Industry 4.0 solutions for Swiss manufacturers in times of monumental shifts

Swiss business activity has rebounded to nearly 94% after lockdown was lifted and has even surpassed China¹. The Swiss economy however, isn’t expected to recover 100% in the near future. This is why an increasing number of companies are starting to adjust their capacities downwards as the economic impact of Covid-19 continues to materialise. It is important to understand the monumental shifts beyond the pandemic that will shape our post-Covid world and the Industry 4.0 solutions available to companies to recover and thrive in the new normal.

Five monumental shifts will characterise this new post-Covid era:

Western economic dominance (Europe, USA) will decline as Asia, China in particular, restores the economic dominance in terms of share of global GDP it had until 1820

Impact on Swiss Industrial Products Companies

In 2019, Swiss exports went to Germany (18.2%), the US (17.3%) and China/Hong Kong (7.8%). The vast majority of Swiss companies, independent of their size, will need to embrace business with Asia (mainly China) whilst mastering challenges regarding intellectual property rights, data privacy, human rights, etc.

As the only European country with a free trade agreement with China, Switzerland is well positioned. With the trade war between the US and China continuing, companies will increasingly find themselves in situations where they need to choose whether to supply to the US or China.

After decades of globalisation, the benefits of which are many, nationalism is making a comeback with a number of countries voting in national governments in recent years.

Impact on Swiss Industrial Products Companies

The government’s role has been accelerated by the pandemic and regulatory pressure has broadened. Previously unthinkable state interventions became acceptable, even in Switzerland such as the parliament ruling for rent reduction for property owners of business space during the lockdown.

Compliance management (e.g. customs, export controls, taxes) will become increasingly complex and vital. The smart use of government incentives including investment grants can create opportunities.

People have finally realised that the continued growth and prosperity enjoyed since the end of World War II comes at a high environmental price.

Impact on Swiss Industrial Products Companies

There is increased pressure on companies to become responsible businesses serving the needs of a broader stakeholder group rather than just shareholders. Healthy, i.e. profitable, businesses can be good citizens creating value for themselves and society as a whole.

Innovation and efficiency remain the pillars of a profitable business. Assessing a company’s environmental impact can provide a new lens to drive innovation and efficiency. Reducing one’s CO2 footprint, for instance, often results in reduced logistics costs.

During Covid-19, people were forced to remember that there are big, nature driven disruptions that cannot be controlled. We’ve only had a taste of the kind of disaster a volcano eruption could cause when, for example, Eyjafjallajökull erupted in 2010 resulting in grounded aircrafts and spoilt harvests. Climate change has already increased the frequency of catastrophic events such as floods, bushfires, hurricanes, etc.

Impact on Swiss Industrial Products Companies

Building resilience into supply chains with multiple sourcing and production regionalisation comes at a cost. However, the acceptance that there is a balance between investing in resilience and avoiding catastrophic impact costs has risen dramatically. Since we won’t regain the stability of recent decades anytime soon, increased investment in resilience will be necessary.

For more than decade national banks around the globe have been pumping liquidity into markets to support economies. This has not only distorted capital allocation through negative interest rates, but also slowed down much needed structural change.

Impact on Swiss Industrial Products Companies

Companies must build resilience in their balance sheets. When capital markets eventually realign to economic reality, which they inevitably will, this could drive currency exchange rate shocks or even a surge in interest rates.

Industry 4.0 is part of the solution

The fourth industrial revolution is part revolution (e.g. new revenue streams through data services) and part evolution (e.g the continued automation of the shop floor, which started with Industry 3.0 in the 1970's). Based on a survey of global business leaders, Deloitte’s current study “The Fourth Industrial Revolution – At the intersection of readiness and responsibility” outlines various positive impacts of Industry 4.0 that can address the above monumental shifts:

• Faster growth: Companies with a comprehensive Industry 4.0 strategy grow faster than their peers. This allows them to be a strong partner in their stakeholder network.
• Faster recovery: Industry 4.0 technologies have an important role in recovering quicker from the economic impact of Covid-19. This is through a better understanding of metrics such as volatility of demand, performance of assets as well as the availability of raw materials, work-in-progress and finished goods in the supply chain.
• Increased resilience: Industry 4.0 technologies such as Artificial Intelligence enable companies to make more flexible, intelligent and data-driven decisions.
• Strengthened stakeholder relationships: Industry 4.0 integration strengthens relationships with suppliers and customers allowing for better planning thereby reducing economic waste and environmental impact.
• Implementation of social distancing: Remote servicing, digital twins, augmented reality and eLearning can allow business to continue, often more efficiently, despite social distancing requirements.

Success factors of Industry 4.0 implementation

Our study highlights several Industry 4.0 success factors and recommendation for Swiss companies:

Only 13% of EMEA Industrial Products (IP) companies responded that their companies have comprehensive Industry 4.0 strategies. However, as mentioned, companies with such a holistic strategy grow faster and their executives are more confident about grasping on technology-driven opportunities.

Recommendation for Swiss Industrial Products Companies

Review your Industry 4.0 preparedness (78% of EMEA IP companies have done this or planning to do so) and develop a comprehensive strategy including understanding how Industry 4.0 can drive greater revenue, reduce costs, and improve productivity and efficiency.

The strategy should also address the long-term evolution of the business model, integration with relevant stakeholders, increasing resilience and decreasing environmental impact.

Over 60% of EMEA respondents noted that their Industry 4.0 priority is to protect their organisation against disruption from new or existing competitors. With multiple answers possible, only 31% prioritised Industry 4.0 as a way to be disruptors themselves. This conservative mind-set can empirically also be observed in Switzerland.

Recommendation for Swiss Industrial Products Companies

It is human nature to prefer passive risks - stay within the castle walls at the risk of being besieged - to active risks – leaving the castle to fight enemies before they get close to the castle.

However, a player sitting in a besieged castle is not in the driver seat. Swiss companies should reinvest in their entrepreneurial spirit. There should be clearly defined corporate ventures to pursue new business models, technologies (e.g. IoT, AI, Cloud) and/or customer segments. Failure should be seen as a tool to learn for the future.

Of the EMEA Industrial Products executives surveyed, 84% developed or changed a product/service last year to make a more positive impact on society or the environment with 90% responding that this generated new revenue streams. The majority of changes in this space is in search for revenues, which is a more important driver of change than external stakeholders, employee pressure or government regulations.

Additionally, respondents have programmes in place to address resource scarcity (84%), supply chain issues (56%) and environmental sustainability (42%).

Recommendation for Swiss Industrial Products Companies

Together with your stakeholders, review your company’s overall impact on the environment compared to what you take from the environment. Define programs to optimise this give-and-take now and in the future.

Talent is a top Industry 4.0 investment priority, but surprisingly 75% of respondents still want to understand what skills will be needed to compete effectively now and in the future. Nearly three-fourths of respondents prefer training their existing workforce over recruiting new staff. Hard skills such as science (e.g. data science), technology and engineering are critical. Also soft skills such as critical thinking, creativity, communication and collaboration remain vital, as these cannot be robotised.

Recommendation for Swiss Industrial Products Companies

Clearly define your company’s purpose to allow for meaningful work and treat staff as the valuable assets they are.

Reference

¹ Source: SonntagsZeitung / Lombard Odier based on real time data