Well-performing IT operations are paramount to stay competitive in the future
In today's fiercely competitive business landscape, manufacturing companies are in dire need of optimizing their IT performance. Economic pressures such as high interest rates, new market entries (e.g., new OEMs from China), disrupted supply chains, complex legacy landscapes and rising energy costs are leading to a growing focus on profitability. This in turn demands a lean and effective IT cost and performance structure to ensure sustainable growth.
At the same time the demands on IT functions are growing and changing. They need to actively transform the companies’ businesses and business operations. IT needs to have a clear adoption strategy, robust technology stacks, and distinct capabilities to scale AI, cloud and blockchain use cases. If not, competitors will do so and outperform the company in today’s critical market times.
For established players, this transformation towards a technology-driven future is often hampered by an extensive technology legacy and enduring, rigid organizational structures driven by siloed thinking across business units and IT functions that are perceived as impeding growth ambitions.
In this dynamic environment, the ability to improve IT efficiency and increase IT effectiveness is pivotal for businesses aiming to thrive in the current challenging times and embrace the opportunities presented by the digital age.
An IT performance program can make IT functions Fit for Growth while tackling today’s challenges
Throughout the various manufacturing industries, many firms (e.g., Volkswagen, Bayer, Ford) are announcing new editions of company-wide cost cutting programs, focusing on support functions.1
Consequently, CIOs will similarly be asked to optimize their functions, with a clear target to finance the transformation to high-performance IT. CIOs should embrace this, leverage the current trends, and set up a strong program to improve digital performance. Our proven IT Fit-for-Growth* Framework targets IT and its challenges today:
1 https://www.volkswagen-newsroom.com/en/press-releases/performance-program-volkswagen-brand-aims-to-become-more-efficient-and-more-profitable-17315; https://www.bayer.com/media/en-us/bayer-q3-media-update/; https://www.bloomberg.com/news/articles/2023-02-14/ford-to-cut-3-800-jobs-in-europe-with-focus-on-germany-uk
*Fit for Growth is a registered service brand of PwC Strategy& LLC in the USA.
Ensure a future-ready business and IT strategy
The IT strategy needs to be linked to the business strategy, to synchronize the ambition for growth. Clear and measurable outcome expectations, derived from the business strategy, act as a guiding beacon, ensuring that IT is fully focused on contributing to the overarching business goals.
Transparency on strategic objectives and the organization's "way-to-play" are paramount, facilitating cost efficiency and enabling wise investment allocation.
Transform the IT cost and performance structure
Despite having undergone similar programs in the past, IT functions in manufacturing firms still have significant potential for capturing up to 30% savings.
However, this cannot be achieved with the current performance and cost structures. It requires drastic IT cost reductions and improvement measures in IT productivity for all non-differentiating and non-needed services, as well as a strong focus and leveraging of standard and off-the-shelf solutions. Differentiating core digital activities need to be massively strengthened, to increase productivity in IT and business.
Consequently, there are various levers that can be applied to optimize the productivity of IT and/or the cost base within IT.
Build industry-leading differentiating capabilities
To also strengthen IT in these times, it is imperative to first develop a profound understanding of the core capabilities the business needs. Distinguishing between differentiating and non-differentiating business capabilities is fundamental; it allows for a strategic focus on what sets the business apart from competitors.
Core capabilities for manufacturing firms are often, but not limited to, the areas of production planning and steering, engineering, product lifecycle management, software development, and data management and analytics.
Once identified, these distinctions inform the development of the associated digital capabilities, a tailored IT architecture and a digital investment portfolio. Consequently, all IT performance measurements identified under (2) above need to demonstrate how they either support initiatives to standardize non-differentiating business capabilities or enable business performance improvements for differentiating capabilities.
Reorganize IT for growth
On top of a set of IT efficiency and IT cost measurements, the IT function needs an inherently different configuration to contribute its full potential to the company. Therefore, an IT performance program should always aim to re-imagine the way the IT department operates and collaborates, and how its IT landscape is set up.
The evolving business and operating models in the manufacturing industries demand a heightened level of collaboration between the Business and IT functions. This is the only way for the IT function to be able to provide better-quality services to the business and consequently increase the IT performance. Consequently, new organizational structures are emerging, emphasizing the need for joint IT/business product teams and innovative roles like BizDevOps. These cross-functional teams foster synergies between business and IT bridging the often-found silos. Moreover, established collaboration technologies have empowered IT functions to operate seamlessly with diverse workforces, delivering services from remote locations. This bolsters nearshoring models, enabling businesses to leverage global talent pools effectively.
The IT landscape should be optimized around a lean, modular, and scalable digital core adapted to industry needs. This core is designed to seamlessly integrate various technology platforms such as Enterprise Resource Planning (ERP), Manufacturing Execution System (MES), Advanced Planning & Scheduling (APS), Product Lifecycle Management (PLM), and Customer Relationship Management (CRM). By building on and enabling end-to-end integration across these platforms, manufacturing firms can achieve operational excellence and enhance efficiency. When coupled with cutting-edge Cloud and Edge technologies, this IT core becomes a powerhouse, fostering synergies and enabling real-time analytics and AI solutions. The result is an ecosystem that is not only adaptive but also intelligent, positioning businesses to thrive in an era defined by innovation and agility.
Kick off the journey and enable change
Setting up a transformation of the IT function requires careful planning and communication. Articulating the value contribution of the actions planned, underpinned by thorough business cases, will foster acceptance, and provide access to funding for building new capabilities. A clear vision for the transformation, with measurable goals, is key to balancing the need to save costs while improving the overall IT performance.
It is advisable to set up a dedicated change management team composed of experienced professionals who can effectively communicate the changes to employees and address their concerns. Imperatives include implementing a robust communication plan to keep all stakeholders informed about progress and upcoming changes, thus fostering transparency and trust. Regularly monitor the transformation process, gather feedback from employees, and make necessary adjustments to ensure a smooth transition and a successful outcome.
AI as game changer!
The introduction of GenAI, a new era powered by advanced artificial intelligence, is driving transformative changes within IT functions themselves: 'IT4IT,' where emerging technologies, especially AI-driven systems, are not only utilized to enhance business services but are employed to automate and optimize internal IT operations.
Automation of programming, a core skill of GenAI, can streamline the overall design and development processes, significantly reducing the time and effort required for new developments and much-needed enhancements. Modern IT service operations rely heavily on self-service solutions enabled by AI, empowering users to troubleshoot and resolve common issues independently.
Cloud solutions have become more intelligent and efficient with the integration of AI, offering scalable and cost-effective options for IT infrastructure and services.
However, this influx of technology has also sparked a talent war, as the demand for skilled AI professionals has surged, making it challenging for IT functions to secure specialized talent. The resources, both human and financial, have become scarce. This shift signifies a paradigm change in how IT functions need to organize, emphasizing the need for adaptability and continuous learning in the face of rapidly-evolving technological landscapes.
Fabian Ahrens and Heiko Schneider also contributed to this article.
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