From talk to action
The buzz around Industry 4.0 has moved from what some saw as PR hype in 2013 to investment and real results today. Looking ahead, our survey respondents expect to significantly increase their portfolios of digital products and services; more than twice as many expect to be at an advanced level in this area by 2020 compared to today. Similarly, almost three-quarters of companies expect to have highly digitised horizontal and vertical value chain processes. First movers have even more ambitious and far-reaching plans.
Digitisation drives quantum leaps in performance
Companies that successfully implement Industry 4.0 no longer need to choose between focusing on a better top or bottom line. They can improve both at the same time. Over the next five years, the companies we surveyed expect to reduce costs by an average of 3.6% p.a. and increase annual revenues by an average 2.9%. First movers who combine high investment levels with advanced digitisation are set to achieve even more dramatic gains. If even half of these expectations are met, Industry 4.0 will reshape the competitive landscape and bring fundamental change to established industries.
Deepen digital relationships with more empowered customers
Customers will be at the centre of the changes to value chains, products and services. Products, systems and services will be increasingly customised to customer needs, and many of our survey respondents say they plan to use data analytics to understand and meet them. First movers who are able to establish successful industrial platforms will have a significant advantage over competitors. Ultimately, industrial companies will need to own relationships with the end customers who drive demand.
Focus on people and culture to drive transformation
Our survey respondents say that their biggest implementation challenge isn’t the right technology, it’s a lack of digital culture and skills in their organisation. This finding is also consistent with our Digital IQ research.
While investing in the right technologies is important, ultimately success or failure will depend not on specific sensors, algorithms or analytics programmes, but on a broader range of people-focused factors. Industrial companies need to develop a robust digital culture and to make sure change is driven by clear leadership from the C-suite. They’ll also need to attract, retain, and train digital natives and other employees who are comfortable working in a dynamic ecosystem environment.
Data analytics and digital trust are the foundation
Data fuels Industry 4.0 and successful data analytics is the pre-requisite for successful implementation of digital enterprise applications. It’s time to move from a phase of discovery and understanding what data is available and what it is worth to one of insights and action. ‘First movers’ are already making the shift and using data analytics to help drive decision-making.
As digital ecosystems expand, so does the importance of establishing strong levels of digital trust. Strong risk management and data integrity systems can help companies avoid breaches and better manage disruption to operations – the #1 data security concern of our survey respondents.
Robust, enterprise-wide data analytics capabilities require significant change
Industrial companies will need to develop robust organisational structures that support data analytics as an enterprise-level capability. Half of the surveyed companies have established dedicated data analytics functions, either on a corporate level to bundle talent or on a business unit level to remain close to the operational business. However, 38% of companies currently rely on selective, ad-hoc capabilities of single employees; another 9% have no significant capabilities at all.
Accelerating globalisation, but with a distinctly regional flavour
Industry 4.0 will create digital networks and ecosystems that in many cases will span the globe, but still retain distinct regional footprints. Both developed and developing markets stand to gain dramatically.
Companies in Japan and Germany are the furthest along in digitising internal operations and partnering across the horizontal value chain. With high investments in technology and employee training, they view their digital transformation primarily in terms of gains in operational efficiency, cost reduction and quality assurance. China’s industrial companies stand out in all aspects of digitisation: they are expecting both above average cost reductions, as well as increased digital revenues until 2020.
Big investments with big impacts: it’s time to commit
Industry 4.0 investments are already significant and our research suggests that global industrial products companies will invest US$907bn per year through 2020. Major focus of this investment will be on digital technologies like sensors or connectivity devices, as well as on software and applications like manufacturing execution systems (MES). In addition, companies are also investing in training employees and driving organisational change. More than half of respondents expect their Industry 4.0 investments to yield a return within two years or less, given investments of around 5% p.a. of their annual revenue.