Industry 4.0: What's in store in the Fourth Industrial Revolution

Welcome to the next revolution. The Fourth Industrial Revolution - or Industry 4.0 - will be marked by dramatic advances in technology that will affect all industries and economies.

We’re still in the computerised Third Industrial Revolution, but that high-tech sound you can hear is the Fourth Industrial Revolution coming to change the way everyone does business. Ready for Industry 4.0?

Dr Ian Oppermann can envisage a day when governments use sophisticated 3D printers to roll out their latest fleets of navy submarines.

“They could be designed in France, Germany, wherever,” says Oppermann, the chief data scientist at the NSW Data Analytics Centre in Sydney. 

“Then they could be shipped as a digital file to Australia, you could print out the parts you need for the submarine in, say, South Australia and use blockchain to validate the contract and automate payment. 

“The only time anything really exists in the physical world is when you are actually printing the submarine parts and building and testing them. Everything else is digital.”

While he concedes there is still some way to go before 3D printers can handle such large manufacturing projects, Oppermann notes that they are already being used for making bionic eyes, prosthetics and even organic matter such as hamburgers.

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“It’s still quite expensive compared with traditional manufacturing techniques, but we’ve now reached the point where we are able to do things we’ve never been able to do before.”

Brave new world

Such 3D advances are just a small component of what Professor Klaus Schwab, executive chairman of the World Economic Forum, labels the Fourth Industrial Revolution – a transformation that he suggests in its scale, scope and complexity “will be unlike anything humankind has experienced before”. 

From mobile supercomputing and robotics to genetic editing and nanotechnology, dramatic change is occurring at warp speed. While previous industrial revolutions replaced animal power with mechanical and electrical engines and opened the way for factories and mass production, this new era is marked by dramatic advances in technology that are affecting all industries and economies.

Driverless vehicles are used for the Personal Rapid Transit (PRT) system in Abu Dhabi's Masdas City. Since its launch in November 2010, the system has transported more than two million passengers.These new technologies are changing the way people live and work, from driverless cars, drones and virtual assistants to the power of artificial intelligence (AI), machine learning, the Internet of Things, cloud computing and advanced data analytics. Smart machines increasingly have the ability to visualise the entire production chain and make decisions on their own.

Harry Armstrong, senior researcher of technology futures at innovation foundation Nesta in the United Kingdom, believes one of the game changers is using AI and machine learning to supplement existing decision-making systems. Data sets can be combined and machine-learning systems can make sense of that data and information to build real intelligence. 

“That’s the real power of this stuff,” he says.

Armstrong says algorithms will be “retrained” to enable the smartest possible processing of data, whether it is for business, human services, health or humanitarian aid outcomes. He cites a health initiative in Uganda, where Makerere University researchers use AI-enabled smartphones with a camera to automate the analysis of blood samples and detect deadly diseases such as malaria. Results are available in seconds and it overcomes problems caused by a lack of technicians.

“It’s something that machine learning is very good at – image recognition – and the impact [on health outcomes of such technology] is going to be really big,” Armstrong says.

Such an example, he believes, underlines the importance of using data for the power of good, noting that Facebook has come under fire for failing to protect the private data of its users and becoming the preferred platform for those who want to spread fake news and propaganda.

“There are always going to be unintended consequences and it’s quite important that there’s a certain amount of responsiveness, especially for those companies that are building these things,” Armstrong says. “They can’t absolve themselves from the responsibilities of these impacts.”
  

Professional Development: CPA Congress 2017 is the premier professional development event for the accounting and finance profession, connecting individuals and organisations to the world's most recognised thought leaders, policy makers, innovators and disruptors. Learn more.

Challenges ahead

Although the digital era is a period of great promise, it also comes with some potential social perils, with some economists suggesting greater automation and use of machines could displace workers and increase inequality.

On the business front, Jesse McWaters, the World Economic Forum’s financial innovation lead, raises concerns that some organisations may be unable to adapt, with financial institutions facing particular challenges as a result of technology choices they have made during the past few decades.

“The result is that they are often laden with large, inflexible legacy mainframe systems that have in turn put in place relatively inflexible operational practices.”

McWaters says there is recognition among most senior leaders in the finance sector that they will have to reconcile these legacy systems with the new technologies that are emerging. He advises focusing on services and experiences, not just financial products, as institutions try to replicate the digital experiences that tech leaders such as Google, Facebook and Tencent have been able to provide for their users. 

McWaters believes financial institutions will use automation and third-party service providers to improve processes and efficiency.

“It means in part that the back and middle offices of financial institutions will increasingly look similar to one another, so the customer experience will be central to their differentiation.”

“The Fourth Industrial Revolution … will be unlike anything humankind has experienced before.” Klaus Schwab, World Economic Forum

Valerie Germain, managing partner of executive search firm Heidrick & Struggles in New York, says few executives had anticipated just how quickly digital disruption would affect their businesses. Adding to their conundrum, it is almost impossible to anticipate the changes that may be coming.

“That unknown element makes it very difficult to think about strategy,” Germain says. “It makes it very difficult to forecast what your business is going to look like in five to 10 years.”

Joint research between Heidrick & Struggles and Oxford University’s Saïd Business School into CEO behaviours has identified the importance of “ripple intelligence” in this new environment whereby leaders must have the ability to simultaneously consider a multitude of potential outcomes that may or may not be directly in their line of sight. 

Typical issues relating to employees, shareholders, customers, new markets and new products will be viewed through a lens that also includes factors such as adjacent businesses, the geopolitical environment, health scares or terrorist threats.

“They are constantly looking at how these factors might intersect and how we might be able to take advantage of an opportunity and protect ourselves, depending on what area it is,” Germain says.

Preparing our workforces for Industry 4.0

As the Fourth Industrial Revolution – or Industry 4.0 – unfolds, Oppermann says a mind shift will be required for senior leaders, so they focus on value creation through the delivery of services in a digital world. Products such as cars, just like smartphones, will become a platform that can be loaded with technology and software from IT providers.

“They become a commodity and all the smarts are actually the data and the software,” he says.

In such a service-centric environment, markets will become ever more global. “The traditional idea of home market, home advantage disappears completely,” says Oppermann, who suggests this will favour a relatively small, isolated country, such as Australia, which has had to deal with the tyranny of distance while exporting commodities in the past. 

The truly revolutionary aspect of digital innovation, he argues, will be that companies cannot afford to simply deliver a digital version of what they are already making or providing.

“We can actually start to rethink that service model,” Oppermann says.

3D-printed scaffolds can be a base for cartilage and skin tissue to grow. The technology is set to revolutionise reconstructive surgery.

3D-printed scaffolds can be a base for cartilage and skin tissue to grow. The technology is set to revolutionise reconstructive surgery.

According to Germain, a new generation of agile and inquisitive leaders will be needed to manage the latest industrial revolution. “They must be curious and be able to synthesise massive amounts of data – but not just from traditional sources – and then take that and develop a series of strategies. It’s about the ability to have a direction, create a series of strategies that you invest in and then, over time, you figure out which ones make the most sense.”

Chairs and CEOs should also be able to communicate authentically. “They don’t have to know all the answers, but they do have to be willing to say ‘this is what I know, this is what I don’t know, and this is what we’re trying to do’.”

For the broader workforce, smart recruitment and training will be essential, along with diversity. This goes beyond classic definitions of diversity around gender and race, however.

“The best leaders want diversity of thought,” Germain says. “They desire people who bring different experiences and different points of view into the leadership team and encourage constructive debate, as opposed to hiring or promoting a group of individuals who all look the same or think the same.” 

Armstrong believes job design will be important, and different, in future. Although repetitive jobs will become automated in many instances, the decisions affecting those processes are still likely to require the input of humans. Task discretion will be important and, in some sectors, a mix of automation and human interaction will be crucial to how products or services are received.

“Automation is just one of the trends that’s going to impact the skills and jobs that are going to be important in the future,” Armstrong says. “There’s a responsibility for companies and governments to design jobs in a way that technology complements them, rather than taking them over.”

Industry 4.0 strategies in the spotlight

While the prospect of massive change courtesy of the Fourth Industrial Revolution will spook some financial services companies, McWaters prefers to contemplate the “enormous opportunities” it is likely to generate.

“There’s this potential for a more stable, a more efficient and a fairer financial system, but it’s going to require collaboration between the public and private sectors to ensure we get there,” he says.

CEOs and other leaders will be under pressure to perform, he argues, and partnerships will be central to the effective management of organisations.

Robots are already familiar on factory floors. The next industrial revolution will see even more automation.

Robots are already familiar on factory floors. The next industrial revolution will see even more automation.

“[But] partnership is not a traditional competency of financial institutions, and as we see people driving to cost commoditisation through the externalisation of processes, as we see people looking to acquire capabilities for emerging fintechs, they’re going to need to develop a strategy for when it makes sense to build, to buy, to partner and to invest.”

With that, C-suite leaders will have to manage not just a team but a “portfolio of capabilities”, some of which will reside internally and some externally. The size of a team will be less important as an indicator of a leader’s influence within the organisation than the set of capabilities they oversee.

While the demise of famous brands such as Kodak and the evolution of sectors such as music, travel, accommodation and the media highlight the impact of digital disruption, Oppermann says some unsuspecting companies still believe the threat is only relevant to data and digital-based businesses.

“Those companies that don’t think they’re digital companies should be the ones that are worried, because it’s really changing everybody’s business,” he says.

As the Fourth Industrial Revolution gathers pace,  they are the companies likely to be left behind.

Jesse McWaters is speaking at CPA Congress 2017. Visit cpaaustralia.com.au/congress to see the full program for your region.

The industrial revolution

  • Beginning in the 18th century in the UK, the First Industrial Revolution harnessed water and steam power to mechanise production, and the concept of a factory was born.
  • Nothing better encapsulates the Second Industrial Revolution of the late 19th and early 20th centuries than Henry Ford’s automotive assembly lines. Electric power came to the fore and the age of mass production began.
  • Manufacturing is going digital during the Third Industrial Revolution, which started in the 1970s. Computerisation is driving the use of electronics and information technology to automate production.
  • The Fourth Industrial Revolution or Industry 4.0 will fuse the physical, digital and biological worlds. People will be even more connected to digital networks, and organisations can use technology to better manage their assets and even help regenerate the natural environment.

Finance’s disruptors could turn into saviours

Fintechs, the new generation of innovative financial technology firms behind buzzwords such as crowd funding, peer-to-peer lending, bitcoin and blockchain, reflect just how exposed the financial services sector has been to digital disruption in recent years.

Already, however, the future of the agile fintechs is undergoing change. The World Economic Forum’s Jesse McWaters says fintechs have clearly seized the initiative and set the direction of innovation in the financial sector, but they are facing real barriers to achieve the scale needed to compete with incumbent market leaders.

As a result, some are changing course. Instead of focusing on customer-oriented strategies, they are planning to partner with and improve the digital performance of large financial institutions.

“We’ve seen it in the wealth management space and in the lending space, and I think  we’ll see it more and more in the regulation tech space and the analytics-as-a-service space,” McWaters says. “There’s a very active ecosystem forming to basically help financial institutions become more agile and achieve new capabilities.”


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