GROWTH OPPORTUNITY FOR EUROPE - RETHINKING THE LOGIC OF VALUE CREATION

17 August 2020

Against the background of increasing complexity, dynamics and variant diversity, the complete digital Networking of people, machines and things along the entire value chain of a product to become a global competitive factor and a growth opportunity for Europe's highly developed production facilities. This in particular because 90 percent of global economic growth is already taking place outside Europe.

Most companies have mastered the continuous improvement of tangible products. But the digital, networked economy ticks differently: faster, more chaotic, more unpredictable and, above all, closer to the customer. IT-based new economy, cloud computing and big data are merging with the old economy to form new business models through Industry 4.0. In order to realize the enormous potential of the growing networking offered by the Internet of Things, machine-to-machine communication and Industry 4.0, companies must reposition themselves - the organization, the processes, the IT and, last but not least, the corporate philosophy.

Business models of the future

 

According to a study by the Fraunhofer IAO, in future a production order - triggered by the customer - could steer itself independently through the value-added chain. Not only would processing steps, equipment and materials be automatically controlled by intelligent systems, but also all checks and possible corrections. The respective production order would detect impending delays in delivery, report these to the customer and organise any additional capacities required. In addition, the production plants would be able to exchange drawings, organize their order sequences and communicate the necessary maintenance and servicing requirements to each other.

The factory of the future must be rethought. A 'factory' is no longer a (mass) production site in one place, but a concept in which production is self-organized, networked and distributed and represents only a part of the organized overall life cycle. New forms of communication between machines allow decentralized and "smart" production facilities to emerge and allow "smaller-scale" distribution and production on demand.

Many Industry 4.0 scenarios require business models that are implemented with a (possibly) highly dynamic business network. Integrated cooperation and business models will emerge, which will be more strongly tailored to individual and short-term customer requirements, involving customers, suppliers, partners and the market. In this way the customers will intervene - with ideas about the product and determining delivery times. Not only production is affected, but the entire product development process. Already in the innovation work, products must be developed in such a way that they can be adapted and changed. Such complete networking is what makes the new value-added logic and opens up the possibility of thinking in new business models.

If you want to grow, you have to create disruptive innovations. It will not be enough just to make what has been done better. Companies will have to break new ground both in the development and in the design of business models. The old models will erode because we cannot keep them forever in high-wage locations - even if we continue to automate.

Traditional manufacturing industries (such as mechanical and plant engineering) will increasingly offer solution-oriented usage models instead of simply selling physical products. Industry 4.0 not only has a radical impact on the manufacturing industry, but also influences business models in other industries and sectors, as the following examples show:

1. Remote maintenance (Remote Services)

 

In the future, specialists will no longer connect to the machines manually. As so-called social machines, the production systems will automatically connect to their cloud-based telepresence platform and search for the required experts depending on the situation. The experts will use integrated knowledge platforms, videoconferencing tools, engineering methods and the use of mobile devices to perform classic remote service more efficiently. In addition, the machines will independently expand their capabilities by automatically reloading required functions and data. The relocation of complex calculations, e.g. for simulations and forecasts, to the platforms enables previously undreamt-of possibilities for increasing productivity.

2. Up-cycling instead of re-cycling


For high-tech products, raw materials are often a limiting factor (e.g. rare earths, platinum). The company sells its products for use only and retains ownership of the raw materials used. This is only possible in a meaningful way through manufacturing, assembly and recycling information stored directly in the product. Based on the manufacturing, assembly and usage data of the product, the condition of the product components can be determined at any time. Assemblies can be analysed on the basis of this data and adapted to the current status. In contrast to classic re-cycling, this enables up-cycling, i.e. the re-use of entire assemblies (not individual components or raw materials).

3. Trading of technology data on public Internet marketplaces


A production order (for example: laser cutting) involves new customer material for which neither the networked machines nor the manufacturer has suitable technology data. With an automated inquiry on the laser cutting technology marketplace, a service provider determines a suitable technology data set based on the material properties and offers it for direct use.

4. Disruptive mobility services


Google plans to offer self-propelled vehicles in cities. The vehicles are to transport the customer from one point to another without a driver. Google's added value consists of giving advertisers the opportunity to bring customers to their own business, thus solving a classic problem of stationary trade.

5. Smart farming


Even professions that are thousands of years old, such as that of the farmer, are experiencing a noticeable change with Smart Farming. Today it is possible to determine soil quality or pest infestation in real time using sensors and to use fertilizers and pesticides in a targeted manner. The goals are higher crop yields and less environmental pollution.

Evolution or revolution


It is a mistake to believe that cyber-physical systems and smart factors will not be current for another ten or 15 years. Industry 4.0 has long since begun: Companies use machines equipped with a web client to generate data over the Internet. Machines use sensors to monitor certain functions. In many production processes, all products communicate with machines using RFID or barcodes, and people work in factories with smartphones and iPads. It is a continuous process of change - an evolution. But this evolution will happen faster than we imagine. Rapid action by all players in business, research and politics is essential to secure Germany and Switzerland as a production location and to remain competitive.

A survey by CSC, provider of IT services and solutions, among 900 decision makers in Germany, Austria and Switzerland, shows that one in two decision makers in industry has not yet heard of Industry 4.0. About a quarter know the term, but do not know exactly what is meant by it. Only a quarter know the changes associated with Industry 4.0. Germans are slightly better off than their neighbors: While 40 percent in Germany have not yet heard of Industry 4.0, more than half of those surveyed in Austria and even 60 percent in Switzerland have.

Medium-sized companies remain sceptical


In a survey conducted by DZ Bank, half of the companies surveyed stated that digitization in production was not relevant to them. This means that a large proportion of SMEs do not recognise the opportunities offered by digitisation. Meanwhile the competition is active. The USA and Great Britain in particular have made their companies competitive with the help of information technology. It would be fatal if Germany, as the original inventor and source of ideas for industry 4.0 approaches, were now to fall behind in terms of implementation.

Industry 4.0 as a chance for growth and survival


Competition between industrial locations has intensified dramatically since the global economic crisis. Experts are warning that Europe will only be able to survive successfully in this competitive environment with a completely new industrial concept. Today, growth is largely takes place outside Europe, not least because other economic regions have considerable comparative advantages that are crucial for traditional industrial production. However, Industry 4.0 could be an opportunity for Europe as a production location.


With Industry 4.0, Europe can keep high-tech products here and perhaps even develop new ones. Industry 4.0 offers the opportunity to build new business models, develop new products and generate new potential. If Europe sees Industry 4.0 as a holistic development of the high-tech production system, it has a chance.


With Industry 4.0, the distribution will be redesigned and become more "small scale". This will make even smaller production quantities "pay off". This is because the machines no longer have to be adjusted from one product to the next with expensive conversion work, which increases flexibility. As a company, you no longer have to "sneak" all your products and goods through a single factory. Instead, several decentralized sites are linked and produced on demand.

Thinking in business models


With the earlier classical model of thinking and acting, one had a good idea and developed a product. The product goes to market and the customer uses it. Today the customer does not buy a product, but a service or services that are "composed" into solutions. So market success depends not only on the "good idea" but also on the corresponding logic that shows the idea the way to the customer. Thinking in business models means the creative and holistic design of the individual dimensions of one's own business logic (namely positioning, offer, value creation, marketing and revenue logic). These dimensions must be aligned with a common goal - such as the desired positioning.

Thinking in value-added networks


Another challenge is openness: more networking - also when developing solutions, new business models and production systems. Openness in spirit and in processes is required because things are becoming increasingly networked. It is important to talk to each other, to work together and no longer pretend to be able to do everything yourself.

Many companies have to jump over their shadow to do this. Industry 4.0 holds opportunities for ideas, which also create new potential for each individual. It is important that the fear of competition is replaced and transferred into open thinking, so that new impulses and new possibilities can arise.

This ultimately leads to a cultural change. Companies can develop further as a result, even though a cultural transformation is always associated with "pain". All of this holds more potential than if each individual thinks about how to become "a little" better. If we succeed in getting into this new, open and systemic thinking, then the opportunities definitely outweigh the risks - for all industries!

The great need for information and networking is the challenge. The larger companies have to take the medium-sized businesses along with them: in projects, in pilot projects and the like. Politics must also create suitable conditions so that everyone can jump on this bandwagon.

Short & concise


The digital networking of people, machines and products along the entire value chain of a product or service is becoming a global competitive factor and can represent a growth opportunity for Europe's highly developed production facilities. However, companies need to change in order to achieve this: they need to develop an openness in thinking in order to redesign processes, value creation logic, business models and networking.

Please explore our Digital Transformation and Value Chain & Supply Chain Management solution portfolio related to this topic.

This article was originally published by: IM+io

 

Author:
Carsten Vollrath
CEO @ Swiss IPG Partners Group

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