AdvancedManufacturingRealized

Howcan

manufacturers

placeinnovation

attheheartof

transformation?

Tobuildtherightfoundationfor

long-termgrowth,manufacturers

mustputinnovationand

digitalstrategiesattheheart

oftransformation.

Executive

summary

?Massivegeopolitical,technologicalandculturalchangeshavepromptedunprecedentedshiftsinindustrialmanufacturing.

?Aspressuresmounttobuildsmartproducts,

digitizeoperationsandexceedcustomer

expectations,incrementalapproachestochangearefallingshort.

?Manufacturersneedtodesignatransformationthatisinnovative,agile,cross-functional,and

scalabletorealizetangiblebusinessvalue.

Overthelastseveralyears,challengesrelatedtogeopolitics,technology,thepandemicandclimatechangehaveshakenthefoundationofindustrialmanufacturing--creatingtectonicshiftsinhow

manufacturersthink,operateanddelivertheirproductsandservices.

Thepressuretomakeproductssmartand

connected,digitizethefactoryandoperations,

createmoreautomatedandreliablesupplychains,

anddeliveronrisingcustomerexpectations

presentssignificantopportunitiestomovetowardradicalgrowth.Yetmanymanufacturers’currentapproaches–drivenbysiloedteams,functions

ratherthanstrategies,andstaticviewsof

competitiveandoperationallandscapes–presentsignificantrisksontheroadtoreinvention.

Legacymanufacturerstryingtospeedaheadintothefutureofsmartproducts,digitalplatformsandnewservice-orientedbusinessmodelsurgently

needabetterwayforward.Ahybrid,innovation-ledapproachthatincubatesfuturebusinesses

whilesimultaneouslyoptimizingtoday’sproductsandoperationscanprovidepractical,value-drivensolutionsinboththeshortandlongterm.

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Howcanmanufacturersplaceinnovationattheheartoftransformation?

Disruptiveforcesshiftoperationalpriorities

Therangeofdisruptiveforcesmanufacturersare

experiencinghasimplicationsacrosstheentireenterprise.Theseforcesinclude:

?sectorconvergence

?powershiftswithinvaluechains

?evolvingcustomerexpectations

?volatilemacroeconomicenvironments

?tougherworkforcedynamics

?sustainabilitypressures

?transformativetechnologies

Inresponse,manufacturersareprioritizingdigital

transformationandinnovation-relatedinvestments.

Accordingtothe

EYJanuary2023CEOOutlookPulse

survey

,virtuallyall(97%)ofindustrialmanufacturingCEOsindicatethatcontinuingdigitalandtechnology

transformationtodelivergrowthandoperational

advantagesiseitheraveryorfairlyimportantnear-termpriority,despitenear-termeconomicuncertainty.

Throughtheseinvestments,manufacturersseekto

revolutionizeprocessesbyimplementinginnovations

suchasdigitaltwins,artificialintelligenceandmachine

learning.Atthesametime,theyareadvancingproductandserviceofferingsacrossthevaluechainthatare

smartandconnected.

However,tofullyrealizethesignificantopportunities

arisingfromdisruptionandthevalueofthese

investments,manufacturersmusttiethemtoaunifyingvisionofwheretheirmarketsareheaded.

Adifferent,innovation-focusedapproachto

manufacturingtransformation

Forginganewpathtothefuturewillrequire

manufacturerstoputtheirgrowthagendaatthecenteroftransformation.Thisplanneedstobebackedbyadetailedstrategicroadmapthataccountsforboththeinnovationsneededtosucceed,aswellasthetransformationrequiredtolaunchandscalethesebreakthroughsinthemarket.Itmustalsobedevelopedwithanenterprise-wideoutcomeinmind,breakingdownfunctionalandgeographicsilos.

Whilenoteveryinitiativeneedsextensivecross-

organizationcoordinationandbuy-in,manyofthemost

prominentareasformanufacturers’businessreinventionareinherentlyinterdisciplinary.Effectivetransformationsdemandengagementwitharangeofintersectingvalue

drivers,includingproductandserviceinnovation;customerexperience;intelligentandsustainablesupplychains;

workforceandtalent;andbusinessmodelinnovation.

ValueDriversofTomorrow

Thevaluedriversoftomorrow

WorkforceReimagined

Upskillandshapethefuture,purpose-ledworkforcewithsustainableanddata-drivenoperatingmodels

CustomerExperience&Centricity

Drivedifferentiationandloyaltyby

leveragingdata-driveninsightstocreate

seamless,omnichannelexperiences

Intelligent&SustainableSupplyChains

Deliveroneverycustomerpromisewiththerightproducts

attherightplaceattherighttime

ProductandServiceInnovation

Creategrowththroughconnectedproductsandservices,includingEverythingasaService

BusinessModelInnovation

Inspirethegrowthagendabytransformingthebusinessthroughnewwaysofworking

Onceadecisionismadetopursuesmall-orlarge-scalereinvention,manufacturerscanmaximize

thespeed,agilityandlong-termvaluegenerationbyadoptingthefollowingbestpractices.

03

Howcanmanufacturersplaceinnovationattheheartoftransformation?

04

Howcanmanufacturersplaceinnovationattheheartoftransformation?

4

2

5

3

Chapter01

Startwiththeendinmind,

butalsoknowwheretobegin.

Manufacturerswillwanttouseafuture-backapproachtoexplorepotentialopportunities.

Withbusinesschallengesclearlydefined,manufacturersshouldexploresolutionsusingafuture-backapproach

thatstartswiththeendinmind.Thecriticalfirststep

involvesrapidlydefiningandassessingtomorrow’s

potentialfuturesfromtheoutside-in,andpredicting

howthesefuturescenariosmayshapecustomerneeds,marketconditionsandvaluepoolsacrosstimehorizons.Inparallel,organizationsmustalsoperformathorough

reviewoftheircurrentstatecapabilities,particularly

thosethatmayplayanincreasinglyimportantrolein

futurecompetitiveness.

Takentogether,assessmentsofacompany’scurrent

stateandpotentialfuturesserveasthefoundationofanewstrategythatwillactasthetransformation’s“northstar”–guidingitrelativetothelevelofambition,while

optimizingdevelopmentspeedandinvestmentspending.Thisstrategyshouldalsoprovideaframeworkforcross-enterprisetransparencyandengagement.

Ourapproachtotransformation

Market Dynamics&Pressures

ContinuousInnovation

ProveValue

Designthe

Transformation

Activatethe

Transformation

PlanValue

De?netheFuture

Reimagine

BusinessValue

ScaleValue

DeliverResults

TransformtheBusinessandEcosystem

Expanded

Business

Environment

1

FuturesView

Setthefuture

growthagenda

withan

understanding

oftomorrow’s

potentialscenarios

Inside-out

Designfuturestatecapabilitiesand

opmodelswithinanintegrated

transformationplan

Mobilize

Launchmarket

pilotsandputthetransformation

systemintomotionwithaligned

successmetrics

Scale

Realizefull

transformation

valueatboththeenterpriseand

functionallevel

Outside-in

Orienttoevolving

customerneedsand

marketconditions

toreimaginethe

businessacross

manyhorizons

Casestudy

Optimizingthepresenttobuildthefuture

AleadingplayerintheHVACindustryrecognized

thatitsfuturegrowthdependedonbeingaleader

insmart,connectedproducts.Asalegacyoriginal

equipmentmanufacturer(OEM)thathadhistorically

solditsproductsexclusivelyB2B,itsroadmap

requiredrapiddevelopmentofdigitalanddirect-

to-consumer(D2C)competencies.EY’s

Advanced

ManufacturingRealized

playbookhelpedthe

companybeginitsjourneybyoptimizinginvestments

thatwouldhavebothnear-termpositivereturns

whilesimultaneouslylayingthefoundationforthe

company’scustomer-centricaspirations.

WorkingwithEY,thecompanydevelopedan

omnichanneldigitalplatformthatenableda

refreshede-commerceexperienceforitsB2B

customers,whichincreasedsalesby25%inits

firstthreemonthswhilereducingleadtimes.Moreimportant,thenewplatformrepresentedafirst

stepinbuildingaD2Cplatformwithadramaticallyimproveduserexperience.

Asecondprojectinvolvedreal-world,at-scale

testingofedgedevicesanddataanalysis.Lookingbeyondlab-basedexperimentation,thecompanytappeditsservicetechniciansasatestbed.With

Bluetooth-enableddiagnostictoolsservingas

protypesforfutureedgedevices,thecompany

workedwithEYteamstodevelopananalytics

platformthatbothimprovedservicesfortoday’s

usersandservedasanunparalleledsourceoffielddatafortrainingalgorithmsandidentifyingotherserviceopportunities.

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Howcanmanufacturersplaceinnovationattheheartoftransformation?

06

Howcanmanufacturersplaceinnovationattheheartoftransformation?

LevelofAmbition

5

AsAService(XaaS)

4

WintheGame

Digital

Platforms

3

NewConnectedProducts

2

ExistingProducts&Operations

1

Design

Change

theGame

Playthe

GameBetter

Chapter02

Designthetransformationwitha

hands-onapproachtoinnovation

Conductrapidprototypingtosubstantiatefutureviewsandrefineperspectivesonmust-haveinnovations.

Rapidprototypingisanessentialstepformanufacturerstosubstantiatetheirfutureviewsandrefineperspectivesonmust-haveinnovations.Multiple,acceleratediterationsofbothphysicalproductsanddigitalofferingsare

importantforassessingfeaturesandcostsinthecontextofvariouscustomerexpectations,demandlevelsand

competitionscenarios.

Makingthefuturetangiblewillpaydividendsinthedesignphaseofthetransformation.Understandingnecessary

enterprise-wideadaptations–fromspecifictechnologyortalentenhancementstonewbusinessmodels–willinformanachievable,cross-functionalplan.Theabilityto“showyourwork”willalsohelpbuildsupportacross

variousinternalconstituenciesastheyareenlisted

intheeffort.

Startingwiththeendinmind

0

Transformation

De?neFuture

GrowthAgenda

Casestudy

Extensiveprototypingshapestransformation

Inarapidlychangingmarket,anindustrialproducts

manufacturerwaspresentedwithasignificant

opportunitytosetanewgrowthagendaby

commercializingnewbusinessmodelsviasmart

connectedproducts.Startingwithexploring

emergingvaluepoolsanddefininganewgrowth

strategyandstrategicvision,EYteamshelpedthe

companytransitionfromamanufacturingcompany

sellingphysicalproductstoaplatformcompany

sellingenergymanagementalongsideasuiteof

otherdigitalsolutions.

SupportedbytheEY-NottinghamSpirkInnovation

Hub,thecompanytookanexperience-ledapproach

todefiningthefutureexperiencesacrossallkey

stakeholders,addressingtheircurrentpain-points,

anddelivering“signaturemoments”todifferentiate

fromcompetitorsinthemarket.Thishelped

enablethemulti-disciplinaryPODteamstobegin

prototypingthenewsmartconnectedproductas

wellasthenewsuiteofdigitalsolutionsinorder

totestandgetfeedback,earlyandoften,from

theirfuturecustomersandpartners.Aftermultipleroundsofrapiditeration,themarketvalidated

designswentintodevelopmentforfieldtestsandmarketpilots,havingsignificantlyacceleratedandde-riskedthepathtocommercialization.

Thepromisedemonstratedbytheseprototypesinspiredmanagementtoaccelerateitsoverall

transformationplan,movingpaststatusquo

incrementalismtoredefininganindustryasweknowit.

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Howcanmanufacturersplaceinnovationattheheartoftransformation?

Casestudy

Disruptionseedsanewbusinessmodel

Aglobalagriculturalchemicalscompanyfaced

disruptionduetorapidlychangingcustomer

expectationsandpricingpressures.Thesefactorswereexacerbatedbytheagricultureindustry’s

adoptionofnewtechnologiessuchasdigital,

precisionequipment,anddataanalytics.To

capitalizeontheopportunitythesechanges

created,EYsupportedtheclientinincubating

andlaunchinganewbusinessmodelthatenabledsalesofproductyieldratherthanvolume.

Thisbusinessmodelrequiredamajorevolutionbeyondexistingprocesses,capabilitiesand

thecompany’sroleinthevaluechain.With

EYandthe

EY-NottinghamSpirkInnovation

Hub

asaccelerators,thecompanyrapidly

definedtherequirementsofthenewbusinessandthenexploredarangeoforganizational

structures,digitaltechnologiesandanalytics,andriskmanagementapproaches.EY

alsohelpedtoimplementnewenabling

technologies,includingstandaloneCRM,ERP

andecommercesolutions,allowingtheclienttomovequicklyandminimizeimpactsonexistingbusinessoperations.

Chapter03

Accelerateresultsbyincubating

newbusinessmodelconcepts

Prioritizesmall-scaleexperimentationusingastart-up

styleapproach.

Whenfuturegrowthdependsontechnologies,customer

expectationsornewvaluepoolsthatarenotaddressed

byamanufacturer’scurrentcorecompetencies,

innovationatthebusinessmodellevelmaybeasolution.

Forexample,whataretheimplicationsofcollecting,

analyzingandmonetizingdatafromanewconnected

product?Successfullyassessingandaddressingthese

impactscouldenablemanufacturerstoleapfrogthe

competition.

Giventheenterprise-wideimplicationsofsuch

changes,legacymanufacturersshouldprioritize

small-scaleexperimentationwithalean,internal

start-upstyleapproach.Inconjunctionwithongoing

physicalproductinnovation,manufacturerswillwant

toinvestinteamstoexploretheinternalandexternal

infrastructureandcapabilitiesneededtosupportan

operatingmodelforanoffering’sfulllifecycle.This

approachcanbeparticularlybeneficialforevaluating

thetechnologyinfrastructurerequiredforapotential

newbusinessmodel.Byusingfocused,leanteams,

manufacturerscanleverageagilesprintstofurther

definecapabilitiesandarchitecturalrequirementsasthe

transformationprogresses.

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Howcanmanufacturersplaceinnovationattheheartoftransformation?

Chapter04

Identifyecosystempartnersto

addresscriticalcapabilitygaps

Giventhecomplexityoffactors,astructuredprocesstoassesspotentialcollaboratorsisvital.

Asmanufacturersinnovate,theywillhavetodecide

whethertheirlong-termstrategiesarebetterservedbyseekingecosystempartnersversusinternallydevelopingoracquiringnewcapabilities.Assessingtargetedvalue

poolsandkeydifferentiatorsofsuccesscanhelpinformthesedecisions.

Manufacturerswhosefutureofferingsarelikelytodependonthesecuresharingandanalysisofdataatscalewillwanttoconsiderpartneringwithtechnologyprovidersasamoreefficientpathtomarket.However,thefactorstoconsiderwhenchoosingamission-criticalpartnercanbeextensive,

particularlygiventhehighcostofpotentialfailure.Legacymanufacturerscanbenefitfromastructuredprocesstoweighthebenefitsofvariouscollaborators.

Manufacturersexploringbusinessmodelinnovation

mayalsofindaneedforecosystempartnersoutside

ofthetechnologysector.Forexample,futuremobility

businessmodelsmayinvolveclosecollaborationamongvehicleOEM,energy,infrastructureandinsurance

firms.Whenframingnewrelationshipswithpotential

commercialpartners,manufacturingleadersshouldtakeanactiveroleindefiningtheirorganization’spositioningandcontributionssothatthepartnership’svalueis

distributedequitably.

09

Howcanmanufacturersplaceinnovationattheheartoftransformation?

1

Operations:

5

Chapter05

Keyquestionsfor

manufacturers

consideringreinvention

Answersmayhelptoaddresscriticalgaps.

Theurgencyaroundtransformationhasescalatedas

manufacturersgrapplewithmulti-faceteddisruptions.Reactive,

short-termfocusedresponseslimitthevisionforenterprise-

widetransformation.Whenthinkingabouttherightapproach,

manufacturersshouldconsiderthefollowingquestions:

Productandserviceinnovation:Howdoweevolve

ourproductportfoliotocreatedynamicproducts

andservicesthataddresscustomerdemands

forsmarterandmoreconnectedfeatures,

customization,andsafety/security?

Customerexperience:HowdoesashiftfromB2BtoB2CorD2Cimpacthowweoperatetoday?

2

3

a.Howcanweleverageemergingtechnologiesto

future-proofoursupplychain?

b.Howdowedesignourfuturemanufacturing

capabilitiesasacompetitivedifferentiator?

Workforceandtalent:Howcanweadvanceinnovation

4

asacorecapabilitythroughhiring,developing,

training,andincentivizingouremployees?

Businessmodelinnovation:Howdoweinnovateto

drivethecorebusinesstopeakprofitabilitywhile

simultaneouslyincubatingnewgrowthengines?

Answerstothesequestionsmayhelpleadersaddressstrategic

oroperationalgaps.Withaclearvisionoftheirorganization’s

futureambitionsinmind,andastrongstrategyforinnovation-

focusedtransformation,leaderscanpositiontheirorganizations

toaccelerategrowthandleapfrogtheircompetition.

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Howcanmanufacturersplaceinnovationattheheartoftransformation?

11

Howcanmanufacturersplaceinnovationattheheartoftransformation?

Summary

Arangeofdisruptiveforceshaveshiftedoperational

priorities.Legacymanufacturersurgentlyneeda

betterwayforward.Aninnovation-ledapproach

thatincubatesfutureopportunitieswhileoptimizing

currentproductsandoperationscanprovidevalue-

drivensolutionsfortheshorttermandlongterm.

EY|Buildingabetterworkingworld

EYexiststobuildabetterworkingworld,

helpingtocreatelong-termvalueforclients,

peopleandsocietyandbuildtrustinthecapitalmarkets.

Enabledbydataandtechnology,diverseEYteamsinover150countriesprovidetrust

throughassuranceandhelpclientsgrow,transformandoperate.

Workingacrossassurance,consulting,law,

strategy,taxandtransactions,EYteamsaskbetterquestionstofindnewanswersforthecomplexissuesfacingourworldtoday.

AboutEY’sGlobalAdvancedManufacturing&MobilitySector

Urbanization,changingconsumerexpectationsandemergingdigitaltechnologiesarereshapingwhat’spossible,fromthe

productionanddistributionofgoodstothetransportationofpeople.Tosucceedinthisnewworldofmobilityandsmart

manufacturing,incumbentsmusttransformthemselvesat

unprecedentedspeed—tothinklikeaninnovativestart-up,tap

intonewtalentandengagethecustomer.Withexperienceacrossthevaluechainandkeytechnologyalliances,ourteamsshow

clientshowtocreateefficienciesnowwhileadoptingdigitizationandoptionalityforlong-termgrowth.Automotive,transportation,aerospace,defense,chemicalsandindustrialproductscompaniescandrawonthestrengthofournetworkofcross-industryplayersandputourdiverserangeofapproachestousetodaytoequip

theirbusinessesfortomorrow.

EYreferstotheglobalorganization,andmayrefertooneor

more,ofthememberfirmsofErnst&YoungGlobalLimited,eachofwhic