February 26, 2018

Guest blog: Why the forest industry must learn to love change

Luis Vives

Professor, Associate Dean, The ESADE MBA

The implications of digital transformation for manufacturing companies are likely to be profound. Technologies such as the Internet of Things, Machine Learning or 3D printing will change the way industrial companies operate and create value for their customers. We must, however, look beyond technology, even in conservative industries such as forest products, pulp, paper and board.

Industrial companies must take advantage of the new opportunities offered by digitalisation to renew the way they operate in order to better respond to customer needs. Those companies that do not will lose momentum and eventually disappear.

When we talk about digital transformation, it helps to think about steps and the different levels we can reach by moving through stages:

  1. The first level, which most industrial companies are already working with, represents the opportunities that digital transformation gives us to improve efficiency. Through digitalisation we can upgrade processes and systems to improve productivity and obtain better results.
  2. The next level represents the opportunities to improve customer experience. Through digital technologies, we can better respond to customer’s needs and improve the customer’s journey.
  3. A third level would allow us to improve the business model through new value creation schemes or new value capture mechanisms.
  4. The highest level of this ladder highlights the opportunity to generate new business models through digital technology.
  5. Additionally, it is important to consider the opportunities that, through this journey, technology provides us with to manage our talent.

Source: Professor Vives, 2017

Next big bang: ecosystems

The most important implication of digitalisation will be the opportunity for industrial companies to move from a productivity mindset to a customer-centric mindset. New technology not only creates productivity gains but offers the opportunity to develop new business models that can have a significant impact on the way companies operate.

A number of elements reinforce each other in this new reality. Our ability to capture and process data will exponentially improve in the coming years. We will capture this data through sensors that will provide the foundations for the true development of Machine Learning and Artificial Intelligence. The Internet of Things fuels big data availability, which in turn fuels Machine Learning and Artificial Intelligence.

The next big bang in the industry will likely be to start thinking about platforms and better industrial architectures that allow combining internal areas of excellence and expertise with those of external providers. Companies must start developing new thinking models and understand how ecosystems work, moving beyond their traditional company-centric rationale.

The forest industry needs to catch up

The forest products, pulp, paper & board (FPPP) industry will evolve in line with other industrial corporations – or even at a faster pace. The increasing importance of sustainability will force FPPP companies to embrace digital transformation and search for new operating models.

If the traditional players manage this transformation in a smart way, they can grow and prosper. Otherwise, they will be replaced by new companies that have the ability to think differently and provide new solutions and value.

Many companies in the FPPP industry come from a very long tradition and use methods and processes inherited from previous generations. We cannot operate companies in the 21st century applying practices that made them successful in the 19th century.

The forest industry will need new operating models, smart partnerships and talent that can promote and sustain the required transformation.

Tight competition requires fast moves

Efficiency is a must in any industrial corporation. This is the first level that companies will be able to address through opportunities created by digital transformation. But reducing costs is not a sustainable way to compete. To succeed, companies need to provide higher value to their customers. Starbucks has not succeeded in the coffee industry by providing cheap coffee, nor is Apple the #1 cell company by profits because of selling cheap phones.

Companies need to be productive as a baseline, but then they need to have the ability to serve their customers in a superior way. Understanding customer segments, and the value drivers are critical ingredients for success.

Digitalisation is also a means to respond to the requirement of a better user and customer experience. An example: some paper companies even provide a webshop to their customers to buy ready-made paper. True, there needs to be a change in the business model, but the advantages – a more pleasant customer experience and cost savings through automation – will soon bring returns on the investment of this shift.

We live in a world that is increasingly fast-paced. In this new context, it is not the big that will win over the small, but the fast that will win over the slow.

The customer in the centre

Design Thinking is a very powerful methodology to structure our innovation efforts. But it is just that, a creativity and innovation tool.

The most important element of Design Thinking is that it starts by looking at the current problems and pain points that customers have from the customers’ point of view and providing solutions to them. Design Thinking helps traditionally product-centred companies to adopt a solution-based customer-centric perspective and promotes rapid prototyping to speed up the development cycle, thereby arriving at a more responsive solution faster. And that is very positive!

Ultimately, transformation is a cultural change

The most critical element of any transformation is people. For companies that want to move forward, the key is to develop the willingness to embrace new ways. This is easy to say, but difficult to accept by many, as it implies changing the way in which we do things and eliminating roles and functions that have been taken for granted in many companies.

To develop a corporate culture that supports transformation is the ultimate and most significant resource to achieve transformation. For people who have difficulties defining what company culture is, the following definition might help: “Company culture is what happens when the boss is not around”.

Then, when culture supports transformation and people have a clear vision of what needs to be achieved, speed becomes a critical component. As the former racing driver Mario Andretti once said: “If everything seems under control, you’re not going fast enough.”

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Mr Luis Vives, Professor, PhD, is the keynote speaker in the Tieto Forest industry event, PE Days, in April. Read more of the coming event and register here.

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