Many people think of the manufacturing industry as involving big factories full of noisy machines spitting out tangible products. And that’s still true, but today, manufacturers must be software developers as well. They’re undergoing a digital transformation just like so many other market verticals. Manufacturers are learning to balance that culture clash of maintaining core efficiency with investing in technology to collect and use data effectively.
The ISG 4Q21 IndexTM reports that combined market annual contract value (ACV) for manufacturing in the fourth quarter of 2021 reached nearly $14 billion. That’s 16 percent greater than the end of 2020 and 40 percent higher than pre-pandemic 2019. In our webinar, I shared the five trends I see in the industry and what that means for clients and service providers. You can find a replay of that here.
Trends in Manufacturing
Those trends are: 1) greater investment in digital threads that gather and integrate data into the manufacturing process to increase its efficiency; 2) the surge in company boards prioritizing environmental, social and governance (ESG) practices to be ready for new regulations that will affect future costs; 3) looking for a monetary return on the investment in software services to improve the experience of end users; 4) a shift to smart M&A that not only takes out cost but adds capacity, skills and technology; and 5) building more resilient, adaptable supply chains, whose vulnerabilities were revealed by the global pandemic.
How do these fit in with what manufacturing clients want? Clients tell us they want to make the most of digital transformation and manage their connected assets. They need to break down silos in their organizations and integrate IT, OT and other business units, and they’re looking to technology to help make this happen.
Although we’ve been talking about the adoption of cloud, it’s still in its early stages. Businesses can pump data into the cloud easily, but getting it out in a usable form and putting it to work has become quite expensive and difficult to control. This is increasingly true with the rising demand from hybrid and remote working routines that seem here to stay.
The Growing Challenge of Data in Manufacturing
The complexity of data in manufacturing is probably greater than in any other industry. The products themselves generate a tremendous amount of data that must be stored, labeled, sorted and fed back into improving the product. And the OT vendor landscape is fragmented, which has prompted a surge in mergers and acquisitions. Of the top 50 ER&D firms in 2019, nearly a third of them have been taken off the market or consolidated. The challenge comes in keeping the organization running on pace while implementing a transformation that integrates IT and OT.
Add to that the necessity of interacting with your customers; it’s becoming urgent. Today, it’s imperative that businesses know their customers, but that isn’t always the case with original equipment manufacturers (OEMs). They may know the serial numbers of the cars they make, but they don’t know who’s driving it. Yet to sell additional features, enterprises have to go beyond development and engineering to really interact with customers to meet the needs of customer lifecycle, product maintenance, new features releases, and retirement and replacement.
From the perspective of service providers, we expect tech spending to increase. Digital twins, cybersecurity and supply chain insights are driving the market as the digital transformation spans strategy and implementation. OT/IT integration, joint solutions and leveraging technology in business streams outside of IT will inevitably blur the ecosystem boundaries. At the same time, this will open new sell-to and sell-with opportunities. Enterprises and service providers will find innovative ways to partner, source, transform and govern.
ISG helps manufacturers navigate a rapidly changing industry and provider ecosystem. Contact us to find out how we can help your organization.
About the author
Christian Decker is Partner at ISG, leading the Smart Manufacturing vertical in EMEA. He has sound technical and business skills to offer, bringing to ISG client projects a wealth of professional. He has gained his experience over a period of more than 17 years as an IT Product Manager, Service Manager, Team Manager and Management Consultant. His expertise encompasses Portfolio-Management, IT Sourcing Strategy, IT Infrastructure Outsourcing, Service Design and Product-Management, Transition Management as well as IT Service and Cost controlling, P&L responsibility and Benchmarking.