By Russ Banham
Forbes
Digitization, digitalization and digital transformation: It’s easy to confuse them, but in fact, they’re very different, each describing a specific facet of a journey toward the development of new revenue-producing business concepts.
Phase one, digitization, is simply the process of transforming operating manuals, handbooks, documents, photographs and other informational resources into a digital format. That process represents a big leap forward in terms of efficiency, making it possible for computers to search, access, store, exchange and integrate all that data.
Most manufacturers have embraced digitization. But too many companies pause at this juncture, wondering which way next to turn next.
Digitalization—phase two—is about processes. It involves using digitized information to optimize production workflows, making them simpler, as well as more efficient and cost effective.
For example, in the manufacturing space, the use of “smart” factory equipment equipped with internet-connected sensors and semiconductors has the potential to change how businesses create their products. Smart machines can do what workers do—and they can do it more efficiently and more accurately, and for a lot less money. In effect, automating these processes—and training people up on how to work with technology—both frees up resources for businesses and makes room for employees to work in tandem with automated processes to produce even better results.
Intelligent systems can also be configured to make a company’s sales and aftermarket processes more efficient, such as by offering insights into asset utilization and maintenance needs, or integrating with other enterprise systems over the internet to more tightly coordinate manufacturing.
In addition, manufacturers can build digital bridges to supply chain partners, consumers, banks and other financial partners, government agencies and other third parties. Supply chains, for example, can be integrated with smart machines to reduce inventory and improve just-in-time manufacturing metrics.
When powerful computing technologies, such as big data analytics, AI and machine learning, are incorporated into this digital nexus, other benefits emerge. These include more transparent communications, more robust collaborations and better-streamlined transactions with partners, not to mention closer relationships with customers.
Once these phases are complete, digital transformation beckons on the horizon. True transformation blends the physical and cyber worlds by aligning manufacturing with internet-enabled data analytics and cognitive computing technologies such as artificial intelligence (AI) and machine learning.
Leveraging advances with digital transformation
For manufacturers, going beyond digitization and digitalization toward a differentiated digital transformation offers opportunities to use data for expanding on new services and customizing current ones.
For instance, ideas for new services beyond routine repair and maintenance are now closer within reach for businesses, thanks to technologies that can predict when a product might need servicing or replacement well before it actually runs into trouble and breaks down.
The possibilities for product customization also show another example of the extrinsic value of digitization and digitalization. Based on customer data, a manufacturer can produce specialized products that address specific consumer needs and expectations. Whereas customization was inefficient in the past, given the need to stop production runs to gear up machines for different product batches, digitalization allows for a seamless switchover.
In one example of a product workflow, data linked to different customer demands can flow over the internet into a smart machine and might guide it to produce 10,000 traditional products followed by 10 specialized products in which the color or functionalities are different. With those specialized products, manufacturers can access previously underserved markets, increasing both customer satisfaction and revenues.
Yet another new income stream is data monetization—the transformation of manufacturing data into business intelligence that owners can sell to other entities via a subscription-based model. In this context, a manufacturer’s raw data becomes actionable information for other businesses. Using a data-as-a-service model, a truck tire manufacturer could embed sensors in its tires to capture interesting data relating to location, road conditions, speed, distance and other factors. That data might then interest buyers in government and industry.
Fast track ahead
With all three phases of digitalized manufacturing aligned, opportunities to drive growth abound. Manufacturers can seize additional market opportunities by digitalizing their products. A drywall manufacturer, for example, could embed internet-enabled sensors into its product to provide real time safety-related information on temperature and moisture conditions, thus creating a high-value product that it can sell at a premium.
Manufacturers can also price digitalized products variably, based on product usage data they obtain via internet-enabled sensors in a given item. This can lower prices for some consumers, widening both market share and profit margins. Additional revenue can also emerge from applying a manufacturer’s data-driven insights from the manufacture of one product to the manufacture of other products for both existing and new markets.
To realize these new business opportunities, it’s important for data and digital leaders in a digitally transformed organization to align with their sales and marketing teams. The latter can help the former figure out new ways to earn digital revenue. Together, they can explore the company’s range of digital assets through the lens of what they can offer in terms of new income opportunities.
The bottom line? Don’t get confused by the rhetoric when it comes to true digital transformation. Turning data into information is one thing. Turning it into dollars is where it counts.
Russ Banham is a Pulitzer-nominated financial journalist who writes about the intersection of business and technology.