Industry 4.0: Are you ready? Deloitte Review, issue 22

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While our exclusive survey finds executives optimistic about the potential impact of Industry 4.0, few are confident they are ready to lead its implementation.

 

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The industrialization of the world began in the late 18th century with the advent of steam power and the invention of the power loom, radically changing how goods were manufactured. A century later, electricity and assembly lines made mass production possible. In the 1970s, the third industrial revolution began when advances in computing-powered automation enabled us to program machines and networks.

Today, a fourth industrial revolution is transforming economies, jobs, and even society itself. Under the broad title Industry 4.0, many physical and digital technologies are combining through analytics, artificial intelligence, cognitive technologies, and the Internet of Things (IoT) to create digital enterprises that are both interconnected and capable of more informed decision-making. Digital enterprises can communicate, analyze, and use data to drive intelligent action in the physical world. In short, this revolution is embedding smart, connected technology not only within organizations, but also our daily lives. 

So how prepared are organizations and leaders to embrace this revolution?

Only 14 percent of CXOs are highly confident their organizations are ready to fully harness Industry 4.0’s changes.

Not very. We surveyed 1,600 C-level executives across 19 countries to explore a core question: How ready are the leaders of businesses and government agencies to harness the full potential of Industry 4.0 to benefit their clients, their people, their organization, their communities, and society more broadly? Here are highlights of our key findings, described in the report The Fourth Industrial Revolution is here—are you ready?

  • Just 14 percent of respondents are highly confident their organizations are ready to fully harness the changes associated with Industry 4.0
  • Only a quarter of CXOs surveyed are highly confident they have the right workforce composition and skill sets needed for the future, despite 84 percent saying they are doing everything they can to create a workforce for Industry 4.0
  • CXOs overwhelmingly (87 percent) believe Industry 4.0 will lead to more equality and stability, and three-quarters say business will have much more influence than governments and other entities in shaping this future
  • Yet less than a quarter of those surveyed believe their own organizations hold much influence over critical factors such as education, sustainability, and social mobility

Our research found that while CXOs see new business or delivery models as the biggest threat to their organizations, they are largely using Industry 4.0 technologies as a tool to make existing operations more efficient and cost-effective. That leaves untapped tremendous opportunities to pursue innovative business models that may not only drive value for direct and indirect stakeholders, but better protect them from disruption.

Four major areas of impact

How can executives navigate this change? Given its integration of digital and physical technologies across all areas of business, production, mobility, and communications, the fourth industrial revolution represents a broad, pervasive shift that should be dealt with comprehensively if organizations are to thrive. When dealing with something so vast, it’s useful to examine how it may impact particular elements, and we concentrated on four: 

Society

Executives seem to view technology fearlessly, as the great equalizer that will provide more access to education, jobs, or financing across different geographies and social groups. And a large majority of executives see businesses—both public (74 percent) and private (67 percent)—as having the most influence on how Industry 4.0 will shape society, with government a distant second. Yet many executives don’t believe their own organizations hold much sway over issues such as education and learning for employees, environmental sustainability, or social and geographic mobility. This gap is echoed by the expectations of Millennials, who believe multinational businesses are not fully realizing their potential to alleviate society’s biggest challenges.1 If business is truly to play a leading role in the far-ranging societal implications of Industry 4.0, organizations should embrace transformative changes—before it may be too late.

Strategy

Even as leaders recognize the changes Industry 4.0 portends, many continue to focus on traditional near-term business operations, rather than longer-term opportunities to create value for their direct and indirect stakeholders. We found that 57 percent of CXO respondents put developing business products as their top issue, with increasing productivity at 56 percent. While these issues dovetail nicely with some elements of Industry 4.0, they remain traditional goals that may not capture the revolution’s promise when it comes to everything from delivering continuous learning to tapping new sources of talent, reaching underserved markets, offering predictive tools to help improve processes and reduce risk, connecting supply chains, enabling more agile systems, and much more.

 Talent

Many executives don’t seem to feel the urgency of tackling the challenge of the future of the workforce—even though only a quarter are highly confident they have the right workforce composition and the skill sets needed for the future. This may be explained by our findings that a vast majority of executives believe they are doing all they can, that they can rely on existing education systems, and that their current employees can be retrained. Put simply, they are concerned but also don’t believe radical changes are necessary to ultimately get them where they need to go. While historically technology creates more jobs than it destroys, these newly created jobs should be encouraged by effective workforce development.

Technology 

The fourth industrial revolution holds the promise of integrated digital and physical technologies that improve organizational operations, productivity, growth, and innovation. But rather than using digital technologies to do the same things they’ve always done before, only faster and better, we found true Industry 4.0 organizations use them to create new business models. Organizations that expand their use of Industry 4.0 technologies to include suppliers, customers, workers, partners, and others in their ecosystem can find more transformative benefits. The problem? Only 20 percent of CXOs we surveyed consider their organizations highly prepared to handle new business or delivery models, and less than 15 percent believe they are highly prepared for smart and autonomous technologies.

•  •  •

All revolutions are disruptive, and Industry 4.0 is no exception. It poses risks, but offers tremendous opportunity: for new products and services, better ways to serve customers, new types of jobs, and wholly new business models. As with previous industrial revolutions, the impact of these changes has the potential to ripple across industries, businesses, and communities, affecting not just how we work, but how we live and relate to each other. 

Our survey shows CXOs get it—they understand Industry 4.0 will bring dramatic changes, and they need to prepare. Yet they are less certain as to how to take action, and don’t have much time: In this age of unprecedented global social and economic connectivity, the fourth industrial revolution is happening quickly, in ways large and small. If leaders choose to think more broadly and act decisively, their organizations may play a leading role in ensuring Industry 4.0 acts as a positive force.