Written for FutureEnterprise by Oscar Lazaro, Innovalia Association.
Much has been written already and will be written about digital transformation of European Industry. Our European industrial fabric is mainly composed by SMEs, so it is of great importance that the digitalization of European industry is SME friendly to be successful. But which are the elements that we need to consider for a successful business transformation and how they relate to each other?
Industrial digitalization is not a mere evolution of current industrial practices. It represents a profound transformation in the tools and processes on top of which enterprises will base and perform business. The issue is no longer “if” European industry (including SMEs) will go through a digital transformation but on the contrary – “when” and “how”. So, the main question for European industry is how to go about this digital transformation and to understand which are the issues and trends that will drive them, so they can be ready and become active in this transformation that will affect their businesses.
Digital transformation is not a simple technology adoption process. On the contrary, digital transformation has profound organisational and behavioral implications on the workforce. It is not just a matter of demographic aging of the European workforce, it is a matter of acceptance of new forms of businesses, roles and responsibilities in workplaces, and innovative uses of smart products and operation of intelligent processes that we will have to embrace.
European industry needs to anticipate such scenarios and procure the right methods, paths and technologies for a digital transformation. It is a full transformation of business that will revolve around new software and system architectures, such as Open Platform FIWARE, IBM Bluemix, German initiative on Industrial Data Spaces, SIEMENS MindSphere or SAP HANA and new platforms yet to emerge that will extend current event-driven and service-oriented architectures towards data centric ones. The emergence of federations of connected data across stakeholders related by a common and agreed digital value network for new business value creation will be the norm and those companies not being able to embrace the transformation will soon be history. Future enterprise success will be strongly linked to their ability to quickly transform innovation at product, process or service level into business profit. It is not about individual business models anymore, business should transcend the individuality and adopt a collective business development through agile cross-domain partnerships.
How European industry can deliver it in a cost effective manner is the challenge we currently face. However, this is no longer an IT buy-sell transactional model. Digital transformation entails a collaborative model where industrial demand and IT offer collaborate through open IT platforms that connect business assets and digital ecosystems to leverage competitive advantages. According to the very recent EC communication of 19th April 2016 by Commissioner Ottinger, digital transformation of European industry will be driven by 4 main streams that will need to be addressed concurrently:
- Digital Manufacturing Platforms
- Digital Innovation Hubs
- Digital Workforce
- Smart Policies
But how do all these elements relate to each other and how should European industry approach future enterprise environments and transformation?
Digital industrial value chains, the ecosystems for future growth. It is important for industry and SMEs to understand which will be the forces driving such streams and to design strategies that will allow them to evolve and migrate towards new business models. One profound change in the digitalization of our European industry is the fact that European large industry and SMEs should start defining and structuring the future digital value chains. Compared to traditional value chains, digital value chains are far richer and incorporate many different and complementary elements, which make very difficult for single companies to dominate the complete digital value chain. Collaboration will not be optional anymore but a fundamental vector in “business as usual” operations. This makes the role of multi-sided ecosystems a strategic asset in the development of prosperous business environments for growth and employment to flourish. So, the first strategic element for European industry is to understand and clearly delineate the new forms of current and emerging digital value chains and to establish a position of their value proposition in that context.
Open platforms and digital innovation hubs for collaboration and development of competitive advantages. How will European industry be able to “navigate” such digital value chains? It is important to realise that digital transformation will drive business development and business processes towards increasingly hyper-connected solutions at global scale. This implies that industry in general and SMEs in particular, to remain competitive, will not be able to rely only on their own skills and capabilities. Collaboration and interoperability at many dimensions (organizational, business and technical) will need to be realized in a flexible and cost-effective manner. The ability of products and services to “connect” and “enrich” each other will be an inherent part of the digital value networks that will emerge. Closed platforms will not be able to realise the desired market features. So, platforms (be them proprietary or based on open source initiatives) will evolve into open solutions. Hence, the second strategic element for European industry to remain competitive: it will need to define a migration and integration path towards the adoption of open platforms that can be multi-homed across the various digital value chains created in collaboration with customers and providers. The need to jointly and simultaneously nurture both the open platforms and the multi-sided ecosystems is equally important. Open platforms should be connected to strong communities of product and service development to ensure that strong digital value networks are conformed based on the advanced and added value business processes leveraged by the open platforms. Digital transformation implies that IT processes will also evolve from the traditional IT procurement towards stronger partnerships and collaborations, whereby European industry is capable of creating digital value through digital services co-developed with IT companies.
Data driven business operations. However, a key question remains for European industries that is, which type of open platforms should be developed, which type of functionality should they support and which business processes should we develop and operate on top of them? It is now evident that data and services to extract actionable information will drive the future and competitiveness of European industry. Therefore, European industry should master data-driven business operations. This means that European industry should hold a priority to develop the capability to exploit data driven services for the optimization of both internal business operations but maybe more importantly to optimize the type of services that industry could deliver to their customers and “coopetitors” (collaborators and competitors) in a data driven digital value network. The third strategic element for European industry is therefore to design their data-driven strategy based on an evolutionary approach from an initial stage of smart use of data towards the final aim of settling data-driven business and value propositions. The stronger the data-driven digital value chains European companies can build on top of open platforms and digital business ecosystems, the increased growth we should expect. Hence, the stronger and more solid European Industrial Data Space we can collectively construct, the better foundations will be made available for European industry to compete successfully at global scale.
Product-service systems. Products are a driving force of the so called “real economy”. However, it is equally true that business profits are increasingly built on services that revolve or are intimately linked to the physical product. This implies that data-driven digital transformation should be coupled with a clear strategy on a rich and solid product-service system design and operation. The fourth strategic element for European industry is therefore how to transform their current product-centric business strategies towards product-service centric ones, which will deliver additional business value towards industry and customers. The development of product-service systems through data-driven open platforms, ecosystems and digital value chains will imply that cross-sectorial alliances will need to be develop both to smarten the product features but also to secure and process the product and service information while the smart products are “in use”. The design of value propositions based on product-service systems implies higher degree of interoperability between industrial and IoT service platforms that European industry will need to carefully consider.
Human-centred digital transformation. Finally, digital transformation will not occur “disconnected” from the human factor. The operation of systems and services will need to be performed by humans that are an integral part of the digital transformation. Human factors are the fifth strategic element that European industry will need to consider. European industry will need to design and adopt strategies for technology adoption, usability and (up)re- skilling of their workforce. This element is fundamental to the successful deployment and capitalization of the benefits associated to the business and technical dimensions of the digital transformation and should not be underestimated.
European industry is facing interesting times. Important decisions lay ahead in terms of policy decision for a single digital European market and the free flow of data, business strategies for development of added value and innovative product-service system propositions and ICT investments for optimization of business operations. European industry global competitiveness and digital readiness, as well as, the capability to create good quality digital jobs will be very much linked on one hand to our ability to create a digital culture that spans our customers, providers and workforce to operate in this new digital environment. On the other hand, it will depend on being able to jointly develop solid, SME friendly, European open industrial data platforms and digital innovation hubs for data-intensive business operations across flexible digital value chains.