The next horizon of Industry 4.0

We appear on the cusp of a fourth Industrial Revolution, also known as Industry 4.0. As these waves of change reshape the competitive landscape, organizations should think strategically when determining where to focus and invest, to build their capabilities. Depending on their strategic objective, manufacturers can decide which Industry 4.0 technology they wish to adopt across multiple objectives and horizons of maturity. It is often very difficult, however, to build these new advanced capabilities from the ground up. With this in mind, organizations can look externally for solutions, by collaborating with external partners or investing in startups with the relevant expertise.

Three horizons of Industry 4.0

Manufacturers seeking entry into an integrated system require a basic level of connectivity. Once this connectivity is established, they can begin the journey toward integrating digitalization processes. This typically occurs in three different horizons: process optimization, process flow and quality, and new business models.

1. Process optimization.

In this phase, companies look inward to improve current processes. Initiatives in this phase typically target a specific need and have a clearly visible ROI. These types of activities can represent the easiest step for organizations to take, as they represent cost savings, rather than the uncertainty of new processes.3 For example, solutions in this horizon include predictive maintenance4 of machinery and utilization of data5 for production process improvements. This generally requires a basic level of connectivity to enable data collection and analysis; however, it can be limited in scope. Thus, these solutions tend to be easier to implement as they represent a limited number of technologies targeting a specific issue. Further, they generally do not face as many of the organizational challenges or technological barriers that can arise when organizations try to link multiple different legacy systems in larger, cross-functional initiatives.

2. Process flow and quality.

Companies working on the second horizon increase their level of connectivity to improve process flow and upgrade quality. In this phase, organizations can seek to evolve their supply chains toward digital supply networks,6 in which information flows throughout all stages of the interconnected value chain, enabling greater responsiveness and more informed decision-making. For instance, sales data can be collected and analyzed, then automatically transferred to sourcing and manufacturing systems; suppliers can more effectively connect to manufacturers’ systems for dynamic responses to shifts in supply and demand. Unlike the first horizon, more technological and organizational shifts are generally required, as well as a more critical imperative for systemwide connectivity. Further, benefits can take longer to realize, and can come with significant upfront investments.

3. New business models.

In the third horizon, new business models are created. This can consist of new products, increased product personalization, or entirely new revenue models. For example, driven by strong demand from clients, many original equipment manufacturers (OEMs) are adding smart equipment into their portfolio, and some are even attempting to use these products to pivot from being a supplier to a service provider.7 While a great deal of companies can agree that truly transformative value lies in this horizon, many still struggle to formulate how to successfully realize an effective model.