Tech-Enabled Transformation
Tech-Enabled Transformation
Tech-Enabled Transformation
transformation
The trillion-dollar opportunity
for industrials
Contents
3 Foreword
34 Selling
45 Servicing
57 How bots, algorithms, and artificial intelligence are reshaping the future of corporate
support functions
We would like to acknowledge the following people
for their important help in developing this collection:
Evan Anderson, Souha Bouhafs, Tina Drugon,
Aritra Gupta, Reed Haley, Kathleen Kelly, Rohit
Panchanadikar, Niranjana Rajagopal, Sidney Santos,
Barr Seitz, Kim Simoniello, and Jill Wilder.
2
Foreword
Applying digital, analytics, and IoT technologies is worth over a trillion dollars of value for
industrial companies. To capture that value, however, industrial companies need to approach
their transformations holistically, not in the piecemeal manner that we often see.
That complete value chain can be boiled down to five key business elements: innovating and
developing products, making and delivering them, selling them, servicing them and running the
business. Amidst the noise and overwhelming choices in the marketplace, we have distilled what
works into a set of value drivers and use cases as well as developing a systematic way to capture
and scale this value across the business. Our insights into how to use these technologies to create
value in each of these—and altogether—is derived from a range of client engagements across
industries as well as from proprietary research we’ve developed.
We pulled together this collection to provide an overview of this approach as well as a deep dive
exploring each of these five elements. We hope this will be a practical guide for how industrial
companies can embark on and accelerate their transformation to capture their fair share of the
value at stake.
With profitable growth in the industrial sector technology-enabled transformations for their next
flatlining in recent years,1 companies have been horizon of performance improvement and growth.
striving to innovate faster, get much closer to To take just one trend, connected devices in use
customers, and achieve a step change in operational are expected to more than double between 2017
efficiency. Having exhausted the potential of and 2020. As new data sources multiply and enable
traditional levers—capital-productivity programs, companies to generate and act on insights in real
operational-cost reduction, footprint optimization, time, a whole range of innovative products, services,
and the like—they urgently need to find new ways to and business models is opening up.
grow their margins and their business. But how?
A handful of leaders are already turning these trends
In our view, the explosion in data, connectivity, to advantage and reaping early rewards. Yet across
and cheap processing power and storage means the sector as a whole, success stories are few and far
that industrial companies should be looking to between. After seeing promising results from early
$0.3-0.9 $0.3-0.7
trillion trillion
$0.8-2.0
trillion
The trillion-dollar opportunity for the industrial sector: How to extract full value from technology 5
We analyzed these sources of growth and savings among five areas of value creation within the
both within the enterprise and at industry-segment enterprise: innovating and developing products and
level to determine where the value lies. services; making and delivering; selling; servicing;
and running the corporation (Exhibit 1).
Where value can be captured
The value that could be captured from tech As part of our analysis, we identified how much
enablement across the industrial sector is divided additional value each of these five areas could
Servicing Selling
Organization
Agile operating model Culture
Foundation
Data strategy Cybersecurity Analytics Cloud
1
Cost reduction through productivity improvements and efficiency gains
contribute at an industry level. The results are companies have unprecedented opportunities to
illustrated in Exhibit 2. innovate across the board in products, services, and
business models. Successful innovation relies not
Finally, we examined how value is distributed only on sound data and technology but on a deep
across the four core segments in the industrial understanding of how to use them to tap into new
sector: automotive; commercial and other vehicles; sources of value. For industrial companies, this
aerospace and defense; and semiconductors and begins with an intimate knowledge of end users’
other industrial products, as shown in Exhibit 3. needs and pain points. Depending on where you sit
in the value chain, this could well mean getting to
Innovating and developing products and
know not just your customer but your customer’s
services
customer. It’s also likely to mean expanding into
As connectivity spreads, data sources proliferate,
unfamiliar areas outside the boundaries of your
and valuable insights can be generated in real time,
traditional business.
The trillion-dollar opportunity for the industrial sector: How to extract full value from technology 7
EXHIBIT 3 The value at stake varies by industry segment
Aerospace/
47–140 31–80 0.1–0.3
Defense4
Broader
industrials 0.4–1.0
& semi- 86–269 139–307
conductors5
1
Cost reduction through productivity improvements and efficiency gains
2
Whole value chain including tier-one suppliers, automotive OEMs, and dealers
3 Commercial vehicles and off-highway equipment (e.g., for construction and agricultural use) including tier-one suppliers, equipment
manufacturers, and dealers and distributors
4 Includes tier-one suppliers and equipment manufacturers
5 Includes industrials, food processing and handling, motion and controls, industrial automation, and electrical, power, and test equipment
across the value chain: component suppliers, equipment manufacturers, distributors, VARs, engineering and services providers, and
product companies
Manufacturers of heating, ventilation, and air adjust operating parameters and settings in real
conditioning (HVAC) systems, for example, are time to suit external conditions. The speed and
venturing beyond their core of equipment sales. direction of, say, a harvester can be fine-tuned to
By using technology to analyze data from motion, crop density, enhancing productivity and reducing
temperature, and energy-use sensors, they can equipment wear and tear. Manufacturers can deliver
take over temperature monitoring and control in and charge for these and many other features on
the office or factory from corporations, and help demand.
them manage their energy costs. In much the same
way, original-equipment manufacturers (OEMs) Making and delivering
and suppliers selling agricultural equipment have Businesses can capitalize on advances in automation,
devised sophisticated controls that automatically machine learning, and robotics to make themselves
To catch up, industrial companies should first gain Running the corporation
a clear understanding of how their customers are The many industrial companies that have pursued
buying and then work back along each customer growth via acquisition end up running their business
decision journey to assess which digital tools and on multiple enterprise resource-planning (ERP)
channels will add most value to the sales process and legacy systems. Not surprisingly, across the
and how to reinvent their selling platform. The advanced industrial sector, the median spend on
options to consider range from e-commerce general and administrative expenses accounts
The trillion-dollar opportunity for the industrial sector: How to extract full value from technology 9
for 4 to 8 percent of revenue. Automating manual To maximize value creation in a tech-enabled
processes via robotic process automation (RPA) transformation, smart companies start by
can significantly reduce these costs. Other establishing a sound set of use cases across all five
measures to cut costs and improve cash flow include of these business elements. That’s a critical step in
building data lakes to centralize data sets across setting aspirations, capturing value, and tracking
ERPs, automating financial reporting and invoice value capture over time. Whether a company focuses
generation, and using advanced analytics to improve on two or three of the business elements or looks to
cash management. create value from all five through tech enablement,
like the example in Exhibit 4, will depend on the
Pulling it all together nature of its business and its position in the value
EXHIBIT 4 What successful tech enablement could look like for an OEM
COGS down by 6%
Selling
Adopt digital tools to enhance
Servicing salesforce productivity, scale
Employ models to predict e-commerce channels to
customers’ servicing needs, address transactional sales,
and increase attach rate for and deploy advanced analytics
service revenues to optimize pricing
The other imperative in starting out on a Establishing the right cloud infrastructure
transformation journey is to check that your involves creating flexible environments and sound
organization has all the supporting elements it needs, application programming interfaces. Companies
as described below. also need to think through which data should be in
the cloud and which on the “edge”—on the devices
Ensuring the right enablers are in place themselves. Such decisions will largely depend on
In considering the capabilities, structures, and how much real-time processing is required. For
practices that industrial companies need for a instance, autonomous driving lends itself to an
successful transformation, we find it helpful to edge architecture, whereas analyzing consumption
define three sets of prerequisites that executives trends by aggregating data from connected
can use as a checklist in prioritizing initiatives and appliances can be handled in the cloud.
allocating resources.
Equipping your organization with data analytics
Foundation: Data strategy, cybersecurity, capabilities to drive insights will be critical in
cloud infrastructure, and analytics capturing value. Whether you build the capabilities
A comprehensive data strategy involves identifying in house or outsource them will depend on your
the data sets you need to drive insights across your circumstances and needs. Often it makes sense to
priority use cases, understanding the sources of do both in the early stages, building capabilities over
those data sets, and forming partnerships to access the long term while using outsourcing to accelerate
those that you need but don’t own. For instance, a short-term impact. Regardless of which route you
manufacturer seeking to reduce downtime for its take, data analytics and insight generation must
mining equipment will need to combine its own be linked to actions that you can take to generate
data with a host of maintenance and usage data impact. For instance, if you are introducing
from the mining operators that use the equipment. analytics-driven dynamic deal scoring to improve
Establishing which data sets you need and then margins, your reps will need a quoting tool that
building productive partnerships with OEMs and shows them the recommended prices, and leaders
component manufacturers to access them will be will need a performance-management system that
critical in maximizing value capture. tracks improvements across the whole sales team
over time.
As companies connect enormous numbers of devices
and develop ever-more-complex data structures, Organization: Agile operating model and
cybersecurity becomes increasingly important. culture
Once, cyberrisk was mainly confined to IT functions, The ability to respond quickly to changes in the
but as businesses hook up their production systems business environment relies on an agile operating
to the Internet, operating technology comes under model with small, flexible teams and clear
threat as well. 3 Seventy-five percent of the experts processes that allow timely decision making on
who took part in a recent McKinsey survey said issues relating to governance, funding mechanisms,
that IoT security was important or very important, resource allocation, and so on. Old-style yearlong
yet only 16 percent felt their organization was development cycles must give way to rapid iterations
The trillion-dollar opportunity for the industrial sector: How to extract full value from technology 11
in which teams repeatedly test and refine concepts —— Analyze every aspect of the business. When
and products with customers. embarking on a tech-enabled transformation,
the best way to start is by taking a step back
Such an approach requires corresponding changes and considering exactly what you want to
in an organization’s culture. Successful companies achieve. Obvious though that might sound,
take great care to foster a mind-set that embraces it’s not so easy to act on. Some companies
change, is comfortable taking risks, and views are so overwhelmed by, say, the promise
failure as a springboard for learning. of the Internet of Things that they jump
straight into working out how to introduce
Accelerators: Design thinking and ecosystem
IoT applications into their products and
Using customer insights to rapidly innovate
operations. Instead, evaluate your whole
on products, services, and offers calls for new
business to see where technology could
capabilities and tight linkages between a company’s
unlock the greatest value. If you are an
sales channel and its product organization. Design
industrial distributor, for instance, you
thinking uses closed-loop processes to generate
may be able to improve your margins much
customer insights, translate them into product
faster by adopting analytics-based pricing
features and services, rapidly deploy these elements
or digitizing your selling process than by
with the customer, test the impact, and repeat as
creating IoT-enabled services. Implementing
necessary until the desired impact is achieved.
and scaling basic technologies is a quick way
to learn and capture value before venturing
Building an ecosystem is the final enabler and
into more sophisticated territory such as
involves establishing a set of technology and go-to-
remote diagnostics and maintenance.
market partnerships. The complexity of a tech-
enabled transformation requires partners to share
—— Reimagine your business model and
data, insights, and the value created in a mutually
aspirations. Don’t use technology to make
satisfactory and sustainable manner.
your current model marginally more efficient.
Set a bold aspiration to ensure the changes
Getting started
you make don’t just reinforce the status quo.
Though tech-enabled transformations in the
Define metrics and operational performance
industrial sector are still in the early stages,
indicators to track improvement, and
companies have no time to lose. An early mover
ensure you have leadership support. Treat
with the right strategy could not only grow
your program as a transformation, not an
profitably across the board, but also leapfrog
incremental initiative.
over competitors and capture disproportionate
value by gaining market share from peers or
—— Understand how new technologies affect
being the first to respond to radical shifts in
working processes. To succeed, new
customer behavior.
technologies need to operate in conjunction
with legacy systems and existing workflows.
Every company’s approach to transformation
Consider an OEM adopting IoT-enabled
will reflect its individual starting point and
solutions to offer predictive maintenance.
business priorities, but any leader would do well
When a client’s system detects an equipment
to follow a few basic steps:
problem, it automatically notifies the OEM to
Venkat Atluri is a senior partner in the Chicago office, where Satya Rao is a partner and Saloni Sahni is a
consultant.
The trillion-dollar opportunity for the industrial sector: How to extract full value from technology 13
Innovating
and developing
products
and services
Photo credit: Getty Images
With economic profit flatlining, industrial disruptive new offerings such as shared mobility,
companies are turning to revenue growth to drive connectivity, and electrification. To get a share of
value. Using technology to innovate and develop this growth, companies have no option but to pursue
new products and services is fast becoming the new tech-enabled innovation for themselves.
battleground. Companies are not only enhancing
their offerings through software and data but What’s more, innovation in products will go hand
making the transition from selling hardware-based in hand with innovation in business and revenue
products to creating tech-enabled businesses. models, just as aerospace-engine original equipment
manufacturers (OEMs) have long since made the
The effect on the industrial sector will be profound. transition from selling engines to selling power
In the auto sector, for example, estimates suggest by the hour. Similarly, agricultural-equipment
global revenues will almost double from $3.5 trillion providers are selling farmers not only tractors and
in 2016 to $6.6 trillion by 2030. As much as 84 harvesters but productivity solutions enabled by
percent of this growth is expected to derive from connectivity and remote monitoring.
EXHIBIT 1 The value from tech enablement in innovating and developing products varies by industry segment
Revenue growth
$ billions
Automotive1 60–179
Broader industrials
& semi-conductors4 45–144
28-89
Total 166–477
1 Whole value chain including tier 1 suppliers, automotive OEMs, and dealers
2 Commercial vehicles and off-highway equipment (e.g., for construction and agricultural use) including tier 1 suppliers, equipment
manufacturers, and dealers and distributors
3 Includes tier 1 suppliers and equipment manufacturers
4 Includes industrials, food processing and handling, motion and controls, industrial automation, and electrical, power, and test equipment
across the value chain: component suppliers, equipment manufacturers, distributors, VARs, engineering and services providers, and
product companies
Tech-enabled disruption of products and services: The new battleground for industrial companies 16
EXHIBIT 2 Value drivers and enablers in product development and innovation
Creating data- Analytics and Data monetization Developer platform Marketplaces and
enabled business insights-based services (e.g., insurance-rate for third-party data exchanges
models (e.g., dealer-enabled optimization based on services
solutions, operations driver behavior)
and maintenance
optimization)
industry revenue growth. As the costs of sensors, and cut wait times at service facilities by managing
connectivity, and computing continue to fall, leading inventory and triaging service jobs in real time. At
companies are harnessing technology to reinvent distribution centers, semi-autonomous tractors
their products and services and launch innovative could save time spent moving trailers around the
new offerings in a bid to leapfrog competitors and yard and reduce the incidence of damage. Finally,
gain market share. manufacturers of line-haul trucks could collect data
on duty cycles to inform R&D and cut warranty costs.
In line-haul trucking, for instance, technology will
make it possible to reimagine operations across Bringing connected products to life in this way
the entire value chain, as illustrated in Exhibit 3. requires industrial companies to address a number
A commercial fleet could save on fuel costs and of practical challenges. Chief among them is building
improve vehicle performance by calibrating vehicles an IoT platform—a complex undertaking, especially
over the air to match operating conditions. A for a sector that has traditionally treated engineering
dealership could spec vehicles more intelligently by and IT as separate disciplines. Another challenge is
using data on individual customers’ usage patterns, deciding on the most suitable architecture from a
At the dealer
Data-enabled vehicle spec'ing | Improve fuel economy / performance by fitting spec to usage profile
Data-enabled servicing | Cut holding costs and wait times via inventory management / triaging
In the truck
Over the air optimization | Increase fuel economy based on operating conditions
Safety response for failures | Avoid catastrophic accidents
Semi-autonomy | Reduce unplanned damage events and deskill driver tasks
Driver coaching | Tools to teach drivers in the cab to reduce cost of classroom training
Quality management | Reduce spoilage cost by monitoring produce quality
wide array of providers and options, such as building own features rather than delivering functionality
on a generic IoT platform or procuring a turnkey across the whole customer experience. By contrast,
solution from a specialty IoT partner. focusing on adding incremental end-to-end
capability forces companies to address dependencies
Successful companies take two key steps to facilitate between data models, communication protocols, and
product connection: so on, at an early stage in development programs,
thereby greatly reducing risk.
Ensure that use cases drive platform requirements
both while developing minimum viable products Creating data-enabled business models
(MVPs) and over the long term. For example, use New business models offer the largest opportunity
cases that require the real-time processing of large in tech-enabled product development, with an
data sets, such as autonomous driving, demand estimated $132 billion to $382 billion in incremental
significant edge computing capacity in the vehicle industry revenue growth. Some of these business
as well as in the cloud, while use cases based on models are likely to disaggregate value chains
aggregating data from a multitude of devices, such as in much the same way that Uber is disrupting
consumption trends from connected appliances, investment allocations for automotive companies,
can be handled exclusively in the cloud, at much and increasingly aerospace companies as well.
lower cost. Manufacturers of mining equipment, for example,
could explore a range of opportunities to create
Take an end-to-end approach to architecture.
new revenue streams, such as charging insurers for
A siloed approach, in which device, cloud, and app
vehicle usage data that helps them set premiums
data are all handled independently, is likely to cause
or offering mining companies uptime as a service
duplication, with each layer over-developing its
(Exhibit 4).
Tech-enabled disruption of products and services: The new battleground for industrial companies 18
EXHIBIT 4 Examples of data-enabled business models in mining equipment
Worksite operations
Charge for autonomy as a
service to share in increased
worksite productivity
Personnel management
Charge for evaluation of
employees as a service on
the basis of task completion
and productivity
Project management
< tool for
Offer data-driven
measuring task progress
in real time
Unplanned downtime accounts for more than 10 before they can achieve a level of insight that yields
percent of working time and causes considerable commercial value. Another common misconception
operational disruption. Our analysis indicates that is that IoT offerings generate so much data that
a mere 1 percent improvement in the availability of companies should be able to discover a silver
earth-moving equipment could create more than bullet somewhere in it. Misled by this belief, one
$200 million in value in the US alone. An OEM multinational industrial company tied up dozens of
could reap enormous benefits by offering uptime highly qualified data scientists for a decade on data
as a service, issuing a reliability guarantee for its projects that failed to find a viable route to market or
equipment, and claiming a share of the value thus indeed demonstrate any real commercial potential.
created for its customers. Successful companies make sure that data-enabled
offerings are owned by the business from the outset,
Launching data-enabled businesses can be even and they take care to answer the question, “Who
more challenging for an industrial company than values this offering, and can I sell it to them?”
creating connected products, especially in two
key aspects: Getting to market. Pushing data-enabled offerings
through existing channels and sales teams is likely to
Getting from data to insight to value. Many produce mixed outcomes at best. Reps may lack the
industrial companies assume that the raw data expertise and customer connections to sell the new
generated by their IoT offerings is monetizable offerings effectively and may turn to other products
in its own right, but this is seldom the case. to make up their quota, leaving the innovations
Companies usually need to combine multiple data branded as failures. One building-management
streams—often including third-party data sets— company developed a data-driven product to reduce
Tech-enabled disruption of products and services: The new battleground for industrial companies 20
services, the end user is the primary beneficiary for example—they want their equipment running at
of the value created. Component and subsystem maximum productivity, opening up opportunities
suppliers will need to find a path to monetization to create value by optimizing uptime or output.
that reaches the end user, perhaps via an ecosystem Meanwhile, a component manufacturer in this value
approach or partnership with OEMs. chain may find that its best monetization strategy is
to develop a preferred position with the OEM.
In upstream oil and gas, for example, the value
created by reducing downtime at a fracking How to get started
site or oil rig is captured by drilling contractors Most industrial companies are still at an early
but delivered by a combination of players. Data stage in transforming their innovation and product
ownership is fragmented: the drilling contractors development through technology. Some hesitate to
control the data from the large equipment they take the first steps, others are stuck in pilot mode,
manage; manufacturers of, say, frac blenders own and still others struggle to build a viable business
the algorithms and data that generate insights into case in the face of traditional development cycles
the equipment and how it works; and component and limited monetization opportunities. But delay
manufacturers, in turn, own performance data could cost companies dearly: late adopters risk
on individual products such as pumps. In this not only leaving value on the table but also losing
environment, creating value will entail forming market share to nimbler competitors. A McKinsey
partnerships with multiple manufacturers and Global Institute survey found that being a first
designing a model that enables value to be fairly mover conferred an advantage of about 7 percent
shared among the partners. in earnings before interest and taxes—more than
double the roughly 3 percent achieved by average
Establishing the right monetization model. responders.
Industrial companies can monetize their products
directly or indirectly. Direct options include So where do you start? We suggest five steps:
bundling products, launching add-on services, and
delivering an offering as a service. Indirect routes First, listen to your customers. They know what
include capturing new market share, developing they want when they see it, even though they
preferred-supplier status with OEMs, and so on. To may not be able to articulate it in advance. Invest
maximize value capture, companies need to select heavily in customer insights to identify pain
a monetization model that is appropriate to their points in the user experience, and pressure-test
position in the value chain and the criticality of the your new offerings with customers to ascertain
value at stake. what they are willing to pay for.
Take the example of an agricultural-equipment Second, place big bets. It’s fine to fail fast,
manufacturer selling productivity services to but avoid spreading your investment across
farmers. In general, measuring the improvement in too many ideas. Successful organizations
crop yield or quality that can be generated by data- prioritize a few big bets that get the lion’s share
enabled farming equipment is difficult, as it depends of management attention. Having identified
on multiple variables over the course of the year. your big bets, consider novel ways to organize
However, on occasions when farmers need to harvest around them. Some tech-enabled industrial
a crop within a short timeframe—as with sugar cane, companies use a VC-like governance structure
Venkat Atluri is a senior partner in McKinsey’s Chicago office; Jeremy Eaton is the IoT Venture Leader in the
Minneapolis office; Mithun Kamat is an associate partner in the Stamford office; and Satya Rao is a partner
in the Chicago office, where Saloni Sahni is a consultant.
Tech-enabled disruption of products and services: The new battleground for industrial companies 22
Making
and
delivering
Photo credit: Getty Images
In the past few years, advanced industrial companies to-machine digital connectivity (the Industrial
have made solid progress in improving productivity Internet of Things, or IIoT), artificial intelligence
along the manufacturing value chain. In the US, for (AI), machine learning, advanced automation,
instance, the productivity of industrial workers has robotics, and additive manufacturing. The impact
increased by 47 percent over the past 20 years. But of this shift is expected to be so transformative that
the traditional levers that have driven these gains, it is commonly referred to as the fourth industrial
such as lean operations, Six Sigma, and total quality revolution, or Industry 4.0.
management, are starting to run out of steam, and
the incremental benefits they deliver are declining. This new wave of technology and innovation offers
companies opportunities not only to drive a step-
As a result, leading companies are now looking to change in productivity and efficiency, but also to
disruptive technologies for their next horizon of capture strategic business value by establishing
performance improvement. Many are starting to competitive advantage in the way they operate their
experiment with technologies such as machine- entire “make to deliver” value chain. The nature
EXHIBIT 1 The value from tech enablement in product manufacturing and delivery varies by
industry segment
$ billions
Margin expansion
Automotive1 73-178
Other
mobility2 23-58
Aerospace/
25-65
Defense3
Broader
industrials
& semi- 77-198
conductors4
Total 198-499
Cost reduction value will be exceeded by revenue growth through strategic value drivers, e.g.:
speed to market, customization, responsiveness, and new services
1
Whole value chain including tier-one suppliers, automotive OEMs, and dealers
2
Commercial vehicles and off-highway equipment (e.g., for construction and agricultural use) including tier-one suppliers, equipment
manufacturers, and dealers and distributors
3
Includes tier-one suppliers and equipment manufacturers
4
Includes industrials, food processing and handling, motion and controls, industrial automation, and electrical, power, and test equipment
across the value chain: component suppliers, equipment manufacturers, distributors, VARs, engineering and services providers, and product
companies
The next horizon for industrial manufacturing: Adopting disruptive digital technologies in making and delivering 25
transformational. We estimate that productivity generate remains to be seen, but we can expect the
gains and cost savings alone could deliver near- lion’s share of it to go to first movers.
term impact of 200 to 600 basis points of margin
expansion across advanced industries, worth $200 Unlocking the value
billion to $500 billion (Exhibit 1). In the mid- to long- To capture the value of digital in manufacturing
term, even more value could be unlocked through and throughout the supply chain, leading industrial
greenfield plants, network reconfiguration, and companies are developing use cases in three main
upgrades to core IT and operating-technology (OT) areas: connectivity, intelligence, and automation
architecture. (Exhibit 2).
EXHIBIT 2 Connectivity, intelligence, and flexible automation create value across multiple
aspects of manufacturing and delivery
Optimizing
procurement Analytics-enabled tools for
E-sourcing events: eRFX,
Advanced spend intelligence and optimizing product cost (e.g., part
automated sourcing insights number consolidation, digital e-catalogs, e-auctions
benchmarking)
Enhancing
forecasting and Real-time tracking of Simulation-based forecasting of Automation of production
demand planning inventory location market and micromarket demand planning processes
and inventory management
Digitizing manu-
facturing and Real-time OEE visibility with Predictive maintenance to Vision systems for
assembling click-through capability on drivers of reduce downtime autonomous quality control
downtime
Streamlining
distribution and
delivery Real-time visibility of delivery Use of AA and AI to Automated warehouse picking
windows optimize logistics network and replenishment
The next horizon for industrial manufacturing: Adopting disruptive digital technologies in making and delivering 27
more than 80 percent. These savings in turn allowed announced digital initiatives of some kind. Most
the company to manufacture its product in higher- of the business leaders we spoke to recognize that
cost countries located close to attractive markets, technology can help them navigate complex risk and
thereby reducing shipping costs while increasing regulatory environments, make their operations
customer responsiveness and speed to market. more efficient, and enhance the customer experience
they offer.
Examples of what connectivity, intelligence,
and automation might look like at an aerospace However, advancing beyond the pilot phase is still
manufacturer are illustrated in Exhibit 3. a big challenge for most manufacturing companies.
Even among those reporting significant numbers
Overcoming pilot purgatory of pilots, most struggled to achieve broader rollout.
McKinsey’s research shows that most advanced In fact, the gap between piloting and rollout is
industrial companies are conducting pilots in all considerably larger than that between perceived
three of these areas (Exhibit 4). In the aerospace relevance and piloting, suggesting that scaling is a
and defense sector, for example, all of the top bigger hurdle than getting the ball rolling in the first
10 companies and two-thirds of the top 50 have place (Exhibit 5).
Connectivity
85
Using digital manufacturing approaches
to improve operational performance and
64 management and facilitate day-to-day
employee collaboration
Connectivity
87 Intelligence
Applying analytics, prediction models,
and simulations (or “digital twins”) of
70 products and processes
Intelligence
Flexible automation
77
Introducing new robotic technologies to
improve the productivity, quality, and
Flexible safety of operational processes
automation 61
What we learned from our research—and found Our research identified six success factors that fall
reinforced by our client experience and industry into three categories: strategy, infrastructure, and
observation—is that companies often make the organization (Exhibit 6).
same few mistakes when defining and implementing
strategies for technology-enabled transformation Strategize the transformation process
in manufacturing and delivery. As a result, they Too many organizations pursue a digital
struggle to move beyond what we call “pilot manufacturing journey that ultimately fails to
purgatory” and fail to capture sustainable impact create enough value to justify the cost, time, and
at scale. Fortunately, we also found a few real-world management attention involved. To avoid this fate,
examples of companies that achieved effective roll- successful companies establish a solid business case
out by paying close attention to a handful of success built on two principles:
factors. These “lighthouse” cases provide inspiration
Start from bottom-line value and work back. With
for other manufacturers in developing a vision for
so many digital manufacturing solutions on the
how technology can create value, building a solid
market, it’s easy—but dangerous—for companies to
business case, and charting an effective course for
get sidetracked by what looks exciting. To deliver
enterprise-wide implementation.
tangible results, they need instead to begin with
The next horizon for industrial manufacturing: Adopting disruptive digital technologies in making and delivering 29
EXHIBIT 5 Answer to question: what stage has your company reached in adopting digital
manufacturing?
64
23
Connectivity
-41p.p.
70
Lacking impact at scale
Less than 30% of
29 companies had rolled
Intelligence -41p.p. out relevant solutions
across their organizations
61
Flexible 24
automation
-37p.p.
a clear view on how these solutions can address reported as recently as 2017. Three principles can
operational pain points, create competitive help manufacturing companies create a vision for
advantage, and drive bottom-line impact. For some digital manufacturing:
companies, for instance, 3-D printing enables
competitive differentiation through leading-edge Think holistically across the ecosystem over
designs that would be impossible to manufacture the long term. Spot solutions may generate
in any other way; for others, it is no more than an excitement to fuel broad-scale change, but
expensive distraction. As a rough guide, asset-heavy tend to leave value on the table. Look past the
companies would be well advised to treat predictive immediate fix and your own capabilities to
maintenance as their top priority, while labor-heavy develop sustainable solutions that build long-
companies should focus on digital performance term competitive advantage
management.
Showcase early wins to solidify buy-in.
Establish a clear vision and a phased road map. However compelling the vision, it will fail
More than half the respondents in our survey (59 without widespread organizational support.
percent) saw lack of vision as a significant obstacle Create one or more “lighthouse” facilities to
to digital transformation, up from just 15 percent demonstrate how individual use cases reinforce
one another to transform outcomes.
Establish a clear vision Build the stack and Get on top of the
and a phased road map develop an ecosystem of capability gap
technology partners
Create an ROI roadmap. Scaling up calls Comprehensive. Ensure your stack spans
for careful management of technologies, use collection, connectivity, data, analytics, and
cases, process changes, cultural shifts, and applications, and is specific to your operational
investments. To navigate these complexities, model.
create a road map informed by the size and
nature of the business opportunity and your Scalable. Your stack must enable rapid scaling
requirements for IT and OT architecture and and support future growth. Pay particular
resources. attention to your data-ingestion pipeline and
complementary analytic capabilities.
Innovate the infrastructure
Having addressed strategy and business benefits, Analytics-enabled. Software and
companies can then turn to the critical elements of infrastructure systems provide the raw
technology stack and ecosystem. material, but analytics produces the insights
that generate value. Only 20 percent of
Design a comprehensive technology stack. Almost organizations have a data lake that covers more
half (44 percent) of survey respondents regarded IT than half their plants, and only 25 percent
deficiencies as a major challenge in implementing use an advanced analytics platform at scale.
digital manufacturing. In defining your optimal Companies that integrate their data and
technology stack, bear five watchwords in mind: extract more insights from it will create
more value.
The next horizon for industrial manufacturing: Adopting disruptive digital technologies in making and delivering 31
Integrated. Integrate data from IT and OT to technology. People are critical to success, and
help you develop digital-manufacturing use harnessing their energies requires you to:
cases that meet your business needs.
Drive transformation from the top. Capturing the
Secure. Address cybersecurity at every step, full potential from digital manufacturing calls for a
taking special care over the connections consistent approach in which you:
between legacy and future systems.
Ensure executive-level leadership and
Build the stack and develop an ecosystem of P&L commitment. Appoint an executive-
technology partners. level transformation leader to drive digital
Every stage of the process, from developing a manufacturing—something that only about
technology stack to rolling it out, must be tightly a third of manufacturers have done so far.
managed to ensure cohesion and seamlessness. We Consider taking your whole top team to digital
recommend following three guidelines as you move immersion sessions and “go and see” visits to
forward: understand the new capabilities and ways of
working you will need to develop. Accelerate the
Minimize architecture complexity. Navigating pace of your transformation by committing P&L
the complex landscape of solution providers to the effort.
presents many challenges. When building
components into your technology stack, make Integrate decision making across countries
as much use of industry standards as possible to and functions. Any fragmentation in the
ensure interoperability across the organization. way you apply digital technologies could
jeopardize the success of your transformation.
Use external partnerships to access functional Coordination across plants, locations, and
and integrative expertise. Select a few partners functions along the value chain is essential, yet
with deep functional and integrative expertise far from universal: only a third of companies
and develop solutions with them where possible. report having a globally coordinated digital-
Our research shows that more than 40 percent manufacturing effort.
of organizations are either building their own
IT/OT systems in house or tailoring externally Get on top of the capability gap. To foster an
sourced systems to their needs, creating a wide organizational culture that facilitates individual
range of systems that need to be bridged. The and team development:
right partners can help you ensure seamless
integration and functionality. Encourage innovation. Create an environment
that promotes creativity and innovation to give
Drive agile execution across organizational your transformation the best chance of success.
silos. As well as forging external partnerships, Consider launching an innovation challenge for
break down organizational silos and build your organization, ecosystem, and academic
your own capabilities for collaborating across partners to generate ideas and allow you to
functions. co-create new offerings with suppliers and
external experts.
Mobilize the organization
Digitizing an entire production system requires Focus on talent. More than two-thirds of
tremendous change that goes well beyond companies see attracting, managing, and
Kevin Goering is an associate partner in McKinsey’s San Francisco office, Richard Kelly is a partner in the
Stamford office, and Nick Mellors is an associate partner in the Seattle office.
The next horizon for industrial manufacturing: Adopting disruptive digital technologies in making and delivering 33
Selling
Photo credit: Getty Images
40% expected increase in the next 4 years The behavior of millennial customers
90% B2B customers who research purchasing 83.1 million millennials in the US (overtaking baby
decisions online
boomers at 75.4 million)
46% buyers who view product comparison as the 67% of millennials prefer to shop online
biggest pain point in their buying journey
8 out of 10 millennials never buy anything without
85% prefer to use digital channels for repeat first reading a review
purchases
6 hours per week spent on social media
The threat from digital players*
* All data from 2016
Why tech-enabled go-to-market innovation is critical for industrial companies—and what to do about it 36
EXHIBIT 1 B2B companies trail their B2C counterparts in progress towards digitization.
However, as the customer landscape shifts toward An auto retail company set up an agile digital-
digital channels, and as e-commerce matures, marketing war room to manage and analyze
companies need to develop consumer-centric effectiveness of all campaigns on a daily basis.
strategies that will drive traffic to their web pages As a result, the client learned that paid search
and improve lead generation. Doing so significantly (search-engine marketing), organic search (search-
increases performance, as McKinsey analysis shows engine optimization), and email marketing were
that companies with strong presales capabilities most effective in attracting profitable customers.
consistently achieve win rates of 40 to 50 percent By shifting spend to those digital channels, the
in new business and 80 to 90 percent in renewal company saw improvements in traffic (25 to 35
business, well above the average. percent) and conversion (greater than 25 percent)
within ten weeks.
We typically observe four practices that work best:
implementing agile digital marketing, optimizing Another industrial company developed detailed
paid search (SEM), maximizing organic search customer profiles by aggregating multiple
(SEO), and personalizing next-product-to-buy data sources such as customer-profile loyalty
algorithms. These areas often require adopting identifications and historical sales. From this
digital technologies such as advanced analytics and input, a predictive analytical model was created to
artificial intelligence, and optimizing marketing show sales patterns based on customer purchasing
across traditional and digital channels. behavior and provide recommendations on next
Automotive1 29-138
Aerospace/
Defense3 6-31
Total 74-298
1 Automotive value chain, including tier-one suppliers, automotive OEMs and dealers
2 Commercial vehicle and off-highway equipment (e.g., construction, agriculture) value chain including tier-one suppliers, equipment
manufacturers, and dealer and distribution channel
3 Aerospace and defense tier-one suppliers and equipment manufacturers
4 Industrials subsegments, food processing and handling, motion & controls and industrial automation, electrical, power, and test equipment
across the value chain from component suppliers to equipment manufacturers and distributors; VARs, engineering and services providers
and players across the semiconductor value chain from suppliers to product companies
product to buy. By sending personalized emails and digital tools to improve sales productivity and better
product recommendations, the company was able engage with customers. Levers typically used include
to increase email conversion by 30 to 40 percent. digital buying/fulfillment, optimized sales-coverage
This approach also helped identify effective selling models, and customer decision journeys.
processes and profitable customer profiles for
future sales. For example, a large equipment manufacturer
conducted customer decision journey (CDJ)
Transforming customer experience research, interviewing and surveying end customers
A profitable sales process relies on developing to understand the biggest pain points in their
a deeper understanding of how customers are journeys (Exhibit 4).
behaving at each step in their decision journey.
This helps companies understand at a granular level Many industrial companies miss this step,
where customer pain points and opportunities are putting them at risk of investing in digital tools
and then to establish clear priorities for developing that don’t meet genuine customer needs. One
Why tech-enabled go-to-market innovation is critical for industrial companies—and what to do about it 38
EXHIBIT 3 Value drivers in tech-enabled selling
Enhancing $
presales and
discovery through
digital marketing
Agile digital Optimize paid Maximize organic Next product to
marketing search (SEM) search (SEO) buy/personalization
Transforming
customer experience
Customer decision Digital buying/ Optimized sales- Intelligent lead
journeys fulfillment coverage model generation
Optimizing pricing
Enabling IoT at
dealers and retailers In-store video and
sensor analytics to Intelligent in-store
Traffic measurement Curbside pickup and deliver the DIY navigation and
installation customer promise promotions
company discovered that customers spent a phase from nine months to six weeks. By creating
significant amount of time understanding improved experiences, we estimate that it is possible
product specifications and matching them to their to increase customer engagement and conversion by
requirements during the quote stage. That led to 30 to 40 percent.
them starting quotation requests for products that
were not optimized for their needs. In another company, CDJ analysis revealed two
major customer pain points. One, customers were
Insights like these allowed the organization to having difficulties in comparing and getting quotes
focus its energies, leading to the development of a for products. Two, it was cumbersome for customers
minimum viable product prototype with a well- to track and monitor open orders, because all
defined feature set to address prioritized pain processes had to be done manually and required
points. One example was the creation of a web multiple interactions between customers and
tool that allowed end customers to browse and sales reps.
compare products by specs, a core customer need.
This approach and rapid iteration reduced the time Based on these findings, sales leaders developed a
needed to develop a full solution from three years web-based platform prototype to allow customers
to nine months, and the prototype development to research products, build their bill of materials
.
John is ready to sign his PO, but there Sarah sorts through financial
are hang-ups on his credit paperwork. paperwork to process the order.
He and Sarah have had two calls about
bank statements this week—but none
about delivering product.
Process
order
Customer may wait several days for Rep must act as the middleman on
approval extra paperwork.
John thinks his delivery is due today, Sarah has been on the phone all
but it’s not here yet and status is morning with the local DC and the
unclear. vendor organizing delivery.
Receive
Surprised by delays Delivery management not available—
Availability issues ordering next batch rep must ‘hand hold’
Why tech-enabled go-to-market innovation is critical for industrial companies—and what to do about it 40
(BOM) and receive an initial quote with minimal for sales reps at the time of deal making. Analyses
sales support. Additionally, the platform allowed at a large wholesale distributor, for example,
sales reps and customers to collaborate on requests, showed that several similar customers received
share the status of orders, and exchange proactive significantly different levels of rebates and discounts
notifications of any changes. Finally, on the back end, due to circumstantial factors, such as sales rep
the platform allowed sales reps to have full visibility underperformance or unjustified customer requests.
of the accounts, view open invoices, and flag potential
delays or anticipated issues. The implementation of To address this issue, a dynamic deal-scoring
the platform generated significant improvement of model was developed using historical data, relevant
customer experience and increased sales productivity parameters, and advanced analytical techniques to
by 10 to 15 percent. provide an assessment of expected profitability for
each incoming deal (Exhibit 5). The tool delivered
Based on our experience, technology solutions based results to the sales rep during the quotation phase
on CDJ analysis typically lead to a 3 to 5 percent of the process through an app. Empowered by this
increase in revenues and increased customer information, sales reps clearly understood the
engagement and loyalty to the brand. performance potential of each incoming deal request
and could make a real-time assessment of which
Optimizing pricing levers, such as payment terms or add-on services,
The development of digital and analytical tools could be used to improve deal performance and
in transactions, such as dynamic deal-scoring provide better value for customers.
models and data-driven performance management,
has significant benefits: our experience suggests The implementation of a dynamic deal-scoring
significantly improved operating income, optimized solution significantly improved gross profits (1 to
B2B product pricing to specific customer segments, 3 percent) through more targeted discounting and
maximized value capture in each transaction, and effective use of rebates, and reduced the quoting
end-to-end pricing-process management throughout process from months to a week, creating a much better
the lifetime of products and contracts. buying experience for customers and potentially
improving win-rates.
Improving price capabilities is also critical given
how rapidly e-commerce players can adjust prices Industrial companies also have the opportunity to
and capture opportunities. It is not uncommon for use analytical tools to dynamically set prices at scale
eCommerce players to use dynamic pricing algorithms and continuously improve pricing performance to
for individual stock-keeping units (SKUs) on a daily drive business objectives. The potential impact can be
basis. Although such algorithms might be harder significant, typically a 2 to 7 percent return on sales
to apply in a B2B setting due to constraints on data in value to the bottom line. However, because sales
collection and frequency of transactions, they offer leaders in industrial companies tend to approach each
a vision of what is possible as B2B companies’ digital deal as a unique one, they have been slow to implement
and analytical capabilities mature. advanced analytical techniques to unlock pricing
opportunities.
One impressive source of value comes from reducing
unexplained variability in discounting. A dynamic (Technology has a significant role to play in the
deal-scoring tool can provide objective guidance postsales process as well. For more on that, please
Continuously
monitor and
manage
performance
read “How disruptive technologies are opening Typically, IoT-enabled innovations can unlock
up innovative opportunities in services” in this value by improving real-time traffic measurement,
collection). curbside pickup, intelligent in-store navigation and
promotions, and inventory management. To better
Enabling IoT at dealers and retailers understand the potential, we reviewed automation
Original equipment manufacturers (OEMs) and opportunities across ten major work-flow activities
consumer packaged goods companies (CPGs) have in retail, including shelving and replacement, pricing
started to work with dealer and channel partners to and promotion, and checkouts, and identified six
use technology more effectively in sales. IoT-enabled major use cases where technology and algorithms
innovations are an area with great potential. can be deployed to increase store performance.
Why tech-enabled go-to-market innovation is critical for industrial companies—and what to do about it 42
One opportunity identified by our research was through technology, but all companies need to
combining sensors with smartphone technologies tackle a few key things:
such as Bluetooth to map customers’ positioning
within the store and then provide tailored offers and Invest in understanding your customer at a
information to increase the propensity to buy. granular level. Begin by understanding the areas
most in need of improvement along your customer
Another possible opportunity was to develop a fully decision journeys. This requires getting closer to
automated, nonstop checkout, using a combination your customers and understanding the channels
of video-surveillance technology and machine- they use to research and buy, research through
learning algorithms to accurately charge customers advanced analysis as well as close observation.
>99.9 percent of the time. Another interesting use This process is best when it is continuous and based
case developed was to leverage radio-frequency ID on frequent communications through dedicated
(RFID) tags, whose price has declined significantly channels between sales and product-development
in recent years, to automate the inventory teams.
monitoring process, freeing up store staff to focus on
customer-facing activities. Construct one source of truth for your selling data.
To fully capture the revenue uplift from selling,
Our analysis shows that the total value generated it is critical to combine transactional data across
by these improvements can be significant, with channels and systems into a single data lake. This
estimated increases in revenue of 3 to 10 percent, establishes a single source of insight for your sales
reductions in operating costs of 15 to 25 percent, and tech teams. This may sound trivial, but it’s
and a 5 to 10 percent increase on average in often the hardest thing to accomplish, given the
operating profit. multiplicity of data sources in many companies.
At a dealer network, a system of sensors was Define a big opportunity. With insights into
installed to reliably capture store traffic. The data customer buying behaviors in hand, the best
generated was analyzed through advanced analytics companies go for big opportunities. These are
to directly measure several indicators, such as comprehensive across a range of levers including
store performance, marketing ROI, effect of store churn reduction, incremental sales from enhancing
initiatives, and the effect of weather, among others. the share of wallet, pricing opportunities, and sales
With this analysis in hand, the team identified from new channels such as e-commerce.
several initiatives to improve performance and
maximize return on investment by eliminating Link your technology roadmap to identified
underperforming marketing campaigns, for value. Your technology investments should be
example, or refocusing promotions. Furthermore, in lockstep with the opportunity you’re going
there was an opportunity to adapt the system to after. For example, if there are significant shifts
enable the detection of loyalty customers, and create to e-commerce in certain kinds of transactions,
targeted and tailored experiences for them such as then establishing the right corresponding channel
matching them with the most experienced staff. and right presales infrastructure is critical to
capturing that opportunity. Similarly, if the
Getting started variations in pricing practices are significant for
No two industrial companies face the same similar transactions, then it is critical to invest in
opportunities and challenges in enabling sales dynamic deal-scoring tools. The roadmap should
Venkat Atluri is a senior partner in McKinsey’s Chicago office, where Satya Rao is a partner and Andrew J.
Wong is a consultant.
Why tech-enabled go-to-market innovation is critical for industrial companies—and what to do about it 44
Servicing
Photo credit: Getty Images
In search of sustainable ways to grow, industrial The proliferation of connected devices and
companies are turning to their vast installed base as sensors, coupled with a thousand-fold increase in
a source of recurring revenues and profits. Revenues computing power over the past decade, is opening
from servicing, especially aftermarket services and up new ways to deliver services and interact with
parts, are generally more stable than those from customers (Exhibit 1). For instance, the IoT (broadly
equipment sales and have shorter lead cycles, so defined as a combination of sensors, analytics,
they offer a way to counter the cyclical nature of and connectivity) allows industrial companies to
capital investments. In some subsectors, such as flow monitor equipment health remotely and develop
control, services tend to generate higher margins new commercial offerings, such as outcome-
than equipment sales. What’s more, pursuing new based contracts in industries with high downtime
servicing opportunities can transform a company’s costs. Industrial companies have started building
relationship with its customers by giving it deeper technology-enabled capabilities to take advantage
insight into how its products are used. of these opportunities. United Technologies, for
• By 2025, 50% Digital offerings • Use devices that accurately report reason for failure
of workers will led by IoT, AA, to reduce diagnostic time 10–25%
be freelance • Use augmented and virtual technology to help reduction in mean
technicians complete complex repairs more quickly time to repair
instance, acquired analytics firm Predikto in 2018 Where the value lies
to enhance its predictive-maintenance offerings and Our analysis has identified a pool of approximately
scale its digital and analytics capabilities. $40 billion to $110 billion in revenue growth and $40
billion to $60 billion in margin expansion that could
Many other companies are starting to apply be captured through tech enablement in industrial
advanced analytics (AA) and digital tools to derive services globally (Exhibit 2). This value comes from
instantaneous insights into field operations and use four main sources: a 1 to 3 percent revenue uplift
them to optimize deployment in real time through from cross-selling, upselling, and new business
techniques such as dynamic field dispatching and models; a 3 to 10 percent increase in service revenue
remote servicing. These technologies are allowing from smarter pricing of aftermarket parts and
industrial companies to deliver a step change in services; and a 20 to 30 percent reduction in field-
impact through improved technician productivity, service personnel costs from optimizing demand and
reduced mean time to repair, and higher customer labor management.
satisfaction.
A few leading companies are already achieving
Below, we outline the enormous opportunities that considerable success from efforts like these.
tech-enabled servicing opens up, consider the value One OEM reduced troubleshooting steps for its
potential it unlocks, describe what a successful technicians by 50 percent and increased first-time
approach looks like, and review the steps leaders can fixes by 15 percent, enabling it to cut costs and
take to begin their servicing transformation. increase market share. And an industrial-technology
Other
mobility2 5–14 ~1
Aerospace/
5–13 2–5
Defense3
Broader
industrials 26–36
& semi- 13–36
conductors4
1
Whole value chain including tier-one suppliers, automotive OEMs, and dealers
2
Commercial vehicles and off-highway equipment (e.g., for construction and agricultural use) including tier-one suppliers, equipment
manufacturers, and dealers and distributors
3
Includes tier-one suppliers and equipment manufacturers
4
Includes industrials, food processing and handling, motion and controls, industrial automation, and electrical, power, and test equipment
across the value chain: component suppliers, equipment manufacturers, distributors, VARs, engineering and services providers, and
product companies
provider that turned its field force into a lead- while in others aftermarket revenue was virtually
generation engine saw five to ten percentage points nonexistent.
of incremental revenue growth.
An innovative approach to servicing
The scale of servicing opportunities is best assessed With a successful tech-enabled service strategy, a
by lifetime value, defined as the total revenue an company can not only gain a deeper understanding
OEM can receive from servicing its installed base. of how customers use its products but also increase
When McKinsey analyzed aftermarket lifetime the number of customer touchpoints, giving it
value in more than 40 Fortune 500 companies more opportunities to explore and respond to
ranging from wind-turbine providers to truck customer needs. Our experience of working with
manufacturers, we found striking variations from dozens of industrial companies on technology
one subsector to another (Exhibit 3).1 In some transformations shows that new value can be
industries the lifetime value of the aftermarket created from all parts of the servicing process:
was almost equal to the price of the initial product, managing customer demand, optimizing field labor,
Passenger
16% 13 years 42% 4–10%
cars
1
Mainly reflects spare parts
2
Lifetime penetration is a function of attach rate, and typically shows wide variation between industries
SOURCE: Aditya Ambadipudi, Alexander Brotschi, Markus Forsgren, Florent Kervazo, Hugues Lavandier, and James Xing, “Industrial
aftermarket services: Growing the core,” McKinsey.com, July 2017
managing parts, and delivering superior customer as aviation, renewable energy, and mining—have
experience (Exhibit 4). started to adopt IoT-enabled condition monitoring
to prevent asset breakdowns, but few OEMs as yet
Managing customer demand have the infrastructure and technology to offer their
Traditionally, the difficulty of predicting and customers monitoring services.
managing customer demand has led to high
equipment downtime and poor service. Two Leading companies are using four methods to
drivers of this unpredictability are the limited use manage customer demand more actively:
of scheduled servicing and the low penetration of
condition-based monitoring, in which equipment Remote monitoring. By taking advantage of
is monitored while in operation. Industries vary in IoT and real-time connectivity, companies can
their approach to scheduled servicing, but out-of- continuously monitor the health of individual
warranty assets typically suffer lower adoption and assets and entire facilities to predict potential
more unplanned repairs. A few industries—such problems and manage demand. For instance,
Managing
customer demand Flexible asset-
Remote monitoring Predictive specific planned Upstreaming and
and notifications maintenance repairs remote resolution
Optimizing
field labor
Flexible workforce Dynamic dispatch Next-generation Performance
management optimization diagnostics management 2.0
Managing parts
Predictive demand Virtual parts depot and Network and logistics Dynamic parts
forecasting real-time inventory management pricing
Delivering superior
customer
experience Digitized
Lead generation and Churn and retention Digital self-serve order-to-cash
management management applications process
makers of heating, ventilation, and air Upstreaming and remote resolution. After
conditioning systems can connect remotely to identifying issues through remote monitoring,
building-management systems to evaluate the companies can use digital and analytic tools
performance of their equipment. By connecting to automate delivery and support services,
data from meters, sensors, and control panels dispatching field technicians promptly to jobs
and adding an AA-driven intelligence layer on when they are needed and reducing service-
top of existing building-management systems, delivery costs and inefficiencies. One company
they can continuously monitor and model saw demand for simple repairs fall by 17 percent
energy usage and provide recommendations for after using technologies such as automated
appropriate energy-saving measures. The IoT incident-resolution systems to provide remote
specialist Enlighted has taken this approach support for some 23 percent of service calls.
a step further by using its lighting sensors to
identify occupied and unoccupied spaces and Predictive maintenance. A few companies
offering innovative space-utilization services. are taking asset productivity to new levels by
3
They can monitor
their performance
1 through KPI
dashboards.
Field techs receive
job notifications
from customers
through a dispatch
4
app, and can They have ready
manage leads. access to info on
customer site,
asset, and repair
history.
2
5
They use a parts-
recommendation
app to ensure they
They use a
have the parts they
root-cause
need before they
knowledge-man-
arrive at the
agement tool to
customer.
resolve repairs.
EXHIBIT 6 A self-serve app gives customers transparency throughout the repair process
1
Customer
reports fault
and receives Equipment
notification
that a field
tech has been
assigned.
3
2 Customer gets live
notifications
Customer can
throughout the
interact with
repair process.
self-serve
applications
such as chat
bots to
schedule and
track services.
Barathram Ananthakrishnan is a consultant in McKinsey’s Chennai office; Venkat Atluri is a senior partner
in the Chicago office, where Harsha Krishnamurthy is an associate partner; and Senthil Muthiah
is a partner in the Boston office.
EXHIBIT 1 The value from tech enablement in G&A activities varies by industry sub-segment
Margin expansion
$ billions
Automotive1 24-50
Other
mobility2 4-8
Aerospace/
4-7
Defense3
Broader
industrials
& semi- 31-56
conductors4
Total 63-121
1
Whole value chain including tier 1 suppliers, automotive OEMs, and dealers
2
Commercial vehicles and off-highway equipment (e.g., for construction and agricultural use) including tier 1 suppliers, equipment
manufacturers, and dealers and distributors
3
Includes tier 1 suppliers and equipment manufacturers
4
Includes industrials, food processing and handling, motion and controls, industrial automation, and electrical, power, and test equipment
across the value chain: component suppliers, equipment manufacturers, distributors, VARs, engineering and services providers, and product
companies
How bots, algorithms, and artificial intelligence are reshaping the future of corporate support functions 58
Modernizing the finance function of the opportunity requires advanced cognitive
At many organizations, the finance function is automation technologies such as machine-learning
beginning to evolve toward a more integrated algorithms and natural-language tools.
consultative model that supports value-based
decision making. However, companies often have At one company that was trying to verify whether
difficulty devoting enough attention to the analysis employees were reporting vacation time accurately,
required to support this model because of the the internal audit function developed an algorithm
demands of day-to-day transactional activities. that compared declared vacation days with data
The sheer scale of these activities makes them ripe from badge swipes and computer-usage data.
for automation: in fact, our analysis shows that 27 Another company reengineered every part of its
percent of finance activities could be automated record-to-report process by redesigning activities
using technologies already available (Exhibit and organizational structures around a portfolio
2).1 About a third of this opportunity could be of technologies. Managers introduced RPA for
captured using basic technologies such as robotic tasks such as preparing journal entries and applied
process automation (RPA), a type of general- machine learning to reconcile differences between
purpose software that can sit on top of existing accounting records. Having demonstrated that
IT systems. Capturing the remaining two-thirds natural-language tools could be successfully
deployed to produce report commentary, the
1
Taking into account the relative complexity and expense of different types of automation technology: robotic process automation, machine
learning, smart workflows, cognitive agents, and natural-language processing
2
Because of investment requirements and technological complexity
1
Taking into account the relative complexity and expense of different types of automation technology: robotic process automation, machine
learning, smart workflows, cognitive agents, and natural-language processing
2
Because of investment requirements and technological complexity
How bots, algorithms, and artificial intelligence are reshaping the future of corporate support functions 60
Finally, predictive analytics can be used to improve Building a scalable technology
hiring, retention, and succession planning. One backbone
company undergoing a restructuring was trying In addition to supporting the deployment of
to identify promising employees to lead its new automation technologies in other functions, IT
organization, but found that HR and company data can take advantage of bots and algorithms in its
was scattered across the enterprise. Using machine- own operations (Exhibit 4). Our analysis shows, for
learning capabilities, the company aggregated example, that 40 to 80 percent of the basic activities
demographic, performance, and organizational data required to resolve service desk tickets can be
to identify the key drivers of employee performance, automated through RPA and related technologies.
identify the individuals with the greatest potential,
and find roles in which they would succeed. When one company analyzed incident tickets, for
Leaders then transformed the recruiting process instance, it found that between 25 and 35 percent of
to focus on early markers of success and redeploy them were requests for “password reset” or “access.”
talent in new roles. These measures enabled the To resolve these tickets, it introduced RPA bots
company to achieve improvements of 80 percent that connect with multiple applications via the user
in the conversion of new recruits, 26 percent in interface or application programming interfaces. By
productivity, and 14 percent in net income. adopting automated ticket resolution, the company
Application development 20 55 25
Application maintenance 26 66 8
Application hosting 25 62 13
Network services 18 50 32
End-user services 25 62 13
IT as a whole 22 55 23
1
Taking into account the relative complexity and expense of different types of automation technology: robotics process automation, machine
learning, smart workflows, cognitive agents, and natural-language processing
2
Because of investment requirements and technological complexity
How bots, algorithms, and artificial intelligence are reshaping the future of corporate support functions 62
Start-up preparation and design through to build, test,
In this first phase, a company typically tackles: and refine.
Assessment and roadmap. To decide which sub- IT support. Even when sprints are led by other
functions, processes, and locations will benefit functions, involving IT early is critical to securing
most from tech-enabled transformation, start with the right infrastructure and environment and
a clear understanding of your organization and standardizing processes for deployment and
the activities it performs. Assess the potential for maintenance. Successful leaders establish clear lines
automation by combining top-down analysis with of accountability between functions, automation
task-by-task validation, then use your findings to resources, and IT support groups to avoid confusion.
inform decisions about which technologies to invest
in and where to deploy resources. Finally, translate Center of excellence (CoE). Most companies
all this into a roadmap to guide your program. choose to set up a tech-enablement CoE to provide
governance, build capabilities, and maintain assets.
Proof of concept. To demonstrate feasibility and This will typically follow a centralized model
potential for impact, build a practical application initially with some development capacity embedded
such as a simple bot or algorithm in weeks, not in functions, before moving to a federated model as
months. This gives you early experience with the transformation matures.
technology and a chance to create presentations,
videos, and other communications to generate Scale
excitement for your broader program. In the last phase, transformations typically
complete:
Vendor selection. Selecting the right technologies
to support your transformation is a balancing act Additional sprints. Once you have conducted a few
between maintaining a simple architecture and sprints, it’s time to scale up systematically and
maximizing impact. Most companies start with an rapidly deploy technologies in further sprints. As
RPA platform and add complementary technologies each new process is deployed, maintenance and
such as business-process management or optical support teams can resolve issues and manage
character recognition within the first three to six changes while continuing to refine their support
months. More complex automation tools, such as model.
natural-language processing, are typically added
CoE scale-up. The speed at which you scale up
after about a year. Emerging technologies, such
your CoE depends on the number of opportunities
as cognitive agents, are usually confined to pilots
in your pipeline. As your program scales, the CoE’s
during the early stages of a transformation.
interaction model with other teams will evolve to
Launch shift more responsibilities to the business, and in
Areas of focus in the launch phase usually include: turn the business will start to undergo a culture
shift with employees seeing technology as a source
Domain sprints. Companies typically build of support, not competition. Ongoing capability-
solutions through multiple rapid, intense working building and change- management efforts will help
sessions or sprints. A sprint usually consists of five to build support for the new way of working.
or six use cases relating to a specific “domain”: a
sub-function, process, or location. Sprints employ
agile methods and follow standard IT phases from
Alexander Edlich is a senior partner in McKinsey’s New York office, Fanny Ip is an expert associate partner
in the Southern California office, and Rob Whiteman is a partner in the Chicago office.
How bots, algorithms, and artificial intelligence are reshaping the future of corporate support functions 64
Our capabilities
McKinsey has built up a significant track record of driving impact across industrial companies
to transform their businesses and take advantage of the value from technology offers. Notably
our experience of 200+ digital and automation engagements in the last 3 years has spanned the
entire industrial value chain—from suppliers in industrials to larger OEMs—providing us with
a unique understanding of how to manage the dependencies and complexities of a successful
tech-enabled transformation.
We have developed a holistic set of use cases and tools to help our clients do three things:
1) rapidly identify the value from technology across a range of industrial companies; 2) deploy
the relevant technologies in an agile manner; and 3) manage the change and build capabilities
to realize and sustain the impact.
Our team
Practice leaders
Kevin Dehoff (Americas Aerospace & Defense Leader), Asutosh Padhi (Global Advanced Industries
Leader), and Nick Santhanam (Americas Advanced Electronics Leader)
66
September 2018
Copyright © McKinsey & Company
www.mckinsey.com