The key theme for IDC Manufacturing Insights' Manufacturing Top 10 Predictions for 2011 is the increase complexity in doing business. Over the past few years, the manufacturing industry has undergone extensive business transformation and this has resulted in significant increase in complexity. More than 60% of worldwide enterprises experienced a significant complexity increase over the last five years, according to our latest research of over 700 manufacturing enterprises from multiple global geographies.
The study revealed that this is particularly true in North America and Western Europe and is true regardless of the size of the business. In other words SMB manufacturers are facing the same increase in complexity than their larger counterparts. Similar result was found in the recent IBM annual CEO study, which found that CEOs are very focused on managing the complexity of their business today and that are expecting further complexity increase going forward.
This emphasis on complexity is very consistent with our own conversations with clients. We are very encouraged though by the fact that leading manufacturers are trying to capitalize on complexity rather than merely eliminating it. The simple reality for globally integrated manufacturers is that they have to manage complex products, supply chains, and sales channels to make money. Success stems from managing that complexity better than the competition.
Complexity has become a fundamental element of the modern business environment in manufacturing, and as such, cannot be avoided. Manufacturers have fully realized that complexity must be embraced as an opportunity to create a competitive advantage.
There is a big difference between complexity and complication. While complexity is a matter of fact, complication is not inevitable. Complication is an unnecessary addition to complexity that is frequently generated by poor management, inefficient processes, organizational silos, lack of skilled fresh talents, lack of timely and accurate information and inefficient decision-making environment.
Many of these issues are generated by complex IT architectures that are inadequate to manage the needs of globally integrated manufacturers. Indeed, the way business and, by extension, the IT organization have dealt with increasing complexity over the past years has been to break down a function into its component parts (a Cartesian approach if you will) and automate the processes around the nexus of a "system."
These systems formed the center of the enterprise resource planning application market that was primarily focused within the four walls of a single enterprise. In the face of increasing needs of managing extended value chain, globally integrated manufacturers had to unnaturally stretch these systems to many additional functions, often connected externally to the value chain. In most cases, this practice created complex IT architectures that hampered the ability to make effective and rapid decisions.
Our research shows that manufacturers are facing three critical challenges that represent the major barriers to removing unnecessary complication.
- Inefficient and inflexible processes: Over time, processes become burdened with special rules and considerations that, although probably introduced with good intent, often end up complicating those processes and creating waste.
- Lack of skilled people: In the past couple of decades, the manufacturing industry hasn't attracted enough young talent. Graduates have found other, more fashionable sectors -- such financial services or media. On top of this, the manufacturing sector is experiencing a significant aging workforce, and companies are striving to find product engineers, skilled technicians, and craft labor workers. This is creating a talent shortage and is driving up the costs of skilled labor.
- Lack of timely and accurate information: Our research shows that if data collection is not an issue for manufacturers, what is prompted as being the real challenge is their lack of understanding of what data represents. What most manufacturers are missing today is an adequate way to analyze and interpret collected data in terms of what are the potential impacts and risks on the business.
We believe that during 2011 manufacturers will focus their efforts on mastering complexity and driving out complication. They will be active in breaking organizational silos, streamlining processes, optimizing supply chain structures, hiring young talents that are better at managing new technologies, simplify IT architectures and -- on top of all -- improve their decision-making capabilities.
At IDC Manufacturing Insights, we've talked extensively over the past few years about making better, faster decisions. This really is about creating an integrated decision-making environment where there is alignment between the highest-level strategic decisions and the lowest-level operational ones. It is our opinion that an integrated decision-making environment can help manufacturing organizations master complexity and reduce complication. An integrated decision-making environment can help build more flexible and efficient processes, attract new skilled people in the organization and provide timely and accurate information. What manufacturing organizations need is a real-time diagnosis/prognosis capability so they can analyze data in real time, identify all the problems, and rapidly assess the potential impact on the business.
This is what IDC Manufacturing Insights calls active domain models. We believe an active domain models will be the single most important contribution of the IT organization to mastering complexity in manufacturing over the next five years. These are "active" models because:
- They are not just dashboards of past performance, but primarily represent current state and future plans -- The user doesn't just evaluate the situation and set a specific course of action. Rather, many contingencies are examined and understood so that tactics can be changed more easily (or at least in a more informed way).
- Users of the model can initiate action and monitor results to create a closed-loop system -- The models are also domain specific -- supply chain, sales channels, product management, factory networks -- with the ability to share information across the models.
By deploying these models, manufacturers will be able to fundamentally, fully exploit all actual and potential information sources to get the highest possible level of visibility and intelligence along the value chain.
An active domain models is enabled by a series of new information technologies that create an efficient and ubiquitous data collection approach: handled mobile devices, smart sensors and RFID, cloud computing, internet of things, social networking.
Modern information technology can effectively help manufacturing organizations becoming more attractive to younger talents. "Gen Y" people -- who have a natural familiarity with information, communications, media, and digital technologies -- are attracted by a real-time, collaborative, and technology-enabled working environment. They show an increasing disregard for the traditional hierarchical organizations and "transactional" processes in favor of new approaches and common, collaborative working practices. That means new organizations -- and the Gen Y employees in them -- will have to be information-centric, and integrate decision making (not just processes) from the strategic to the operational, so that the choices management makes are evidence based.
The worrying thing is, that while CEOs may be well aware of growing business complexity, our recent survey clearly shows that CIOs don't really understand the complexity issues that IT is now being called on to manage. CIOs need to rapidly understand these new opportunities and challenges to ensure that the inevitable increases in complexity don't just generate yet more avoidable complication.
Pierfrancesco Manenti is EMEA research director for IDC Manufacturing Insights.