The Digitization of Manufacturing: The Fourth Industrial Revolution to Come

In my last blog entry – The Future of Work in the Next Economy – I wrote about how digital technologies will redefine what it means to be an employer, an employee and a customer in the next economy.

Now I do not claim to be someone who has extraordinary insight of what lays ahead. I do not bill myself as a “futurist.” Still, I think it is safe to say that computer technology is now viewed as a general technology, ranking in transformative importance to that of steam power, electricity and the internal combustion engine. This is life changing stuff.

A Wild Ride Ahead

As I write this, I am looking at the cover of Forbes Magazine, delivered to me today by mail. It features the image of Sundar Pichai, the new chief executive officer of Google Inc.

Beside Mr. Pichai’s image, in small print, it says: “The Freshman CEO bets the company on A.I.”

The big headline in all cap letters on the magazine’s cover is “GOOGLE’S NEW SUPERPOWER,” with a smaller type subhead, “The search giant’s bold move to reinvent every device on the planet – including you.”

It is the “including you” part is that so fascinates me. I have not read the story yet, but I most certainly will, even if I kinda, sorta suspect what it is going to say.

Based on the cover and what little I know, this article will say that under Mr. Pichai’s leadership, Google, with a market cap of a half a trillion dollars, intends to push the digital envelope in such way that artificial intelligence will transform business and how we live our lives.

Are most of us going to know Mr. Pichai’s name 10 or 20 years from now? I have no idea. But I do suspect that Google (and other tech companies) will be taking us on a wild ride that we will long remember.

The Fourth Industrial Revolution

The term “Industry 4.0” or fourth industrial revolution was first used in 2011 at the Hannover Fair in Germany, referring to the computerization of manufacturing and the creation of the “smart factory.”

Some people believe that we are just now entering in the fourth stage of an industrial revolution, characterized by cyber-physical systems that communicate and cooperate with each other and with humans in real time.

The theory goes that the first industrial revolution was marked by the mechanization of production using water and steam power. The second industrial revolution introduced mass production with the help of electric power.

Then came the third phase, the digital revolution or information age, with the adoption and proliferation of computers and digital record keeping that continues today.

And here we are today just entering the fourth industrial revolution, linking cyber-physical systems, robotics and sensor networks to physical elements to dramatically increasing the adaptability, autonomy, efficiency, functionality, reliability, safety, of the manufacturing process.

Making Things Smart

This is about the “internet of things” or IoT, a network of physical devices that collect and exchange data via software, sensors, and actuators, expanding internet-connected automation into a plethora of new applications.

Industry 4.0 will make possible smart factories, smart grids, smart homes, smart (autonomous) cars, and even smart cities, all identifiable through embedded computing systems that interoperate within the internet.

McKinsey Global Institute predicts that the annual economic impact of operations and equipment optimization through the use of IoT will range between $1.2 trillion and $3.7 trillion in 2025.

To be sure, Industry 4.0 will be about an incredible rise in data volumes and computational power and connectivity. It will be about analytics and business intelligence capabilities. It will be about advances in human-machine interaction and transferring digital instructions to the physical world, such as advanced robotics and 3-D printing.

Will People Adapt?

The big question that looms is will people adapt? I think that it is safe to say that some will and some won’t. The same holds true for companies and even communities. Those that do not adapt will fade way.

Many of the companies that I have served in a consulting capacity have been manufacturers that need my help in finding an optimal location from which to set up future operations.

Many of the communities that I have served in a consulting capacity have been dependent on manufacturing, whether it be keeping it, growing it and/or attracting it.

But the fact remains that traditional manufacturing business models are changing under Industry 4.0 and that will have huge effects both with companies and communities. This is largely due to software, digital platforms and cloud storage, which opens up all sorts of new opportunities.

More Companies Responding

U.S. manufacturers are responding. They have invested an average of 2.6 percent of their annual revenue in digital technologies in the past two years, according to a recent report by PwC.

In short, these manufacturers believe algorithm-based decision will allow them to conduct everything from pricing to product planning to supply chain management and research and development more efficiently.

Their investment in digital technologies is expected to increase to almost 5 percent of revenue in the next five years, an estimated $350 billion, according to PwC.

Manufacturers will not only have to be thinking about replacing industrial equipment, but they will also be on the hunt for the brightest software developers, the smartest programmers and engineers, and the most creative designers.

Workforce Initiatives on the Local Level

It is here where cities and states can take a lead role. (I give no hope to a dysfunctional federal government where gridlock is the norm.) Developing better training and apprenticeship initiatives on the local level through public/private partnerships would seem to be the key.

This is what Germany, with a vibrant manufacturing sector, does so well. This is what the United States can so improve on.

The truth is that the next phase in the digitization of the manufacturing sector will require fewer people working on factory floors, but there will remain a great demand for those people who have data and analytics skills. Those will be the ones manning the smart factories of the future.

The United States already is a leader in software development, and I am of the belief that this country can and will make the transition to Industry 4.0 if take a bottoms-up strategy on the local level.

How Many Indeed

In the course of my work, I have been in communities, both urban and rural communities, where there is little or no educational opportunities being offered to develop digital talent. Indeed, I have been in some rural places where the principal vocational program being offered was cosmetology.

One frustrated manufacturing plant manager, who sat on the board of a community college in a small town, said to me, “just how many cosmetologists do we need here?”

So a digital divide truly does exist in this country, not just for individuals but for communities, too. This is something that we can fix. Actually, this is something we must fix if the U.S. is to remain a manufacturing powerhouse in the world.

I’ll see you down the road.

Postscript: I will be on a long road trip east of the Mississippi in late July and early August and will be available to visit and speak in certain communities. See “Clifftop or Bust!”  for more details.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a location advisory and economic development consulting firm based in Dallas. He can be reached at dbarber@barberadvisors.com or at 972-890-3733.  Mr. Barber is available as a keynote speaker.

The Future of Work in the Next Economy

Not so long ago, “computer” used to be a job title for a person who added long rows of numbers.

Now it’s a machine, born from digital technology that is as consciousness changing as electricity and the internal combustion engine.

With no end in sight as to the advances that will come, digital technology is rapidly upending business models, companies, and entire industries. No job is immune to disruption. Every company, every organization, and every person must adapt. These are no ordinary times.

Indeed, I’m convinced we are still in the early stages of a new age, more profound than that of the Industrial Revolution. Now there is a lot of muddy thinking on the shape of things to come, and I am certainly not exempt.

But there are strong indicators that the changes currently brewing will be sweeping, as technology alters the structure of companies and the future of work.

A World Connected

That we all are moving toward a world where everything that we can imagine is literally getting “connected” is becoming more clear. As a result, we will see, heck, we’re already seeing, a restructuring of the traditional relationships between workers, resources, and customers to one another with low transaction costs.

This connectiveness, made possible by digital technologies, is the basis for the gig economy, the platform economy, the networked economy, the sharing economy, the on-demand economy, the peer economy, the bottom-up economy.

I think of it as the next economy, and I have been speaking about it to various groups, including the I­-70/75 Development Association in Dayton a few weeks ago.

Uberisation

Despite the roadblocks being erected by governments in this country and around the world, “uberisation” – using computer platforms to facilitate peer to peer transactions between clients and providers of a service – will continue, bypassing the role of the traditional corporations.

Smart companies, of course, will adapt. Walmart, the world’s largest retailer, plans to begin testing last-mile grocery delivery through Uber in Phoenix and Lyft in Denver in the coming weeks.

Last week, I attended an economic development conference for two and half days, and while there were many good topics discussed, there was no virtually no talk on the evolving next economy, the future of work, and how companies like Uber, Airbnb, and countless others operate.

Transform or Fade Away

Too many economic developers — those people charged with aiding and abetting the growth of a local economy — think solely in terms of industrial recruitment, landing that big manufacturing plant, when they should be giving at least some thought to how digital technologies are reshaping business and society.

Can economic developers influence and even grow the next economy in their respective communities? I think so, but only if they adapt. Again, no job is immune. Every organization, be it a company or an economic development organization, will have to transform itself or fade away.

Freelancing in America

Consider for a moment that as of 2015, 53 million Americans work as freelancers. Freelance workers and independent contractors earn 17 percent more per hour than conventional full-time employees.

In the near future, companies plan to hire more freelancers than full-time employees because they can save 30 percent more on payroll.

Well before the term “gig economy” was used, I was a participant in it. In my role as a consultant, I am typically engaged from three to six months to perform a particular task or tasks. That could be a location analysis project for a company or a strategic/action plan for an EDO.

According to Upwork’s 2015 Freelancing in America Research, one in three Americans freelanced in 2014, 60 percent of those freelancers are choosing to do so rather than forced out of necessity.

Geography Does Not Matter

That gives businesses, big and small, greater access to a more flexible and highly available talent pool that is not restricted to a specific geographical area. I have clients that are more than 1,000 miles away from me. It matters not if I take a leadership role and bring value to them.

Again, and this bears repeating, this is made largely possible because of digital technologies — having a computer, having a smartphone, having an assortment of apps and software, having the internet, having an active presence on social media.

Spurred by a new digital machine age, the nature of employment will fundamentally change and that virtual companies will exist that bring specialized teams together to work on projects and then disperse. That’s pretty much describes the business model of my consultancy right now.

Witnessing the End?

Former CISCO CEO John Chambers predicts, “Soon you’ll see huge companies with just two employees – the CEO and the CIO.”

Now that might be a stretch, but then again it might not.

Certainly, I believe that the employing of disruptive digital technologies have played a role in the demise of many companies already, while giving birth to others.

Consider for a moment that the average life span of companies in the Standard and Poor’s 500 has declined from 61 years in 1958 to about 20 years today. If Mr. Chambers is right, and my hunch is that he is, the concept of the modern corporation as we know it today will come to an end in the decades ahead.

Those Left Behind

But here is the scary part, and one that I cannot help but think about – some people will be left behind.

Workers who lack digital skills are increasingly being bypassed by the next economy, and I don’t yet see a broad set of solutions that are addressing that. A community college teaching people welding skills might be well and good for now, but what happens when most of the welding is done by robots?

Recent McKinsey research finds that up to 45 percent of the tasks performed by U.S. workers can be automated by currently existing technologies, and that about 60 percent of occupations could have 30 percent or more of their activities automated.

Many jobs and business processes will be redefined. Our institutions and policies will need to help people acquire new skills and navigate a period of dislocation and transition.

“By 2040, our definitions of ‘work’ and ‘job’ may be very different,” said Bo Cutter, senior fellow and director of the Next American Economy Project at the Roosevelt Institute.

“Changes in the economy could force average workers to become entrepreneurs, making use of new technologies and services to acquire skills and opportunities while taking on more responsibility for their own health care and retirement. But if they can manage the transition, they will be able to find more work even as more jobs become automated.”

Lifetime Learning

In the next economy, people will have to aim for jobs least likely to be overtaken by robots and automation. They will have to commit to a lifetime of updating their skills by taking extra courses in classrooms and online. Lifetime learning and retraining will have to be the norm.

Ironically, a 40-hour job with fixed hours may make it difficult if not impossible to take retraining classes or obtain a new degree or certification, depending on the employer.

A gig economy worker will not have that restricting tether and is in a better position to rearrange his or her calendar to gain new life and occupational skills.

Governments, for their part, need to create a climate where entrepreneurs can flourish, because new ventures create new jobs. There are indicators that entrepreneurship in this country is on the decline, which is not good.

I have merely scratched the surface in this blog entry about the next economy. which will redefine what it means to be an employer, an employee and a customer. Stay tuned as I hope to write and speak more about it.

Just know that a brave new world awaits.

I’ll you down the road.

Postscript: I will be on a long road trip east of the Mississippi in late July and early August and will be available to visit and speak in certain communities. See “Clifftop or Bust!”  for more details.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a location advisory and economic development consulting firm based in Dallas. He can be reached at dbarber@barberadvisors.com or at 972-890-3733.  Mr. Barber is available as a keynote speaker.