A decade of Industry 4.0 investments: Time for review and evaluation
The origins of Industry 4.0 (I4.0) date back to 2011, when the German government initiated a project to promote computerization of manufacturing. Since then, industrial companies have been investing in I4.0 technologies, such as artificial intelligence, machine learning and IoT.
Lately, there has been a lot of rethinking within the economy as a result of the pandemic, trade wars and the Russia-Ukraine war that has impacted the availability of supplies. Consequently, we will see an accelerated growth in digitalization, and Industry 4.0 related solutions and technologies.
Don't just improve, innovate!
According to Roland Berger’s 2021 study, How to build a successful digital factory, most I4.0 projects focus on improving operational excellence (like process improvement and cost reduction), leaving other possibilities (such as creating innovative products or new business models) virtually untapped. Although the willingness of the enterprises to further invest in I4.0 and digitalization projects remains high, the focus is not shifting towards product and business innovation. Whether this will be the right path to follow remains to be seen.
Most I4.0 projects focus on improving operational excellence, leaving other possibilities virtually untapped.
Don’t just improve, innovate!
Becoming operationally more effective and efficient is necessary to remain competitive from a cost perspective. Nevertheless, there are limits to optimizing operations with diminishing cost savings over time. Neglecting product and service innovation is not the right strategy to survive in the long run. Therefore, differentiation against competition by fostering digital innovation will become increasingly important, with I4.0 technology supporting and enabling the process.
How should you evaluate your Industry 4.0 investments?
At the beginning of the fourth industrial revolution, clients felt partly overwhelmed by the opportunities stemming from new technologies and business models, so helping them choose the right concepts and technologies to implement was essential.
The Roland Berger study cited earlier found that after 10 years, almost 70% of companies are still in the initiation phase, which comprises idea generation, planning and budgeting. The rest have started I4.0 projects with limited scope and to a lesser degree, “full-blown” implementations.
The question is whether or not these full implementations have really delivered the expected benefits. If not, why have these investments shown no or little return on investment (ROI)?
Since new technology is involved with little or no experience stemming from previous projects, the pitfalls for the investment are many and the reasons for a malperformance of the investment remain unclear. When you observe that investment targets are at stake or that the solution implementation is experiencing delays or acceptance problems, you should consider evaluating your investment. The goal of such review should be to:
- Identify the reasons why investments are underperforming
- Evaluate the benefits of I4.0 investments in terms of process improvements, revenue increases and/or cost reductions
The assessment should cover all company domains touched by the investment, including the business landscape, the company’s processes, structure and its application landscapes. It must lead to tangible results that can help enable the following activities:
- A plan to turn around a running project and save the investment. It can include reassigning tasks, improving stakeholder communication and/or buy-in, or redefining the solution scope
- A recommendation to stop the project or disinvest, since any further investment will increase financial losses and not help achieve the expected business targets
- Lessons learned and knowledge assets that can be applied for future I4.0 investments to avoid future issues
Given the disruptive nature of I4.0 investments, it is crucial to sense problems in investments, identify their root causes and define sustainable actions. Otherwise, the complete investment may be at stake.
By Stephan Zimmermann, Global Head of Incubator Portfolio Industry Manufacturing
Posted on: September 20, 2022