Industry 4.0 - explained
Industry 4.0 (I4) – besides of being the newest initiative to preserve jobs in Germany, it is possibly the strongest buzz word (besides of digitalization) in the boardrooms today. Apart from being strongly over interpreted and misused, it is possibly also only understood fragmentally. I had the pleasure to hear an executive of one of the big consultancies tell that they had asked CEO´s around the world what it is, and then as a countermeasure they had employed a Young guy wearing a Metallica T-shirt, and Jogging trousers. If this is the level of understanding that we are presenting, I do honestly understand the confusion about the concept of I4, a confusion that consultancies use in well-orchestrated scare campaigns to grow their sale of reports, PowerPoints and workshops.
Basically Industry 4, do refer to the term “the firth industrial revolution”, following up on the 3rd introducing robots in production (1969), the second, introducing production lines (1879) and the first introducing machines into production (early 1800´s). Even more basically Industry 4 is the digitalization of products, production, operation and business models. It sounds like quite a mouthful, which it definitely also is, however a long journey starts with the first step, and only if You are in very digital industries You may face disruptional pace of the evolution. There is a very simple financial model You could consider, when You want to get an idea of the development pace of Your industry:
The ratio between cost of the technology and the benefit that it is able to realize:
Normally You should not expect anything dramatically to happen before the ratio is between 1:5 and 1:10, meaning that the benefit is more than 5 to 10 times the investment (on relatively short term).
Cisco and the Swiss business school IMD has defined a model called the digital vortex, which basically shows which industries are just in the eye of the storm, and which is far from close to the eye:
So digital industries, where the technologies are easy to get a grab on, and the ratio between investment and benefit is huge (in favor to the benefit… :-) ), the development is running at disruptional pace, just look at the media industry, where e.g. flow TV stations are getting run over by Youtube, Snapchat, HBO, Netflix etc. Traditional news papers has been surpassed by medias like Twitter or totally new platforms that takes news from all sorts of other platforms and present them to the user in a convenient format.
This do not mean that You shouldn´t consider digital development of Your manufacturing business – just like You have been doing it for the last many Years, You need to continuously optimize what You do. However the ratio between benefit and investment is developing rapidly in favor to the benefit, when we talk about digitalization – so You should spend quite some energy scouting for the next rational digital step, and especially You should not hesitate looking at the cleanness of Your data, as well as the strength of You processes. No matter what You are going to digitalize, clean data and strong processes should be on the agenda. However there may be opportunities in cheap collaborative robots, and more strategic use of production data even today in rather conservative industries. The only way to discover those opportunities is by assessing them – which Your engineers should be able to do (internal or external). You may also need to consider how business models may change in a digitalized reality, but this may be an far to the future looking exercise, and remember what Keynes said a few hundred years ago: On the long term we are all dead… so don´t forget today and tomorrow, when You consider next year.
If you have any questions regarding this topic, please contact Johnny G. Ryser at DIS
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