Jari Mielonen - 12.11.2018
INDUSTRY 4.0 - A New Economy Business Park Full of Value Potential
Industry 4.0 as digitization of the manufacturing sector means embedded sensors in virtually all product components and manufacturing equipment, ubiquitous cyber-physical systems, and analysis of all relevant data. It is driven by four clusters of disruptive technologies. The first consists of data, computational power, and connectivity – low-power, wide-area networks are one example. Analytics and intelligence form the second, while human-machine interaction is the third, comprising, for instance, touch interfaces and augmented reality. Digital-to-physical conversion is the fourth: advanced robotics and 3D printing are two examples. All of these enablers are at a tipping point today – now is the time for manufacturing companies to decide how to respond to them.
The key success factors
As Industry 4.0 influences mission-critical applications in B2B processes, the transformation is expected to be far-reaching but the pace of change to be slower than in the digital disruption of the consumer Internet. Due to their long investment cycles, companies tend to be conservative in their decision making when it comes to fundamental disruption. However, while the majority of value created in prior industrial revolutions came from upgrading manufacturing assets in individual locations – 80 to 90 percent in the shifts to both steam and automation – capex-intensive upgrades are expected to account for only half of that (40 to 50 percent) in Industry 4.0.
Disruptive technologies that are in many cases not linked to major machinery upgrades will enable productivity gains and new business models, and fundamentally alter the competitive landscape.
The key success factors for capturing opportunities from the next horizon of operational effectiveness are:
- integrating and analyzing data across sources and companies,
- sharing outcomes across the value chain,
- ensuring integration with physical production assets, and
- rethinking the design of classical production systems.
Disruptive Industry 4.0 technologies also unlock new value potential through new types of business models. One is represented by as-a-service offerings. Monetization of platforms is another, such as technology platforms creating new ecosystems, or broker platforms for market making. Intellectual property rights-based models are a third: licensing IPR might be a recurring revenue model, for example, or offering related consulting services. Data-driven business models monetizing data or insights from collected data are the fourth.
We see three key success factors in adapting to disrupted value chains:
- Take current assets as the starting point and develop new business cases based on these.
- Secure control points in the shifting value chain and avoid areas that are becoming commoditized.
- Understand the changing competitive dynamics and engrain agility in the company’s DNA.
How to leverage new opportunities
Industry 4.0 disrupts the value chain and requires companies to rethink the way they do business. They need to drive the digital transformation of their business to succeed in the new environment. Five pillars will be critical for this transformation:
- Companies need to build digital capabilities. This comprises factors such as attracting digital talent and setting up cross-functional governance and steering.
- Companies need to enable collaboration in the ecosystem. This requires getting involved in the definition of standards and cooperation across company borders through alliances, strategic partnerships, and cooperation in communities.
- Managing data as a valuable business asset will be important in securing crucial control points.
- Companies need to manage cybersecurity end to end to protect digitally managed shop-floor operations and proprietary data.
- Companies need to implement a two-speed systems/data architecture to differentiate quick-release cycles from mission-critical applications with longer turnaround times.
To leverage these multiple opportunities, companies need to embark on a digital transformation journey: a continuous, long-term effort is needed to successfully navigate the changing industrial environment of Industry 4.0.
Source: McKinsey Digital, 2015
Jari Mielonen is the Executive Vice President of Insta DefSec.