What is the role of digital transformation in industry in times of covid-19?

Digital Transformation
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Even though several months have passed, the world continues to fight the Covid-19 pandemic. Mainly, we are all concerned with our health, family, friends and colleagues; the ability to access the food and supplies we need; our job security; etc.

Looking beyond our most personal and direct concerns, we can see how all manufacturers have been and are affected by this crisis in some way and for many this represents an existential threat. Some of them have stopped producing altogether, some have seen a very sharp reduction in their demand and others have experienced a large increase in demand that they have not been able to supply.

The reduction of workforce in manufacturing plants will not only mean layoffs but will also lead to cutbacks in investments destined for R&D, which have been fundamental on the path to the digital transformation of these companies themselves, as well as of their suppliers. All this, without forgetting that the solutions to this problem should not be only local, but global[1].

How is the coronavirus affecting Industry 4.0 and digital transformation?

world_GPD
Global Gross Domestic Product (GPD) growth, 1995–2020. Source: United Nations Industrial Development Organization Investment and Technology Promotion Office, Tokyo.

The COVID-19 coronavirus is directly and indirectly impacting everything that has to do with digital transformation and Industry 4.0. Before the crisis, Industry 4.0 was an area of great interest for many manufacturers. It was an exciting topic with huge potential benefits and was widely regarded as a “positive” and forward-thinking topic. Beyond that, we also have to consider the broader economic impact and the unknown amount of time it will take for things to return to some level of normalcy.

It is clear that Industry 4.0 has tools that can help companies get out of this context of crisis in a good position, such as artificial intelligence, data analytics, the Internet of Things, etc., but it is vital not to ignore that the Coronavirus is already having an evident impact in the sectors most linked to Industry 4.0 and that have been tractors of digital transformation in the industry in recent years. Therefore, we must not lose sight of the direct or indirect effect that COVID-19 can have on the different industrial sectors.

Could the approach to Industry 4.0 have changed due to the pandemic?

However, despite everything discussed above, our view is that Industry 4.0 is not only as relevant as it was before the global Covid-19 emergency but is actually much more relevant for the future.

At this point, it seems insensitive and inappropriate to discuss Industry 4.0 in the way it was discussed before the crisis. Pre-Crisis 4.0 industry business drivers focused on competitive advantage, cost reduction, productivity, sustainability, and innovation. The goal was to make well-run companies perform better. The focus for many manufacturers now is survival first and foremost, and beyond that, damage limitation[2].

optimism_covid
The expectations of economic recovery after the covid-19 by countries. Source: McKinsey & Company

The immediate financial impact on manufacturers is already resulting in a huge reduction in nonessential expenses and investments. Many Industry 4.0 solutions that are currently being considered or implemented fall into the category of non-essential business activities[3].

However, it is not all bad news … There are studies that analyses the possible effects of Covid-19 in the industry and the economy, and the possible recovery factors in the industry and the economy.

Thus, it is possible that the crisis derived from the pandemic and the abrupt stop of economic activity has caused a series of changes in consumption patterns, in the industrial fabric itself, as well as a shift in the global economic balance, which are the following[4]:

Consumer: there is a trend towards consumer digitization, a drift towards a 4.0 consumer. The arrival of the Covid-19 crisis has meant an acceleration in digital consumption that on an annual time scale could be perceived as a discontinuity. Online consumption has increased between 25% and 50% during confinement, which has accentuated the crisis in traditional retail.

Industrial fabric: companies that overcome short-term financing difficulties and take advantage of long-term digitization will be able to lead the transformation of the sector. The current production model is highly dependent on the service sector and the current situation should constitute an incentive to seek a more resilient production mix.

The balance between globalization and relocation: it is expected that the trend towards globalization will weaken and therefore the relocation of means of production will grow.

Compromise between privacy and connectivity: personal connectivity will increase and some barriers to accessing personal data will be reduced. In this crisis, the use of geolocation and analytics to track contagions has been a determining element in the success of some countries in effectively controlling the pandemic.

Forms of work, digital skills and attitude towards digitization: telecommuting is not simply working from home. It is important to define a digital label, which prevents falling into dynamics in which the virtualization of work leads to a loss of the structures and time and personal balances of the worker.

Therefore… Is Industry 4.0 still relevant at this time?

If relevant, why and what role does it have to play in the future?

The short answer is yes, I think Industry 4.0 is not only as relevant as it was before, I think it is actually much more relevant to the future. However, the goal for all manufacturers should be to overcome the survival and recovery phases and reach the business-as-usual phase in the new post-crisis paradigm, as soon as possible and at the lowest cost. In defining the operating model for this phase, they will take into account the lessons learned from the crisis and seek to build a more resilient and agile business.

In future posts, we will be continue writing about technology and business trends for enterprises. Furthermore, we recommend consulting the following literature to continue your digital transformation journey:

The objective of this blog is to provide a personal vision of how digital transformation trends will be impacting in our daily activities, businesses and lifestyle.

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[1] https://www.podcastindustria40.com/transformacion-digital-coronavirus/

[2] https://www.visualcapitalist.com/consumer-spending-impacting-industries/

[3] https://www.elhospital.com/temas/Cual-es-el-rol-de-la-Industria-40-en-tiempos-del-COVID-19+134206

[4] http://www.automaticaeinstrumentacion.com/es/notices/2020/07/la-covid-19-marca-el-inicio-definitivo-de-la-industria-4.0-46837.php#.X8Clus30mUl

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By Fernando Castañolinkedin2

Senior researcher, his research interest includes Smart-sensor, Industry 4.0, Internet of things, and cyber-physical systems.

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