Digitalization & Industry 4.0

Industry 4.0
 

Is Europe putting its backbone at stake?

The discussion on the digital transformation of the manufacturing industry is focused on the topic Industry 4.0. Frequently called the "fourth industrial revolution", it describes the industrial use of digital technology and automation within the process of production. The outcome of this revolution will be manufacturing networks that increase the speed and efficiency of production. Based on this logic, German companies may see themselves as performing positively in the digital race. But they may be mistaken: The digital industrial revolution will be more comprehensive and Europe must close the gap.

The last two decades have been marked by a loss of over 10% of manufacturing value in Western Europe, while the share of worldwide manufacturing held by emerging countries increased to 40%. As a core element of the value chain, industry accounts for 15% value added in the EU. It would appear that Europe has invested too little in the digital transformation.

 

But it is not too late.

There is a chance that Europe can increase its shrinking industry share from 15% up to 20% of the value in the European Union. But in practical terms, this means that Europe has to invest EUR 90 billion a year over the next 15 years. Traditional European industrial policies will not provide enough support for value production. To be able to reach the goal of 20% industrial value a new European digital agenda for shaping Industry 4.0 is sorely needed.

What will be changed by the digital industrial revolution?

The comprehensiveness of change can be demonstrated by four levers.  First, digitalization involves the collection and evaluation of data gathered in the Internet of Things. New sources of data emerge and using modern techniques for the analysis, enterprises are able to evaluate data faster and in greater detail. Second, the digital transformation of machinery called robotics will have a crucial impact. Taking the case of Google, we can see that it starts to monopolize robotic enterprises, gathering more and more data in order to monetize it in the near future. If Google now standardizes the software of its robotic enterprises and combines this with its services (e.g. data analysis), it can potentially dominate elements of various industries that depend on robotics.

 

Third, networking, the digital connection of two previously autonomous systems, will lead to an improvement in efficiency within the process flow. But as a requirement for cross-linking, a universal standard of communication is needed.

 

The last and fourth lever will be the ownership of the digital customer interface. It is not resolved who will get the data gathered during a production process in a digitalized "smart factory". Will this be the shareholder, the financing bank or even an IT service provider? Each of these opportunities may have far-reaching consequences.The digital transformation won't hit all branches with the same intensity and speed. This depends on the impact, scalability as well as the enforceability of digital innovation.

 

Four requirements of digital maturity

 

To use the advantages of the digital industrial revolution, European enterprises must achieve digital maturity. Enterprises should gain four crucial capabilities. First, they have to identify and evaluate current trends in the field of digital economics. Second, they have to realize the potential for efficiency enhancement within the existing business model. Third, they should identify disruptive changes in existing business models and new business models based on new assumptions. Finally, if this has not happened yet, enterprises should initiate a comprehensive change in the corporate culture for the implementation of necessary adjustments.