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DX know-how in the manufacturing industry

Seven challenges facing the manufacturing industry

Especially for Japanese companies, it has been pointed out that the hurdles for introduction are extremely high due to the existence of existing systems and the shortage of human resources. Therefore, the introduction of DX is currently delayed compared to other major powers such as China and the United States. Here, we will explain what is hindering the conversion of DX to Japanese companies.

1. Management strategy is unclear

According to the Ministry of Economy, Trade and Industry, a management strategy is indispensable for advancing DX. As new digital technologies emerge one after another, it is necessary to consider how to utilize them to transform the business. However, at present, although many companies are seeking strategies that make full use of digital technology, there are many cases where the need for DX is simply recognized and concrete consideration is lacking. For example, it has been pointed out that there are situations in which only instructions such as “what can be done using AI” are issued without concrete consideration of how to change the business.
 

2. Cannot secure human resources

The Ministry of Economy, Trade and Industry points out that there is a structure in which a company that is a user of the system outsources the development and operation of the system to an external vendor. The existence of a subcontracting structure by such a system company has hindered the development of human resources with high IT skills within the company. In addition, it is indispensable to review the existing system for DX conversion. It can be said that it is difficult to proceed with the DX promotion project because there are no human resources in the company who have knowledge about the development and operation of existing systems.
If you don’t have IT talent inside your company, recruiting talent from outside is one way to do it. However, in Japan, it is expected that the labor force population will decrease due to the declining birthrate and aging population, and the demand for IT will increase, leading to a serious shortage of IT human resources in society as a whole. Furthermore, according to a survey by the Ministry of Economy, Trade and Industry, there is already a supply-demand gap (supply shortage) of 220,000 people as of 2018. This gap will widen over time and is expected to reach up to about 790,000 in 2030.
The social shortage of IT talent means more competition among companies in their recruitment. In particular, it is easy to predict that hiring highly skilled human resources who can advance DX by utilizing advanced technologies such as AI and IoT will be extremely difficult.
 

3. System black box

Many companies using legacy systems are in a state where their systems are black-boxed. As the inside of the system becomes unclear, various problems occur, such as delays in responding to system failures, bloated operation management costs, and the inability to make strategic IT investments.
 

4. Relying on the bender

A vendor is a company that sells IT products to users. As mentioned above, there is a structure in which a company that is a user of the system outsources the development and operation of the system to an external vendor. The existence of a subcontracting structure by such a system company has hindered the development of human resources with high IT skills within the company.
 

5. The existing system is a burden

As mentioned above, existing systems tend to be a burden and hinder DX. According to the survey, issues such as “It takes time to investigate because the documents are not prepared”, “It is difficult to link data with legacy systems”, and “It takes time to test because of the wide range of impacts” are listed. In order to advance DX, it is indispensable to review the existing system. For this reason, it is inevitable to devote funds and human resources to “defensive IT investment”, making it difficult to promote DX.
 

6. IT investment is not progressing

The issues unique to Japanese companies are that IT investment itself is low in the first place and that existing systems are aging. According to the Ministry of Economy, Trade and Industry, “aggressive IT investment” is not progressing in Japan compared to the United States. “Aggressive IT investment” here refers to things that create value, such as the development of products and services using IT and the transformation of business models that utilize IT. Instead, it is a characteristic of Japanese IT investment that there are many “defensive IT investments” such as operational efficiency / cost reduction and IT conversion of business processes.
One of the factors is the aging of existing systems. According to a summary by the Ministry of Economy, Trade and Industry, about 80% of companies have an aging system, and about 70% of companies evaluate it as a hindrance to DX. In this way, in order to promote DX, it is necessary to promote human resource development and organizational development other than IT investment, and there is room for improvement in the quality of IT investment itself in Japanese companies.
 

7. Low success rate of digital reform

According to a McKinsey & Company survey, only about 16% of companies succeed in DX. While the success rate of corporate transformation, not limited to digital, is about 30%, DX is only half that. And when limited to industries such as manufacturing, energy, infrastructure, and pharmaceuticals, the success rate of digital transformation is expected to drop further to 4-11%.
From this survey result alone, we can see that the hurdle for DX is extremely high. When McKinsey interviewed business owners, the issues were raised by factors related to people and organizations, such as the commitment and understanding of business owners, corporate culture, and lack of digital human resources. It can be said that simply advancing IT investment does not lead to the success of DX.
 

What you need to do to solve DX issues

There are three ways for companies to realize DX: “establish a management strategy and share the vision of DX”, “examine by” visualization “of IT systems”, and “review the relationship between user companies and vendor companies”. It’s the key.

1. Share what you are aiming for with DX

Company-wide cooperation is required to promote DX. DX is, as the etymology implies, “digital transformation”, not just the introduction of new technology. Given that DX is the key to transforming business models and products / services with these new technologies, it is possible to create a system that includes not only IT departments and some business departments, but also managers and most business departments. It is essential. It is also important that the purpose and vision of “what we aim for with DX” are shared among these parties. According to this report, “If the legacy renewal itself is self-purposed without setting clear goals, something that does not lead to DX will be created, and there is a risk of re-legacy.”

2. Promote “Visualization” of IT systems

It’s important to get a complete picture of your existing IT system. The report also recommends that METI develop guidelines, indicators and diagnostic schemes to encourage companies to assess and “visualize” existing IT assets. It is important to analyze the current state of information assets owned by your company and proceed with renewal by function. For example, functions that change frequently may be rebuilt on the cloud, unnecessary functions may be discarded, and functions that should be changed or new functions may be added to the cloud as appropriate.

3. Review the relationship with the venter

For vendor companies that undertake the development, operation, and maintenance of IT systems, large-scale system renewal for the realization of DX is a high risk. In some cases, it may be necessary to restructure contractual relationships to mitigate risk in order to increase the motivation of vendors for DX. This report presents some ideas. For example, to prevent the user company from throwing the requirement definition to the vendor company, the requirement definition process is separated from the design process, and from the viewpoint that both are in a partner relationship rather than a hierarchical relationship, “Profit share (developed)” ADR (Alternative Dispute Resolution) for shortening the resolution time after troubles and ensuring non-disclosure, making provisions so that a part of the profits from the system will be returned to the vendor company after the fact. There are utilization and so on.

Effective introduction method of DX

So far, we have explained the issues and necessary elements in DX conversion. Now, I will explain how to actually introduce DX.

1. Digitization of tools

Digitization is the stage of actively introducing applications and cloud services on the Web. We will replace various tools with digital and accumulate data.

2. System efficiency

System efficiency refers to the stage of utilizing the data accumulated by digitization for each department. The “IT revolution” has brought about changes leading up to this stage. Many companies in Japan are currently at this stage, and each company uses various daily data to implement measures.

3. Build a foundation for data utilization

Data standardization is the stage of not only standardizing data within a department but also building a foundation for utilizing data company-wide. We will set common KPIs (evaluation items) for the entire company, formulate hypotheses, implement measures, and go through a cycle of verifying with data.

4. Establish an operation system

Furthermore, it is necessary to create an organization that manages data efficiently by utilizing the infrastructure that has been built up to this point. The purpose is to solidify the organization, establish an operational system, and clarify the business flow.

5. Reflection in business activities How to introduce DX

Finally, it is necessary to reflect it in the business plan that causes innovation in the business activity itself. This is the final stage of DX, and the purpose is to brush up the business plan from the accumulated data. Digital assets such as data will become the business foundation, and their utilization will lead to improved competitiveness. Few pioneering companies have reached this stage, even if they were the first to work on DX. In the future, various companies will promote DX toward this stage.

Summary

This time, I explained the DX issues that Japan faces and the solutions to them. As mentioned in the “Cliff of 2025”, Japan, which is said to be lagging behind in the area of ​​DX, has an urgent task to review the current situation, including reviewing the system, and respond to changes. We would appreciate it if you could contact us first in order to renew the in-house system and create a new business model.This time, I explained the DX issues that Japan faces and the solutions to them. As mentioned in the “Cliff of 2025”, Japan, which is said to be lagging behind in the area of ​​DX, has an urgent task to review the current situation, including reviewing the system, and respond to changes. We would appreciate it if you could contact us first in order to renew the in-house system and create a new business model.

 

 

We support the digitization of companies with IoT / DX in Thailand.

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