Rotating to the New. How can Manufacturing Companies in China Thrive in the Digital Age. March 2018

Transcription

1 Rotating to the New How can Manufacturing Companies in China Thrive in the Digital Age March 2018

2 The imperative for growth in Chinese Manufacturing Digital as a driver of high performance Going digital is to invest in the future Achieving high performance requires continuous digital commitments Make the most of digital: From traditional to digital operations to digital business Rotate to the New: Unleashing the power of digital to thrive in the digital age Copyright 2017 Accenture. All rights reserved. 2

3 DPI assessment and HPB framework, plus reliable corporate data, are used to evaluate digital level of Chinese businesses and to examine the relationship between their digital and financial performances. Digital Performance Index High Performance Business Backed by China Service Platform for Integration of Informationization and Industrialization, China National Research Center for Industry Information Security and China Service Alliance for Integration of Informationization and Industrialization (CASIII) have initiated diagnostic evaluation of and benchmarking instruction on convergence of informatization and industrialization. By the end of July 2017, more than 75,200 companies have fed data on their convergence practice, building up a substantial integration database. Copyright 2017 Accenture. All rights reserved. 3

4 . As the result of pricing up of production factors and weaker market demand, China manufacturing is under severe downward pressure. New stimulus package since 2015 and overcapacity reduction measures have improved business environment, hence performance bouncing back Financial deterioration urgently calls for business transformation, better competiveness and embracing new opportunities and growth drivers % Revenue growth Annual profitability % (10) (20) (30) Total return for shareholders (%) POLICY Better Business Environment Stimulus package Supply-side reform RBI Transformation & competitiveness Smart manufacturing/china Manufacturing 2025 Internet+ Mass entrepreneurship and innovation Source: NBS, CEIC Data

5 Financial performance Traditional Economy Digital Economy By 2020, digital will contribute 3.7% to China s GDP growth. Time Copyright 2017 Accenture. All rights reserved. 5

6 Business performance: balance sheet Digital creates value (instances, inexhaustible) Grow core businesses: growth and efficiency Going to a digital economy Sales revenue - - Operating cost - Other cost/expense = Sales growth Pricing up Production/logistics cost Net profit Larger market share New product/market Sell / Overhead R&D Depreciation Financial Expenses Tax Product/service differentiation driven by user insights E-commerce market expansion via digital product Product/service customization Smart manufacturing and digital supply chain Results-based precision marketing and interactive marketing R&D synergy, user needs analysis, functional software and rapid iteration Assets management Smart & realtime financial analysis and control New business model: Sharing economy Platform economy Data monetization New operating model: Crowd-sourcing Crowd-funding Copyright 2017 Accenture. All rights reserved. 6

7 Digitization cannot be done by a single department. It impacts the full breadth of business activities along the value chain. With this in mind, Accenture has created the Digital Performance Index (DPI) to assess companies levels of digitization 7 Digital Strategy (Plan) Vision Strategy Push for changes Digital Business Culture & Operation (Manage) Monitor & Assess Digital operation Digital culture Digital Performance Index Digital Production & Delivery (Make) Collaborative R&D Co-development Smart manufacturing Digital Customer Interaction (Sell) Realtime interaction E-commerce Online-offline combination Data privacy & security Copyright 2017 Accenture. All rights reserved. 7

8 Four major domains where Chinese companies have great potential to be digitized (Scoring: 1-4) 1,0 1,5 2,0 2,5 3,0 3,5 4,0 Leaders in all four areas are rare* 2,4 29% 15% Plan Make 2,3 High digital level in at least one area High digital level in at least two areas Sell 2,2 Chinese companies score 2.3 on average 9% 2% Manage 2,2 High digital level in at least three areas High digital level in all four areas * Percentage of top 15% companies with higher level of digitization in four key areas (plan, make, sell and manage) Source: Accenture Research, the National Development & Research Center for Industry Copyright 2017 Accenture. All rights reserved. Information Security 8

9 WELL, CAN COMPANIES GET RETURNS FROM DIGITAL TRANSFORMATION? Three questions to be answered: #1 CAN DIGITAL HELP COMPANIES TO IMPROVE FINANCIAL PERFORMANCE? #2 UNDER WHAT CONDITIONS? Copyright 2017 Accenture. All rights reserved. 9

10 HPB Framework 5 dimensions, 14 financial indicators What is high performance business? Modeling: based on more than 10 years of analysis of thousands of companies across the globe Market Leadership: Only when the average of a company s multiple indicators outperforms its peers for a number of consecutive years, can it be called high performance business. High Performance Business Longevity Peer set comparison Five dimensions: Growth: CAGR Profitability: ROIC Longevity: CAGR of total return to shareholders Forward looking: the level and change of future value Consistency: Growth, Profitability and Positioning for the Future dimensions are better than peer average Copyright 2017 Accenture. All rights reserved. 10

11 Going digital in a piecemeal way does not work well, so businesses need continuous digital commitments to improve financial performance. When the scores of digital performance are sorted, companies tend to fall within an average range of financial performance. But when digital performance levels exceed 2.9, the average performance increases dramatically. Financial Performance 3,2 3,0 2,8 2,6 2,4 2,2 2,0 1,8 1,6 1,4 Scatter Plot of Digital and Financial Performance* 3,10 Financial performance average: ,2 1,3 1,4 1,5 1,6 1,7 1,8 1,9 2,0 2,1 2,2 2,3 2,4 2,5 2,6 2,7 2,8 2,9 3,0 3,1 * Sample companies are sorted from low to high Source: Accenture Research, the National Development & Research Center for Industry Information Security Digital Performance Copyright 2017 Accenture. All rights reserved. 11

12 Digital Champions have achieved both digital and financial leadership Financial performance Business Leaders: Companies have achieved strong financial performance without prioritizing digital Business Leaders (Maintained financial strength with legacy) China: 19% Global: 18% DPI: 2.1 HPB: 2.9 Digital Champions (Achieved high performance in the digital world) China: 4% Global: 6% DPI: 2.9 HPB: 3.1 Digital Champions: Companies with both strong digital performance and financial performance. The Rest: Companies have survived in the past without building up digital capabilities The Rest China: 58% Global: 60% DPI: 2.1 HPB: 1.7 Digital Leaders (Prioritized digital, awaiting rewards) China: 19% Global:16% DPI: 2.7 HPB: 1.6 Digital Leaders:: Companies made significant progress in digital capabilities, but failed to translate that into financial strength Source: Accenture Research, the National Development & Research Center for Industry Information Security Digital performance Copyright 2017 Accenture. All rights reserved. 12

13 Group comparison leads to two questions: Financial performance Financial performance Digital performance Digital performance (Comparing Digital Champions and Business Leaders,) what values can digital bring for Business Leaders? (Comparing Digital Champions and Digital Leaders) why does Digital Champions digital investment bring more ROI? Source: Accenture Research, the National Development & Research Center for Industry Information Security Copyright 2017 Accenture. All rights reserved. 13

14 Financial performance Digital performance Digital performance: Business Leaders lag far behind Digital Champions Financial performance: Digital Champions outperform Business Leaders in terms of profitability, longevity, future value and consistency 2,9 2,1 38% 4,0 3,5 3,0 2,5 7% -5% 15% 20% 14% 7% 2,0 1,5 Digital Champions Business Leaders Source: Accenture Research, the National Development & Research Center for Industry Information Security 1,0 0,5 0,0 Total 绩效总分 performance 成长性 盈利性 持久性 前瞻性 Consistency 一致性 score Growth Profitability Longevity Positioning for (Expansion) (ROI) (Return for the Future Shareholders) (Future value) (Sustainability of the advantages) Copyright 2017 Accenture. All rights reserved. 14

15 Digital commitment is an investment in future; without it, long-term competitiveness would be endangered. Financial performance Digital performance What have Digital Champions done? And the results? Practice: Follow digital trend, adapt to market changes and embrace digital Results: Profitability and Return for Shareholders (profitmaking capacity and sustaintability) improved significantly Investors believe these companies will add value continuously in the future (future value) Implications for all kinds of businesses? For business leaders: Despite of its relative advantage in business expansion (growth), these companies cannot necessarily get stronger through expansion. Digital brings more quality growth, as an important driving force for long-term competitive edge. For the rest: Digital can help close the gap with leading companies, paving the way for growth in a digital age. Leading market position consolidated and improved Copyright 2017 Accenture. All rights reserved. 15

16 Financial performance Digital performance Digital performance: Both Digital Leaders and Digital Champions have made substantial investments in digital 2,9 2,7 7% Financial performance: Digital Champions perform much better 94% higher than Digital Leaders 4 94% 67% 98% 107% 63% 124% 3,5 3 2,5 2 1,5 Digital Champions Digital Leaders 1 0,5 Source: Accenture Research, the National Development & Research Center for Industry Information Security 0 Total 绩效总分 Growth 成长性 Profitability 盈利性 Longevity 持久性 Positioning 前瞻性 for Consistency 一致性 performan (Expansion) (ROI) (Resturn for the Future ce score (Sustainability of Shareholders) (Future value) the advantages) Copyright 2017 Accenture. All rights reserved. 1

17 Financial performance Digital performance The group comparison analysis shows that, while Digital Leaders often focus their digital investments on optimizing processes and improving efficiencies, Digital Champions have taken their digital commitment a step further, including digitization into their corporate level strategies and making it a driver of business transformation. 9% 3% 0% 27% 11% 3% 8% 4% 14% 6% 1% 6% 4,0 3,5 3,0 2,5 2,0 1,5 1,0 洞察 See 计划 Plan Act 实施 设计 Design 构建 Build Run 运行 推广 Engage 交易 Sell Serve 售后 评估 Assess 提升 Improve Renew 革新 Plan Make Sell Manage Emphasizing and executing on digital transformation strategies Creating value through digital-powered collaboration and smart operation system Enhancing customer engagement and personalizing customer experiences by using digital technologies Actively renewing organization to adapt to the digital agenda. Digital 数字领军者 Digital 数字实践者 Leaders Champions Copyright 2017 Accenture. All rights reserved. 17

18 Business performance Digital Economy Traditional Economy Digital-enabled reinvention of existing products/services Digital-enabled improvement on production & operating efficiency Make a wise pivot Scale the new disruptive digital businesses Time Copyright 2017 Accenture. All rights reserved. 18

19 About Accenture Accenture is a leading global professional services company, providing a broad range of services and solutions in strategy, consulting, digital, technology and operations. Combining unmatched experience and specialized skills across more than 40 industries and all business functions underpinned by the world s largest delivery network Accenture works at the intersection of business and technology to help clients improve their performance and create sustainable value for their stakeholders. With approximately 411,000 people serving clients in more than 120 countries, Accenture drives innovation to improve the way the world works and lives. Accenture has been operating in Greater China for 30 years. Today, the Greater China practice has around 15,000 people serving clients across the region and has offices in Beijing, Shanghai, Dalian, Chengdu, Guangzhou, Shenzhen, Hong Kong and Taipei. As Chinese economy experiences the new normal, Accenture will bring more innovation to the business and technology ecosystems and help Chinese enterprises and the government to embrace digitization and enhance global competitiveness to succeed in the new age. For more information about Accenture, please visit its corporate homepage at and its Greater China homepage About Accenture Research Accenture Research identifies and anticipates game-changing business, market and technology trends, and provides insights for global enterprises and orgnizations to address their challenges. Accenture Research has about 300 researchers on the research team, who are located in 23 countries across the globe, and partners with world-class organizations such as MIT and Singularity to discover innovative solutions for our clients. Every year, by combining innovative methodology and instruments with industry insights we publish hundreds of data-based reports, articles and opinions to anticipate industry and market trends and identify innovation future. Please visit Accenture Research website at Copyright 2017 Accenture. All rights reserved. 19

20 National Research Center for Industry Information Security (Electronics Institute 1 under the Ministry of Industry and Information Technology) The National Research Center for Industry Information Security (NRCIIS) is responsible for conducting strategic research, R&D, monitoring & early-warning, assessment, emergency and industrial development related to industry information security, building up the relevant capacity, and safeguarding the security. Its objective is to build the Center into a China first-class research institute in the fields of industry information security and informationization-industrialization integration (III), responding to the national strategy of making China great through manufacturing and informatization, sticking to the principle of supporting government and serve industry, and focusing on integration of manufacturing and Internet as well as industry information security. It aims to become China s think-tank for government policy-making and an authority to guide industry development, so as to offer policy support and safeguard for the China Manufacturing 2025 Program, the integration of manufacturing and Internet, the capacity building of industry information system, the protection of key infrastructure, and the development of the information industry. China Service Alliance for Integration of Informationization and Industrialization (CASIII) CASIII was founded in 2013 under the auspices of the Ministry of Industry and Information Technology (MIIT). With reinventing traditional growth drivers and identify new drivers as its mission, partnership for all win as its purpose, and strategic planning, methodology and instruments, solutions finding and exchange for scaling as its focus, CSAIII provides government, industry and businesses with comprehensive quality services, such as tracking and judging, thematic study, standards-setting, diagnostics and consultation, standards adoption, demonstrative pilots, publicity and training, technical solutions, results scaling, conference meeting and international cooperation. MIIT has designated CASIII as the implementer of the Informationization-Industrialization Integration Initiative ( ). CASIII consists of a steering committee, a member representative assembly, a expert committee, the council, the secretariat, the sub-alliances, a working committee and the international alliance. The steering committee comprises of leaders from MIIT and local relevant authorities. The expert committee consists of leaders from the National Information Advisory Committee, the Internet Society of China, and other institutes. Presidency and secretariat are posted at the National Research Center for Industry Information Security (Electronics Institute 1 under the Ministry of Industry and Information Technology). There are a total of 486 member institutes from 23 state-level associations, 27 corporations under the central government, and 436 industry-leading companies, service centers and research institutes. Sub-alliances have been set up in Fujian, Guangdong, Henan, Hebei and Wuhan; working committees are also established for the Informationization-Industrialization Integration, big businesses mass innovation and entrepreneurship, industry big data, pharmaceutical tracking, new media, finance and personnel training; and international alliance is growing. Backed by China Service Platform for Integration of Informationization and Industrialization ( WeChat account and the MIIT-III scaling labs, CASIII spreads innovation methodology and toolkit and case studies related to theoretical proposition, R&D, modeling and publicity, serving as an important platform for resources and results sharing and core business synergy. Copyright 2017 Accenture. All rights reserved. 20