The answer lies in the fact that for the last 30 years innovation has been driven by advances in hardware and physical technologies, with software being seen as merely the glue that holds everything together. Today’s senior management were the pioneers of hardware driven innovation and therefore they can be forgiven for their perspective. But times are changing very quickly. More than half of the technologies listed on the Gartner Hypecycle are software intensive. Digitalisation is already a force majeure in business and consumer markets and has brought about radical change, including the emergence of software centric companies such as Uber, Airbnb and Alibaba, and the loss of companies such as Kodak.
The Fourth Industrial Revolution (4IR) is the digitalisation of industry and it’s already starting to gain critical momentum. I’ve just completed reading a book called “Machine, Platform, Crowd”, about harnessing the digital future. It starts with a look back at the impact that electrification had on US industry in the early 1900’s. At that time factories were powered by a large steam engine with a complex drive train distributing power through the plant. Electrification was a massive game changer and the market responded much in the same way that companies are responding to 4IR today. The consequence was that in the period from 1900 – 1925, fully 25% of US manufacturing industry got wiped out because they failed to adapt quickly enough. By comparison, it is recognised that the impact of the Fourth Industrial Revolution is going to be far bigger than that of 20th century electrification.
Executives who think they have time to take a wait and see approach to industrial digitalisation are making a big mistake. The fact is that it is absolutely possible to be too late to the digitalisation game. A recent report from McKinsey and the Global Lighthouse Network details the benefits that 4IR adopters are getting from digitalisation. The numbers are ridiculous: 40% increase in manufacturing efficiency, 63% increase in workforce efficiency, 30% reduction in throughput time, etc. These are market disrupting benefits, without a doubt. More specifically, a study by PWC on the impact of predictive maintenance, a single aspect of industrial digitalization, reports amongst other benefits an increase of 8% in equipment availability. Imagine that your competitor increased his efficiency by 8% and reinvested those gains in further digitalisation? Their advantage over your business would compound rapidly and by the time you noticed it would be impossible for you to catch up. Your existing margins would not support the massive level of investment required. And even if they could, it’s unlikely that your organization could move quickly enough. After all, you were slow to catch on to the significance of industrial digitalisation in the first place, so your organisation is probably laggardly by nature.