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Strategies differ, but technology is improving operations and products
Manufacturers continue to look to technology to improve production processes and customer relationship management. Two-thirds of Monitor participants anticipate increasing their information technology (IT) investments in the coming months, with just over half planning to invest in IT to enhance operational activities.
The degree to which manufacturers are leveraging technology has changed quite a bit in the past few years. In 2014, nearly half the manufacturers surveyed did not leverage cloud technology. Only three years later, a majority of manufacturers—79 percent—already use some form of cloud computing as a part of everyday operations, or are planning to implement the technology. In 2015, 40 percent had no plans to invest in big data business analytics; two years later, more than three-quarters have invested in business analytics or are planning to do so. The key challenge in capturing data in the production process is how to synthesize the results and react in a timely manner to any negative trends.
There are a number of reasons that could account for this strategic change in technology investments. Efforts to improve product quality, reduce costs and increase operations speed are cited in the Monitor as some of the drivers. Certainly, competition makes such investments necessary and the increasingly lower cost of technology makes them viable options for middle market companies.
Automation is often presented as a boon for manufacturers but a risk for workers. Yet it isn't entirely clear that middle market businesses intend to substitute technology for labor to compensate for rising minimum wages and salaries or to boost productivity.4 In fact, increases in manufacturing productivity improvement have slowed, with some of the lowest overall growth since World War II5, despite the use of automation.6 In addition, nearly 70 percent of manufacturers say they are likely to increase their workforce in the coming months. The continued need for skilled workers supports the idea that technology is not significantly changing headcounts in the near term.
Strategies based on the internet of things (IoT) vary by sector, but overall nearly three-quarters of manufacturers have either implemented these technologies (about 35 to 40 percent) or are planning to do so (about 30 percent) to improve operations and product quality. This may explain the concurrent rise in business analytics investments, which would be necessary to interpret the data collected by IoT technology and apply it to make process and other improvements.
Among sectors using IoT to improve products, household goods and products leads with the highest percentage (84 percent); metal fabricators having the lowest (60 percent). Overall, 16 percent have no IoT strategy or plans, a significant change from 2016, when more than one-third of U.S.-based survey participants were not planning to implement an IoT strategy. Nearly one-quarter say they gain an insufficient return on such an effort; nearly one-third cite a lack of leadership or IoT skills for not investing in the technology. Improvements in IoT technology and its applications, however, continue to make it easier for middle market companies to implement in some form.
Closing the technology gap
There are still companies that balk at spending increasing amounts on technology, despite the experience of many respondents showing a good return on investment. Approximately 40 percent of companies do not have technologies that could help them with production-related issues, mobile access or collaborative enterprise-wide content management. Management may fail to understand how to take full advantage of technology they have and under-utilize their IT systems. As technology develops over time, the increasing value possibilities should become more apparent and influence its use. According to the Monitor, only about one-third of manufacturers will use technology to increase profitability; only a quarter plan to use new technologies to grow sales.
According to the survey, chief information officers appear to have more faith that technology can help increase profits than chief executives, suggesting the need for improved understanding of technology’s potential impact in support of a company’s strategic goals.
Manufacturers who are not utilizing technology strategically—for operational efficiency, for customer relationship or risk management, supply chain data, just to name a few areas—may not be able to maintain an advantage over their competitors for long or will slip further behind. Customer expectations have changed, and companies must update their infrastructure and systems or risk declining results. As collaboration and innovation technologies become more widespread, they are eliminating barriers for organizations and changing how they go to market and interact with their customers.
With so much riding on how IT is utilized―providing products and services, increasing efficiencies, optimizing product usage, customizing client engagement―management must allow IT leaders to play a key role in executing the strategic direction of the company.
What this means for manufacturers
The importance of strategy and data management
To realize the true value of information, effective strategy and data management must include certain criteria, such as a clear vision of the value that timely, accurate information can have as a strategic asset. Also, a company must plan to institutionalize the concept of enterprise data and weave it into the fabric of the organization. The right processes, best practices and enabling technology must also be integrated to continually support and manage the use of organizational data.
Achieving an enterprise view of trusted, validated data will allow for:
- Greater organizational consistency
- Improved enterprise collaboration and communication
- Increased productivity
- Improved ability to deliver better quality and stronger financial results
Assessing what technology your company needs
It is only after documenting a company’s overall strategy, processes, functions and support structure that the plan for utilizing IT should be addressed. Management should determine if the underlying technologies that support all of the processes and the business itself are adequate. Areas to evaluate include current business systems, IT infrastructure, governance, risk and process management, budget and the overall technology organizational structure. Targeted investments in IT, based on a sound strategic road map, enable the IT function to become more efficient, improve service to the organization and its customers, and open the door to future cost reductions and efficiencies in IT and across the business.
4RSM US Middle Market Business Index, p. 6 (Q2, 2017)
5DeSilver, D. “Most Americans unaware that as U.S. manufacturing jobs have disappeared, output has grown” (July 25, 2017) Pew Research Center
6Rattner, S. “Made in America: The Bad News and the Good Bad News” (June 29, 2017) The New York Times