Indian businesses prioritise digital expansion over digital optimisation

14 May 2018 Authored by Consultancy.in

According to a new report from strategy consultancy Accenture, the Indian industrial manufacturing sector is deriving only half the benefits of digital advancement by focusing on expansion rather than internal optimisation. The industrial equipment segment, for instance, has the potential to reduce 20% of its cost per employee by properly leveraging automation and AI. 

Disruption from digital advancement is perhaps the single most unifying reality faced by businesses all across the globe. In the highly competitive contemporary environment, failure to keep up with the state-of-the-art in technology could spell an immediate loss of relevance, and threaten the survival of a firm.

In India, the employment of digital techniques is becoming more essential by the day, particularly as the country combines a mature IT sector and a vast, untapped, digitally-connected customer base. As a result, firms across a number of sectors are ramping up their digitalisation efforts, while firms in the consulting industry are rushing to capitalise on this opportune scenario.

Journey to Industry X.0

According to a new report from Accenture, titled 'Reinvent Your Business with Industry X.0,' the adoption of digital improvements is a science in itself. The report draws a key distinction between two forms of digitalisation: the leveraging of current techniques to optimise existing operations, and the acquisition of latest technologies to develop new products and expand into new markets.

Businesses that successfully combine these two aspects are categorised by Accenture as Industry X.0, and offers strategic avenues to successfully integrate both dimensions with a focus on the industrial manufacturing sector. In India, the report finds that most firms emphasise the latter while largely neglecting the former. 

The report surveyed 30 key representatives at the executive level from the industrial sector, of which 76% stated that they wanted to "drive new growth with digital," while only 31% are looking to "drive operational efficiency" using the same techniques, despite the fact that emphasizing the latter could cut individual personnel costs by as much as 20%.

Prioritisation of digital advancement

This order of prioritisation has manifested itself in the performance of the sector in terms of efficiency. On the one hand, as India increasingly orients its market towards manufacturing, the value added from the industrial sector grew strongly at a 6% compound annual growth rate (CAGR) over five years to reach a value of $700 billion in 2016. 

However, the deployment of labour resources has been far from efficient, as the value added per employee has stagnated at $6,000, which places among the lowest figures across the globe. In China, for instance, the value added per person stands at around $20,000, while in Russia the figure is even higher at 25,000.

In order to rectify this situation, the report recommends six key improvements that industrial companies must execute. Firstly, it is important to “transform the core” of an organisation, which involves the restructuring of the fundamental pillars to accommodate “digitised engineering and production.”

Value-added in India's industrial sector

Secondly, firms must “focus on experiences and outcomes,” which involves the customisation of user-experiences to personalise delivery to the greatest extent. The third intervention, and one which is relevant across all sectors, is the development of entirely new, innovative business models focused on value and revenue generation.

As automation seeps deeper into the manufacturing sector, a new vein of jobs is emerging that involves working in collaboration with machines. In this context, the fourth recommendation from Accenture is to “build a digital-ready workforce.”

The last two interventions include the establishment of new ecosystems through partnerships and collaborations, and the micro-management of the transition process to digital platforms. The latter involves a balancing act between the digitalisation of the core and the investment in new digital resources.

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