Industry 4.0: SA companies to spend R6bn a year until 2020

Ignore Industry 4.0 at your peril – PwC survey.

JOHANNESBURG – In total, companies plan to invest $907 billion annually in Industry 4.0 (the fourth industrial revolution) over the next five years, because they are aware of the impact technology will have on their businesses, and that there is little chance of survival without it. This is according to a comprehensive report from PwC on Industry 4.0, after surveying 2 000 companies across nine industries and 26 countries.

In South Africa, where 61 companies were surveyed, the figure is around R6 billion per year until 2020.

The major focus of this investment will be on digital technologies such as sensors or connectivity devices, as well as on software and applications like manufacturing execution systems. In addition, companies will be investing in training employees and driving organisational change.

Pieter Theron, PwC South Africa partner of advisory services, says Industry 4.0 involves the end-to-end digitisation of the value chain, supply chain, and finding new ways of interacting with customers.

“It is based on a variety of technological developments like the Internet of Things, mobile devices, cloud computing, 3D printer sensors and the like,” says Theron, adding that it is how those various technologies are used by companies to revolutionise their own business models that is most important.

Christoph Hagmann, partner within the technology consulting division at PwC Germany says companies need not develop technologies themselves, but rather find the right partners to collaborate with in order to improve their business offering or efficiency. This, he says, is a much cheaper endeavour than research and development in its traditional sense and can bear significantly more fruit.

“Look at Discovery using Uber to deliver flu vaccines,” says Hagmann. “Those kinds of investments are not necessarily significant. If you look for a partner within your eco-system, that already has a tool that can be used,  you can reduce your costs significantly. And it’s a very low investment.”

On average, companies expect the implementation of Industry 4.0 initiatives to reduce their operational costs by 3.6% per annum while increasing efficiency by 4.1% annually. Meanwhile, companies believe they will see a return on investment within two years or less, and just over a third of companies anticipate a longer timescale of three to five years, but very few think that it will take any longer than five years.

In South Africa, the current level of digitisation and integration is expected to rise from 27% to 64% within the next five years. And respondents expect the proportion of capital expenditure that will go towards digital operations solutions to go up from 5.2% 6.8% over the next five years.

Digitisation is not IT

Among the main barriers to digitisation, was that there was a lack of digital culture and training and a lack of talent. But Hagmann says that, in his opinion, this is only an excuse. He believes that, except for data analytics, most companies will have the people who want to and can drive digital initiatives, even if they are currently in a different department.

The report finds that nine out of ten companies plan to expand their digital portfolio. However Hagmann believes that the number may have been slightly inflated, because his engagements with some of the respondents revealed at least a third of them were uninformed on what digitisation actually meant for their own organisations. He says many people still think that digitisation is simply expanding the scope of their IT departments.

Says Hagmann: “The key step is for the board of a company to understand that this is a combination of business and IT. I actually don’t like the separation of business and IT because, in most of the areas where digitisation plays a role, it’s not about IT. It is business that needs to come up with the idea and IT must only provide the support in order to implement them.”

South African respondents also raised concerns around cyber security breaches (53%), damage to company reputation and loss of trust due to data loss (47%), and liability risks through data loss (40%). Other issues such as loss of IP and violation of regulation and laws on data security or data privacy are on the radar too.

Blueprint for digital success

Theron says another major barrier to entry, particularly for PwC clients, is that there is no clear digital operations vision or support for it within the business. When companies embark on digitisation they are often experimenting without having a clear plan of what they want to achieve.

Theron suggests companies be clear on what they want to achieve in the business. “In a mining company, the major driver is low-cost improved efficiency, and maybe a consumer product company would like to increase sales. Once you have established what your business objectives are, then you can focus your efforts along those lines.”

Hagmann explains that postal service company Royal Mail in the UK has a pilot programme, where it has put sensors in the mailbox that lets consumers know that there is something in the box.

“So you only need to drive to that specific location if the sensor is giving you a signal that there is something inside. It’s a great application particularly in rural country areas where one can be a long distance away from the mailbox.”

Although companies worldwide are pressing ahead with Industry 4.0, the study shows various regions focus on different objectives. Corporate groups in Japan and Germany are using digitisation above all to increase their efficiency and product quality. In the US, the tendency is emerging to develop new business models with the aid of digital offers and services, and to provide these products and services digitally as quickly as possible.

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