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CTA Business - test CTA 07 10 2021

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Nowadays, it’s not unusual to come across reports of how businesses and operations are undergoing a digital transformation. Many of these focus on superficial aspects of new technologies such as IoT, AI, big data, sensors, robots, and 3D-printing. They talk about the applications of technology, employing technological jargon to elevate Industry 4.0 news to the heady category of prophesy.

The media make it seem as if anything were possible in the future, a time when today’s companies will be shoved aside to make room.

It’s easy to come away with the impression that the business world has divided itself into prophets and doomsayers. The optimists promise a business heaven enjoying 11 trillion dollars by 2025, eternal happiness for executives, and 55 billion IoT connected devices by 2020. The passimists threaten us with new demons: Amazon, Uber, Google, Airbnb! These companies will surely bulldoze traditional businesses!

Everyone seems to think themselves an expert in technology: you’re either on the side of the prophets or the doomsayers. But despite the current popularity of Industry 4.0, and maybe due to the skewed attention it receives at the hands of the media, its effectiveness remains elusive for many company directors and senior executives.

But we mustn’t forget: this is business.

However much we exalt or disdain the Fourth Industrial Revolution and its emerging technologies, there needs be some form of rationalization between management and strategy. Businesses need to be able to transform prophesy into profitable businesses and threats into opportunities.

While all this digital noise is swirling around us, many industrial firms have begun a silent revolution, gradually digitizing their businesses, products, and processes. They are allowing strategy to drive technology, rather than the reverse.

A number of studies from the US have calculated that implementation of IoT and its enabling technologies lies between 25% and 45%, depending on the industrial sector. They also forecast that, on average, this will double in just five years, reaching levels of 50% to 80%, again according to industry.

Professor Michiya Morita from Gakushuin University and I wanted to ascertain the situation in Japan, a country characterized by innovation in technology. We were particularly interested in learning what executives are thinking.

We carried out a survey on the implementation of Industry 4.0 in three Japanese industries subject to intense global competition from German, Chinese, and American companies: electronics, machinery, and vehicles. Our goal was to understand each company’s strategic vision, implementation level, expectations, and future plans. The companies were separated into two groups: high performers and low performers.

How closely was high-performance culture associated with the key factors and benefits of Industry 4.0?

As it turned out, for high-performance Japanese industries, Industry 4.0 matters a lot. Our results showed they each had a clear vision, well-defined plans, high expectations, and ultimately better results than low performers.

Monozukuri culture still reigns supreme

The importance of Industry 4.0 in the strategic plans of Japanese companies is high: 3.7 out of 5, with a strong focus on production (3.9), collecting customer information (3.7) and product development (3.6).

However, it seems the level of Industry 4.0 implementation of high-performing companies is relatively low, at 2.5 out of 5. This could be interpreted as meaning that implementation in these companies started later than in other countries.

Our results showed that high-performing companies tended to have an initial vision that was focused inward. They oriented their strategies on product development and paid little attention to customers or value chains. We also observed a lack of integrated company vision and kaizen-based execution. Strategies were carried out sequentially and by division: product innovation first, then production adaptation, and finally customer input.

Robots? Yes! IoT? Maybe.

Japanese industrial companies seem to like automation, but fear the risks of the internet. More attention is paid to internet security than developing IoT platforms.

Which Industry 4.0-related technologies are Japanese companies using?

Investments are mainly occurring in the more mature technologies related to product and quality improvement—namely, robots and simulation systems. Curiously, in third place was cyber security, in fourth, 3D-printing, and in fifth, IoT platforms. In last place are cloud computing, augmented reality and big data.

If this conservative investment profile were to become a trend, it would signify a dangerous distancing from AI and, more worryingly, from customers and suppliers. Unlike US or Chinese companies, which invest heavily in big data and AI, Japanese companies could face big problems in creating strong business ecosystems.

Key expected benefits from Industry 4.0.

The picture changes when it comes to future expectations. It seems Japanese companies are aiming for faster response to demand, which they hope to achieve with Industry 4.0 technologies.

Greater customer satisfaction lies in second place, with flexible production systems third. These companies are willing to increase customer satisfaction by improving company responsiveness to changes in demand. This will minimize customers having to wait for products, as well as the build up of inventories.

The link between people and processes

Japanese manufacturing companies are aware of the risks that come with connecting people, but see the opportunities as being greater. Perhaps this is because they do not believe Industry 4.0 will be an industry standard in the future.

It will be difficult for companies to manage the enormous data flows that characterize Industry 4.0 if they don’t implement cloud computing systems or begin experimenting with big data and AI. It seems that Japanese companies, with their engineering culture, believe more in internal developments than in outsourcing or using standard solutions.

Management culture is key

Supporting innovation through management culture is not just about R&D. To truly take advantage of Industry 4.0, all functions need to work together. Learning-by-doing allows a company to gradually acquire the necessary digital know-how and market responsiveness for a competitive position in a global environment of rapid change.

This article is based on a study carried out by Michiya Morita, Jorge Calvo, and Yukari Shirota in 2016, as well as their article “Envisioning Supply Chain Management 4.0: The view from Japan,” published in CSCMP’s Supply Chain Quarterly Magazine.