Digitalization Industry 4.0 as a Strategic Project
About half of all Swiss industrial firms have not defined a strategy for Industry 4.0, even though the subject has been discussed for several years. To remain fit for the future, they should do this soon.
Numerous companies and industrial managers in Switzerland regard subjects such as digitalization and Industry 4.0 as exhausting, largely already taken care of and no longer topical.
The discussion shows typical symptoms of a hype cycle. For example, when one takes Swiss interest in searching for the term «Industry 4.0» on Google as an indicator, it shows that this interest has again declined slightly since 2016. Also, various companies are displaying initial doubts. The revenues earned so far often do not satisfy expectations. A well-known example of this is the industrial corporation General Electric which, as a former trailblazer of «Digital Industrial», split from part of its digital business in 2018.
We know hype cycles like this in other sectors as well. The «summit» of exaggerated enthusiasm results in a fall into the «valley of disillusionment». Nevertheless, a period of better understanding of the applicability of new technologies is often followed by a rebirth and broader application. The results of numerous studies confirm this.
So it is all the more surprising that in a recent survey 40 percent of Swiss industrial firms admitted that the absence of a strategy prevented them from realizing Industry 4.0. To be fit for the future, they should lay down a strategy, use it and apply it in their business.
What is a digital strategy?
Meanwhile, the terms Industry 4.0 and Digitalization are interpreted very generally and broadly. For industrial enterprises, digitalization in the context of Industry 4.0 can occur in three areas:
•Industrial firms can apply digital technologies to create a better customer experience. Examples of this are digital platforms or mobile apps.
•With digital technologies, industrial firms optimize and automate their processes. Examples of this are ERP systems, advanced robotics, additive manufacturing or predictive maintenance.
•With digital technologies, manufacturing enterprises can develop new digital business models. Examples of this are service platforms or entire platform business models with which firms intermediate between suppliers and customers.
A digital strategy typically comprises three key elements:
•A current analysis of own digital competences and technologies, customer requirements, the customer journey and the ecosystem
•A digital guiding picture consisting of a vision an specific objectives with regard to customer experience, process automation and digital business models
•A flexible strategic portfolio comprising digital strategic paths of action and initiatives.
Many industrial firms have realized digital projects for several years and have already accumulated initial experience. But because of the sheer endless possibilities of Industry 4.0, many firms find it difficult to lay down the correct focal points. This often leads to repetitive discussions by managements on where to place the focus. If an enterprise attains this focal point, its own digital strategy can produce value added:
•Effectiveness («doing the right things»): A digital strategy compels industrial firms to develop a suitable target and focuses all activities around digitalization.
•Efficiency («doing things right»): If such a target exists, it ensures efficient decision-making processes. Time-consuming management discussions are avoided.
•Prioritization: A digital strategy makes it possible to prioritize existing, planned and future tasks.
•Motivation: A suitable digital model provides incentive and encouragement to employees, customers and proprietors.
Ways to Implementation
We use a fictitious company as an example of developing a digital strategy. The family-run Swiss industrial enterprise InnoChuchi located in the St. Gallen Rhine Valley, with 900 employees and revenues of about CHF 300 million, is a well-known manufacturer of high-quality kitchen systems. It has been confronted by challenges recently.
•The appreciation of the Swiss franc resulted in relative cost increases.
•InnoChuchi feels an increasing pressure of competition with international suppliers.
•At the same time, InnoChuchi notices fluctuating customer requirements. More and more affluent customers expect individual solutions.
•As part of the «Smart Kitchen» trend, sales partners are promoting a closer interlinking and a digital integration capability of InnoChuchi products.
In reaction to these developments, the company has already realized a few digital products. But they do not yet fully display the desired effect. Therefore a digital strategy is now being implemented for InnoChuchi. First, the key features of a digital model are determined during a workshop with the management. On this basis, InnoCuchi undertakes a lean current status analysis as part of the «Lean» principle. The company’s digital capabilities are examined internally. Strengths, weaknesses and core competences are thus identified. The result shows that on the one hand InnoChuchi pursues a culture that extols perfection but inhibits innovation, and on the other hand that the company lacks a modern IT architecture. Further factors are examined during an external analysis.
•The Customer Journey analysis reveals that InnoChuchi is losing affluent customers because its products cannot be virtually displayed and planned in the online store.
•Technological trends are identified on the basis of six families of technologies. The firm perceives great opportunities in a possible integration of its products in a smart home ecosystem.
•Lastly, the team is examining InnoChuchi's ecosystem, for example by integrating the platforms in the «cooking» and «nutrition» subject areas.
This results in 65 digital initiatives along five strategic paths of action. They include, for example, the «Kitchen Ecosystem Realization Concept», «Losgrösse-1-Assembly», «Virtual Kitchen and Showroom», as well as «Establishing an Innovation Culture». All digital initiatives are prioritized in a portfolio according to expected profit, cost savings and cost of realization. Eight digital initiatives have been classified as Priority 1. For the se, a lean business case is being produced. Six digital initiatives are being cleared for implementation. This applies to the «Digital Showroom with VR» and «Losgrösse 1» among others.
Even if the hype cycle surrounding «Industry 4.0» and «Digitalization» is abating, Swiss industrial firms should not neglect the subject. Rather, one must assume that following a primary phase of caution, many digital technologies will establish themselves on a broad front and that the pressure of competition will increase. Therefore, Swiss industrial firms should adopt a strategic approach to the subject of digitalization. A private digital strategy can be quickly implemented with little outlay. It secures a firm’s competitive position. It creates the basis for focused digital projects. It creates enthusiasm among employees and better communication with customers and investors.
* Dr. Boris Ricken is Head of Business-Consulting at https://www.awk.ch/de/Home/AWK Group AG, a consulting firm in Zurich which advises companies on the use of information technologies und successfully implements demanding IT projects.
McKinsey & Company 2018: Tech-enabled transformation – The trillion-dollar opportunity for industrials
Emnid survey, January to February 2017, of managers of German industrial enterprises which are planning to introduce or have already introduced smart factories and digital concepts.
Fraunhofer Institute 2014: Industry 4.0 – Economic Potential for Germany
SWISSMEM: Status of Industry 4.0. Implementation Survey in the Swiss MEM sector 2018.