Texts from a trash can, and the new digital culture

May 19, 2016

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By Robert McCutcheon, Partner, US Industrial Products Leader; and Kumar Krishnamurthy, Principal, Strategy&

Manufacturers are going digital in a big way, creating a digital ecosystem that’s blurring the line once separating physical and digital worlds. Consider a crane toiling away in Australia and sensing something’s off – say, wonky brakes – then alerts the manufacturer in the US, who either remotely fixes the problem, or texts a field technician. Or, that sanitation worker in LA fielding a text sent from a garbage bin saying not to swing by because it’s empty.

Digital technologies are also changing how America’s factories floors run, and changing decades-old business models. Many threads make up the new digital fabric, bound by the Internet of Things and everything it connects, including autonomous robotics, mobile, cloud, big data analytics, 3D printing, sensor technology, and virtual and augmented reality, to name a few. PwC recently surveyed US manufacturers to get a better understanding of how this is all unfolding.

What did we learn?

First, manufacturers are investing heavily in their digital operations. In the last two years, US manufacturers invested an average 2.6% of their annual revenue in digital technologies. In the next five years, they expect to lift that investment to 4.7% of revenue – for an estimated $350 billion in investments in digital operation technologies across automotive, industrial production, and manufacturing industries alone.

Manufacturers are also expecting handsome returns on this investment. We asked manufacturers for estimates of how digital technologies could translate into cost savings and revenue increases over the next five years. Nearly two-thirds of them expect that adopting digital manufacturing technologies will translate into lowering operating costs by at least 11% (with 23% expecting cost-savings exceeding 30%), mostly through efficiencies gained through automating processes and production. At the same time, more than half of them expect such adoption to boost revenues by at least 11% (with 18% of them anticipating revenues to lift by more than 30%).

Outside the survey, we looked for other signs of momentum in digital tech, like bets being made by venture capital firms. Since 2011, some $3.6 billion has poured into VC-backed start-ups across a selection of digital technology sub-sectors (likely to impact manufacturers), with investment rising at a 47% clip annually, according to our analysis. This is more than double the annual growth of total VC funding (18%) in all sectors over the same period. Investment has been heaviest in start-ups focusing on manufacturing software, ERP and inventory software, robotics and sensor technology, according to a PwC analysis.

There’s also a surge in acquiring digital technology companies. Companies that are looking to augment their digital strategies – or even fundamentally change their business model – will be considering acquisitions to buy such change to acquire digital capabilities. According to a PwC/Strategy& analysis, more than $6.0 billion has been invested on “digital deals” in North America alone since 2012, comprising some 15% of all M&A deals over that period.

Still, not all manufacturers have received the digital tech memo. What’s interesting is that the number-one challenge to successfully building digital operations is “lack of digital culture and training,” according to our survey. And that’s a big challenge. Creating a culture means shaping a new mindset, and managing changes throughout an enterprise – from product design, to production, to training and worker-safety, to customer and supplier relationships.

So, while we now have talking garbage bins, the biggest change we foresee is not just the increasing layering of digital upon the physical world. It’s also about us shaping a “digital culture.”

 

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