Smart Factory, Smarter Leaders: Conversations with the C-Suite

What does the C-suite really think about the Smart Factory? Is it a true paradigm shift? Or a case of the ‘emperor’s new clothes’? How high is the topic on the strategic agenda? What are the implications for human capital? Finally, what could make for Smarter Leadership? To find out more, Amrop conducted confidential conversations with a select group of senior manufacturing executives from Europe and the US.

A Three Year Journey

In April 2011, summarizing the recommendations of the German Government’s Industry 4.0 Taskforce at the Hannover Messe, three leaders from industry, politics and science announced a fourth industrial revolution. “In the next decade, a Cyber-Physical system will make new business models possible,” read the statement by Kagermann, Lukas and Wahlster. “The Internet of Things will be complemented by the so-called Internet of Services, because Smart Products offer abilities in terms of intelligent services. Thanks to internet-enabled, machine-to-machine communication (M2M), this new generation of products can autonomously share information, act, and mutually drive each other.

In 2012,  the Economist confirmed: “Factories are becoming vastly more efficient, thanks to automated milling machines that can swap their own tools, cut in multiple directions and “feel” if something is going wrong, together with robots equipped with vision and other sensing systems.” Nissan’s British factory was already amongst Europe’s most productive, posting an 80% hike in capacity over 13 years with just under a 20% growth in workforce. “As the number of people directly employed in making things declines, the cost of labour as a proportion of the total cost of production will diminish too,” the Economist predicted. “This will encourage makers to move some of the work back to rich countries.”

Three years on, in 2014, the Financial Times reported that the workforce at the Siemens Amberg automation plant had remained stable for 20 years. Siegfried Russwurm, (Siemens industry division), explained that smart factories…aren’t, very. Still, manual or simple administrative work would decline, he predicted, with a shift towards more complex design, configuration and management jobs. The possible “reshoring of manufacturing from low cost countries” due to consumer willingness to pay for customized products (via production automation and connectivity) was again evoked.

Shortly after, the Nikkei Asian Review opined that “at this time of radical change driven by advances in IT, the ability to create new value will be a life or death issue for Japanese manufacturers.” Collaboration between manufacturers and governments would be vital. As Siemens and nine other German manufactures converged to co-create an AI production system, Chinese Premier Li Keqiang, meeting with German Chancellor Angela Merkel, pledged cooperation in technological exchanges and industry standardization. However Japan might face difficulties: “they tend to focus on in-house and in-group – rather than industrywide – networks, their presence in Industry 4.0 is minor.”

Leaders are Initially Cynical

The C-suite executives interviewed by Amrop initially expressed mixed views about the Smart Factory. Some dismissed it as buzz or repackaging. Others considered their plant as ‘already automated.’ One doubted its benefit for mid-sized firms. Its applicability across all industries was also questioned. Some saw the Smart Factor as an operational or departmental, rather than top level strategic, concern. Only a handful took a visionary view.

But Strategic Relevance Quickly Emerges

Views evolved as we moved more deeply into the terrain. Yes, the Smart Factory offered distinct leverage value in one or more business areas. Yes, it was enabling innovation and customer-focus, backed by financial and production efficiencies. For one company, it had facilitated a new, market-leading business model.

Yet Smart Factory Has Limits

Blockages were raised less frequently than benefits, yet there were concerns. If some saw data collection as a clear benefit, others felt that only human intelligence could design fit-for-purpose systems and make sense of the resultant bits and bytes. Smart production was inherently complex, too, and would need incremental management or even a whole new revenue model. Furthermore, experimentation and errors risked endangering a prime opportunity -  customer focus. The expense of installation risked undermining another one - cost benefit.

There is a Gap Between Automation and Interaction

Most participants saw the Smart Factory in terms of high plant automation, rather than inter-machine communication. Only two reflected its highest aspirations. For example, the Group Innovation VP of a Tier One automotive manufacturer predicted that, if every part of tomorrow’s car would be connected and intelligent, so, too, would the plant that made it.

The Human Factor is Evolving Fast

A shift in workforce at lower organizational tiers, from manufacturing and administration, to analysis and management, is inevitable. But the human brain is not set to be switched off any time soon. To ensure the Smart Factory fulfils its game-changing potential, a full talent management circuit board must connect multiple layers, dimensions and disciplines.

Smart Factory, Smarter Leaders

Amrop proposes a profile for the Smart Factory Leader. This should complement leadership business and professional ‘givens’ (such as ‘the ability to manage change’ or ‘build collaborative external networks’), and can lead to clear set of benefits at board level, we argue (see the full article for details).

  1. Influence the construction of a high-performing, multi-disciplinary Board
  2. Maintain a clear-eyed helicopter view in the face of unpredictability, tabling Smart Factory priorities and keeping heads above water
  3. Anticipate market and technical developments, translating M2M communication possibilities into distinctive B2B or B2C innovations, portfolio extensions and new business models
  4. Build a forward-looking and agile culture - integrating Smart Factory whilst preserving fundamental or founding values
  5. Synthesize the paradox of evolution and revolution - incrementally engineering operating infrastructure whilst balancing financial risk, cost efficiencies, quality and safety
  6. Have a strong personal interest or specialism in technology and related issues, and ability to interact constructively with technical or digital profiles
  7. Nurture a passion for talent - be the steward of a living human capital circuit board connecting all corners of the organization.

Download the full article here.