TECHNOLOGY

Businesses Face Dilemma in Digital Investment, Says Bain & Company

It’s a dilemma many leadership teams face as they debate their digital strategy: make a large investment to stay competitive, but run the risk betting on the wrong trend, or hold off given the rapid pace of digital evolution, while falling further behind the competition. Operations, with its traditional, long-term approach to planning, face a particularly daunting task of placing smart digital bets and identifying the best way forward.

According to new research from Bain & Company, A Smarter Approach to Digital Operations, many companies hesitate to make investments because the fast-moving digital universe is difficult to reconcile with long-lead times required to build out new assets in operations. Additionally, operations tend to be large, mission-critical functions, so leadership teams have marginal room for error.

Successful organizations recognize that while it’s impossible to predict the future, delaying an investment in digital operations can make them vulnerable longer term.

Catch-22

“Many companies encounter a Catch-22 as they try to map out their digital operations strategies,” said Nate Anderson, a partner in Bain’s Digital Practice. “Investing in the wrong trends is – at best – a waste of valuable capital. In the worst case, it deflects a company’s investment in all of the right places. It’s almost as if they didn’t invest at all, which could make it difficult – if not impossible – to catch up."

Bain finds that digital leaders identify two or three trends that are both highly likely, and dangerous to ignore, and they fine tune their focus on strategies to address them.

Digital leaders also understand that they are working with imperfect information and may have to take a first step without fully knowing what their second step should be. Within operations, failing fast—the trial-and-error tenet of digital strategy—often is not an option.

Many operations executives, accustomed to detailed, long-term planning, may be uncomfortable with an agile approach, but it can help them hedge against digital investment uncertainty.

Shaping a future vision for operations requires that companies reconcile the views of two groups: Bain classifies them as the digital doers – those who cut through the digital hype and implement practical digital initiatives that create value today – and the dreamers, who envision a bold future where digital technologies might completely transform their industry or business.

The trick is finding the right balance between them —and in operations, that’s a huge challenge.

“It makes sense that doers set the operational agenda, which is focused on traditional priorities within operations – continuous improvement, continuity of supply and operational stability,” said Anderson.

“However, their dominance leaves operations more vulnerable to digital disruption than perhaps any other function. Digital leaders make a deliberate effort to incorporate dreamers’ views – even going outside operations to invite dreamers from the broader business into the digital operations discussion.”

Five Guidelines

Bain has identified five guidelines that can help companies begin to build the capabilities needed to win in the future:

  1. Give operations executives a bigger role in setting strategy. In a digital world, operations executives are increasingly responsible for helping develop the company’s strategy, not just implementing it.
  2. Take the first steps. Identify a few digital trends that matter most to operations and determine a strategy that positions the company to win. Leaders make staged investments that move them in the right direction.
  3. Set ambitious targets. In addition to continuous improvement of 1-2 percent efficiency gains per year, aim for much larger gains – 10-15 percent or more in three years. This kind of performance leap requires a new mindset within operations.
  4. Invest in capabilities. Digital leaders start investing early in the expertise they need, and they look for opportunities to build competence in areas such as automation, predictive maintenance and Internet of Things. Companies that are not ready to invest heavily in internal digital capabilities can still move toward a more digital future by using software as a service, cloud and more outsourced logistics.
  5. Add non-operations members to the team. Cross-functional teams that include both doers and dreamers are best able to design an investment strategy for digital operations.

 

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