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Digital Transformation in Product Design and Development:

The Opportunity for SMB Manufacturers

An IDC InfoBrief, sponsored by Siemens | July 2018

Research by Ray Boggs, Program Vice President, Small and Medium Business Research, and Jeffrey Hojlo, Program Director, Product Innovation Strategies

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An IDC InfoBrief, sponsored by SiemensDigital Transformation in Product Design and Development: The Opportunity for SMB Manufacturers

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Executive SummarySmall and midsize manufacturing firms (less than 3,000 employees) are embracing digital transformation to engage with the emerging digital economy. Three critical elements are associated with digital transformation:

Coordinating diverse resources with new ways to run and grow the business by using 3rd Platform technologies*

Leveraging Innovation Accelerators such as robotics, 3D printing, machine learning, and artificial intelligence (AI) to capitalize on or establish new business models

Integrating technology resources into new business processes not just to modernize but transform

This IDC InfoBrief examines the current and future investment plans of different-sized manufacturers so firms can see where an adjustment in their investment plans for product design and development might be appropriate. While small and midsize manufacturing firms have made major strides in improving product design and development, the competitive landscape will become increasingly demanding. SMB firms will be encouraged by customers and competitors to make optimal use of the latest technology to support digital transformation.

New businessprocesses

Leveraginginnovation

Almost all SMB manufacturers have made significant progress in utilizing some digital transformation components, but there is still more work to do.

* The 3rd Platform consists of four technologies (Big Data & Analytics, Cloud, Mobile, and Social) that allow businesses to accelerate their digital transformation. Innovation Accelerators are six technologies (IoT, Cognitive/AI, Next-Gen Security, 3D Printing, Augmented and Virtual Reality, and Robotics) that in tandem with the 3rd Platform can aggressively propel growth and deliver enhanced digital experiences.

3rd Platformtechnologies

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MethodologyResearch findings come from IDC’s worldwide survey of 420 manufacturers with fewer than 3,000 employees, with detail on firms with fewer than 100 employees, those with 100-499 employees, and those with 500-2,999 employees. Select results of a separate survey of 300 North American manufacturers with 1,000+ employees (with 120 respondents from 5,000+ employee firms) are included for comparison. In cases where comparisons are made with large companies, the SMB sample is limited to those firms with fewer than 1,000 employees (N=380) to avoid overlap in the size groups.

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SMB Top Business Priorities: Productivity/Efficiency, Customer Engagement, Revenue Growth Digital transformation will play an important role in helping SMBs address key business goals like improving internal efficiency while expanding customer engagement to improve competitive position. Expanding to new markets is a priority for large businesses and SMBs are moving in the same direction. SMBs are focusing on efficiency and other priorities that larger companies have already addressed. The alignment of multiple goals is at the heart of digital transformation imperatives: sharpen internal processes, engage effectively with customers, and drive revenue growth through market expansion.

Top SMB Priorities Now Top Expected in 3-4 Years

20.5% 21.3%

20.5% 17.6%

20.3% 17.1%

18.2% 16.6%

17.4% 16.3%

1. 1.

2. 2.

4. 4.

3. 3.

5. 5.

Improve productivity/efficiency Expand to new markets

Attract/retain customers Attract/retain customers

Increase revenue Improve productivity/efficiency

Improve service to customers Increase revenue

Reduce operational risk Address increased competition

Note: Multiple responses were allowed.

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90% of Small and Midsize Manufacturers Are Budgeting for Digital Transformation

Even 80% of the smallest manufacturers (fewer than 100 employees) are adding budget and 20% are adding staff to support digital transformation. Firms typically start their transformation incrementally by adding budget (often reallocating funds as well) and then devoting staff resources. This “test the water” approach can be easily implemented and scaled up if results are encouraging. If you are not actively investigating digital transformation you risk losing competitive ground.

Commitment to Support Digital Transformation (DX) by Company Size

10.1

10.1

9.115

.0

12.9

24.8

26.3

32.5

28.8

27.3

21.326

.4

38.1

5.0 12

.4

Additional budget, staff, Chief Digital

Officer (CDO)

Some additional budget. Full-time staff added to support DX

Some additional budget. Staff

resources being dedicated to DX

Some additional budget. No

additional staff

No additional budget/staff beyond

current levels

% o

f res

pond

ents

<100 employees 100-499 employees 500-2,999 employees

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And Many Believe They Are Making Good Digital Transformation Progress

Over a third of larger SMBs (500-2,999 employees) indicate they are “well underway” with digital transformation.

But smaller firms also recognize its importance – almost half agree that digital transformation will be essential to their company’s survival in the next 3-5 years.

Assessment of Digital Transformation Progress

24.5%

20.2%

19.8%

17.4%

9.5%

8.6%Well underway applying technology to connect

people, devices, and businesses effectively

Beginning to automate different functions but not in coordinated way

At early stage coordinating/automating within operating areas but more to do

Beyond integration, we derive real-time insights to yield business results

Little work, no 3rd Platform/Innovation Accelerator use. May consider

No digital transformation work

% of respondents

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The Top Digital Transformation Goals for SMB: Improving Product Development and Design Process Improving both product development and design processes are cited by over half the SMB manufacturers surveyed. These twin goals are also related to the key business priorities of improving productivity and efficiency. They also set the stage for a wide range of other investments in process improvement, including CAD, cloud, and the use of mobile technology to streamline product development.

31.3

38.0

37.2

34.7

34.7

30.9

28.8

28.8

28.8

28.8

24.8

20.1

30.9

30.0

28.8

28.9

23.1

20.0

21.525

.0

20.0

Improved product development

process

Improved design process

Faster time to market

Better collaboration with manufacturing

Better collaboration with customers

Real-time decision making across

the development process

Better collaboration with suppliers and

partners


% o

f res

pond

ents

Top Goals for Digital Transformation Investment by Company Size

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Near-Term Impact Is an Important Investment Factor; Long-Term Impact Is More Significant as Companies Grow The continuing pressure to improve performance is reflected by how firms set their tech investment priorities. While immediate impact plays a key role in the spending decisions of all firms, the long-term implications are increasingly influential as firms grow.

41.3 41.0

26.9 26.9 31.733.1 33.938.1 42.151.2 49.651.8

% o

f res

pond

ents

Invest to make immediate difference in supporting

current processes

Invest in technology transformative to changing

processes for the better

Invest in operating areas in good shape but could be

improved with relative ease

Focus on operating areas most in need of updating and additional investment


Attitudes Toward Setting Tech Investment Priorities by Company Size

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Product Development, Design, and Engineering Seen as Most Advanced in Leveraging Digital Transformation TechnologySmall and midsize manufacturers identify four key operating areas — manufacturing, engineering, design, and production/operations — as the most advanced in leveraging technology to support digital transformation. Together they provide an important foundation for firms to build on: They are also the areas where additional investment can make the most impact. Digital transformation investment has also made a difference in product design, development, and manufacturing. Additional coordination and process improvement could also be helpful in strengthening company performance in these areas.

35.730.5 28.6

22.918.1 17.6 17.1 16.9 14.0

Areas Most Advanced in Leveraging Technology

Manufacturing Engineering Design Sales Finance MarketingSupply Chain Management

Strategic PlanningProduct/Operations

% o

f re

spon

dent

s

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Improving Product Quality – a Key Transformation Goal – Drives Investment in Product and Design Development

Looking more closely at product design and development, smaller firms cite product quality, speed to market, and dealing with product complexity as driving investment. As SMBs grow they are more likely to cite collaboration and internal change management as investment drivers. Given the natural overlap of these benefits, the coordinated efforts associated with digital transformation will have a positive impact on all of them.

41.3

26.9

23.0

23.8

24.8

20.0 24

.0

20.1

22.3

21.6

17.4

18.8

15.7

33.1

30.6

Importance of Factor* by Company Size

Improve product quality Accelerate time to market and/or success rate of new products

Dealing with increased complexity

of new products

Improve engineering change management

process

Improve collaboration between internal

cross-functional teams

<100 employees

100-499 employees

500-2,999 employees

* Share citing 1 or 2 of top 5 drivers of product design and development investment

% o

f res

pond

ents

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SMBs Advanced in Digital Transformation More Likely to Cite Cloud, Analytics, and Mobility as Key in Design, Product Development

SMBs, especially those well underway with digital transformation, expect major increases in the importance of different technologies in the next 12 months, with roughly half of digitally transforming firms citing several innovation accelerators as likely to be important.

This share is greater than that cited by large companies (about a third cite the future importance of different accelerators). Advanced SMBs will be in a better position to compete against larger companies that risk falling behind in their use of advanced technologies for design and product development.

Total SMB Total SMBSMB DX Advanced*

SMB DX Advanced*

Cloud Computing/Software- as-a-Service (SaaS)

Social Business/Collaboration Tools

Big Data/Analytics

3D Printing

Augmented and Virtual Reality

Internet of Things (IoT)

Robotics

Current

21.6% 41.0% 37.6% 59.7%

17.4% 25.2% 32.6% 48.2%

19.2% 31.7% 33.2% 54.0%

14.7% 24.5% 30.3% 44.6%

14.2% 24.5% 25.8% 51.1%

21.3% 36.0% 31.6% 48.9%

16.3% 30.9% 25.5% 41.7%

17.6% 35.3% 33.2% 56.1%

14.5% 24.5% 26.8% 46.8%

14.2% 23.0% 30.5% 48.2%

Next 12 Months

Blockchain

Mobility

Artificial Intelligence & Machine Learning

”5” on 5-point scale (5=Most important)*SMB Digital Transformation Advanced are “well underway or more.”

Importance in Design and Product Development Efforts

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Half of SMB Manufacturers Expect to Use 3D Printing to Support Product Design/Manufacturing in the Next 12 MonthsSimilar to large companies, SMBs note that 3D printing is used primarily for prototyping, but they expect the use of 3D printers for more production next year. SMBs say they are more open to using 3D printers in 12 months for areas such as packaging, manufacturing parts, and aftermarket parts and services.

49.4% 55.4%56.2%

24.4% 28.8% 36.4%

Less than 100 employees

100-499 employees

500+ employees

Use today

Current Use/Plans for 3D Printing in Product Design/Manufacturing/Service by Company Size

Will use in the next 12 months

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Plans for Digitally Transforming Production to Industry 4.0/Smart Connected Manufacturing Grow Dramatically by Company Size The use of or plans for Industry 4.0 (which enables connectivity and decision making across assets and sensors) aligns closely with digital transformation progress. Only one small manufacturer in ten uses or plans to add Industry 4.0 approaches (and almost 60% are no more than slightly familiar with the concept), in contrast to over a third of firms with 100-499 employees and 60% of those with 500-2,999 employees. This finding aligns with survey results that show over a third of the largest SMBs well underway with digital transformation. The perception of benefits, product and manufacturing breadth, and willingness to make critical investments are also encouraging the embrace of Industry 4.0. SMB manufacturers indicating significant transformation progress are also more likely to cite Industry 4.0 engagement.

Industry 4.0 as Important Component of Digital Transformation by Company Size

10.0%

52.5%

11.9% 35.3% 60.3%

48.2%

28.8%16.5%

43.8%

27.3%

1.9% 6.5%

<100 Employees 100-499 Employees 500-2,999 Employees

CURRENT + PLANNED

Yes, have Industry 4.0/Smart Connected Manufacturing initiative

Yes, have Industry 4.0/Smart Connected Manufacturing initiative starting in next 12 months

Yes, it is an important component but no plans for Industry 4.0/Smart Connected Manufacturing initiative

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Mobility Will Empower Design and Development Collaboration SMBs use smartphones and tablets today primarily for approval and sign off to advance the design and development process. What’s transformative is the potential use of these devices to enable collaboration around design and development across an extended team of internal and external stakeholders. Leveraging mobile devices from the design and engineering office, the shop floor, or the road to access required information via the cloud will speed the development process and improve time to market.

SMB Use/Plan to Use Smartphones and Tablets for Different Product Design and Development Tasks

Product design/formulation within engineering/R&D

Product design/formulation with other teams inside the company

Product design/formulation with other teams outside the company

Product design/formulation collaboration within engineering/R&D

Approving/signing off on process to move forward

Product design/formulation collaboration with other teams inside the company

Product design/formulation collaboration with other teams outside the company

44.6%

42.1%

28.9%

33.9%

43.0%

28.1%

44.6%

46.3%

38.0%

36.4%

47.1%

46.3%

39.7%

40.5%

Use today Plan to use within 24 months

49.6%

36.4%

47.9%

37.2%

40.5%

33.9%

38.0%

28.9%

37.2%

34.7%

43.0%

39.7%

39.7%

40.5%

Smartphones Tablets

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Technology Attitudes of SMB Manufacturers Closely Tied to Digital Transformation Progress SMB manufacturers at higher stages of digital transformation (well underway or more) differ greatly in their attitudes toward technology compared to SMB manufacturers in general. Most dramatic is the assessment of digital transformation as essential to survival. And while budget limitations are real, the leveling of the competitive playing field with larger manufacturers will be especially important, ultimately helping to free up resources to drive growth. Digital transformation has both near-term tactical benefits and long-term strategic implications.

Total SMB SMB DX Advanced*

48.3% 62.6%

46.2% 63.3%

46.9% 55.4%

45.7% 60.4%

Our efforts around digital transformation will be essential to our company’s survival in the next 3-5 years

Budget limits represent a major constraint on our ability to apply new technology for maximum impact

Technology levels the playing field for small businesses versus larger corporations

New processes and advanced digital technology has helped free up resources and allow us to grow our business

6 or 7 on 7-point Agree/Disagree Scale N = 420 (SMB); 139 (SMB DX Advanced)

* SMB Digital Transformation Advanced are “well underway or more.”

Technology Attitudes of SMB Manufacturers

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Digital Transformation Investment Helps SMBs Be More Competitive in Key Product Design and Development Areas Investments in engineering, design, and a variety of PLM resources are making a competitive difference for SMB manufacturers, but these efforts need to continue. Those manufacturers that agree technology helps level the competitive playing field identify several operational areas where investment makes a meaningful difference. In general, collaboration and rapid response are the key benefits in product design and development cited by those that have invested most in digital transformation.

How DX Makes You More Competitive in Product Design and Development SMB: Tech Levels Playing Field

48.8%

36.7%

40.4%

33.1%

42.5%

34.3%

39.2%

Engineering and manufacturing can collaborate more easily

Respond more quickly and precisely to changing customer demand

Faster time to market

Address product quality issues more quickly

Product data and product information unified for the global team

Easier collaboration among development team members, engineers, and non-engineers

Product development team can collaborate more easily with suppliers

N (Agree that technology helps level the competitive playing field) = 322

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Key Takeaways: Leverage the Digital Transformation of Design and Development for Competitive AdvantageMost SMBs have been investing in digital transformation, driven by the potential for process and design improvements. Don’t assume that your firm is “too small” for transformation, or you’re liable to get left behind.

Look for areas where digital transformation can support key business priorities, like productivity and efficiency. For most SMBs, this means prioritizing both product development and design processes.

SMBs that can be agile and quickly adopt technologies that act as “innovation accelerators” for design and product development will be in a better position to compete against larger companies.

Leverage existing technology adoption—such as 3D printing or smartphones and tablets—to advance digital transformation. For example, think beyond 3D print prototyping to production applications. Or explore the use of mobile devices not only for approval and sign off, but also for enabling cloud-based collaboration.

Focus on improving key product design and development processes through digital transformation. Improvingproduct quality, addressing complexity, better collaboration, and process improvement are leading reasons for product design and development investment.

If going all in on digital transformation is prohibitive, consider a “test the water” approach of incrementally adding budget (or reallocating funds) and then devoting staff resources.

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Ray Boggs Jeffrey HojloProgram Vice President, Small and Medium Business Research

Program Director, Product Innovation Strategies

Ray Boggs has a diverse background in the communications, computing, and office automation industries as well as consumer and channel research. He manages IDC’s Small and Medium Business (SMB) research practice. As part of his work, Mr. Boggs directs survey research, forecasting, and market analysis for advanced technology products and services designed for small (under 100 employees) and midsized businesses (100 up to 1,000 employees, with additional information on firms with up to 5,000 employees).

As Program Director, Product Innovation, Jeff Hojlo leads IDC research and analysis of the PLM and collaborative innovation market, including topics such as the development of an innovation platform and the intersection of product design, development, and digital manufacturing. Mr. Hojlo is also responsible for research on business and IT issues related to the engineering oriented value chain (EOVC), which includes automotive, aerospace and defense, industrial machinery, and heavy equipment manufacturers, as well as the technology oriented value chain (TOVC), which includes manufacturers in the electronics and semiconductor markets.

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