing with progress and new concepts, not to mention any lessons learned within your organization or through others.
Implementing a road map with scope for change is one thing you can do to ensure your digital transformation is a success and your company’s long-term survival.
Putting Innovation into Context Within Companies
To properly understand how to organize a digital factory, it is important to put innovation back into context within companies to clearly define the role of each structure and understand their respective interests. To do this, we use generic models to define the roles although these structures may well differ in terms of organization from one company to the next. Regardless of the organization, the most important thing is that these structures have set objectives, obligations, and defined limitations. They also need to feed into one another: the first structures (upstream) supplying subsequent structures by defining products and later structures (downstream) providing feedback to previous ones.
Your research & development (R&D) activities should be positioned as close as possible to the company’s operational activities. You want to disrupt these activities. R&D is set up to carry out research with other entities involved in its field of activity (laboratories, schools, universities, state bodies, etc.). The work covers a broad range of activities (products, procedures, organization, and marketing) and explores all the ways to add value to the company.
Taking ideas from R&D, the purpose of the digital lab is to explore digitizing them (in terms of feasibility and usefulness) through experimentation and POC (proof of concept). We are dealing with teams that develop systems and applications within projects. It is difficult to talk about a product since it has not yet been defined and that is also the purpose of the digital lab. A test & learn approach and collaborative work with all parties involved (business and marketing) takes an idea from draft to future product.
To save time and increase investigative capacity, your digital lab needs to limit constraints (security, quality, availability) and follow certain rules. Testing should be transparent and identified as such with clear communication. Labs should use non-sensitive test data. You should inform platform users and, ideally, use test accounts or, at the very least, accounts with strong segregation from access to user data. You can, of course, adapt these rules as necessary but they should be raised and discussed.
The purpose of your structure here is to implement the production of digital products from existing structures (R&D activities and digital lab). See our previous post (Why and How to Create a Digital Factory for a detailed definition.). This post will focus on how a digital factory can improve your innovation: industrialization, security, quality, and, ultimately, the value of the product for your clients.
Strategies for Implementing a Digital Factory
5 Steps to Building a Digital Factory
What are the main steps involved in building a digital factory?
Step 1: Definition
The first task for your digital factory is to define its goals and the company’s digital strategy.
This involves assessing your company’s digital maturity and its ability to adapt to change. You should discuss all of these points to ensure alignment across the organization as a whole and to identify how the company will balance its optimization and transformation goals (i.e., the required capabilities and expertise). Transparent communication of this transformation strategy is a crucial part of this initial step of defining ambitions.
Step 2: Design
In the second step – Design – you should evaluate your company’s position regarding the technology and the industry position. The helps you identify, create and implement new business and revenue models to give your company a strategic edge. The Design stage is also a chance to check that the design of any products properly meets your clients’ new preferences and requirements. Our tip: be sure to focus on the client at all times!
Step 3: Delivery
Delivery comes after design in your digital factory. For successful delivery, you need to understand the impact of the transformation on your company and the cultural changes needed for the project to succeed. Identifying needs in terms of talent, skills, and abilities is crucial to making your digital transformation projects a success. Communication continues to be a key issue, particularly if you are implementing performance indicators.
Step 4: Scale
In this stage, you clarify changes in governance compared with existing models to reflect the unique requirements of the specific initiatives. In Scale, you need to actively work toward devising and implementing a detailed plan to move the company forward and ensure full alignment. Finally, you should measure pilot projects and your proofs of concept (POC) created during the delivery stage and assess any critical infrastructure changes you need to facilitate and support the new digital business models.
Step 5: Refine
In the final stage (Refine), monitor your environment so you can see when changes occur that might affect your digital goals. You can also assess the impact of your digital transformation strategy on your organization, customers, and field of activity.
To work through these steps successfully, you need to maintain the flexibility to revise your strategy and plans and keep in mind that transformation is a journey and not a destination.
Digital Factory Specifics
There are many innovation structures but what are the particular characteristics of a digital factory?
The Corporate Start-up Studio (Start-up/Multimodal)
In this type of strategy, the emphasis is on discovery and business disruption. Its purpose is to support creative thinking within your business activities. It is important to find the right speed to ensure a high flow of projects. These projects might not go much further than MMFs (Minimum Marketable Features – the completed version of a software product with restricted features) but that is the aim. This type of factory is designed to mass-produce products that are more or less successful throughout the digital factory’s lifetime.
Quantity comes before durability but in a controlled environment and with the IS quality requirements (“you build it, you run it”). Its functional scope is similar to a lab but within a secure and industrialized platform.
This strategy is based on successfully defined Ambition, Design, Delivery, and Refine steps. Refine is a crucial step in continually improving projects and the digital factory.
The Industrial Accelerator (Bimodal)
This second strategy focuses on manufacturing finished products. It aims to accelerate your company’s digitization within an industrial framework. This type of digital factory does not produce MMFs, but tools/products that will transform the company and last.
The activities and business are the safeguards when selecting which project to develop in accordance with the criteria set by your IT department, who are on hand to offer support. This digital factory has close links to all of your company’s structures. Ensure optimum quality by controlling the flow of incoming projects at all times.
This strategy is based on successfully defined Ambition, Design, Delivery, Scale and Refine steps. Correctly defining the Scale will be the key factor for the success of this project.
Digital Factory Types
Internal Digital Factory
As part of your business branch, a digital factory can accelerate your company’s digital transformation. With this type of organization, your digital factory can be close to the business organization and can replicate its particular characteristics easily. The branch manages it closely and it is relatively inexpensive and quick to implement and remains relevant to the business.
There is a risk of issues arising, however, when the transformation extends into other branches and you end up with multiple structures of this type without any overall governance. There is no distribution of overall costs and the associated best practices and expertise are not necessarily shared.
External Digital Factory
When you implement a completely autonomous structure (BU, subsidiary, etc.), it creates a high degree of independence in terms of culture and organization. You can organize the digital factory in a way that achieves its goals. This type of organization naturally calls for – and needs – you to establish a micro-enterprise with a clear and detailed business plan and its own budget. The latter is possibly more important, as are the challenges involved in integrating the factory into the parent structure.
Transverse Digital Factory
This organization requires you to establish a transverse structure within the company that can tackle the transformation of all BUs. Pooling your expertise and best practices optimizes resource and cost management. It also enables a high degree of integration within the company. The collaborative nature and driving force for innovation mean its practices can be assimilated across all of the company’s entities. This type of factory can take longer to implement and requires appropriate governance to maintain a high level of autonomy. Managing concessions at all levels (organizational, business, products, technology) is one of the greatest difficulties with this type of organization.
You need an environment that is conducive to construction and the sharing of new ideas for a successful digital transformation and to reach a point where you can handle the issues involved in innovation and keep up with them.
The type of factory you choose will depend on your company’s level of digital maturity, ambition, and organization currently in place when you decide to set up a digital factory.
The main factors that will help you make this choice are acceleration of the business within an existing entity/BU, innovation by focusing on digital, or using digital to disrupt the business model as a whole.
Whichever solution you choose, Microsoft’s experience shows that the key element to successfully implementing a digital factory is governance of the business activities and IT.
You also need to consider a digital factory structure that will help you gain maximum benefit from your chosen tools, processes, and human capital by sharing costs and capitalizing on best practices and experience.
Fabien Medat – Director, Azure Business Development
Getting Help to Implement your Digital Factory
A digital factory is a structure that includes a set of resources, methods, and means to carry out digital projects and analyze potential opportunities quicker. It therefore acts within this dedicated space with multidisciplinary teams of experts (developers, UX designers, data scientists, IS architects, etc.) and potential users. It also changes and shakes up your company’s organization in this respect.
Today, the digital factory is a cross-disciplinary organization within the company designed to foster a culture of rapid experimentation with new products and services to accelerate innovation and deliver digital tools on an industrial scale that can streamline processes and improve the operational excellence of your company’s various entities to make them more competitive.
Your company needs a robust strategy to ensure your initial high-speed deployments continue to move forward and obtain the results promised by the new technologies.
Cellenza helps its clients, multinational corporations (Total Energie, Thalès, etc.) and medium-sized businesses (Nexans, etc.) to position and implement these digital factories. We have used our wealth of experience to co-create different digital factory models in various settings alongside our clients. This expertise is combined in our Digital Advisory package.
Our experts have published several posts about Digital Factories. Read them now: