Failing fast is not a luxury that process industries can afford. Intense capital requirements, rigorous quality assurance (QA) processes, to name only 2 challenges, mean that all sectors of the process industry—oil refining, cement, steel, and the rest—are stuck in their old production ways. Only 3 out of McKinsey’s 16 manufacturing “Lighthouse” sites can even be loosely classed as process production—despite process industries contributing over 50% of manufacturing’s $35 trillion global output. HFS has documented the need for the process industry’s unique challenges to be recognized if they hope to digitally revolutionize. Now process industry leaders must fundamentally change their conversations with technology vendors and strategy service providers. They must find a unique way of adopting agile—or continue on the slope into obsolescence.
With its emphasis on continuous learning, agile ensures and ingrains process quality and accelerates pilot scale-up processes. Traditional “waterfall” development models, on the other hand, work through disconnected phases that are passed on to QA at the end. Many companies claim to be “truly agile,” but in reality, they have merely created hybrid models or “mini waterfalls.”
Some manufacturing sectors are already pioneering agile—but process industries are not.
In manufacturing, Dell’s adoption of agile has made it a go-to example for mass customization. Customers place an order, and within hours, the production line is on the case. Much of a laptop is mass produced and later customized for each order with software and hardware add-ons. Testing is done within a day, and the customer receives their laptop within five days. Dell minimizes its finished inventory and further cuts costs with vertical integration of suppliers and distributors.
Taking a broader view, McKinsey’s list of “lighthouses”—16 manufacturing sites worldwide pioneering Industry 4.0, include many that have used agile to accelerate scale-up and time to market, reduce inventory, and improve efficiency. Lighthouses have IoT architectures built for scale, strong focus on capability and workforce engagement, all fed into strategy and creating business value.
Only three of McKinsey’s Lighthouse sites, however, could even be loosely classed as being in the process industry. While process manufacturing accounts for over 50% of the $35 trillion global manufacturing output, it faces many unique challenges, meaning it cannot go about the digital revolution in the same way as other enterprises or even other manufacturers.
The process industry has historically struggled to innovate and revolutionize; here are three examples of key challenges.
- Process industry project management tends to involve many “stage gates,” or decision points, which are slave to budget allocators.
- A lack of communication combined with cynicism between the R&D and commercial arms of process industries has led to a poor understanding of the business drivers and technical challenges of innovation.
- Uncertainties in evaluating market opportunities, project costs, and technical risks mean that projects are often cut-off in their early stages before resources are sufficiently allocated.
It’s like being a parent—you want the kids to try, fail, and learn from experience, but at the same time you must keep them safe.
Process manufacturers need to find a way to be both agile and secure in their transformations.
Sustainability concerns threaten to cripple process manufacturers that fail to reinvent their processes and digital strategies. Leaders have historically failed to grasp where their processes currently lie on the journey to digital; this has filtered into uncertain decision making without clear business goals.
Rather than “failing fast”, Agile embodies “failing forward” i.e. continuous learning as a core part of innovation. Process industries must find a way of embracing this steep learning curve; service providers are starting to recognize exactly this…
Accenture has called for proactive leadership to quickly execute proofs-of-concept and implement scalable programs to maximize ROI in the process industry; there is a dire need for both a “culture of innovation and technology adoption” and investment into human capital to promote new, digital ways of thinking.
Revenues and growth are often negative in digitally lagging enterprises—their view for cooperation must improve.
McKinsey’s global survey of companies found that for the digitally lagging 20%, revenues and growth are poor and often negative. Lagging companies (across all verticals) take two to three times longer to make decisions, are self-centered, and lack a view for cooperation with those more digitally advanced. Many are resistant to partnerships, fueling defensive M&A strategies.
The Bottom Line: Process industry leaders and service providers must read between the lines of sporadic frameworks, solutions, and advice to find the parts of agile that work for them.
Of course, this is easier said than done. But from our assessment of the advice flying about the industry – process manufacturing’s leaders must consider the following actions if they hope to jump-start their digital revolution.
Build a tailored M&A approach to immerse the enterprise into the digital space. A company (or even site) focused discussion with service providers and potential partners must be driven to manage ever-expanding hyperconnected ecosystems and make up for the critical skills gap that might take years to solve at an educational level. “Vertical integration” is thrown around when discussing agile, but, done well, it can rapidly improve business response time. Involving both SMEs and MNEs in these partnerships can “outsource” the truly agile portion to those that can afford to fail fast.#
Acknowledge the risk of moving from a monolithic capital-intensive model to an agile OpEx model—you’re always limited by the slowest part of the system or project, which in the process industry are both legacy (and specialized) equipment and the change-averse culture. Decision-making processes must be improved to ensure clear and aligned technical and commercial goals, as does the risk management and auditability of the decision-making process itself, and eventual strategy.
Project teams must establish a clear vision of the benefits. Quantify ROIs as soon and as best as possible, to combat the pressure of small margins on the process industry; capture the CFO’s attention through an outcome-driven approach!
Management must understand the current situation and have a vision for the road ahead. It may not be possible to create a reference factory, but learning to adapt successful use cases, possibly from other industries, and tailoring them to your site—in partnership with leading vendors and service providers—will allow proactive process firms to be among the first to establish industry best practice and capture competitive advantage.
Install a culture that is welcoming to change and innovation. Doing so will benefit the company, site, and employees.
Service providers must act as a bridge between stakeholders. Within these inherently complex decision-making processes, process industries must combine their experience and expertise with those of vendors and service providers to get over the hurdles of emerging technology projects.