The Race to Digitize Industry
"A revolution, more social than digital, is in the making…"
Industry 4.0 / Digital Industry... Smart factories/products... 3D printing... Artificial Intelligence... Rise of robots... Augmented reality.
Topics like these are making the news daily nowadays, probably becoming as popular as sports news. Even my grandmother (91 and still curious!, God bless) recently asked me about what's happening! I thought about how to explain this rising phenomenon. In the end, I would define it as “a social revolution”, disguised as an industrial one, in the making... and the implications particularly on job skills, employment, and society are TITANIC, with a full impact coming as early as in 10 years.
As an industrial engineer by training, with a passion for technology and 25 years of experience in various industries globally, I would like to share my insights on this fascinating as well as worrying phenomenon, the Race to Digitize Industry - what is shaping up and how to prepare. I will base my arguments on a decade of technology deployment experience in various industrial businesses, as well as a report I've co-sponsored this year at Tusiad*, with numerous site visits / conferences in Europe and Asia.
And if you are thinking at this stage, "my business is not in industry, why read further?" I would suggest you to read till the end, to realize the deep impact it will have on individuals, our families, and society.
But first, let's start with what is I4.0 and some predictions on its impact:
- To put it simply, I4.0 is about "smart factories" that:
- Produce higher quality & more customized products, in less time & stock,
- Enabled by real-time communication between man-machine-product,
- Thanks to embedded sensors, fully integrated company operating systems & customer-supplier systems, advanced robots, big data analytics, 3D printing, and real time design/production simulations
- In the next twenty years, the jobs that face risk elimination due to automation is 50%, yes 50%!! And the main reason is not robots, rather algorithms (software applications) that will simplify jobs1
- Manufacturing companies that successfully upgrade their business to Digital Industrial (I4.0 in short) will grow faster, by realizing more customized products (thanks to 3-D printing and flexible production lines) and offering their products as a service. In fact, we will see some of the leading industrial companies transform themselves into software companies (see General Electric targeting to "become a top software company by 2020")
- As I4.0 is implemented across industries in the next decade, this will imply 10-15% blue-collar job losses
- If a country (or its industry sectors) were to miss this wave, this will imply up to 80% competitiveness loss, has much larger employment impact due to globalization
- Retrospectively, it is technology, not China that is the main cause of industrial jobs loss in the USA, in the past 20 years. (Imagine how this next digital wave is going impact the already high social tension we are currently experiencing in the US and around the world?)
- There will be new and growing job families; big winners will be data scientists, 3D designers, and Service Sales... yet with losses in assembly, quality control, and logistics jobs.
Very exciting as well as worrisome, don't you think? Yet, how to better understand the drivers and impact of this massive force? Although - given its technological nature - I4.0 looks like an "advanced economy initiative, emerging markets are trying to leverage it, to frog-leap to a more technology based industrial base. In other words, a global race is just beginning, yet accelerating rapidly.
The race and the emerging market imperative:
In the past two years, I have been to the USA, numerous cities in Germany (one of the leaders of I4.0), Japan, and Singapore, talking to business leaders and associations, to understand how advanced economies are building their I4.0 initiative.
Concurrently, at the leading Turkish business association Tusiad, we have started an initiative to establish an I4.0 vision/strategy for Turkey, hence aiming to lead from an emerging market perspective. With a large and relatively integrated industrial base to Europe, Turkey targets to transform industrial production to higher value products by 2023, as well as increase its competitiveness with rising competition from lower cost countries.
After an extensive 6-month study, covering the Country's top industrial sectors and interviewing the leading companies to assess their understanding, strategy, an ongoing actions, here is what we have found out:
- Companies have high awareness (90%+ of top management are fully aware) and are already taking initial steps in I4.0, yet only a few have a holistic view, to use it in transforming all aspects of their business,
- There is a huge productivity upside and an equally large downside of not implementing I4.0, (per point made in introduction, Turkish industry is estimated to lose 80% of its competitive advantage to Germany, and 50% on average globally, if it doesn't implement digitalization)
- Impact on industrial jobs is BIG: 10-15% of blue-collar work would disappear.! Yes, some new jobs on in IT, data science, etc. will emerge. Nevertheless, 1-3%/year more growth will be needed, just to offset the job losses expected!!
- I4.0 implies significant investment need for companies (additional 1.5% of sales/year next 10 years!) and need to upgrade technology infrastructure and education system/current workforce, at the country level,
- Most striking of all, emerging markets will have a disadvantage compared to advanced economies, even when I4.0 is fully implemented on both ends; primary reasons being availability of skilled labor force and technology advantage of companies/business value chains. In other words, I4.0 is a survival programme for emerging markets, yet with a more difficult end game ahead. What a challenge for politicians & businesses to manage, right?
The disruption of industrial work – And what to do next?
Here is the hard part and why I call this a social revolution: Without additional growth, there will be less jobs, when I4.0 is implemented; simple as that. Even though the new, data driven features of I4.0 will yield some revenue growth, this will likely be short of the additional 1-3%/year growth needed to make up for job losses. Hence, a vital urgency for governments and businesses to work together in the next few years, on the back of an already challenging employment problem today worldwide.
Even more, remaining workforce would need to be retrained to acquire new skills in IT and collaboration, to effectively function in a "more dynamic, real time data driven, closely integrated to customers/suppliers, and more robot integrated" work place. And certainly, the incoming new workforce will need to be raised in a revamped education system, ready to take a leading role in this dynamic workplace. Just like the constant application updates on our mobile phones, the employees of the Digital Industry will need continuous education/re-qualification.
And businesses will have a challenging balancing act:
- While increasing their technology investment to implement I4.0 and realize data driven new products and services for growth & profits,
- They will need to retrain their workforce as mentioned above, and recruit for I4.0 capabilities (particularly IT and software skills) - in effect, Human Resources Planning becoming a "critically strategic" function in companies,
- Upgrade their organization model, to the more dynamic & customized production environment of "man and machine" interaction, where decisions would need to be further delegated downwards, collaborative teamwork better enabled in flatter organizations, and IT departments upgraded and closely integrated to the Operations
This is an exciting new world emerging in Industrial businesses, which are the employment and technology driver in most societies. With I4.0's huge expected impact job skills, employment, and society, this matter cannot be delegated to just government, business, or academia... Like all revolutions, this one must be owned by each and every citizen, to better manage at home, school, work, and country. Like any revolution, this will painful and as well as liberating, yet with losers, alongside winners. For a better society, the time is now, for all to understand and have a say in Industry 4.0, the new Digital Industrial workplace.
1 The Fourth Industrial Revolution, Schwab, World Economic Forum, 2016
2 Tusiad-BCG joint report «Industry 4.0 Emerging Market implications – the case for Turkey», March 2016
3 What role for the workers in Trump’s American factory revival?, FT Nov'16, Ed Crooks
4 Man and Machine in Industry 4.0, BCG 9/15