Time to Accelerate in the Race Toward Industry 4.0

Time to Accelerate in the Race Toward Industry 4.0

          
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Time to Accelerate in the Race Toward Industry 4.0

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    Data Security and Investment Needs Are Also Major Challenges

    Noting first the lack of qualified employees, survey respondents overall cited data security and investment needs as the next-most-difficult challenges to successful implementation of Industry 4.0. However, delving into the findings by country, we found notable differences in how companies rated the magnitude of these challenges.

    Of the German companies, 41% rated data security as a major challenge, compared with only 32% of the US companies. German respondents’ greater concern about data security no doubt reflects the strong sensitivity about data privacy in Germany and points to the need to develop a clear legal framework for data security and data privacy for the digital market. It also reinforces the importance of making further progress toward a long-term data-privacy and data-protection agreement between the US and the European Union.

    Companies in both countries said that they will need to make significant investments in order to adopt Industry 4.0, and they estimate the level of investment at, on average, 7% to 9% of total revenues. About one-third of both US and German companies consider excessive investment needs to be a major challenge, although German companies rated this slightly lower than several other challenges. Notably, for manufacturing companies alone, excessive need for investment is the number one concern of US manufacturers: 37% rate it a major challenge. This issue is further down the list of concerns for German manufacturers: only 27% rate it a major challenge.

    Because the investment requirements for new digital technologies are significant, companies must develop clear plans for their Industry 4.0 expenditures early in the implementation process. Careful planning is especially important for companies—large US companies as well as small companies in both countries—that are most concerned about their ability to cover the necessary investment costs.

    When they evaluate whether investments are excessive, companies need to consider the relatively short period required for capturing a return. BCG’s analysis found that, despite the expected initial investments of 7% to 9% of total revenues, implementation of new digital technologies will help lift overall productivity by 5% to 8% of total manufacturing costs in a steady state, resulting in a positive business case.

    Additionally, the expected revenue growth resulting from the implementation of Industry 4.0 will help shorten the payback period to only a few years. (See Industry 4.0: The Future of Productivity and Growth in Manufacturing Industries, BCG Focus, April 2015.)

    Moreover, these investments are essential for maintaining competitiveness. Industry 4.0 technologies represent a paradigm shift in industrial manufacturing that is comparable to the introduction of computer-aided design (CAD) systems that replaced analog technical drawing in the 1990s and the integrated CAD systems that subsequently combined the mechanical and electrical design of systems. Companies that failed to be among the early adopters of CAD systems could not keep pace with their competitors’ productivity increases. Because they were unable to participate in the standardized electronic data interchange between companies, many laggards dropped out of their business ecosystem entirely.