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The Cost of digital transformation

The cost of delaying digital transformation

When examining the need for digital transformation, one of the first things that we think is how much it would cost. Instead, we should learn to ask how much money we lose every day when we delay making a choice. 

Delays may occur for a variety of reasons. The main reasons are a belief that present methods are adequate. Also, a fear of change, or simply an inability to choose between options.

However, not making a choice is a decision itself! And that choice is to keep using obsolete systems or spreadsheets, wasting critical time on day-to-day operations. This will very certainly have an impact on our productivity and bottom line.

Most CEOs and decision makers understand the need of continually improving their company’s efficiency, yet they nevertheless put off making a choice on a DX project. But why is that?

During our visits in many factories, we’ve encountered several reasons for postponement.

THE CHANGE ARGUMENTS ARE INSUFFICIENT.

Surprisingly, many small but growing businesses believe they are not mature enough to take such a move.

These businesses are probably unaware of how their present processes and technology stack are drastically restricting their development. This is since the majority of companies confront some form of business issue in their day-to-day operations. Redundant data or data duplication, business systems cannot interact with one another, system cannot track business processes, lack of collaboration capabilities, etc. are the main reasons.

OPPOSITION TO CHANGE

Experts at Deloitte say that aversion to change is the biggest problem when it comes to upgrading existing systems. Also 82% of the people who took part in a Deloitte study said that initiatives fail because of opposition from within the team.

Many people are concerned that digitization and automation will make their jobs obsolete.

CHANGE MANAGEMENT IS CRUCIAL.

As a result, change management is crucial to any responsible DX project. We must accept that some jobs will become obsolete. We must come up with a plan to transition these positions into new ones that provide value.

The workforce’s continuous training is key to this initiative. Machines can now partly or completely do an increasing number of tasks. Thus, it is essential to focus on building soft and digital skills. These skills are becoming more important than raw technical abilities.

THE COMPANY DOES NOT HAVE THE ABILITY TO TAKE ON PROJECTS.

Another cause for such a project’s delay is a lack of in-house capability to replace the present systems.

Change management, breaking down business processes, and reorganizing IT infrastructure may require this expertise.

A committed internal project owner is one characteristic that a DX project clearly lacks. The goal of the project owner should be to ensure the project’s success and continuous day-to-day operations. His or her duties include putting together the project team, facilitating cross-departmental communication. Also, assigning and keeping track of responsibilities. It is critical to choose someone who has direct access to top management and full control.

KFACTORY IS DIFFERENT.

None of the previously mentioned competencies are required in-house. Some of these competencies are readily outsourced to consultants or subject-matter experts. From this point of view, KFactory is different because it minimizes the involvement of customer resources in deployment.

Want to know more? https://kfactory.eu/platform/core/

 

TIME CONSTRAINTS

Although digital transformation may save a lot of time in the long run, the initial time commitment seems to be significant.

Business analysis, organizational development, training, and selecting and deploying IT solutions seem to require months, if not years, of effort.

Companies must have a clear strategy and agree on the prioritization of problems.

HIGH PRICES

Investing in digital transformation can surely look like a significant financial investment in the life of any organization. Hearing about the first investment may be enough to put some decision-makers on hold.

Since a DX project is by definition an ongoing journey, it can’t just be judged by how much it cost to get it started. Recurring costs include things like training programs, growing the business, and keeping the IT infrastructure in good shape.

THE COST-BENEFIT ANALYSIS

Before diving headfirst into a project of this size, it is important to do a cost-benefit analysis. Define the areas where you can gain the greatest boost in efficiency and focus only on them. Resist the urge to spend lavishly on “vanity features.”

Others are concerned about the difficulty of estimating the ROI of such a project. When purchasing a new manufacturing line, the return on investment may be precisely calculated. That can be based on greater productivity and a higher daily output of items.

But how can we assess the true cost of inaction in digital transformation?

This cost may be quantified as the difference between two components.

WHAT IS ROI

The first factor to evaluate is the ROI of the new systems.

ROI (%) = Net profit / TCO

TCO stands for “total cost of ownership,” which is the complete cost of the DX project, including all estimated expenditures made during its lifespan. This includes the time of the team, the cost of consulting, the cost of training programs, and the cost of putting different technologies into place.

It’s important to think about not only up-front costs, but also ongoing costs like maintenance and support for IT systems.

The gains are the sum of direct and indirect savings from the number of man hours saved by automation. Also, greater production capacity, waste reduction, and higher sales.

IT’S TIME FOR SOME MATH! 

Let’s say that digital transformation with KFactory is expected to bring in a total of EUR 135,360 in profits in one year. If the TCO for a single year is EUR 30,000, we will get a ROI of 451%, which means you will save 451 times the money you invested in a year.

Naturally, since the initial outlays are generally higher, the company can only obtain a positive ROI after 1 or 2 years, but with the KFactory platform, the TCO can be forecast for a single year, and a positive ROI can be seen in a less than 12-month cycle.

You can calculate your ROI according to your real life situation here: https://kfactory.eu/calculator-roi/

THE EXPENDITURES

Another factor to consider is the annual maintenance expenditures of the present systems and manual data collection. How many resources are required to maintain these systems operational?

You should also consider the amount of technological debt you develop over a year. Also, the quantity of data you gather in a year that will need to be moved to other systems later.

IMPORTANT TAKEAWAYS

• Doing nothing may seem to be a safe decision for a variety of reasons, but it will lead you farther away from your objectives.

• Although a digital transformation (DX) project may be rated only on expenditure, it is also crucial to examine qualitative ROI: how much effect can a digital culture have on how we operate, and how committed is your team?

• Always prepare for the future: the new systems should always meet both current and future company demands.

Choosing the proper partner to help on your digital transformation path may be really beneficial.

 

With hundreds of comparable initiatives behind us, we can bring a lot of valuable expertise and knowledge to your project, that you could only obtain by trying new things and learning from your failures.

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