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Dec 21 2016
How will the Fourth Industrial Revolution impact the skills that executives need in order to thrive in such a rapidly changing sector?
The first Industrial Revolution, in the 18th century, created machines to replace manual labor, and gave us the steam engine and water power. In the early 20th century, the second Industrial Revolution gave us electricity, which birthed the assembly line and mass production. Between the 1950s-70s, electronics, computers and digital technology gave birth to automation in manufacturing – ushering in the third Industrial Revolution.
And now we face the fourth Industrial Revolution – or, as the German government called it for the first time in 2011, Industry 4.0.
There are nine core tenets of Industry 4.0 (see below), some of which have existed for some time in a partially siloed environment. But Industrial business leaders believe that they now have the technology to combine these tenets to have a revolutionary effect.
PwC’s recent Industry 4.0 survey gathered information from more than 2,000 companies across 26 countries and demonstrates the excitement in the sector about the confluence of these technologies. Globally, over one-third of businesses expect their revenue gains to exceed 20% over the next five years, while 43% expect to lower costs by more than 20% over the next five years and 56% expect to increase efficiency by more than 20% over the next five years.
The level of optimism shows that Industry 4.0 is not a gimmick or a PR stunt – it is enabling Industrial businesses to expand their portfolio of products and services, drive efficiency and innovation, cut costs and lead to greater opportunities for globalization.
As technology grows exponentially, business leaders will have to make complex calculations based on a number of factors quickly, as Bernard Perry (UK), Managing Partner at TRANSEARCH, explains. “What’s interesting about the leaders of tomorrow is they will need to see the big picture and the very fine detail simultaneously,” he says. “You don’t need to be a programmer or a digital expert, but you do need to recognize and extract the relevant and valuable insights from the quantity, granularity and speed of available information.”
Opportunities and evolving business models
The new landscape for innovative approaches and entirely new service lines may be exciting Industrial business leaders, but success hinges on how quickly businesses can identify opportunities and execute on them. This is particularly true of the Industrial giants, many of whom have been in existence for decades, if not a century, and have hundreds of thousands of employees. As the saying goes: the bigger the ship, the longer it takes to turn around. So can these Industrial cruise liners mobilize or are they at risk of disruption from more nimble businesses?
Robert Quinn (Canada), Partner at Odgers Berndtson, says: “We’re seeing an evolution of business models, especially in capital-intensive businesses. Instead of just manufacturing a product, businesses are now manufacturing and servicing the product, using advanced data and analytics. And then in some instances they are manufacturing, servicing and financing the product. Their clients no longer want to pay for a billion dollar power plant – they want to lease it by the hour. In turn, the Industrial companies are moving further upstream.”
For example, in 2009 the General Electric CEO Jeffrey Immelt paid a visit to some GE scientists who were working on on-board sensors for jet engines. During the conversation, he realized that the data could someday be as valuable as the jet engine itself, if not more so. He set in motion a new strategy to target what is now called “the industrial internet” – which will collect and analyze data on how GE’s hardware performs, enabling GE to continuously improve the products they lease to their clients. But this strategy sailed GE into occupied waters – pitting the 124-year-old company against the likes of Amazon and IBM. In spite of the competition, the strategy could yield a significant pay-off, with GE executives recently predicting that the market for the industrial internet will reach $225 billion by 2020.
Gert Herold (Austria), Global Industrial Practice Leader for Stanton Chase, explains that this transition hasn’t been comfortable for everyone. “The entrepreneurial spirit died down and people took fewer risks after 2009 [financial crisis],” he says. “Decisions have been postponed. Even in recruitment, Industrial companies have been playing on the safe side and only taking people from the competition. But in reality you’re stirring from the same soup and it has to be changed. If you have a structural problem, you have to look to bring in expertise from other areas.”