- By Bill Lydon
- February 07, 2020
By Bill Lydon, Contributing Editor
Fourth Industrial Revolution technologies are disrupting the manufacturing industry, and that disruption has risen to the highest levels: a topic for discussion at the 2020 World Economic Forum in Davos, Switzerland in late January
By Bill Lydon, Contributing Editor
Fourth Industrial Revolution technologies are disrupting the manufacturing industry, and that disruption has risen to the highest levels: a topic for discussion at the 2020 World Economic Forum in Davos, Switzerland in late January . At times of fundamental change, evolution or revolution inevitably becomes a debate challenging the status quo. It takes an open mind, vision and courage to embrace new opportunities for growth.
Francisco Betti, head of Shaping the Future of Advanced Manufacturing and Production for the World Economic Forum, posted an article commenting, “As the world of production faces a perfect storm wrought by the Fourth Industrial Revolution, the accelerating climate emergency, raising trade tensions and growing economic uncertainty, manufacturers must develop new capabilities and adapt.” Betti suggests the manufacturing sector can only realize the full benefits of the Fourth Industrial Revolution if there is a complete transformation across value chains and production systems and diffusion of technology through their entire production networks that go beyond adding incremental tools to existing processes.
Global Lighthouse Network
The World Economic Forum’s Global Lighthouse Network, in collaboration with McKinsey & Company, Inc. has identified and brought together 44 factories in the world that are applying advanced manufacturing technologies, including AI, the internet of things and big data analytics, to improve operations. They term these factories “lighthouses” that are successfully finding opportunity in using Fourth Industrial Revolution (4IR) technologies. The World Economic Forum in collaboration with McKinsey & Company published a white paper, Global Lighthouse Network: Insights from the Forefront of the Fourth Industrial Revolution
I had a discussion with Enno de Boer, partner and global leader of manufacturing for McKinsey, who was involved in the research report on manufacturing. Boer leads McKinsey’s collaboration with the World Economic Forum and serves clients on digital manufacturing strategies and transformation across many industries in their pursuit of competitive advantage through operational excellence. We discussed the findings of the report that suggest American manufacturing companies are lagging behind in 4IR innovations and could lose out on up to $3.7 trillion in value by 2025.
Boer commented they consistently found companies are stuck in a “pilot purgatory” testing a lot technologies and piloting a lot of projects but not figuring out how to scale technologies to solve business problems and create fundamentally new business impact. The report notes the while many manufacturers have made strides towards technological transformation, more than 70% of the companies in the manufacturing ecosystem are falling further behind their Fourth Industrial Revolution efforts by attempting to implement advanced manufacturing technologies without realizing acceptable returns on investment or measurable improvements in operational key performance indicators.
The report, “Fourth Industrial Revolution Beacons of Technology and Innovation in Manufacturing” provides analysis on companies viewed as advanced manufacturing “lighthouses” in the U.S. and around the globe that use technology to improve operations and profits. Other top Global Lighthouse Network findings include:
- 70% of manufacturers are unable to bring manufacturing innovation to scale and are at higher risk of permanently falling behind Lighthouses factories identified in the report
- Europe and Asia are embracing new technologies much faster than the U.S., with 41 of 44 total Lighthouses factories studied.
- Companies are generating value from 4th Industrial Revolution technologies beyond the factory: 14 of the 28 newly identified Lighthouse factories are integrating end-to-end manufacturing innovation from their suppliers to their customers and beyond .
- Job automation is forcing companies to evolve their operational models and upskill workers to use cognitive and creative skills that have no AI equivalent.
Thoughts & Observations
While the World Economic Forum has focused on the Fourth Industrial Revolution, the Global Lighthouse Network seems to be focusing on incremental evolution.
The Global Lighthouse Network: Insights from the Forefront of the Fourth Industrial Revolution report noted: “Lighthouses achieve high impact with minimal replacement of equipment. Most were created by transforming existing brownfield operations. Optimizing existing infrastructure and augmenting it with new machinery can deliver many benefits.” In my discussion with Enno de Boer, he endorsed incremental application of technologies to existing assets as the best approach for manufacturers.
I think the statement, “transforming existing brownfield operations,” and the report itself are too strong since they imply fundamental changes that is not reflected in the case studies. While the report highlights a number of cost savings and operational improvements, I classify these as continuous improvements of existing operations which apply well-established methods and technologies as opposed to profound process and business model changes. I was surprised that case study companies were just starting to apply some very fundamental well-known methods and technologies. Essentially, refinements that increase the return on investment of existing sunk cost assets may be a costly strategic business mistake. The sunk cost trap is making refinements on existing assets that will become devalued quicker than the calculated financial write-off schedule. I agree with Betti this is a transformative era and manufacturers must develop new capabilities and adapt. I believe manufacturers need to do a broad in the-depth analysis of strategic business issues and sort out the right technology investment strategy to improve business and, more importantly, remain viable competitive organizations.
Evolution or Revolution?
Evolution is comfortable with incremental changes, keeping existing processes, and preserving existing assets. Revolution typically requires rethinking fundamental processes leading to radical change. Henry Ford’s design and production methods are cited as one of the steps prior to Industry 4.0 or, as the World Economic Forum calls it, the Fourth Industrial Revolution. Ford used a revolutionary holistic approach when changing product design, fundamental materials, and production processes to dominate the automotive market with the model T. Mass production on the assembly line is cited as a major factor, but there were other changes including the use of the new Vanadium steel, separate engine head and block, and other innovations. Later Toyota made radical holistic production changes that again proved the need for major changes to compete and prosper.
"The remains of the old must be decently laid away; the path of the new prepared. That is the difference between Revolution and Progress." Henry Ford
When there is major technological change in industry, I think it’s important for manufacturers to think about the need for major change to remain competitive. To be complete, analysis of manufacturing return on investment should look at transformative process and business model changes enabled by technological shifts. These will accelerate competitive position and result in significant ROI.
“As the world of production faces a perfect storm wrought by the Fourth Industrial Revolution, the accelerating climate emergency, raising trade tensions and growing economic uncertainty, manufacturers must develop new capabilities and adapt.”
—Francisco Betti, head of Shaping the Future of Advanced Manufacturing and Production for the World Economic Forum
- Industry 4.0: Intelligent and flexible production
- The IoT Impact on Business Models: What Should Manufacturers Do First?
- Tension in Industrial Automation: Open Systems and the User’s Dilemma
- Inside Ford's Livonia Transmission Plant Digitalization Journey and Real-World Results
- Driving Change with Technology
- Disruptive innovations
- Digitalization – What is an automation professional’s role?
- Automation Controllers & Word Processors – Embrace the Technological Shift or Die
- Internet of Things Driven Manufacturing
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