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Industry 4.0 (I4.0) started as an initiative in Germany and was first announced during the Hannover Fair in 2011. It began as a concept to maintain the status of Germany as an industrial manufacturing powerhouse, much contrary to the practice of offshoring amidst intense competition from low-cost countries
Continuous innovation in manufacturing is required to maintain such competitiveness. Not only does this support hightech developments in the country and allow Germany to maintain its technological lead in the world, but manufacturing also supports employment. Hence, besides a strong technological push, there is an equally strong social-political pull
Most research in I4.0 is geared towards technology, with few touching on business model innovation and even fewer on smallmedium enterprises. But as the saying goes, “When two elephants fight, the grass suffers.” what more can it be with the large nations and large firms competing? What does it mean for smaller nations and small-medium enterprises?
Industry 4.0 in General
I4.0 is a concept born ahead of its time in 2011 and has been described as a future project where there is both a social-political pull and a technological push. And similarly, on the technology push, there need to be innovative business models to pull in the adoption.
According to a World Economic Forum report, the general adoption of I4.0 is relatively low. The most digitally mature industries of semiconductors, electronics, and pharmaceuticals are at most hovering on average, which means others are way below average. Noting that these top industries are typically the domains of large firms, it is not surprising to find SMEs are lagging, or perhaps not.
Industry 4.0 Technologies in Manufacturing
Industry 4.0 has the eventual goal of transforming regular factories into ‘smart autonomous production units’, and a common term used is cyber-physical systems (CPS). Ideally, autonomous machines would be interacting with one another with minimal or no human interactions. Expanding this across the value chain, we can then see smart production units interacting with one another in a larger ecosystem Related to the traditional focus of manufacturing, I4.0 technologies are supposed to enable interoperability across systems, support decentralization, maintain real-time visibility and capability to provide more flexibility, reduce costs, reduce lead time, and allow mass customization in small batch operations
Industry 4.0 and Business Model Innovation
There is both a technological push and a social-political pull to Industry 4.0, and this phenomenon is pushing business models to evolve as well. Early research shows SMEs embark on I4.0 adoption but only at elementary levels. The reasons or hurdles preventing SMEs from going further remain unknown. Referring to Figure 1, here we divide the stage of I4.0 adoption into two – internal process optimization and external value creation.
Figure 1: Defining a simple 2-stage adoption status (Adapted from (Ibarra et al., 2018, p. 8), p. 8)
Internal process optimization represents incremental innovations that firms adopt to be more efficient and to improve existing performance (cost reduction, equipment utilization, staff training, etc.). Typical I4.0 technologies used are IOT (Internet of Things) implementation, big data collection, cloud computing, collaborative robots (cobots), and 3D printing for certain parts sourcing. This is usually the first step of digitalization for manufacturing firms at relatively lower costs and risks
The next stage, external value creation, will entail more costs and risks and go beyond just the firm’s internal operations. Early technologies used in the internal process optimization stage can be scaled up; for example, big data collection can move on to analysis and the presentation of useful information in decision-making. The interoperability of IT systems deployed can be extended to allow better connections to external vendors and customers. A combination of such technologies may also change product design and product offering or enable a product-service strategy (PSS).
SME and Large Firms
Much research focuses on large firms, while few touch on SMEs. However, SMEs are customers of large firms and critical Tier-2 and Tier-3 suppliers to them. As large firms go about with their I4.0 projects, it is important to note how the smaller firms are making use of technological advancements to improve and transform.
SMEs represent a significant research sample for Singapore. Ninety-nine percent of all companies are locally owned SMEs and collectively employ 71 percent of the workforce. GDP contribution from manufacturing reaches a high of 23 percent, and this is rather like the 20 percent target of Germany. Available research shows low adoption of Industry 4.0 among companies, especially for SMEs. What contributes to this is largely unknown, though SMEs are commonly assumed to be endowed with lower resources.
Learning Capability of Firms
Firms can take different approaches in their innovation strategy, either through the exploitative route or the exploratory route. In the novel space of I4.0, which is just the beginning of the fourth industrial revolution, firms need to absorb new knowledge from external and use it internally
SMEs, being mostly resource-constrained, are often on the first step of exploitation, tapping into existing know-how and improving their own processes. This is usually the first step of digitalization for manufacturing firms and may present as production dashboards for plant managers
This is internal process optimization on our chart, and many stopped at this stage. Why do firms fail to venture further into the level of External Value Creation? I boldly speculate that this is the common problem of ‘You don’t know what you don’t know.’
It is important to continue the learning journey to recognize, acquire, and assimilate external knowledge. For SMEs, it is necessary to acknowledge the need for external assistance, whether in the form of hiring consultants or services such as CTO-as-a-service, seeking partnerships within the ecosystem, or just reaching out via industrial associations and networks to observe best practices
Conclusion
Industry 4.0 is an announcement of the end of Industry 3.0 and the beginning of the journey to Industry 4.0. This represents a wild, wild west scenario where everyone is off on an unequal race. Being manufacturing-centric, most research and development focus on new technologies, and these innovations lead to the need for firms to redesign their business models.
Larger firms may have the expertise or resources to hire such expertise and to trial and error in their process. Smaller firms should go beyond their resource limitation and tap into all available external help to propel them forward. Industry 4.0 is no longer a buzzword or ‘future state.’ Miss the train, and you will be part of history sooner than you thought.
Industry 4.0 is an announcement of the end of Industry 3.0 and the beginning of the journey to Industry 4.0
Figure 1: Defining a simple 2-stage adoption status (Adapted from (Ibarra et al., 2018, p. 8), p. 8)
Internal process optimization represents incremental innovations that firms adopt to be more efficient and to improve existing performance (cost reduction, equipment utilization, staff training, etc.). Typical I4.0 technologies used are IOT (Internet of Things) implementation, big data collection, cloud computing, collaborative robots (cobots), and 3D printing for certain parts sourcing. This is usually the first step of digitalization for manufacturing firms at relatively lower costs and risks
The next stage, external value creation, will entail more costs and risks and go beyond just the firm’s internal operations. Early technologies used in the internal process optimization stage can be scaled up; for example, big data collection can move on to analysis and the presentation of useful information in decision-making. The interoperability of IT systems deployed can be extended to allow better connections to external vendors and customers. A combination of such technologies may also change product design and product offering or enable a product-service strategy (PSS).
SME and Large Firms
Much research focuses on large firms, while few touch on SMEs. However, SMEs are customers of large firms and critical Tier-2 and Tier-3 suppliers to them. As large firms go about with their I4.0 projects, it is important to note how the smaller firms are making use of technological advancements to improve and transform.
SMEs represent a significant research sample for Singapore. Ninety-nine percent of all companies are locally owned SMEs and collectively employ 71 percent of the workforce. GDP contribution from manufacturing reaches a high of 23 percent, and this is rather like the 20 percent target of Germany. Available research shows low adoption of Industry 4.0 among companies, especially for SMEs. What contributes to this is largely unknown, though SMEs are commonly assumed to be endowed with lower resources.
Learning Capability of Firms
Firms can take different approaches in their innovation strategy, either through the exploitative route or the exploratory route. In the novel space of I4.0, which is just the beginning of the fourth industrial revolution, firms need to absorb new knowledge from external and use it internally
SMEs, being mostly resource-constrained, are often on the first step of exploitation, tapping into existing know-how and improving their own processes. This is usually the first step of digitalization for manufacturing firms and may present as production dashboards for plant managers
This is internal process optimization on our chart, and many stopped at this stage. Why do firms fail to venture further into the level of External Value Creation? I boldly speculate that this is the common problem of ‘You don’t know what you don’t know.’
It is important to continue the learning journey to recognize, acquire, and assimilate external knowledge. For SMEs, it is necessary to acknowledge the need for external assistance, whether in the form of hiring consultants or services such as CTO-as-a-service, seeking partnerships within the ecosystem, or just reaching out via industrial associations and networks to observe best practices
Conclusion
Industry 4.0 is an announcement of the end of Industry 3.0 and the beginning of the journey to Industry 4.0. This represents a wild, wild west scenario where everyone is off on an unequal race. Being manufacturing-centric, most research and development focus on new technologies, and these innovations lead to the need for firms to redesign their business models.
Larger firms may have the expertise or resources to hire such expertise and to trial and error in their process. Smaller firms should go beyond their resource limitation and tap into all available external help to propel them forward. Industry 4.0 is no longer a buzzword or ‘future state.’ Miss the train, and you will be part of history sooner than you thought. 