Industry 4.0: CEOs’ master plan for driving the race in performance excellence

Industry 4.0 and the related new technologies, such as the “Internet of Things”, “cyber-physical systems” and “additive manufacturing”, will drive radical performance improvements in terms of cost and customer excitement. CxOs in all industries are currently defining their ways to explore and exploit the benefits. The bad news is that the variety of technologies and limited number of industrialized examples make it hard to understand the complexity of the topic. The good message is that this is far more than buzzwords. The new technologies have actual game-changing potential. Savings of between 15 and 50 percent per cost line can be achieved on the operations side. Leaders need to act now. The challenge is to define a powerful operations concept that is forward looking and ensures measurable short-term benefits.

Technology opportunities drive radical performance improvement in future operations

Industry 4.0 and its related technologies offer great opportunities to accelerate and streamline all kinds of operations processes like R&D, procurement, production, logistics and customer relationship management. But the list of technologies and buzzwords is long: Industry 4.0, smart factory, cyber-physical systems, digital revolution, Internet of Things, data-driven business models, augmented reality, additive manufacturing, virtual manufacturing, Workplace 4.0, predictive analytics, cognitive analytics, analytics among others.

Understanding what is only hype, what brings value and how to transform

Few companies have organized themselves well and have systems and structures in place to manage the future of operations. CxOs are reporting that they are lost as far as understanding what is only fashion versus what brings real value and hopefully a competitive advantage to their companies. They also ask themselves how to organize a continuous transformation towards a future-of-operations target picture, how to be reactive to technology disruptions in an agile way and, last but not least, how to gain access to required technologies.

Risks are non-competitive operational performance, stranded investments and lost profits

In these disruptive times most companies are at risk. In our current “Digital Transformation” study we have found that more than 80% of the companies have no clear target picture and transformation plan regarding Industry 4.0 and the related digital and non-digital technologies. They are designing and developing their operational performance by accident. The funding for the differentiating investments in operations redesign and technology does not come through – moreover, it is diluted.

The opportunity is to become industry leaders in EBIT margin development and operational agility.

In several operations projects we have modeled the cost advantage an early adopter could achieve over a follower. The results depend on who you are exciting or threatening. On average, an early adopter improves by 10% within two years and almost doubles EBIT margin in 10 years.

Five-step management agenda to make it happen

Defining, building and operating an enhanced operations model using new digital technologies is a significant challenge for the CxO suite: underlying technology bandwidth is beyond the available competences of almost any traditional industry player. Implementation times for global Industry 4.0 projects are beyond the horizon of technology developments, and their evaluation can be assessed. Capex and investment required for globally consistent business model changes in operations exceed typical investment budgets by far. So how can these challenges be overcome? Five steps are necessary to fully leverage technology and value-chain opportunities to become an industry leader in operational performance:

1. Understand the relevant technologies and their maturity levels
2. Identify and describe concrete applications of these technologies per operations function
3. Determine each of these applications’ value and define a target picture
4. Define a transformation path and launch a portfolio of concrete implementation projects
5. Establish technology access and an innovation network

Each of these steps has its own success factors and benefits.