McKinsey Drishti conversation

Drishti’s founder and CEO Prasad Akella recently interviewed Andy Luse, associate partner at McKinsey & Company. The interview included a discussion on  digital transformation, identifying workers who thrive on the factory floor, McKinsey’s digital coaching through its Capabilities Centers network and the impacts of coronavirus. This is the second of three installments; you can listen to the first section here and the second section here. This excerpt touches on differentiating between cost mentality and value mentality in digital transformation, rethinking forecasting models and the impacts of coronavirus in the long- and short-term.

 
 

Prasad Akella: So when I think about digital transformation, my sense talking to CEOs is they’ve got digital transformation solutions for sales, for marketing, for the go-to-market side of the business. When it comes back to the core manufacturing operations, nothing’s really changed out there. How do these CEOs think about this, what kind of questions are they asking you, and how does the MCC help answer those questions?

Andy Luse: That’s a really good question. With all of the different solutions and innovations that are out there for digitizing the shop floor, we still have very few examples of companies that have been able to scale, transform digitally end-to-end, in their manufacturing processes. And I think it’s a source of tremendous frustration for many folks in the C-suite. We refer to it as “pilot purgatory.” It’s that notion that there are many wonderful experiments going on at manufacturing facilities around the world, but very few examples of value capture scaled across an enterprise and linked end-to-end with other solutions. 

And that’s exactly what we’re trying to solve for our clients. That’s like topic number one. I think the Capabilities Centers are our opportunity to talk about digital manufacturing transformation and talk about the key enablers and really educate executives on what are the foundational things you need to have, how to think about digital transformation, so that you get out of that pilot purgatory cycle and you start driving real step change for the organization. 

Prasad Akella: My observation is there’s a very strong cost mentality, not a value mentality. Especially in the way they think about a plant and they have a billion dollars in Capex sitting on the floor, and it’s all about how quickly can i accounting-wise write it off? They’re thinking about the dollar pool they invest, not the $10 they can get out of it. Does the MCC help people think about digital technologies in a fundamentally different way, about value creation? Because a machine you can depreciate and all of that, but digital technologies actually scale value. If you read Erik Brynjolfsson’s work at MIT, that’s what he’s talking about. 

Andy Luse: It’s spot on. We preach value back when you talk about new innovations and new technologies. What is the return on investment, what is the business case? And I still think even though we’re preaching it, and lots of people are preaching it, it still is the number one mistake that companies make because they chase the technology, they chase the shiny toys, and don’t think about the return on investment. And so in the MCC and our digital Capabilities Centers around the world, we always train through the lens of a business case. So it’s always, we start off with a scenario, a mock company if you will, with a business problem. And as we go through and we look at the producing lines and we look at the technology, we’re always asking the clients, “What do you see? What’s the waste? What innovations do you think can drive a real return on investment?” And we actually think through business cases. That’s the capability that every single person needs in order to solve that problem. 

Prasad Akella: But the challenge I’ve seen is that the business cases are based on backward-looking models. I’ll give you an example. Most of these models are based on direct labor. Now the fact that a tool like ours can actually save indirect labor, or actually can increase your throughput, because I can train somebody better so that person is no longer a bottleneck and that person is pushing more through, you’ve trained them to think about business case but they’re not thinking about business cases end-to-end. At least from my perspective. Is that something you’re seeing on the floor, and is that part of your training? 

Andy Luse: That’s a great point. Whenever we talk about business cases, it’s value creation. Whether it comes from throughput, whether it comes from direct labor productivity, whether it comes from indirect labor productivity. You have to look at it holistically, through all those lenses, and figure out for your given situation, “What are the value creation levers?” That’s what I mean by business case. I’m sure you’re right, there probably are a lot of bad models out there in terms of thinking about value creation and business impact. So you have to look at it through all those lenses that you just mentioned. 

Prasad Akella: I’d be remiss if I didn’t talk about coronavirus impact right now. Curious what patterns you’re seeing with clients, and a follow-up question on social distancing. What are you seeing and how can Drishti help?

Andy Luse: We like to think about the COVID-19 response in roughly speaking two horizons: the near term and the longer term. Obviously, in the near term, there’s a lot of cost and cash pressure for companies. Demand is down, stock prices are down so companies are, many of our conversations are about, “How do we save cash?” And we’re talking about all different kinds of solutions. How can you squeeze more out of your assets and avoid new Capex. So that’s kind of one category of conversation. 

The other category has to do with safety and physical distancing, of course. How can you use technology and digital to enable safe physical distancing and remote working? So we’re having lots of conversations about remote assist type use cases, wearables are all of a sudden super hot. Measuring and monitoring productivity remotely. Many plants are trying to have only the essential workers on site and everybody else off-site. How do you make those workers productive and enable them to do their jobs? 

And then I would say the third category of conversation is around agility. Supply chains have obviously been disrupted in ways that we never imagined, demand is going up and down, it’s very hard to predict — all of the forecasts went out the window — so companies need to adjust their plants and iterate much more rapidly than they did in the past and be way more agile than they’re used to. As you think about coming out of COVID I think a lot of those mentalities will persist. And companies will have to think about, “How can I create a more agile supply chain? How can I scenario-plan and de-risk? How can I manage my operations in a more remote fashion?”

Prasad Akella: This is the kind of stuff that we’re trying to build out, which is digital, taking video as our primary signal for now. Thanks for giving us the opportunity to put this in your MCC. I’m hoping that working with you, we can change the way that people think about digital tools. You can tell your clients’ CEOs that change is coming. This is the stuff that we can do that gives them 10, 20, 30 points of improvement without breaking their heads over it.