Digital Transformation

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This lesson covers Industrial revolution (from Industrial Digital Transformation, by Shyam Varan Nath, Ann Dunkin, Mahesh Chowdhary, Nital Patel - Packt Publishing) and Digital Transformation Handbook by John Palfreyman.

Industrial revolution

Industry 4.0
Source: Digital Transformation Handbook by John Palfreyman

First Industrial Revolution

Mechanisation, Steam, and Water Power

  • many features – namely, technological, socioeconomic, and cultural.
  • origin is tied to the rapid mechanization in the textile industry in Britain at the time (see https://www.economist.com/leaders/2012/04/21/the-third-industrialrevolution).
  • The final outcome of this revolution was the mass production of manufactured goods.
  • Technological advancements:
    • Iron and steel as the basic raw materials for manufacturing
    • Energy sources, such as coal and petroleum, and motive power, such as the steam engine, internal combustion engine, and electricity
    • Machines such as the power loom and the spinning jenny, which helped to amplify human energy, resulting in large-scale production
    • Organizations such as the factory system that advocated the division of labor and the specialization of roles
    • Transportation and communication means, such as the steam engine, steam ships, the automobile, telegraph, and the radio
    • Science applied to the industrial sector

Second Industrial Revolution

Mass production and electricity

  • The second industrial revolution (1870–1914) saw large-scale electrification and the buildout of railroad infrastructure.

  • The use of electricity dramatically changed the lifestyle and profession of people. In the 1870s, the first commercial electric generators were used.

  • Great Britain built the first power station around 1881. In the early 1900s, these power stations started powering whole towns or parts of larger cities.

  • Alexander Graham Bell invented the telephone in 1876. Soon after, in 1879, Thomas Edison and Joseph Swan designed the light bulb for home use.

  • This period also saw the creation of the first electric railroad in Germany, as well as electric streetcars replacing horse-drawn carriages in major European cities.

  • The first radio waves were sent across the Atlantic Ocean in 1901 and were credited to Guglielmo Marconi. The Wright brothers invented the first airplane in 1903. The motion picture, which is the foundation of the modern film industry, also started at this time:

  • Large-scale socio-economic changes took place around this time in North America as well. By 1913, the US overtook Great Britain, France, and Germany combined in industrial productivity. The US accounted for one-third of the world’s production.

  • This helped to improve the economic status of the middle class, leading to increased purchasing power. This led to rapid urbanization and about 11 million Americans moved from rural and agricultural professions to city-based living between 1870 and 1920.

  • By the end of this period, there were more city dwellers than those living on farms. This period also saw large-scale immigration to the Americas.

  • This period saw the rise of technical skills and laid the foundation for the pursuit of prosperity based on an individual’s capabilities.

  • Even current day manufacturing uses assembly lines, after a few generations of automation added to them. This highlights that transformation is not just about rip-and-replace, but rather perfecting concepts that work well.

Third Industrial Revolution

Electronics and IT Systems, Automation

  • Computing and digital revolution, started in the 1950s. The key invention was the transistor.
  • The transistor emerged at the Bell Laboratories in Murray Hill, New Jersey, which was the research arm of American Telephone and Telegraph (AT&T).
  • The invention of the transistor was accredited to three scientists, namely, William Shockley, John Bardeen, and Walter Brattain.
  • The third industrial revolution saw the large-scale transition from analog to digital technologies.
  • The semiconductor industry paved the way to mainframe and personal computing and eventually to the internet. This was the beginning of the information age.
  • Electronic appliances and gadgets invaded households in this period.

Fourth Industrial Revolution

Cyber physical systems

  • The fourth industrial revolution started around the 2010s. The term Industry 4.0 was coined in 2011 by the German government.
  • In this phase, the focus of companies shifts from pure manufacturing to the delivery of services and outcomes around the product.
  • Servitization is the key feature and point of differentiation.
  • This term was first used by Sandr Vandermerwe and Juan Rada in 1988 when they wrote the article Servitization of Business: Adding Value by Adding Services, in the European Management Journal (see https://www.sciencedirect.com/journal/european-management-journal/vol/6/issue/4).
  • Servitization helps to transform a company from having a focus on product manufacturing and sales to the delivery of results to the customer.
  • According to the company Salesforce, The Fourth Industrial Revolution is a way of describing the blurring of boundaries between the physical, digital, and biological worlds.
  • As a result, the advances in AI, robotics, IoT, 3D printing, quantum computing, genetic engineering, Global Positioning System (GPS) and related technologies fused together to achieve outcomes unseen in the past.
  • Today, voice-activated systems facilitate the conversation between a human and car navigation system to recommend the optimal route when traveling (see https://www.salesforce.com/blog/2018/12/what-is-the-fourth-industrial-revolution-4IR.html?).
  • What is the relationship between the four industrial waves or the revolutions and this book, Industrial Digital Transformation?
  • We are in the second decade of the fourth wave of the industrial revolution. The authors of this book strongly believe that the year 2020 will help to shape this decade in the form of industrial digital transformations across the board – the public and the commercial sector.
  • Hence, industrial digital transformation will help to unleash the real power of the fourth industrial revolution to the world at large.
  • Despite the large-scale development of our civilization in the last 300 years, the benefits have not reached the 7 billion people of the earth in an equitable manner.
  • As a result, the United Nations has set 17 Sustainability Development Goals (SDGs) to help transform the world by 2030 (see https://www.un.org/development/desa/disabilities/envision2030.html):
United Nations has set 17 Sustainability Development Goals

The impact of industrial digital transformation on business

  • The internet, web applications, and the easy availability and low cost of massive amounts of computing power and storage have revolutionized the way that businesses operate and, in the process, have reset the competitive landscape.
  • In some cases, industrial digital transformation is a competitive advantage, but in other cases, it is simply the minimum effort required to stay in business.
  • For many organizations, digital transformation is a do-or-die proposition. Industrial digital transformation can serve one or more of three purposes for business:
    • Improve internal processes, thereby reducing costs and increasing competitiveness.
    • Streamline the delivery of existing solutions within an existing business model to reduce costs or improve customer service.
    • Transform a business completely, resulting in new products and business models.
  • A true digital transformation is a disruptive innovation that fundamentally changes the user experience.
  • This new experience, if delivered properly, will delight the customer and provide the business with insights into how to better serve that customer in the future.
  • It can also enhance the customer support processes, leading to lower support costs and new insights about customers.
  • Industrial digital transformation is not simply the automation of existing processes using new technology, but rather the reengineering of existing processes and products to deliver fundamentally different solutions.
  • A simple example of internal process improvement is the routing of a document for review. When that document is routed on paper, it would move to each individual reviewer in sequence. Once that document is digitized, it could continue to route to each reviewer sequentially. However, if the process were redesigned, it might be routed to all the reviewers except the final approver, concurrently shaving days or weeks off the review process.
  • At the product level, industrial digital transformation allows the creation of entirely new products that could not exist before digital solutions existed, disrupting entire markets.
  • For example, the ridesharing applications Lyft and Uber would not exist if not for the digital disruption of business models. Before the advent of the smartphone and sophisticated algorithms that can rapidly match riders and drivers and manage pricing to keep supply and demand evenly matched, these car-sharing services could not have existed.
  • They have disrupted both the taxi and car rental markets. Digital transformation matters to businesses because virtually all businesses are being disrupted. New entrants are arriving with lower costs and new approaches to the existing business or with new business models that cannibalize their business. Incumbents must transform their culture, processes, and technologies to compete and thrive in this changing landscape.

Quantifying business outcomes and shareholder value

  • The desired outcomes of digital transformations are often as follows:
    • New digital revenues
      • In this scenario, transformation is used to drive new lines of business or new digital revenues for an existing business.
      • A good example is the servitization of a product. In this model, the company tries to wrap the physical product with services that bring recurring revenues – for example, buying the scheduled maintenance service when buying a car.
      • This prevents the service revenue from going to the after-market parts and third-party service providers.
      • To build the business case for this type of outcome of industrial digital transformation, the proposed investment is weighed against the possible new revenues
    • Productivity gains
      • In this scenario, the primary goal of industrial digital transformation is to improve the bottom line and drive efficiency.
      • Let’s take the example of a wind turbine owner or the operator. The cost of servicing a certain type of wind turbine that includes an oil change and servicing the bearings of the wind turbine is about $8,000 per event.
      • In order to prevent overly frequent servicing, which would result in higher routine maintenance costs and not servicing when it is due, leading to expensive damages to the wind turbine, the company decides to go to Condition-Based Maintenance (CBM). They add sensors to monitor the viscosity and particulate levels in the oil. This allows the company to come up with the optimal frequency of servicing by monitoring wind turbine remotely.
      • This is a good case study for productivity gains through the use of industrial digital transformation.
    • Corporate social responsibility
      • Often, both private and public sector companies look at transformative ways to fulfill their corporate citizenship goals.
      • The business case for these may consist of tangible and intangible benefits. For instance, an airline may set stringent goals for carbon offset and look for transformative changes to accomplish that.

Three concepts at the heart of Industry 4.0 are:

  • Ubiquitous connectivity through the availability of high-speed networking

  • The internet of things, connecting small embedded devices together which are usually sensors, actuators or a combination of the two

  • Cyber-physical systems which bring together modern digital technology with physical systems and processes.

Cyber-physical systems:

Physical and engineered systems whose operations are monitored, controlled and coordinated, and integrated by a computing and communicating core

Cyber-physical system layer model
Source: Digital Transformation Handbook by John Palfreyman
  • The figure shows increasing value to the organisation as they work their way up the various layers as the computing technology (the ‘cyber’ part) does more, leaving the humans to focus on the highest value activities.

Industry 4.0 Opportunities and challenges

Source: Digital Transformation Handbook by John Palfreyman