Special Report

Stepping Up the Pace
Although manufacturers were hard hit by COVID-19, they canlook to the digital leaders in the industry to understand which
technology investments will propel them forward. This e-bookoffers industry decision makers our research-based insights on
the best next steps to take.

Produced in partnership with

November 2020

Contents
COVID-19 served as a wakeup
call to manufacturers. Those thathave already made substantial
progress on modern manufacturing
principles are far better positioned
to absorb the substantial businesschallenges that lie ahead.

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Stepping Up the Pace

Click a link below to jump to that section.

3

Introduction: A Manufacturing Wakeup Call

5

The Manufacturing Digital Imperative

13

Where to Invest: Look to the Leaders

21

Advancing Your Digital Maturity

24

Methodology

25	About the Authors< Back to Contents

Introduction: A Manufacturing Wakeup Call
Of all industries, manufacturing was among the hardest hit by the COVID-19 pandemic. In our 2020 study,
manufacturing was most likely vs. other industries to shift investment from strategy to business continuity to copewith the effects of the crisis. Businesses in this sector were also the most likely to make significant cost reductions
following the COVID lock downs and the least likely to accelerate digital transformation.
But when it comes to technology and processmodernization, COVID-19 also served as a
wakeup call. Before the virus, most manufacturers
were comfortable taking a leisurely pace toward
adopting Industry 4.0 practices and technologies.
Now, with fast-changing consumer behaviors andsupply/demand realities, as well as unprecedented
shifts in how plant operations need to be
maintained due to social distancing norms, time is
no longer a luxury they can afford.
Simply put, those that have already madesubstantial progress on modern manufacturing
principles are far better positioned to absorb
substantial business challenges that lie ahead.

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Stepping Up the Pace

By investing in the cloud, open APIs, Internet ofThings (IoT) and data analytics, technologicallyadvanced manufacturers are better equipped toquickly reset production requirements, manage
supply chain fluctuations and support work-fromhome employees.
The good news is, manufacturers that are
succeeding with their digital initiatives can help
shed light on the best next moves for less digitally
mature organizations.
In mid-to-late 2019, we worked with ESI
ThoughtLab to better understand what
separates leaders from followers when it

comes to digital maturity. We surveyed
2,491 business and technology leaders frommultiple industries globally (including 216
manufacturers) that collectively account for
about $21.6 trillion in annual revenue. We
also interviewed senior executives who areknowledgeable about advanced technology
initiatives within their companies (seemethodology, page 24). We then overlaid
these results with input from our 2020 studyof 500 senior executives in the U.S., including
91 manufacturers, to get a sense of how
priorities may or may not have shifted due tothe pandemic.

< Back to ContentsOur 2019 study distinguishes “leaders” from“beginners” to see what organizations look
like at any point on the digital maturity curve(see sidebar). Our research reveals how much
manufacturers should be investing in advanced
technologies as a percent of revenue today andin the near future, the investments yielding thegreatest returns, the returns they can expect andmore.
We invite you to read our ebook or visit us atcognizant.com/digital-transformation-report toread the full cross-industry report. You can also
read the full version of our 2020 study
at “COVID-19: The View from the C-Suite.”

Digital Maturity Curve
To better understand what a leader looks like, we devised a framework to calculate a maturity
score. The score is based on three criteria:❙ Ranking on a digital transformation
framework. We scored companies across
13 key aspects of business and technology
change (see Figure 2 for the full list).
❙ Ability to influence revenue throughdigital methods. Drawing on self-reported
data, we analyzed the level of revenue
influenced directly or indirectly by digitalchannels.

We created a maturity score for each
respondent and assigned each to one offour categories: “beginner,” “implementer,”“advancer” and “leader.” We then distilled
our findings into easily digestible lessons thatbusiness and technology leaders can absorb
and apply immediately.

❙ Benefits generated from digital. This
included operational benefits, such as
speed to market and improving cost
efficiencies, and more strategic ones,
such as greater shareholder value
and market share.

LeaderAdvancer

80th percentile and above

55–80th percentile

Implementer
30–55th percentile

Beginner
30th percentile and below

Source: Cognizant/ESI ThoughtLab
Figure 1

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Stepping Up the Pace

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The Manufacturing
Digital Imperative

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An industry awakening to digital
Most manufacturers are in the early stages of digital maturity
Manufacturers show much potential for maturity growthamong the 13 areas of our framework, particularly in core areas
Percent of respondents who say they’re maturing or advanced in each area.
like digital strategy, data management, software deployment
and modernized core IT (see Figure 2). In all 13 areas,
All industries
All manufacturers
Manufacturing leaders
manufacturers lagged the general industry average.
Digital strategy and roadmap

Manufacturing leaders, however, are well aheadof the rest of the industry in many areas, particularly in termsof formulating a digital strategy and enabling automation,
innovation, data management/analytics and artificial
intelligence, all of which will be key to their competitive
advantage.

Automation
Workforce transformation
Innovation culture
IoT and connected products
Data management and analytics
Aligning ops with customer demands
Software deployment
Modernized core IT
Artificial intelligence
Improved consumer/employee experience
Human centricity
Enhanced/augmented workers
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Total response base: 2,491
Manufacturing response base: 216
Source: Cognizant/ESI ThoughtLab, 2019 study
Figure 2

10

20

30

40

50

60

70

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Three-year outlook
Over the next three years, all manufacturers in our study
will have progressed in most of the core areas of ourframework (see Figure 3, next page). It’s heartening to
see that three out of five plan to have key foundational
pieces in place, including a digital strategy, a culture ofinnovation, workforce transformation, automation andcustomer-aligned operations.
Digital strategy in particular will be critical. A comprehensive
roadmap can free up cash for digital initiatives and help
the organization focus on establishing a business value
realization mechanism for the transformation journey.

matters, full maturity means integrating data, analyzing content, understanding whichdata matters most, and using AI to predict and prescribe the next best actions.
It’s also doubtful, with the disruption of COVID-19, whether a three-year plan is fastenough. When the lockdowns happened, years-long strategic plans – particularly
those related to remote work and the cloud – were, out of necessity, implemented
within weeks. The slow pace manufacturers have been accustomed to
won’t serve them now or in the new landscapeemerging from the pandemic.

However, two of the biggest gaps between all manufacturers
and leaders are, again, in data management/analytics
and AI. As we’ll see, it’s one thing to gather data throughmechanisms such as IoT and another to make that data
available to the right people for analysis. It’s yet another giant
step to become adept at using machine intelligence andother forms of AI to enable real-time insights.
While IoT initiatives signal a move toward collecting data that7

/ Stepping Up the Pace

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Manufacturers will master the basics
Percent of respondents who expect to be maturing or advanced in each area in three years.

All manufacturers

Percentage point
gap between all
manufacturers
and leaders

Manufacturing leaders

Digital strategy and roadmap+9Innovation culture+18

Workforce transformation-4

Automation+13

Aligning ops with customer demands

0

IoT and connected products+9

Data management and analytics+21

Modernized core IT+13

Software deployment+21

Human centricity+17

Enhanced/augmented workers+26

Improved consumer/employee experience+19

Artificial intelligence

+42

0

20

40

60

80

100

Manufacturing response base: 216
Source: Cognizant/ESI ThoughtLab, 2019 study
Figure 3
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Responding to the COVID-19 impact
Even more concerning is the degree to which the
pandemic seems to have stalled manufacturers’ strategicplans. Of all industries, manufacturers voiced the mostconcern in our 2020 study about how the virus would
impact them financially and were most likely to put at leasta temporary halt on their strategic initiatives in favor of
business continuity (see Figure 4).

Business impact of COVID-19

Manufacturers are pressured not only to continue pursuingtheir three-year plans as soon as possible but also to compress
them into shorter timelines. It’s hopeful to see, then, that 40%
of manufacturers in our 2020 study said that harnessing
emerging technologies would be a top-5 focus for theircompany as a result of COVID-19.

Shifted our focus and investment awayfrom strategy to business continuity

Percent of respondents who said they agree.
All respondents

39%

Requires our company to carry out
a major cost-cutting program

54%
60%
41%

Causing us to pause our long-term
strategic plans

58%
53%

Will hurt the economy and our company’s
performance this year and next
0%

Manufacturers

48%

65%
10%

20%

30%

40%

50%

60%

70%

80%

Total response base: 500
Manufacturing response base: 91
Source: Cognizant/ESI ThoughtLab, 2020 study
Figure 4
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Stepping up investments
Pursuing their digital strategies will require
manufacturers to be open to investing in newtechnologies and processes at a time when
they are concerned about cutting costs – andare already lagging behind other industries
when it comes to making IT investments(see Figure 5). Manufacturers in our study are
investing 8.3% of their revenues in technology, on
average, while the cross-industry average is 9.8%.
Manufacturing leaders, however, are not only
closing the gap with other industries by spending
9.6% of revenues on technology, but they’ll also
surpass them in the next three years. Leadersplan to boost spending to 16.9% of revenues vs.
the cross-industry average of 15.7%.

Percent of revenue spent on technology
Percentage of annual revenue currently invested in all technologies, including central IT
and enterprise-wide business unit budgets, now and in three years.
Today

In three years

All industries

9.8%

All manufacturers

8.3%

Manufacturing leaders

Manufacturing beginners

15.7%
14.4%

9.6%
6.5%

16.9%
12.2%

Total response base: 2,491
Manufacturing response base: 216
Source: Cognizant/ESI ThoughtLab, 2019 study
Figure 5

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Budget outlook is partly sunnyThis rate of spending could be slowed by
How COVID-19 will impact budgets
the virus; however, this slowdown may not
Percent of respondents expecting an impact on their digital budget.
last. While COVID-19 will negatively impact
manufacturers’ digital budgets in the short term,
Large increase (8% or more)according to our 2020 study, most expect small ormodest increases in the next year (see Figure 6).

This year

Next year

Moderate increase (4% to 7%)

Further, in our experience, manufacturing
modernization does not necessarily require large
expenditures. For most manufacturers we’ve
worked with, every time they move to the cloudand retire a piece of their legacy infrastructure,they save enough to pay for the initiative itself
and invest in others. By moving off legacy
infrastructures through the cloud and using
open APIs to enable more interoperability amongsystems and data, manufacturers can greatly
decrease their technical debt, increase costsavings, share insights that boost revenues andachieve needed resilience and agility.

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Stepping Up the Pace

Small increase (1% to 6%)

No/negligible impact

Small decrease (1% to 3%)

Moderate decrease (4% to 7%)

Large decrease (8%)
0%5%Manufacturing response base: 91
Source: Cognizant/ESI ThoughtLab, 2020 study
Figure 6

10%

15%

20%

25%

30%

35%

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By moving off legacy infrastructures
through the cloud and using open APIs toenable more interoperability among systems
and data, manufacturers can greatly decrease
their technical debt, increase cost savings,
share insights that boost revenues andachieve needed resilience and agility.

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Stepping Up the Pace

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Where to Invest:
Look to the Leaders

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Stepping Up the Pace

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Leaders show the way forward
Especially with the additional economic pressures of thepandemic, manufacturers need to specifically target
which areas of investment will yield the highest returns.
The answer comes from looking to the leaders in our 2019study – where they’re spending and where they’re seeing
the greatest payback.
Leaders are outspending their peers in all areas of technology
except for cybersecurity and IoT (see Figure 7). When it comesto IoT, it’s likely that leaders have already reached high levels of
maturity in that area – even higher than in other industries (seeFigure 2) – and are likely reallocating those expenditures toother areas.
The greatest spending gaps between leaders and othermanufacturers are in mobile technologies, open platforms,
digital assistants/chatbots and AI.

A digital divide
Percent of respondents citing a moderate or high level of investment in each technology
in the past two years.

Mobile technology/apps

+25

Cloud

+4

Robotic process automation+6

Cybersecurity-6

Open platforms/APIs+26

IoT/wearables/sensors-4

Digital assistants/chatbots+36

Data management/analytics+7

Artificial intelligence

+27

0%

14

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Percentage
point gap

All manufacturers

Manufacturing leaders

20%

40%

Manufacturing response base: 216
Source: Cognizant/ESI ThoughtLab, 2019 study
Figure 7

60%

80%

100%

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The areas of greatest returns
What’s interesting is that there’s a close
correspondence between the areas where
there’s the greatest gap in spending between
leaders and all manufacturers and the areas
where leaders are seeing the highest returns(see Figure 8).

Where the returns are

The way forward revolves around moving
to the cloud, integrating operational and IT
workstreams, analyzing the data throughadvanced AI and democratizing access tothese insights by making them accessible tothe people who need it.

Cloud technology

84%

Robotic process automation

83%

Open platforms

82%

Mobile technology/apps

80%

Cybersecurity technologies

79%

Internet of Things

75%

Artificial intelligence67%

Data warehouses/lakes

64%

Digital assistants/chatbots

61%

Percent of leaders citing a moderate or high return on investment in eachtechnology area.

Technology

Manufacturing leaders
citing returns

Manufacturing response base: 216
Source: Cognizant/ESI ThoughtLab, 2019 study
Figure 815/ Stepping Up the Pace

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The way forward revolves around moving to the cloud,integrating operational and IT workstreams, analyzing thedata through advanced AI and democratizing access tothese insights by making them accessible to the people
who need it.

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According to our 2020 study, manufacturers seem to mostly be focusedon the right areas for which technologies they’ll invest in as a result of
COVID-19 (see Figure 9). Glaringly absent, however, are open platforms anddata analytics, both of which came in much further down the priority list –and are areas in which leaders excel.

Top five areas of value and post-COVID investment
Percent of manufacturers citing which technologies were of highest value during the
pandemic and which ones will see the greatest investment post-pandemic.

Highest value
during the
pandemic

Top areas ofinvestment overnext 1-2 years

RPA

70%

73%

Cloud

69%

60%

IoT/sensors/telematics

63%

59%

Mobile tech/apps/wearables

52%

34%

AI

44%

47%

Manufacturing response base: 91
Source: Cognizant/ESI ThoughtLab, 2020 study
Figure 917/ Stepping Up the Pace

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A multiplier effecton performance
Leaders also demonstrate the performance impacts of making theseinvestments (see Figure 10, next page). Importantly, leaders are much
more likely than others to have realized better risk management fromtheir use of advanced technologies. This is notable, considering the highinterest among respondents in our 2020 study to build supply chain
resilience (56%) and concern about supply chain disruption/risk (75%).
Leaders likely have a key competitive advantage in meeting those goals
as a result of their investments.
Similarly, leaders are also well ahead in facilitating improved decision
making through their digital initiatives. This once again hearkens backto their greater investments and maturity in analyzing data and – mostimportantly – getting it to the people who will make the best use of it.
It also can’t be overlooked that leaders are better equipped to cut costs
as a result of their investments. This was of high concern to respondents
in our 2020 study.

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The benefits of digital investments
Percent of respondents citing each benefit they’ve realized from their digital initiatives.
Manufacturing leaders

Percentage
point gap

All manufacturers

More effective risk management+21

Improved planning and decision making+17

Wider range of business models and channels+23

Increased customer retention/engagement+20

More effective innovation+11

Improved employee productivity and engagement+15

Improved profitability+19

Decreased costs/greater efficiencies+18

Global expansion and ability to scale the business+16

Increased revenue+17

Accelerated time to market+12Greater market share-1

Enhanced reputation+6

Greater shareholder value+30%

Manufacturing response base: 216
Source: Cognizant/ESI ThoughtLab, 2019 study
Figure 10
19/ Stepping Up the Pace

10%

20%

30%

40%

50%

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The digital advantage
The clear message to manufacturers is that
Bottom-line boost
smart investments in digital initiatives will
Cumulative net impact of digital investments, expressed as a percent of revenue.
pay off. Leaders realized a cumulative net impact(revenue minus cost) of 10.3% of revenue – the12%third highest among all industries (see Figure 11).
The average boost to the bottom line for each10%
manufacturer is just over $7.6 million, based on
7.9%
the average revenue of our respondents. Ironically,
7.6%
8%
for manufacturers, one of the advantages of being
behind is the large dividend to be garnered from6%
moving ahead.
4.2%

10.3%

4%
2%
0%

Beginner

Implementer

Advancer

LeaderManufacturing response base: 216
Source: Cognizant/ESI ThoughtLab, 2019 study
Figure 1120/ Stepping Up the Pace

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Advancing Your
Digital Maturity

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The road ahead
Especially with the experience of COVID-19, the key attributesof a modern manufacturer are agility and resilience. Here’s how
manufacturers can unlock these fundamentals:❙ Let your business strategy guide your digital maturity actions.
Advancing digital maturity will be the foundation on which modern
enterprises operate. However, it is critical to step back and consider newer
business capability needs that the pandemic imposes. This might requireorganizations to conduct an assessment to identify capability gaps anddesign a digital maturity improvement roadmap. Doing so will ensure
investment focus in a cash-strapped environment.
❙ Open channels of inter-enterprise collaboration. The modern
enterprise demands a holistic approach to business operations thateliminates operational silos and unlocks data. The data needs to be
integrated with business and engineering systems and converted to
information that can be utilized to drive down operating expenses orlaunch new service lines.

22/ Stepping Up the Pace

< Back to Contents❙ Focus on IT and OT convergence. Data generated by❙ Achieve continuous development, deployment andphysical assets (operational technologies, or OT) needs tooperation. Use of advanced technologies will enable more
be integrated with the IT systems designed to support them.
agile product development that can be executed using
This means integrating systems affiliated with different
an “any shore” model. This means not only the ability to
manufacturing processes on the factory floor with enterpriseleverage Agile software development methods and tools,
resource planning (ERP) and product lifecycle management
but also the creation of a common product foundation. Such
(PLM) systems. This provides a 360-degree perspective on
an approach helps to institutionalize organizational agility,
operations that can be analyzed in order to anticipate andensuring prompt development and delivery of products
adjust for equipment failure, production bottlenecks andand services that anticipate and meet regional market
supply chain issues. Converging IT and OT also provides therequirements.
foundation for customer data transparency, which will drive
customer growth and retention.
❙ Democratize data. Business users need access to data andthe tools to analyze it. Cloud computing and open APIs canhelp unlock critical data that was previously inaccessible.
This needs to be combined with data modernization efforts
that aggregate and normalize data, making it much easier
to store, use and share. Accessible data also holds insightsthat can be mined via AI. The opportunity presented
through data democratization, modernization, integrationand conversion to insight takes on more urgency in a postpandemic world.

23/ Stepping Up the Pace

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Methodology
Working with ESI ThoughtLab, we surveyed 2,491 C-level executives and their direct reports in late2019, across regions and industries, and from a mix of functions across the enterprise. The purposeof the study was to gauge progress made in and future plans for digital transformation. Of these
respondents, 216 were from the manufacturing sector. The breakdown of the survey sample isdisplayed in the following graphs.
Manufacturing respondents by region – 2019

Respondents by subsector – 2019
Machinery, transportationequipment, electrical

12%
33%
23%

EuropeNorth America
Asia Pacific

36%
31%

Primary and fabricated metal

26%

Non-metallic
Miscellaneous 7%0

Middle East
32%

10

20

30

40

Respondents by title – 201914%
CEO/COO
13%
President
13%
Senior Director
12%
CTO/CIO/CDO
10%
SVP/VP
9%
CFO
7%
CMO
6%
CHRO
5%
Chief Strategy Officer
5%
Chief Innovation Officer
4%
Chief Sales/Revenue Officer
Chief Data Officer 2%
1%
Other C-level executive

0

3

6

9

12

15

2020 study(Percentages don’t sum to 100% due to rounding.)

Source: Cognizant/ESI ThoughtLab, 2019 study
Figure 12, Figure 13, Figure 14
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Stepping Up the PaceIn April and May of 2020, ESI ThoughtLab and Cognizant conducted a short “pulse” survey of senior executives at
500 U.S.-based companies, including 91 manufacturers. The purpose of the study was to understand the impactof the pandemic on business strategies. The companies ranged in size from $500 million in revenue to over $50
billion, and comprise six industries: education, financial services, healthcare, life sciences, manufacturing and retail.
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About the authors
Sandeep Panchal
Assistant Vice President, Cognizant Consulting
Sandeep Panchal leads the India consulting teamfor Cognizant’s Manufacturing, Logistics, Energy& Utilities (MLEU) vertical. In this role, he advises
businesses across industries and regions in thedesign and implementation of various strategic
initiatives in the areas of digital strategy, business

transformation, operations excellence andorganizational change management. Sandeep canbe reached at Sandeep.Panchal@cognizant.com |https://www.linkedin.com/in/sandeeppanchal-1782923/.

Ganesh Iyer
Director, Consulting
Ganesh Iyer is a Consulting Director and leads theconsulting team for Cognizant’s Manufacturing
vertical. He works with manufacturing C-suite
stakeholders to get more value from their digital
initiatives. Ganesh has helped organizations design
digital strategies and enhance business capabilities

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Stepping Up the Pace

across the value chain. His functional focus areas
include supply chain management, aftermarket andoperations. Ganesh can be reached atGanesh.Iyer@cognizant.com |https://www.linkedin.com/in/ganeshiyer4/.

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Learn More
For more information and to find out more
about Cognizant, visit www.cognizant.com

About Cognizant Manufacturing

About Cognizant

About ESI ThoughtLab

Cognizant’s Manufacturing and Logistics Practice operates as a trusted
global partner to automotive, industrial and process manufacturers as wellas transportation and logistics companies helping them accelerate businessperformance and drive growth through the power of digital. By leveraging ourdomain expertise and knowledge of manufacturing, transportation and logistics
business processes, we’re able to deliver next-gen digital solutions “in context”
across the R&D, sourcing, production and aftermarket support value chain. In
doing so, we enable organizations to take a holistic approach to their business,delivering systematic and structured transformation that defines the modern
business and delivers the promise of Industry 4.0. Our business unit has beenrecognized as one of the top 10 providers of manufacturing services by HfS
Research for innovation, execution and voice of the client. Learn more atwww.cognizant.com/manufacturing-technology-solutions.

Cognizant (Nasdaq-100: CTSH) is one of the world’s leading professional services
companies, transforming clients’ business, operating and technology models forthe digital era. Our unique industry-based, consultative approach helps clientsenvision, build and run more innovative and efficient businesses. Headquarteredin the U.S., Cognizant is ranked 194 on the Fortune 500 and is consistently listed
among the most admired companies in the world. Learn how Cognizant helps
clients lead with digital at www.cognizant.com or follow us @Cognizant.

ESI ThoughtLab is an innovative thought leadership firm that creates fresh thinking
and actionable insights through rigorous research and evidence-based analysis.
It specializes in using the latest quantitative and qualitative tools to examine theimpact of technology on companies, cities, industries, and business performance.
ESI ThoughtLab is the thought leadership arm of Econsult Solutions, a leading
economic consultancy.
The ESI ThoughtLab report “Driving ROI Through AI” was the source for the data
and much of the analysis in this ebook.
To learn more, visit esithoughtlab.com.

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