How to Build an Industry 4.0 Strategy

Summary

At its core, Industry 4.0 is about innovation. It builds economic capacity, bolsters workforces and generates opportunity and growth. Today, we’re seeing the manufacturing industry undergo a once-in-a-century transformation in four key areas that are reshaping the future of manufacturing: empowering the connected workforce; fueling intelligent engineering and factories with the industrial metaverse; building agile supply chains; and accelerating sustainability. Industry 4.0 technologies including artificial intelligence (AI) are powering these trends and driving a new level of real-time intelligence across the value chain.

Industry 4.0-led productivity, process and people improvements are not easy to accomplish—especially across a network of individual manufacturing sites, each with its own site leadership, information technology (IT) infrastructure and workplace culture. Many Industry 4.0 initiatives do not go past the initial piloting stage due to a lack of upfront strategy, no clear value articulation and other deployment pitfalls—the classical pilot purgatory.

Manufacturing businesses are looking to invest significant time and money in the near term in Industry 4.0 and digital transformation to gain competitive advantage and succeed in building agility, responsiveness, resiliency and end-to-end visibility in dealing with disruptions and uncertainties. For these investments to pay off, there is a need for a comprehensive Industry 4.0 strategy and a roadmap of transformation. These can overcome the challenges to scale, address employee change management and help the company realize business benefits efficiently.

With a well-defined Industry 4.0 strategy and execution, manufacturing businesses stand to gain from benefits such as increased production capacity and reduced material losses, improved customer service and delivery lead times, higher employee satisfaction and reduced environmental impact.
 

Visualizing a strategy

A strategy for Industry 4.0 is the most important aspect of ensuring an organization’s success in adopting digital technologies in manufacturing. Only a well-structured and all-encompassing strategy will enable an organization to fully leverage digital technologies. All other Industry 4.0 activities will evolve from a well-structured strategy and cover everything from product development to technology implementations to the hiring and training of people.

As Figure 1 depicts, a strategy should emanate from a business vision, mission and values and be supported by five pillars: people, process, technology, data and an ecosystem of partners. The strategy must absorb market and competitive forces and focus on effectively delivering the necessary drivers of business success: adaptability, agility, real-time decision-making and competitive advantage. Forming a strategy, monitoring its execution and making revisions as required are important because we must ensure that the strategy itself is adaptable and flexible. The constant focus for the strategy must be to drive success, growth and business relevance.

Drivers for strategy

A well-designed Industry 4.0 strategy will be in tune with the overall business strategy and help the company absorb the market needs and competitive forces to effectively deliver the necessary drivers of business success. Here we’ll look at five of these drivers.

Competitive advantage. Every organization must have an overriding urge to be the most competitive company in the chosen space. Challenges to being the most competitive stem from multiple facets such as an agile competitor or a more cost-effective process for quality assurance, and an organization must work on responses for each.

Even a cursory analysis of companies that have emerged as the most successful brings out one simple conclusion: They all have successfully leveraged digital. One can witness this in the banking and tourism sectors. It won’t be different for the manufacturing sector.

Customer centricity. This is neither a new driver nor an unknown one. However, in the digital era where customers are over-informed and capable of making decisions based on data, companies have to constantly prove their “customer centricity.” This proof may be in the form of letting customers personalize products or ensuring that services are available throughout the product’s life.

This also means being constantly visible and accessible online, open and transparent and being “preferred” by validation (remember the STAR system of rating) to the competitive game plan.

Agile and adaptive. Constant change is another overarching reality of the current period—changes in every area from products to processes and from markets to regulations. Obvious responses to such challenges are the easiest for an organization that is adaptive and can implement changes rapidly.

Organizational strategy for digital must use these two drivers and build the flexibility that it offers. On the other hand, any organization that is not digitally enabled will not be able to be truly agile and adaptive.

Challengers and an expanded play area. Gone are the days when challengers’ and competitors’ profiles were similar to your own. This made it easier to devise a strategy for taking them on. With digital enablement, this paradigm is completely changed. A potential competitor (and threat) could be much smaller and more agile or much larger with deeper pockets. It may be from a distant geography with unknown advantages or a different sector.

Digital models have flattened the landscape and done away with most constraints like distance or size. An organization can feel helpless with this paradigm change or leverage this new paradigm and expand its horizon and area of play.

The digital strategy must enable the organization to build this into its business plans and help it expand its footprint well beyond the classical space. It should allow the company to offer products and services to untapped areas and sectors that were not considered possible.

Sustainability. Global warming and environmental degradation have emerged as two of the biggest challenges for humanity. Most of these problems are the result of rapid industrialization and urbanization. Sustainability goals are being rolled out, worked for and measured for countries, companies and individuals.

Non-sustainable production will not be tolerated and may even be penalized.

Sustainable production is possible only with smart and digitally enabled manufacturing. Digital technology and tools will help companies deliver on multiple facets and sustainability objectives. With this, sustainable manufacturing is becoming one of the most important drivers.

Real-time data and analytics. With digital advances being developed for all facets of manufacturing—from raw materials to shop floor to distribution and more—the importance and centrality of data is becoming more pronounced. With so much data being generated and being made available internally and externally, not being able to leverage the data could put an organization at a great disadvantage.

Digital technologies help generate data in real-time and very close to the event or action. This gives tremendous advantages and the ability to respond in real-time to every situation in a digitally enabled organization. Beyond real-time decision-making, deep data analytics, artificial intelligence models and responsive digital twins can help an organization “see” the future and plan for it.
 

Strategic pillars

As mentioned earlier, an Industry 4.0 strategy should emanate from a business’s vision, mission and values and be supported by five pillars: people and culture, process operations, technology, data and data management, and an ecosystem of partners. The illustration in Figure from Jeff Winter [link to source?] uses icons to represent elements of what the people, process and technology pillars should encompass. He says they are as follows:

• People. Top management must have a clear vision for the digital transformation journey and effectively communicate it to all employees. Employees must be equipped with the necessary digital skills to navigate new technologies and tools. Collaboration and communication between and among these groups is key. Fostering the right culture by breaking down silos, encouraging cross-functional teams and facilitating knowledge sharing across the organization is essential.
• Process. Agile methodologies enable the implementation of iterative and incremental approaches to project management and help product development to be nimbler and more responsive to change. Leveraging data and analytics should be an integral part of decision-making processes. “Customer centricity” means adopting a design thinking approach and continuously seeking feedback from customers.
• Technology. Organizations must implement strong cybersecurity to protect their data, systems and networks from potential attacks. Investing in a robust and scalable digital infrastructure that can support the organization’s needs is essential, as is ensuring seamless integration of different systems and platforms across business functions.

Now we’ll go into more depth to understand all five pillars.

 People and culture

The people and culture pillar of Industry 4.0 focuses on the readiness of the workforce to embrace new technologies. It encompasses talent readiness, organizational culture and management practices. Companies must invest in employee training programs to acquire the necessary skills to operate and maintain new technologies. Attracting and retaining top talent is crucial for success.

Creating a flatter organizational structure enables agile decision-making and promotes innovation. Establishing clear communication channels and decision-making processes ensures alignment with the Industry 4.0 strategy. Moreover, fostering an organizational culture that embraces innovation and change is essential. Employees should feel encouraged to take risks, experiment with ideas and share their perspectives.
By providing a safe and supportive environment, businesses empower employees to contribute innovative ideas and provide the necessary resources to bring them to fruition. Building a workforce equipped with the right skills, fostering an innovative culture, and establishing an adaptable management structure are key to thriving in the people and culture pillar of Industry 4.0.

Process

The process pillar of Industry 4.0 focuses on creating streamlined, efficient operations through horizontal and vertical integration.

Horizontal integration involves breaking down silos and connecting processes across departments and functions within an organization. This ensures all parts of the organization are aligned toward the same goals and objectives. Companies must adopt technologies that enable real-time data sharing and communication, which fosters collaboration and agility.

Vertical integration, on the other hand, focuses on connecting processes across the entire supply chain—from suppliers to customers. It involves adopting technologies that facilitate real-time communication and data sharing throughout the supply chain, which ensures seamless coordination from procurement to delivery.

Collaborating closely with suppliers and customers is essential to ensure alignment with the Industry 4.0 strategy.

Adopting a product lifecycle approach is another crucial aspect of the process pillar. This approach integrates product design, production and maintenance processes. Leveraging technologies such as digital twins, which create virtual replicas of products or processes, helps proactively identify and address potential issues. Additionally, predictive maintenance techniques that use data and analytics can anticipate maintenance needs, which reduces unplanned downtime and optimizes efficiency.

An agile approach involves embracing flexibility, adaptability and responsiveness within the organization’s processes. It entails breaking down traditional, rigid structures and replacing them with dynamic, iterative workflows. Companies can quickly respond to market changes, customer demands and emerging opportunities by implementing agile methodologies such as Scrum or Kanban. This enables them to stay ahead of the competition and deliver value to customers more efficiently.

At the same time, change management plays a vital role in successfully implementing the process pillar of Industry 4.0. As organizations undergo digital transformation, there will be a need for significant changes in processes, roles and mindset. Change management ensures that these changes are effectively communicated to, understood by and embraced by employees at all levels. It involves creating a culture of continuous learning and improvement, which fosters open communication channels, and provides the necessary support and resources to navigate the transformation journey.

By focusing on these components within the process pillar, businesses can achieve enhanced operational efficiency, cost reduction and improved quality throughout their entire value chain.
 

Technology

The technology pillar of Industry 4.0 encompasses adopting cutting-edge technologies like automation, AI and the Internet of Things (IoT) to create a connected and efficient enterprise. To succeed in this pillar, businesses must select technologies that align with their goals, integrate with existing systems and deliver measurable value. Cybersecurity must also be prioritized to safeguard systems and data.

Automation is a prominent aspect of Industry 4.0, using robotics and technology to automate repetitive tasks. This frees up human workers for higher-level responsibilities, reducing costs, improving quality and enhancing productivity. Connectivity plays a crucial role in linking machines, devices and systems for improved efficiency.

Technologies such as IoT and 5G create a network of connected devices, which enables real-time data sharing for informed decision-making.

Intelligence involves leveraging data and analytics to drive decision-making. By collecting and analyzing data from across the enterprise, businesses gain insights into customer behavior, production processes and supply chain operations. This enables informed decision-making, operational optimization and the identification of areas for improvement. Machine learning and AI are vital components for achieving intelligence in Industry 4.0.

By strategically adopting these technology-driven components, businesses can leverage the power of Industry 4.0 to enhance productivity, efficiency and competitiveness within their operations.
 

Data and data management

Data-driven decision-making is critical for achieving desired outcomes from Industry 4.0 initiatives. In fact, data is at the center of every single initiative. It is then natural that Industry 4.0 systems generate humongous amounts of data, so without a clear data management strategy, this data will burden the organization rather than help.

A data management strategy is a framework or policy guideline about data generation, storage, transformation, integration, utilization and destruction. This part of the strategy must go beyond business strategy and into the realm of technology. A business strategy for data may be articulated in just one or two sentences, for example:

“The system should provide a single source of truth to enable data-driven decision-making. Relevant data should be available easily and quickly to all authorized users and systems with due consideration for data privacy and security.”

But the strategy cannot stop at that. This pillar should consider:

• Data storage. Data storage strategy should provide guidelines on all aspects related to data storage such as type of storage technology, local or cloud storage, centralized or distributed storage, what kind of redundancy, and disaster recovery policy among other things.
• Enterprise data architecture. Many organizations have a fragmented data landscape, with each system storing and managing its database. An enterprise data architecture will combine all this data to ensure standardized, streamlined and seamless access across the organization. A successful enterprise data architecture strategy should cover the policies, procedures and standards for collecting and storing data at the enterprise level. Two popular architectures are data warehouses and data lakes.
• Data protection. Policies for data security and privacy are critical. The data protection strategy must include these policies and the tools, technology and periodic audits to enforce them.
• Data integration. Relevant data is integrated across systems to eliminate data silos and create a single source of truth.
• Contextualization. Each piece of data has a context that moves the data upward into the data-information-knowledge-wisdom (DIKW) pyramid. The strategy will not provide specifics; it will stipulate that each piece of data must have context.
• Standardization. Categories and metadata must be standardized for each category. This helps all systems and users understand the data uniformly. Again, specifics are left to execution, but some golden rules may be set.
• Data disposal. This policy ensures that obsolete or outdated data is not lying around taking up valuable space.

 
Ecosystem of partners

Successful digital transformation and Industry 4.0 require an entire ecosystem of partners because no single organization can possess all the expertise, resources and technologies needed to navigate the complexities of the digital era.

Collaborating with partners brings diverse perspectives, specialized knowledge and complementary capabilities, which enables organizations to leverage synergies, share risks and accelerate innovation.

Partnerships foster access to new markets, technologies and talent, facilitating the co-creation of solutions and the development of a robust ecosystem that supports the organization’s digital transformation goals.

The ecosystem pillar of the Industry 4.0 strategy should consider the following:

• Global or local. Will products and services be sourced independently by plants/departments or centrally? Central procurement may slow the pace and pose challenges to fulfilling local requirements. Local procurement may be faster and fulfill local requirements, but there is a danger of having multiple disparate systems that don’t work cohesively. Striking a balance is critical.
• Partner versus vendor. Industry 4.0 is a journey, and dependable partners are critical for success. Guidelines and methodology for evaluating partners and vendors should be developed.
• Make or buy. For most companies, this is a foregone conclusion in favor of “buy,” but there may be some applications that should be developed in-house due to IP/trade secrets and similar considerations.
• Brand standardization. This may have links with existing partnerships and geographical considerations.
• Guidelines for contracts. The strategy should provide policy direction so that teams across the organization make decisions that are aligned with the strategy.

 
Monitoring strategy execution and revisions

The strategy must be well understood by the teams tasked with executing Industry 4.0 initiatives. This can be achieved through strategy sessions, training and guidance. It is very important to set up a mechanism for periodic review of ongoing and planned initiatives against the strategy. Any deviations should be flagged and resolved early.

Industry 4.0 strategy itself is neither static nor absolute. As discussed earlier, the strategy for Industry 4.0 is part of a larger corporate strategy that is part of the larger macro picture in which an organization operates. This includes market dynamics and social, regulatory and environmental factors. The strategy drivers don’t change, but the pillars and the external environment are evolving.

Changes in competitive and regulatory frameworks, market conditions and technology necessitate periodically reexamining, redrawing and revising strategy. In addition to external factors, internal people and product dynamics will necessitate us to keep assessing the currency, relevance and effectiveness of the adopted strategy and its versions. Though the core philosophy of strategy will seldom change, the details will be revised.

In other words, we must periodically assess whether the prescribed and adopted strategy and its various recommendations and models across all the drivers and pillars are guiding the organization toward success and growth.

This does not mean one has to revise strategy frequently. That may lead to confusion and chaos. An organization must determine a suitable frequency for strategy review, say once a year. In addition, some drastic disruptions, like the pandemic or war, may necessitate an urgent revision in strategy. One must remember that each revision will have a cascading effect on all downstream activities, so it’s crucial to manage it properly.
 
_{This feature appeared in the March 2025 issue of Automation.com Monthly.}