Fourth Industrial Revolution

Indian businesses are making better progress than others in dealing with the challenges within the four major areas of impact they were measured - society, strategy, technology, says Deloitte's second annual Readiness Report

Fourth Industrial Revolution
Fourth Industrial Revolution

Where do Indian executives stand?

With the Fourth Industrial Revolution (Industry 4.0) re-shaping how the world lives and works, global leaders are facing the pressures of preparing their businesses and their workforces for this new era. According to Deloitte’s second annual Readiness Report -  Leadership in the Fourth Industrial Revolution: Faces of progress, certain geographies and especially businesses in India have demonstrated the right aptitude for success in Industry 4.0 due to their focused approach to upskilling their employees, linking customer satisfaction to societal impact and profits and above all, the ethical use of Industry 4.0 technologies.

This year’s survey of more than 2,000 C-suite executives across 19 countries also included 130 respondents from India. The Deloitte ‘Readiness Report’ was released at the World Economic Forum’s Annual Meeting in Davos, Switzerland on January 21st. Many respondents in this year’s survey acknowledged that they are still in the early stages of navigating Industry 4.0. However, businesses in India are making better progress than others in dealing with the challenges within four major areas they were measured - society, strategy, technology, and talent.

Globally, organizational roadblocks appear to be limiting the development of effective Industry 4.0 strategies and many leaders continue to shy away from bold technology investments that drive innovation and disruption. However, in two critical areas – societal impact and talent development – CXO attitudes have changed dramatically from 2017, indicating leaders are becoming more realistic about what it takes to succeed in Industry 4.0.

Social impact– Organisations are developing new products or services that have a positive social impact and contributing to profits

Whereas customer satisfaction remains a top priority for Indian executives with 29 per cent of the respondents saying that they rely more on customer satisfaction, globally, 34 per cent of the respondents indicated that the societal impact is the most important factor business leaders use to gauge success—totaling that of financial performance (17 per cent) and employee satisfaction (17 per cent) combined.

However, that’s not to say Indian executives aren’t also taking necessary action to ensure a much wider societal impact. Eighty-five per cent say that their organizations have developed a product or service to make a more positive impact on society – the second highest of any country – compared to 73 per cent globally. As a result, Indian organizations are more likely to have generated new revenue streams from these changes (India 67 per cent, global 53 per cent) and they believe social initiatives are more often contributing to profitability (India 56 per cent, global 48 per cent), proving purpose and profit can coexist in Industry 4.0.

Better decision-making processes

While many global execs struggle with their decision-making processes, likely making it difficult for them to successfully implement Industry 4.0 strategies, this is not as much of a challenge for Indian executives. Fifty-eight per cent of Indian leaders – the most of any country – say their organization has a clearly defined decision-making process. The decision-making processes are more inclusive of a diverse set of stakeholders (India 32 per cent, global 20 per cent), are more likely to be based on data-driven insights (India 32 per cent, global 17 per cent), and more often go beyond financial returns to include societal impact (India 15 per cent, global 4 per cent).

Sixty-five per cent of Indian executives believe they have permission from their leadership to fail and learn in the context of innovation, similar to global executives (India 65 per cent, global 69 per cent). Strategy also falters when it comes to implementing new technologies, as leaders reported concerns over too many technology choices and difficulty keeping pace with the rate of change. Strategic obstacles, such as organizational silos, can complicate decision-making processes and hamper innovation. However, increased use of data and insights in addressing these challenges are helping organizations cope with the pressure.

Ethical use of technology overrides economic and societal considerations for Indian Executives

Despite the unquestionable economic and societal potential of Industry 4.0, many organizations opt to maintain the status quo with respect to their technology investments, leaving themselves at risk. Twice as many global leaders said they’re more likely to invest in Industry 4.0 technologies to protect themselves from disruption as they are looking to disrupt other industries or the marketplace (67 per cent versus 33 per cent). Issues such as being too focused on short-term results, having too many technology choices, and a lack of understanding of the technologies rose to the top as barriers to investment.

Further, Indian executives are more concerned about the ethical usage of Industry 4.0 technologies (India 55 per cent, global 30 per cent) and are taking action. Forty per cent said that their leadership has frequent discussions about the ethical use of these technologies, compared to 29 per cent globally, and 22 per cent say they are exploring or have put in place policies related to their ethical use (compared to only 12 per cent globally). More than four in ten (41 per cent) of Indian executives also indicated their organizations are investing in new technologies to disrupt the market, compared to 33 per cent globally.

Building skills for Industry 4.0

While Indian executives are less confident about knowing which skillsets their workforce will need in the future (India 53 per cent, global 63 per cent), they’re working to be more prepared. Nearly three-quarters (72 per cent) say they will extensively train their current employees, compared to only 43 per cent globally, and 55 per cent say they are doing everything they can to create a workforce for Industry 4.0 versus 47 per cent of global execs. When it comes to preparing the workforce for Industry 4.0, Indian leaders are just as challenged as their global counterparts by the mismatch between current skillsets and those needed for the future (India 55 per cent, global 55 per cent). They foresee attracting talent as far less of a challenge (India 39 per cent, global 48 per cent) than retaining talent with the necessary skills (India 52 per cent, global 46 per cent).

Reshaping the world 

As industry 4.0 continues to reshape the world in which we live and work, business leaders are adapting to the changes it is causing. In Deloitte Global’s second annual survey assessing business and government readiness for the Fourth Industrial Revolution, leaders appear more knowledgeable about Industry 4.0 and its implications for their organizations. But with that knowledge comes a greater awareness of how quickly things are changing and how companies must act today to remain successful into the future.

The 2018 inaugural report, which aimed to assess executives and their organizations’ readiness for Industry 4.0, observed a “tension between hope and ambiguity.”

While executives understood the changes being brought about by Industry 4.0 and were confident they were ready, their actions (or lack thereof) demonstrated they were less prepared and less able than they thought to fully harness and benefit from those changes.

Of the many insights uncovered in this year’s report—which covers more than 2,000 C-suite executives across 19 countries—one seems to stand out: The number of respondents who insisted they are doing “all they could” to prepare their workforces for Industry 4.0 fell by nearly half.

Knowing that business leaders are loath to take their collective foot off the pedal, this likely means that many executives are gaining a much deeper understanding of Industry 4.0, are increasingly aware of the challenges before them, and are viewing the actions needed to succeed in Industry 4.0 more realistically.

Though many in this year’s survey acknowledge they are still in the early stages of navigating

Industry 4.0, we found that some leaders are making better progress than others in dealing with today’s challenges within the four major areas of impact—society, strategy, technology, and talent.

Among the findings:

1. Societal impact: Executives expressed a genuine commitment to improving the world. Executives in last year’s survey were uncertain about how they could influence the direction of Industry 4.0 and its impact on society. This year’s research finds executives and their companies strongly committed to improving the world through Industry 4.0. Many insisted that it simply makes good business sense.

Leaders rated societal impact as the most important factor when evaluating their organizations’ annual performance, ahead of financial performance and customer or employee satisfaction. In the past year, nearly three-quarters of respondents said their organizations took steps to make or change products or services with societal impact in mind. While many are motivated by the promise of new revenue and growth, leaders are split on whether such initiatives can and will generate profit.

2. Strategy: Executives are struggling to develop effective strategies in today’s rapidly changing markets. They told about some of the organizational roadblocks that appear to be limiting effective Industry 4.0 strategies.

Faced with an ever-increasing array of new technologies, leaders said they feel as though they have too many options from which to choose and, in some cases, they lack the strategic vision to help guide their efforts. Organizational influences also challenge leaders as they seek to navigate Industry 4.0. Many leaders reported that their companies don’t follow clearly defined decision-making processes—and that organizational silos limit their ability to develop and share knowledge to implement effective strategies.

3. Technology: Leaders continue to focus more on using advanced technologies to protect their positions than on making bold investments to drive disruption.

Many of the businesses that have made investments in technology are seeing payoffs; others are finding it difficult to move forward. Challenges Four leadership personas for an era of change and uncertainty include being too focused on short-term results, not fully understanding Industry 4.0 technologies, and a lack of leadership vision. Leaders acknowledged the ethical implications inherent in new technology, but few companies are even discussing how to manage those challenges, let alone actively putting policies in place to do so. Further, business leaders continue to wrestle with how Industry 4.0 technologies should be regulated.

4. Talent: The skills challenge becomes clearer, but so do differences between executives and their millennial workforces.

The breadth of the skills gap is more evident to leaders compared with last year, as is a sobering awareness that the current education system will be inadequate to meet the challenge.

Last year, most leaders (86 per cent) thought their organizations were doing everything they could to create a workforce for Industry 4.0. This year, as more recognize the growing skills gap, only 47 per cent are as confident in their efforts.

On the bright side, nearly twice as many leaders indicated that their organizations will strive to train existing employees rather than look to hire new ones. And there is more optimism than last year that autonomous tech will augment, rather than replace, humans.

For many companies born at the dawn of Industry 4.0, societal impact has been woven throughout the fabric of their organizations from day one. But even more-established organizations are starting to take their impact on wider society more seriously because they believe a sincere commitment to society plays a large role in a company’s success.

In fact, when asked to rank the most-important factors their organizations use to evaluate their annual performance, more than one-third of executives ranked “societal impact” first, totaling “financial performance” and “employee satisfaction” combined.

Why has societal impact blossomed as a business imperative? Part of it surely has to do with company cultures and employee expectations. External pressures also motivate executives—both customer expectations and keeping up with competitors rank highly.  But more than anything, leaders seem to believe that doing good can be good for business. Almost half of surveyed executives (46 per cent) reported that their efforts have been motivated by the quest to create new revenue streams, and a similar per centage said initiatives that have a positive social impact are necessary for sustaining or growing their businesses.

Organizations are beginning to put actions behind their words. Seventy-three per cent of surveyed CXOs reported having changed or developed products or services in the past year to generate positive societal impact. What’s more, 53 per cent said they had successfully generated new revenue streams from these socially conscious offerings.

FedEx is seeking to do just that. As part of its goal to reduce aircraft emissions intensity (on an available ton mile flown basis) by 30 per cent by 2020, FedEx is investing in aircraft modernization and operational improvements, and is driving a culture of innovation around environmental performance through the business.

While some leaders have started to see profits from positive societal goods and services, there is disagreement over the question of whether initiatives meant to benefit society also benefit bottom lines. Fifty-two per cent see societal initiatives as generally reducing profitability; 48 per cent said that such initiatives boost the bottom line. Despite this split, leaders reported a commitment to initiatives that benefit society.

Some companies have made decisions with potentially negative short-term financial impact because of their core values.

Strategically integrated

Beyond products, services, and new revenue streams, leaders are integrating societal impact into their core strategies. Executives said they have been particularly effective preparing for the impact that Industry 4.0 solutions will have on society. They’re also building external partnerships and joint ventures, and strengthening ecosystem relationships. Nest Labs Inc., for example, has committed to work with other organizations and agencies to install one million energy- and money-saving thermostats in low- and moderate-income homes over the next five years.

Companies are taking other progressive actions, such as restructuring pricing to better match the needs of consumers in different areas of the world. By adopting a tiered pricing system, the pharmaceutical company Roche can offer drugs to patients in Africa at lower prices than in developed markets.

Roadblocks to effectiveness

The CXOs we surveyed seemed to embrace this approach.

More than two-thirds (69 per cent) believe they have permission to fail and learn from their mistakes in the context of innovation.

Although leaders appear to feel empowered to explore the possibilities of Industry 4.0, they remain challenged to translate the possible into tangible business strategies. When asked to state the top challenges their organizations face in adapting their strategies in response to Industry 4.0, a third of leaders cited lack of leadership vision.

Challenges of Industry 4.0

The challenges leaders face in developing effective Industry 4.0 strategies are not limited to vision and technology. Many organizations are simply not implementing effective strategy-development processes. For example, only 29 per cent of executives see their organizations as having clearly defined decision-making processes. This may be because only one in five CXOs strongly agreed that strategic decisions are made after input from diverse and inclusive sets of stakeholders.

Cautious approach to disruption

Leaders continue to focus more on using advanced technologies to protect their positions rather than make bold investments to drive disruption Technology is more advanced than ever before, offering opportunities for businesses to create solutions and develop products that were hard to imagine five or 10 years ago.

However, some organizations still view technology less in terms of advancement and more in terms of protection. Among a list of 11 topics business leaders said they discuss frequently, “disrupting competitors” ranked ninth, suggesting that upsetting the status quo is a low priority. Further, twice as many leaders said they’re more likely to invest in Industry 4.0 technologies to protect from disruption as are looking to disrupt (67 per cent versus 33 per cent). And just 23 per cent said their organizations have been most effective at disrupting competitors in the last year.

This apparent lack of aggressiveness can’t be blamed on a lack of money: Just one-quarter cited funding as a primary challenge with respect to investment in Industry 4.0 technologies. So what is holding leaders back from embracing disruptive technologies? Quite a few things, as it turns out.

Trading the future for today. As they consider the challenges that stymie their abilities to invest in Industry 4.0 technologies, nearly half of respondents called their organizations overly focused on short-term results. Simply, it can be difficult to justify significant upfront investments or implementation costs for a return on investment that may not appear immediately.

Investment challenges. It takes more than technology.

Four leadership personas for an era of change and uncertainty only to making a convincing argument for investing in technologies but also to ensure that they are implemented and used successfully.

When asked about the top challenges they faced with respect to Industry 4.0 strategy, leaders pointed to “too many technology choices” as a top hurdle.