Real Talk - Digital Transformation

Real experts. Real ideas. Real conversations. Protolabs presents… Real Talk.

Welcome to Real Talk, a thought leadership audio series that delves deep into the transformative changes and challenges within the manufacturing industry.

This series of conversations explores how industries will confront and overcome the biggest questions facing them in 2024 and beyond. Three of the most influential voices within a given topic cut through the noise and deliver a debate rooted in practical insight, not speculation.

How can traditional industries thrive in a digital-first economy?

An audio feature from Protolabs in partnership with FT Longitude for the Real Talk podcast

The Speakers

Synopsis

The digital-first economy is upon us. Emerging technologies are evolving more rapidly, reshaping customer expectations and placing pressure on traditional industries, such as automotive and manufacturing, to innovate faster.

Opportunities abound for those that can keep pace. McKinsey estimates that companies could make around USD30 trillion in revenue from products that aren’t even on the market yet.^[1]

So, how can businesses capitalise on this opportunity?

In this audio feature, host Meg Wright, Head of Innovation at FT Longitude, discusses why traditional industries must transform to remain relevant in a global market.

Joining her to explore this topic are:

● Claudio Longo, Vice President Research & Advanced Engineering Software and Central Technologies, Continental Automotive Group

● Neil Ross, Associate Director for Policy, techUK

● Stefan Baumgart, Director of Product Management, TeamViewer

Transcript

VO: You’re listening to The Real Talk series of conversations from Protolabs, produced in partnership with FT Longitude.

Meg Wright: We are living in a digital-first economy.

This environment is drastically changing customer expectations, putting pressure on traditional industries to innovate fast, and often.

New research from Protolabs reveals that customer behaviour is the main factor currently influencing product development.^[2]

Why is this important? Well, over the next four years, McKinsey estimates that companies could make around 30 trillion U.S. dollars in revenue from products that haven’t even been invented yet.^[3]

With that much at stake, those who fail to adapt risk being left behind.

Claudio Longo: If you don't use the data you have as an asset in the company, you will definitely die. It is so crucial that because others are doing it, if you don't do it, you are not competitive anymore.

Neil Ross: Pretty much every industry is going to face a bit of a crunch point in the next few years where your level of competitiveness will almost certainly end up being determined by the extent to which you've adopted new digital technologies.

Meg Wright: But as emerging technologies enter the market at lightning speed, there’s plenty for traditional industries to be excited about too.

Stefan Baumgart: Very often we are thinking about the most advanced and fancy applications, but there's a lot of disruption and innovation that we are seeing in fact in our customer base. In logistics processes where you can easily speed up a traditional logistics process by 15% to 35%. And that's an enormous amount of savings if you think about this at the scale of a full warehouse or even a globally scaled logistics organisation.

Meg Wright: So, is it really a case of do or die for traditional industries when it comes to embracing emerging technologies?

I’m Meg Wright, Head of Innovation at FT Longitude. In this audio feature I’ll be exploring how manufacturers can thrive in a digital-first economy.

Chapter 1: What is the digital-first economy?

Neil Ross: In the last few years, people have talked about the economy and the digital economy as if they're separate things. I think, in reality, today the entire economy is digital. It's just the extent to which different parts of it have digitised or how advanced they are on that journey.

My name is Neil Ross. I'm the Associate Director for Policy at techUK.

So basically, we are a body that represents a collection of businesses who are our members. We have over a thousand members and those are technology companies that operate in the UK. As the Associate Director for Policy, my job is to make sure that when we're engaging with government, we're making sure that the tech sectors' asks are very clear and they're working collaboratively with whoever's in power at the time.

Meg Wright: Things move fast in the digital economy and customer demands are more complex than ever. To stay competitive, traditional industries need to be at the forefront of innovation. But is deploying new digital technology the answer?

Neil believes it is. Here’s an example from the UK:

Neil Ross : So the Office for Budget Responsibility, which checks the government's books, has said that even if we lifted productivity by half a percentage point, that could help the government raise about £40 billion in extra tax revenue as well as cutting about £6 billion from their expenditure. So you could see pretty much like a £46 billion plus to the government coffers if they were able to better support the deployment of this technology in all business sectors. This agenda of having a digital first economy is really important.

Meg Wright: Digitalization doesn’t have to mean end-to-end digital capabilities.

For many sectors—manufacturing, automotive and industry included—it is often about adapting to find a balance between digital transformation and traditional business models. This allows companies to remain competitive and meet shifting consumer and business demands, without compromising on their strengths.

Stefan Baumgart: So very often when we think about the term digitalization in the first place, many obviously associate it with full optimization through robotics, autonomous vehicles, et cetera. Whereas on the other hand we as humans are very unique in our skills.

Meg Wright: Meet Stefan Baumgart, Director of Product Management at TeamViewer—a provider of software to remotely access and control PCs, machines and other devices, and to optimise manual work with augmented reality.

Stefan Baumgart: So what we observe is that actually the human at the centre of many industrial processes nowadays will also remain a key ingredient to any production plant, et cetera.

Obviously the area of application most likely will change. There will be robots around. But robots are usually really good at very specific, narrowly-scoped tasks. And they are not so well doing in terms of end-to-end processes where we as a human have, so to say, competitive edge.

Meg Wright: So, what then are the key factors that determine the success of a digital transformation in a traditional industry?

Claudio Longo: My name is Claudio Longo. I'm leading Innovation, Research, and Advanced Engineering inside Continental Automotive.

We are in the middle of a big transformation. CASE are the main trends of the automotive industry. It's connected, autonomous, shared, and electric, and we have to have a response to all those trends.

Meg Wright: And, as Claudio explains, it’s not only the automotive industry that is disrupting itself from inside out. Outside sectors too are playing an increasingly influential role.

Claudio Longo: We are a tech company, and the automotive industry is technology-driven.

And there's this term existing, software-defined vehicle, and we are more and more moving into that direction. The architectures of the cars are completely changing. What you know from an iPhone, that everything is software-enabled and you have a very good hardware, but at the end, the differentiating factor is always done by software. And this is like we do today in cars or in very modern cars, where the architectures are changing.

So what do I mean by changing architectures? It means that you have a big, powerful, high-performance computer kind of in the middle of the car, some zone controllers, and you connect all the sensors to this high-performance computer. So you have a setup in the car which is totally different to the setup we have years ago or even today, where you have electric control units, software and hardware together. Now, hardware and software is kind of separated, so you need to have a powerful hardware and all the differentiating things you put on software so you can enable functions in the car by providing on-the-air updates, which was not possible in the past.

So to sum it up, I think the whole automotive industry is already or has already moved since years from a traditional setup to a very modern one and a bit guided by the entertainment industry.

Chapter 2: How is tech transforming traditional industries?

Meg Wright: From AI and the metaverse to the Internet of Things and digital twins, there are so many new and emerging technologies that it can be difficult to know where to begin.

In traditional industries, the biggest opportunities come from understanding how and where technology will help to enhance productivity, improve efficiency and increase accuracy. As TeamViewer’s Stefan Baumgart explains:

Stefan Baumgart: If you think about someone doing an assembly line work instruction, then usually you need your hands, right? And probably you also need to move. So that is why we often bring in wearable computers, like a smart glass for example, that is showing the instructions right in front of the eye. And the great advantage of these types of solutions is basically, it's very simple, we free up the hands of the people who are doing the work there.

So being able to at the same time work while interacting with a computer system usually translates immediately into, in the first place, a faster process; because a worker can do different tasks in parallel. But also less errors because information, documentation and the likes are presented right in front of the eye of the worker who is doing the process.

Meg Wright: Another area that benefits from emerging technologies is product development.

According to Protolabs, using these technologies can unlock new revenue streams, reduce production costs, and accelerate time to market.^[4]

To help stay ahead of the curve, organisations are embracing advanced tools, like augmented reality and the industrial metaverse. Here’s Stefan again:

Stefan Baumgart: So augmented reality is a technology that describes blending in digital information into reality. And that is different flavours, all the way from blending in a full 3D model and hologram into your surroundings. You can imagine you're working with a production machine and at the same time see a digital overlay with IoT sensor data for example. So a 3D model that is blended into your view on top of the actual machine in this case.

When you think about the metaverse, very often it gets associated with a fully virtual environment that has a lot of applications in gaming, crypto, you name it. And the industrial metaverse is slightly different. It's also digital space where humans can collaborate, access digital content, but it is much closer tied to reality. And that's where then technologies, as I explained earlier, like augmented reality, come in as key ingredients to access the digital world.

Meg Wright: So, which tools are businesses prioritising to enhance their day-to-day operations and processes?

Let’s hear from Continental’s Claudio Longo.

Claudio Longo: What we are always doing is looking what is outside of our company available and what can be applied kind of plug and play to us. And there are tools which you can implement easily. We are looking what is outside, but what do we have to put on top or what do we have to develop on our own?

We call it AI enterprise applications, because we need to have specific enterprise applications in order to make use of the big data we have inside our company, and I think that is really the differentiating factor between a company just looking outside what is available and apply in the company, and a company doing that in a structured way but doing also and developing also customised solutions which are for the use of our own company.

And on top of it, it is very important that you also enable your people to get used to AI, so you need to have a knowledgeable group of engineers, AI engineers, which or who actually deploy the knowledge to others. So we don't want to limit the knowledge of AI, for instance, in my team, we want to deploy the knowledge in the whole company that everybody is enabled to work with artificial intelligence in the future and even today.

Meg Wright: The promise of these technologies is certainly ripe, but it begs the question: What regulatory and ethical considerations do businesses need to make as they embrace these technologies? And are governments doing enough to support them on this journey?

techUK’s Neil Ross explains…

Neil Ross: Where in the EU, they had this very all encompassing EU AI act. In the UK instead, they've delegated responsibility for regulating AI to individual regulators and we're starting to see that work through the system. So at the moment, there is a bit of regulatory uncertainty. But also, it's much less restrictive if you want to try and experiment and do new things. The UK government wants to strike a balance between allowing that experimentation while also setting across some principles like trust, transparency, accountability, etc., in the deployment of technologies.

I think it's a combination of that plus the UK's great skills base, university partnerships, and general strong reputation on AI that's led lots of companies, like OpenAI, to open their first European office here and you've seen a few other companies do that as well. Microsoft's investing lots of money in new data centres as is Google and we saw Europe's largest ever AI venture deal was done in the UK where Wayve AI, a self-driving car but also AI company, received almost a billion dollars of investment.

Chapter 3: How can businesses seize this opportunity?

Meg Wright: The digital-first economy is upon us.

Is it a case, then, of do-or-die for traditional industries? Or are there scenarios where traditional methods might still hold an edge?

Here’s Neil again:

Neil Ross: If you go to any business sector, any business that puts out a policy paper or a suggestion about how it wants to improve or any public service, all of them will almost certainly start with increasing digitization, applying AI, etc. So everyone can see that this is hugely important.

Meg Wright: But the extent to which companies need to adopt new technologies requires skilled workers. And traditional industries have been especially hard hit by the talent shortage.

For instance, a 2023 survey conducted by the German Chambers of Commerce and Industry found that two-thirds of those in electrical equipment, mechanical engineering and car manufacturing couldn’t fill vacancies.^[5]

Critically, it is here too that technology could prove to be the solution. For Stefan, one of the many reasons for this is technology’s ability to bring everyone along for the ride.

Stefan Baumgart: In large service organisations, you very often have the issue of language barriers. The people are really, really good technically, they can fix the issue technically, but if they need to consult an expert which has another language, then this is something that can result in a true blocker. And ultimately someone needs to travel all around the globe just because of a language issue. And there technologies like generative AI are basically the enabler of solving these issues today. And that is just one example.

Meg Wright: So in light of all this, how can established companies foster the right conditions for innovation, allowing them to remain competitive in a world where agile challengers and digital-first competitors are rife?

Claudio Longo: One key factor is that you need a company culture, and the company culture kind of starts with the executive board to foster innovation. And what we do is we look on our products, we put them into the different patterns, if they are in a growth area or if they're in other areas, and we put our money on things we believe they are in growth.

And on the other hand, you have to create a culture where all your brilliant engineers and maybe even some nerds can stand up and present their ideas and they get acceptance. And if you look on introduction of AI for software developers or AI assistants and so on, we had a very big pull based on the push generated bottom up by the upper management. So we ran into open doors. And that was, I think, a very good example. So if you are able or if you are enabling your engineers, that they are understood by the management, then you create an innovation culture. If you're then running into open doors, then you are able to implement very fast. So it is possible in a traditional company with having the right innovation culture to move very fast into a digital-first company.

Meg Wright: Internal culture is one thing, but these companies stand to benefit even more if they think strategically about how to partner within and across sectors on the application of new technologies.

The UK’s tech and manufacturing sectors are a prime example of this, as Neil explains:

Neil Ross: One of the big benefits they will have is that there is a lot of people to draw on in the UK. Because we have such a strong tech sector, there's plenty of partnerships that could be developed and used. And we've already started to see a few of those. Some companies have already started to partner with Microsoft and others to start deploying some of their tools to help improve the efficiency of their manufacturing processes.

So probably where we are is they need to think, I think, a bit more about partnerships, how to bring technology in from a strong sector here. But I can see that already happening. You can see that in some of our sister organisations that represent car manufacturers, manufacturing, starting to now really think about the tech value add that they can get when deploying these kind of technologies.

Conclusion

Meg Wright: Embracing a digital-first approach is no longer optional; it’s essential for survival in today’s business environment. The manufacturing sector is no exception.

As emerging technologies continue to evolve at lightning speeds, traditional industries will need to think carefully about how and where to prioritise their digitalisation efforts, taking into account factors such as stakeholder engagement and organisational size.

Stefan Baumgart: Digitalization really only works when you have sponsors in the executive level basically. While at the same time making sure that the people who are using the technologies in the end are basically included in the decision-making process from the get-go.

Neil Ross: AI will allow companies to build much more tailored and personalised services to individuals. And that can erode some of the benefits you get from working with an SME, which is often they provide you something more tailored and focused. Larger companies may just start to be able to replicate that based on the new technologies they're going to deploy. So we need to make sure that smaller businesses catch up again to seeing those opportunities.

Meg Wright: But none of this will happen in isolation—and those who understand this will be best placed to reap the rewards. A final word from Claudio Longo:

Claudio Longo: We have to talk to the big tech companies, we have to talk to the entertainment industry, to all the other players out there, and we are partnering with them and even looking to startups, which have on-the-edge solutions, which we can apply to our needs.

So the answer is definitely we look beyond automotive. If you want to survive in this industry, you have to do it. And if we are open to collaborate with all those partners, I would say, then we will be strong in the future as well.

Meg Wright: I’m Meg Wright. Thanks for listening.