The IIoT interview (pt2): “Three is the magic number for digital ROI,” says Hitachi
Manufacturers should treble their money on digital transformation, at least, reckons Greg Kinsey, vice president of Hitachi Vantara. If the digital ROI does not stack up, before starting out, then they should down tools, and start over. If the it does, they should expect to “turbo-charge” their business, even if there is an initial lag as the analytics are hammered out.
There are several ways for manufacturing companies to get ‘smart’; Greg Kinsey, vice president of Hitachi Vantara, reels off three. Intelligence can be built into the factory, the product, and the service, he says. HItachi’s Vantara division – a recent regrouping and rebranding of its various Hitachi Insight Group, Hitachi Data Systems and Pentaho businesses — is concerned with the first of these only.
“My team is focused purely on how to drill down and apply digitisation to factories,” he says. It is a pursuit that chimes with the transformation of industry as defined by European governments, at both national and international level. In Kinsey’s mind, as explored in the first instalment of this interview, the dynamism of the European digital project is at odds with the two-dimensional IoT activity lighting up US factories.
HItachi Vantara has developed its own transformation model, which hinges at the outset on identifying a 3:1 return-on-investment. “That’s the magic number; if a client invest €1 million, they should get €3 million out the other end, in 12 months. It’s hypothesis; but we won’t start without it,” says Kinsey.
“If it’s less than 3:1, we won’t proceed.”
In the context of wider digital transformation — as new technologies inform economic, social and environmental issues — the time for experimentation has passed, suggests Kinsey. “There have been a lot of proofs-of-concept and science experiments in the last five years. But they are technology exercises; the market has moved on,” he says.
Perception of the potential impact of incoming digital technologies has gone from aspirational need to absolute imperative as their workings have become more sophisticated and their applications more viable. The sector is engaged in a more practical phase, he suggests, in conjunction variously with industry, academia and government.
The process to identify this 3:1 rate is systematic, and well established; Hitachi Vantara helps its partners to consider myriad internal data-sets, re-work their change agenda and re-run the maths if the return does not come out on paper. “We challenge clients on it. Do you have a business case? Is it sufficient?”
Beyond the initial boardroom discussion, to establish the scope of the transformation project, Kinsey’s team seeks first to engage the ‘wizards’ within each manufacturing operation.
“If they have Black-Belts, we’ll engage them — because they understand the processes and the numbers, and have been running stats on the shop floor for some time,” he explains, making reference to the rank masters (‘Black Belts’) of the Six Sigma doctrine, which proposes a set of data-oriented management techniques to eliminate defects and raise quality in manufacturing processes.
“Most European companies have a crew of them that work in operations,” he adds. “They are likely to be engaged in analysing process capabilities and process controls already. When upgrading to a digital operation, it’s better to build on what the work that has already started.”
Hitachi Vantara’s 3:1 ratio has not been easily deduced. “We have developed and tested it over the course of a decade; it’s based on our experience, and our experience doing operational consulting in manufacturing for many years,” explains Kinsey.
Indeed, Hitachi’s long experience in the industrial sector, as a manufacturer of industrial equipment, a provider of manufacturing technologies, and a change consultancy to boot, is noted in Gartner’s inaugural ‘magic quadrant’ review of industrial IoT platforms, in which the Japanese maker is one of only three to rank as ‘visionary’.
Its Lumada platform, targeted squarely at the manufacturing, energy, and transportation markets, leverages a combination of Hitachi technologies, and analytics and data management capabilities via its former Pentaho business unit, notes Gartner.
KInsey points also to its purchase of UK-based operations management firm Celerant Consulting back in 2013. “It brought a lot of understanding, and deep analytical processes developed over 25 years in manufacturing,” he says. “We also have our labs in Japan, deeply engaged with Japanese manufacturing, which is arguably cutting edge.”
KInsey is happy to argue the toss. “We’ll go up against our competitors, which either don’t have a business case, because they’re just selling technology, or will debate the average return is more or less than 3:1,” he says. The point is the 3:1 model works to scope out the project and focus minds on both the potential and the viability of the proposed transformation.
“It’s a starting point, a rule of thumb; in some cases, we go way beyond. We’ve had one case in France where we saw a 10:1 return.”
The fundamentals of operations management have hardly changed in the decade-and-a-half since the Celerant acquisition, and the decades of manufacturing besides; the difference is the the digital tools used to make operations slicker have gone up and down, in terms of their sophistication and expense. The effect has been to “turbo charge” the efficiency drive.
“What we used to figure out on paper and whiteboards can now be done rapidly through machine learning and advanced analytics. What a Six-Sigma Black Belt used to do on his laptop using mini-tab and four or five variables can now been done in data lakes with 500 variables,” explains Kinsey.
“But the principles of how you run a production line, and how you find defects and bottlenecks, and how you increase capacity, are underlined in physics. We’re turbo-charging everything we’ve learned about manufacturing in the last 25 years. Using advanced analytics to solve those same problems just accelerates your ability to reach manufacturing excellence.”
Has the rate at which Hitachi achieves the 3:1 return accelerated, or has the ratio stretched to 3:1, with this turbo-charging of digital tools? “The acceleration is just like with turbo-charged cars from 20 years ago; you hit the accelerator and there’s a lag, and then, boom, it takes off. It isn’t linear in digital either,” says Kinsey.
“You don’t necessarily get to the value as quickly as you did in the old days, but once you do, it goes way beyond. You have to go through this front-end process of experimentation – where you make mistakes, hit dead ends, pivot, and test your assumptions. That’s part of innovation. But once you have it cracked, you very quickly bring your plant to new levels of innovation and capability. It really is a turbo-charge effect.”
This is an excerpt from a wide-ranging interview with Hitachi Vantara vice president Greg Kinsey. For more from the interview, check out the links below.