Keyword search
Tag search
Tech & Innovation
FEB 1, 2017

Does Industry 4.0 matter?

By Dr. Jorge Calvo

Nowadays, it’s not unusual to come across articles and reports in the mass media and business journals about Industry 4.0 and how businesses and operations are undergoing a digital transformation through the use of emerging technologies, including IoT, AI, big data, sensors, robots, and 3D-printing. Many of these articles only focus on superficial aspects, such as the application of technology, employing technological jargon—that is impenetrable to the average person in order to elevate Industry 4.0 news to the heady category of prophesy, as if everything was possible in the future or, even worse, prophesying a future in which there is no room for today’s companies.

It’s easy to come away with the impression that the business world has divided itself into prophets and doomsayers. Prophets promise a business heaven sloshing with 11 trillion dollars by 2025 and eternal happiness for executives, with 55 billion IoT connected devices by 2020, and all this when you instantly climb aboard the digital bandwagon and let the IT angels advise you. The doomsayers threaten us with new demons such Amazon, Uber, Google, Airbnb, who will bulldoze traditional businesses. Angels and demons? It’s as if people, management and strategy suddenly no longer make sense in this new world.

Despite the current popularity of Industry 4.0, and maybe due to the skewed attention it receives at the hands of the media, its effectiveness still remains elusive for many company directors and senior executives. It’s the topic of conversation over a coffee among friends and colleagues and everyone seems to think themselves an expert in technology, or at least, are strongly opinionated about it: you’re either on the side of the prophets or the doomsayers. But we mustn’t forget that this is business, and however much we enthuse over or dislike the Fourth Industrial Revolution and its emerging technologies, there needs be some form of rationalization between management and strategy that is able to transform these prophesies into profitable businesses and the threats into business opportunities.

While all this digital noise is expanding and amplifying around us, many industrial firms have begun a silent revolution—gradually digitalizing their businesses, products and processes—in which strategy drives technology, not the reverse. A number of studies from the US have calculated that the current degree of implementation of IoT and its enabling technologies within industries lies between 25% and 45%, depending on the sector, and forecast that on average this will double in 5 years, reaching levels of 50% to 80% according to industry type.

My colleague Professor Michiya Morita from Gakushuin University and I wanted to ascertain the situation in Japan regarding the extent and level of Industry 4.0 implementation in a country characterised by innovation in technology. We were particularly interested in learning the visions of the executives leading the digital transformation in Japanese industrial companies.

To do so, we carried out a survey on the implementation of Industry 4.0 in three Japanese industries–electronics, machinery, and vehicles—in order to gain an understanding of their companies’ strategic vision, implementation level, expectations and future plans vis-à-vis Industry 4.0. We chose these industries because they are subject to intense global competition in terms of implementing Industry 4.0 from German, U.S. and Chinese companies, which are supported by their governments in promoting Industry 4.0. We methodologically separated the companies into two groups—high performers and low performers—to find out if a high performance culture is associated with a clear vision of the key factors and benefits of Industry 4.0.

Our first conclusion was highly significant: for high performance Japanese industries, Industry 4.0 matters a lot. High performers have a clearer vision, better-defined plans, higher expectations and also attain better results than low performers. Surprised? Probably not, but we needed to confirm it in order to focus on those visions linked to obtaining their objective—high performance.

Here, we also share briefly some of our other findings collected in December 2015 from the top executives of 69 Tokyo Stock Exchange listed companies.

Japanese companies remain staunch believers in the Monozukuri culture and place strong emphasis on product development in their strategic plans.

The importance of Industry 4.0 in the strategic plans of Japanese companies is high: 3.7 (out of 5), with a strong focus on production (3.9), on collecting customer information (3.7) and on product development (3.6).

However, according to their executives, the level of Industry 4.0 implementation of high performing companies is relatively low, at 2.5. This could be interpreted as meaning that implementation in these companies started later than in other countries. Their initial vision was inward looking, focusing solely on strategies oriented at product development and improvement and paying little attention to customer-centric or value-chain oriented strategies. We also observed a lack of integrated company vision, and a Kaizen-based execution in which strategy implementation is carried out sequentially and by division: first, through product innovation and later adapting production to the requirements of the new products, then collecting information of the customers of these products… in order to plan production.

Japanese industrial companies like automation but are afraid of the risks inherent to the Internet.
“Robots?” Yes!
“IoT?” Maybe.

Which Industry 4.0-related technologies are Japanese companies using? Investments are mainly occurring in the more mature technologies related to product and quality improvement, namely robots and simulation systems. Curiously, in third place was cyber security, in fourth, 3D-printing—additive manufacturing—and in fifth, IoT platforms. It’s interesting that more attention is paid to Internet security than developing IoT platforms, which seems to indicate a degree of conservatism and an aversion to risk. In last place are cloud computing, augmented reality and big data. If this conservative investment profile were to become a trend, it would signify a dangerous distancing from Artificial Intelligence by Japanese companies and, more worryingly, from their customers and suppliers. Unlike US or Chinese companies, which invest heavily in big data and AI, they would face big problems in creating strong business ecosystems. Perhaps Japanese companies are suffering from a “fear of the link between people, machines, and processes” being brought about by digitalization.

Enhancement of competitiveness and supply chain stakeholders’ satisfaction are key expected benefits from Industry 4.0.

Encouragingly, however, the picture changes when it comes to future expectations. The values for the top three outcomes are similar: Starting with faster response to demand, flexibility is seen as one of the trade-offs and challenges of JIT, and Japanese manufacturing companies expect to cover this gap with Industry 4.0 technologies. Greater customer satisfaction lies in second place, with flexible production systems third. The main assumption here is that these companies are willing to increase customer satisfaction by improving company responsiveness to changes in demand in order to avoid having customers waiting for products and to avoid the build-up of inventories.

Some Japanese companies see Industry 4.0 as the link between people and processes that allows the design of completely new strategic scenarios and business models with more opportunities than risks.

Industry 4.0 presents a series of potential challenges, although these are not seen as any great threat; Japanese manufacturing companies are aware of the risks inherent to areas such as cyber security, but they see the opportunities as being greater. They believe in the strategic opportunities and business models that Industry 4.0 will bring through connecting people and processes in real time. Fear of the risks of connecting people is the lowest concern. Moreover, they do not believe Industry 4.0 will be an industry standard in the future, possibly because we are in the embryonic phase of this paradigm shift.

It would be difficult for companies to manage the enormous data flows (estimated to be in terabytes per hour; a Boeing 787 aircraft could generate 40 TBs per hour of flight) that characterize Industry 4.0 if they don’t implement cloud computing systems –which are standard worldwide– or begin to learn and experiment with big data and AI. It seems that Japanese companies, with their engineering culture, believe more in internal developments than in outsourcing or using standard solutions.

It’s not just about strategy or technology: A high performance management culture is needed

In fact, the implementation of a management culture that promotes innovation across the company, not just in R&D, and makes sure all functions work together and not isolated in silos, is a prerequisite for taking maximum advantage of Industry 4.0. In a company that builds such an entrepreneurial and collaborative culture across the whole organization, Industry 4.0 would not be that disruptive. Moreover, through the evolutionary process of learning-by-doing, the company that implements some of these emerging technologies will gradually acquire the necessary digital know-how and market responsiveness to achieve a highly competitive position in a global environment characterized by increasing complexity and large, rapid changes.

Note: This article is based on a study carried out by Michiya Morita, Jorge Calvo and Yukari Shirota (2016) and partly on their article “Envisioning Supply Chain Management 4.0: The view from Japan”, published in CSCMP’s Supply Chain Quarterly Magazine. [QUARTER 3/2016]