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Realizing digital operations ROI: Industrials may need to double down on the business case
Technology has become a key driver of operational excellence and competitive advantage in the industrial products (IP) sector. Yet despite efforts to embrace digital operations transformation (DOT), many IP companies still struggle to realize the potential of their investments in operations and supply chain.
According to PwC’s 2024 Digital Trends in Operations survey, only 32% of IP respondents indicate their operations technology investments had delivered the expected results. This underperformance should be confronted as IP companies work to recalibrate business models and stay ahead of industry trends. IP companies need to address several key questions.
- Why aren’t my digital transformation investments delivering the results I'm expecting?
- What are the biggest roadblocks when it comes to digital transformation implementation and value creation?
- How can I overcome these roadblocks and capture the full value from digital transformation?
Linking the business case to value capture levers may be key to measuring ROI
IP executives generally believe in the rationale and business case for digitizing operations. Only 13% of IP respondents cite the business case as a reason for their operations technology investments not fully delivering expected results, and only 5% identify it as the main reason for underperformance. Other factors — such as integration complexity, people capabilities, program leadership, technology, vendor capabilities and data issues — rank higher as reasons for underperformance.
However, these challenges highlight the need to craft business cases that can adequately consider human capital development and can align with the complex realities of the operational environment. Identifying and quantifying value capture levers are core to this effort. By linking the business case to clearly articulated value capture levers, industrials may be able to make better informed strategic decisions about their digital operations investments. The business case for digital operations, for example, should identify the impact on P&L, working capital and growth.
Industrials discount the business case as a reason why tech isn’t delivering as expected
Q: If your investments in operations technology have not fully delivered the expected results, which of the following are the reasons why? Please select all that apply.
Source: PwC’s 2024 Digital Trends in Operations Survey, March 22, 2024
Base: 600, industrials base: 120
Source: PwC’s 2024 Digital Trends in Operations Survey, March 22, 2024
Base: 600, industrials base: 120
Expanding margin is key, but failing to evolve your operating model can hold your business back
When it comes to digital operations, many industrials have three main objectives: Boosting growth, reducing costs and making more informed decisions. Further, they prioritize efficiency and cost reduction more than other industries. This focus makes sense in a highly competitive sector with narrow profit margins.
By increasing these margins, companies can invest more in research and development (R&D) and capital expenditure for further growth. Many industrials are also using digital operations platforms to enhance growth through software and services. However, our survey indicates that these efforts haven’t yet produced the anticipated results for most industrials — and that may be because their objectives don’t aim far enough.
Our research finds that a higher percentage of industrial companies (23%) have no plans to implement changes to their operating model compared to other industries (13%). Conversely, a lower percentage of industrial companies (63%) have implemented or plan to implement changes to their operating model in the next 12 months compared to other industries (74%). This suggests that digital leaders have already changed their models to create value from digital transformation, while those companies that are slow to embrace digital advancements are more hesitant to make sweeping changes to their models, instead opting for incremental improvements.
While this approach can reduce risk and align with the sector’s preference for steady growth, it may also limit the potential impact. Incremental changes may fail to adequately address core challenges, capitalize on emerging technologies, exploit new market opportunities, embrace new ways of working, allocate sufficient resources or align with long-term goals. Accordingly, it may be essential for companies to strike a balance between gradual improvements and more transformative initiatives.
Industrials invest in digital operations to drive growth, cut costs and make better decisions
Q: Which of the following are your most important objectives when it comes to digitizing your operations? Select and rank up to 3 options, with 1 being the most important objective. (Showing all options, except for ‘unsure’.)
Source: PwC’s 2024 Digital Trends in Operations Survey, March 22, 2024
Base: 600, industrials base: 120
Source: PwC’s 2024 Digital Trends in Operations Survey, March 22, 2024
Base: 600, industrials base: 120
GenAI shows potential but needs more focus
Compared to other industries, we find that fewer IP companies have implemented GenAI across their operations. Within the past year, only 23% have implemented GenAI for data modernization, compared to 35% in other sectors. Similarly, while 25% of industrials have hired new GenAI talent, this figure rises to 33% elsewhere. As for those industrials that are planning to implement GenAI, they will apply it close to uniformly across various activities, such as training, hiring or outsourcing, instead of tailoring it to their specific needs and goals — indicating no clear strategy or differentiation in how they use it. Still, we’ve observed that industrials that invest in key GenAI strategies can get to competitive advantage quicker and enhance innovation, which can lead to sustained outcomes and long-term viability.
Leaning into sustainability opportunities
More than half (54%) of IP leaders strongly agree that incorporating sustainability into operations is becoming more important — a sign that some companies recognize the strategic opportunities that sustainability offers. These include sustainable products and services, decarbonization across the supply chain and ESG reporting that can lead to insights on growth. Even so, just 23% of IP respondents strongly agree that their digital investments have helped to reduce their Scope 2 and Scope 3 emissions.
As many industrials increasingly recognize this potential, they may also discover more opportunities for new business models. Many companies that adopt a meaningful approach to sustainability could potentially win new business, gain market share and realize value from their digital investments.
A gap between sustainability beliefs and practices
Q: To what extent do you agree or disagree with each of the following sentiments? (Showing responses to ‘strongly agree’.)
Source: PwC’s 2024 Digital Trends in Operations Survey, March 22, 2024
Base: 1773, industrials base: 326
Source: PwC’s 2024 Digital Trends in Operations Survey, March 22, 2024
Base: 1773, industrials base: 326
Key takeaways
Many operations officers and industrial leaders play central roles in their company's efforts to successfully help navigate digital operations transformation. Here are some tips that can help you guide your teams to sustainable growth.
- Leverage digital operations transformation to help create new sources of value and competitive advantage.
- Address all the key success factors and roadblocks necessary for a successful digital transformation.
- Reassess the business case for digital operations to help establish alignment with strategic goals and operational challenges.
- Identify and quantify value capture levers with clear links to the business case to help measure and improve return on investment.
- Align digital operations investments with broader strategic objectives to address operational challenges effectively and create long-term value.
- Treat GenAI as a strategic tool to help achieve higher efficiency, innovation and customer satisfaction, and to gain new sources of revenue and a competitive advantage.
- Recognize potential of sustainability measures to help drive innovative business models.
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