White Paper Fourth Industrial Revolution Beacons Of .

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White PaperFourth Industrial RevolutionBeacons of Technology andInnovation in ManufacturingIn collaboration with McKinsey & CompanyJanuary 2019

World Economic Forum91-93 route de la CapiteCH-1223 Cologny/GenevaSwitzerlandTel.: 41 (0)22 869 1212Fax: 41 (0)22 786 2744Email: contact@weforum.orgwww.weforum.org 2019 World Economic Forum. All rightsreserved. No part of this publication may bereproduced or transmitted in any form or by anymeans, including photocopying and recording, orby any information storage and retrieval system.This white paper has been published by the World Economic Forum as a contribution to a project,insight area or interaction. The findings, interpretations and conclusions expressed herein are a result of a collaborative process facilitated and endorsed by the World Economic Forum, but whoseresults do not necessarily represent the views of the World Economic Forum, nor the entirety of itsMembers, Partners or other stakeholders.

ContentsForewordExecutive summary1. Lighthouses: Sites Embracing the Megatrends of the Fourth Industrial RevolutionSeeing the light: A radical leap forward for Fourth Industrial Revolution front runnersIdentifying lighthouses2. Overview of the Global Lighthouse Network3. Understanding Lighthouses: Characteristics, Differentiators and Success FactorsLighthouse characteristicsInjectors of human capitalIndustry leaders that are resetting benchmarksOpen innovators and collaboratorsLarge and small companiesFrom emerging and developed economiesHigh impact with minimal replacement of equipment4. How Do the Lighthouses Achieve Impact at Scale?Charting a course for scale: Two routesValue drivers for impact at scaleScale-up enablersThe current state of lighthousesThree tools to scale Fourth Industrial Revolution technologies in production and overcomepilot purgatory5. Successful Deployment at Scale: A Close Look at Two LighthousesProcter & Gamble (P&G) Rakona, Czech Republic: Growth through cost leadershipSite historyAn inclusive visionTop five use-casesAchievements, impact and the road aheadRold Cerro Maggiore, Italy: Fourth Industrial Revolution implementation in SMEBefore and after: Transformational changesKey enablersTop five use-casesAchievements, impact and the road ahead6. Call to ActionWhy act?The Fourth Industrial Revolution is essential to breaking out of productivity stagnationThe world is under stressThe Fourth Industrial Revolution presents multifaceted opportunities and challengesWhat needs to be done?Augment, instead of replace, the operatorInvest in capability-building and lifelong learningDiffuse technologies throughout geographical areas and include SMEsProtect organizations and society through cybersecurityCollaborate on open Fourth Industrial Revolution platforms and handle data carefullyAddress the climate change challenge with Fourth Industrial Revolution 0202020212222222223242424242424242425252525Fourth Industrial Revolution: Beacons of Technology and Innovation in Manufacturing3

ContentsWho needs to act?Organizations with a lighthouseOrganizations without a lighthouseTechnology providers, start-ups and universitiesAn opportunity to form a new, global learning platform for the Fourth Industrial RevolutionAnnex: A Look Inside the Lighthouses – Inside Perspectives1. Value DriversBig data decision-makingBosch Automotive in Wuxi, ChinaChristophe Chapdelaine, Senior Vice President Manufacturing and Quality Management,Bosch Automotive Diesel Systems WuxiBabur Ozden, Founder and CEO, MaanaDemocratized technology on the shop floorNatan Linder, CEO and Co-founder, Tulip InterfacesMelonee Wise, CEO, Fetch RoboticsAgile working modeFast Radius in Chicago, USALou Rassey, CEO, Fast RadiusBosch Automotive in Wuxi, ChinaMinimal incremental cost to add use-casesMicrosoft’s manufacturing site in Suzhou, ChinaDarren Coil, Director of Business Strategy, MicrosoftMelonee Wise, CEO, Fetch RoboticsNew business modelsEuropean consumer electronics manufacturer (company name undisclosed)2. Scale-up EnablersFourth Industrial Revolution strategy and business caseBMW GroupChristian Patron, Head of Innovations and Digitalization in Production System, and MarcelEigner, Strategy Digitalization and Smart Data Analytics Production System, BMW GroupIoT architecture built for scale-upHewlett Packard EnterpriseChen Linchevski, Co-Founder and CEO, PrecognizeCapability-building through acquiring new skillsTata Steel in IJmuiden, NetherlandsHans Fischer, CEO, Tata Steel in EuropeDaiane Piva, Improvement Consultant Energy Efficiency, Tata SteelWorkforce engagementSchneider Electric in Le Vaudreuil, FranceLilian Aube, Le Vaudreuil Plant Union Representative, Schneider ElectricSophie Grugier, Senior Vice President, Global Supply Chain Operations, Schneider ElectricContributorsProject TeamEndnotes4Fourth Industrial Revolution: Beacons of Technology and Innovation in 92930303030323232323333333434353535353536373738

ForewordEmitting powerful light that pierces fog and darkness, lighthouses are vital to maritime navigation. Theyserve as beacons and guides, ensuring safe passage for shipping. At the World Economic Forum’sAnnual Meeting 2018 in Davos-Klosters, Switzerland, leaders from public and private organizationsdecided to seek out manufacturers in a broad range of industries who are leading the way in FourthIndustrial Revolution innovation. Connected by the World Economic Forum’s platform, these modelfactories – recognized as Fourth Industrial Revolution “lighthouses” – are beginning a unique learningjourney that will benefit the production environment.Helena Leurent,Head of Shapingthe Futureof AdvancedManufacturingand ProductionMember ofthe ExecutiveCommittee, WorldEconomic ForumEnno de Boer,Partner andGlobal LeaderManufacturing,McKinsey &Company, USAManufacturing has experienced a decade of productivity stagnation and demand fragmentation;innovation is long overdue. Organizations that have taken Fourth Industrial Revolution innovation toscale beyond the pilot phase have experienced unprecedented increases in efficiency with minimaldisplacement of workers. However, most companies appear to be stuck in “pilot purgatory”.Widespread adoption of Fourth Industrial Revolution technology at scale, through the combined effortsof companies and governments, can lead to a sizeable increase in global wealth production, benefitingpeople throughout society.The Fourth Industrial Revolution in manufacturing remains a top priority for many leaders of privateand public organizations. It is having an enormous disruptive impact on value chains, industries andbusiness models. With one-third of the total economic value of the internet of things (IoT) comingfrom production,1 factories are the centre of gravity of the ongoing revolution. While manufacturingrepresents 16% of global GDP,2 manufacturing industries account for 64% of global R&D spend.3However, there is potential for worker displacement if changes are not handled properly. Strengthenedcollaboration among stakeholders is needed to understand unexpected consequences and managethe transition.“Lighthouses” are demonstrators of digital manufacturing and globalization 4.0, and exhibit all of theessential characteristics of the Fourth Industrial Revolution. Moreover, they confirm the hypothesis thatthey have the potential to generate new economic value, driven by improvements in the full spectrumof production value drivers: resource productivity and efficiency, agility and responsiveness, speedto market and customization to meet customer needs. Transforming existing production systems,innovating value chains and building new business models with disruptive potential for establishedbusinesses can create value.Lighthouses highlight the global nature of production – for example, the lighthouse network includesGerman-owned factories in China and a site in Ireland owned by a US company. This shows thatinnovation is equally relevant in all geographical areas and contexts, from sourcing basic materials toprocess industries to advanced manufacturers addressing specialized needs. Furthermore, it provesthat companies of all sizes, from established global blue-chips to small local businesses with fewerthan 100 employees, can achieve radical Fourth Industrial Revolution innovation.Lighthouses value collaboration and open their doors to thousands of visitors annually, recognizingthat the benefits of this collaborative culture far surpass potential competitive threats. They can serveas an inspiration for defining a strategy, improving the skills of the workforce, collaborating with FourthIndustrial Revolution communities and managing changes from the shop floor throughout the valuechain. While they vary in size, industry and geographic location, lighthouses embody nine commondistinguishing characteristics. This white paper explores findings derived from these characteristicsand calls on industry and government leaders to act. Governments, universities, technology providersand companies are encouraged to use this unique network to navigate and accelerate the inclusivediffusion of technology.The Fourth Industrial Revolution in manufacturing presents the next engine of economic growth,ushering in opportunities to learn and embed values in a way that past revolutions could not. Theadoption of technology, guided by an inclusive vision for a better world, can yield a stronger, cleaner,global society.Fourth Industrial Revolution: Beacons of Technology and Innovation in Manufacturing5

Executive summaryMany companies are piloting Fourth Industrial Revolutioninitiatives in manufacturing, but few have managedto integrate Fourth Industrial Revolution technologiesat scale to realize significant economic and financialbenefits. The World Economic Forum, in collaborationwith McKinsey & Company, scanned more than 1,000leading manufacturers. Subsequent outreach enabledvisits to the most advanced sites and identification of thefew factories that are true guiding lights in the context ofFourth Industrial Revolution production: lighthouses.This select group of manufacturing sites represent theleading edge of adopting technology at scale. These sitesserve as beacons for the world, exemplifying the typeof production approach that can drive the next engineof global economic growth. They demonstrate howforward-thinking engagement of technology can createa better, cleaner world through new levels of efficiencyin manufacturing. Likewise, they illustrate how FourthIndustrial Revolution technology at scale can transformthe nature of work itself by engaging and improving theskills of human workers with minimal displacement.Three technological megatrends are the principal driversof this transformation in production: connectivity,intelligence and flexible automation. Front-runnerproduction sites that have embraced these megatrendsat scale have seen a step change in performance.These “lighthouse factories” have taken Fourth IndustrialRevolution technology from pilots to integration at scale,thus escaping the inertia of “pilot purgatory”, in whichmany organizations remain.Lighthouses serve as real-world evidence to dispelwidespread myths and misunderstandings posingobstacles to the adoption of innovative technology atscale. These beacons shed light on the characteristics,differentiators and success factors that realize optimalscaling.–– Lighthouses are injectors of human capital. Ratherthan replacing operators with machines, lighthousesare transforming work to make it less repetitive, moreinteresting, diversified and productive.–– These sites represent both large and small companies.Fourth Industrial Revolution innovation is accessiblenot only to large organizations but also to small- andmedium-sized enterprises (SMEs).–– Lighthouses can be found in emerging and developedeconomies. Fourth Industrial Revolution technologiesare also paying off in manufacturing environments thatbenefit from low labour costs.–– Lighthouses achieve high impact with minimalreplacement of equipment. Most were created bytransforming existing brownfield operations. Optimizingexisting infrastructure and augmenting it with newmachinery can deliver many benefits.Lighthouses achieve impact at scale in different ways. TheForum has identified two principal routes to scale by whichmanufacturing pioneers can chart their course. These routesare not mutually exclusive; rather, they can complementeach other:–– Innovate the production system: expand competitiveadvantage through operational excellence.–– Innovate the end-to-end value chain: create newbusinesses by changing the economics of operations.Lighthouses have employed five value drivers to createimpact at scale using Fourth Industrial Revolutiontechnologies. They demonstrate four distinct capabilitiesthat serve as scale-up enablers. The annex of this whitepaper provides perspectives from lighthouses that exemplifythese value drivers or enablers.The value drivers are:––––––––––Big data decision-makingDemocratized technology on the shop floorAgile working modelsMinimal incremental cost to add use-casesNew business modelsThe four scale-up enablers are:–– Lighthouses are industry leaders resetting benchmarks.They have moved beyond the continuous improvementefforts that have characterized factories for decades,instead making a change that resets benchmarks.–––––––––– They are open innovators and collaborators. Theyengage a trisector innovation system comprisingbusiness, government and the social sector, includingacademia.In addition to the perspectives offered in the annex, thiswhite paper offers an in-depth look at two lighthousesoperated by two companies that differ substantially in size.The first, Procter & Gamble’s Rakona plant, represents6Fourth Industrial Revolution: Beacons of Technology and Innovation in ManufacturingFourth Industrial Revolution strategy and business caseIoT architecture built for scale-upCapability-building through acquiring new skillsWorkforce engagement

a large multinational. The other, Rold Cerro Maggiore, isoperated by a small SME headquartered in Italy. The storyof change at each of these sites offers valuable insights intothe broad transformation occurring in the manufacturingenvironment.The World Economic Forum issues a call to action to breakout of productivity stagnation and address the significantchallenges – such as climate change, resource scarcityand an ageing workforce – the world is facing. The Forumsuggests six principle-based actions to ensure the FourthIndustrial Revolution in manufacturing delivers the maximumpositive benefit for society:–– Augment, instead of replace, the operator.–– Invest in capability-building and lifelong learning.–– Diffuse technologies throughout geographical areas andinclude SMEs.–– Protect organizations and society through cybersecurity.–– Collaborate on open Fourth Industrial Revolutionplatforms and handle data carefully.–– Address the challenge of climate change using FourthIndustrial Revolution technologies.The responsibility for action lies with both the public andprivate sectors, and the Forum encourages them toengage the network of lighthouses to be part of a uniquelearning journey. By engaging the findings and example ofthe lighthouse network, organizations and governmentscan realize the great potential that lies with the FourthIndustrial Revolution in production. Coupling this knowledgeand technology with a commitment to environmentalstewardship and social responsibility can play a role indriving the next economic growth engine towards a brighterfuture for all of society.Fourth Industrial Revolution: Beacons of Technology and Innovation in Manufacturing7

1. Lighthouses: Sites Embracing the Megatrends ofthe Fourth Industrial RevolutionSeeing the light: A radical leap forward forFourth Industrial Revolution front runnersThree technological megatrends are the principal drivers ofa Fourth Industrial Revolution transformation in production:connectivity, intelligence and flexible automation (Figure 1).Lighthouses have embraced these megatrends and theresults are compelling.Adoption of Fourth Industrial Revolution technologies atscale can have a radical impact upon organizations. A closelook at one of these three megatrends makes it clear justhow powerful this effect can be. For example, a McKinseyGlobal Institute analysis projects a remarkable gap betweencompanies that adopt and absorb artificial intelligence (AI)within the first five to seven years and those that follow orlag behind. The analysis suggests that AI adoption “frontrunners” can anticipate a cumulative 122% cash-flowchange, while “followers” will see a significantly lower impactof only 10% cash-flow change (Figure 2).This shows the importance of early adoption of technology,since companies that wait risk missing a large share of thebenefits. Company leaders who move to implementationearly, rather than waiting for decreased technology andtransition costs, will realize the greatest benefit. Thus, thelargest factor here is related to the competitive advantageof front runners, which by far outweighs the higher transitioncosts and capital expenditure related to the early adoption.4Identifying lighthousesThe lighthouses of the Fourth Industrial Revolution arethe factories that have taken Fourth Industrial Revolutiontechnology from pilot schemes to integration at scale,thus realizing significant financial and operational benefits.Qualification as a lighthouse requires meeting high standardsin four categories: significant impact achieved; successfulintegration of several use-cases*; a scalable technologyplatform; and strong performance on critical enablers suchas managing change, building capability and collaboratingwith a Fourth Industrial Revolution community.Identification of lighthouses followed a comprehensivescanning of more than 1,000 leading manufacturers in allindustries and geographical areas. Contact with more than150 of the most advanced companies yielded proposalsfrom many companies’ most sophisticated sites to beconsidered lighthouses. Site visits were carried out todocument findings, which were then presented to a FourthIndustrial Revolution expert panel of members from privateorganizations, universities and technology pioneers. Thispanel selected 16 lighthouses and recognized them as themost advanced production sites, including factories operatedby Bayer, BMW, Bosch, Danfoss, Fast Radius with UPS,Foxconn, Haier, Johnson & Johnson, Phoenix Contact,Procter & Gamble, Rold, Sandvik Coromant, Saudi Aramco,Schneider Electric, Siemens and Tata Steel (Figure 3).Myths and misunderstandings pose obstacles to theadoption of the Fourth Industrial Revolution. Dispellingthese is vital to understanding how accessible the revolutionis to organizations of all kinds. With visionary leadership,companies large and small can embark on an innovationjourney and realize the benefits of digital transformation. TheForum’s analysis of lighthouses has provided meaningfulinsights that clarify the path to successful adoption at scaleof the Fourth Industrial Revolution. These beacons of lightcut through the fog and provide clarity to organizationsthroughout the manufacturing environment.Figure 1: Key technology megatrends transforming productionConnectivityAutomates eventrecognition andtranslation fordecision-makingIntelligenceCreates links betweendiscrete network nodes,increasing visibilityFlexibleautomationIncorporatesresponse mechanisms,automation and remotemovement* Use-case: application of one or multiple Fourth Industrial Revolution technologies in a real production environment to address a business problem8Fourth Industrial Revolution: Beacons of Technology and Innovation in Manufacturing

Figure 2: Economic gains by AI adoption front runners, followers and laggards5Relative changes in cash flow by AI adoption cohort% change per cohort, cumul

Daiane Piva, Improvement Consultant Energy Efficiency, Tata Steel Workforce engagement Schneider Electric in Le Vaudreuil, France Lilian Aube, Le Vaudreuil Plant Union Representative, Schneider Electric Sophie Grugier, Senior Vice President, Global Supply Chain Operations, Schneider Electric Contributors Project Team Endnotes 25 25 25 25 25 26 .

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