Australian manufacturing and resource companies could boost earnings by A$20-40 billion a year if they follow the lead of global “lighthouses” to navigate the unfamiliar waters of the Fourth Industrial Revolution (4IR).
Despite significant advances in technology, productivity growth has been in steady decline among Australian manufacturers over the last 25 years. While productivity of the manufacturing sector grew 2.8 percent annually between 1995 and 2005, the decade to 2015 saw just 1.2 percent annual productivity growth, and this has fallen to just 0.2 percent per year over the last three years.
This is not to disparage Australian manufacturing companies, many of which are among the world’s most successful and innovative. Rather, this paradox of declining productivity—even as new technology is added to the mix—is a global phenomenon. Australian executives, engineers, and policymakers are racing against global counterparts to solve the riddle and gain a decisive competitive edge.
So how to overcome this paradox? There is great enthusiasm among industrial companies around the world about the benefits promised by 4IR: The digitization of manufacturing enabled by three big shifts across technology, artificial intelligence and innovative ways of working such as agile and design thinking. Yet, many organizations struggle to make big wins and remain trapped in the experimentation phase.
The payoff will be substantial. If Australian manufacturing and resource companies fully implement digital technologies, it could add A$20-40 billion a year in additional earnings and restore productivity growth to previous highs, we estimate.
The companies that lead the return to higher productivity go beyond the plug-and-play of cutting-edge technology, and use 4IR to rewire the organization—building a culture and way of working that supports widespread adoption of technology solutions.
The World Economic Forum (WEF), in collaboration with McKinsey & Company, has scanned more than 1000 leading manufacturers worldwide, selecting just 26 of these as “lighthouses: manufacturing sites that are world leaders in the successful adoption of innovative 4IR technologies.
These factories serve as beacons for the world on how technology at scale can transform the nature of work and fuel the next horizon of productivity gains. Sixteen of these factories are profiled in the WEF-McKinsey report Fourth Industrial Revolution: Beacons of Technology and Innovation in Manufacturing, and they offer five crucial lessons for Australian companies how to capture real value from 4IR.
- Start with a clear vision of how technology will solve big business challenges. Then adopt a truly transformative approach to capture that value. Ensure the 4IR implementation is led by business priorities, and technology is the enabler rather than the driver of change.
- Bundle a critical mass of use cases to transform operations in one site, or to innovate one value chain first—and then roll out from there. Budget as much for integration and adoption as for technology itself (if not more), bearing in mind needs such as training, communication, and redesign of operating standards.
- Follow a hub-and-spoke model to divide the responsibilities for 4IR adoption. Business units (spokes) should define business needs and be accountable for adoption and delivering impact, while a few tasks are always owned by a central hub, such as building an innovation ecosystem that involves universities, start-ups, and other technology providers.
- Use analytics to foster a shift from judgement and experienced-based decision making to data-driven decision making at the frontline. For this approach to work, leaders must leave behind the traditional top-down approach and empower the frontline to make more rapid decisions supported by data and evidence.
- Apply technology to augment, not replace, employees; building internal capabilities and dispelling the myth that digital technologies will displace human capital. Actively involve the workforce in the development and deployment of new solutions to improve and simplify their work.
Conversations about 4IR have moved from “what?” to “why?” to “how?,” as Australian manufacturers increasingly understand that adoption is necessary to recapture productivity growth and unlock value. The choice for companies now is not whether to adopt 4IR, but to what extent and at what pace.
Company leaders who take a leading posture and move early can realize the greatest benefit and a competitive advantage, while those that wait will struggle to catch the frontrunners who already have a two- to four-year head start.
An earlier version of this post appeared on Joseph Tesvic’s LinkedIn profile.