When you think of the amazing potential of Industry 4.0 technologies, the disruption of new business models and new products comes to mind. Think ride-sharing and drones and AI-assisted devices.
What you don’t generally think of is operational improvements to legacy systems. Not headline-grabbing stuff, that. And yet, when it comes to Industry 4.0, it seems that the potentiality of these technologies is bowing to the mundane. In fact, digital transformation is often being viewed by many companies as a defensive investment to protect rather than grow their business; a way to avoid disruption rather than cause it.
This isn’t to say organizations don’t value digital transformation or fail to recognize its strategic potential. According to the Deloitte survey, The Industry 4.0 paradox: Overcoming disconnects on the path to digital transformation, 94 percent of respondents agreed that digital transformation is a top strategic priority. But apparently the road from digital to disruption is mostly paved with good intentions. When it comes to actual investment, 30 percent of operational and IT budgets will be dedicated to digital transformation initiatives versus only 11 percent of R&D budgets. And while operational efficiency has its place, it’s not generally the focus of an organization’s strategic objectives.
Overload and inertia
So why are organizations not using Industry 4.0 technologies more strategically? One reason could be technology overload. There is an almost overwhelmingly wide choice of technologies—from predictive analytics to machine learning to AI—that can support strategic objectives today. Determining, prioritizing, and investing in the right tools can be downright daunting. The path of least resistance as organizations sort out these choices may be to simply use technology to maintain and defend their market position.
This is borne out by the fact that many organizations are still choosing to invest more in their legacy systems than in new technologies. Take data analysis. Companies are continuing to use familiar and longstanding organizational tools—such as desktop productivity tools and ERP software analytics— for this task more than 80 percent of the time. Industry 4.0 tools, like RPA and sensor technologies, are leveraged considerably less often—at around 25 to 30 percent.[i]
Companies also seem to be pulling in different directions when it comes to leveraging these technologies to achieve strategic objectives. In the face of fast-moving competitive environments, finding internal alignment about which strategies to pursue—especially with new, unfamiliar business models—can be elusive. Add to this the challenge of finding, training, and retaining the right talent—a top concern among organizations—as well as the cyber risks these technologies present, and you have a perfect storm of organizational inertia.
From defense to disruption
While a defensive position may seem to be the best way to preserve profitability while the optimal strategic application for digital transformation is pondered, disruptive competitors are certainly not going to wait. Larger, established organizations with legacy operations are particularly vulnerable in this scenario as smaller, more nimble start-ups use digital technology to build new business models and products. To jumpstart a strategy using digital transformation beyond operational improvement, organizations should consider the following steps:
With Industry 4.0 technologies now increasingly accessible and affordable, organizations of every size and kind now have the potential to disrupt an established market. Companies need to reflect this potential in their own strategies. Because there’s a reason it’s not called digital efficiencies or digital defense but rather digital transformation. The transformation is not just about processes; it’s about thinking.