OPPORTUNITY: Digital Business Processes and Models change the Workplace

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Christoph Plass

DIGITAL BUSINESS PROCESSES AND MODELS CHANGE THE WORKPLACE

FACTS FOR EXPERTS & DECISION MAKERSIndustrie 4.0 | 2nd Edition

In the context of Industrie 4.0, the action areas for businesses include increasing the level of automation and the development of new business models in which customer benefits are at the forefront. Industrie 4.0 leads to digital business models and processes. Based on this knowl-edge, work has to be newly defined. Changes in management and culture are the prerequisites for implementing Industrie 4.0. Rigid lines of management and strict divisions between individual departments have to be replaced by network thinking, work and management.

The fears that emerge through digitalization and Industrie 4.0 must be taken seriously. Many employees have been trained in standard-ized procedures. Now it is time to foster creativity and implement solutions directly where problems arise. In particular, “open thinking” employees are in high demand. Small teams with flat hierarchies facili-tate a start-up mentality.

In a digital world, employees will be more transparent for employers. Errors will be easily recognizable and individually accountable. Therefore, a good management culture is characterized by fairness when dealing with errors. Employees will work more autonomously, promoting independence and flexibility. Working virtually is becoming more and more important.

Education and training are changing as well. New occupations that build upon competences in “Advanced Systems Engineering“, “Indus-trial Security” and “Data Analytics” have to be established. Software development will become a basic skill for many employees.

Management requires a master plan for digitalization and the transformation process, containing a vision of a company’s own comprehension of Industrie 4.0 and a path for the future. For those who see high potential in Industrie 4.0, initiatives to develop pilots and then execute Proofs of Concept (PoC) are a part of this roadmap. We name it “Innovation Scrum”.

UNITY has developed an approach for digital transformation that can be applied to all industries.

MANAGEMENT SUMMARY

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1 INTRODUCTION 4

2 WHAT ARE DIGITAL BUSINESS PROCESSES AND BUSINESS MODELS? 9

2.1 New architectures enable digital business processes 11 2.2 Digital Business Models 19

3 EFFECTS ON THE WORKPLACE 23 3.1 Management and Culture 23 3.2 Start-ups 26 3.3 Employees of the Future 28

4 IMPACT ON EDUCATION AND TRAINING 33

5 DIGITAL TRANSFORMATION – FROM PLANNING TO IMPLEMENTATION 38 BIBLIOGRAPHY 40

ABOUT THE AUTHOR 43

ABOUT UNITY 43

CONTENTS

This article is based on a contribution to “Handbuch Gestaltung digitaler Arbeitswelten” (“The Guide to Creating Digital Workplaces”) (Springer 2016, DOI: 10.1007/978-3-662-52903-4_4-1).

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It is no longer a question if and when digitalization, including Indus-trie 4.0, will arrive in the manufacturing industry – it has already been there for a long time. Currently one is confronted with count-less solutions at various trade shows that are supposed to show that anyone is capable of Industrie 4.0. However, based on the bunch of solutions being presented, people tend to be confused, wondering what Industrie 4.0 exactly means. The term is used everywhere and appears to be the winning formula for innovation.

What led to the so-called fourth Industrial Revolution can be traced easily. Basically, the steam engine was the key technology in the first Industrial Revolution, electric power in the second Industrial Revo-lution and automation through computers was the premise of the third Industrial Revolution. It is often forgotten that the computer in production – on the shop floor – was the key characteristic of the third Industrial Revolution. Many published examples of Industrie 4.0 depict scenarios representing Industrie 3.x instead of Industrie 4.0. Therefore, digitalization had already started during the third Industrial Revolution. The core of the fourth Industrial Revolution is character-ized by the arrival of the internet on the shop floor. This is facilitated through workpieces and means of production that are digitally linked through IP addresses and the ability to communicate. The networked products and decision making processes, also known as Cyber- Physical Systems, can practically control entire value chain networks in real-time. However, not only products and means of production will be networked with each other. Essentially anything imaginable can be equipped with communication technology and networked through the Internet of Things (IoT). New services can be created from the vast quantitiy of data that has been collected through this network and communication that has already existed in the Internet for many years now. The number of things connected through the internet will increase rapidly (Fig. 1).

The results of this “internet movement” will be enormous for busi-nesses, provoking major changes. In its paper “acatech Impuls 2016”, the Human Resources Group (a forum for acatech HR Direc-

Industrie 4.0 marks the internet

entering the shop floor.

1 INTRODUCTION

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tors) determined, “We are convinced that we must redefine work in light of the digital revolution”. [aca 2016a]

There are already some industries to focus on: The situation is compa-rable to the retail industry 15 years ago, where the internet threatened companys’ established business models. Today, more than half of the German population purchases online [Esa 2015]. The internet changed the retail industry disruptively through e-commerce. Just as 15 years ago, there are still many sceptics who view the “internet movement” as the inane activity of crackpots. And like e-commerce, Industrie 4.0 creates both winners and losers. The winners in retail today are eBay, Amazon and Zalando. Industrial companies should use this market example as a warning: whoever sees the current developments as a passing hype risks the danger of suffering the same fate as Quelle and Karstadt, who did not expect the internet to have a considerable impact on their businesses. Manufacturing cannot afford to make the same mistake. The challenges and oppor-tunities that arise will not be limited to technology. The scope has expanded: Businesses are aware that digitalization is made by people for people. The customer, or user, and particularly customer benefits are the priority. Processes and business models are aligned with

Figure 1: Estimated number of devices connected to the internet worldwide in billions (ex-cluding PC’s, Tablets and Smartphones) [Bra 2014]

The Internet changes entire industries disrup-tively.

ESTIMATED NUMBER OF DEVICES CONNECTED TO THE INTERNET WORLDWIDEexcluding PC’s, Tablets and Smartphones

Automotive Sector Consumer Sector Business Sector

3,03 3,75 4,88

25,0130

25

20

15

10

5

02013 2014 2015 2020

in Billions

their needs. As opposed to the CIM movement of the 1980’s, where people imagined deserted factories, Industrie 4.0 uses a different approach involving the interaction between man and machine.

In terms of work and employment, it is particularly necessary to understand the opportunities in Industrie 4.0 and face its challenges. Many studies, such as “Work 4.0: Megatrends in Digital Work of the Future” [Tel 2015] and “The Future of Jobs” [WEF 2016], predict that Industrie 4.0 will influence and change the day-to-day work of every individual in exactly the same way as previous industrial revolutions did. Fears emerging due to digitalization and Industrie 4.0 must be taken seriously. It would be a mistake to solely observe this rational-ization as a danger. Instead, the opportunities should be recognized and utilized. The effects of Industrie 4.0 will reach all the way to socio-political levels. For example, new concepts should promote the compatibility of family and career.

At the 2016 World Economic Summit in Davos, studies were quoted that reported a net loss of jobs that would be equivalent to 5 million workers [Die Presse.com 2016]. It is understandable that these numbers cause unrest within the population. However, aside from the developments in digitalization, there are also challenges due to demographic changes. Studies show that without immigration, based on developments in our demography, there will be approximately 7 million fewer gainfully employed by 2030 and 20 million by 2050 – and this only in Germany! Net sums show that rationalization potentials are absolutely necessary in order be able to maintain the necessary gross national product in Germany. However, surveys from the Bertelsmann Stiftung [Bertelsmann 2015] have shown that 50 % of the population underestimate this effect that can be mathematically calculated, and 20 % of the population consider this problem to be exaggerated. This perception will surely cease to continue because baby boomers are currently over 50 years old and will remain in the workforce for the next 10-15 years, while companies simultaneously carry out costly early-retirement plans. Nevertheless, demographic effects will sharply increase by 2020 and then constantly take on a greater dimension. Industry must act now, as it will not be in the position to compensate the effects within a short period of time. In addition to a decrease of gainfully employed, the number of people receiving benefits will increase correspondingly. If the productive

Industrie 4.0 will change

the way each individual works.

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Finding solutions to demographic change through Industrie 4.0

share of the population is not in the position to generate a higher output, then national debt will greatly increase. Digitalization is a very promising solution here. In order to secure finances and for Germany to maintain its standard of living, innovative power and the “will to work” are absolutely necessary!

Human resources directors of German corporations have further determined:

Therefore, Industrie 4.0 and digitalization are programs necessary to counteract the previously mentioned effects. IT offers numerous options to support the workplace, for example assistance systems. Particularly in terms of work, changes have to be actively created instead of being closed to new ideas, and thus missing out on opportunities. Companies have to be open and allow freedom for experiments as flexibility will be required for digitalization. This is the only way Germany can remain a leader in the international competi-tion for innovation.

In this OPPORTUNITY, we first explain how business processes and business models appear in the era of Industrie 4.0. Then we describe what effects these have on the workplace as well as on education and training. We also show companies how they can involve their employees in the necessary process of change. Our statements are not only based on our first-hand experience in projects, but also on the results of leading research projects from acatech (The National Academy of Science and Engineering).

Companies should allow room for experi-mentation.

“A new understanding of work includes first and foremost, the openness to equally accept the very different ways that people can be “employed”. Digitalization will change all ways of working – from employee relationships to self-employment and working as a freelancer to volunteer and family work. We will not only experience shifts in meaning between these forms, but also changes in organization and management, as well as hier-archies.” [acatech Impuls 2016]

SEIZE NEW BUSINESS OPPORTUNITIES

Create successful Industrie 4.0 business models! We help you turn your busi-ness ideas into concrete business models and implement them successfully.

Find out more: www.unity.de/en/industrie-4-0/business-models CONSULTING & INNOVATION

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2 WHAT ARE DIGITAL BUSINESS PROCESSES AND BUSINESS MODELS?

In principle, digitalization is not new. The model of future-oriented corporate management [GP 2014] shows that successful companies anticipate future challenges, develop strategies and then implement processes that are supported by IT (Fig. 2). IT support and the automa-tion for which companies strive have long been topics of discussion. However, consistent digitalization has often failed due to interface problems that have led to great efforts in attempting to conduct digita-lization. The belief “Realize Network Systems” is now a paradigm shift and means that systems should just be networked through standard interfaces now and thus be able to communicate. Others have created the foundation for managed and shared services through technologies such as virtualization in cloud computing. Distributed among internet based resources, the use of data and services allow on-demand services leading to a much higher level of efficiency. “Overcapacities” can now be used better and more flexibly [Pla 2013].

Systems can com-municate and will be networked through standard interfaces.

Figure 2: The 4-Level Model of Future-oriented Corporate Management (Source: UNITY)

Does your business strategy rely upon vision (Vison of the future?)

Do processes followbusiness strategy?

Are the business processes that need to be supported de�ned?

Industrie 4.0

SYSTEMS4

PROCESSES3

STRATEGIES2

FORESIGHT1

Complex IT architectures and the complex IT rollout projects that are associated with them should be a thing of the past. This new impulse in networking is technologically driven and is positioned on the system level. Thus one could question if the model of future-oriented corporate management [GP 2014] is still valid in light of digitaliza-tion and Industrie 4.0.

Principally, the use of technologies only makes sense if benefits are created in the supporting processes and if the processes follow strategy and vision. This logic can be recognized, particularly in the start-up scene of those company founders who want to create a new business model based on a technology. In particular, young start-up companies are questioned by potential investors in regards to their business model that they want to realize because of digitalization. Only those who can show that their business model attacks other businesses disruptively, create distinguishable customer benefits, and are able to tap into significant market potential, will be able to secure investors. Therefore, the 4-Level Model is still quite justified.

In addition, IT has been seen exclusively as a cost factor in compa-nies for many years. Management often saw no justification for the high investment costs. However the benefits were rarely mentioned and the topic was only discussed when absolutely necessary. Within the scope of the 4th Industrial Revolution, IT and digitalization are synonymous with innovation, productivity and process excellence.

Therefore, we take two major action areas into consideration for companies on the path to Industrie 4.0 and digitalization. On the one hand, companies must increase both their level of automation as well as their productivity (see section 2.1 New Architectures enable Digital Business Processes). The second important aspect is the devel-opment of new business models to generate new services and, thus, new business areas and revenues (see section 2.2 Digital Business Models)

Increase the degree of auto-

mation and new business models

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2.1 NEW ARCHITECTURES ENABLE DIGITAL BUSINESS PROCESSES

Every company can bring its production up to Industrie 3.x stan-dards before it begins to introduce networked production in terms of Industrie 4.0 by achieving IT penetration and increasing its level of automation. This increases productivity and ensures the operative excellence of processes within a business.

The goal is to establish network production and value chains/networks in such a way that individualized products (batch size 1) can be realized according to the economic conditions of a mass manufac-turer, as shown in Figure 3. Production should be highly flexible and productive (up to +50 %), resource efficient as well as suitable in urban areas. Value creation processes should be optimized in real-time based upon needs. Through the use of internet technologies and the networks that result from them, customers and suppliers should be able to be integrated into value creation processes. Special structures are required in order to be able to realize this type of production, thus ensuring significant competitive advantages. [Pla 2015]

Figure 3: Industrie 4.0: Definition and Characteristics (Source UNITY and Heinz Nixdorf Institute)

Goal: to realize individual prod-ucts under the conditions of a mass manufacturer

Equipment retrieves parts and components andbrings them together „Smart Customers“ make

individual demands onproducts and services

Parts and componentscommunicate with each other and know where

they are processed

The hybrid servicepackages (product and

service) know manu-facturing steps and up

to date progress

Hybrid service packages are modi�ed based

on changing customer needs

Individual Product CUSTOMERBENEFITS

CUSTOMERORDER

Parts, Components

Information

Money

Information

Resources, tools andproducts communicate

their status andassignment among

each other

a) Vertical integration and networked production systems

Let us examine the status quo of the automation pyramid. In spite of many years of efforts to implement an integrated system land-scape (compared to CIM, etc.), the pyramid is marked by the fact that strictly hierarchical communication structures and differentiated levels still exist in most companies. Until now, integrated networking could only be accomplished from the management level to the field level with a great deal of effort (Figure 4), and this hardly indi-cates standardization. Networking beyond corporate boundaries is limited using conventional methods. With Industrie 4.0 in mind, IT manufacturers are beginning to part with proprietary software, which are the limits of their business models and have been previ-ously favored. Networking and standards are the guiding principles for the development of new architectures. Only then can connec-tions be achieved with an appropriate amount of effort from the management level (Office Floor) to operations, process and control levels as well as field levels (production systems on the shop floor).

Figure 4: The intelligent factory is continuously networked – from the management level to the field level (Source: UNITY)

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INTELLIGENT FACTORY

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These are the prerequisites for a diverse, customized and individual-ized production.

b) Horizontal integration through value-added networksProduction in terms of Industrie 4.0 (Figure 5) is needs-oriented and is characterized by a high level of flexibility and networking in the individual production facilities. There is an optimized flow of material and information along the value chain and the customer is inte-grated into it. Inventory-managed supply is replaced by continuous and on-demand supply (Smart Sourcing). Production and supply of production (Smart Planning) are self-controlled through intelligent,

Figure 5: Horizontal networking across the entire supply chain in a manufacturing network and the customer (Source: UNITY)

HORIZONTALE INTEGRATION

Pre-AssemblyPre-Processing Assembly Inspection Packaging

Cont

rol

Leve

l

Field

Leve

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INTELLIGENT FACTORY

SMART DISTRIBUTION

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CREATE A CONTINUOUS IT LANDSCAPE – FROM THE SHOP FLOOR TO THE OFFICE!

Attain the prerequisites for Industrie 4.0 through flexible, secure, enterprise-wide IT systems! We help you integrate a needs-based IT architecture into your value network.

CONSULTING & INNOVATION

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automated equipment. The integration of processes is ensured, including logistics to the customer (Smart Distribution).

The following three application areas need to be taken into consider-ation for the horizontal integration of value-added networks: ▪ Networking of production systems to form a manufacturing network ▪ Networking in terms of the supply chain and in particular ▪ Networking and inclusion of the customer in terms of its wishes as well as the supply of information regarding the status of order and delivery

c) New architecture models and processes through internet technologies

Linking and networking machines is, however, also possible through the internet (Figure 6). The strict, linear path across all levels of the automation pyramid is no longer necessary. Individual sensors or machines connecting directly to platforms in the cloud enable processes that were previously unthinkable. Data can be accessed at any time and can be evaluated, compared and processed in the cloud. The results can be sent back directly to the sensor, or machine, within milliseconds in real-time as information or as a control function.

Figure 6: Flows of Data in an IoT Platform (Source: UNITY)

LEVEL 1

LEVEL 0

LEVEL 2

LEVEL 3

LEVEL 4 enterprisedata

Predictive maintenance Augmented reality Asset monitoring

deploy

deploy

MAM

MDM

managedirectly deploy

manage

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Public CloudPlatform

Private Cloud

3rd partyAPP

APP APPAR APP

This approach is new. In order to efficiently make these connections possible, an objective of Industrie 4.0 is not to create proprietary stand-alone solutions, rather to agree upon international standards. Through these technical approaches, the challenges and the possi-bilities that employees face are new. From their experience, they are more familiar with barriers and are trained in standard processes. Now creativity is called for so that solutions can be realized where they occur, or even develop preventative approaches so that prob-lems do not occur at all. In the broadest form, machines solve their own problems without human intervention.

Examples of current applications: ▪ Condition MonitoringCondition monitoring describes the regular or permanent assess-ment of a machine or condition of a system based on defined pa-rameters such as temperature or condition. Early diagnosis is made possible by comparing status and defined limits.

▪ Real-time Data Processing Real-time data processing describes the processing of data under strict compliance of predefined temporal conditions. For example, this is used in the grasping movement of robotic arms, as damage can be caused by both early and delayed actions.

▪ DiagnosisA fault diagnosis is the determination of the cause and location of an error. Diagnostic techniques for technical systems mostly originated in the medical field and were then modified.

▪ Machine Learning Algorithms for Cyber-Physical Systems and Industrie 4.0Machine learning algorithms analyze their environment and can learn patterns, correlations, and predictive models based on their observations. Machine learning is a key technology for applica-tions such as predictive maintenance and real-time diagnosis in an Industrie 4.0 environment.

▪ Approaches to Distributed Learning Distributed learning is the solution to computational problems in decentralized software systems. With the help of distributed algo-rithms, many applications can be realized in areas such as traffic management, communication management and approaches to pre-dictive maintenance.

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▪ Predictive MaintenancePredictive Maintenance describes the preventative implementation of measures to avoid failures in a technical system. Using real-time data and learning algorithms, costs for maintenance and replace-ment parts are minimized. Data is gathered and comprehensively analyzed using software algorithms so that relevant data patterns are recognized, which then calculate decisions and initiate actions through further algorithms.

▪ Energy ManagementEnergy management describes the entirety of all planning and im-plementation measures to convert, distribute and use energy for an organizational unit (company, region). The goal is to continuously reduce energy consumption and the associated energy costs.

▪ Capacity ManagementCapacity management describes a series of techniques to manage and optimize resources. It is primarily used in production and logis-tics environments, however it can also be adapted to other indus-tries such as clinic management and bed occupancy management.

d) Integration of engineering over the entire lifecycle Capabilities of different engineering and IT disciplines are necessary to realize these types of horizontal and vertical networked architec-tures. This complexity can be addressed with systems engineering (SE) [GSS 2014]. SE offers basic methods to be able to describe and plan the integration of product and production resource planning. However, these abilities have not yet been developed in many compa-nies. In addition, companies view engineering from two perspectives: one from the engineer’s point of view, and the other from the IT point of view regarding hardware and software development.

Based on the possibilities of the Internet of Things and Services (IoTS), these perspectives need to be technologically combined. Engineering must be continuously integrated across the entire lifecycle. Linkages between products and production systems, as well as the merging of real and digital worlds are a core competence for realizing Industrie 4.0. This is how some companies change from being a product manu-facturer (mechatronics) to a software company; at least the software development competence is always becoming more important.

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2.2 DIGITAL BUSINESS MODELS

Our initial look at the retail industry shows how important this aspect is for existing and new business models when discussions about the internet bubble were still taking place in the year 2000. Fifteen years later one describes the behavior of a large, new, international player as a disruption to business models in the industry. The changes in user behavior fundamentally disrupt business models: From bookstore to eBook ▪ From record store to streaming ▪ From Yellow Pages to market place ▪ From taxi to ride sharing

Most notably, platforms have been created that do not have any assets, such as: ▪ Google, founded in 1998, a search engine dominating the world-wide market without its own content

▪ Instagram, founded in 2008, the photo platform without its own photos

▪ Twitter, founded in 2006, news service without its own news editors

▪ Facebook, founded in 2004 as a social network, is the largest media company today without self-produced media content

▪ YouTube, a video portal founded in 2005, and Netflix, founded in 1997 as an online video rental store are the largest film distributors today without their own film studios

▪ Airbnb, founded in 2008 in California’s Silicon Valley as a community market place for booking and rental is the largest accommodation agent today without its own real estate

▪ Uber, originally founded in 2009 as a limousine service, is the largest taxi company today without taxis

▪ Bitcoin, founded in 2008, a currency without a country, national mint and central bank

“The world is becoming digital: digitalization is coming one way or another. The only question is, who will do it.” [aca 2016a]

Platforms change markets.

If the internet has arrived on the shop floor of the factory now, we can anticipate a similar disruption in the coming years. The task is surely more complex than it is in business, because the technological basis is clearly more advanced now in comparison to 15 years ago. Sometimes we cannot really imagine this, but many experts have been wrong in the past. The success stories listed show how markets have already changed and can still change in the future. The use of the internet has no limits. Thus, with regards to Industrie 4.0, it also cannot stop at the boundaries of the factory, company or value-creation.

In addition to smart products, buildings and logistics chains, entire industries can also be included such as healthcare and energy. The example of Smart Mobility indicates that aside from internet tech-nology, there are further technologies that complement each other very well and can revolutionize existing business models such as eMobility or 3D printing. This change builds the core of a transfor-mation process, from which everything else should be considered. In some economic sectors the next five years will determine whether companies are successful in the disruptive part of their transforma-tion.

There is great opportunity to develop a simple service with successful business models using the internet as a basic technology. In order to also be competitive in the future and thus secure jobs, companies must:

1. Optimize, refine and make current business models more efficient,

2. check which new business models are possible over the short-, medium- and long-term,

3. anticipate which other companies could disrupt the existing business model and thus endanger its own existence.

Obvious business models, such as service optimization, can be implemented quickly. On the other hand, disruptive business models, based on completely new services, will be realized on platforms that will affect networks. Platforms are the intermediaries between supply and demand and they possess data from both sides of the market; the parameters of the provider and customer contacts, consumer data as

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well as payment information. Therefore, companies should develop the competence to evaluate the platform economy. Germany’s Minister of Economic Affairs and Energy, Sigmar Gabriel, empha-sized this in September 2015: “[…] not all […] companies understand that innovation is not only developed from products, rather plat-form economies are increasingly coming between products and customers.” [Gab 2015]

The business practices of international internet companies differen-tiate themselves from those of local companies, but are a useful guide and pose threats as well as opportunities. In these cases, the topic of security is dealt with very differently. The feeling of powerlessness that frequently arises in regards to the terms and conditions of service providers when using the internet for private purposes leads users to have a false sense of security in some cases, while in others they feel that “they don’t have any other choice” and proceed without taking the necessary security precautions. This behavior is unthinkable in industrial areas containing critical systems and processes. Industry is well aware of this problem. However, risk assessment in terms of digital networks is not yet well-known. Thus a two-stage approach is recommended. First of all, only critical systems within the factory should be networked and connected to the internet (private cloud); much potential can already be exhausted at this stage. Non-critical data can be stored in the cloud so that experience can be gathered. Later, when sufficient security technologies have been established and the risks are known, a link to external networks can be made to collect other data. Experiences have to be made now. In the age of digitalization, if we assume that data and information are the new currency, a company has to be sure that this currency can be devel-oped. Without currency there can be no store and thus no business. Surely this expertise with data cannot be developed in the short-term.

Develop the competence to assess a platform economy

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3 EFFECTS ON THE WORK-PLACE

3.1 MANAGEMENT AND CULTUREAside from many new technological innovations, a change in “management and culture” is a core prerequisite for the successful implementation of Industrie 4.0 in companies.

Orientation in the development of unfamiliar industries is absolutely necessary.

The usual rigid lines of authority and the strict separation of tasks and responsibilities in each department are no longer appropriate in the context of Industrie 4.0.

In most cases when we take a look at conventional management structures (Fig. 7), the CIO (Chief Information Officer) is not a posi-tion in top-level management. The CIO is often placed under the CFO (Chief Financial Officer), and the CISO (Chief Information Security Officer) reports to the CIO.

A change in management and culture is a prerequisite for Industrie 4.0.

“To simply follow the supposed best managers from Silicon Valley cannot be the solution for German companies. The reac-tion of rejection would be far too great.” This has been assessed by directors of human resources of German corporations as well as acatech [aca 2016a].

Figure 7: Classic Management Structures (Source: UNITY)

CDOChief Digital Of�cer

CFOChief Financial Of�cer

CIO

CISOChief Information Security Of�cer

CEOChief Executive Of�cer

CSOChief Strategy Of�cer

COOChief Operation Of�cer

CTOChief Technology

Of�cerChief Information

Of�cer

The stimulus for digitalization through Industrie 4.0 activities comes, for one, from production, where the COO (Chief Operation Officer) and/or the CTO (Chief Technology Officer) carry the responsibility. IT competence is becoming more and more important to the CTO and the real question is: how can the CIO and CTO work together. Computer scientists are conquering the position of the CTO that was generally occupied by engineers up until now. The CIO is responsible for IT on the shop floor, which previously was not a part of his area of responsibility.

Additionally, the stimulus for digitalization comes from the market or innovation departments. In these companies, the process is driven forward by those responsible for innovation, business development and/or strategy. In some cases this falls under marketing as well, but ultimately the customer should always be the focus of attention from now on. The question here is also: how can IT and produc-tion managers get involved. Product development will also play an important role. In particular the principle “Design to Order” is at the forefront of new business models and services now, more than ever before. This can only be realized if product, production methods and development of services work together during early stages [GP 2014].

Currently a new area of responsibility is being created: the Chief Digital Officer! This position has the role of developing and then imple-menting a strategy for digitalization. Digitalization cannot be realized through a manager or an area of responsibility. It affects the entire organization. Thus the departmental boundaries need to be overcome and new models of cooperation have to be established. This means that traditional thinking – responsibilities divided into business areas -- must be replaced by a networked collaboration of all competences in a team for “Advanced Systems Engineering” [Wei 2015]. “Network thinking, work and leadership” have to be reflected in the thoughts and actions of all those involved. Networked collaboration must occur inter-nally as well as beyond corporate boundaries. Through cooperation, future-proof solutions can be created more quickly and sustainably. Collaboration takes place across areas of discipline, responsibility, locations and beyond corporate boundaries.

The Chief Digital Officer drives

digitalization in companies.

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If organizations also work better in networks in the future, decen-tralized decisions will be made (active ownership with regional responsibility while being supported/ challenged by the corporate office). Instead of centralizing all functions into one location, regional offices can also take over corporate functions, should they be well suitable.

Experts in various areas that are globally distributed among different development centers are already being brought together through networked management in successful industrial companies. Thus, in particular “new and free-thinking“ employees are in future demand. Small teams with flat hierarchies allow a start-up mentality that follow the mindset, “Don’t ask, just do it!” This agility is also necessary in order to implement innovative ideas on short notice. The Industry knows that it cannot otherwise exist and be successful in a global market with so many diverse products and customers.

Therefore, the development of business models can only be successful if corporate management and culture are aligned in this regards, offering the parameters for creativity, innovation and the capability for disruptive thinking.

Some of our customers have recognized this trend and are holistically aligning their business according to this strategic maxim.

Network thinking, creativity and innovative strength are what matters.

“It used to be that the employer told the employee what he had to do. The employee then told the customer what he needed or would receive. Now, starting from the customer, we have to ask: how advanced is our customer’s level of digitalization and how can we network ourselves?” [aca 2016a]

3.2 START-UPSThe question that needs to be asked here is whether or not an existing organization can accomplish this cultural change, particu-larly in the scarce time that currently appears to be left remaining. For such necessary transformation processes, the enemy lurks inside a company as established structures tend to be conservative. There are already many proponents who consistently shift the development of such structures externally into new start-up businesses. For example, this approach was followed consistently in previous years by the publishing company Springer. In 2006 they began with internal structures but were not successful due to cultural problems within the organization. A change in strategy followed that was implemented in small, external offices. Today, in 2016, Springer is a successful busi-ness group that has the highest level of digitalization of all DAX30 and MDAX companies and can prove significant sales and profit in those areas.

The recruiting success and output of these smaller offices is greater, particularly in large corporations. The distance between these more agile offices and the potentially suffocating structures of corporate headquarters has a positive effect on business models, especially on business success.

The barriers to entry for start-ups in cost-intensive areas such as manu-facturing are significantly higher than in areas such as e-Commerce, where infrastructure is less expensive and can be rented if necessary. An Industrie 4.0 start-up ecosystem does not only consist of the office building, access to servers and the internet, but also a manufacturing environment in which techniques for innovative data analysis can be piloted. Adequate facilities can be provided for start-ups at little cost by established companies.

Innovative start-ups have created added-value in areas such as data analysis technologies for established companies in several countries, particularly in Scandinavia and the USA. Cooperations between large corporations, on the one hand, and start-ups, on the other, can establish useful synergies.

Established companies often do not possess the capability to utilize new internet technologies. Small start-ups that have specialized in

Cooperations with start-ups can

establish useful synergies.

Start-ups to develop new

structures.

27

the development of platforms, for instance, can create fast and inex-pensive platforms using Free and Open Source Software (FOSS). An applicable cooperation can take place between an established company and a new company in the form of Open Innovation, which quickly leads to pilots and Proof of Concepts in the cloud. SMEs, in particular, can utilize this form of collaboration usefully.

When we speak of start-ups, we mean, companies founded by young college graduates. However, technology-oriented companies should also support the business start-ups of their own employees. The current work-place incentive system is, however, designed to avert risk. Risks are much less rewarded than manageable, conventional goals and their assured achievement. The employee’s pioneer spirit can be encouraged through incentive systems that reward reasonable risks. If a plan fails, the employee should be offered a “return ticket” to his previous job in order to reduce the consequences of a failed spin-off for the entrepreneur. Simultaneously, the original company can participate in a successful new business without neglecting its core business. Companies should systematically analyze employees for their potentials to found new businesses and, if appropriate, be an active investor as a means of participation. Furthermore, they should make options to return possible for new business founders as well as develop models for flexible work and salary, in order to facilitate basic security during the transformation from employee to entrepreneur.

An established company cannot only count on the acquisition of start-ups to digitally revitalize themselves. Existing resources should also be given a chance to change by making resources available to one’s own company employees to realize new ideas. These employees can show their experience and trust that younger employees are lacking because they aren’t as networked within the company. The point is to allow employees to do something with their own budget and not just “take them along“. This, however, presents a dilemma for compa-nies in that they have to assign their best digital talents to innovation topics and consequentially free them from their other duties. This strategy creates scarcity in other business areas. “Ambidextrous”, or two-handed structures are organizational structures that help compa-nies exploit their existing strengths (exploitation) and simultaneously explore totally new structures (exploration). This puts them in a position

Dare to take risks: Use incentives to encourage the pioneer spirit of employees

Dare to create ambidextrous structures

to formulate the disruptive aspect of their digital transformation. Companies have to deal with this concept evermore, even if the process causes significant changes within the organization. Manage-ment faces many challenges during the concrete realization and control of ambidextrous structures. Each company must gather its own experiences and allow for corresponding experiments.

Consequentially, significant changes must be made, above all, in the management levels. The willingness to take new risks is essential here. Entering into business ventures must be acknowledged and failures must be accepted. Good corporate performance must be celebrated. Resentment and jealousy have no place here.

We are already experiencing this other spirit from companies in the gaming industry where a culture of winning exists. This culture is a significant factor for the success of the described models and should be practiced by every industrial business.

3.3 EMPLOYEES OF THE FUTURE

The questions posed by the necessary reorganization of work and operations are highly complex. Not all managers are willing to “open their eyes” and see the new challenges. Here, there are many different levels of “appetite” to tackle the transformation.

Transformation definitely cannot stop with the digitalization of the customer interface. Above all, transformation has to take place within the organization. The theory of future polarization of the job market cannot be ignored from today’s perspective. Then, jobs requiring a moderate level of skills that are characterized by routine processes will be automated, in contrast to high-salary knowledge-based jobs

The willingness to take new risks is

essential.

“Digitalization is not only about Work-Life-Balance. We will most likely have to work harder as we face fiercer competition. The others are hungry and motivated – we cannot escape this fact” [aca 2016a]

29

and simple, low-wage manual labor jobs. Not all employees will be able to maintain their original jobs in this digital transformation. However, people are still at the forefront of Industrie 4.0, the work-place of the future. Middle class jobs will change drastically due to the use of robots which are always becoming comparatively less expensive and the increased networking of machines which will lead to significantly fewer people working in classic manufacturing jobs in the future. Algorithm jobs will replace those in services. From society’s point of view, the real question is how many people with low-levels of qualification have long-term job prospects.

Management leaders must create trust in new technologies with employees for technology acceptance. Pilot projects help achieve that. Leadership, trustworthiness and credibility determine when the workforce and external partners are convinced that transformation is actually taking place, so that they can prepare themselves. Companies have to find a productive balance between transparency and control. In a digital workplace, employees are more transparent for the employer. A good management culture is characterized by fairness when dealing with mistakes which are recognized faster and more often in a digital world, and are more individually attributable. This must be actively led by employers in order to make progress in this very important discussion. Boundaries of trust will be a major topic for labor unions: to what extent will employees actually be controlled and where can trust be given, although controls are possible? Trade-offs must be addressed.

What will the employee work environment of the future look like? Employees will be able to work more autonomously in the future. This greater autonomy will not only be demanded by academics, but also by an increasing number of professionals (for example in the form of self-directed work or shift schedules). More autonomy promotes inde-pendence and flexibility that benefits employees. Digital platforms support faster decision making in group decisions through crowd intelligence.

Find a productive balance between transparency and control.

More autonomy promotes indepen-dence and flexibility.

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Difficult manual labor will greatly decrease, while creative intellec-tual work is more important than ever.

The use of standard components in Industrie 4.0 can save substan-tial amounts of time and money while simultaneously enabling a high level of usability when designing the man-machine-interaction (MMI). Powerful and robust standard components are necessary for the future of man-machine interaction, such as tablets, data glasses and relevant services that fulfill the requirements of industrial manu-facturing.

Powerful and robust standard components are necessary for the future of man-machine interaction (MMI), such as tablets, data glasses and relevant services that fulfill the requirements of industrial manufac-turing.

The concluding article from acatech 2015 “Smart Service World” describes employees of the future as “smart talents”. They consistently use the possibilities that digitalization offers them and master the increasing complexity with the support of Smart Services [aca 2015]. There will be situations in which young people know more than their elders. That will impact the world of work and the working organi-zation massively. We have experienced this phenomenon since the third Industrial Revolution when teachers were already facing the challenge of keeping up with their students in regards to computers in the mid-90s. This effect will be intensified based on existing tech-nologies that this new generation is growing up with and that are readily available.

However, the use of digital technologies also enables a new level of freedom in service offerings that the corporate workforce can be actively creating:

Employees develop on the shop floor with the help of previ-ously described assistance systems – “from machine operators to creative directors and decision makers of the smart factory” [aca 2015].

Implement systems for man-machine interaction.

Working virtually gains significance if telepresence is supported by new technologies. Digitalization and networking enable more flex-ible worktimes. In the future, work can be performed anywhere and at any time. The flexibility that is gained requires practical models of balance for employer and employee interests. New potentials can be revealed here and more flexible, often project-related employ-ment opportunities result that support the compatibility of family and career, specifically, childcare and working from home. Working during the evenings is also possible. The support of an employee council is required for this development, as well as reworking normal working hours that are no longer contemporary. (For example the regulation: “If you worked from 7 pm – 9 pm, you may not begin work at 7 am the next day“.)

Working virtually promotes family

and career compatibility.

33

4 IMPACT ON EDUCATION AND TRAINING

Consequently, the issue of education is of central importance in this time of imminent change. The primary educational goal is the digitally responsible citizen, “that recognizes the advantages and risks of digitalization, evaluates and decides which applications and services he wants to use” [aca 2016b]. Thus children need to become familiar with the possibilities of digital systems so they can be aware of opportunities and dangers. “Digital education” already begins at pre-school ages. For those generations whose socialization did not take place in a digitalized and networked world, educational campaigns and continuous education measures attempt to help them “catch up”.

In particular, the personal benefits of digital systems have to be explained to the so-called “Best Agers” as they will be in the work-force longer, according to demographic development [aca 2016b]. This is the only way that acceptance can be gained for the use of technology. The danger of polarization between the highly qualified personnel that control the systems and the less qualified personnel that only carry out the functions must be counteracted through contin-uous education [aca 2015]. Areas of competence are divided into professional, methodological and social competence. Professional competences extend to knowledge of the industry, corporation and occupation. Social competences are divided into personal competences such as self-organization, the ability to communicate, creativity as well as competences in dealing with people such as group dynamics and the ability to work in a team. Within digitaliza-tion further abilities are necessary. In particular, skills for using digital

If companies do not involve its employees in the processes of change and transformation, the following scenario would be very realistic in Germany, “We are trapped in the barriers of digitalization.” “Wealth needs jobs, jobs need innovation and innovation needs education.” [aca 2016b]

Gain acceptance for digital systems from “Best Agers”.

technologies are becoming increasingly important and STEM subjects (Science, Technology, Engineering and Mathematics) create the foun-dation for this. The content of education and training will change initially over the course of Industrie 4.0. Integrating the rapid develop-ments in technology into the course materials will be the challenge. New job descriptions that build upon competences in Advanced Systems Engineering, Industrial Security and Data Analytics need to be established quickly.

The required skills of a technician, for example in the area of mecha-tronics, have to be expanded and modified [aca 2016b]. According to a study by the Baden-Württemberg Chambers of Commerce and Industry (BWIHK), the effects of Industrie 4.0 that will be increas-ingly important in regards to education and training are primarily inter-disciplinary competences such as logical thinking, structured work and IT skills [Fri 2016]. Competence in software development will become a new basic skill for many employees.

In particular, the issue of “network thinking” needs to be promoted. This skill is a basic prerequisite in order to be able to work success-fully in a digitalized world. Over the course of digitalization, intelligent socio-technical systems are created that are based on the symbiotic interaction of multiple disciplines such as engineering, computer science, natural sciences, economics and social sciences. On the path to innovative success, communication and cooperation between involved professionals are required more than ever. The goal is to recognize the corresponding mechanisms and levers of successful cooperation and to develop and validate instruments that reinforce the productivity of collaboration. There is a wide spectrum of instruments that range from means of expression for inter-disci-plinary cooperation and educational reform through models to overcome deficits in social competence and to promote structured work.

The goal is a new school of design for multi-disciplinary, complex, technical and socio-technical systems to be able to efficiently develop business models that are based on combinations of smart products and services, for instance. This demands new means of expression (description techniques), modeling techniques and process models as well as respective programs for education and training that are

Cross-occupa-tional network

thinking must be promoted.

The increasing importance of STEM subjects

35

already provided in the school of Advanced Systems Engineering, but are currently being further developed based on these new requirements.

Furthermore, the competence in Industrial Security is a differentiating factor for Industrie 4.0 solutions worldwide. However, currently there is a lack of respectively trained experts. In competence centers for Industrial Security, not only research but also education and training has to be unified in the areas of plant safety (prevention of physical access to critical system components), network security (controlled interfaces between office and plant networks) and system integration (access protection mechanisms integrated into automation compo-nents). The ability to conduct threat analyses and to develop adequate protection concepts must also be encouraged here. Industrial security must be integrated into maturity models and risk management to build the basis of this encouragement. Network thinking and working in teams has to be practiced in projects. The competence for correct behavior in group dynamic processes can only be developed through experience. Because of interdisciplinary and highly technical knowledge of individual team members there will be misunderstandings at the beginning stages of projects that are now being launched. Transformation and change management must be developed in order to conduct successful projects. Every company must evaluate itself in order to determine to what extent its existing employee development and training system is prepared to face these new challenges and which competences could be purchased quickly so that no time is lost and companies don’t have to learn the hard way.

The ability and willingness to cooperate must be developed in the company. In the future, product development, production, and sales will only be successful if they are more networked to work together and overcome the obstacles of departmental boundaries. Additionally, companies must also learn that the classic customer-supplier-relationships and value chains will develop into dynamic value networks in the form of Eco-Systems. The skills and processes for this type of a cooperation must also be developed. The creation of IP (Intellectual Property), the development of products and services as well as the production and delivery of these services will also be realized in these types of networked Eco-Systems.

Train experts for “Industrial Security”.

Value chains become value networks.

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Until now, the competence to develop business models can only be found in a few training courses. This is because these challenges are relatively new. The first results of specialized stakeholders and research projects can be helpful here. Particularly in business models, it becomes clear quickly that everything depends on various tech-nical skills and also the correct methods (procedures and techniques). From our experience, corporate cultures that are not teamwork and cooperation-oriented face difficulties with current challenges.

In addition, employees must be trained in creativity techniques. The ability to recognize trends and to develop scenarios are increasingly important in management. Managers and employees can design the future of their working world by using scenario techniques. A two-stage approach is useful. In the first phase “Foresight”, future scenarios are created based on growth possibilities. In the second phase, business models including implementation plans are devel-oped based on future scenarios.

Management should have a master plan for digitalization and the corresponding transformation process, including a vision, a concept of itself and a general plan for the future. This should not be a five-year plan, rather a general framework that serves as a roadmap. This roadmap should contain the individual initiatives for which a clear value proposition exists, meaning customer benefit, and initiatives for which it is worthwhile to develop pilots and then conduct a Proof of Concept (PoC). Agile procedures, as they have been used in the software industry for the last several years, are useful for implementa-tion. Through short sprints, agile procedures not only enable quick starts, but also ensure that the experience gathered flows back into the process faster and corrects the direction on the short term. This is necessary because no empirical values exist to date.

Agile procedures are also appropriate in the innovation process and in the development of business models. We call this “Innova-tion Scrum” [FH 2016]. This procedure minimizes the risk that big plans for digitalization are created that come to a halt at an early stage and cannot be successfully implemented. Often in the innovation process wrong ideas are prioritized, obstacles are not anticipated, methods are applied incorrectly or resources are poorly used. Innovation scrum ensures that obstacles to the development of

Implement digi-talization in short sprints using agile procedures.

Future scenarios as a basis for implementation plans

products, services or business models are recognized early and cleared out of the way using short sprints. Those who do not do this, and only think linearly rather than holistically from the very begin-ning run the danger that a new product will not be accepted by the market, although it possesses functioning technology as well as a fancy logo.

5 DIGITAL TRANSFORMATION – FROM PLANNING TO IMPLEMENTATION

UNITY recommends a procedure in four steps (Figure 8): Every company should determine its location and goals, using Industrie 4.0 maturity models and capability models for example. Then, a digitali-zation strategy must be developed, containing new business models as well as architectures and technologies to increase the degree of automation. The introduction of corresponding governance structures is absolutely necessary for digital transformation. The concept of a

DETERMINATION OF LOCATION AND PURPOSE

I4.0 Maturity model Capability model

Importance

Mat

urity

Digita-lization

Digital GovernanceBoard

HR DigitalBoard

DIGITALIZATIONSTRATEGY ROADMAPPINGGOVERNANCE

Business Models/patterns

Automation Architectures/Technologies

Chief Digital Board Digital Corporate Framework

Portfolio of customer solutions Platform & Products/ Services

AREAS OF ACTION

Ambidexterity Lean Start-ups Agility and Speed Leading Suppliersand Key-users

Expansion and Developmentof Competence

Figure 8: Digital Transformation – from Planning to Implementation (Source: UNITY)

39

Chief Digital Board (CDB) able to govern digitalization will be neces-sary. Terminology, responsibilities, roles and models of collaboration must be clarified; otherwise project effectiveness and efficiency are lost. A “Digital Corporate Framework” should be worked out that includes the framework and the joint understanding of governance structures. A central Digital Governance Board is responsible for the initiation, support, and coordination of digitalization initiatives. In conclusion, individual activities must be planned through roadmap-ping so that successful implementation can take place.

BIBLIOGRAPHY

[aca 2016a] acatech – National Academy of Science and Engineering:

acatech Impuls “Shape the Digital Transformation”, April 2016

[aca 2016b] acatech – National Academy of Science and Engineering:

“Industrie 4.0 – Internationaler Benchmark, Zukunftsoptionen und Handlung-

sempfehlungen für die Produktionsforschung” (INBENZHAP) (“Industrie 4.0

– International Benchmarks, Future Options and Recommendations for Action in

Production Research”)

[aca 2015] acatech – National Academy of Science and Engineering: Final

Report “Smart Service Welt” (“Smart Service World”), March 2015

[Bra 2014] Brandt, M.: Article “Internet of Things will be commonplace by

2020”: https://de.statista.com/infografik/2937/mit-dem-internet-of-things-

verbundenen-geraete/, November 2014

[Esa 2015] Esales4u.de: “Germany purchases online”; http://www.esales4u.

de/2015/studie-umsatz-online-handel-deutschland-2015.php, 2015

[FH 2016] UNITY AG: Fischer, D.; Herbst, M.: OPPORTUNITY – “Die 6 Erfolgs-

muster im Innovationsmanagement” (“The 6 Success Patterns in Innovation

Management”), 2016

[Fri 2016] Friess, B.: “Industrie 4.0 Influences Education”: http://www.swp.de/

ulm/nachrichten/wirtschaft, March 2016

[Gab 2015] Gabriel, S.: Speech at a conference on Digital Transformation

in creative economics, trade and Mobility, http://www.bmwi.de/DE/Presse/

reden,did=726646.html, 18th September 2015

[GP 2012] UNITY AG: Gausemeier, J.; Pfänder, T.: OPPORTUNITY – “Future

Scenarios in Retrospective”, 2012

[GP 2014] Gausemeier, J.; Plass, C.: “Zukunftsorientierte Unternehmensgestal-

tung” (“Future-oriented Corporate Management”), Munich, 2014

[GSS 2014] UNITY AG: Gaupp, F.; Schulze, S.-O.; Steffen, D.: OPPORTUNITY

– “Systems Engineering – Product Development recreates itself”, 2014

[IHK 2016] IHK Nord Westfalen: “Specialist Report 2016, Result of the IHK-

Consumer Survey & Prognosis aus dem Fachkräftemonitor NRW”, April 2016

[Kob 2015] Kober, U., Bertelsmann-Stiftung: Presentation “The Future Counts,

Not Ethnic Origin – Immigration and Diversity in Germany”, February 2015

41

[Pla 2015] UNITY AG: Plass, C.: OPPORTUNITY – “Seize the Opportunity of

Industrie 4.0”, 2015

[Pla 2013] Plass, C. et al.: “Chefsache IT – Wie Sie Cloud Computing und

Social Media zum Treiber Ihres Geschäfts machen” (“Management Issue

IT – How to use Cloud Computing and Social Media to drive your business”),

Springer Gabler 2013, S.34

Pre 2016] Die Presse.com: “Five Million Jobs will be lost”; http://diepresse.

com/home/wirtschaft/international/4906389/Funf-Millionen-Jobs-gehen-

verloren, January 2016

[Tel 2015] Telekom und the University of St. Gallen: “Work 4.0 – Megatrends

of Digital Work of the Future – 25 Theses”, https://www.telekom.com/medien/

konzern/285970, August 2015

[WEF 2016] World Economic Forum: “The Future of Jobs – Employment, Skills

and Workforce Strategy for the Fourth Industrial Revolution”, https://www.

weforum.org/reports/the-future-of-jobs/, January 2016

[Wei 2015] Weinberg, U.: “Network Thinking”, 2015

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Christoph PlassMember of the Managing Board, UNITYTel. +49 2955 [email protected]

▪ Consultation of companies in digitalization and Industrie 4.0 ▪ Member of acatech ICT Network ▪ UNITY Representative, core member of the Leading-Edge cluster ‘it’s OWL’. Projects: “Forecasting”, “Counterfeit Prevention” and “Systems Engineering”

▪ Member of the initiative “Smart Electronic Factory” ▪ Advisory Council Chairman of s-lab – Software Quality Lab ▪ Council member of the collaborative research center SFB 901 “On-The-Fly Computing” University of Paderborn

Co-Author of the following books ▪ “Future-oriented Corporate Management. Strategies, Business Processes and IT Systems for the manufacturing of tomorrow“

▪ “IT: A Management Issue. How Cloud Computing and Social Media Can Drive Your Business”

UNITY is the management consultancy for future-oriented corporate management. We drive our clients’ innovative strength and opera-tional excellence. Together, we have been leading projects to success since 1995. Clients from the automotive, aerospace, manufacturing, healthcare and medical technology, energy, pharmaceutical and chemical industries trust our expertise – from SMEs to global players. With 210 employees, we are present at 14 locations worldwide and lead projects around the globe.

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