Industry 4.0 – How to master challenges to exploit new business opportunities
Industry 4.0 (I4.0) is probably the most disruptive concept for most industries, affecting not only revenue and cost structures but also shaking up the core business and operating models. Therefore, there is widespread awareness of what it means among the executives of manufacturing companies.
According to a Forrester/Russel Reynolds Survey1) 74% of business executives say their company has a digital strategy. However, only 33% of them think it is the right strategy and even less are convinced they have the skill and capabilities to execute it.
This reflects a high degree of uncertainty about what Industry 4.0, often called the 4th industrial revolution, will bring. Industry 4.0 definitely offers new business opportunities ranging from enhancing the customer experience by employing solutions such as connected products, to the opportunity to adopt new service oriented business models for the manufacturer such as moving from an automotive OEM to a mobility service provider. The time to market can be reduced by adopting collaborative engineering and predictive maintenance can enable manufacturing equipment to keep going longer.
Since the changes Industry 4.0 implies are so disruptive, companies are also facing major challenges, when it comes to the implementation of its principals. These challenges comprise the high investment requirements necessary with a sometimes unclear business case. Furthermore the lack of standards concerning I4.0 related applications are creating uncertainty supported by the fact that different, often country-specific consortiums and initiatives have arisen. Although we see first attempts of alignment e.g. between the Forum Industry 4.0 in Germany and the IIC in the US concerning the definition of common standards, it will still take years to come to common terms. Technologies such as data analytics are changing the job qualifications needed in the future. Data scientists are scarce and expensive so for a lot of small and medium sized organizations the cost will be too high to employ them.
Industry 4.0 is about connectivity. We define I4.0 as the connected enterprise meaning that companies have to get connected internally but also more and more with their suppliers, R&D partners, subcontractors and also, crucially, with their customers to create an integrated ecosystem.
This creates challenges around data protection and IT security since the more a company opens up its network the higher the risk. Higher levels of integration in the supply chain will also create discussions about liability in case there are complaints by customers. The current practice found in the automotive industry, where OEMs and first tier suppliers try to impose the liability on component suppliers cannot be the answer to this problem.
New technology such as AI will also have impact on jobs. Some of them will vanish, others will emerge as the human / machine interface will become more important. This implies that labor laws will be impacted. Another aspect of this change in the way we work is that many of the existing company processes are not suited to cope with it.
How can the industry master these substantial challenges?
The first step is for an organization to define their position within I4.0. In order to limit the risk of I4.0 investments going wrong, business should follow the principle of “think big act small” i.e. manufacturing companies should follow a stepwise approach when implementing I4.0 related solutions. It is a good approach to start with a “stand alone” solution and if it delivers the expected benefits to extend the I4.0 universe by pursuing a vertical integration of systems followed by the horizontal integration along end-to-end processes such as product lifecycle. Horizontal integration comprises two steps: first the realization of intra-connectivity i.e. within the company and secondly the inter-connectivity with partners outside the own company.
We encourage customers to get engaged in I4.0 discussions i.e. in the initiatives that pursue the definition of frameworks for I4.0 such as IIC in the US. The rationale behind this is that it is always better to influence the definition of rules instead of waiting for them to be imposed by others. In order to keep up with the changing skills needed in the I4.0 world, companies have to acquire them either in the labor market and/or upskilling the existing workforce. Skill profiles need to be defined by analyzing the requirements set by their own I4.0 strategy. Talents have to be identified within the company that have the potential to meet I4.0 related jobs. They need to be trained following a dedicated training curriculum. An alternative is to look for service providers that can take over services e.g. data analysis and/or predictions on a contractual base.
Legal issues related to Industry 4.0 are the responsibility of the company’s top management. This is especially true when it comes to the definition of contract and agreements governing liability issues in the integrated supply chain and the data protection and security in the network with the company’s ecosystem. The company should also pursue an open communication concerning the digitization of processes and workflows with their employees and workers council. As stated before the advent of AI will have a major impact on jobs and job profiles in the future.
The adaption of company processes to the requirements set forth by I4.0 initiatives and projects will be necessary. Companies will need to identify the impacted processes, develop to be process models, manage to transition from old to new by thorough training of all stakeholders and coaching after process implementation.
Time to begin
Industry 4.0 challenges need to be mastered by starting activities on various dimensions as described above. Although this implies the willingness to change and take substantial efforts, it is inevitable in order to stay competitive. Therefore let’s shape the future.