Critical Condition: Cybersecurity in Healthcare

By Adam Brand, Director,
IT Security and Privacy

 

 

 

On June 2, the Health Care Industry Cybersecurity Task Force issued a draft of its Report on Improving Cybersecurity in the Health Care Industry, an analysis of how to strengthen patient safety and data security in an increasingly connected world.

The Congressional report, which sums up the state of healthcare cybersecurity to be in “critical condition,” may shock outsiders, but should come as no surprise to those in the industry, who are well-aware of the challenges and have been awaiting the report as a preview of potential future government regulatory action.

The report lists six imperatives, along with several recommendations and action items. The recommendations bring to the forefront several issues facing the healthcare industry — most notably the risk to patient safety. That’s a departure from the traditional focus on privacy and data protection, and suggests a regulatory gap that needs to be addressed quickly.

The release of this report could not have been timelier, coming on the heels of the debilitating worldwide “WannaCry” ransomware attack that forced hospitals in England to cancel surgeries. Last week we published a flash report that takes a deeper look into the Task Force’s document.

We think that organizations should not wait for the government to initiate solutions. Instead, healthcare providers and medical device makers should proactively increase efforts to bolster cybersecurity to avoid potentially overreaching or misaligned legislation.

In our flash report, we recommend that healthcare providers consider the following actions, tied to key themes of the report:

THEME: (providers) Existing efforts are not enough and patient safety is at risk.
ACTION: Expand cybersecurity efforts to include patient safety.

Healthcare leaders should note the emphasis on patient safety and ensure their cybersecurity program has fully addressed risks that could result in patient safety issues, not just a data breach.

THEME: (providers) Legacy devices are a significant problem.
ACTION: Create a concrete plan for legacy devices.

Develop a plan to phase out or update insecure legacy devices and operating systems, ideally over the next five years, and implement compensating controls such as network segmentation, enhanced monitoring and application whitelisting in the next 12 months to help address the near-term risk.

THEME: (providers) Lack of standard cybersecurity practices.
ACTION: Start formally aligning to a cybersecurity framework.

The report recommends that the Department of Health and Human Services (HHS) develop a health-care specific framework based on the minimum standard of security provided by the NIST Cybersecurity Framework and the HIPAA Security Rule. Health care organizations should begin now to think about how they would align their controls to the NIST CSF standard.

THEME: (manufacturers) Lack of cybersecurity focus; software development lifecycle (SDLC) gaps.
ACTION: Expand cybersecurity efforts, focus on SDLC.

Manufacturers should use the report as an opportunity to determine whether their medical device security program is adequate, given the increased attention on this area and the risks highlighted in the report. Specifically, manufacturers should be able to demonstrate clear security inclusion from new product model requirements through product retirement.

THEME: (manufacturers) Legacy systems are a hot-button issue.
ACTION: Increase activities for reducing numbers of in-use legacy devices.

To avoid negative impacts, manufacturers should work with healthcare providers to reduce the number of potentially compromised medical devices, through customer education and incentives.

THEME: (manufacturers) Minimum cybersecurity standards for medical devices.
ACTION: Work with industry peers to develop a standard.

We anticipate that future FDA device approvals will be contingent on meeting minimum cybersecurity standards. With the typical device development process of five to seven years, manufacturers need to collaborate now to get ahead of regulations and avoid business disruption.

The task force took a year to complete its report, and the result is a very thorough look at the challenges facing healthcare security today. Healthcare providers and medical device manufacturers would be well-served by a careful review of the report to determine how the adoption of these recommendations might affect their organizations.

Download the Protiviti flash report here.

Manufacturers Are Upbeat About 2017 Business Climate Under New Administration

By Sharon Lindstrom, Managing Director
Manufacturing and Distribution Industry Leader

 

 

 

Four straight months of manufacturing job growth through March this year and a decidedly more pro-business climate emerging in Washington have given many manufacturers good reason to consider 2017 off to a good start.

According to the National Association of Manufacturers’ (NAM) first economic outlook survey of manufacturers since Trump took office, more than 93 percent were feeling positive. This not only represents a high-water mark in the survey’s 20-year history, but it is also up from 56.6 percent a year earlier, said NAM, which represents some 14,000 U.S. manufacturers of all sizes.

We are keeping an eye on Washington’s actions that could have the most impact on manufactures and their investment plans and operations in the near future, including efforts to roll back regulations, reform taxes and renegotiate the North American Free Trade Agreement (NAFTA). We’re also watching how the proposed infrastructure improvements and healthcare overhaul are playing out. They, too, will have a significant bearing on manufacturing decisions.

Big ideas

As we detailed in our Flash Report on the Trump administration’s first 100 days, the focus on deregulation is of critical importance to manufacturers, 94 percent of whom believe that the regulatory burden has increased over the last five years. The new administration has reversed several of the Obama administration policies on environmental reviews related to energy, infrastructure and other projects. President Trump’s executive order for broad regulatory reform, for example, included a public comment period (now closed) on “misaligned regulatory actions” at the Environmental Protection Agency (EPA) that are believed to have impeded economic growth. Congress is also taking up legislation, supported by manufacturers and other organizations, which would require agencies to develop new regulations in the most cost-effective way possible for companies.

Certainly, the media’s attention on the controversies surrounding the administration, including the executive orders, may temper manufacturers’ enthusiasm moving forward. That’s particularly true if, as has been suggested by political observers, the controversies end up thwarting the chances of enacting tax reform and other administration agenda items this year. Geopolitical risks, from North Korea to European terrorist attacks, also could distract attention away from domestic policy making.

Nevertheless, manufacturing leaders to date largely remain optimistic that Washington is focused on their most important interests. Testifying on May 18 at a hearing on how tax reform could spur the economy and job creation, NAM Chairman David Farr told the U.S. House Committee on Ways and Means that “we have the best chance in more than 30 years to advance permanent pro-growth reforms” and to improve the country’s manufacturing competitiveness globally.

At Protiviti, I’ve heard similar sentiments from manufacturers, who say they could make investments to expand, beef up research and development, or accelerate hiring and salaries if tax reform were to include a lower corporate tax rate, favorable treatment of international earnings, and a strong capital-cost recovery system. In 2015, NAM reported that incorporating those and other beneficial tax policies would generate more than $3.3 trillion in new investment and 6.5 million jobs over a decade.

Questions still remain

While it’s clear that the proposed regulation and tax reforms will benefit manufacturers, the effect of a NAFTA remake remains a big question. A 90-day period in which Congress will consult the administration about its goals for an amended pact began in May, and talks with Canada and Mexico officials could begin by the middle of August. Many economists believe that NAFTA has generally benefited the U.S., and some corporations were concerned that a complete withdrawal from the pact would hurt business.

But similar to the recent narrow trade-deal with China, the president has softened his harsh rhetoric on NAFTA in favor of a more judicious approach. The U.S. has proposed a modernization of the agreements, with new provisions on digital trade, regulations, intellectual property rights and other elements. Additionally, automotive executives and labor alike are lobbying for stronger currency manipulation protections in a new deal. Unions are also pushing for updates to procurement and origin rules to better support U.S. workers.

With regard to infrastructure, manufacturing and distribution companies stand to benefit from proposed infrastructure improvements and construction, although as of now it is unclear how much will take place. President Trump’s first proposed budget calls for $200 billion in infrastructure spending, well below the $1 trillion he campaigned on. Some portions of healthcare reform could help companies, as well, particularly the elimination of a special tax on medical devices. But again, these issues continue to evolve and they merit a watchful eye.

Protiviti’s outlook – stay agile

The turmoil in Washington aside, the overall pro-growth tone coming from government has given companies at least some confidence about the industry sector’s outlook in the coming months. Manufacturers that begin planning today will be ready to strike and reap the rewards when policies are enacted. It is best to stay nimble, however, and prepare to address risks in an environment that has the potential for rapid, even tumultuous change.

Pro-Growth Signs in Washington Present Opportunity for Power and Gas Capital Investments

By Tyler Chase, Managing Director
Energy and Utilities Industry Leader

 

 

 

Power utilities trying to gauge what the future regulatory landscape will look like are likely getting frustrated with the political cacophony in Washington. Yet judging by legislative activities in Congress and some of President Trump’s executive orders to date, pro-growth and job-creation policies are clearly top-of-mind among the nation’s lawmakers. For organizations that have been putting off capital programs to expand or upgrade facilities and infrastructure, the business-friendly tone could signal a chance to launch these deferred capital investment programs.

As we pointed out in our Flash Report on the new administration’s first 100 days, Trump reversed a handful of Obama administration memoranda, reports and executive orders that were largely considered by the industry to be red tape bogging down capital investment. Among other actions, Trump eliminated multiple policies that built climate change considerations into federal decision-making and ended White House guidance on energy, infrastructure and other proposed projects. Additionally, in mid-May the Senate Committee on Homeland Security and Government Affairs advanced several bills aimed at regulatory reform that could affect utilities. One of these bills, the Senate version of the Regulatory Accountability Act, would require agencies to develop new regulations in the most cost-effective way possible and has the broad support of power, utility and other industrial organizations.

It is still too early to predict how much of Trump’s proposed agenda will ultimately end up as policy, but clearly the need for new and continued investment in the power and gas sectors is not diminishing. According to the American Society of Civil Engineers (ASCE), which this year gave U.S. energy infrastructure a D+, most of this country’s electric transmission and distribution lines date to the 1950s and 1960s, have a 50-year life expectancy, and were not designed to meet today’s energy demands. ASCE also anticipates a $177 billion funding shortfall for generation facilities and infrastructure through 2025.

Meanwhile, increasing the mix of power generation sources to include wind, solar, geothermal and hydrothermal alternatives, along with a retirement of coal-fired plants in favor of natural gas-fueled facilities, requires expansion investment to ensure the transmission grid’s reliability. As we mentioned in our 100 days Flash Report, Trump policies may ultimately relax federal emphasis on renewable energy sources like wind and solar, but that won’t curtail state mandates for more alternative generation or the progress that utilities are making in that area. A case in point is a 2015 California law requiring utilities to procure 50 percent of their energy from renewable sources by 2030, an increase from an earlier target of 33 percent.

Similarly, while the Trump administration has loosened coal regulations to make the commodity more competitive, the U.S. Energy Information Administration reported in January that the electricity industry was planning to increase natural gas-fired generating capacity by more than 35 gigawatts through 2018. Successful completion of the expansion surge would mark the largest net addition in natural gas generating capacity since 2005 and follows five years of net reductions in coal-fired generating capacity.

Protiviti’s perspective — proceed with caution

Though excitement may be building as a result of the new winds in Washington, organizations pursuing plant or infrastructure capital improvements need to keep in mind the pitfalls and risks that could derail the projects. Power and gas industries are still heavily regulated, and environmental constraints still exert influence on right-of-way, for example. To avoid risks, utilities need insightful and skillful management over planning and execution, including oversight of contract compliance, utilization of efficient and well controlled processes, and project risk assessments, among other services.

If your organization is planning or embarking upon a large capital expenditure to expand or upgrade its plant or infrastructure, here are some questions to ask before proceeding:

  • Will existing management processes provide sufficient visibility into decisions that impact project costs?
  • How are project risks identified, communicated and mitigated throughout the project lifecycle?
  • Are current resources capable of managing the project’s complexity?
  • Is the team of engineers, procurement staff, construction managers, trade contractors and material suppliers familiar with and comfortable working in a regulated environment?
  • Is the organization prepared to vigorously defend project costs during review by regulators, intervenor groups, and the public?

Some companies may be willing to wait and watch until the uncertainty over the implementation of Trump’s agenda begins to clear. Wall Street is certainly cautious and jitters in the market have given some investors pause. Nevertheless, lawmakers largely appear to be concentrating on economic policies intended to create and promote growth. Given the shape and age of the transmission grid along with the continuing transformation of power generating sources, the time is certainly ripe for a conversation about capital investment projects that position utilities for future growth while bolstering grid reliability.

Protiviti subject-matter experts Jon Critelli and Marius Anelauskas contributed to this blog.

Digital Transformation Success Requires Looking Inward First and Never Wearing Blinders

By Gordon Tucker, Managing Director
Technology, Media and Communications Industry Leader

 

 

 

To stay relevant in the digital economy, technology, media and communications companies must evolve on two fronts: externally and internally. The trick is that they must do both in tandem — and many find this difficult.

External evolution relates to the role the company is playing to help propel the digital wave forward. Namely, what new and game-changing digital products, services and business models is the company innovating and bringing to market successfully? This type of evolution is also about how the business positions itself among its competitors in the digital market and responds to new market demands and rapidly changing consumer expectations. Are those approaches effective? How does the company know?

Internal evolution, meanwhile, is about the ability of the organization to strategically transform its business processes, technology infrastructure, workforce culture and more to compete effectively in an increasingly digital age. Evolving internally is vital to supporting the company’s external evolution. Yet business leaders don’t always make that association.

At some companies, external dynamics — shareholders’ views, consumers’ sentiments, market perceptions about the company’s brand or reputation — are the impetus for external evolution. To respond, these businesses are constantly channeling resources into developing new products, services or campaigns, often at the expense of addressing internal issues that could cause the business to falter, or even fail, over time. Siloed business processes and weak cybersecurity practices are examples of such issues.

In other organizations, too much change is undertaken too quickly, both internally and externally. These businesses launch sweeping digital initiatives that aren’t backed by well-thought-out strategies. They also fail to evaluate the competitive landscape thoroughly. They focus on trying to outpace known and well-established rivals, and overlook or underestimate emerging players that have the potential to disrupt the marketplace and erode their market share.

In both examples, these businesses are making digital journeys with blinders on. One group is focused on short-term wins that don’t spark meaningful or lasting change. The other group is barreling toward a finish line in a race without an end, paying little or no attention to emerging threats and changing conditions in the field around them. In either case, the decisions these companies make are unlikely to position them for long-term digital success. I suggest a better approach below.

Look inward first

Using technology to improve operations internally is one way for companies to further their digital transformation and bring it to a broader scale. Evolving internally builds a safe foundation that can support their external evolution. For example, a business that has the right digital processes in place and is not burdened by legacy IT systems undermining its agility can score a number of operational successes — from simplifying or automating repetitive or labor-intensive business processes to implementing new tools to enhance workforce communication and collaboration. These successes can then be translated externally into the ability to innovate quickly, deliver better service to customers and meet the expectations of stakeholders.

I recommend reading Protiviti’s white paper, Catching the Digital Wave of Change, which explains how the way a business embraces technology can, in turn, help to change the way employees and customers perceive the organization. Change from the inside shines to the outside.

Tear off the blinders

When setting the strategy for a digital initiative, businesses must analyze the markets in which they are operating, as well as the competitor landscape. In their quest to achieve digital transformation, they must be careful not to miss what’s happening in the “ecosystem” around them.

Ron Adner, a professor of strategy and entrepreneurship at Dartmouth College’s Tuck School of Business, explained in a 2016 Harvard Business Review article that the “nature of disruption is changing … [and now] occurring at the level of ecosystems,” rather than at the product or service level. He posited that businesses need to “approach their competitive strategy with a wide lens that captures ecosystem dynamics” if they want to succeed in an Internet of Things world.

Adner pointed specifically to the example of a well-known company that produces imaging products with its historic basis in photography. That company’s long and painful journey to becoming a digital company as an example of what can happen when leadership “does not appreciate the dynamics of the broader ecosystem around it.” The company did not respond fast enough or appropriately to changes in the digital imaging ecosystem, and it cost the company dearly. Adner wrote that the “lesson for today’s leading firms is that risk lies not only in a lack of attentiveness to disruptive change but also in embracing the wrong part of the change.”

I don’t have much more to add to Adner’s insight other than to say that wearing blinders — not looking at the whole picture — in the digital era is likely to cause a company to lose or never find its way. Businesses may miss the right moment to pursue transformation or make the wrong decision about how and what to change. And no matter how innovative the business may be today, if it’s focused only on achieving one type of change or pursuing only one goal blindly, it’s bound to be overtaken or pushed off the track by competitors in the future.

Retailers, Tech Firms and Financial Services Providers: It’s Time to Shape the Future of Mobile Payments — Are You Ready?

By Gordon Tucker, Managing Director, Technology, Media and Communications Industry Leader; Rick Childs, Managing Director, Consumer Products and Services Industry Leader; and Jason Goldberg, Director, Financial Services Business Performance Improvement

 

The global mobile payments market is projected to reach US$780 billion by the end of 2017, according to research firm TrendForce. That figure seems impressive until you consider that the ability to pay for goods and services with a mobile device has been a reality for years. It’s been nearly a decade since Starbucks, one of the biggest mobile payments success stories to date, launched its app and rewards program. And recent research by the Mobile Economic Forum found that one-fifth of global consumers have made a mobile payment in-store. Given the exponential growth in smart device innovation and adoption over the past decade and consumers’ inherent desire for convenience and speed when making a purchase, it is logical to think that the mobile channel would dominate as the avenue for payments by now. It’s where we’re headed, to be sure. But some formidable obstacles have been impeding the growth of the industry, such as:

  • Persistent concerns about fraud, privacy and security: Even though most consumers are aware of “digital wallets” — apps on smartphones that store credit card information and facilitate mobile payments — many remain wary of the risks. Fraud has been a problem, with weak authentication practices and identity theft at the root of many incidents — including those involving well-known brands like Apple Pay and Samsung Pay.

Consumers also worry about how companies are collecting and using data, including purchasing history and even geolocation. How and if that sensitive information is being protected from hackers is yet another concern. Tokenization helps to secure valuable transaction data, but data stored in digital wallets or merchants’ payment systems may still be vulnerable. Also, new entrants to the market may lack the security sophistication needed to protect sensitive data from compromise.

  • Bad timing: When solutions like Apple Pay, Google Wallet and Android Pay were being rolled out by mobile manufacturers and tech providers a few years ago, EMV chip card technology was also hitting the market. Retailers were initially confused, and frustrated, about whether to adopt mobile payments or EMV chip card technology. Most prioritized the latter. Now, adoption of that technology is near-universal in retail, even though EMV chip card transactions are slower than mobile payments or even traditional credit card payments.
  • Lack of a consistent experience: Merchants of all types have been racing to launch their own digital wallets. But it is unlikely that many will achieve long-term success with their ventures because consumers are already overwhelmed by choice in the market. Plus, these offerings are diverse, which means the mobile payments experience for consumers also varies. That works against efforts by retailers, and the mobile payments industry to engage consumers and convince them to pay with their smart devices at every opportunity. And there’s another ingredient for mobile payments success that not all retailers can capture: A key reason that apps from brands like Starbucks, Taco Bell and Dominos are so popular is that consumers do business with these retailers frequently — sometimes daily.
  • The fact that old habits die hard: One more dynamic that’s working against mobile payment adoption is the simple fact that it’s still easier and faster, in most cases, for consumers to pay for goods and services with cash, debit card or credit card. They’re comfortable with these methods, so they’re in no hurry to change. And many businesses that offer mobile payment options fail to do enough to incentivize consumers to make the switch — for example, they don’t provide compelling rewards to customers who use their app frequently.

A Growing Swell of Expectations From Consumers

The picture is not all bleak. There are other strong trends in motion that will help to drive mobile payments innovation as well as consumer adoption and use of these solutions. Here are some of the dynamics to watch:

  • New shopping trends will help mobile payments grow — a lot. Showrooming — where consumers examine merchandise in a traditional brick-and-mortar retail store or another offline setting and then buy it online, sometimes at a lower price — is just one example. It’s a retail experience that’s made for mobile — and it’s expanding as large e-commerce players like Amazon and Microsoft get in the game. Retailers can use mobile payment apps to incentivize shoppers to buy items in the store by offering discounts, special rewards or free delivery.
  • Mobile shopping apps are becoming more experiential for consumers. The core purpose of a mobile payment service is to facilitate transactions, of course, but that’s not enough to engage a consumer. Mobile shopping apps are evolving to help customers discover and research products before they are at the store and then help them locate those products while they’re in the store. These apps can also store shoppers’ receipts, gift cards and shopping lists; present discounts and coupons; enable comparison shopping; make the checkout process simple and fast, and more. Look for customer loyalty programs to evolve, as well; for instance, using data insights, a retailer could offer individualized incentives to mobile shoppers and reward them for specific behaviors.
  • A friction-free experience is becoming an expectation, fast. Mobile payments success hinges on creating a simple, seamless, value-adding and branded customer experience. Leading players in the person-to-person (P2P) payments space are setting the standard for the frictionless consumer experience — and winning over mobile-minded millennials. Recent research from Bank of America found that 62 percent of millennials use a P2P service.

Entrants in the P2P space are also focusing on the back end, trying to simplify operations and bake in security wherever possible without undermining the consumer experience. Good infrastructure that supports a secure and seamless customer experience is essential to the future of mobile payments. In the coming months on the blog, we’ll be exploring topics that retailers, technology companies and financial services providers, specifically, should consider when developing their mobile payments strategy. These topics include operational effectiveness, risk and compliance issues, technology strategy, and security and data privacy. Each of the industries mentioned above has an important role to play in helping to shape the evolution of the mobile payments industry. It will be through their collaboration, cooperation and innovation that the mobile payments experience can become what businesses and consumers alike envision it can — and should — be.

The Power of Small Changes in Pursuing Digital Transformation: A Retail Perspective

By Rick Childs, Managing Director
Consumer Products and Services Industry Leader

 

 

 

Adaptability has always been critical to retail success. But in the digital era, where disruptive change is constant, many retailers find it difficult to evolve fast enough to remain competitive — let alone relevant. That is especially true for companies burdened by the weight of legacy business models, inefficient back-office processes and outdated technology infrastructure. A proof point: The massive wave of brick-and-mortar store closures seen so far in the first half of 2017 involving many well-known retailers that simply didn’t adapt fast or well enough to change.

Most retail executives recognize that their businesses need to embrace digital transformation if they are to survive. These leaders yearn to get ahead of the curve — or at least, ride along with it comfortably — but struggle to create a viable digital strategy. One reason for the struggle is that digital transformation is a nebulous concept. It’s vast and complex and evolving. Discovering and defining what digital transformation means and looks like for the business is a journey for any organization, particularly one encumbered by a legacy business model with longstanding brand promises.

To bring digital transformation into focus and develop viable business strategies around it, it helps to understand the four key drivers for pursuing this type of change:

  • Improving customer engagement
  • Digitizing products and exploring new business models
  • Improving decision-making
  • Driving operational efficiencies

These are major challenges for any business, but retailers are under relentless pressure to deliver consistently on all fronts. Many become fixated on trying to develop and execute a sweeping digital transformation program but end up overwhelmed and falling further behind the curve instead. That’s because a do-everything-at-once approach is not realistic. It places additional stress on an already hectic business and results in the company overlooking the value of achieving substantive change through smaller, value-adding steps.

One example of an incremental step is the move to mobile technology for retail audits. While not one of the flashiest digital transformation initiatives and not necessarily a strategic move by any means, it nevertheless allows technology to be used to create more efficiency in back-office processes. And greater efficiency can increase operational effectiveness for the entire organization.

More than a decade ago, Protiviti forecasted that internal audit functions in retail would expand their use of mobile audit technology to streamline processes, increase analytic capabilities, and supplement traditional store audits with continuous monitoring and standardized store self-audits. In our most recent report on this topic, we note that “… the adoption rate and maturity of mobile audit technology have increased to the point where retailers not actively pursuing mobile store audit technology initiatives risk falling behind regulatory and shareholder expectations.”

Here’s a quick look at some of the ways that this simple but important technology change in the back office aligns fundamentally with the four drivers of digital transformation:

  • Improving customer engagement: Internal audit’s “customers” are business owners. Mobile technology for store audits helps to streamline and accelerate the audit cycle. That helps to improve the experience for auditees and keep them engaged in the process. And by making the audit process more efficient, the business can address risks and make improvements to external customer-facing processes more quickly, ultimately creating value for the retailer’s external customers, too.
  • Digitizing products: An automated mobile solution for store audits can eliminate paperwork, delays and errors. Audit findings also can be analyzed sooner; data is entered only once at the store into a web-based reporting system that delivers real-time results.
  • Improving decision-making: Store audit technology can provide management with instant feedback on current store performance as well as real-time insight into compliance trends. Organizations can use that insight to detect and resolve ongoing problem areas before they become insurmountable issues, and improve the company’s overall performance.
  • Driving operational efficiencies: As we note in our store audit technology report, “Self-assessment, coupled with improved productivity from a mobile reporting solution, not only allows auditors to physically audit more stores, but also effectively increases audit reach to all locations by providing convenient, easy-to-use means of comprehensive store-level data collection and analysis.” This is what operational efficiency is all about.

While the retail industry’s general adoption of mobile technology for store audits has been years in the making, increased regulation and compliance changes over the past 10 years have created more of a pressing need for a digital solution. It’s an important reminder that real change takes time and is brought about by necessity, even in an era of rapid digital disruption. It is also a reminder that each thousand-mile journey begins with a single step.

Strategic back-office technology improvements are one such step. Such changes can add significant and lasting value to retail businesses in multiple ways. They can also help retailers become more agile, creative and adaptable — qualities that are essential to achieving digital transformation on a broader scale.

Manufacturers Must Focus on Workforce Planning to Accelerate Digital Transformation Efforts

By Sharon Lindstrom, Managing Director
Manufacturing and Distribution Industry Leader

 

 

 

Global manufacturing has been expanding, new orders are up, and the sector is experiencing an uptick in job growth. Even U.S. manufacturing appears to be on the rebound; in March, the industry posted its strongest two-month advance in three years. Leading the way in output were manufacturers of fabricated metals, machinery and plastics, paper, and rubber production.

Despite this growth, employment in the U.S. manufacturing sector remains far below the heights seen during the latter half of the 20th century. Technology advancements are a factor, of course. Some of the manufacturing segments mentioned above are among those that have been greatly expanding their use of robotics to enhance productivity, for instance.

While robotics, artificial intelligence and other advancements are making manufacturing companies less reliant on human workers for certain tasks, they are also creating new jobs that require specialized skills. Robotics engineers, big data analysts, 3D printing specialists and cybersecurity experts are just some examples of new positions in the modern manufacturing workforce. Many companies are also now seeking workers to help “teach” robots how to collaborate safely and effectively on the factory floor.

Demographic Trends, Succession Challenges Creating New Risks

Demand and competition for workers with advanced technical and specialized skills, such as programming, analytics and problem-solving, will only increase as manufacturers accelerate their efforts to automate and digitize. Skilled production roles, such as machinists and technicians, will also remain difficult to fill. And as manufacturers seek to recruit, train and retain qualified talent for both new and more traditional roles, two demographic trends are challenging those efforts:

  • Baby boomer retirements: These workers are leaving the manufacturing workforce in greater numbers and taking decades of hard-to-replace knowledge and skills with them. (Pension freezing and the decline in other retirement offerings have helped to hasten the exit for many.) Even though a lot of the expertise baby boomer workers possess will not be relevant in the next wave of the Industrial Revolution, companies will still suffer from losing people who have a deep understanding of the business and industry that can only be learned over time.
  • The new generation’s lack of interest in manufacturing jobs: Many millennials simply cannot visualize a career path in an industry that they associate with monotonous assembly lines, low-paying and less-skilled jobs, and lack of innovation. Some leading companies are working hard to change the millennial mindset about manufacturing. They’re using high-tech and high-touch approaches to showcase just how rewarding manufacturing careers can be — and that talented, tech-minded millennial workers are, in fact, eager to work in the industry. GE’s multimillion-dollar campaign to rebrand itself as a 21st century “digital industrial” company is one well-known initiative. However, these efforts alone cannot solve a labor problem decades in the making.

To be sure, new business models, changing demographics and the persistent supply-and-demand problem in the hiring market contribute to the high number of open jobs in manufacturing and widening talent gaps in many companies. Manufacturers must also recognize how their own workforce planning practices can exacerbate these problems. Lack of attention to succession planning is a prime example.

In fact, many manufacturers have already started to realize that minimizing — or completely overlooking — the importance of succession planning in the past is creating risk for them today as well as for the future. Industry executives who took part in the latest Executive Perspectives on Top Risks Survey from Protiviti and North Carolina State University’s ERM Initiative cited the following as a top risk for their businesses in 2017: Our organization’s succession challenges and the ability to attract and retain top talent may limit our ability to achieve operational targets.

Learning From the Past

As manufacturers seek to modernize their operations so they can compete in Industry 4.0, they face the risk of not being able to meet their objectives due to a shortage of skilled labor. Now is the time for companies to acknowledge potential missteps in workforce planning and adopt leading practices. If they don’t, they risk not being able to align the talent they need to succeed in an Internet of Things world.

Manufacturers should move swiftly to preserve remaining institutional knowledge by establishing mentoring programs that pair baby boomer employees with both Generation X and millennial workers. Identify areas in the organization where succession planning is critical, and create formal programs with milestones and performance measurements. Provide internships that will allow students to learn firsthand about career opportunities in modern manufacturing, and help the company position itself as an employer of choice with up-and-coming talent.

Also, be sure to promote these initiatives internally and externally. Study how peers in the industry — and in other sectors facing serious talent shortages like IT and healthcare — use outlets such as social media to shine a light on their culture, workforce and operations. Showing that the company actively invests in the development of its workforce and values its talent can help the organization retain existing employees with valuable skills sets and experience, as well as improve its chances of recruiting the highly skilled professionals it needs to succeed in the future.