Digital Business Transformation: A

Manufacturing Industry Perspective for CIOs

Published: 9 August 2018 ID: G00368752

Analyst(s): Bettina Tratz-Ryan

The 2018 Gartner Digital Business Survey shows an increase in innovators

in Industrie 4.0. CIOs advancing digitalization in manufacturing can use the
data points to compare their digital vision and their operational integration of
business platforms for collaboration and ecosystem development.

Key Findings
■ The manufacturing industry is diverse in digital business maturity. There are leading CIOs in
highly automated manufacturing organizations, and CIOs just starting to build and design their
digital ambitions.
■ Collaboration platforms are regarded as an evolution platform stage for digital engagement
within and outside of the organization. Operations and transformation risk, as well as internal
and ecosystem disruption, require tight management.
■ Progressive CIOs use change management to instill trust and digital competence into the
organization and across the ecosystem partners.

Recommendations
CIOs accelerating digitalization in the manufacturing industry should:

■ Develop a digitalization or Industrie 4.0 roadmap by defining current maturity levels and
identifying gaps with regard to the future vision of a digitalized organization. Align the roadmap
to adaptive I&T operations governance, which is flexible in the assessment of digital security.
■ Expand collaboration and communications strategies that link digital workplace technology with
dashboards and devices for frictionless access to information flows and process know-how.
■ Approach change management on digital skills in the employee base from a motivation
perspective, and together with HR, assess whether KPIs or work descriptions need to be
changed to support scale in digital collaboration and activities.
 Table of Contents

Strategic Planning Assumptions............................................................................................................. 2

Analysis.................................................................................................................................................. 2
Survey Objective...............................................................................................................................2
Optimization and Transformation Yes, but Leverage ROI for Both..................................................... 3
CIOs Need to Expand Their Role to Win in the Digital Business Journey When Leveraging Data to
Scale Projects.................................................................................................................................. 5
Collaboration Platform Business Enables Change Management and the Sustainability of
Digitalization Services in the Organization and Across the Industry Value Chain................................ 9
Gartner Recommended Reading.......................................................................................................... 12

List of Figures

Figure 1. Digital Business Ambition......................................................................................................... 4

Figure 2. Digital Initiative Progress: Optimization-Only Focus...................................................................6
Figure 3. Digital Initiative Progress: Transformation Only..........................................................................7
Figure 4. Digital Initiative Progress: Both Optimization and Transformation.............................................. 8
Figure 5. Platform Business Models Used Today.................................................................................. 11

Strategic Planning Assumptions

By 2020, 25% of midsize organizations engaging in Industrie 4.0 strategies will collaborate in cross-
industry ecosystem initiatives, up from 10% in 2018.

By 2022, more than 50% of all people collaborating in Industrie 4.0 ecosystems will utilize virtual
assistants or intelligent agents

Analysis
Survey Objective
Digital business continues to grow at a rate that accelerates the need for enterprises to take action.
1
The 2018 Gartner Digital Business Survey provides insights on how rapidly digitalization efforts are
progressing and what CIOs must do now to remain relevant. Of 372 digital business leaders
responding to the survey, 62 are from the manufacturing industries. Forty-eight percent of the
manufacturing industry respondents are solely responsible for decisions on digital business, and
another 32% are part of the decision-making group. This includes the CIO, the CTO and other
digital business roles. This report focuses on an analysis of the results of the survey and the

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 recommendations for CIOs leading digitalization in manufacturing industries. Since 48% of the
2
responding digital business leaders in manufacturing industries work for organizations with more
than $3 billion in annual revenue, the data points give a good trending factor for digital ambition in
this industry sector.

Optimization and Transformation Yes, but Leverage ROI for Both

In manufacturing organizations, CIOs and IT leaders face the challenge of developing digital
business acumen across both central IT and IT in the business organizations. In addition, some
manufacturing organizations have a comprehensive digital vision around Industrie 4.0 or digital
3
factory. These require the extension of value chains of digital business services across both
manufacturing operations and the supply chain. In all manufacturing subindustries, this will lead to
intensive interaction over the entire product life cycle — not only with suppliers, but also with
customers — as is often the case today in the automotive industry.

Furthermore, digital business transformation is a consequence of innovation or disruption within

manufacturing industries. CIOs and their teams must be able to accelerate and support
transformative business model outcomes such as product and operational excellence, customer
intimacy and risk avoidance. They must also develop secure tools and infrastructure methodologies
to enable them to align their businesses to new customer and market segments in high velocity.

These pressing issues that CIOs and their teams need to execute on are reflected in the digital
business survey. We asked whether the digital business focus is to improve employee productivity,
customer experience or increase revenue — which together we call optimization. Another option
was the focus on digital business to either deliver entirely new, digitally enabled products and
services or create new business models that make money in new ways — in other words,
transformation.

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 Figure 1. Digital Business Ambition

Source: Gartner (August 2018)

The survey responses indicate that 27% of respondents are focusing their digital business activities
on optimizing outcomes — including productivity enhancement in processes and among employees
only, while 21% of digital business ambition is looking for transformation results only. The majority,
52% of the respondents, are building both optimization and transformation into their digital
business activities. In comparison, the survey results indicate that transformation for digital
4
business leaders across all industries is at a 15% level. The higher percentage in the manufacturing
responses is significant, as the manufacturing industry has been looking at the development of
value chains through Industrie 4.0 and other digital business initiatives. These, for example, extend
product engagement through new digitally enabled services or by new revenue and service models.
5
Kärcher is a use case. The company is extending its revenue model by offering new services at the

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 customer site on cleaning detergents and maintenance contracts through Internet of Things (IoT)
data on its products.

In the survey, we learned that digital business leaders in manufacturing industries measure their
optimization outcome mostly by employee productivity improvements. Outcomes are not limited to
automation technology, but also apply to tools recognizing work process issues and providing
recommendations to fix them. In addition to cost reduction, productivity enhancements include
internal collaboration and information exchange to improve employees' effectiveness in their own
workplace or through the availability of new digital workplace technology. In addition, optimization is
expected to result in revenue or value enhancements. This will happen, especially when data —
such as asset data — will lead to quality enhancement and increased uptime of the manufacturing
process across the value chain to the retail or customer interface.

The survey further shows that 52% of the respondents in the manufacturing industry say that both
digital optimization and transformation will be the common goal of digital business activities.
Particularly in many process manufacturing value chains, extracting and analyzing data on recipes,
temperatures or material flows will initially maintain optimization of the manufacturing process. In
addition, it will be contributing to transformation approaches, including SLA delivery on product
maintenance as a service, quality control or real-time data trading. CIOs need to be working on (1)
infrastructure architecture, including industrial IoT platforms, to build out this converged
environment, and (2) data governance to create the joint data and information hand-off.

Recommendations:

■ Develop an I&T operating model supported through an agile governance structure in order to
account for different levels of digital maturity across the IT organization and the business by
aligning all initiatives with the overarching business strategy and goals.
■ Establish a digital transformation strategy and maturity map, together with business and
operations, to align data and information exchange to support integrated value chains.
■ Determine a hybrid cloud strategy that takes velocity for data analytics in IT and manufacturing
operations and offers it to the business for transformation ideation.

CIOs Need to Expand Their Role to Win in the Digital Business Journey When
Leveraging Data to Scale Projects
Gartner has identified the different stages of digital business transformation as desire-ambition,
6
design, delivery, scale and refinement-harvest. These stages define the progress of the
digitalization roadmap. CIOs need to understand them to support the digital transformation of their
organizations. In data-aware and highly competitive manufacturing organizations, where the CIOs
have a mandate to build digital roadmaps, they must use tools and proofs of concept (POCs) to
learn quickly and scale this know-how across their business organizations. Figure 2 shows survey
results for the current state of digital business journey progress for organizations focusing on the
optimization-only strategies.

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 Figure 2. Digital Initiative Progress: Optimization-Only Focus

Source: Gartner (August 2018)

Digital business leaders in manufacturing regard the optimization-only digital initiatives across their
organizations as in the "desire-ambition" phase — that is, defining the roadmap and evaluating ROI.
Even an anecdotal trend indicating results from Figure 2 and Figure 3 suggests that digital business
leaders in manufacturing organizations regard their initiatives for optimization-only projects as the
first step toward the development of a strategy desire-ambition phase. Most of those digital
business leaders in manufacturing could be assessing data from industrial IoT-enabled products at
the customer side for track and trace, asset maintenance and performance, as well as for
optimization of the bill of materials. Cybersecurity aspects and high transactional velocity play a big
role in the desire for, and design of, the initiative, and many organizations have a low failure
tolerance or high security concerns.

Additionally, in manufacturing industries, the heterogeneity of maturity of technology platforms

within operations and IT means that complexity is high. In contrast, in some service and non-asset-
intensive industries, respondents assessing cross-industry digital initiatives have already started to
scale some of the programs faster as they can focus on data or software-driven projects.

Figure 3 compares the results of the digital business leader's assessments of digital initiatives
progress for transformation-only digital programs.

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 Figure 3. Digital Initiative Progress: Transformation Only

Source: Gartner (August 2018)

These directional findings show that manufacturing organizations focused on digital transformation
— like those focused on optimization — are also largely in the "desire-ambition" phase and the
design of a digital business strategy. Digital business leaders in these organizations are developing
the ROI for new services, revenue generation and customer approaches. CIOs in manufacturing
organizations must recognize that there will be capacity and scale challenges in supporting digital
business services across the ecosystem. Therefore, they need to create a hybrid cloud
infrastructure for data and information exchanges across the value chain. This often requires a
digital mentality of data sharing — or of opening networks — and a strong data or IT governance
framework.

Some discrete manufacturing sectors — like the automotive industry — have extensive automated
facilities and infrastructure, so they can often bundle data and business services in an ecosystem
and deliver it. CIOs in the 13% of manufacturing companies in the "delivery" phase can deploy a
bimodal approach with centers of excellence or digital factories that operate based on their
distinctive definition without disrupting the main business flow of the organization. Some of the
leading CIOs are creating POCs through pilot projects that focus on value chains in product
functionality or security.

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 Noteworthy is the difference between manufacturing and cross-industry percentages of digital
business leader responses for the "scale" (18% vs. 11%, respectively) and "harvesting" (7% vs.
5%, respectively) phases. Champion automotive manufacturing organizations like Volkswagen and
Toyota have already implemented vast amounts of digitalization in parts of their manufacturing
operations and life cycle management. Other organizations have focused on implementations of
automation and asset management applications in pockets or streams within the organization where
an appreciation of digital mentality is being developed, or the ROI or impact is easy to demonstrate.

Figure 4 assesses the responses on the progress of digital initiatives for both optimization and
transformation. Here, it becomes quite obvious that within the manufacturing industry, there are vast
differences in the risk culture and the mandate of top-performing digital business leader and those
that are more closely regarding their role as digital business leaders.

Figure 4. Digital Initiative Progress: Both Optimization and Transformation

Source: Gartner (August 2018)

On the one hand, due to automation and a high-velocity supply chain in both automotive and
machine manufacturing and in their subcomponents, there are sectors whose CIOs are scaling
digital business projects (22% of responses). As an example, Gestamp in Spain had, for many
years, built out automation programs and robotic production lines, but now is also using the data for
quality and delivery SLAs to customers for its hot stamping and welding process flows. The

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 company is displaying dashboard data in multiple views to multiple departments and to employees
of different skill levels to promote understanding about productivity. It is also sharing that
information with ecosystem partners internally and across the supply chain.

Both optimization and transformation progress show the variety of maturity levels and change
management cultures, as well as the readiness of organizations' business partners to work with
CIOs and their teams.

On the other hand, digital business leaders and some CIOs began using POCs for optimization or
transformation on track and track, asset performance, maintenance or customer services. Now,
however, the scale of assessing the data for both purposes of optimization and transformation will
include a new definition of KPIs for integrated processes. Twenty-five percent of the respondents
see their organizations in the "re" designing phase with a need to build both objectives —
optimization and transformation — into their IT strategy. At the same time, CIOs recognize that their
roles need to change so they become transformation communicators and change agents following
the path from delivery to scale. Frequently, joint-manufacturing transformation and operations
represent a challenge for CIOs to define their KPIs. Business goals around cost reduction and
efficiency gains in hours or volume are easier to support than quality gains, customer satisfaction or
innovation collaboration at the customer end.

Recommendations:

■ Verify if programs and projects will not only deliver an immediate outcome, but will also have a
scalable ROI and benefits by simulating the implementation factors across the value process.
■ Determine the impact of disruptive and innovative approaches on IT and IoT architectures
throughout each phase of the digital journey by developing integrated risk KPIs and
measurements.
■ Develop awareness across different locations that a leading-edge approach in one sector and
geography can only be replicated with similar digital mindset, culture and skills in the employee
base.
■ Create a cybersecurity definition that will address the concerns and issues across the value
chain.

Collaboration Platform Business Enables Change Management and the

Sustainability of Digitalization Services in the Organization and Across the Industry
Value Chain
In manufacturing organizations, digital business models increase automation and operations
efficiency and support value creation. A platform business model is the way an organization enables
multiple players within a business ecosystem to create and exchange value (see "Winning in the
Platform Game, Part 1: Understand the Game and Determine Your Role"). A digital business
platform identifies different types of business model styles that manufacturing industry CIOs need to
understand and support.

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 In our survey, digital business leaders were asked which digital business model platforms are used
by their organization currently. They were able to identify the following categories and styles:

■ Collaboration models make it easier to work together and enhance existing relationships
within a business ecosystem to create new revenue/value.
■ Orchestration models bring capabilities together and create new relationships to create new
revenue/value.
■ Creation models allow participants to build new products or business models based on the
building blocks and infrastructure provided by the platform to create revenue/value.
■ Matching models match supply with demand or providers with consumers to create revenue/
value.

Collaboration and orchestration platform business models are generally more adaptive and allow
business ecosystems to work together in a seamless or transparent way. Creating and matching
models tend to be more disruptive. They harness the scale and creativity of a potentially vast
business ecosystem, often leading to the disruption of existing markets or the creation of new
markets.

In Figure 5, 48% of the respondents from the manufacturing industries say that their organizations
use collaboration platforms to support the business models, while 37% use orchestration models.

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 Figure 5. Platform Business Models Used Today

Source: Gartner (August 2018)

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 Internal collaboration platforms are a common starting point for manufacturing organizations that
are early in the digital journey (42%). They are critical for getting the organization on the same page
in terms of outcomes and the strategy on digital changes. This is especially significant when the
perspectives of trade unions, labor councils and employees must be taken into consideration on job
security and labor augmentation. Collaboration platforms provide CIOs with a common
communications and delivery tool to disseminate information and benefits on digital services, data
capture, the IoT and new ways to leverage applications and processes. They also offer an
opportunity to tap into the knowledge base of workers to harvest know-how and create
collaboration pools.

Twenty-three percent of the respondents use private collaboration models with known partners in
their ecosystems. They can create delivery value chains where data and process information can be
exchanged in defined and secured ways. They can define cost reduction and uptime SLAs for
providers offering HMI interfaces to their robotic plant systems or provide production cycle and
software codes to customers for quality and track and trace services. Nineteen percent of the
respondents connect collaboration platform to third parties such as ADAMOS or MindSphere. This
will allow digitalization in extending relationships with customers, suppliers and partners to broader
participation in a public model.

Creation and matching platform business models are disruptive models that support the
transformation approach in manufacturing industries. In general, starting with the less disruptive
models and using them in an internal or private manner can help CIOs build knowledge, acceptance
and understanding of platform business models with lower risks. However, focusing exclusively or
primarily on the adaptive models may inhibit the enterprise's ability to reach scale in its digital
initiatives. Some organizations have established creation models in which they are extending new
products or services to customers and markets — such as selling performance of a product rather
than the asset themselves. CIOs in leading manufacturing organizations have found matching
models that drive new business units — such as selling mobility as a service in automotive, or
medical equipment manufacturers offering aggregates of vital health information to insurance and
retail. As our business survey data shows, those transformation approaches are still emerging.

Recommendations:

■ Develop communications strategies that link digital workplace technology with dashboards and
devices for frictionless access to information flows for better decision making.
■ Secure collaboration exchanges, especially on innovation and critical business services, across
networks, data architecture and cyber environments.
■ Apply an understanding of engagement and collaboration through a new set of KPIs and
motivating initiatives, such as hackathons, competitions and centers of excellence approaches.

Gartner Recommended Reading

Some documents may not be available as part of your current Gartner subscription.

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 "Digital Business Transformation: Closing the Gap Between Ambition and Reality"

"Closing the Digital Dexterity Gap in Digital Business Strategies"

"The Global Impact of Industrie 4.0 Enables and Accelerates Worldwide Digital Business Success"

"Digital Business Transformation: Closing the Gap Between Ambition and Reality"

"IoT Project Metrics (KPIs) Help Ensure Your Industrie 4.0 Outcomes"

"Succeed With Digital Business Through Adaptive Governance"

Evidence
1 This research is based on Gartner's annual survey of enterprises that have a digital business
initiative in order to examine how businesses and institutions understand, identify and exploit new
opportunities relating to digital business. Surveys were conducted on the phone and online among
organizations that have digital business ambition and focus. In total, 372 surveys were distributed in
the U.S. and Canada (n = 102), the U.K. (n = 90), Australia (n = 90), India (n = 55) and Singapore (n =
35).

Respondents were screened for involvement in their organization's digital business activities.
Companies were required to have more than $250 million in annual revenue, and be operating in
one of the following industries:

■ Financial services (n = 67)

■ Government (n = 60)
■ Manufacturing (n = 62)
■ Retail (n = 62)
■ Healthcare (n = 61)
■ Education (n = 60)

The survey was developed collaboratively by a team of Gartner analysts who focus on digital
business, as well as business model innovation, strategy and innovation. The survey was tested and
administered by Gartner's Research Data and Analytics (RDA) team. The results of this study are
representative of the respondent base and not necessarily the market as a whole.

2Forty-eight percent of the manufacturing digital business leaders responding to the survey are in
organizations with annual revenue of more than $3 billion.

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 Figure 6. Respondent Profile

Source: Gartner (August 2018)

3Gartner's "The Global Impact of Industrie 4.0 Enables and Accelerates Worldwide Digital Business
Success" describes the strategic impact of digitalization strategies such as Industrie 4.0 on IT and
business operations of organizations globally. In addition, the factory-of-the-future initiatives are far
greater than the digitalization initiatives that underpin them. The factory of the future is a supply
chain strategy that impacts plan, source, make, deliver and service. The pace of technology
continues to change, and industrial policies are unfolding. So, too, are the increasing risks of
misaligning innovative production capabilities with the supply chain (see "More Than Digital Is
Driving the Factory of the Future").

4 The cross-industry report shows that the digital ambition for optimization and business
transformation stands at 51% (see "Digital Business Transformation: Closing the Gap Between
Ambition and Reality").

5Gartner's "2018 CEO Survey: CIOs in Manufacturing Must Advance Executives' Digital
Capabilities" outlines multiple examples of manufacturing organizations extending their digital
business initiatives to increase their services to customers.

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 6"Digital Business Ambition: Transform or Optimize?" provides deep insight into the stages of
digital journey mapping.

More on This Topic

This is part of an in-depth collection of research. See the collection:

■ Survey Reveals Dangerous Gap in Digital Business Transformation Progress

Gartner, Inc. | G00368752 Page 15 of 16

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