The importance of a digital strategy

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The concept or maybe the value of a digital strategy started becoming more evident over the last 10+ years as some digital capabilities (social media, mobile, e-commerce, IIOT) have scaled and gone mainstream.
But developing a ‘sustainable’ digital strategy is hard work, harder than it has ever been, because the landscape is constantly changing.

Unfortunately, the results continue to demonstrate the challenge all industries face, whereby 70% of all digital transformations are continuing to fail. This article discusses how to counteract that trend by developing a digital strategy that guides the deployment of your digital initiatives.

Doing the right thing…

The concept of strategy is critical for every organisation, since that is what guides your execution. Peter Drucker famously said, “Doing the right thing is more important than doing the thing right.” That is the essence of strategy.
So, where and how does a digital strategy fit into this? Many companies and leaders think it is just doing things better with digital solutions, and don’t ‘re-imagine or transform’ their business models, making them more efficient and profitable. The typical approach is to invest in digital programmes that either upgrade their core systems, create an app or streamline internal processes – but this is nothing more than a collection of digital initiatives. A true digital strategy is linked (first and foremost) to the company strategy, defines where the company is today, where it is going in the future, how it gets there, and all the while answering the big question – why?

These are all challenging questions to answer, and that’s why a recent Harvard Business Review (HBR) article stated that nearly 70% of the digital transformations have failed. Hence the importance of digital strategy today…

State of digital
Before we focus on developing a digital strategy, let’s understand a few of the digital trends. Adoption of these trends such as social media, mobile, Industrial Internet of Things (IIOT) varies widely by industry, and many of us already know that the industrial gas industry (and its parent – chemicals) tends to be notoriously late adopter.

A study by McKinsey two years ago ranked how several industries
have broadly implemented digital technologies in areas such as asset management, business processes/ transactions, and employee enablement. The sectors rated near the top are the ones you would expect, including information technology (for example Google) and media (Netflix). The chemicals industry was in the ‘middle of the pack’ ranging on average from low to medium across the range of criteria. Although the industry is not viewed as a ‘digital’ leader, there are some areas where the industry is gradually making progress. These include:

• Liquid/Bulk (LB) supply chain optimisation – Probably the first use case in the industry, initiated over two decades ago. Initially utilised wired telemetry units to capture LB tank consumption as inputs to logistics models to forecast deliveries. This area has now evolved into the use of digital technology throughout the entire LB supply chain from production/ distribution asset monitoring, wireless telemetry units on tanks, to the forecasting models use of machine learning algorithms.

• Remote Operating Centres (ROCs)
– 
Also an area that’s been around for over a decade but has gradually gone through a transformation. ROCs have evolved from not only monitoring, optimising and remotely controlling ASUs, HYCO plants and pipeline networks, to leveraging digital technologies (smart devices, predictive analytics for example) to operate on a near real-time basis, resulting in greater efficiencies and delivering an improved customer experience.

• Automation of packaged gas operations – Linde AGA inaugurated the world’s largest fully automated filling plant for industrial gases in Finland in 2017. It utilised multiple digital technologies including robotics, automated vehicles, 3D cameras and more to remove strenuous/hazardous work and increase both reliability
and efficiency.

• E-commerce/onlinepresence–The Tier one players started experimenting with this space shortly after the establishment of the worldwide web. Since then, they have focused their efforts on the B2B space, offering solutions primarily for their existing and prospective customers (online ordering, delivery status, billing and a variety of self-service capabilities) as well as suppliers. Independents and regional players seem to be ‘pushing the envelope’ more and offering B2C capabilities going after prospects and non-customers online.

• Customercare/service–Thisspace was an early focus area as well, as each of the Tier one players (and many regional companies) proceeded to implement ERP systems. These implementations were traditional projects automating many of the internal business processes and enabling organisations to centralise/ consolidate work activities. However, over the last decade we are seeing the integration of digital solutions with their ERPs for a variety of use cases, such as capturing real- time information during a LBor cylinder delivery (LB product delivered, cylinders delivered/ picked up, customer signature, credit card payment).

“Lower cost computing systems, monitoring devices and related infrastructure (inetworks) are allowing wider adoption of digital technology for companies of all sizes,” says Wise Telemetry CEO Eric Wise, of the capabilities being realised by the industry. “Smaller players can typically move very quickly from a development and implementation perspective, while the majors have access to the capital necessary for large-scale digital investments like virtual reality and remote operations.”

Rationale
Since the industry has made such progress on implementing digital technology, you may ask, why do we need a digital strategy today? It seems we are making progress…

Well, let me give you a few reasons why a digital strategy is as important as ever:

1. Perceived risk – At the beginning
of 2019, a survey of directors, CEOs, and senior executives by the Wall Street Journal, found that digital transformation risk is their #1 concern in2019,up10placesfrom2018.

2. Level of difficulty – The success ratio of ‘sustainable’ digital transformations is relatively low, as previously discussed. Another data point from a recent Accenture study of 121 chemical companies (inclusive of industrial gases) over $1bn in revenue, noted that less than 25% were succeeding at scaling digital innovation across their production, operations and R&D organisations.

3. Market differentiation – The far greatest opportunity that digital offers to differentiate a company from its competition, is to re-imagine business models to make them more efficient, effective and ultimately profitable. This can be challenge to longer term players (in any industry) versus companies ‘born digital’.

4. Strategic investment – Many organisations view digital as an efficiency play only, and as a result gain only incremental improvement at best. If an organisation doesn’t have a clear vision and set of objectives, then there’s not much point having a digital strategy.

Some of the Tier one players have publiclyacknowledgedtheneedto incorporate digital innovation and use it to enable and help drive their business strategy. So, are we convinced yet?

Digital strategy
To start, a digital strategy is not something that is separate from the company or business strategy. It is part of, and instrumental in, helping to achieve the desired business outcomes outlined by your company strategy. With that said, here are few recommended steps.

Define potential value
ItstartsatthetopwiththeCEO(and executive team) clearly articulating
a vision of ‘how’ utilising digital technology will help address marketplace or internal challenges and ‘why’ we need to do so. It sounds similar to what is needed for any major initiative. That’s sort of true, but these initiatives can’t be sanctioned or delegated, they must be led by the CEO.

In 2013, Netflix CEO Reed Hastings released an 11-page memo to employees and investors detailing a commitment to move from just distributing content digitally to become a leading producer of original content that could win Emmys and Oscars. Five years later it has achieved that goal and is now focused on the next challenge… competing against all the copycats! Your vision must answer the question, how am I using digital to re-imagine the business model of the future?

There is obviously a lot behind this step including gaining alignment around this vision, setting aggressive targets, and allocating investment/resources to lead the change. It is not unusual for companies to not have the skills (at the outset) to drive their digital strategy, and often need to hire/contract expertise to help drive it. Some other things that contribute to transformation success at this stage are senior leaders (and front line workers) doing things differently than in previous transformations (more hands-on involvement), utilising high- performers (the ‘A’ team) on the project vs whoever has capacity, and even changing out senior leaders who may not be supportive.

After defining the value, the next step involves officially launching the project.

Launch and accelerate
The project is formally kicked off with a credible, well-respected team of high-performers who have been given their ‘guard rails’ (budget, time table, high-level business targets) and have a willingness to create/nurture a digital culture along the way.

The most successful teams are often running the project very differently from past projects. For example, it may be using agile vs waterfall methodology, using digital technology for team communications such as cloud-based platforms or IOT tools, with the sole purpose of creating a digital culture. They then progress to identifying small but impactful pilots that gain visibility quickly with each iteration, then quickly adjust direction and solutions when failures are encountered – and there will undoubtedly be a few along the way…

This step can be a bit of an inflection point for the project, because it is the first time the organisation is seeing the technology. So, it is critical to choose pilots wisely, that are both impactful and give you insights early as to what needs to be addressed. In addition, the executive team is also actively involved in change management at this point.

Today it is becoming more clearly understood that successful transformations are driven less by the technology and more by change management. It is key to start the change management early, and continuously engage and update the organisation on status and forthcoming changes.

After successfully piloting a few digital solutions within a specific organisation or a small group of customers, the next step is to scale the solutions.

Scale
This step involves sequencing the initiatives to maximise returns but, also coordinate with the organisational changes both in IT and the business.

We need to be careful not to move faster than your ability to build capabilities…it’s a fine line. Change management activities are continuing internally/externally but with a greater focus on the culture and mindset changes that digital solutions drive within an organiation. For example, it
is critical to have environments where employees can play/test digital solutions easily. Often, user acceptance testing is not very flexible and somewhat painful to test out different scenarios.

This step is not as simple as laid out above, primarily because you’ve been piloting these initiatives in a ‘digitally nurtured’ culture as part of this project. How do you transfer the digital learnings from how the project team operated, to a larger organisation without losing speed and agility? That’s the challenge, and that’s why the ‘organizational structure’ answers are different for every company. It is one that should be considered throughout the piloting and scaling processes, so the transition goes as smooth as possible, retaining as much of the digital culture elements as possible.

“My experience has indicated two critical success factors” states Wise. “Top down leadership that provides the pilot team with adequate resources and time to prove the technology; and engaging all stakeholders during the pilot stage.”

“For example with telemetry units, the installer (customer stations techs), backpad designers (engineers), and data users (logistics schedulers, supply chain analyst) all have requirements that need to be addressed. As a result, it is extremely important that all stakeholders are involved during both the pilot and scaling stages.”

Final thoughts
Digital transformations are increasingly becoming the norm, especially in the industrial gases industry. To truly obtain the promise of greater value, a sustainable competitive advantage and profitability, incorporating a digital strategy is fast becoming a necessity.

The evidence is pretty clear, that
when not done (or done to the degree required) companies add this activity to the list of underachieving investments.

ABOUT THE AUTHOR
Art Anderson is Managing Principal for AH Anderson Consulting, LLC. He has more than 30 years of industrial gas business and consulting experience, most of which spent at Air Products where he held leadership roles in sales, marketing, product and regional P&L management for the full portfolio of offerings. In addition, he held corporate leadership roles in Customer Engagement, E-commerce, and Global Business Services leveraging a host of digital technologies.

Anderson currently provides strategic advisory and hands-on support to companies in the Industrial gas and specialty chemicals industries looking to improve their competitive position, lower operating costs, improve productivity and optimise the customer experience.



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