Industrial digitization in light of the pandemic

Global free trade was already under pressure from the US-China trade war. The pandemic has made it even more apparent to many countries that they are dependent on distant, politically sensitive, low-cost countries for goods that have suddenly become critical to their health systems, such as masks and ventilators. The crisis is causing both countries and companies to reevaluate their dependence on long supply chains. This is likely to create opportunities for "reshoring" or "nearshoring" the production of a wide range of goods. In particular, those that are believed to be of strategic importance in light of a new economic reality. But for reshoring or nearshoring to be possible, the cost of local production must be significantly reduced.

This is the goal of the Fourth Industrial Revolution (4IR), the digitization of industry. 4IR potentially provides the means to reduce production costs and improve efficiency to an extent that makes reshoring feasible. A recent report by McKinsey and the Global Lighthouse Network states that companies that have implemented 4IR tools have seen benefits including 15 to 30 percent improvement in labor productivity, 10 to 30 percent increase in throughput, 30 to 50 percent reduction in machine downtime and 10 to 20 percent reduction in quality costs. The ability to take advantage of these benefits will be vital to weathering the years of economic turbulence resulting from the Covid-19 crisis and to seizing the opportunities that will undoubtedly arise.

The key to taking advantage of 4IR is dedicated leadership and management action. Compared to its creation, the implementation of industrial digitalization is relatively easy. Experience shows that many manufacturing companies have bottlenecks that can be quickly resolved by a small dose of digitization. Quick wins are often possible in the space of three months. Such a short-term success generates enthusiasm within an organization to tackle the next bottleneck and leads to pragmatic and efficient growth of digitization. Often the biggest bottleneck for industrial digitalization is taking the first steps. The differentiating factor between companies that are successful and those that are not (yet) is dedicated leadership from the top.

Specifically, "committed leadership" means that executive management must believe in the benefits of digitization before proving the business case within their own organizations. When evaluating a digitization proposal, it is extremely difficult to predict the specific benefits to a company. Companies that lag behind or struggle with digitization are often driven by leadership that bases its decision-making on business case evidence. As a result, the organization is limited in both the adoption and deployment of 4IR tools and the resulting benefits. Experience shows that when leadership believes in digitization before there is specific evidence of its benefits, adoption and deployment is more effective and the benefits, both expected and unexpected, become apparent more quickly.

Another perspective is that the pandemic will lead to a disruption of markets on a scale that dwarfs that of the economic crash of 2008. Weak companies will lose to the strong, slow companies to the smart. In the resulting shark-fest, speed, agility and the ability to deploy resources efficiently will set the winners apart from the losers. There will be no time to make decisions based on internally developed evidence. Leadership during this crisis is about making decisions based on experience and belief. There is enough general evidence of the benefits of industrial digitalization for business leaders to believe in and commit to it, especially in light of the current crisis.

That companies now face exceptional challenges is a given, and exceptional measures will be required before a new economic equilibrium is achieved. For industrial companies, digitalization is a sure way to create a leaner, more efficient organization capable of responding quickly to or driving market changes. Investing in 4IR is a sure way to avoid wasting a good crisis.