Manufacturers gambling competitive advantage with slow digital investments and lack of ROI

• • The greatest ROI benefits (51%) come from creating innovative business models that grow beyond “business as usual.” 

• • Profits increased by 40% for manufacturers with optimal digital transformation (DX) compared to less digitally competent enterprises. 

• • Only 26% of firms polled are looking for new income streams, while 28% are experimenting with new ecosystems. 

IFS, the global cloud enterprise software company, announced the results of an IDC InfoBrief, sponsored by IFS, Shaping the Future of Manufacturing,* revealing the level of digital transformation (DX) in Manufacturing, one of IFS’s core industries. The survey, which polled 160 senior decision-makers from manufacturing organizations in Europe, the Americas, and Asia, identifies areas where manufacturers may optimize growth by examining their future investment plans, IT strategy, and associated difficulties.   

Manufacturers’ key challenges are rising labor costs (61%), rising raw material prices (42%), and supply chain difficulties (42%). However, combating these immediate difficulties has diverted manufacturers from distinguishing their businesses. With no immediate prospects of respite from disruption, manufacturers must modify their business models and focus on areas other than their traditional core sectors. 

The survey indicates hopeful signals that more than half (53%) of manufacturers are continuing to invest in digital efforts to support their core business processes, indicating that digital transformation remains firmly on manufacturers’ strategic roadmaps. Those that have successfully progressed past the pilot stages of their digital transformation journey and are aggressively seeking digital maturity are already seeing profit improvements. According to the poll, manufacturers with an optimal level of digital transformation saw earnings grow (40%), while those with less advanced digital transformation maturity witnessed profit decreases in the previous fiscal year.   

Manufacturers must continue to recognize the significance of improving their digital activities. To guarantee success, however, they must establish a balance between digital transformation investments and important business needs. Unbelievably, (62%) of respondents are unsure about the ROI of their digital transformation activities. Manufacturers risk losing competitive advantage and endangering the scope and deployment of future efforts if this trend continues.   

According to recent IFS findings, CIOs are increasingly prioritizing technology investments that assist increase company resilience and produce value through digital technologies. Manufacturers, on the other hand, will find it difficult to persuade senior IT management to give cash to digital projects in the absence of strong proof of ROI.   

To fully prosper, firms must follow in the footsteps of manufacturers who actively engage with new ecosystems (28%), create new income sources (26%), and explore new markets (25%). According to the survey’s positive indications, manufacturers are realizing the greatest ROI improvements by expanding efforts beyond pilots and implementing a mature digital transformation strategy to handle processes and people. The analysis also finds that mature digital projects aimed at building new business models (51%) and connecting with new ecosystems (37%), are meeting or exceeding ROI expectations. 

Maggie Slowik, Global Industry Director for Manufacturing at IFS, said: “Manufacturers are under increasing pressure to differentiate in a landscape characterized by volatility while retaining the agility which is essential for building operational resilience. We know that digital maturity impacts profit. However, without transparency and measurable ROI it will become increasingly difficult for manufacturers to scale and deliver tangible benefits from their investments.”   

Slowik continued: “The more digital initiatives deliver ROI, the easier it is for organizations to make a case for further digital investments – these must be enabled by scalable, cloud-based IT solutions to deliver long-term revenue and profit growth. We see that manufacturers who have broken through the pilot phases of their DX journey, and continue to push for digital maturity, are already reaping the benefits of ROI as a means to generate long-term value and remain competitive. 

In the future, successful organizations will implement an advanced approach to DX that considers the “impact-scale-trust” dimensions of digital initiatives, continuously using digital technology not only to optimize operations but also to achieve advantage and create value with digital technology.”  

A complimentary copy of the IDC InfoBrief, Sponsored by IFS, The Future of Manufacturing (doc #EUR150205923, April 2023), can be found here.