CEO dialogue: Perspectives on reimagining operations for growth

The hyper-acceleration of the Fourth Industrial Revolution (4IR) has led to an unparalleled industry transformation, giving organizations a unique opportunity to reimagine operations for growth.

In late March, CEOs representing leading innovative organizations from around the world joined McKinsey & Company in collaboration with the World Economic Forum for a discussion on the future of manufacturing. Hundreds of thousands of participants across dozens of industries tuned in to hear from Satya Nadella, CEO of Microsoft, Alex Gorsky, chairman and CEO of Johnson & Johnson, and 11 CEOs of companies that recently joined the Global Lighthouse Network, a community of world-leading companies using 4IR technologies to go beyond productivity improvements to create sustainable, profitable growth.

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Network Expansion

Their conversation has been edited for clarity and legibility.

“Digitization is going to touch every aspect of our business,” said Alex Gorsky, Johnson & Johnson. “I can´t imagine ten years from now that whether it’s our businesses, our manufacturing, our financial systems, our human-resource systems—it will just be so imbued into every process, every function, every connection that we make.”

Unique growth opportunities

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Growth

By deploying 4IR technologies at scale, lighthouses are creating new revenue streams through new business models. These companies are more in touch with what their customers want, even as preferences change faster than ever—and they have built the capability to respond rapidly and gain market share in the void left by others that get stuck in pilot purgatory. In fact, being stuck in the pilot phase is a more common feeling in 2020. The three-year trend shows scaling Industry 4.0 tech is reversing. Industrials have had their investments pressure-tested, and as a result have realized they have not scaled as much as they thought.

“I feel that resiliency driven by digital technology has now become paramount,” Nadella said in the keynote. “Now we have these low-code/no-code tools that are enabling domain experts to do automation at the edge so that they can continue to drive productivity. So, an amazing amount of digital-technology adoption to overcome the constraints of the pandemic is, I think, what’s going to be a dramatic shift.”

To shape operations for a sustainable, digitally-infused future, companies will need to find pathways that extend value from the boardroom to the front lines, with scalable technology that supports the business goals.

Based on learnings from leading manufacturing executives around the world, here are several factors that executives can bear in mind as they prepare to lead their organizations into a digital future.

Tech transformation as holistic, not atomistic

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Scaling

Today, every company needs to be a technology company, and maximizing productivity is no longer enough. To support any hope of lasting competitive advantage, companies—and CEOs—know their operations have an effect in many areas other than just productivity, including greater environmental sustainability, faster innovation, higher customer satisfaction, and more-engaged workforces—all at once, and all while dramatically improving financial and operational performance.

To prepare for the future, executives should keep in mind that 4IR is not just about the production process, it’s about the entire operating model, with technology used only where it matters. For true digital transformation to have a measurable impact, activating 4IR technology across the broader organization is vital, no matter where organizations are on their digital journey.

“Combining the digital and the physical world is really making a difference if you want to drive productivity above and beyond the levels we know,” said Roland Busch, CEO of Siemens, with a new lighthouse location in Germany. “Is it shortening cycle time? Is it reducing energy consumption? In particular, it is doing more with less. This is what the combination of the digital and physical world allows us to do. So what we do is, in deploying these technologies, we can support our customers to compress quality inspection, for example. There’s so many examples where this combination makes such a difference.”

For example, at its 110-year-old plant in India, Tata Steel deployed multiple technologies. In procurement, machine learning and advanced analytics saved about 4 percent on raw-material costs, while in production and logistics planning, prescriptive analytics in reduce the cost of serving customers by 21 percent.

On what’s next, Tata Steel’s CEO and Managing Director T V Narendran remarked: “I think one of the areas where we can work on is to really enhance the stakeholder experience through deploying Fourth Industrial Revolution technologies. Those stakeholders could be suppliers, those stakeholders could be customers, those stakeholders could be the employees, those stakeholders could be the community.”

Environmental sustainability

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Environmental Sustainability

Recent advances in manufacturing that combine technological innovations with emergent business models provide an opportunity for companies to build a carbon-neutral manufacturing ecosystem— while also driving profitable growth. Many of these increased efficiencies work towards reducing waste, resource consumption, and emissions.

Even with COVID-19’s disruption of operations in every industry and corner of the world, lighthouse manufacturers were able to create new revenue streams while driving environmental sustainability: 53 percent are seeing measurable and marked environmental sustainability benefits. Some have seen almost a total reduction in CO2 emissions, with double-digit increases in efficiency and “large,” reductions in raw-material use as well.

The consumer-goods manufacturer Henkel aims for “climate-positive” sustainability, with a goal of tripling its value creation in relation to its environmental footprint by 2030. “To reach our long-term sustainability targets, Fourth Industrial Revolution technologies are key,” said Carsten Knobel, CEO of Henkel. “We will continue to transform at a large scale. One example in that context is leveraging machine-learning capabilities to optimize energy-intensive processes.”

To drive further improvements in productivity and boost the company’s sustainability, Henkel built on its digital backbone to scale 4IR technologies linking its cyber and physical systems across its plant in Montornès, Spain, reducing costs by 15 percent and accelerating time to market by 30 percent while shrinking its carbon footprint by 10 percent.

While industry leaders recognize a need to reduce the environmental footprint of their organizations, they’ve struggled to define actions with a clear business case for investment. Applications of 4IR technologies are already improving the response to global challenges, such as climate change and pandemics.

“We also believe that sustainability is absolutely an essential part of healthcare—because if we´re not creating a cleaner environment, one that is more sustainable, and not contributing to that, we´re not fulfilling our mission about improving healthcare for peoples´ lives around the world,” said Gorsky.

Workforce engagement

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Workforce-centered Transformation

More and more, leading organizations are connecting and scaling digital solutions along their entire value chain to include production networks, end-to-end value chains, and support functions, including HR, finance, and IT. In turn, ways of working are also evolving. The imperative for rapid development and deployment of new solutions requires companies to accelerate the adoption of agile methodologies, using small, cross-functional teams and rapid, iterative processes. The critical link lies in companies’ ability to upskill talent at the same scale and pace as technology.

Facing an increase in product complexity and labor shortages (leading both to quality and cost challenges), along with a move at the country level to focus on higher-value manufacturing, HP Singapore embarked on its 4IR journey to transform its factory from being manual, labor-intensive, and reactive to being highly digitized, automated, and driven by artificial intelligence—improving its manufacturing costs by 20 percent and its productivity and quality by 70 percent.

This level of transformation is possible only via an empowered workforce with enhanced capabilities. Lighthouse companies have defined learning journeys for different roles, and encourage employees to go above and beyond those journeys through continuous learning and exploration of areas of interest.

CEO Börje Ekholm of Ericsson, which has a new lighthouse location in the US, echoed the need to empower the workforce: “There is a lot to be gained here on the people side—the way we train our people, the way we develop our people, and the way we empower our people. And that’s where I think the most of the attention should go. It’s not a technology question, it’s in reality a mind-set question.”

Successful organizations will be those that keep the workforce at the core of the digital approach so their transformation sticks. Strategies like tiered upskilling pathways help ensure workers remain connected, integrated, and directly involved with transformations, while equipping workers with the expertise needed to contribute to future innovation.

“The way we approach learning and skilling, I think, is also going to be structurally changed—and that, by the way, will have great results around productivity going forward,” said Nadella. “That idea of collaboration, learning, wellbeing, and flexibility—and, I´ll even call it, the next level of enlightened leadership in management and the policies around it—is what I expect across sectors.”

We hope you were inspired by the stories of the Global Lighthouse Network leaders. Should you be part of this network of influential innovators?

The network continues to expand and is open to outstanding organizations that are embracing Fourth Industrial Revolution technologies at scale, across multiple sites, and in their end-to-end value chains. Find out more about how to join the network here.

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