Digitized products and services: 110 bn € more revenue for EU industry

Process and resources optimizations with cost reduction are the major goals companies expect to achieve due to the implementation of the Industry 4.0. Much more lucrative is the other side of the Industry 4.0 coin, which brings additional revenue due to new services, digitized products, new business models and cross industry integrated value chains.

What are the drivers?

According to the PwC research there are three important drivers that support the expected impacts of the Industry 4.0 implementation.

Value Chain Integration

For the advance of industrial internet solutions the first driver lies in the opportunity to integrate and better manage value chains, both horizontal and vertical. According to PwC survey companies expect more than 18% higher productivity over the next five years. Interesting is that today only one fifth of the industrial companies have digitized their key processes along the value chain.

Digital products and services

Having only digitized products and offer digital services is not a game changer. What makes the difference is the interconnection of products and services, often related to as IoT – Internet of Things. This driver is expected to contribute 2% to 3% of additional revenues per year on average.

Disruptive business models

A third major driver are digital business models. This is area which is better known to start-ups as they uncompromisingly attack existing challenges and find themselves much more familiar with disruption of new business models. These new business models deliver increase of cooperation across the horizontal value chains through the integrated use and analysis of data. They often help better fulfilling of customer requirements.

The good side

It is obvious that Industry 4.0 brings many positive impacts. These impacts are not only directly related to benefits of the production and manufacturing of the single company, but it has broader influence on the value chains, other industries and national economy.

We are currently experiencing the first wave of the Industry 4.0 which is mostly about investments in digital infrastructure, basic digital data management and improvements in production processes. Why? Well, there are at least three good reasons for this.

  • First, these activities look like a natural next steps in business development, as they mean cost optimization and process improvements. It is easy to have them in annual plans.
  • Second, all these improvements use the same existing business models and calculations to prove the value and financial outcome and get approval from the board.
  • Third, they can call these investments already Industry 4.0 and as such declare and show the world (e.g. their partners, customers and competiors) they are on the edge of the smart factories development and serious about the Indsutry 4.0. Though on the other side, most of these first activities and improvements are still implemented in a closed and safe environment between the four walls of the company.

The next wave

The first steps into the Industry 4.0 are quite caucios, which is especially true for the manufacturing SMEs. Yet many of the advanced and forward looking companies, not only the incumbents like Siemens, Bosch and GE, but also lots of SMEs are already working on the second wave.

The second wave goes beyond straight forward process optimizations, cost savings and proven business models. It even jumps over the secure walls of the company. It means that companies get open with their data in order to better integrate their processes in the existing value chains and interconnect into new cross-industry value chains that are being developed.

And the bad side?

To achieve the goals set and the expected outcome there is also a negative side of the Industry 4.0. On this secon side we can find high investments. It's true nothing comes for free, but the numbers for the expected investments in Industry 4.0 are high. Very high.

Most of the companies believes they will have to invest approximately 5% of the revenue to implement the Industry 4.0. These are the numbers which can be found as results of many recent surveys. And these numbers even get worse. It will take not only one year, but at least few years for a solid implementaion. According to the PwC survey by 2020, European industrial companies will invest €140 billion annually in industrial internet applications. Over the next five years, the industrial companies surveyed will invest, on average, 3.3% of their annual revenues in industrial internet solutions. This is equivalent to nearly 50% of the planned new capital investments.

The other challenge on the bad side of the Industry 4.0 coin is called security and privacy. This tightly relates to all digital data company gather, store and use. It is expected that companies also share this data and recombine data to get new insights. How to do it properly and according to laws and regulations becomes important. For the EU companies a good starting point is to seriously learn about the GDPR – General data protection regulation. The GDPR adresses different areas of data protection, security and privacy. May 2018 is a deadline for implemenation and it is mandatory not only for public organizations and governments but also for private businesses to have it in place.

To learn more about challenges and opportunities in Industry 4.0 join us @ Living bits and things 2017.


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