“But the pandemic has caused some companies to freeze their Industry 4.0 initiatives to preserve cash, even as certain leaders have accelerated their adoption, particularly to support business continuity such as automated planning, digital performance management and digital remote work and automation to reduce human-to-human interaction, ” says McKinsey & Company expert associate partner Kenneth Koh.(pic) THE Covid-19 pandemic may have accelerated the adoption of technology for many businesses, but it has also widened the technology gap among manufacturers. While the need to invest in digitisation and automation has become more apparent to producers, companies are simultaneously grappling with the need to preserve cash and recover. This could mean delaying crucial investments in technology and possibly causing them to fall further behind the curve. A survey carried out by McKinsey & Company found that there was widespread excitement on Industry 4.0 before the outbreak of Covid-19. About 90% of respondents in the McKinsey’s annual Industry 4.0 survey said that they were convinced of the technologies’ value and a majority of them were including Industry 4.0 as a critical part of their operational-improvement planning. “But the pandemic has caused some companies to freeze their Industry 4.0 initiatives to preserve cash, even as certain leaders have accelerated their adoption, particularly to support business continuity such as automated planning, digital performance management and digital remote work and automation to reduce human-to-human interaction, ” says McKinsey & Company expert associate partner Kenneth Koh.(pic) This will certainly widen the gap between early technology adopters and those still sitting on the fence. But as businesses emerge from the crisis, the case for further digitisation will be stronger than ever. And with automation increasingly becoming more of a necessity for manufacturers, those dragging their feet will – at some point – have to relook their operations and consider how they can incorporate digital technology to improve efficiency in the business. According to Koh, there will be three pathways to technology adoption for companies coming out of the pandemic. The first one is “accelerated adoption” of technology for quick-win solutions that will help companies respond and adapt to the new norms, such as tracking employee health, enforcing safe distancing on the shop floor and supporting remote collaboration. “Digital performance management (DPM), for example, has been a popular early use case at a wide range of companies, including several small precision-engineering companies where pilots of DPM have helped boost productivity by 40% to 70%, ” he says. The second route is “differential adoption rates” for more complex solutions such as logistics automation, which requires companies to have foundational information technology (IT) and operations technology (OT). Koh notes that companies that already have the critical capabilities, such as manufacturing-execution systems, may speed ahead with the adoption of these solutions, while organisations lacking these prerequisites – particularly SMEs and businesses in a more challenging financial or liquidity position – may delay implementation until they are able to build the foundations or find the required financial muscle to invest. The third pathway is “deferred adoption” for solutions that require higher capital expenditure and have unclear or long-term payback periods. Examples of this include blockchain, nanotechnologies and the most advanced automation systems. This will, of course, require companies to have stronger capital and know-how to be able to execute such advanced technologies in the longer run. Better positioned What has become apparent to companies during the pandemic is that early adopters were able to better continue their business amid the disruption of the movement control order. It was also easier for them to snatch market share while other players struggled to adjust and adapt. This puts them in a better position to leverage the recovery and be prepared for a new economic landscape. To bridge the gap between the technology haves and have-nots, Koh says companies will need to undergo a triple transformation across their business strategy, technology solutions and organisational culture to ultimately succeed at Industry 4.0 and to do it at scale. “The first step that companies need to take is to have a clear articulation of the company’s desired future state, which is linked to business strategy and goals rather than the technology with the greatest buzz. “Selection of use cases for pilots is based on a favourable business case, to be refined as the pilots are implemented, ” he explains. In terms of technology solutions, he advises companies to assess their current IT and OT systems and upgrade them accordingly to support digital and analytics, particularly for elements like the Internet of Things (IoT). It may also be necessary to push suppliers to upgrade their IT and OT systems to ensure end-to-end horizontal integration of data. Companies may opt to leverage external technology providers by creating an ecosystem of partners that can help them execute the digital transformation. Ultimately, though, setting the right culture in the organisation will be key to a successful digital transformation. Koh names four factors that will be crucial support for such a change: ensuring proper governance, securing top-management commitment, acquiring the needed digital capabilities and implementing new ways of working. “A digital transformation without a clear owner can end up as an orphan, ” he says. One of the challenges faced by SMEs in implementing digital transformation is the skills gap. While companies are encouraged to upskill their employees, they could also consider hiring where necessary, to fulfill advanced digital roles such as data engineer or IoT architect. Koh also advises companies to take the initiative to start their digital transformation on their own accord. “Of course, it would be great if there was government support, then you can tap into that, but don’t just rely on that. Otherwise, you’ll just be following the trend of what everyone else is doing, which is to wait for somebody to move first. And that is not a way to stay ahead and be competitive, ” he says.
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