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he fourth industrial revolution, also known as Industry 4.0, is not just a distant dream reserved for developed markets and industry anymore — it is real and happening today in Indonesia. Even traditional sectors such as mining, palm oil and timber are moving ahead to adopt Industry 4.0, going after the improved flexibility, productivity, speed and safety that it can bring them. In the long-term, the potential value is very compelling and offers exciting opportunities to optimize the current business and develop new ones because the deployment of Industry 4.0 is becoming more accessible and affordable.

However, as more companies are jumping head first into this new industrial age, the risk of failure is not to be forgotten. Not fully thinking through the applications and the inefficient allocation of time, money and resources can lead to disappointing impacts and prematurely halt a company’s transformation towards Industry 4.0. So what differentiates a successful Industry 4.0 endeavor and how should companies think about it to maximize their value?

By keeping in mind the four most fundamental principles concerning Industry 4.0, companies can not only go after long-term value, but also start seeing its benefits now.

Start with problems, not technology: Companies investing in Industry 4.0 must remember the Pareto principle, and with our clients in Indonesia, we have often seen this in extreme: Just 10 percent of the problems drive more than 60 percent of the value. In other words, companies should focus on solving the smaller number of problems that offer the lion’s share of financial improvement opportunities.

One of the biggest challenges in identifying the problems is being distracted by the latest technology and forgetting what the business problems are that need to be solved. All too frequently, companies implement Industry 4.0 without really taking stock of what needs to be solved. A perfect illustration of that is a client implementing a predictive maintenance solution on equipment that had never failed and was not the bottleneck in production.

A better approach is to start top-down from the biggest pain points and then match it with a bottom-up approach, taking into consideration the technologies available. Doing so also establishes the value-at-stake and can quickly determine the amount of investment that could be justified. Going through this exercise with an Indonesian manufacturer quickly knocked out one-fifth of the potential use cases and focused our efforts on the top one-third of use cases to implement first. This meant more efficient implementation and more financial value.

Reinvent, don’t just automate: In the rush to implement, companies are often seen digitizing or automating as the existing process. This often leads to automatizing waste and inefficiencies instead of identifying and resolving the underlying inefficiencies by deploying technology for a purpose. This not only proves expensive but also non-value adding.

The best solution is to adopt technology applications or behavioral solutions that aim to minimize or eliminate the root cause of various types of waste. These include overproduction and inventory, idle and waiting time that causes low productivity, expensive internal transport, over processing and defects.

When we applied, this principle at an Indonesian manufacturing company, we leveraged Industry 4.0 to measure and predict quality in the earlier stages of the production process, thereby eliminating a later production step along with the costs and waste generated by it previously.

Don’t forget about the people: Companies often focus their Industry 4.0 efforts on technology and machinery while ignoring behavioral issues that may underlie the problems they are trying to solve. Our experience indicates that the effort to unlock value from Industry 4.0 is 10 percent hardware, 30 percent software and 60 percent people and change management.

So instead of investing in sensors and control systems to monitor or improve process efficiencies, companies can also deploy modeling and simulation to better understand the basic process, take more informed decisions and reduce the need for direct control. As a result, companies will be able to identify ways to make their processes more efficient, enable their people and ultimately extract the full value of the digital solutions of an Industry 4.0 initiative.

In short, the secret to understanding root causes lie in the question: Why do certain problems exist in the first place and what is the underlying behavior that causes inefficiencies or system failures?

Consider “low-tech”, not just high-tech: In yielding to the pressure and dazzle of Industry 4.0, companies may fail to fully appreciate the costs of implementation and fail to explore alternative low-tech solutions that may be inexpensive and more efficient.

For instance, when justifying high investments in automation, companies evaluate only the direct cost savings, such as reducing the number of production line employees and only cursory review the fixed costs that the changes may require. Companies may incur incremental costs to employ technicians and engineers to operate and repair the new technologies.

It is therefore important for companies to compare high-tech solutions, such as complex 3D modeling or artificial intelligence algorithms, against simpler alternatives.

To improve their insight into costs and savings, companies should also develop a clear business case for each Industry 4.0 investment under consideration. Going through such an analysis for an Indonesian client yielded capital expenditure savings of more than 30 percent.

In conclusion, companies need to be wary of four hazards associated with implementing new technologies. These include pursuing small gains while ignoring opportunities for major returns from more promising targets, digitizing processes without addressing underlying inefficiencies, disregarding behavioral root causes of process problems, and not considering whether simpler alternatives would do the job as well or better for less money.

Winning companies must navigate through the Industry 4.0 process by keeping these four key principles in mind for competitive advantages.
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