industry 4.0: implications of the 4th industrial

IMP³rove

European Innovation Management Academy

Industry 4.0: Implications of the 4th Industrial Revolution

and

Analysis of the Digital Innovation Champions based on the DIQ database

Eva Diedrichs, Arndt Heinrich, Alexander Bruns, Tim Müller

January 25, 2019

210/53140dwww.improve-innovation.eu; IMP³rove is a registered trademark

Agenda

◼ Welcome and introduction

◼ Industry 4.0: Implications of the 4th Industrial Revolution

◼ Analysis of the Digital Innovation Champions based on the DIQ database

◼ Final Questions and Answers


Welcome and introduction


Welcome and introduction

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Industry 4.0: Implications of

the 4th Industrial Revolution

- Presentation provided by

Arndt Heinrich, Alexander

Bruns, Tim Müller, A.T.

Kearney

25.01.19

Presentation document

Industry 4.0: Implications of the 4th Industrial Revolution

Webinar

Arndt Heinrich, Tim Müller


Disclaimer

This document is exclusively intended for selected client employees. Distribution, quotations and duplications – even in the form of extracts – for third parties is only permitted upon prior written consent of A.T. Kearney.

A.T. Kearney used the text and charts compiled in this report in a presentation; they do not represent a complete documentation of the presentation.


Objective of today

Source: A.T. Kearney

1. Provide a clear overview of what ‘industry 4.0’ is including latest trends

2. Give an overview on the impact of industry 4.0 solutions and competitive moves

3. Elaborate on approaches on how to keep the competitive edge during the 4th industrial revolution


[email protected]

Practice:Automotive, Industrials | Digital Transformation

Arndt HeinrichManager, Hamburg

Your contacts today


[email protected]

Practice:Automotive, Industrials | Digital Transformation

Tim MüllerSenior Consultant, Vienna

mailto:[email protected]



i4.0 – the fourth industrial revolution


The Fourth Industrial Revolution is blurring the lines between the physical, digital and biological spheres of productionEvolution of production

Historically, technology has always shaped production systems

• Mechanical production facilities using water and steam power

• 1784: First mechanical loom

End of 18th century

Industrial revolution • Mass production based on the division of labor

• Era of Fordism –standardization of mass production (ass. lines)

Beginning of 20th century

Industrial revolution • Electronics and IT to further automate the production

• First programmable logic controller (PLC)1

Beginning of the 70s

Industrial revolution • Cyber-physical systems

• Ubiquitous connectivity of people, machines and real time data

Today

Industrial revolution

#1st#2nd

#3rd#4th

1. Modicon 084 - 1969; Note: For more in-depth insights on the concept of Fourth Industrial Revolution, see: Klaus Schwab, “The Fourth Industrial Revolution: What if Means, How to Respond’, World Economic Forum, 14 Jan 2016, LinkSource: World Economic Forum

https://www.weforum.org/agenda/2016/01/the-fourth-industrial-revolution-what-it-means-and-how-to-respond/


i4.0 turns factories into the critical node in the future value chain

Virtual value chain with the factory of the future

Factory of the future

Efficient factory

Factory equipped with localized and loosely integrated technologies for plant optimization

Basic automation Robotics

Sensors Green mfg.

Advanced materials

Factory progressed from to smart/digitized manufacturing where technologies and data analytics are integrated to improve flexibility, productivity and quality within the plant

Smart automation

Simulation

Analytics

Additive mfg.

Factory progressed from “Smart Factory” to integrated advanced technologies throughout the value chain by connecting the supplier/ contract manufacturer, factory, logistics and customer to realize the full potential of the adopted technology

Cyber Security

Cloud

Big Data

Internet of Things

E2E analytics

Lean factory

Operations Excellence Foundation to be in place prior to the adoption of Advanced Manufacturing Technologies

Modelling

Advanced sensing & control

Maturity stages of factory of the future



i4.0 is pace maker for the disruption ahead for manufacturing companies and may be key differentiator

1. Connected by sensors and actuatorsSource: Haier; A.T. Kearney

Example: Haier

Consumer electronics & home appliances company

Haier’s customized mass products

Changes in manufacturing

From “designing for

manufacturing” to

unconstrained

design

From mass production to

flexible production

From global supply chains to

supply unchained

Industry example

Customer value

• Product customization by user in app/product configurator (e.g. screens sizes, noise level, color)

• Prices change by altered specs - online real-time

Smart factories

• Large-scale customization for mass products

• Manual labor replaced by automation

• Manufacturing processes connected1 for data collection, data analysis and online access

Others

• Design suggestions to global design team via app by customers


OEM

IT-Supplier

Digitalgiants

Tier-Supplier

Devicemanu-

facturer

Telecom.companies Integrator

Existing logics New logics


Second-Tier-Supplier(Modul/ component supplier)

OEM

Third-Tier-Supplier(Raw material, intermediate goods, component

supplier)

First-Tier-Supplier(System supplier)

0.5-Tier-Supplier

Traditional hierarchy of customer interaction are reshuffled

Various players aim to take a cut in the software value share

Changing market dynamics


i4.0 industry trends & examples


Digitization is pushed into the Industrial goods industry

Hardware to software shift

New competition

… in customers’

value perception for industrial machi-nery, as a result of an increasing

digitization of B2B customers’ supply chains

… arises to compete for the

software value cut with traditional industrial machinery manufacturers

Changing cust-omer demands

… for digital solutions enable

digital business models accelerating

digitization of industrial goods

CE = Consumer ElectronicsSource: A.T. Kearney

Disruptive technologies

... have matured, scaled and become cost-efficient in CE industry and now

hit industrial applications

Four drivers


Digital processes

Organ. enablement & Digital operating model

Digital customer experience

Digital products & services

Digital creates a new normal for industrial goods companies

Digital drivers


Disruptivetechnologies

Consumer behavior

Marketdevelopment

Competitiveenvironment

New normal of core dimensions

Non-exhaustiveImplications for new normal


Competitive moves are observable along all dimensions

Excerpt


Switch from product to output-as-a-service

Refocus from hard- to software

and maintenance

Move from integrators to

platforms

Digital products & services

1 2 3

Full digitization of - current and prospect -customer interaction

Adaptation of Sales and Marketing based on D2C tools

Shift of human-machine

interfaces

Digital customerexperience

4 5 6

Organizational enablement & Digital opera-ting model

Agile developmentand rapid

prototyping

Partnerships with start-ups and pure

Digitals

Rigorous analyticsand data-driven

approach

7 8 9

Full digitization of own and customer’s supply chain

Digitization of maintenance and

servicing

Further automationof production and

procurement processes

Digitalprocesses

10 11 12


Digitization of maintenance and servicingShift of human-machine interfaces

Four competitive move examples along new normal dimensions

Maintenance and support services

OnPoint “Power-by-the-Hour”

Overhauls and repairs

Airline

ReplacementVendor/ com-ponent repairs

Predictive maintenance

Sells engine per operating

hour

Pays only when plane is

flying

Provides 24/7 response

rapid-response resolution of

issues and technical support

for all maintenance and

support events

GE Aviation

1

6

1stle

ve

l C

S1

2n

dle

ve

l C

S1

1stle

ve

l su

pp

ort

2n

dle

ve

l su

p.

DigitalGeniuscloud

(Personalized answer)

CustomersCustomers

From calls with service agents…

… to SMS chat with machines

11

11010100110

Analytics

Service

Rigorous analytics and data-driven approach9



Our A.T. Kearney i4.0 approach & success factors


Fundamental questions will be answered for your i4.0 strategy

Dimen-sions

Guidingquestionsexternal

• What is the vision for i4.0?

• How to address changing customer needs?

• What are main pain points in production and their root cause?

• How to leverage disruptive technologies?

• What are prerequisitesto achieve the target state?

• Which basic elements does the target state consist of?

• Which abilities provide the highest benefit?

• Which topics are easy to implement (low hanging fruits)?

• How to organize the industrial revolution, from the governance and culture?

• Which areas to own and where to partner?

• How to differentiate central vs. de-central?

• Which technology enablers are required?

+ + =


i4.0 target picture i4.0 capabilities Roadmapi4.0 operating model

• Which transition stepsto take to achieve the i4.0 vision designed?

• How to overcome resistance against change?

• How to prepare leadership and workforce

• How to adapt the culture?

Guiding questions

A B C D


Strategic cornerstones are broken down into capabilities as guide rail to define your i4.0 strategy

Customer oriented flexibility

Operational excellence

Environment, Health, Safety


i4.0 capability clusters

Enabler ✓

People

B


We observed five key success factors for i4.0

Strategy & roadmap

Central governance

IT structure

Qualified people

Partnerships

• Globally aligned strategy

• Project roadmap derived from target picture to identify

• Management of global project portfolio

• Project transparency

• Common IT architecture to link data across plants

• Common cloud platform for big data

• Qualification to set up and work in an i4.0 environment

• Leadership knowing implications of i4.0

• Engage with industry leaders and universities

• Manage relationships


Key success factor Description


Americas Atlanta

Bogotá

Calgary

Chicago

Dallas

Detroit

Houston

Mexico City

New York

Palo Alto

San Francisco

São Paulo

Toronto

Washington, D.C.

Asia Pacific Bangkok

Beijing

Hong Kong

Jakarta

Kuala Lumpur

Melbourne

Mumbai

New Delhi

Seoul

Shanghai

Singapore

Sydney

Taipei

Tokyo

Europe Amsterdam

Berlin

Brussels

Bucharest

Budapest

Copenhagen

Düsseldorf

Frankfurt

Helsinki

Istanbul

Kiev

Lisbon

Ljubljana

London

Madrid

Milan

Moscow

Munich

Oslo

Paris

Prague

Rome

Stockholm

Stuttgart

Vienna

Warsaw

Zurich

Middle East

and Africa

Abu Dhabi

Doha

Dubai

JohannesburgManama

Riyadh

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Analysis of the Digital

Innovation Champions based

on the DIQ database


Digital Innovation Champions are identified based on the companies’ performance across three areas

Example: ranking of a company in the Digital Innovation Quotient (DIQ)

1. Digitally enabled capabilities

D2 Q3 Data Analytics

D3 Q3 Process automation for delivery of digitalinnovation

2. General performance impact1

D2 Q5 Growth in revenue

D2 Q6 Operational profit

3. Digital performance impact

D2 Q9 Digital revenue

D2 Q10 Digital innovation

Overall rank for selecting the Growth Champions (average rank)

15

10

17

9

Top 10% = Digital innovation champions

(if size of benchmarking class = 100)

Highest rankwithin benchmarking class

Lowest rank within benchmarking class

Linear approximation based on data of the last 2 yearsSource: IMP³rove – European Innovation Management Academy, 2019

Analysing the DIQ

7

2

3

1

2

3


It pays off to become digital

On average the DICs perform approximately 30% better than the Average¹ across all dimensions

n=128; 1 Average is based on all companies of the DIQ database including the DICSource: IMP³rove – European Innovation Management Academy; Figures as of January 2019

The DIC‘s performance in the six dimensionscompared to the average of the database (in %)

69,7 67,9

29,7

22,8

89,7

56,2

41,436,7

14,0 12,2

34,3

18,6

0

10

20

30

40

50

60

70

80

90

100

Digital revenueProcess automation for delivery of

digital innovation

Data Analytics Growth in revenue Digital innovationOperational profit

DIC Average1

Analysing the DIQ


Digital Growth Champions have a strong growth performance

DIC‘s growth performance

n=128 1 Average is based on all companies of the DIQ database including the DICSource: IMP³rove – European Innovation Management Academy; Figures as of January 2019

Comparison of growth rate full time employees (FTE), EBIT and Revenue share of digital sales channel all in (%)

27,1

13,4

0

5

10

15

20

25

30

35

Growth rate FTE

22,8

6,6

0

5

10

15

20

25

30

35

Growth rate of EBIT

DIC Average1

30,8

12,7

0

5

10

15

20

25

30

35

Revenue share via digit. sales channel

Digital business, digital processes


Almost all of the DICs have a digital innovation strategy in place, while the Average1 is lagging behind


Characteristics of digital innovation strategy (%)

92,3

76,9

61,5

76,9

61,5

84,6

76,9

84,6

92,3

76,971,1

46,9

29,7

52,346,1

50,8

39,8

46,9 44,5

37,5

0

10

20

30

40

50

60

70

80

90

100

Linked to financ.

Objectives

DocumentedDigital inno. Strat.

Builds on analysis of trends

Provides specific

objectives

Aligned w. strategy

Focusses the

investments

Includes innovation initiatives and plans

Partners’ awareness

of objectives

Employees’ awareness

of objectives

Digital innovation strategy, enablers for digital innovation


DICs invest even more in digital innovation projects than their competitors


21,5

13,5

0

5

10

15

20

25

Avg. Share of revenue spent on digital innovation projects

Average1DIC

Average share of revenue spent on digital innovation projects (%)

Digital innovation strategy, enablers for digital innovation


The development process in DICs is more effective compared to the Average1

Comparison of the development process‘ effectiveness2

n=128;1 Average= is based on all companies of the DIQ database including the DIC; 2- Based on a likert scale from 0 – does not apply at all (0%) to 4 –applies to a very large extent (100%) Source: IMP³rove – European Innovation Management Academy; Figures as of January 2019

78,8 80,8 80,8 80,8 78,8 78,8 76,982,7

76,972,9

82,7

54,3 55,649,6 50,2

55,7 55,750,8 53,5

49,643,7

50,6

0

10

20

30

40

50

60

70

80

90

100

High-quality ideas

Strategy and customer

guidance of development

process

Selected ideas

turned into projects

Use agile methods

Large number of ideas

Achieved positive business impact

Significant number of projects

Share of long-term projects

Software-supported

development process

Software-supported

idea generation

Software-supported

ideas selection

Process type Process activity Process success IT support

Digital processes

Development process (%)

DIC Average1


The DIC largely utilise digital marketing options while the Average1 is lagging behind

Degree of utilising marketing options and their measureable businessimpact achieved over the last year2

n=128; 1 Average= is based on all companies of the DIQ database including the DIC; 2- Based on a likert scale from 0 – does not apply at all (0%) to 4 –applies to a very large extent (100%) Source: IMP³rove – European Innovation Management Academy; Figures as of January 2019

80,8

71,2 71,267,3

70,866,7

63,5 61,556,8 54,5

48,042,5 43,4

38,3

30,7 28,634,9 32,3

17,1 19,6

0

10

20

30

40

50

60

70

80

90

100

utilisationutilisation impact impactutilisation utilisationimpactimpact utilisation impact

Email and newsletter Social media Affiliate Search engine Mobile app

Digital processes

Degree of utilisation and business impact of digital marketing (%)

DIC Average1


The DICs managed to increase their performance slightly across all areas, whereas the Average1 remained constant

Performance measured for the last year2

Use of key performance indicators to measure the impact of digital innovation (%)

68,8

59,6

69,263,5

71,265,4 63,5

67,3

41,7 39,543,3 40,9 42,1 42,5 41,7 42,2

0

10

20

30

40

50

60

70

80

90

100

sustainabilitybrand recognition

process speed

revenue driven

value networks

adaptability enabled

cost reduction

new assets

DIC Average1

Enablers for digital innovation

n=128; 1 Average = is based on all companies of the DIQ database including the DIC; 2 Based on a likert scale from 0- decreasing greatly (0%) to 4 –increasing greatly (100%). Source: IMP³rove – European Innovation Management Academy; Figures as of January 2019


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Final Q&A

Source: IMP³rove – European Innovation Management Academy 2017


Thank you very much for your attention and –have a nice weekend!

Dr. Eva DiedrichsHanna Kim

IMP³rove –European Innovation Management Academy EWIV

Dreischeibenhaus 1D-40211 DüsseldorfGermany

Tel: +49 (0)211 1377 0Fax: +49 (0)211 1377 2999 [email protected]

www.improve-innovation.eu

About the IMP³rove – European Innovation Management Academy

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It also provides financial actors, policy makers and academia with consulting support and technical assistance related to innovation and innovation management. With its global network, the IMP³rove Academy has set the European standard for innovation management assessment. The IMP³rove Academy emerged from the European Commission's flagship program “IMP³rove”.

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industry 4.0: implications of the 4th industrial

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