Industry 4.0 Challenges Should Sound Familiar to Tech Companies

Following a series of acquisitions, one manufacturer is planning to pivot from a business model based on hardware sales to one based on monthly fees for bundled hardware, software, service, and connectivity. Sensors, the cloud, wireless connectivity and data analytics all play a role in this new model. It is a massive undertaking for an industrial company, and a preview of the coming business transformation to Industry 4.0 that most industrial enterprises are likely to face.

The Industry 4.0 transformation is not just about a high level of automation of the factory but also about the digitization and integration of manufacturing operations and the supply chain, the digitization of product and service offerings, and the implementation of digital business models and direct customer contact, something generally non-existent today. It is about redesigning capabilities and operating models to take advantage of an array of digital technologies now reaching full maturity.

At the heart of Industry 4.0 is the Industrial Internet of Things (IIoT), which Gartner Research estimates will become a significantly larger market than the consumer IoT.

But if you think Industry 4.0 only applies to manufacturing companies, think again. Many of the same issues that confront manufacturers in Industry 4.0 are the same ones that confront software and other tech sector companies when they move to cloud-based, anything-as-a-platform (XaaS) subscription models.

In PwC’s recent “The Global Industry 4.0 Survey,” reported in the whitepaper, “Industry 4.0: Building the digital enterprise,” we found that industrial companies, like the one cited above, are just beginning to invest and take steps to transform themselves into digital enterprises in the Industry 4.0 mold. We know from public statements that some well-known names are moving fast in this direction—General Electric, Boeing, Honeywell and Caterpillar, to name a few.

Embracing the Digital Enterprise
According to the PwC survey of more than 2,000 industrial participants in nine sectors and 26 countries, these companies are going to look a lot different in five years. For example:

• Respondents expect to significantly increase their portfolios of digital products and services; more than twice as many expect to be at an advanced level in this area by 2020 than today.
• Almost three-quarters of companies expect to have highly digitised horizontal and vertical value-chain processes in five years.

Do these trends ring true for tech sector companies? I think they do. The survey also sheds light on some of the key hurdles to accomplishing digitization, including at least two that should resonate with the tech sector:

• Survey respondents say the biggest implementation challenge isn’t the right technology, rather a lack of digital culture and skills. This finding is also consistent with PwC’s Digital IQ research, which for nine years has explored how organizations across industries can derive value from digital investments.
• Despite the fact that sharpened data analytics skills are essential to Industry 4.0, 38% of respondents currently rely on selective, ad-hoc data analytics capabilities of single employees; another 9% have no significant capabilities at all.

The skills and talent issue was also a key finding of PwC’s Annual Global CEO survey for 2016, published earlier this year – and especially among the tech CEO sub sample in that survey. In the 2010 survey, 58% of tech CEOs said they were concerned about the availability of key skills. In this year’s survey, 80% said availability of talent is their top concern.

Some tech sector companies, especially software vendors that have or are transitioning to the XaaS model, are ahead of the industrial sector in becoming digital enterprises. Tech sector companies with hardware products – semiconductor and other electronics OEMs of all kinds – face essentially the same issues as industrials. (In fact, 10% of the participants in the survey were from the electronics industry segment.)

Tech Faces Similar Issues
The survey findings are worth a look by anyone in the tech sector, not only for parallels to their own experiences, but also to understand issues their industrial customers face. The tech sector can identify multiple opportunities for new or enhanced business in them.

The similarities between the tech sector and the industrial sector are not just evident. There’s a significant convergence between the two worlds, along with specific inter-linkages and inter-dependencies – for example, via IoT.

Whatever the sector, Industry 4.0 is based on interoperability, information transparency, technical assistance and decentralization and autonomous decision-making. These include multiple transitions for industrial companies – across sales, go-to-market, products and offerings that become enriched through addition of sensors and networking, and the associated impact on the end-to-end, order-to-cash cycle.
For tech sector companies, these transitions likely sound familiar as they are all being driven by the evolution of business models towards XaaS. For the foreseeable future, we anticipate that current business models will coexist alongside XaaS; this also means that technology companies must decide carefully on how much to invest in sustaining the current offerings and operating models, while also building for the future.

Tech companies need to consider the same actions recommended for industrial companies in the study. Specifically, they will want to map out their digital strategy;