Larry O’Brien, Vice President, Research, ARC Advisory Group.

What is the current state of digital transformation in process industries?

The concept of digital transformation seems to be experiencing a kind of mid-life crisis. Some companies are struggling to justify continuing their pursuit of it, while others have managed to overcome all objections and have moved their organisations forward. Some of our clients talk about their digital transformation journey as a series of plateaus. An innovation program is undertaken, and though certain benefits and learnings may be obtained, things stall for one reason or another – maybe the payback isn’t what was anticipated, for example.

Despite the headwinds, ARC research has shown that digital transformation programs are delivering real results for industrial companies. They cite increased productivity, increased quality, safety, and revenue, among other things, as areas where they have been able to measure improvements. And roughly six out of ten companies report that they have partly or fully implemented technology strategies across a wide range of technologies such as artificial intelligence, edge computing, and internet of things.

In a survey conducted by ARC in 2023, only a small percentage (7 percent) of survey respondents said they have done little to no work regarding digital transformation. These companies are still primarily reliant on traditional manual processes with minimal integration. They may be hesitant or slow to adopt new technologies due to factors, such as cost concerns, lack of expertise, or resistance to change. As a result, they may face challenges related to inefficiency, low productivity and difficulty in keeping up with competitors who have embraced digital transformation.

The majority of respondents feel as if they are well underway or at an early stage of their digital transformation journey. Early-stage companies are beginning to integrate various technologies across their operations. They are investing in advanced automation systems, data analytics, and real-time monitoring tools to better optimise their manufacturing processes. Companies that are well underway on their journey have successfully integrated technology to connect people and devices as part of their business objectives.

What key technologies are driving digital transformation in process industries today?

The basic idea underlying industrial digital transformation is to use data and technology to increase flexibility in production processes, enhance the organisation’s ability to address customer needs, and improve competitive positioning. With a digital transformation mindset, the core business model by which a company produces and/or offers services to the marketplace can be modified or replaced by new business models that more fully leverage the cloud, multiple forms of AI, digital twins, predictive technologies, or other technologies that enable the company to expand their worldview, embrace competitive excellence as a goal, and thereby move beyond production efficiency to a much more dynamic, responsive, and resilient business model.

Data from the survey also identified, in broad groupings, the technologies industrial companies are prioritising today. More than half of the respondents prioritise technology strategies for digital transformation.

Between a third and half of the respondents prioritise smart connected products, IoT, edge computing, digital twin, and industrial metaverse strategies. The challenge for these companies is how to introduce and scale the underlying technologies.

What role does data analytics play in the decision-making processes within these industries?

There are seven major areas that constitute the building blocks of digital transformation. Analytics and modelling is one of those pillars. Each represents a portion of the broad set of technologies that must come together in a digitally transformed plant or factory. Each merits focus and attention, and in many cases, each may be assigned dedicated teams.

One of two categories of digital transformation ‘building blocks’ that doesn’t fit easily in traditional conceptualisations of the plant/factory floor stack is data models and analytics. This is an important area that demands focused attention to manage and leverage it properly. Several important areas must be addressed here. With data ops or data management, data can be stored where most appropriate and made available to applications expeditiously. The broad group of analytics, including artificial intelligence, machine learning, and cognitive or reasoning systems, can increasingly be found in various plant and enterprise applications, but they also provide an important toolkit for digital transformation.

Knowledge management systems can bring important contextual information to process, machine health, and other plant data and support frontline workers and supervisors in decision making.

What are the biggest challenges or barriers to digital transformation in process industries?

Transformation is difficult, there are many avenues to pursue, and in many cases progress has stalled after some initial projects were completed – with modest results. Many top executives are now prioritising sustainability, while other companies are asking themselves “What to do next?”

It can be difficult for an organisation to fully embrace a culture of innovation and willingness to change.

Many companies exhibit a tendency to revert to old established norms and ways of doing things after trying something new and challenging – especially if they aren’t resourced for change. For example, some companies discovered during the pandemic that having workers work remotely can be very effective, but now face internal pressure to return everyone to the workplace.

How are sustainability and environmental concerns influencing digital transformation strategies?

Sustainability is digital transformation and digital transformation is sustainability. A majority of industrial companies have implemented some level of a corporate sustainability program and strategy. These companies recognise the importance of integrating sustainability into their core business operations and have dedicated resources and commitments to achieve measurable outcomes. Their strategy often involves setting specific targets related to reducing environmental impact, improving resource efficiency, enhancing worker safety, and promoting ethical supply chain practices, aligning sustainability goals with their overall business objectives.

New regulatory requirements are taking aim at operations beyond the geographic location in which they were created. For example, the Corporate Sustainability Due Diligence Directive (CSRD), was signed into the European Union law in 2022, with the first wave of reports due by January 2025, utilising 2024 financial metrics. In the case of the CSRD, larger companies with a revenue turnover of €250 million and/or 250+ employees are the first expected to report, followed by small and medium enterprises at the beginning of 2028. And here is the kicker, non-EU companies operating within the union that meet the revenue thresholds will also be required to comply with the regulation.

In the United States, EPA greenhouse gas reporting requirements will soon be the source of data to create the benchmarks to measure the success of those sustainability goals and to create company specific decarbonisation strategies. The industries that create the infrastructure for transportation, buildings, and energy distribution systems use sophisticated digital tools that can be used to design, build, operate, optimise, and maintain their equipment and infrastructure. Yet, in industrial sectors, a significant disconnect exists for most between the reality of achieving carbon neutrality goals and the growing economic and social risk presented by climate disruption.

New digital tools are being created or adapted for new mines, new mineral refining processes, factories, manufacturing plants, power plants, and new energy distribution systems the energy transition is creating, as an example. The software available today is better than ever in part due to AI tools that have revolutionised the development of software. AI can generate code fragments or even entire programs based on high-level instructions. AI-powered tools automate repetitive and time-consuming tasks, such as testing, debugging, and code analysis.

This means that developers focus on creative and strategic functions and develop more software faster. New and better code running on new generations of processors is improving digital technology across the whole lifecycle of product management. This comes just in time for the many new demands on digital technology that will support the energy transition.

What advice would you give to companies just beginning their digital transformation journey?

Companies need to develop four skills to successfully drive transformation. They need to be able to imagine and repeatedly re-imagine a future state where innovative technologies translate into competitive excellence. They need to be able to master new technologies and deploy them to improve the business. They need to enable and empower the organisation’s collective intelligence, where multiple levels of decisions are supported by the necessary data and systems. And they need to be able to lead the organisation in the transformation journey, despite inevitable, repeated, challenges and setbacks. It’s important to cultivate all four skills because without them, an organisation will likely find the hurdles to overcome will only grow, even as the need to change becomes ever more urgent.

(The views expressed in interviews are personal, not necessarily of the organisations represented)

Larry O'Brien, Vice President, Research, ARC Advisory Group, joined ARC in 1993 and has an extensive background covering control systems, networks, sensors, and software for the industrial and critical infrastructure segments. In addition to over 30 years of market research experience, Larry has participated in many custom consulting engagements with end user and owner/operator clients in these industries, ranging from large scale supplier selection projects to controls strategy development, technology evaluation, custom surveys, and benchmarking.  

For the past three years, Larry has been part of both the cybersecurity and smart city practices at ARC and has authored a number of research papers, market reports, and articles on ICS/SCADA cybersecurity and smart city technologies, applications, and best practices. Larry has also made numerous public speaking appearances as both a presenter and MC/moderator for these topics at events such as the ARC Industry Forum, ABB Customer World, Honeywell User Group Meeting, ICSJWG, and ICS Cybersecurity conferences. 

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