Global Digital Operations Study 2018

Digital Champions
How industry leaders
build integrated
operations ecosystems
to deliver end-to-end
customer solutions
Contacts

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Harald Dutzler Ronaldo Valiño Gabriele Caragnano Charles Kirby Isasi

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Dr. Reinhard Geissbauer PwC Sweden
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2 Strategy&
About the authors

Reinhard Geissbauer, Ph.D., is a partner with PwC

Strategy& Germany, based in Munich. He is global head
of the Digital Operations Impact Center and head of
Digital Operations EMEA leadership team.

Evelyn Lübben is a principal with PwC Strategy&

Germany, based in Hamburg. She is the project lead
of PwC Strategy&’s Global Digital Operations Study.

Stefan Schrauf is a partner with PwC Strategy&

Germany, based in Düsseldorf. He is the EMEA co-lead
for Digital Operations and lead for global Digital Supply
Chain Solutions.

Steve Pillsbury is a principal with PwC US, where he

heads the PwC North America Digital Operations team
and serves as the U.S. lead for the PwC Digital Operations
Impact Center. He is based in Chicago.

Coauthors of this report from PwC Strategy& Germany: Philipp Berttram, principal;
Judith Schneider, manager; and Farboud Cheraghi, manager.

Strategy& 3
Contents

Foreword 5

Executive summary 6

What is a Digital Champion? 11

The Customer Solutions ecosystem 16

The Operations ecosystem 24

The Technology ecosystem 34

The People ecosystem 47

Blueprint to become a Digital Champion 55

Survey methodology 59

4 Strategy&
Foreword

Digital operations, or Industry 4.0, is on the agenda of manufacturing

companies around the globe. Yet most business leaders have still not
come to terms with the challenges and opportunities of digital
transformation or with the conceptual leap it represents.

Distinct from Industry 3.0, which involved the automation of single

machines and processes, Industry 4.0 encompasses end-to-end
digitization and data integration of the value chain: offering digital
products and services, operating connected physical and virtual assets,
transforming and integrating all operations and internal activities,
building partnerships, and optimizing customer-facing activities.

Mastering Industry 4.0 requires a deep understanding of collaboration,

the commitment of top management, and a clear strategy. Companies
that fail to embrace this radical change will likely struggle to survive.
Yet only a very few companies are poised at this moment to benefit from
Industry 4.0. We call this select group Digital Champions.

For this 2018 study, we surveyed more than 1,100 executives at global
manufacturing companies about their views on digital operations and
Industry 4.0. Our goal was to explore the role of Digital Champions and the
practices that allow them to outpace competitors. We found that they excel
at managing and integrating four critical ecosystems — Customer Solutions,
Operations, Technology, and People — each of which represents an array of
partners, suppliers, products and services, employees, third-party advisors,
factories, outsourcing arrangements, technology, and customers. To Digital
Champions, they present vast opportunities for value creation.

In this study, we look at the unique characteristics of Digital Champions,

including their structural composition and the capabilities that set them
apart. In so doing, we offer you practical steps to transform your
company into a true digital leader.

Dr. Reinhard Geissbauer

PwC Strategy& Germany, Global Head of the Digital Operations Impact Center

Strategy& 5
Executive summary

For the 2018 Global Digital Operations Study, we interviewed

1,155 manufacturing executives in 26 countries. We developed an index
that ranks companies by digital operations maturity (or, in short, digital
maturity). We grouped the companies into one of four categories: Digital
Novices, Digital Followers, Digital Innovators, or Digital Champions.
Based on the study data, we were able to assess what it takes to be a
Digital Champion through the lens of four essential ecosystem layers:
Customer Solutions, Operations, Technology, and People. We provide
guidelines for companies seeking to mature into Digital Champions.
The executives’ responses can be summarized into eight key findings:

1. Just 10 percent of global manufacturing companies are

Digital Champions, while almost two-thirds have barely or not
yet begun on the digital journey. Digital transformation has been
on every CXO’s agenda for a number of years, but almost two-thirds
of global manufacturing companies have just started or have not yet
embarked on their digital transformation.

Just 10 percent of the manufacturing companies we surveyed can be

categorized as Digital Champions, with an established digital product
and service offering and multichannel interaction in their Customer
Solutions ecosystem. They have also integrated and aligned their
Operations, Technology, and People ecosystems with their Customer
Solutions ecosystem.

The automotive and electronics industries have the most Digital

Champions, with 20 percent of automotive and 14 percent of electronics
companies implementing innovative solutions across their marketplace
and facilities. In the process industries, consumer goods, and industrial
manufacturing sectors, only a few companies have emerged as Digital
Champions so far.

2. Among global regions, Asia-Pacific (APAC) is leading the way to

digitization. In Asia, 19 percent of surveyed manufacturers have
achieved Digital Champion status, compared with 11 percent in the
Americas and 5 percent in Europe, the Middle East, and Africa (EMEA).

6 Strategy&
Asian companies have introduced digital products and services
at a much faster rate than their counterparts in the other global
areas, the result of the enthusiasm of the region’s young, tech-savvy
corporate managers to embrace digital technologies, as well as soaring
compensation and production costs that are forcing Asian companies
to digitize key operations processes to maintain competitiveness.

Because of the number of Digital Champions, Asia-Pacific companies

expect 17 percent growth in digital revenue over the next five years,
compared with the 13 percent growth anticipated by EMEA companies.
And that gap will likely continue to widen, as 32 percent of Asian
companies plan to have established mature digital ecosystems in the
next five years, compared with 15 percent in EMEA and 24 percent in
the Americas.

3. Digital Champions create value through integrated Customer

Solutions ecosystems. Digital Champions continuously strengthen Digital
and enhance their digital product and service offerings as well as their Champions
access to customers, directly or through third parties. They excel in continuously
creating customer insights, and they match customer requirements to
compelling and tailored solutions, enhancing traditional products with strengthen and
services, software, data analytics, and additional value from extended enhance their
partner networks. To achieve this, Digital Champions utilize open digital product
platforms and tear down internal and external boundaries.
and service
More than 50 percent of Digital Champions’ revenues already come offerings as well
from digitally enhanced or purely digital products and services, and
two-thirds of Digital Champions already rely on partners in their
as their access
Customer Solutions ecosystem to create customer value. Investments to customers,
in new technologies and digital ecosystems are expected to result in directly or
revenue gains of 15 percent over the next five years.
through third
4. Digital Champions serve customers by integrating parties.
Operations, Technology, and People ecosystems to serve
customers with competitive, end-to-end solutions. A cutting-edge
Customer Solutions ecosystem serves clients with complete digital
product and service solutions, mostly with an established partner
network. Customer Solutions must be supported by a fit-for-purpose
Operations ecosystem — the right set of technologies as well as the
people and culture to drive them. Digital Champions align these
aspects of their businesses by building on their own and their partners’
core strengths to define the Customer Solutions and in turn letting
the customer’s requirements set the targets for the Operations and
enabling (Technology and People) ecosystems. Through this alignment,
Digital Champions create a whole that is greater than its parts, turning
it into a strategic advantage. More than three out of four Digital
Champions excel in both the Customer Solutions and the Operations
ecosystems.

Strategy& 7
5. Digital Champions implement new technologies to connect
and collaborate along the end-to-end value chain. On average,
Digital Champions have implemented nearly two-thirds of the most
critical technologies that propel digitization. These technologies
include integrated end-to-end supply chain planning (adopted by
87 percent of Digital Champions), Industrial Internet of Things
(78 percent), manufacturing execution systems (75 percent),
collaborative and smart robots (72 percent), and predictive
maintenance solutions (70 percent).

The key to success for Digital Champions is a holistic approach in

connecting essential technologies across the organization and with
strategic partners instead of isolated implementations. Digital
Champions expect to achieve significant gains in cost savings and
efficiency from technology implementations, with 16 percent cost
savings in the next five years, versus 10 percent for Digital Novices.

6. Artificial intelligence is just kicking off, but will revolutionize

the quality of operational decision making. Only 9 percent of
companies have already implemented artificial intelligence (AI)
applications to improve operational decision making. One-third of
Digital Champions have adopted AI across major functions, primarily
focusing on assisted and autonomous intelligence for automating
manual and cognitive tasks. Most companies appreciate AI’s significant
potential, but core use cases are just emerging as companies experiment
broadly to quantify its value. Even among Digital Champions, 52 percent
say they lack the people skills to broadly implement AI systems and
many are hesitant about full-scale AI because they are uncertain about
the maturity of the data produced by the AI systems themselves.
Overall, Asian companies are at the forefront of AI, with 15 percent
implementing significant AI solutions, and EMEA-based companies are
lagging behind, at 5 percent.

7. Digitization will increase production in mature markets and

customized manufacturing close to end-customer markets.
Globally, digitization will lead to higher productivity and wealth.
Digitization and smart automation are expected to contribute as much
as 14 percent to global GDP gains by 2030, equivalent to about US$15
trillion in today’s value. Mature markets will benefit more as digitization
reduces operations costs, enabling companies to rely less on labor
arbitrage and increase production in home markets. In turn, demand
for skilled labor will rise, as will salaries. As the need for skilled labor
jumps — especially for digital experts, data analysts, and workers
educated in science, technology, engineering, and math (STEM) —
new ways of sourcing and finding access to talent, and training
programs tailored to Industry 4.0, will be crucial.

8 Strategy&
8. People are at the center of digital transformation. Two-thirds
of all companies do not have a clear digital vision and strategy to
support digital transformation and culture. Only 27 percent of survey
respondents said their employees have the required qualifications to
master the digital future. Limited progress has been made since our
previous global study in 2016.

On the other hand, the leaders of more than 70 percent of Digital

Champions have a clear vision for the digital future and serve as role
models for digital change in their organizations. Digital Champions
invest heavily in people development and training and cultivate
multidisciplinary teams to foster innovation across functional
boundaries.

Exhibit 1
Eight key findings of the Global Digital Operations Study 2018

Top of the world — 10% of global New technologies are implemented at

manufacturing companies are large scale to connect and collaborate
Digital Champions along the end-to-end value chain

Customer Solutions Artificial intelligence is

Asia-Pacific is leading ecosystem just kicking off — but will
the way to digitization revolutionalize the quality of
operational decision making
Operations
ecosystem
Digitization will increase
Digital Champions
production in mature
create value through
markets and customized
integrated Customer Technology People manufacturing close to
Solutions ecosystems ecosystem ecosystem end-customer markets

Digital Champions serve

customers by integrating People are at the center of
Operations, Technology, and digital transformation
People ecosystems

Source: PwC’s Strategy&

Global Digital Operations
Study 2018

Strategy& 9
Blueprint for implementation success

Digital Champions achieve their competitive advantage by successfully

orchestrating and integrating the four ecosystem layers: Customer
Solutions, Operations, Technology, and People. The starting point on
the journey toward becoming a Digital Champion is the definition of
a compelling ecosystem vision and value proposition based on an
internal ecosystem assessment and an exploration of the art of the
possible (see Exhibit 2). Digital Champions develop an integrated
ecosystem concept and a strategic partnership model that clearly lays
out how external partners can be integrated into their ecosystem.

An effective ecosystem governance that ensures prioritization of

activities, enables fast decision making, and makes the best use of
digital investments is key to successfully deploying the four ecosystem
layers. It is also critical to follow a highly iterative approach while
designing and implementing the ecosystem capabilities. This enables
companies to deliver and learn through early and continuous deliveries.

Digital Champions are harvesting the value of fully integrated

ecosystems through permanently investing in continued expansion and
enhancement of their Customer Solutions, Operations, Technology, and
People ecosystem layers.

Exhibit 2
Blueprint for becoming a Digital Champion

Conduct Define an Develop an Set up an Build Harvest the

an internal ecosystem integrated ecosystem ecosystem value of full
ecosystem vision and ecosystem governance, capabilities ecosystem
assessment value concept and investment, with iterative integration and
and explore proposition strategic and decision design and reinvest it in
the art of the partnership board implementation continued
possible model expansion
Source: PwC’s Strategy&
Global Digital Operations
1 2 3 4 5 6 Study 2018

10 Strategy&
What is a Digital Champion?

Although Industry 4.0 is transforming manufacturing rapidly, in novel

ways that were unimaginable just a decade ago, only a small group of
companies is in a position to gain real competitive advantages from this
operations revolution. These companies, which we call Digital
Champions, are noteworthy because they view digitization in ways
that are far-reaching and aggressively innovative, well beyond mere
automation and networking.

To better understand the vision, structure, and capabilities of Digital

Champions and why they are potentially so successful, we explored
the factors that they have in common and that separate them from Digital
other organizations today. They distinguish themselves through their Champions
mastery of four critical business ecosystem layers: Customer Solutions, distinguish
Operations, Technology, and People. These are the four primary
business layers that serve as the thread connecting the organization’s themselves
activities. They form the basis of the enhanced digital value chain through their
(see Exhibit 3, next page): mastery of four
Each of the four ecosystem layers represents a cluster of activities, some critical business
occurring inside the organization and some outside. These activities are ecosystem
tied together through common digital connections and practices. layers: Customer
• The Customer Solutions ecosystem: In this grouping, also Solutions,
called the business model and customer value layer, companies put Operations,
forth the distinctive products and services that they can best offer Technology,
customers or consumers. They do this through personalization,
customization, enhanced features, improved logistics, creative and People.
revenue models, and innovative designs and applications. This
layer also includes external entities that the company is integrating
into its solution to create additional value.

• The Operations ecosystem: Also called the solution enablement

and value chain efficiency layer, this cluster encompasses the
physical activities and flows that support the Customer Solutions
ecosystem. These might include product development, planning,
sourcing, manufacturing, warehousing, logistics, and services.

Strategy& 11
Exhibit 3
The four digital ecosystem layers

Individual solution offering

Hardware and Product Complementary

infrastructure products/
Software Performance
accessories
and apps services
Platform Financial
integration solutions
Customer Solutions
ecosystem Data integration,
Third-party analytics, and
platforms services
E-commerce Advanced Demand signals
customer service

Multichannel customer interaction

Integrated and continuous planning

Digital research Product life-cycle

and development management

Procurement 4.0 Operations After-sales services

ecosystem

Smart Connected logistics

manufacturing and distribution

Connected execution

IT architecture

Career Skills
Interfaces
development

Technology People
ecosystem ecosystem
Relationships and Mind-set and
New technologies skill sources behavior

Source: PwC’s Strategy&

Global Digital Operations
Study 2018

12 Strategy&
 Any external partners that are part of a company’s operations,
including contract manufacturers, logistics partners, and academia,
are part of this ecosystem.

• The Technology ecosystem: This is an enabling ecosystem that

covers IT architecture and interfaces as well as digital technologies,
and drives or supports improvements and breakthroughs in the
Customer Solutions, Operations, and People ecosystems. It includes
such pivotal technologies for Industry 4.0 as artificial intelligence,
3D printing, the Industrial Internet of Things (IIoT) and sensors,
augmented and virtual reality, and robots.

• The People ecosystem: Another enabling layer, this is the domain

of organizational competence and culture. We have found that most
companies, even those that realize the significant value of becoming
Digital Champions, lack the vision, strategy, and culture to support
digital transformation. This ecosystem covers skills, mind-set and
behavior, and relationships and skill sources, as well as career
development to support digital transformation. Only 10
percent of the
Not all Digital Champions are equally adept in each of the ecosystems.
For instance, some have a relatively mature digital culture, while
companies
others have more seamlessly integrated external partners into their we surveyed
product and service development and go-to-market strategies. Still can claim the
others are better at implementing a fully transparent and integrated
supply chain. But on the whole, Digital Champions distinguish
distinction
themselves by advancing their capabilities through all four ecosystem of being
layers, creating an organizational environment that takes the greatest called Digital
advantage of the opportunities from digitization. And their skills
and digital leadership translate into a privileged position for digital
Champion
maturity. Only 10 percent of the companies we surveyed can claim the
distinction of being called Digital Champion (see Exhibit 4, next page).
For more details on the survey methodology and the calculation of the
maturity index, see page 59.

Digital Champions tend to be masters of integration and orchestration.

To develop these ecosystems, they draw on internal and external
partners and platforms. They also bring the four ecosystems together
into a whole body of work. They align their organization around a clear
and coherent overall strategy made up of a value proposition and
distinctive capabilities. The ecosystems are the home of those
capabilities: the source of the organization’s advantage.

None of the ecosystems can be left out. For example, it’s not enough to
devise a Customer Solutions ecosystem that seems logical strategically
and meshes well with market conditions. That’s a good first step, but if

Strategy& 13
Exhibit 4
Distribution of digital maturity levels

Global average: 43.3 pts

Digital Novice
Digital Follower
Digital Innovator
Digital Champion

Note: Percentages may not

total 100 due to rounding.

22% 42% 27% 10% Source: PwC’s Strategy&

Global Digital Operations
0 10 20 30 40 50 60 70 80 90 100% Study 2018

the Operations ecosystem does not have the requisite capabilities,

partnerships, technology, and plan to propel efficiency and
effectiveness, it will be impossible to achieve profitability and the
business model will fall flat. In turn, the results will be disappointing.
In short, true Digital Champions choreograph the movements of the
four ecosystems together, integrate with partners effectively, and
monetize the capabilities. They sit at the center of an efficient and Among
innovative extended value chain that optimizes technology and people.
industries,
From a regional perspective, Asian (APAC) companies are clearly most automotive
advanced, with 19 percent of the companies from that region in the and electronics
Digital Champion category, followed by the Americas, with 11 percent.
European companies lag behind, with just 5 percent of companies in have the largest
the Digital Champion segment. Asian companies have the advantage share of Digital
of setting up robust digital operations from essentially a blank slate in Champions,
terms of factory automation, workforce, and even organizational IT
networks as a whole — that is, without having numerous complex at 20 and
legacy systems and facilities to upgrade, integrate, or discard. In 14 percent,
addition, Asian companies appear to be keener to try new business respectively.
models and develop innovative products and services (see Exhibit 5,
next page).

Among industries, automotive and electronics have the largest share

of Digital Champions, at 20 and 14 percent, respectively. Operations in
auto companies have been optimized, automated, and connected for
decades, and electronics manufacturers have been at the forefront of

14 Strategy&
outsourced manufacturing, which requires connecting and managing
disparate systems and partners across an extended value chain.
Consumer goods, industrial manufacturing, and process industries
lag significantly behind (see Exhibit 6).

In the following sections, we take a deep dive into each of the four
ecosystems, describing how they work and what Digital Champions
do differently from other companies.

Exhibit 5
Levels of digital maturity by geographic region

Digital Novice
EMEA 30% 45% 20% 5%
Digital Follower
Digital Innovator
Americas 15% 35% 39% 11% Digital Champion

APAC 8% 40% 33% 19%

Source: PwC’s Strategy&
Global Digital Operations
Study 2018

Exhibit 6
Levels of digital maturity by industry

Automotive 14% 32% 34% 20%

Consumer goods 25% 48% 21% 6%

Electronics 20% 27% 38% 14%

Digital Novice
Industrial equipment Digital Follower
23% 42% 22% 13% Digital Innovator
and engineering
Digital Champion
Industrial
22% 46% 26% 6%
manufacturing
Source: PwC’s Strategy&
Process industries Global Digital Operations
21% 47% 26% 6%
Study 2018

Strategy& 15
A close look at the four ecosystems

The Customer Solutions

ecosystem

Digital Champions generate customer value by integrating

individualized solutions offerings and multichannel customer
interactions in the Customer Solutions ecosystem. Digital Champions
continuously strengthen and enhance the solutions offering as well as
access and reach out to customers across multiple channels, directly or
through third parties (see Exhibit 7).

They excel in understanding the needs and preferences of their

customers by capturing and integrating all relevant demand signals —
generally through a network of internal and external partners — to
create new customer insights that can be used in developing new and
individualized products and services. This superior understanding

Exhibit 7
Overview of the Customer Solutions ecosystem

Individual solution offering

Customers and users
Suppliers
Industry Products
Hardware and Complementary
specialists
infrastructure products/ Subject
Software Performance
accessories matter
Regulatory and apps services
Platform Financial experts
and interest groups
integration solutions
Customer Solutions Knowledge
IT partners Data integration, and service
Third-party ecosystem providers
analytics, and
Platform platforms services
partners Advanced
E-commerce Demand signals Financial
customer services institutions
Data
Sales and marketing providers
Distributors
Multichannel customer interaction
Source: PwC’s Strategy&
Global Digital Operations
Study 2018

16 Strategy&
enables Digital Champions to turn customer insights into compelling
solutions that provide customer value through a unique and tailored
combination of core products (analog, augmented, digital) and
complementary products and services. These are generally
combinations of hardware, software, and apps or platform integration.
In order to develop these solutions, Digital Champions rely on a network
of partners such as suppliers, subject matter experts, knowledge and
service providers, and IT partners.

Digital Champions continuously enhance their solutions offering

through tight integration and interaction with customers across
all relevant channels — either directly via the sales and marketing
department or through third parties such as platform partners,
distributors, or data providers. The interaction with customers
typically occurs across different routes to market, such as third-party
vendor platforms; e-commerce platforms and apps; advanced customer
services; or data integration, analytics and services (see Exhibit 8,
next page).

Our study found that 50 percent of Digital Champions deploy open

platforms for innovation and operational support. These platforms
allow the Digital Champions to draw on a wide number of companies
and individuals at low cost. This way, they can orchestrate otherwise
unavailable solutions and develop unique skills and capabilities.
Open platforms also enable partners and other ecosystem members
to piggyback on the Digital Champion’s business model: for example,
to sell their own products via pay-per-use subscription programs and
omnichannel commerce (hybrids of online and offline channels).
The external ecosystem participants could be product and service
development collaborators, digital innovation experts, suppliers,
IT providers, and various complementary product providers in the
private sector or, at times, academia.

A fine-tuned and mature Customer Solutions ecosystem tears down

internal and external boundaries and creates value for all of the
stakeholders, in ways that were previously not possible. For some
companies that lag, it will be difficult to catch up with Digital
Champions, which have invested time and resources in getting a
running start in these innovative applications. The survey found
that 68 percent of the Digital Champion respondents have adopted
enhanced customer experience programs offering individualized
products and services, while 63 percent are taking advantage of
more intricate value chains that seamlessly provide supplier products
to customers — as if the Digital Champion and its supply partner are
the same company.

Strategy& 17
Exhibit 8
Business model platforms used by Digital Champions

Which types of platform are you focusing on to realize your business model?

At least one platform Digital Novice: 46%

implemented: 80% Digital Champion: 98%
Level of
development
Omnichannel commerce platform: 22%
Multichannel sales and marketing 42%
platform for products and services 46%

Products-as-a-service platform: 4%
A product is sold via a platform in a 23%
pay-per-use model 42%

Customer experience platform: 17%

Offers highly individualized products 33%
or services 68%

Complex solutions for customers: 8%

Includes products from many of your 24%
partners and is managed by you 63%

Open platform: Others may build their 1%

10%
own digital business models
50%

Digital Novice
Digital Champion

Note: Multiple answers possible.

Base was 1,155 companies.

Source: PwC’s Strategy& Global

Digital Operations Study 2018

18 Strategy&
Li & Fung: Creating the supply chain of the future

Li & Fung is the supply chain and sourcing provider behind

many of the most famous brands and retailers around the
world. It is seeking to set new standards in global supply
chain solutions through building a digital platform which
connects suppliers and customers as part of an analytics-
enabled ecosystem.

In the past, Li & Fung’s customers wanted to achieve

advantages across cost, efficiency, and quality drivers
and, while those requirements must still be met, they now
demand greater speed-to-market, innovation, and data-
driven insights. The company sees digitization as a major
opportunity to serve this retail environment. Li & Fung’s
digital supply chain platform, and integrated ecosystem,
is designed to both shorten and optimize the supply chain
process through embedding data and analytics throughout
each activity in the value chain. A similar innovation and mind-set is also at the center
of Li & Fung’s organization and cultural transformation.
Cultural change starts from the top, with all senior executives
A mind-set change having completed futurist immersion sessions, and now
all employees are accessing role-specific innovation
Li & Fung’s transformation is part of a bigger change opportunities. In addition to attracting new digitally savvy
happening in global digital innovation whereby Asian talent, Li & Fung is also harnessing the best ideas from
companies are perceived differently now in terms of driving outside the company. For example, Li & Fung regularly
innovation. For example, for China, “It’s no longer ‘copycat holds “hackathons,” a weekend “ideathon” event to get
China,’ it’s ‘innovation China,’” observed one of its senior “crazy ideas going” from its employees and various outside
executives. “There’s no doubt the most innovative supply third parties, which feed into future innovation to create the
chain solutions are happening in China. Supply chain models supply chain of the future.
are shifting from ‘old economy push’ to a strongly demand-
driven ‘new economy pull.’ There’s a huge amount of
innovation and, from that, learning and iteration taking place.” Emerging technologies and value creation

While Li & Fung is in the process of digitizing all the

key aspects of supply chain, there is a clear focus on
pre-production and design, including virtual product
development, dynamic costing, and intelligent digitized
image libraries.

Among these innovations, Li & Fung is using 3D design

technologies combined with collaboration environments to
enable designers and merchandisers to work together across
the world, at any time. This is creating an immediate impact on
the speed and effectiveness of decision making. Designers are
able to see how a garment looks, fits, and moves on a person
and work with buyers and merchandisers to understand
the implications of design adjustments — all in a virtual
environment. This digitization is both eliminating waste but
also drastically reducing time-to-market, which is increasingly
important where fashion trends are changing faster than ever.

—Based on information from Li & Fung Ltd., Hong Kong

Strategy& 19
Digital Champions are typically open to joint ventures or less formal
partnerships with external companies. Some prominent recent
partnerships:

• Apple and GE’s agreement to bring Predix, GE’s Industrial Internet

of Things platform, to iOS devices, thus allowing industrial
customers to write asset tracking and maintenance programs
for iPhones and iPads and improve their mobility

• DuPont’s joint venture with Chinese equipment company Hebei

Nonghaha Agricultural Machinery Group to develop a device that
precisely plants one corn seed per mound

• Deere & Company’s partnership agreement with carbon fiber

technology company King Agro to build high-quality, lightweight
spray booms for Deere equipment

• Google and pharmaceutical company AbbVie’s venture, researching

diseases that afflict older people
Digital
• General Motors’ alliance with Lyft to make an autonomous car Champions are
typically open
All of these deals have one thing in common: They are an attempt by
companies to fill capabilities shortcomings in skill areas that are not
to joint ventures
their sweet spot, to better provide the distinctive product or service or less formal
at the center of the ecosystem. partnerships
These examples also show that it is crucial for companies to accurately
with external
identify their appropriate position in the ecosystem. To illustrate this companies.
point, some Digital Champions place themselves at the hub of Customer
Solutions ecosystems, in which all the participants communicate
directly with the organization rather than with each other. Apple fits
this category, with its huge coterie of app developers creating products
and components directly for iPhones and iPads. So does Deere with its
precision farming equipment, integrating technology and designs from
third-party companies to help farmers accurately measure the use and
performance of water resources, seeds, pesticides, soil enhancement
products, and other agricultural elements.

Other Digital Champions prefer to establish Customer Solutions

ecosystems with the organization at the core, but with more open and
collaborative communication among members. For instance, Ford
operates at the end of a traditional supply chain; its parts manufacturers
have their own component makers, making Ford’s Customer Solutions
ecosystem a multitiered structure with frequent and necessary
cooperation upstream and down. Chipmaker Qualcomm, which has its
own centralized Customer Solutions ecosystem, is an external supplier

20 Strategy&
in Ford’s, designing the automaker’s vehicle-to-vehicle communications More than
platform. And Ford itself is a supplier in Avis’s rental car ecosystem as
well as in ride-sharing company Lyft’s autonomous car development
50 percent
program. All of these arrangements can be profitable for Digital of Digital
Champions, providing that the ecosystems are designed to buttress the Champions’
central activity: increasing customer value.
revenues come
Our study found that more than 50 percent of Digital Champions’ from digitally
revenues come from digitally enhanced or purely digital products and enhanced or
services (see Exhibit 9). About two-thirds of the Digital Champions have
already established a Customer Solutions ecosystem that includes
purely digital
interactivity with outside partners to create customer value. In the past, products and
it may have been challenging to set up the technology and integration services.
required to coordinate an ecosystem of numerous partners. Today’s
Digital Champions have overcome this obstacle by using their Customer
Solutions ecosystem to its full advantage.

Exhibit 9
Digital Champions achieve high revenues with digital products and services

What is the composition of your revenue today and in five years?

77% 69%
Traditional products
92% 86%
and services
44% 31%

14% 17%
Digitally enhanced Total
6% 9%
products and services Digital Novice
33% 33% Digital Champion

9% 14%
Purely digital content, Note: Base was 1,155
3% 6% companies.
services, and solutions
24% 36%
Source: PwC’s Strategy&
Global Digital Operations
Today In five years Study 2018

Strategy& 21
When asked about their prospects, Digital Champions were significantly
optimistic. They expect their investment in new technologies and in
improving their digital ecosystems to result in revenue increases of
about 15 percent over the next five years (see Exhibit 10).

The benefits Digital Champions gain from their integrated Customer

Solutions ecosystem are fourfold:

• Higher revenues from improvements in meeting customer needs

across all relevant channels, through individualized solution
offerings

• Higher margins through the optimal use of internal capabilities

and an extended partner network

• Greater agility from managing a flexible network of partners

• Seamless connectivity to operations for greater efficiency and

reduced costs

One noteworthy finding from our survey was the clear recognition
of the importance of leading and managing these strong ecosystems.
Fifty-one percent of the respondents said they believe they will make
notable progress developing this layer within the next five years.

Exhibit 10
Expected benefits from investing in digital technologies

What benefits do you expect from your investments in digital technologies cumulatively
over the next five years?

Additional five-year digital revenues Additional five-year digital revenue by geographic region

Average: 14.7% Average: 14.7%

30% or over 9% EMEA 13%

20–29% 23% Americas 17%

Note: Base was 1,155
companies.
10–19% 29% APAC 17%
Source: PwC’s Strategy&
Global Digital Operations
0–9% 22%
Study 2018

22 Strategy&
Regionally, Asian companies are putting the greatest effort into
developing this ecosystem, as indicated by 42 percent of their responses.
American companies are slightly behind at 30 percent, but only 17
percent of companies in EMEA (Europe, the Middle East, and Africa)
indicated enthusiasm for this activity (see Exhibit 11).

Exhibit 11
Progress toward facilitating digital ecosystems

To what extent have you made progress toward the implementation of digital ecosystems?
And five years from now?

Current digital ecosystem maturity and

future development by geographic region

High maturity 8% 21% EMEA 4% +11 15%

Medium maturity 45% 51% Americas 9% +15 24%

Low maturity 29% 13% APAC 15% +17 32%

Today In five years Today In five years

Note: Figures in percent,

differences in percentage
points. Base was 1,155
companies.

Source: PwC’s Strategy&

Global Digital Operations
Study 2018

Strategy& 23
A close look at the four ecosystems

The Operations ecosystem

This is the ecosystem layer that serves as the spine of the Digital
Champion’s value chain. The functions that support the Digital
Champion in adding value to its relationships with consumers
operate here: for example, the supply chain, product development,
production, and distribution channels. The activities within the
Operations ecosystem may be managed by external entities such
as suppliers, contract manufacturers, distributors, logistics providers,
and inventory managers. But they are in the orbit of the central
Digital Champion, focused on meeting its needs (see Exhibit 12).

Exhibit 12
Overview of the Operations ecosystem

Integrated and continuous planning

Crowd development
Research Development partners
institutes
Component Suppliers
suppliers Digital research Product life-cycle Service
and development management providers
Raw material
Customer
suppliers
services
Procurement 4.0 Operations After-sales services Repair
Material ecosystem centers
suppliers Transportation
Internal Smart Connected logistics and last-mile
production manufacturing and distribution delivery
Warehouse
Contract manufacturers Inbound and DC
logistics

Connected execution

Source: PwC’s Strategy&

Global Digital Operations
Study 2018

24 Strategy&
In Digital Champions, the Operations ecosystem allows for
collaboration and full transparency across the entire value chain.
It connects functions and partners horizontally in research and
development, supply chain, and services. A highly functioning
Operations ecosystem is especially valuable for planning and
execution because it fosters takt time: the pacing of activity so that it
continuously aligns supply chain execution (including production and
replenishment) with real-time customer demand signals. For research
and development, the Operations ecosystem coordinates a network of
internal functions, suppliers, academia, researchers, and sourcing and
logistics specialists. For manufacturing, this ecosystem vertically links
and automates factories (owned by the Digital Champion or contracted
out) and connects the shop floor directly to the supply chain and
customer demand activities.

One important factor in becoming a Digital Champion is the dynamic

relationship between the Operations and Customer Solutions Digitally mature
ecosystems. Digitally mature companies derive the design of their companies
Operations ecosystem directly from the needs of the Customer
Solutions ecosystem. Our survey found that more than three out of
derive the
four Digital Champions demonstrated a high degree of maturity in design of their
both ecosystems and more than half were champions in both domains. Operations
The significance of this correlation is apparent, for instance, in any
company whose business model is based on customized products and
ecosystem
that promises immediate shipments to customers. To meet these directly from the
imperatives, the company must have a supply chain with total requirements of
visibility, strong execution capabilities, and flexible manufacturing
processes across its length.
their integrated
solution offering
As a Digital Champion’s products or services change over time, and partner
the composition of the Operations ecosystem may be altered and
continuously improved. Suppliers or factories may be needed in
network.
new regions; warehouses and parts management may require
more flexibility to deliver on accelerated just-in-time schedules; and
innovative logistics partners could be necessary to outpace competitors
in providing customers with greater variety and convenience. It is
critical to consistently reevaluate the Operations ecosystem against
performance metrics and capability requirements drawn from the
business model.

The Operations ecosystem is managed by an integrated planning and

execution layer with far different attributes than the functional grid
that has managed value chains in the past. Instead of the usual silos
or separate departments, such as R&D, production, supply chain
management, inventory control, sales, marketing, and the like, Digital
Champions fashion a series of agile teams, consisting of internal and

Strategy& 25
external members. These are pulled together for specific tasks and
projects, and dissolved when those projects are completed. The teams
are charged with ensuring that the Operations ecosystem is serving the
desired solutions targeted in the top layer. They may be created to
address a single aspect of the Operations and Customer Solutions
ecosystem interrelationship or multiple aspects.

A smoothly functioning Operations ecosystem provides a seamless

transition among suppliers, logistics providers, manufacturers, and
customers (see Exhibit 13). For instance, these companies can exchange

Exhibit 13
Characteristics of integrated, end-to-end supply and demand planning

Integrated planning
Supply and execution platform Customer

Integrated material requirements E2E supply and demand planning Integration into B2B and B2C
planning (VMI/consignment stock, Integrated and continuous planning ecosystem (PoS and public data,
visibility on inventory) connected to execution online marketplaces, own apps,
customer ERP integration)
Vertical integrated real-time planning in
production, including manufacturing Proactive demand sensing
execution systems introduction Utilization of digital customer and
configuration data, sales data,
E2E logistics visibility (last-mile service needs, and external data
notification, E2E tracking)
Dynamic real-time inventory
management for a multistage supply
chain and warehouse network

Production Warehousing

Tier 1 supplier Customers

Tier 2 supplier End-users

Supply Demand

Enabler
E2E data availability, utilization, and Source: PwC’s Strategy&
analysis and efficient IT and data Global Digital Operations
architecture as supply chain support Study 2018

26 Strategy&
product planning information across several stages of the value chain,
almost instantaneously. This lets them quickly assess the impact of a
change in demand across all members of the value chain and resolve
any constraints that would hinder altering the production and
distribution schedules. Digital Champions are well ahead of other
companies in this area. More than 80 percent of Digital Champions are
horizontally integrated with partners, while the average for all
companies is only 27 percent (see Exhibit 14).

Exhibit 14
Supply chain integration by digital maturity level

Which statement best describes your supply chain?

Isolated solutions and optimization

30% 37% 40% 18% 1%
of individual processes

Internal functions are integrated

35% 33% 39% 35% 18%
and close collaboration

Digitally connected with external

partners, integrated platforms 18% 2% 12% 35% 26%
for collaboration

Near-real-time end-to-end
integration and planning platforms 9% 1% 4% 7% 55%
across external network

Digital Novice
Digital Follower
Digital Innovator
Digital Champion

Note: Base was 1,155

companies.

Source: PwC’s Strategy&

Global Digital Operations
Study 2018

Strategy& 27
The benefits that Digital Champions gain from their Operations
ecosystem are fivefold:

• Transparency: They have a complete end-to-end view of the

Operations ecosystem.

• Real-time data sharing: All value chain members see information

simultaneously.

• Extended collaboration: Collaboration with partners (such as

suppliers) develops organically, becoming deeper and more
synergistic as the solutions in the value chain require.

• Immediate responsiveness and flexibility: There is real-time

response to demand changes from end customers, and prompt
action at the planning and execution level across all tiers.

• Connectivity: The seamless integration of internal and external

product life-cycle management, supply chain management, and
customer information enables a well-connected end-to-end value
As for regional
chain from product creation to the consumer. breakdowns,
supply chain
Among the industries we looked at, the highest degree of supply chain
integration was in the auto sector, where 18 percent of companies have
integration
successfully embedded real-time planning and collaboration across the maturity is
supplier network. This reflects the auto industry’s well-established highest in the
supply chains and its decades-old push to gain efficiencies, accelerate
output, reduce waste, and recoup working capital through lean
Asia-Pacific
techniques. Electronics companies also scored high in this category area.
due primarily to their long-standing close relationships with suppliers
and their frequent use of outsourced contract manufacturers to meet
high demand variation and short life cycles. In addition, the
electronics industry had the greatest degree of factory automation,
with the auto sector next in line.

As for regional breakdowns, supply chain integration maturity is

highest in the Asia-Pacific area. Compared to the Americas and
Europe, nearly twice as many Asia-Pacific companies qualify as
advanced (see Exhibit 15, next page). Europe’s record is particularly
poor, with most of its companies no more than Digital Followers —
that is, their internal functions are integrated and some close
collaboration is evident, but there are no real-time end-to-end
integration and planning platforms. The same could be said about
manufacturing operations, where Asian companies again dominate
and European companies lag. But in every region, less than 10 percent
of the responding companies have fully automated their plants or
communicate across production facilities.

28 Strategy&
Exhibit 15
Supply chain integration by geographic region

Which statement best describes your supply chain?

Isolated solutions and optimization

30% 28% 31% 32%
of individual processes

Internal functions are integrated

35% 40% 30% 26%
and close collaboration

Digitally connected with external

partners, integrated platforms 18% 14% 25% 20%
for collaboration

Near-real-time end-to-end
integration and planning platforms 9% 5% 8% 18%
across external network

EMEA Americas APAC

Note: Base was 1,155

companies.

Source: PwC’s Strategy&

Global Digital Operations
Study 2018

Strategy& 29
Viewed through the manufacturing automation and connectivity
lens, our study results showed that only about 5 percent of the
companies interviewed are already embracing the futuristic vision
of the digital factory — that is, their production operations are fully
automated and transparently connected across internal and external
plants, suppliers, and logistics channels (see Exhibits 16, below, and
17, page 32). All of these components are exchanging and acting on
information in real time. Nineteen percent of the companies are at
an intermediate step: Operations are largely automated and loosely
connected across multiple plants and throughout the supplier community.
Another 25 percent are followers: Operations are only selectively
automated and connected beyond manufacturing. By far the largest cohort,
42 percent of the full group, belongs in the Digital Novices category.

Exhibit 16
Manufacturing automation and connectivity by digital maturity level

Which statement best describes the level of automation and connectivity at your manufacturing operations?

Only selectively automated

42% 58% 58% 19% 4%
and connected

Largely at the
25% 13% 26% 36% 17%
single plant level

Seamlessly across multiple plants

19% 3% 10% 35% 47%
and beyond manufacturing

Fully across internal and external

plants, exchanging and acting on 5% 1% 1% 6% 33%
information in real-time

Digital Novice
Digital Follower
Digital Innovator
Digital Champion

Note: Base was 1,155

companies.

Source: PwC’s Strategy&

Global Digital Operations
Study 2018

30 Strategy&
Bosch: Connecting the entire value stream

In the factory of the future, everything and everyone is

connected. Sophisticated Industry 4.0 software solutions
make everyday working life easier, while production
processes become more transparent and efficient.

The factory of the future is the answer to rapidly changing

market environments and demands. Customer requirements
are shifting from mass products to individual, high-quality
items. Markets are fast-paced; product life cycles are
becoming shorter and shorter. Consequently, manufacturing
companies are looking to reduce maintenance times and
repair costs, and to achieve higher machine availability with
less downtime.

To transform this vision into reality, companies require

flexible and adaptable production concepts, where machines
are constantly exchanging data with their environment.
By connecting their value streams and by combining
the strengths of humans and machines, manufacturing
companies can react to the challenges of today and
tomorrow. growth. The company’s goal is to realize cost savings of
€1 billion with its own Industry 4.0 solutions, and generate
Bosch sees itself as “mover and shaper” of the Internet of additional revenue of similar size by 2020 by making these
Things (IoT). In the industrial sector, this includes connecting solutions available to external customers from different
entire value streams — from procurement (source) and industries.
manufacturing processes (make) to intralogistics and
external logistics (deliver). But above all, humans play a key With the broad portfolio of intelligent Industry 4.0 software
role in the development towards the connected factory. solutions and services, Bosch Connected Industry aims to
provide solutions that address real challenges. All solutions
Although the portfolio is driven by technology, the central are developed to support operators, maintenance staff,
issue for Bosch is always: What are the human needs? The production supervisors, and factory managers in their daily
superordinate role of Industry 4.0 is to make day-to-day work work. Accordingly, the focus is on easy usage and a modular
easier for employees, while optimizing manufacturing facilities design.
regarding transparency, quality, flexibility, and productivity.
“We eat what we cook” is how Bosch describes the attitude
Accordingly, Industry 4.0 is an integral part of Bosch’s IoT underlying this approach. With more than 130 years of
strategy and, at the same time, one of the largest areas of manufacturing expertise and more than 270 production sites
across the globe, Bosch has tried and tested all solutions in
their own facilities. Based on the experience from the pilot
projects, suitable solutions are further developed and —
once they have reached market maturity — launched in the
external market.

Following the analogy cited above, Bosch “offers only the

best dishes” to its customers. This deep expertise and
experience put Bosch in position to optimally support
customers across their digitization process — from
consulting and selecting the appropriate solutions to
implementing them and supporting companies and staff in
working with the new tools.

—Based on information from Robert Bosch GmbH, Germany

Strategy& 31
Exhibit 17
Manufacturing automation and connectivity by geographic region

Which statement best describes the level of automation and connectivity at your manufacturing operations?

Only selectively automated

42% 45% 38% 39%
and connected

Largely at the
25% 25% 24% 25%
single plant level

Seamlessly across multiple plants

19% 13% 28% 24%
and beyond manufacturing

Fully across internal and external

plants, exchanging and acting on 5% 4% 5% 9%
information in real-time

EMEA Americas APAC

Note: Base was 1,155

companies.

Source: PwC’s Strategy&

Global Digital Operations
Study 2018

Their operations are only selectively automated and connected. Indeed,

even among Digital Champions, 33 percent have achieved the highest
level of maturity in the manufacturing sphere. This is a pivotal blind
spot that companies need to work on to gain a fully integrated
Operations ecosystem.

32 Strategy&
Daimler: Maximum flexibility and transparency

Digital transformation covers the entire value chain at the

Car Division of Daimler AG. “Smart production” is the
overarching target picture.

The vision of Mercedes-Benz Cars: Smart production

is characterized by a very high degree of flexibility. It
is transparent and extremely efficient. It assures and
enhances the quality of products as well as the production
processes by means of forward-looking and self-optimizing
quality assurance processes. In full-flex plants, all vehicle
architectures and drive types roll off the same production
line. All plants and trades, as well as the supply chain with
the suppliers, form a digital network in smart production. On
the basis of digital twins of products and production, data is
recorded and evaluated in real time. In this way, resources
can be used even more efficiently. Digital methods support
the implementation of green production. Employees work at
ergonomically optimized workplaces and processes. Order
planning supported by big data identifies and optimally Despite — or precisely because of — the use of such
meets the customers’ needs. extremely modern technology, the digitization process also
involves a cultural transformation of the company. Mercedes-
Digitization focuses on five key areas: Benz Cars flattens out hierarchies, thereby achieving
extremely high speeds in decision-making processes. They
• Worldwide 360-degree networking of all plants and tear down silos and thus maximize networking. The focus is
installations, starting with the smallest sensor always on humans as customers and employees.

• A digital and continuous process chain, ranging from Mercedes-Benz Cars Operations (MO) is responsible for car
development and production to after-sales production at more than 30 locations worldwide. Within a
flexible and efficient production network with approximately
• Use of big data — increasingly in real-time — for 78,000 employees, this includes the central functions of
assuring and further enhancing quality and efficiency production planning, TECFACTORY, logistics, and quality
management. The network structure is based on the
• Adaptable factories that can be converted to new production architectures of front-wheel drive (compact
series within a few hours cars) and rear-wheel drive (for instance, S-, E-, and C-class)
as well as the SUV and sports car architectures. This is
• The transparent “smart supply chain” with driverless accompanied by a production network for the powertrain
transport systems, intelligently commissioned product (engines, gearboxes, axles, components). The focal point
baskets, and paperless factories. of every architecture production network is a lead factory,
which acts as a center of competence for new production
There is already worldwide implementation in all five core starts, technology, and quality assurance. With this strategy,
areas. For instance, in the field of 360-degree connectivity, MO is able to produce vehicles with even greater flexibility
Wi-Fi and location tracking are used, as is the software and efficiency combined with proven top quality. The
Integra, which connects all plants and production lines with Daimler division is able to respond more rapidly to changes
one another. With regard to the digital process chain, the in demand and also integrate electric vehicles in current
focus is on digital development, planning, and simulations. serial production. The success is self-evident: As a result
One example is the virtual assembly station Avatar, with of the strong demand, Mercedes-Benz Cars set a further
which production ergonomics are assured by means of production record in 2017, manufacturing more than 2.4
virtual reality at an early stage in the product development million vehicles. This is the seventh production record in
process. Further use cases are human-robot collaborations, succession. With the aid of Industry 4.0, this growth strategy
big data analyses such as predictive maintenance, the use of will be continued.
artificial intelligence, and smart logistics, such as RFID chips
and driverless transport systems. —Based on information from Daimler AG, Germany

Strategy& 33
A close look at the four ecosystems

The Technology ecosystem

This is an enabling ecosystem that includes IT architecture and

interfaces as well as digital technologies. This ecosystem drives and
supports improvements and breakthroughs in the Customer Solutions,
Operations, and People ecosystems. Since the Customer Solutions
ecosystem determines the company’s business model, its customer value
layer, and, in turn, its operational imperatives, most Digital Champions
have clearly identified the types of technology they need to master to
provide added value to customers, and they have established expected
outcomes. These outcomes are primarily performance improvements
that further the company’s ability to provide value to their customers. In
addition, Digital Champions choose their IT architecture and interfaces
to most efficiently and effectively leverage digital technologies and
connect them internally and externally.

The information technology architecture (the outer layer in the top part
of the Technology ecosystem) is the critical backbone for enabling and
implementing new technologies across the organization. One of its most
important tasks is to support the digitization of standard business
process operations, such as integrated business planning,
manufacturing execution, customer service, and product life-cycle
management. These new business process programs are often built on
cloud and data analytics applications with the highest data security
standards. Interfaces link the IT architecture to the user through
integrated platforms, human–machine interfaces, user experience
designs, data networks, and integration layers. All of these are
developed in a coordinated way, to provide the user with a high-quality
experience, reliability, and efficiency (see Exhibit 18, next page).

Digital Champions are adept at smartly expanding their Technology

ecosystem. They form partnerships with outside vendors of platforms,
hardware, and software to quickly implement digital strategies, rather
than slowing the process down by relying on homegrown and stand-
alone systems. Ultimately, these partnerships provide innovation that
can be used throughout the company’s entire series of ecosystems,
internal and external.

34 Strategy&
Exhibit 18
Overview of the Technology ecosystem

IT architecture and interface

Networks and
MES and IoT Cloud and edge
Integrated connectivity
platforms computing
business planning Cyber-
solutions User security
Human–machine experience Data
CRM Data analytics
interfaces networks
Integrated Integration PLM and digital
Core ERP
platforms layers product twins
Technology
ecosystem
Blockchain Robots Mobile
Industrial Internet devices
of Things 3D printing Drones and automated
and sensors
guided vehicles
Artificial
Augmented and
intelligence
virtual realiy

Digital technologies

Source: PwC’s Strategy&

Global Digital Operations
Study 2018

Among Digital Champions, early adoption of new technologies and

building on the accrued benefits to further their digital maturity are
commonplace. The benefits include increased sales and efficiency gains.
Furthermore, through the technology transformation it facilitates in
the Operations ecosystem, the Technology ecosystem influences the
company’s culture — reflected in the composition and skill sets of its
labor pool.

In our survey, three main points stand out about the importance of
technology and the role it plays in supporting Digital Champions’
Customer Solutions offerings:

1. Digital Champions have already implemented about two-thirds of

the key digital technologies. They have adopted a holistic approach
for implementing and connecting technologies — across the
organization and with strategic partners — and eschew isolated
technology implementations.

Strategy& 35
2. Digital Champions forecast significantly higher efficiencies from
technology than Digital Novices do (16.2 percent vs. 10.5 percent
over the next five years), and they create a virtuous circle fueled
by smart technology decisions to leverage these benefits.

3. One of three Digital Champions are using artificial intelligence (AI)

with applications spanning all functions, while 99 percent of Digital
Novices have not started to use AI at all.

In our interviews we found that Digital Champions don’t implement

technology just for the sake of technology alone, or to keep up with
trends. Rather, they understand clearly how specific technologies drive
the components of competitive advantage — speed, flexibility,
customization, and efficiency. They pick technologies that are most
crucial to their operations and that best support the requirements of
their Customer Solutions ecosystem. These companies continuously
reevaluate the technologies they are using to support the entire value
chain, all the way to the distinctive offerings they present to Digital
customers — and they are not shy about pushing implementation of
technologies that they deem critical.
Champions
understand
At least 90 percent of Digital Champions have already implemented, clearly how
piloted, or planned some of the most critical current technologies, many
of them still evolving. Among these technologies:
specific
technologies
• Integrated end-to-end supply chain planning (100 percent of Digital drive the
Champions)
components
• Predictive maintenance of assets and products (96 percent) of competitive
advantage.
• Manufacturing execution systems (94 percent)

• Industrial Internet of Things (97 percent)

• Digital twins, which essentially are virtual versions of physical assets

or products, such as factories, that can be used for digitally supported
planning, scheduling, and product development, among other
possibilities (94 percent)

• Advanced robotics (90 percent)

By comparison, only about one-third of Digital Novices have adopted

the most common operational technologies, like predictive maintenance
(39 percent) and integrated supply chain planning (32 percent)
(see Exhibit 19, next page).

36 Strategy&
Exhibit 19
Implementation of new technologies by digital maturity level

To what extent have you implemented, piloted, or planned to implement

the following technologies within your company?

Predictive maintenance
78% 39% 84% 95% 96%
of assets and products

Manufacturing execution systems 73% 30% 78% 91% 94%

Integrated end-to-end
72% 32% 75% 91% 100%
supply chain planning

Connectivity/Industrial
70% 29% 73% 90% 97%
Internet of Things

Digital twin of products

60% 23% 60% 79% 94%
and manufacturing line

Collaborative robots, smart robots,

49% 23% 40% 70% 90%
robotic process automation (RPA)

Artificial intelligence 29% 10% 20% 45% 69%

Virtual reality/augmented
28% 7% 21% 40% 73%
reality solutions

Digital Novice
Digital Follower
Digital Innovator
Digital Champion

Note: Base was 1,155

companies.

Source: PwC’s Strategy&

Global Digital Operations
Study 2018

Strategy& 37
Digital Champions have also been active in implementing and piloting
augmented reality (AR) and virtual reality (VR) technologies. These
provide computer-generated simulation of three-dimensional images or
complete landscapes that allow viewers to interact with the digital
environment in realistic ways. These technologies are valuable for
maintenance, service, and quality assurance. They are also useful for
self-learning and training. Digital Champions use them to alert their
workforces quickly about changes in their operating procedures or
about new ways that employee tasks are expected to be integrated with
the digital workflow and assets.

Of the companies we surveyed, 28 percent have implemented, piloted,

or planned to implement AR and/or VR technology, with the Asia-
Pacific region — where 44 percent of the companies have adopted
these technologies — boasting the greatest penetration. Meanwhile,
73 percent of Digital Champions have implemented, have piloted,
or plan to implement AR/VR programs in hopes of adopting this
technology soon. That’s a high number for such a recent technological
breakthrough. By contrast, only 40 percent of Digital Innovators
have gone as far as Digital Champions in embracing these advances
(see Exhibit 20, next page).

Having already realized tangible benefits from adopting new

technologies, Digital Champions are looking forward to more in the
coming years. They expect the advantages and returns from
technological improvements will be significant, especially as newer,
more complex achievements occur in AI and robotics.

Asked to forecast their revenue gains from investments in technology

over the next five years, Digital Champions said they anticipate a
mean of about 17.2 percent growth in the top line, compared with
the 9.5 percent that Digital Novices expect (see Exhibit 21, page 40).
Similarly, Digital Champions are looking for 16.2 percent improvement
in efficiency gains and cost reductions from technology adoption,
compared with 10.5 percent for Digital Novices.

One interesting statistic that came out of this portion of our study
concerned Digital Innovators, the group next to Digital Champions in
their digital maturity. These companies foresee revenue gains of nearly
20 percent, outpacing Digital Champions. We suspect that this slightly
higher figure for Digital Innovators reflects the fact that Digital
Champions have already enjoyed initial revenue gains from technology
investments, while Digital Innovators are a step behind and will reap
these improvements over the next few years if they act urgently to
adopt Digital Champion strategies and innovative methods. However,
laggards will likely find themselves left behind, hurt by their
hesitation.

38 Strategy&
Exhibit 20
Implementation of new technologies by geographic region

To what extent have you implemented, piloted, or planned to implement

the following technologies within your company?

Predictive maintenance
71% 86% 88%
of assets and products

Manufacturing
63% 80% 89%
execution systems

Integrated end-to-end
60% 83% 90%
supply chain planning

Connectivity/Industrial
62% 78% 82%
Internet of Things

Digital twin of products 44% 67% 89%

and manufacturing line

Collaborative robots,
44% 54% 57%
smart robots, RPA

Artificial
17% 36% 49%
intelligence

Virtual reality/augmented
19% 34% 44%
reality solutions

EMEA Americas APAC

Note: Base was 1,155

companies.

Source: PwC’s Strategy&

Global Digital Operations
Study 2018

Strategy& 39
Exhibit 21
Expected benefits of investing in digital technologies

What benefits do you expect from your investments in digital technologies cumulatively
over the next five years?

Revenue increase over five years, Efficiency gain/cost reduction over

by digital maturity level five years, by digital maturity level

Average: 14.7% Average: 12.3%

9.5% 10.5%

13.1% 10.6%

19.6% 14.8% Digital Novice

Digital Follower
Digital Innovator
17.2% 16.2% Digital Champion

Revenue increase over five years, Efficiency gain/cost reduction over

by geographic region five years, by geographic region

Average: 14.7% Average: 12.3%

12.7% EMEA 12.5% EMEA

Note: Base was 1,155

16.9% Americas 13.4% Americas companies.

16.6% APAC 11.2% APAC

Source: PwC’s Strategy&
Global Digital Operations
Study 2018

40 Strategy&
GE Digital: Powering a new era of industrial productivity

Digital transformation at GE is not just transforming

productivity inside the company but is providing the
springboard to lead the next wave of industrial productivity
outside. The use of advanced digital technologies to
transform industrial processes and efficiency is delivering
tangible results. GE’s target of delivering US$1 billion of
productivity gains between 2015 and 2020, for example, had
already been reached by the end of 2017.

This achievement is a key step in the first stage of GE’s

digital industrial strategy — leveraging digital industrial
capabilities to drive internal productivity and operational
efficiency. The company calls it “GE for GE.” The learning
from that is then used to provide automation and packaged
applications to enable customers to benefit from these by around US$200 million by reducing cycle times and the
capabilities — “GE for Customers.” Finally, “GE for resources needed for a repair and maintenance event.
the World” uses an open-innovation approach that is
available to virtually any company in virtually any industrial Moving forward, GE Digital is emphasizing the importance
category through co-creation using the Predix application of edge technology, artificial intelligence (AI), and virtual
development platform for the Industrial IoT (IIoT). reality (VR). The sheer volume of data coming from assets
makes edge computing a key next step. A car, for example,
can generate a pedabyte (1015 bytes) of data on its own in
A digital change agent a single month. Edge computing will, in effect, allow the
extension of GE’s Predix platform out to devices that sit
Within GE, GE Digital is acting as a “digital change agent,” on or next to the assets.
with the goal of being the best digital industrial company in
the world. Improved asset performance management (APM),
field services, and operational efficiency have been the Gaining a future edge
focal points for digital innovation. A considerable emphasis
has been placed on sensing technology, data ingestion The rapid development of AI and machine learning is
and management technology, and predictive maintenance enabling GE to analyze, model, and map disparate data
technology. The gains, for example, can be seen in the sources to create a “digital twin” of an asset. In turn, this
impact of the collection of data and digitization of many of will help companies to better understand and predict
the manual processes involved in managing outages by GE’s performance, find new revenue streams, and change the
power business field services team. It has lowered costs way their business operates. GE is also looking to VR to
play a key role — for example, with VR engines overlaying
instructions onto a technician’s safety glasses, shrinking the
time spent on repair and maintenance tasks.

GE envisages digital transformation and the IIoT will bring

a paradigm shift to the future of work. Employees will no
longer have to tell the system what happened or what needs
to happen. Instead, the system will tell employees the best
options, augmenting their decision making. GE is also
transforming the business model around service. Already, in
some parts of its business, GE has introduced “power by the
hour,” with the customer paying per hour of the operation of
the device instead of paying a fee. In a service-based world,
instead of selling assets, GE is selling the outcome the asset
provides.

—Based on information from GE Digital, USA

Strategy& 41
On the other hand, Digital Champions are in line to do better than
all the other categories in efficiency enhancements from technology,
because technology benefits tend to be continuous, iterative, and
cumulative. These benefits create a virtuous circle — each digital
advance can be the starting point for additional technology
improvements that accelerate digital maturity. Of course, to take
advantage of this virtuous circle, companies must have a digital
culture and the skill sets to figure out the optimal processes and
materials for the best use of advanced technologies. This is not easy
to do, but with the right investments of resources, a company can
turn even off-the-shelf applications into proprietary programs that
are uniquely suited to the organization’s value chain and
operational needs.

Digital
The AI revolution Champions
Companies are awash in data these days. Whether coming from
are in line to
customers, suppliers, machine sensors, factory monitoring devices, or do better than
automated maintenance programs — and all of that is just the tip of the all the other
iceberg — big data has become the centerpiece of many Industry 4.0
activities. Technologically savvy organizations are taking advantage
categories
of big data’s potential in multiple dimensions. They are expanding in efficiency
revenue streams through insight gained from marketing data analytics, enhancements
understanding customer behavior and attitudes more completely,
modeling operational changes to improve value chain efficiency, and
from technology,
automating support function manual tasks, thus improving process because
quality, speed, and agility. technology
But as much potential as these analytical activities have, many
benefits tend to
companies have not seen visible returns from their growing collection be continuous,
of data. That’s where, for Digital Champions, artificial intelligence is iterative, and
making a difference.
cumulative.
In our definition, AI is a collective term for computer systems that can
sense their environment, think, learn, and take action in response to
stimuli. These stimuli can include data derived from voluminous
information-gathering programs as well as from visual, tactile, and
other sensors. Forms of AI in use today include, among others, digital
assistants, chatbots, and machine learning. AI works in four ways, each
representing a different form of human–machine interaction:

• Automation: Automation of manual and cognitive tasks, including

both routine and nonroutine tasks

• Assisted intelligence: Helping people perform tasks faster and better

42 Strategy&
• Augmented intelligence: Helping people make better decisions

• Autonomous intelligence: Automating decision-making processes

without human intervention

Even in its least sophisticated forms, with automated intelligence

alone, AI allows organizations to make the best use of big data.
Machine intelligence can handle high volumes of disparate structured
and unstructured data, managing and massaging it to produce
analyses, assessments, and applications. These are already beginning
to have a huge impact on vehicle development, smart technologies for
individuals and homes, healthcare diagnosis and support, customized
retail, supply chain optimization, and on-demand production (see
Exhibit 22).

Exhibit 22
Four forms of artificial intelligence

Human in the loop No human in the loop

Assisted intelligence Automation

AI systems that assist Automation of manual and
humans in making cognitive tasks that are
Hardwired/ decisions or taking actions. either routine or
specific systems Hardwired systems that do nonroutine. This does not
not learn from their involve new ways of doing
interactions. things, but automates
existing tasks.

Augmented intelligence Autonomous intelligence

AI systems that augment AI systems that can
human decision making adapt to different situations
and continuously learn from and can act autonomously
Adaptive systems their interactions with without human assistance.
humans and the
environment.

Source: PwC’s Strategy&

Global Digital Operations
Study 2018

Strategy& 43
According to Sizing the Prize, a 2017 PwC research report on AI
prospects, global GDP will be as much as 14 percent higher in 2030 due
to advances in AI and widespread implementation of the technology.
These economic gains will be derived from productivity improvements
in automating processes (including the use of robots and autonomous
vehicles); businesses augmenting the quality and quantity of output
from their existing labor force with AI technologies; and increased
consumer demand resulting from the availability of personalized and
more desirable AI-enhanced products and services.

Digital Champions are investing heavily in AI for a wide range of

applications, but primarily to enhance their established value chain
connections and their ability to manage the flow of big data.

Overall, 9 percent of companies around the world have already

implemented AI, with Asia being at the forefront (15 percent of
companies implemented) while EMEA is lagging (5 percent).
Among the Digital Champions, every third company (34 percent)
has implemented AI across major functions with the main goal of
automating manual and cognitive tasks (44 percent), while 99 percent
of Digital Novices have not implemented AI at all. Overall study results
show that AI is at the beginning of its development. Levels of
implementation across all functions suggest that companies see the
large potential of AI, but specific core use cases are just developing,
with companies experimenting broadly to quantify the value of the
technology. The lack of people skills to implement AI (52 percent) and
reliability of data (42 percent) are the major challenges for Digital
Champions that implement AI (see Exhibit 23, page 46).

In general, AI is revolutionizing the way Digital Champions operate and

how businesses will run in the future. Used in the most digitally mature
companies, AI systems go beyond simple process automation to self-
learning and autonomy that impacts some of the most critical aspects
of a business, its culture, the way people work in the organization, the
interaction between humans and machines, and the organization’s
growth strategy. The importance of the connection between human
resources and digital transformation cannot be overstated. New digital
environments have a large and lasting impact on the way companies
operate and the capabilities that companies must have.

44 Strategy&
BASF: Leading the digital transformation in chemicals

The thinking behind ecosystems is nothing new for BASF. BASF is also using digital technologies to enhance data
It is central to the “Verbund” (integration) principle, which visibility and transparency throughout the entire supply
is a traditional core strength of the company. Verbund chain. This improves delivery reliability and builds a closer
emphasizes intelligent integration, not just of production relationship with customers, suppliers, and strategic
plants, logistics flows, and infrastructure, but also expertise partners. By jointly collaborating with its supply chain
and demand. It has proven to be a strong foundation for the partners through an integrated ecosystem, BASF gains real-
launch of BASF 4.0, a comprehensive digital initiative whose time visibility to enable proactive information management
results are boosting efficiency and growth. while increasing customer responsiveness and generating
sustainable business growth.

Greater efficiency
Stronger growth
The initiative is driving digital transformation in all
areas of the company’s activities. A key area is “smart Digital business models are opening opportunities to sell
manufacturing.” Augmented reality applications are new services to customers, including new streams of
supporting manufacturing employees in their daily activities. revenue beyond chemical products. BASF has developed
They are reducing changeover and turnover times by more than 50 such models so far, many of which have come
helping make tasks tangible and real as well as data to fruition, enabling customers to collaborate in product
instantaneously available at the right time and the right specifications in ways that were not possible before.
place. BASF is on target to roll out augmented reality in more
than 400 plants worldwide within the next years. Predictive For example, BASF’s Maglis® digital product portfolio for
maintenance is similarly on track to be in place in 100 large farmers helps them manage fields and supports them in
production facilities. It predicts the performance curve of making better-informed decisions throughout the whole
critical machinery and equipment. That data is used to year on how to grow and market their crops. Together
trigger maintenance work or readjust operational process with BASF, farmers can create individual field and crop
parameters. One focus topic in the area of digitization management plans that enable them to manage risk and
in R&D is scientific modeling and simulation with high- improve yield. BASF sees agility, iterative improvement,
performance computers. BASF’s supercomputer Quriosity and early customer involvement as keys to fully leveraging
will help reduce time-to-market by enabling processing of a the power of digital technologies. In the gas treatment
greater number of and much more complex simulations and business, the OASE® connect online platform is live with
modeling and by exploring previously unknown relationships. customers who can simulate and improve the operating
This boosts BASF’s efficiency in terms of cycle times and conditions of their plants, retrieve analytical results of their
output of results. Examples include simulations of industrial raw materials, and access e-learning material and general
catalysts and crop protection products. With catalysts, it information.
is especially important to increase their efficiency — and,
hence, sustainability — by decreasing raw material input and BASF’s workforce is at the heart of its digital transformation.
generating less waste. It is also critical that crop protection It involves 115,000 employees, who are spread over
products work more efficiently, and in a more targeted 13 operating divisions, seven functional divisions, three
manner, to better meet current and future requirements. technology platforms, four regions, six Verbund sites, and
an additional 347 production sites worldwide. A diverse
portfolio of customer industries and business solutions
requires a well-balanced digitization approach. At BASF, the
Chief Digital Officer directly reports to the CEO and ensures
the creation of a digital ecosystem in close alignment with
a strong IT backbone. The Verbund principle serves as a
strategic guidance in this long-term transformation process.
By building digital ecosystems on top of the principles of
Verbund, BASF is leading the digital transformation in the
chemical industry.

—Based on information from BASF SE, Germany

Strategy& 45
Exhibit 23
Progress in and challenges of using artificial intelligence

In your opinion, what are the top

In what way do you use artificial intelligence in your company?1 three challenges associated with AI? 2

Human in the loop No human in the loop Technologies are not

mature enough yet 40%

Our workforce lacks the

Assisted intelligence Automation
Average: 22% Average: 25%
skills needed to implement
and manage AI solutions
40%
Hardwired/
specific 37% 44%
25% 29%
systems 12%
7%
11% Uncertain ROI 36%
0%

Reliability of data or
master data is not mature 33%
enough yet

Augmented intelligence Autonomous intelligence

Lack of transparency
Average: 18% Average: 20% and trust 32%
Adaptive 29% 38%
systems 21% 24%
Resistance of work councils
0%
8%
0%
5%
or labor unions 24%

Regulatory hurdles in
our home market or other
important markets
22%  

Digital Novice 1. Base was 98 companies that have

Digital Follower implemented AI technologies.
Digital Innovator
Digital Champion 2. Base was 1,155 companies.

Source: PwC’s Strategy& Global

Digital Operations Study 2018

46 Strategy&
A close look at the four ecosystems

The People ecosystem

The People ecosystem enables and supports the efforts of the other
three ecosystems. As a result, the contours of the People ecosystem can
best be viewed through the lens of how digitization affects a company’s
strategic direction (its solutions) and its performance (its operations).
By assessing these factors, a company can determine the types of
workers and skills that will be needed to support its efforts to improve
value chain results and operational outcomes. Importantly, the People
ecosystem must encompass external as well as internal staff. It
embodies the internal workforce, freelancers, contract workers from
digital agencies or talent pools, on-demand labor platforms, and shared
employees with partners for mutual projects (see Exhibit 24).

Exhibit 24
Overview of the People ecosystem

Career models, Agile ways

Cross-functional, appraisals, and of working Augmented
product-oriented teams incentives Human–machine decision making
Data
collaboration
Adaptive Flexible working hours Diversity and analytics
budgeting and locations in skills
Continuous Flat Career
hierarchies Multi-competency
learning development Skills Coding
Digital collaboration
HR strategy embedded in Real-time
and processes organization feedback People Technology skills Digital IQ
ecosystem
Internal and Digital mind-set New Speed
On-demand
labor platforms external labor Digital and vision purpose and
integration agencies Relationships and Mind-set and Rapid ways of
skill sources behavior decision Problem–solution working
Digital employer brands and making orientation
recruiting strategy Accelerators
Entrepreneurship Creativity, curiosity,
Network of Partnerships and empowerment innovation
Failure
talent pools New leadership culture
Hackathons
styles

Source: PwC’s Strategy&

Global Digital Operations
Study 2018

Strategy& 47
Only companies with a clear digital vision, strategy, and culture to
support digital transformation can hope to truly take advantage of it.
Two-thirds of the companies we interviewed lack this vision. On the
other hand, at more than 70 percent of Digital Champions, the leaders
have a clear vision for the digital future and act as role models for the
rest of the organization. We also found that Digital Champions invest
heavily in training and developing the right skills for a digital
environment and have succeeded in building a digital culture.

To assess whether an organization has successfully adopted a digital

culture and is employing its People ecosystem to the greatest benefit,
four aspects of Digital Champions offer clues:

• Skills: Workers exhibit diverse skills. They work in agile ways, and
the organization has strong capabilities in data analytics, human–
machine interaction, and technology-supported decision making.
There are formal pathways for increasing the workforce’s digital IQ.

• Mind-set and behavior: The characteristics of the organization

include a digital mind-set and vision, entrepreneurship and new
At more than
leadership styles, openness to new technology, a culture that is open 70 percent
to and learns from failure, creativity and innovation, general of Digital
curiosity, a nonhierarchical “best idea counts” mentality, adaptive
budgeting, rapid decision making, and a problem-solving orientation.
Champions, the
leaders act as
• Relationships and skill sources: The organization is made up role models for
of cross-functional teams with internal and external integration;
on-demand labor from platforms of networks or talent pools; and
the rest of the
resources from hackathons, accelerators, digital agencies, and organization.
even research institutes and universities. The enterprise is oriented
toward an agile way of working. It is often a hybrid organization,
fostering flexible teams inside a traditional hierarchy. It has a brand
and recruiting strategy that reflects its digital maturity; it has set
up a talent development program with universities and technical
schools to access and onboard the right skills.

• Career development: The organization is set up to take full

advantage of the People ecosystem in a variety of ways: appraisal,
incentive, and compensation schemes that reward innovative and
smart digital ideas; flexible work arrangements and telecommuting
when appropriate; free time to support continuous improvement
of company operations; and real-time employee feedback.

Only companies with a clear digital vision, strategy, and culture to

support digital transformation can hope to truly gain the benefits.
Two-thirds of the companies we interviewed lack this vision.

48 Strategy&
A wide gap exists between what could be called analog culture —
the legacy culture in many companies — and the digital culture,
which will be necessary to thrive in digital environments (see Exhibit
25). These distinctions encompass the response to customer demand,
how decisions are made and innovation is allowed to blossom, often
through trial and error, and how working teams are organized and
collaborate. It is clear that companies unable to make the jump from
analog to digital cultures will be stymied in their efforts to gain real
benefits from digitization.

In our survey, Digital Champions excelled in all categories of digital

culture. In fact, 59 percent have invested heavily in training to upgrade
staff for digital transformation; 52 percent regard failures as an
accepted part of the development process; and 52 percent have flat
hierarchies and quick decision-making processes (see Exhibit 26,
next page).

Exhibit 25
Differences between analog and digital company cultures

Analog culture Digital culture

Push products into the market, strongly Customers Pull: Customer demand drives
purchasing-/supply-driven and demand supply of products

Strong hierarchy and slow decision making Flat hierarchy and fast decision making
Process- and task-orientation, and employees Organization Results- and product-orientation, and empowered
with strongly predefined work (“do your tasks”) employees (“find a way to achieve a goal”)
Carry out, keep status quo, and accept barriers Innovate, improve, and try to overcome barriers

Good understanding of analog customers Good understanding of digital customers

and learnings from the past and new trends
Experience and stability count Way of Potential, vision, curiosity, motivation,
Homogeneous teams and work in departments working flexibility, and adaptability count

Working within tasks and silos Mixed teams and work in integrated communities

Career progression within predefined paths Strong collaboration

Rapid, unpredictable career progression

Source: PwC’s Strategy&

Global Digital Operations
Study 2018

Strategy& 49
Exhibit 26
Corporate culture and organizational setup by digital maturity

In what ways do your corporate culture and organizational structures enable digital transformation?

Total
We regard failures as an accepted
38% 29% 38% 41% 52%
part of the development process

Our company has flat hierarchies that facilitate

37% 20% 39% 42% 52%
agile working and quick decision making

We are focused on providing a digital customer

35% 10% 29% 54% 62%
experience throughout the customer journey

Our leadership has a clear vision for

34% 12% 28% 47% 71%
the digital future and acts as role model

We foster a culture of innovation

32% 18% 33% 39% 43%
with multidisciplinary teams

We selectively engage with expert partners

32% 27% 32% 34% 35%
as supplemental external resources

Our employees have the required

27% 7% 26% 38% 48%
qualifications for the digital future

We have invested heavily in training to

26% 5% 24% 33% 59%
make our staff fit for digital transformation

We build tandems or learning groups

22% 4% 18% 31% 54%
between digital natives and experienced staff

Digital Novice
Digital Follower
Digital Innovator
Digital Champion

Note: Multiple answers

possible. Base was 1,155
companies.

Source: PwC’s Strategy&

Global Digital Operations
Study 2018

50 Strategy&
Digitization and smart automation will greatly affect workers and the
kinds of employees companies hire, because these trends are expected
to lead to higher productivity and wealth. In addition, digitization and
automation will drive down operations costs in mature markets
sufficiently to enable plants in developed regions such as Europe and the
U.S. to compete with labor arbitrage from emerging markets. Some 62
percent of companies we surveyed anticipate reshoring and increasing
production in home markets in the next five years because of more
efficient and less operationally expensive digital factories. Meanwhile,
38 percent of companies said they expect to increase manufacturing
abroad — primarily, we believe, to produce products for customers
where they reside, enabling the high levels of customization and quick
response to consumer preferences that are hallmarks of the Industry 4.0
concept (see Exhibit 27).

Exhibit 27
Expected impact of digital transformation on manufacturing footprint by 2023

What impact do you expect digital transformation to have on your company and your workforce
over the next five years?

Outlook 2023: Outlook 2023:

Manufacturing in home country will... Manufacturing abroad will...

EMEA Americas APAC EMEA Americas APAC

Increase 62% 59% 69% 65% 38% 43% 37% 29%

Decrease 8% 9% 9% 4% 13% 9% 10% 22%

Stay the same 25% 25% 22% 31% 38% 32% 43% 47%

Note: Base was 1,155

companies.

Source: PwC’s Strategy&

Global Digital Operations
Study 2018

Strategy& 51
Digital factories are heavily populated with state-of-the-art
technology — including robotics, augmented and virtual reality, digital
twins, and the Industrial Internet of Things — and the ecosystems they
operate in have a great deal of open communication and interactivity.
Consequently, there will be a great need for skilled workers able to
program and operate complex equipment and make quick decisions
in response to shifts in product lines, designs, and input from a range of
partners. Some 58 percent of companies we interviewed said that digital
transformation will result in greater demand for skilled employees over
the next five years (see Exhibit 28, page 54). That figure is relatively
consistent among Digital Champions (59 percent), Digital Innovators
(61 percent), and Digital Followers (61 percent). Digital Novices will
have less need for skilled employees; only 49 percent said they expect an
increase in the number of these workers at their companies.

As the need for skilled labor increases, it will be crucial to develop new
ways of sourcing and access to talent — often individuals educated in
STEM — as well as tailored training programs in digital concepts and
capabilities. To some degree, this will precipitate supply and demand
imbalance favoring skilled labor. It will result in increased salaries for There will be
this coterie, who will likely command higher wages because of their
education levels as well. Meanwhile, digitization is not expected to
a great need
affect working hours one way or the other, according to 54 percent for skilled
of the companies surveyed. workers able to
In an effective orientation for a smart and agile People ecosystem, the
program and
IT workforce is embedded into the organization’s primary businesses operate complex
and value offerings. This is a sharp departure from the traditional equipment.
approach, in which IT separately owns all technology assets and hands
them off to businesses, often not in the most efficient manner. This new
model allows for business-driven IT solutions — that is, technology that
addresses precisely what the business needs when it needs it — and
data-driven decision making on all levels because the necessary tools
are easily accessible and strategically targeted. For Digital Champions,
this type of People ecosystem supports flexibility in go-to-market
solutions and in setting up digital platforms throughout the Customer
Solutions and Operations ecosystems.

Recruitment of new talent and evaluation of existing labor in a digital

workforce transformation are often driven by a single question: Is this
person the best talent to accelerate innovation? To recruit talented
candidates and thus get to a “yes” answer, Digital Champions tap into
all of the key sources for skilled labor in digital environments: joint
ventures, M&A, freelancers, consultants, universities, competitor
recruiting, and even hackathons. They also develop training programs
that raise the skill levels of the workforce to meet the higher standards
in a digital environment. Moreover, Digital Champions take pains to

52 Strategy&
Safran: Digital ecosystems delivering a leap in growth

International high-technology group Safran is aiming

for a quantum leap in competitiveness from its digital
transformation program. The company serves customers in
the aircraft propulsion and equipment, space, and defense
markets. These markets have considerable challenges — not
least, volume ramp-up, wide product portfolios, and diversity
of parts to manufacture.

Safran’s “Factory of the Future” initiative is a key part of

a digital transformation that is putting breakthrough and
even disruptive technologies at the heart of its production
facilities. It sees such futurization as central to addressing
the unprecedented pace of market change. Its new LEAP®
turbofan jet engine, for example, is set to experience a
growth rate in just four years that its predecessor, the
CFM56®, never reached in 20 years of volume production.

robots) on several production lines, allowing it to combine

Technology ecosystems the capabilities of a robot (strength, precision, repeatability,
etc.) with people-specific skills (know-how, analysis, decision
The development of highly advanced technological and making, etc.). The operator and robotic system work together
workforce ecosystems is a vital platform to meet this directly or by remote control, or even with an exoskeleton
strong growth. Safran is showing that you don’t have to that multiplies the capabilities of the human body.
build a new factory to implement breakthrough production
technologies. It has constructed innovative production lines
in existing plants. The LEAP® engines, for example, are Human-centric change
being manufactured along “pulse lines” featuring a digital
projection system to help position the components and In addition to technology ecosystems to transform
subassemblies, while a patented system holds and rotates production, Safran recognizes that people are still an
the engine horizontally. indispensable part of the “Factory of the Future” and is
developing an extensive workforce ecosystem to enhance
Safran has created its first automated production line for operators’ knowledge and skills in this new environment.
helicopter turbine blades, starting with the raw casting
and turning out a finished part ready to be assembled on Workforce transition support has been a key part of the
the engine. The company is also deploying “cobots” (co- initiative. Closed-door machining, for example, is changing
the role of operators. They move up the skills chain to
become coordinators of a machining cell, capable of
operating several machines at once, and calling on advanced
communications (large screens and tablets, etc.) so they can
concentrate on high value-added supervision and control
tasks, while the machines operate independently.

Safran is partnering with other industrial companies to setup

a training center in Bondoufle, near Paris, that will result
in substantial upskilling. From 2018 onwards, around 300
students will be on work-study schemes in a three-year
program while a further 300 people will be taking continuing
training courses in new production methods: networked
machines, the Internet of Things, additive manufacturing,
augmented reality, cobots, and other advanced technologies.

—Based on information from Safran S.A., France

Strategy& 53
Exhibit 28
Expected impact of digital transformation on the workforce by 2023

What impact do you expect digital transformation to have on your company and your
workforce over the next five years?

Average Number of
salaries skilled employees
will... will...

EMEA Americas APAC

Increase 51% 58% 58% 64% 55% Note: Base was 1,155
Decrease companies.
9% 8% 10% 7% 5%

Stay the same 36% 31% 28% 27% 40% Source: PwC’s Strategy&
Global Digital Operations
Study 2018

understand that creating digital business leaders requires

understanding how new generations of workers learn and what they
want from their jobs. In our analysis, we found that this new workforce
is attracted to companies that offer quality learning, challenging tasks,
remote and flexible working arrangements, and greater career mobility
through training and skills development opportunities.

An effective and well-designed People ecosystem is core to a company

becoming a Digital Champion. Yet only 27 percent of respondents to our
survey claimed that “our employees have the required qualifications for
the digital future.” And only one in four companies has invested heavily
in training to make its staff fit for digital transformation. To make this
transformation, Digital Champions assess the status quo of their
workforce; advance the best and brightest and most digitally oriented
existing talent while training others to also achieve this status; inject
new talent into the organization where gaps in people’s skill sets and
capabilities are revealed; and accelerate the digital capabilities and
development of both existing and new talent.

54 Strategy&
Blueprint to become a
Digital Champion

A Digital Champion’s primary achievement is its ability to orchestrate

and integrate its four ecosystems — Customer Solutions, Operations,
Technology, and People — into a seamless, fine-tuned digital machine
that leverages an extended network of partners.

In our experience, companies move through four stages of increasing

maturity when expanding the capabilities and effectiveness of their
ecosystems (see Exhibit 29, next page):

• Stage 1: Digital Novice with functional silos that are not connected

• Stage 2: Digital Follower with functionally connected practices

• Stage 3: Digital Innovator with cross-functionally connected

practices that may include establishing an Operations ecosystem that
is linked to Technology and People ecosystems

• Stage 4: Digital Champion with fully integrated Customer Solutions,

Operations, Technology, and People ecosystems

In the journey toward becoming a Digital Champion, it is critical to take

an iterative approach that involves diverging activities (to develop
ecosystem-layer-specific capabilities) and converging activities (driving
integration across all four ecosystem layers).

We have developed a blueprint for mastering and managing ecosystems,

consisting of six steps:

1. Conduct an internal ecosystem assessment and explore the

art of the possible

The “art of the possible” refers to digital strategies based not on past
constraints but on new capabilities: “What can we do now that we
couldn’t do before, thanks to changes in technology and user behavior?”

Strategy& 55
Exhibit 29
Blueprint for becoming a Digital Champion

Conduct Define an Develop an Set up an Build Harvest the

an internal ecosystem integrated ecosystem ecosystem value of full
ecosystem vision and ecosystem governance, capabilities ecosystem
assessment value concept and investment, with iterative integration and
and explore proposition strategic and decision design and reinvest it in
the art of the partnership board implementation continued
possible model expansion
Source: PwC’s Strategy&
Global Digital Operations
1 2 3 4 5 6 Study 2018

This initial step involves creating transparency within the

organization about the current position of the company — generally,
at the starting point of change. The company conducts an internal
assessment and explores the art of the possible of a more successful
digital future. Leaders look at market developments, competitor moves,
customer expectations, evolving ecosystems, regulatory changes, and
technological advances. The aim is to initially determine the state of the
company’s value proposition to customers, its operational capabilities,
its technology capabilities, and the skills of its people. The company’s
shortcomings must be analyzed, as well as its track record in meeting
growth and performance objectives.

2. Define an ecosystem vision and value proposition

Based on the analysis conducted during step 1, the leaders of

the company generate an ecosystem vision, which embodies the
organization’s aspirations. In this step, companies decide where to
position products and services, which value propositions to offer to
consumers, and how to offer these individualized solutions through
multichannel customer interactions.

56 Strategy&
3. Develop an integrated ecosystem concept and strategic
partnership model

In this step the company leaders design an ecosystem concept that spans
all four ecosystem layers. First, the company focuses on the Customer
Solutions ecosystem, identifying the best potential partners, whether to
make or buy new capabilities, which capabilities are available internally,
and which capabilities need to be developed through partnerships
and other arrangements. With these choices made, the Operations
ecosystem can be created to meet the associated requirements. Then,
the Technology and People ecosystems can be built to enable the first
two ecosystems. It’s essential to develop an integration framework that
includes interfaces, interdependencies, connections, technology, and
data to ensure seamless interaction among the ecosystems. Indeed,
the ecosystems should be aligned to support structured but open
communication, enhance the digital maturity and culture of the
organization, foster value chain solutions and operations, and catalyze
a continuous improvement virtuous circle.

4. Set up an ecosystem governance, investment, and decision

board

Before starting the iterative design and implementation of the

ecosystems, create clear “ecosystem governance” processes that steer
the design and implementation efforts. These governance procedures,
which are the responsibility of top management to supervise and carry
out, should cover setting priorities and key milestones, reviewing and
approving design and implementation outcomes, and making
investment decisions. This may include appointing a board to oversee
the transition and keep the effort on track.

5. Build ecosystem capabilities with iterative design and

implementation

Using the clear definition of the organization’s goals and ecosystem design
as a blueprint, the organization creates each ecosystem to serve solely as a
conduit for achieving these goals. This primarily involves two activities.

The first is iterative design and implementation of ecosystem

capabilities done in sprints. These rapid, fluid, project-based team
efforts are dissolved when no longer needed, and are the main efforts
that build the future Customer Solutions, Operations, Technology, and
People ecosystems.

Strategy& 57
This design step should include collaboration models for connecting
required internal and external assets. Digitization should be freely
implemented to connect and share operations among partners; vendors;
operational components like factories, logistics providers, or contract
manufacturers; advisors; ad hoc workforces and permanent employees;
and short-term and long-term relationships, among many other
possibilities. Iterative implementation allows the sprints to produce
quick results based on prototypes and pilots that can be minimized or
enhanced before developing the next element in the ecosystem rollout.

The second key activity is converging after each sprint to integrate the
results of the Customer Solutions, Operations, Technology, and People
ecosystems to support seamless integration.

6. Harvest the value of full ecosystem integration and reinvest

it in continued expansion

With the four ecosystems in place, the organization implements its

strategic imperatives to fully take advantage of the new value chain.
The leaders monitor the new practices and processes, ensuring that
digitization continues to drive improvements and efficiencies in each
ecosystem and that external partnerships integrate smoothly with
internal capabilities, functions, and efforts to deliver enhanced
customer value. As the ecosystems evolve, the company should continue
to mature by reinvesting in continued growth of the four ecosystems
model, in the process moving closer to becoming a Digital Champion
or strengthening its position as a Digital Champion.

58 Strategy&
Survey methodology

To explore Digital Champions and the global landscape of

manufacturing companies, we interviewed 1,155 executives in 26
countries, asking them primarily about their attempts to implement
Industry 4.0 and the progress they are making. These companies
covered a wide gamut of sectors: automotive, electronics, industrial
equipment and engineering, process industries, consumer goods,
and industrial manufacturing (see Exhibit 30, next page).

Our interviews focused on three areas:

• Ecosystems, including the share of revenue from digital products

and services, maturity in building up digital ecosystems, types of
platforms used to realize the business model, and the digital
maturity of supply chains and manufacturing

• New technologies, encompassing the degree of implementation of

digital advances such as 3D printing, artificial intelligence, robotics,
and the Internet of Things

• Digital culture, examining the leadership’s digital vision, the

company’s way of working, and the relevant investments in people
and training

Based on these interviews, we defined four categories of companies at

different stages along the continuum of digital maturity, with Digital
Champions at the leading edge of their industries:

1. Digital Novice. The company employs some isolated digital solutions

and applications, but these exist at the functional or department
level within the organization.

2. Digital Follower. Internal functions such as sales, manufacturing,

sourcing, and engineering are integrated and collaborate closely. But
there is little activity beyond vertical digital integration within the
company. The culture and workforce at these companies are not yet
digitally oriented.

Strategy& 59
Exhibit 30
Survey participants

Interviews per industry

Automotive

9%
Electronics
10% Industrial
33%
manufacturing

Industrial
equipment and 13%
engineering

14%
21% Consumer goods
Process
industries

Participating territories
Netherlands Poland
Luxembourg Austria
Germany
Belgium Finland
Sweden
U.K.
Canada France
Switzerland
U.S. Spain Japan
China
Portugal

Italy
Mexico
Middle India
Brazil East

Singapore
Australia
Source: PwC’s Strategy&
South Global Digital Operations
Africa Study 2018

60 Strategy&
3. Digital Innovator. The enterprise is digitally connected to external
partners and customers, using integrated platforms for information
exchange and collaboration. But the horizontal digitization is limited
to the immediate supply chain, with no wider ecosystem for
Customer Solutions, Technology, or People. Digital Innovators prize
digitization and encourage the workforce to help identify new digital
solutions, but their advances are limited in scope.

4. Digital Champion. The enterprise has a clear strategic position

in the marketplace with complex and tailored customer solutions,
offered via multilevel customer interactions. These companies have
implemented near-real-time end-to-end integration and connectivity
of their value chain across internal and external networks. These
companies know how to leverage technology to connect customers,
partners, operations, and people to create value through ecosystems
in new ways. Digital Champions have built a digital culture by
establishing new ways of working and making substantial investments
in training, sourcing, and developing new capabilities and skills.

To measure where particular companies fit in these groupings, we

designed a digital maturity index, in which points were allocated for
different levels of digital capabilities and advances — a maximum of
40 points for digital ecosystem maturity, 40 points for implementation
of new technologies, and 20 points for fostering a digital culture. Only
10 percent of the enterprises we spoke to scored between 75 and 100
points, the Digital Champion category. The lion’s share of companies —
42 percent — ranked as Digital Followers, in line with the global
average of 43 percent (see Exhibit 31, next page).

We then supplemented this research with more in-depth interviews

with companies that were identified as Digital Champions. Those
interviews led to the full-page inserts about particular companies
included in this report, which have all been checked with and
approved by the companies mentioned.

Strategy& 61
Exhibit 31
Key results from the digital maturity index

Component distribution: Component distribution: Component distribution:

new technology digital ecosystem maturity digital culture Global index distribution

Average: 20.0 points Average: 14.6 points Average 8.7 points Global average: 43.3%

+ + =

22% 42% 27% 10%

0 20 40 0 20 40 0 20 40 0 10 20 30 40 50 60 70 80 90 100

Digital Novice
Digital Follower
Digital Innovator
Digital Champion

Note: Base was 1,155

companies. Percentages
may not total 100 due to
rounding.

Source: PwC’s Strategy&

Global Digital Operations
Study 2018

62 Strategy&
Acknowledgments

Editorial board This is PwC’s fourth annual Industry 4.0 survey, and the
second truly global rendition. We would like to thank the
Jesper Vedsø Digital Operations survey project team; the PwC Global
Gabriele Caragnano Marketing Organization; the leadership of Strategy&, PwC’s
Juliane Stephan strategy consulting group; and PwC and Strategy& colleagues
Moritz Knepper around the world who have helped make this report possible.

Project management Special thanks

Dagmar Schadbach BASF SE, Germany Li & Fung Ltd., Hong Kong
Alette Marbus
Dr. Frithjof Netzer Ed Lam
Chief Digital Officer and Chief Financial Officer
Head of BASF 4.0
Contributing writer Marc Compagnon
Uwe Hinsen Executive Director and Group
Jeffrey Rothfeder Head of Smart Manufacturing President
BASF 4.0
Robert Sinclair
Jan Brüning President of Supply Chain
Head of Smart Supply Chain Solutions
BASF 4.0

Samy Jandali Robert Bosch GmbH,

Head of Digital Business Models Germany
BASF 4.0
Stefan Aßmann
Andy O’Connor Senior Vice President Bosch
Director, Digital Development NA Connected Industry

Stefan Bastian
Daimler AG, Germany Global Director Bosch Industry
Consulting
Dr. Markus Schäfer
Member of the Divisional
Board of Mercedes-Benz Cars, Safran S.A., France
Production and Supply Chain
François De La Fontaine
Factory of the Future Director
GE Digital, USA

James Fowler
CIO, GE

Strategy& 63
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