Manufacturing globally has experienced a decade of productivity stagnation and demand fragmentation and, thus, innovation is long overdue. Where Industry 4.0 has been taken to scale beyond the pilot phase, unprecedented increases in efficiency have occurred, with minimal displacement of workers. However, most companies appear to be stuck in ‘pilot purgatory’ and not progressing to production stage and scaling.
Lighthouses are the factories that have taken Industry 4.0 technology from pilots to integration at scale, thus, realising significant operational and financial benefits. They also illustrate how Industry 4.0 technology at scale can transform the nature of work itself by constant upskilling and engaging human workers with minimal or no displacement. These select group of 103 manufacturing sites as of March 2022 as per the World Economic Forum list of lighthouse factories represent the leading edge of technology adoption at scale.
Qualification as a lighthouse requires meeting very high standards across four categories:
Significant impact achieved.
Successful integration of several use cases.
Scalable technology platform.
Strong performance on critical enablers, such as change management, capability building, and collaboration with an Industry 4.0 community.
Advanced technologies adopted by lighthouse factories
The agile approach
Agile digital studios
An agile tranformation
An agile transformation calls for small, focused, and specialised teams that can rapidly develop experimental product iterations. Leaders establish a culture and environment that trusts workers to experiment with unique and creative solutions, giving them the freedom to “fail fast” and recalibrate their strategy by learning the lessons of these failures. This methodology and approach require pragmatic workflows for iterative problem solving, as well as teams that develop designs for minimum viable products (MVPs).
Priority management is essential, and frequent evaluation allows the tasks of teams and their members to shift with changing business needs. The value of this agile approach includes a higher workforce engagement, focused training & skill development, creative ways of solving problems, and the ability to scale up fast.
Agility becomes even more powerful when combined with a strong transformation office, because effective, strong, and decisive leadership is critical for any substantial change — let alone one as comprehensive as an Industry 4.0 digital transformation. Agility calls for small, focused, and specialised teams that work in an organisational setup with very clear objectives and effective collaboration.
Key opportunities & lessons from lighthouse factories
Lighthouses inject human capital
Contrary to widespread concerns about worker displacement and job losses, Lighthouse factories are not deploying Industry 4.0 technology to replace operators in a shopfloor. A McKinsey report suggests that less than 5% of occupations consist of activities and tasks that are 100% automatable with today’s technology, while 62% of occupations have at least 30% of automatable tasks and activities.
Industry 4.0 differs from the continuous improvement efforts that have characterised factories for the past generations. It is not incremental; rather, it involves a step-by-step change — it is resetting benchmarks and setting higher standards. Lighthouses leverage different Industry 4.0 use cases to transform their manufacturing operations. Accordingly, lighthouse factories are resetting industry benchmarks for financial and operational key performance indicators (KPIs). Some lighthouses even outperformed their internal expectations by a factor of 2 as per a McKinney study. With this transformative approach, lighthouses transform their operations and achieve a step change in performance improvement.
Open innovation and collaboration
The lighthouses demonstrate that the Industry 4.0 journey need not be solitary, beacons can guide and lead the way. Indeed, lighthouses are part of an innovation ecosystem that involves academia, start-ups, and technology service providers.
Large and small enterprises
Innovation is accessible not only to large enterprises, but also to MSMEs, which can achieve a transformative impact by focusing on pragmatic solutions that don’t require huge capital expenditure.
From emerging & developed economies
Access to current and emerging technologies is not the exclusive domain of developed economies anymore. China is one of the leaders with a high number of lighthouses, and other lighthouse factories are in eastern Europe. This shows that other operational and financial benefits are more relevant than just labour cost reduction.
High impact with minimal replacement of equipment
Despite the misconception that legacy industrial infrastructure and equipment and older facilities create obstacles and barriers to innovation, most of these lighthouses were in fact created by transforming existing brownfield operations.
Democratisation of technology
Technology on the shopfloor is transforming ways of working, as operators develop their own applications and solutions to facilitate & automate their tasks and, thereby, enhance their productivity
Agile working mode
The lighthouses implement new use cases in an agile working mode, which allows them to do proofs of concepts and proof of value in a very short time, improve the solution based on learning and go quickly from pilot to production and eventually to scaleup mode. This is a matter of weeks as against years.
Minimal incremental cost to add use cases
Use cases can be deployed at low additional cost, allowing factories to work on multiple areas at the same time. New business models Industry 4.0 technologies enable lighthouses to develop new business models which complement and disrupt the traditional
New business models
Industry 4.0 technologies enable lighthouses to develop new business models which complement and disrupt the traditional business and value chain by leveraging the power of IoT and AI. For example, manufacturers of connected products are now fusing IoT and AI into their products and can offer products as a service.
Aiding economic recovery
Undoubtedly, the world has changed drastically in the past two and a half years due to the COVID-19 impact and the impact of the Russia- Ukraine war triggering supply chain disruptions. The resulting challenges, along with ambitious climate goals, have increased the importance of environmental, social, & governance (ESG) concerns. Companies have, therefore, significantly their focus on environmental sustainability and on workforce engagement. Lighthouses have demonstrated that responsible business growth requires a transformation with these priorities.
Localised manufacturing and supply chain resilience are very crucial in the current geopolitical context, as organisations strive hard to engage their workforces & sustain their operations amidst international unrest and global economic headwinds. Furthermore, there are added pressures to maintain sustainability commitments and accelerate the transition towards renewable energy.
Leading companies have proactively responded, stepping forward to set new standards and are putting innovation to work in the name of environmental sustainability. Defying the conventional wisdom that responsible and good stewardship of the planet and profitability are at conflict with each another, they have shown how responsible changes can boost eco-efficiency and workforce engagement.
Members of the Global Lighthouse Network apply advanced technologies to enhance supply chain resilience, enhance green measures and workforce engagement while increasing productivity. The result: 66% of lighthouses made sustainability improvements by reducing consumption, resource wastage and CO2 emissions and at the same time enhanced their productivity.
The lighthouses have overcome typical challenges faced by enterprises, such as
Engaging in too many proofs-of-concept projects
Scaling happening at a very slow pace
The lack of an integrated business case for technologies
Implementing too many isolated solutions & creating
hundreds of data silos
How did they overcome these myriad challenges to achieve transformational impact and agile continuous improvement? The lighthouses prove that there is more than one way to embrace the Industry 4.0 revolution.
Innovation of the production system
Enterprises expand their competitive advantage through operational excellence. They aim to optimise their production systems, increasing the productivity and quality performance of their manufacturing operations. They start to innovate in one or a few manufacturing sites and then roll out from there and thereafter scale.
Innovation of the end-to-end value chain
Enterprises also create new businesses by changing the economics of their operations. They innovate across the value chain, offering new and improved value propositions to their customers by launching new products and services, higher level of customisation, smaller lot sizes, and significantly shorter lead times. Enterprises stay focused on innovation and transforming one value chain first, and then later scale learnings and capabilities to other parts of their business.
Key success factors in the Industry 4.0 journey
Strategy and business case: The lighthouses have a clear Industry 4.0 strategy that is tightly linked to the creation of fundamental business value. It is clearly articulated and communicated from the senior leadership, and has enterprise-wide validity so that all functions are aligned to the strategy
IoT architecture must build for scale: The lighthouses have an IoT architecture that is built for scale-up and seamless interoperability. All the data flows into one central data lake and the interfaces between applications are standardised.
Capability building: The lighthouses have an extremely strong focus on capability building. Digital academies and internal centres of innovations and smart factories allow all employees to learn the basics of new digital use cases that can create business value and most importantly a smooth and efficient way of implementing them.
In the lighthouses, the leaders act as role model for the change, they articulate a clear change story through various channels and ensure all employees feel part of the journey and are aligned to the digital strategy and vision of the organisation. Workers are actively involved in the development and deployment of the relevant use cases.
An organisation can have the best tools and processes, the best and newest technology, and tremendous resources at its disposal — but if it lacks workforce engagement, it is highly unlikely they can scale up their Industry 4.0 transformation successfully. In the last two and half years, the workforce engagement that lighthouses have achieved has been an extremely important critical element of their success. They have shown how important it is that enterprises put their workers at the heart of their efforts by creating a community of involved and committed people who have the support that helps them meet the challenge of their ever-evolving labour needs – for example, those stemming from the labour shortages exacerbated by the COVID situation and other geopolitical risks.
Lighthouse organisation further engage their workforce across 5 major and critical attributes:
Learning and development
Empowerment and ownership
Collaboration and connections
Impact and recognition
The voice of the worker
These attributes recognise and celebrate the success of their people and products while reinforcing the organisation’s culture and values These people leaders promote, incentivise, and encourage learning-focused employees who create & develop new ideas and contribute to the innovation quotient. They demonstrate that by prioritising the worker’s voice and listening to their people (for instance, through the ubiquitous digital channels and Big Data coupled with AI-driven analytics), they can understand their employees’ needs and aspirations — even those that aren’t immediately apparent —better than traditional companies do.
How can we create more lighthouse factories?
To ensure that the entire manufacturing ecosystem transitions as smoothly as possible through the Industry 4.0 revolution while avoiding increased inequality and a ‘winner-takes-all’ outcome which is not desired, public, and private leaders need to act responsibly. They have the required power to influence the outcome of the Industry 4.0 revolution and mitigate these risks with a proactive approach.
The following actions could support these goals:
Augment the operator and not replace him/her: Factories should deploy the requisite technologies that allow the human operators to focus on the most value-adding activities, where the unique human skills of decision-making, creativity and adaptability to new situations brings most value — and, at the same time, create a more attractive and empowered workplace.
Investment in capability building and lifelong learning is a must: The private and public must prepare the workforce for the Industry 4.0 revolution transition, including re-tooling and revamping of the education system & investing in training as well as lifelong learning to create a mobile workforce which can benefit from the opportunities related to the Industry 4.0 revolution.
Diffuse technologies across geographies and include MSMEs: The full benefit of Industry 4.0 in manufacturing can only be realised if complete value chains and production ecosystems are transformed, including all geographies across the world & MSMEs, which are contributing 50-60% of value add in OECD countries.
Therefore, it is important that organisations should diffuse Industry 4.0 technologies across their entire production network and include developing economies as well as suppliers of all sizes irrespective of their location. This will not only lead to improved overall results, but also ensure knowledge and insights are spread more equally.
Address climate change challenge with Industry 4.0: The world today faces a significant challenge as it relates to climate change, with a recent report from the IPCC stating that carbon emissions must be reduced by 45% by the year 2030 to keep below the 1.5°C warming. Thus, factories of the future must leverage Industry 4.0 technologies to improve their energy efficiency, enhance yield, and reduce waste and emissions and integrate circular technologies, while enhancing overall competitiveness to ensure their business objectives are met.