How can a manufacturing company organize its operating model to successfully execute Industry 4.0? Are there any good examples? This, and other topics, was covered by an expert panel during a manufacturing event in Stockholm.
The manufacturing industry constitutes the backbone of Sweden’s economy: 77 percent of Swedish export comes from the industrial sector and the industrial service sector. Our jobs and welfare depend on this, and without a competitive industrial sector, our country wouldn’t look the same.
As we know though, there is no status quo; disruptors are lurking behind every corner. Not that long ago, Nokia and Ericsson used to be among the world’s greatest mobile phone companies, a painful reminder of how quickly markets change. To put it straight: If we want our industrial sector to continue contributing to our economy, Industry 4.0 initiatives must start delivering the promised value and benefits. We simply can’t afford anything else.
Project centricity or product centricity?
In a recent blog post, Why haven’t manufacturers realized the value of Industry 4.0?, we discussed five areas manufacturers need to take into consideration to realize business benefits from Industry 4.0 initiatives. Together with representatives from Electrolux and AWS, we have now continued and deepened this discussion: How do you organize a business to execute the Industry 4.0 initiatives?
Let’s start with project centricity vs. product centricity. Traditionally, the project-centric approach is used to push a team towards a set goal within a certain framework. This has historically served us well in a context with a slower pace and more predictability.
Now, with technological advancement happening at breakneck speed, customer demands are no longer static and keep changing as technology evolves. The product-centric approach is an answer to that. According to a Gartner study, 85% of organizations have already adopted or will adopt a product-centric application delivery model by 2022.
Constant iterations and speedy innovation
The key idea behind the product-based model is to measure your success based on business outcomes rather than delivering pre-defined scope and profitability. You constantly iterate, learn and improve.
Let me give you a few examples. Spotify uses is a people-driven approach for scaling agile and this has helped the company increase innovation and productivity. Innovation at the development level is organized in small autonomous, self-organizing and self-managing teams (squads) that constantly test, release and optimize their products.
How can enterprise agility be applied in a manufacturing context? A great example is Tesla. The car manufacturer is so disruptive because its CEO Musk considers the car a hardware platform that runs the software rather than the other way around. Without updating the hardware of each model, Tesla can easily iterate and improve each model’s software, e.g., the navigation system.
Reduced cycle times are key
What all this boils down to, are different methods to reduce the cycle times for product development. With shorter cycle times, and more frequent testing, you can gather more data to learn from and deploy changes faster – all to accelerate innovation.
Another example of this is SpaceX. By combining modularization with reduced cost of change, the company has created optimal conditions for cycle time excellence. Its operating model relies on modularization where the rockets are compiled by different components which makes it easier, faster and more cost-effective to update its products.
Previously, we have also touched upon Scania and its modularization approach that gives the benefit of volume, variation, resource efficiency, profitability and customer value.
Major changes ahead – are you ready?
What does it take to get there then for a traditional company? While Industry 4.0 (think AI, IoT, digital models, etc.) is an enabler for shorter cycle times and lower cost of change, change is easier said than done; it requires substantial restructuring and changes in organizational vision.
When the value is created in value streams from the organization, old hierarchies are turned upside down. It takes a new type of leadership, where executives ditch the command-and-control model for enabling and empowering the teams.
Not all companies are ready to embark on this journey. What about yours? A good first step to evaluate your own company’s future-readiness is to try the free Economist/Cognizant tool.