Unlock digital transformation in your cement (or any industrial) business…
Originally published (in Russian) in the Journal of Cement and its Applications in Russia , Feb 2021 issue. Republished here with permission.
Digital transformation tackles industry threats
Whenever I start speaking about digital transformation and industry disruption in the cement business, whether at a conference, in a board room, or among my friends, I inevitably notice raised eyebrows. After all, cementaceous materials have played a critical role in societal development throughout history, and that’s not changing. BUT, when I mention that many cement companies have valuations that languish in the 3–5X EBITDA range, while construction technology companies that solve thorny problems like Procore have valuations that are 15–20X revenue, those raised eyebrows are quickly replaced with penetrating stares.
It turns out that solving problems for an industry or society is worth a whole lot more than providing a commodity product as part of a supply or value chain. Proof of that is easy to see in the valuation of Procore. But becoming a company like Procore is not the end-game for a cement company. Cement companies are necessary participants in society and provide critical factors of production. Traditional improvements like modernizing plants, improving production, optimizing logistics, and recruiting the best talent are important to remaining competitive and generating returns for shareholders. However, they are not sufficient to address the many threats facing the cement industry today, which include, but are not limited to: the current global recession, limited prospects for economic growth, increasingly stringent environmental regulations and pressures, and the war for talent.
In response, many cement companies have either embarked on digital transformations or have been considering digital transformation as a key part of their go-forward journeys. They’ve decided that putting their customers at the center of their thinking is a critical, foundational strategy that will drive new opportunities for growth and minimize the impacts of disruption. But while the threats the cement industry is facing may seem obvious, and while customer experience led digital transformations are often described as a way forward, cement-industry executives may not fully grasp the nature or extent of the opportunities that result from effective digital transformations.
The table below aligns threats and corresponding opportunities (or opportunity areas).
Most of the opportunities above are better realized by companies that digitally transform, as these opportunities require digital skills, digitally enabled processes, and digital technologies. The balance of this article will focus on what your company will need to do to start or progress its digital transformation.
Transformation starts at the top
At CEMEX day In March, 2017, Fernando Gonzalez, CEO, told his shareholders, company, and the world at large that CEMEX was embarking on a digital transformation by putting the customer at the center of everything it did, and building the industry’s leading set of digital solutions. In the same presentation, he talked about the need to ‘align the company’ around this vision, and to stand up a ventures arm to explore new business models, partnerships and growth opportunities. This of course was in addition to the traditional optimizations every manufacturer plans for on an annual basis. This top-down commitment to transformation, publicly stated, embedded within the corporate strategy, and sponsored, enacted, and measured at every level of the organization, enabled (and propelled) CEMEX not only to launch its CEMEX GO digital order to cash solution globally in less than 2 years, but also to be ready for COVID-19 and its strict requirements for remote working, social distancing, and rapid adaptation to new regulatory protocols.
I cite this example because it speaks to the level of top-management commitment required for digital transformation to succeed. The CEO of CEMEX regularly evangelized the benefits of the announced transformation, at company town halls, investor presentations, and interviews with analysts. The firm bent its advertising, marketing, and branding efforts to painting a customer-first, digitally enabled CEMEX picture not only for its customers, but also its employees and partners. One might consider this theme of CEO and company commitment and evangelization to be a superficial part of a digital transformation. I would argue that it’s the most important part, and that without it, digital transformations are prone to failure. McKinsey agrees: a McKinsey study in 2018 showed that digital transformations were 3.1X more likely to be successful when management established (and communicated) a clear change story for transformation.
With top-management support, organizations can more effectively make the changes to people, process and technologies that digital transformations require. HR becomes a key partner to the CEO and the c-suite, and should play a prominent role in the transformation, with a mandate (but also permission) to drive organizational change. However, changing an organization with a rich and long heritage and culture often 50 to 100 years or more in the making is no easy feat. Engineering and manufacturing firms (including cement companies) are naturally waterfall-oriented organizations. One doesn’t think of experimentation and fast-failure when building a bridge, for instance, or when providing application specific cement that must meet strict quality guidelines. That said, HR should help drive the organization’s planning around how to start, where to start, and with what methodologies. In order to scale its efforts HR should enlist internal partners, ideally the other c-suite members, to sponsor and evangelize initiatives pertaining to each business function. HR can ensure that appropriate governance exists, and that KPIs measuring success are defined and adopted. Having established c-suite sponsorship and governance, HR can move to the hard work of educating the workforce, creating a common digital transformation vernacular, and finding and addressing skill and talent gaps that must be plugged through up/re-skilling and new talent acquisition. HR must find a balance between promoting internal talent with domain expertise and hiring external talent with critical skills in digital and new ways of working. Cement and other industrial firms often make the mistake of placing existing executives and managers in new digital roles with superficial training. The mindset and skills required for digital product management, for instance, are quite different from the mindset and skills required for producing new industrial products, optimizing plant efficiencies, and participating in or driving S&OP processes. Additionally, firms should avoid ‘temporary’ or ‘half-time’ digital roles for company veterans. Temporary or ‘half time’ roles inevitably result in poor digital products, demotivated digital teams, and new digital talent leaving the firm. Company veterans placed in digital roles must be thoroughly trained, and fully committed to their roles, with their prior responsibilities completely transitioned prior to starting their new role. A technique that has been used successfully in many firms undergoing digital transformation where hiring outside talent is not the norm, is to pair company veterans with new hires, to ensure that company needs are understood and considered by digital executives who will naturally and necessarily put the customer at the center of their thinking, prioritization, and efforts.
As the company progresses in its digital transformation, CEOs, executives, and other leaders within should be careful asking digital teams for specific deliverables by specific dates, or to ask for specific features; When this happens, behaviors tend to ‘snap back’ to old ways of working and leaders and managers, who historically do as the CEO says, may not defend their teams or their new, agile processes, that put the customer at the center of their thinking. The focus can become what the CEO or other leaders want, and not what the business committed to customers.
HR also needs to consider workforce diversity and a supportive digital culture in its planning for digital transformation. Just as a soccer team can’t win with 6 goalies and 5 strikers, a modern, digitally transformed cement company cannot win with just engineers and traditional sales teams. Diversity in skills, age, gender, education level and work experience are critical factors in building the workforce of the future. Moreover, digital natives, recent graduates, and skilled digital talent will not want to work for a company that is destroying the environment, has shabby, dirty facilities, cannot provide growth opportunities, and frowns on risk taking and autonomy.
But operations need to change too
Even as HR focuses on talent, culture, and organizational changes, product, operations, and sales leaders must rethink company workflows, processes and often entire operating models. As the firm considers digitizing interactions with customers, suppliers, and employees, it must keep in mind that digital solutions should be designed to be user/customer-first and not product-first. Considering the varied needs of customers or customer segments in the design of digital solutions will prevent “one size fits all” applications that fail to address specific segment needs, and as a result impede adoption and customer value. For instance, in the cement industry, industrial companies often use demand schedules to order product whereas builders order by jobsite, and according to onsite dynamics, like when crews are available to pour foundations or build walls. Designing one order flow for both segments will fail to address adequately the needs of either of them. Partnering with HR to find the right digital product management and customer experience talent will prevent many such problems from occurring. Additionally, securing HR support to tie employee incentives like Net Promoter Score (NPS) and digital product adoption levels can ensure heightened focus on customer needs, and appropriate prioritization of product features and functions.
Your customers can be your allies
Cement companies typically have a well-established roster of customers, many of whom have long-standing relationships and strategic value. Smart firms recruit these customers to play a role in design-thinking workshops, product planning, prioritization activities, and ask them to be part of alpha or beta rollouts. Interviewing these customers regularly helps inform product management teams and digital staff where their products are falling short, and how they might be improved to drive adoption among similar customers.
Don’t let legacy operating models be an inhibitor
As senior leadership evaluates development and uptake of digital solutions, and the customer experience organization reports on adoption levels and product feedback, operating model challenges become apparent. IT organizations built to provide reliable and secure enterprise resource planning capabilities to internal staff often lack the flexibility, speed, and capacity to accommodate the needs of teams providing customer-facing solutions. As the data-innards of legacy systems are exposed to customers, e.g. cryptic product names, expired contracts that show up in digital solution drop down lists, contract terms and conditions that are useless for driving digital workflows or configurations, the limitations and handicaps of non-digital IT organizations and systems rapidly introduce problems within the customer experience. In the non-digital world, highly-paid salespeople shielded customers from firm complexities and handled the manual work associated with entering customer orders into unfriendly back end systems. In a digital world, salespeople are relegated to handling customer complaints and doing their best to explain why customers are having so many problems with the ‘new system’, unless the firm accounts for these challenges up front. Failing to build digital workflows that map seamlessly to back end systems, failing to repurpose salespeople to focus on higher value activities, and failing to enable IT to modify and adjust back end systems at roughly the same pace that digital solutions require will result in customer and employee dissatisfaction and skepticism with regard to the digital solutions. A regional president of a large building materials company told me during a conversation at a builder conference in 2018 that he was refusing to ask his customers to use their new system prior to the firm accommodating his customers’ needs and addressing their complaints. The c-suite cannot forget that salespeople and business unit bosses ultimately put their customers’ needs first, and are loathe to subject them to poorly performing solutions, no matter how important the CEO might say they are.
What about omnichannel?
Even when a digital transformation appears to be going well, many cement companies will struggle to understand the need to deliver a consistent view of their products, services, and brand to their customers, and will not enable various channels with the same information and capabilities. While not an easy thing to do, firms must ensure that call centers, sales persons, plants / yards, delivery fleets, customer portals, e-commerce websites, catalogs, stores, or any other channel that communicates or interacts with customers has the same information at the same time, deliver a common brand and customer experience, and at the very least know where and how to solve customer inquiries and are incented to do so, even if they themselves don’t possess the information. For instance, salespeople may be reluctant to encourage customers to use online tools (and may even discourage them) if they feel they will lose commission dollars or if they feel threatened by the new system. Call center support staff may not give appropriate answers to customer questions about order status or product information if they are not properly trained and don’t have access to the same systems customers do. Delivery drivers may stare blankly at customers when customers ask when the ‘new mobile app’ they heard about for tracking deliveries will be ready if the drivers aren’t trained on how the company is digitizing its business. Allowing customers to interact digitally with your firm immediately increases the expectations of your customers. Firms can’t avoid new, significant demands from customers accustomed to the best omnichannel experiences delivered by long-time digital companies like airlines, retailers, restaurants, insurance companies, and more. The best experiences your customers have with these firms set the expectation for the experience they want to have with your firm.
While there are no simple answers to the challenge of modifying operating models, workflows, and processes to accommodate a digital, customer-experience led strategy, many successful IT departments reevaluate how they deliver value to particular business units, and focus on removing impediments to velocity and flexibility; this often results in the decentralization of decision making and a loosening of rigid standards. Spotify, for instance, decided that it would be better to allow for autonomous teams to determine, within reasonable boundaries, how to build digital solutions; standards and best practices would become apparent as teams succeeded or failed. Regular retrospectives and intra-team collaboration fostered recognition of what worked and what didn’t work, and drove the firm toward template and standards based solutions rather than ad-hoc development processes.
You can’t manage what you can’t measure…
As digital solutions are adopted, the pace of transactions, customer interactions, and resulting insights quickens; the entire organization can improve its operation as a result, but only if prepared to take advantage of the new sources of information. Supply chain organizations for instance, can better predict demand, optimize logistics, and prevent stockouts using insights derived from digital applications and analytics. Sales organizations can better understand existing and new customer behaviors, and focus on higher value activities like solution consulting and product evangelism. Plant operators can better plan for customer pickups, possibly offering preferred pickup slots to high-priority customers, or using demand-based pricing to smooth traffic in loading areas, or predict when staff and product capacity are required to meet imminent demand. To make these improvements however, these organizations must be enrolled in the digital transformation, understand its benefits, and plan to leverage the new insights that result.
Don’t forget IT and infrastructure
Of course, changes to people and process will have muted impact if changes to technology are not executed in parallel. IT organizations must be prepared to modify their technology estates to accommodate the more rapid (and accelerating) pace of change inherent in customer-facing digital solutions as well as net-new requirements. To this end, migrating on premise solutions to cloud-based solutions, and ensuring new solutions are not built as monoliths, but as collections of services that are loosely coupled will do much to provided needed flexibility. Additionally, IT departments must provide technologies for collaboration (especially with the advent of remote working due to COVID), product management functions, digital analytics, digital marketing, content management, and other essential technologies for building digital solutions. Opportunities and requirements for automation, artificial intelligence, IOT and other exponential technologies become apparent as digital solution evolve and competitors’ offerings are assessed. Adoption of Industry 4.0 within your manufacturing, supply chain and logistics is now table stakes. As I tell clients when describing common pitfalls of digital transformations, knowing what digital solutions you need to provide your customers to avoid disruption, but being unable to provide them due to technology constraints is a frustrating and paralyzing reality with which to live.
The pace of digital and changing customer demands will require that your teams can deliver enhancements to customer facing applications quickly and continuously. In a digital world, where customers interact with systems directly, failing to change systems in response to customer demands will kill adoption, reduce customer satisfaction, and ultimately drive customers to your competitors. As such, firms must enable their teams to deliver new features and functions rapidly. Scaled Agile Frameworks, DevOps toolchains, microservices, autonomous and mission-driven squads, test automation, CI/CD pipelines, and site reliability engineering should be some of the terms and processes your firm is becoming familiar with. If these terms are foreign to you and your development teams, you very likely will fail in the mission to continuously enhance the solutions your customers use. IT departments must provide the technical tools and infrastructure that enable these agile ways of working, and ensure that digital development teams have secure access to back end systems, databases, and applications required to build the digital experiences of the future.
But a cement firm cannot be all things to all people
Of course, cement firms must also realize their own limitations, seeking partnerships with ecosystem participants to create value-added solutions, support from consulting firms to plug skill and human resource gaps, and new growth opportunities through emerging players within or adjacent to their value chains as investment or venture targets. As stated previously, becoming Procore is not the end game for cement companies. Cement companies need to produce cement and provide it as a critical factor of production and economic growth. But there is no reason that cement companies can’t broaden their share of the construction value chain and provide not only cement and readymix, but also value-added solutions to the industry at large. C-suite driven digital transformations will unlock previously hidden opportunities and buffer the company from current and future threats.
Coming back to the CEMEX example, nearly 4 years after the CEO told Wall Street about his company’s customer-experienced led digital aspirations, I recently asked CEMEX’s EVP of Digital and Organizational Development, head of CEMEX Ventures, and CEMEX-owned IT consultantcy, Neoris, and former McKinsey Consultant, Luis Hernandez, what struck him as the biggest difference between the company in 2017 and the company three years later. Hernandez replied:
The biggest difference is “…the central focus we now have on customer experience. A digital transformation is enabled by digital technology, but it has to go together with a profound organizational and cultural evolution that installs new practices and ways of thinking”
I could not agree more.
Jerry Lewis is a Partner with IBM’s GBS consulting arm. He has more than 22 years’ experience helping companies of all kinds execute digital and omnichannel transformations, and has spent the last 4 years working with large industrial clients specifically. The opinions expressed in this article do not necessarily reflect the opinions or points of view of the IBM corporation.
