Industry Thought Leadership

Building the Industry 4.0 Enterprise

June, 2017
Jad Hajj

Hani Zein

Strategy& (formerly Booz & Company), part of the PwC network

Industrial companies in the GCC are facing the disruptive power of Industry 4.0, the new wave of intelligent automation that is transforming manufacturing. Embracing this fourth industrial revolution would allow many of them to leapfrog stages of development and compete with the best globally. To fully capitalize on Industry 4.0’s benefits, industrial companies need to develop new capabilities over the next two to three years, and radically transform their organizations.

Industry 4.0 uses digital technology to achieve the seamless integration of industrial products, value chains, and business models. At the production stage, for example, self-operating manufacturing plants require virtually no staff. Assets in these facilities are constantly connected through the Internet of Things (IoT), smart sensors that create a continuous flow of data between machines, which helps rapidly identify opportunities to improve performance. Getting into more detail, wearable technology such as smart watches or smart glasses can facilitate communication between engineers and on-site staff, which saves time and resources on training and maintenance. The result is considerable efficiency gains and higher quality output.

Leading companies worldwide are investing over $900 billion per year in digitizing their products and services, adopting digital business models, and exploiting the data they are generating, according to PwC’s “Industry 4.0 Global Survey.” By 2020, the number companies that consider their level of digitization to be advanced is anticipated to be 72%, up from just 33% in 2016.

Some GCC companies are already on track to realize above-average efficiency gains and cost savings from Industry 4.0, particularly in the fields of engineering and construction, industrial manufacturing, transportation and logistics, and chemicals and metals. PwC’s “2016 Middle East Industry 4.0 Survey” found that by 2020, 52 of these companies expect average annual digital revenue increases of 3.8% (compared to 2.9% globally).

However, only a few of these companies have fully digitized their internal operations. Most rely heavily on expatriate staff and have labor-intensive manufacturing operations, which further makes it even more important to digitize. They also have limited data capabilities, and express major concerns about safeguarding data, communications, and intellectual property.

To successfully achieve their Industry 4.0 transformation, GCC companies need to follow six practical steps to acquire and deploy digital capabilities:

1. Map out an Industry 4.0 strategy
Companies should take a holistic approach to setting their digitization strategy. This starts with evaluating their current level of digitization to determine which solutions to implement across their production, value chains, and business model. In doing so, they should consider how these solutions could enhance how they interact with suppliers, technology partners, employees, and customers. They also need to ensure stakeholders are aligned with this strategy and are aware of its benefits, so they can engage them as champions to drive change.

2. Create initial pilot projects
Launching pilot projects with a measurable scope and outcomes can demonstrate the business benefits of digitization. For example, installing track-and-trace devices on products can give manufacturers a better, real-time view of their inventory and shipments. To lead these projects effectively, companies should assign cross-functional teams, supported by IT and HR enablers. Successful pilot projects will generate support for future, larger-scale initiatives.

3. Define needed capabilities
Based on experience from pilot projects, companies can determine which enablers they must focus on to build enhanced capabilities. On the organizational level, they should encourage experimentation in developing new ideas, unconstrained by legacy thinking. In terms of people, they should hire new talent, train existing staff, and introduce new roles into their organization. When it comes to processes, they should create user-friendly internal systems to promote wider usage—while implementing rigorous security protocols to deter cyberattacks. Finally, they should look to update their technology, for example by building an IT function capable of delivering improved performance and security, or introducing more IoT-enabled devices into production lines or warehouses.

4. Master data analytics
Exploiting data more efficiently is the key to improving products, services, and operations. For example, smart sensors on production line assets can provide engineers with data about their performance, which can then be used to predict maintenance checks and schedule them ahead of time. In turn, this can lead to more informed purchasing decisions and improved safety measures. Wearable devices can improve staff safety and time management. To be effective, these capabilities should be fully incorporated into the way companies manage their business processes.

5. Transform into a digital enterprise
An Industry 4.0 company is about more than technology processes: at its core is an enterprise-wide digital culture that ensures maximum stakeholder buy-in and retains top talent. In such a digital enterprise, a chief innovation officer (CIO) or chief digital officer (CDO) should lead the transformation and prioritize new digital solutions. They would be supported by cross-functional teams responsible for developing and rolling out new capabilities such as IT specifications, models, guidelines, and usability.

6. Actively plan an ecosystem approach
In the face of growing commoditization, industrial companies should broaden their products’ digital service offerings. From adding simple features like communication or tracking devices to their products, they can then facilitate communication with partners’ or competitors’ products, software, and applications using an “ecosystem” approach. Ultimately, this means better access to customer data, which will be analyzed to better forecast their needs, improve products and develop new ones.

By following these steps, GCC industrial companies can qualify to compete internally and globally. If not, they risk being left behind and seeing their products reduced to commodities. The key is to act now and drive change across their value chains.