Why investments in Industry 4.0 fail
Nearly four years ago, I began my very first blog on Industry 4.0 by writing: “Industry 4.0 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.”
Years later, after many proofs of concept and projects, the question is now whether these activities have really delivered the expected benefits, and if not, why have these investments shown no or little Return On Investment (ROI).
Reasons for failure are mostly linked to business
The reasons why I4.0 investments fail or don’t deliver the expected benefits are not linked so much to technology, but to the business. They are also related to the concerns we had at the beginning of the Industry 4.0 “hype” — questions about the right digital transformation strategy, and selecting the right use cases to drive the business forward. In particular, they comprise the following:
- Many companies investing in digital transformation still lack a general I4.0 strategy with a clear digitalization roadmap and related business targets
- Finding the right starting point for the investment(s) remains an issue
- Important stakeholders (like supply chain managers) are not involved in the decision-making process concerning I4.0 investments
- The monetization of I4.0 investments is often overlooked (i.e. there is lack of business case calculations that deliver clear ROI targets)
- Investments are focused on domain-specific solutions that address individual processes and tasks, instead of following a holistic approach
- Company processes and structures are not designed for digitalization and are not integrated with existing operations
- Existing skills and talent are not suitable to fulfill the requirements of digital transformation (such as in areas such as data analytics) or the skill ramp-up is too slow.
Even if skills and talents may be suitable to work with new technology, people may resist change or find it too challenging to work with the new solutions.
Many I4.0 projects have focused on the optimization and automation of existing operations. In general, this approach may be a foundation to take the next step towards more innovation. Research (such as the Deloitte article cited above) has proven that investing in innovations will deliver a similar ROI to investing in optimizing existing processes. In this respect, it will also be beneficial for companies to take an outside focus — which might deliver benefits concerning the company’s own efficiency or agility. If the learning curve regarding successful I4.0 investments has truly been flat, what can be done to execute investments that deliver the expected benefits?
Nearly four years ago, I began my very first blog on Industry 4.0 by expressing how clients felt overwhelmed by the opportunities stemming from new technologies and business models. Years later, the question is now whether these activities have really delivered the expected benefits, and if not, why they have shown no or little ROI.
The solution: A systematic approach
Finding the right starting point for I4.0 investments remains crucial. There will be no “one size fits all” procedure, and companies will need an individual approach. Nevertheless, the following aspects should be recognized in general:
- An analysis of the existing company ecosystem (including processes, application landscape and stakeholders) is important to determine how I4.0 can fit into the overall company strategy.
- Industry 4.0 requires a thorough strategy that is based on this analysis and the (future) business strategy of the company.
- Each investment should be based on a profound business case that defines realistic targets to be achieved. The incentives for executives involved should be linked to the fulfillment of these targets.
It is a decent approach to test new solutions in proofs of concept, but if they deliver positive results, the company should be prepared to scale.
- Existing processes should be adapted to I4.0 requirements before entering into a solution investments, thereby eliminating perceived insufficiencies and problems.
- The I4.0 approach should be result-driven, and solutions that do not work should be abandoned
- The necessary skills needed should be systematically built up. This will involve training and qualification planning for existing resources, as well as strategic recruiting of resources from outside the organization.
- The optimization of existing operations might be a good starting point to gain experience, but the focus should be on innovative investment that drives company growth.
These recommendations are not new but show that some homework still must be done to arrive at the bright new business world that I4.0 has promised from the beginning.