What is Industry 4.0?

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ometime in the last decade, manufacturing entered a period of transformation.

New technologies found their way onto the shop floor in force. Advances in computer processing power and data storage resulted in new manufacturing use cases for a range of products. A climate favorable to development made prohibitively expensive technologies affordable and scalable. In rapid succession, new industrial applications emerged for artificial intelligence, cloud computing, Internet of Things connectivity, big data analytics, quantum computing, 3D printing, cyber-physical systems, and a host of other technologies.

Together, these technologies inaugurated a Fourth Industrial Revolution.

Also known as Industry 4.0, manufacturing is changing at a rate and scale comparable to the advent of steam power or software-driven automation. The impacts of this digital transformation have been profound, and the potential remains great. Gartner estimates the markets for a number of key Industry 4.0 products (advanced cybersecurity, augmented reality) to hover between $150 and $200 billion. Over a dozen others (additive manufacturing, wearable sensors) have a conservative market value of $2 to $20 billion. According to KPMG’s 2018 report, the total market for Industry 4.0 will exceed $4 trillion by 2020.

Technologies creating value during Industry 4.0

But Industry 4.0 has implications beyond profit, and its reach extends beyond manufacturing. At its core, Industry 4.0 is not reducible to any one technology, or even a suite of technologies. Rather, it is a fundamental reconfiguration of work in the digital era.

How businesses strategize their digital transformation will determine who will sink and who will thrive during Industry 4.0. McKinsey and WEF, for example, have observed that early adopters experience a 112% cash flow advantage from their Industry 4.0 ventures over those who wait for the price of new technology to drop. Similarly, Accenture estimates the first wave of IIoT adopters could see 30% improvements in productivity, and Symantec found that early adoption can lead to 26% reductions in annual inventory.

This guide is designed to be a resource for anyone interested in Industry 4.0. and particularly to those considering a digital transformation. It is written to be as practical as possible. In the chapters, you’ll find a mix of historical and contextual information alongside actionable tips to help you strategize your digital transformation.

The term Industry 4.0 (“Industrie 4.0”) first appeared in a German government memo. In its earliest usage, Industry 4.0 referred to Germany’s attempts to integrate digital technologies into its national manufacturing strategy.

The term quickly caught hold. “Industry 4.0” became common parlance in manufacturing communities by the early 2010s.

Writing in 2014 of a rapidly changing business landscape, head of the World Economic Forum Klaus Schwab summarized the developments he considered essential to the recently named Industry 4.0:

Industry 4.0 is the fusion of these technologies [AI, big data, IoT, bioinformatics] and their interaction across the physical, digital, and biological domains that make the Fourth Industrial Revolution fundamentally different from previous revolutions — diffusing faster and more broadly than any of the previous revolutions. 

What makes Schwab’s definition so compelling is his identification of the scope and the reach of Industry 4.0. Industry 4.0 for Schwab is not strictly technological. It is a new way of connecting and communicating that links digital technology to the human body and physical objects.

Though Schwab’s definition is hard to beat for concision and accuracy, a short review of different definitions can go a long way toward highlighting what is significant about Industry 4.0.

Perhaps because of the complexity of the era, Industry 4.0 has been defined in a number of ways. While the emphasis in each definition may differ, there is broad consensus that Industry 4.0 is characterized by:

1. A suite of digital technologies achieving scalability and ROI in industrial contexts
2. A changing relationship between humans, machines, and labor
3. A dispersion and pace sufficient to earn the title “revolution”

Further, commentators agree on three main drivers of Industry 4.0 in manufacturing:

1. Simultaneous maturation of old and new technologies
2. A convergence of use-cases in manufacturing
3. Increasingly wide-spread adoption at scale

Industry 4.0 Technology as a Driver of Change

Many definitions of Industry 4.0 privilege specific technological advancements. In these definitions, the authors point to the emergence of business use-cases for technologies such as artificial intelligence, big data, Internet of Things integration, ubiquitous internet connectivity, 3D printing, and cyber-physical systems.

Many of these technologies are not new. Their costs, however, have decreased dramatically in the last decade, and their capabilities have increased proportionally. For example, advances in cloud architecture make it possible to collect and store data in previously unimaginable quantities, while the affordable cost of cloud solutions now makes it possible for businesses to use the technology at scale.

For some, Industry 4.0 is characterized by the convergence of many technologies into responsive technological ecosystems. Here, the fact that Industry 4.0 technologies enhance, enable, and augment each other as systems makes it worthy of the name.

Industry 4.0 as Changes in the Nature of Human and Machine Work

Several commentators have argued that Industry 4.0 is best understood as a change in the relationship between technology and work more broadly. Here, advanced technologies usher in a new era because they fundamentally change relationships between workers and machines on the factory floor.   

For one management scientist, Industry 4.0 “assumes a blurring [of] the differences between the work of people and the work of machines.”

This is true. But what does it mean?

For much of the history of manufacturing, work was either performed by a human or a machine. While there was always some grey area in this distinction–How do we categorize operators of machines? The engineers who program machines? What constitutes “work”?–under Industry 4.0, the division of labor became murkier.

The modern factory relies on increasingly complex relays between humans and machines, with cognition and problem solving as well as assembly and processing distributed between the two.

Deloitte has described these relays between humans and machines as a “physical-to-digital-to-physical (PDP) loop.” For these analysts, the interdependence of human and machine labor across digital and physical spaces is the defining feature of Industry 4.0. “It is the leap from digital back to physical,” they write, “the ability to act upon data and information that has been analyzed–that constitutes the essence and value of Industry 4.0.” [Deloitte graphic]

Industry 4.0–Worklife Resembles Private Life

There are some for whom Industry 4.0 means something totally different. For Dan Ron, a process engineer at Dentsply Sirona, Industry 4.0 is about “leading a work life that is similar to our personal life.”

By this, Ron means that we have accepted the presence and utility of digital tools in our daily lives. We go about our days with devices to aid us, apps to supplement us, and ubiquitous internet to connect us–for better or worse.

This is not the case in manufacturing. Many factories still run on analog technologies, the consumer equivalents of which have long receded into irrelevance (almanacs, cassettes, paper records). Until now, these technologies worked, and alternatives were prohibitively expensive for all but the best-funded organizations.

For Ron and others, Industry 4.0 is an opportunity to take the best developments from our personal lives and apply them to manufacturing contexts.

Calling something a revolution is a big claim. Certainly, many “revolutions” have not lived up to the hype.

It’s fair to ask, then, what makes Industry 4.0 a true Fourth Industrial Revolution.

What distinguishes our current moment from others is the potential of new digital technologies to disrupt established orders. Commentators have noted that blockchain, artificial intelligence, and threats to cybersecurity–in their most extreme implementations–have the potential to undermine core institutions. Governments, banks, energy infrastructures–all could be massively transformed by decentralized, intelligent technologies.

We are a long way from science-fiction scenarios of intelligent computers toppling nations, or even from blockchain democratizing banking through distributed consensus networks. But the underlying point remains valid. The effects of advanced digital technology have much in common with paradigm-shifting industrial advances that instigated previous industrial revolutions: steam, electricity, and computing.

To put this in context, it serves to briefly survey the previous three industrial revolutions.

First Industrial Revolution

Most historians attribute the First Industrial Revolution to the invention of the modern steam engine in the 18th century. Though relatively weak at first, the steam engine improved in power and reliability throughout the 18th and 19th centuries. By 1886, steam engines reached a capacity of 10,000 horsepower.

Steam and water power allowed humans to build machines that allowed for mechanization of basic processes. In the first half of the 19th century, manufacturers developed processes that converted a number of repetitive, manual tasks into machine work. Many of the world’s most powerful nations build their fortunes through advantages gained on the back of mechanical advances during this era.

Second Industrial Revolution

The Second Industrial Revolution is characterized by electrification and conveyor production. These changes reached national and then global scale at the beginning of the 20th century.

Like the first, the principal changes of the Second Industrial Revolution (2IR) occurred in the domain of energy. The development of modern industrial science greatly accelerated the pace of development and the breadth of dispersion of 2IR technologies. By the early 20th century, electricity and conveyor belt production could be found in the world’s most and least developed nations alike.

The Digital Revolution

Also known as the Digital Revolution, The Third Industrial Revolution did not occur with a fundamental transformation in energy. Instead, it was a result of advances in computing and communications technology. Incipient robotics, capable computers, and breakthroughs in data storage and communication introduced digital electronics into the factory. They also greatly increased the number of processes that could be automated.  It was a short leap, then, to more sensitive forms of automation, data analysis, and global connectivity.

The Fourth Industrial Revolution

Like the digital revolution, the Fourth Industrial Revolution is fundamentally rooted in advances in computation and communications. In this case, ubiquitous connectivity created and infrastructure that allowed numerous other technologies to communicate across space and distance.

Schwab, revisiting his 2014 report, has identified velocity, breadth and depth, and systems impact as the factors that make this transformation a revolution rather than an acceleration. In other words, this transformation moves faster, affects us more powerfully, and has the capacity to alter world systems. This revolution impacts who we are, not just what we do and how we do it.