INDUSTRIE 4.0? STEP THIS WAY! THIS STEP INDUSTRIE 4.0? Industrie 4.0? - DocsLib

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THINKCOO INSIGHTS

ACT BUSINESS MODELS 4.0 A new game for providers and consumers

THE CLOUD Heaven-sent business

JAPAN The robots are taking over TRIE 4.0? STEP THIS WAY! THIS STEP TRIE 4.0? INDUS

2016

INDUSTRIE 4.0? STEP THIS WAY! THIS STEP INDUSTRIE 4.0? Industrie 4.0?

2016 Step this way!

INSIGHTS COO Bernd Leukert, Product Chief at SAP, wants

to network industries and services THINK ACT THINK 2

KEY QUESTION Industrie 4.0 and beyond: Can Europe learn to love digitization?

COO Insights 2016 First thoughts 3

CUSTOMERS COME FIRST

Industrie 4.0 guarantees better products, more efficient production methods and tailor-made industrial services. Digitally net- DR. VOLKMAR DENNER working complex processes in production, logistics and services CEO, Robert Bosch GmbH is a significant – and challenging – issue for practically every industrial company in Europe. Industrie 4.0 is also a driving force in the United States and Asia. US companies are trying out radical innovations. China is aiming for speed. Many European countries, including Germany, France, the United Kingdom, Italy and Sweden, boast outstanding engineering skills. Japan focuses on scalability in smart factories. But how has Industrie 4.0 evolved since we first encountered it? Where does its potential lie? For that, we need to look at the details. As a consulting firm we invest a great deal of time and intellectu- TRUSTING IN NETWORKS al effort in providing clients with guidance and showing them the business opportunities that Industrie 4.0 creates. There is huge The Internet of Things is bringing about a fundamental change in all demand for this. Our Partners and Consultants in Europe have set aspects of life. In many areas this change is already clearly visible, such up an Industrie 4.0 Core Group, an international platform on as in industrial production. Particularly in high-cost countries, net- which we have been regularly exchanging project experience and works offer significant opportunities for boosting efficiency in manu- findings for many years now. We use this platform to discuss ex- facturing, including through new business models. This can be espe- amples of successful companies. We identify the patterns emerg- cially effective if the networks cover the entire value chain without any ing in industrial digitization. And we use it to define new business gaps. For this reason, Bosch operates in conjunction with partners in models in 3D printing or, increasingly often, the cloud – and not Europe, Asia and the United States. For example, we work closely with only there, of course. the Industrial Internet Consortium. Our core objective is to establish Everywhere we look we see a symbiosis between traditional consistent technical standards and so create a common language, production technology and new IT technology. At Roland Berger making it possible to benefit from networks that stretch across nation- we understand both worlds; this has always given us a compet- al boundaries. itive advantage. How can COOs make Industrie 4.0 a success for At Bosch we see ourselves as both key consumers and key providers of their companies? In industry the same applies as what we have Industrie 4.0. We believe that this dual strategy will pay dividends: By long known in the consulting world: Customers and their needs 2020 networked production will have secured us forecast cost savings come first. of EUR 1 billion and brought us an additional EUR 1 billion in sales. We are taking a three-step approach at Bosch: First, we are introducing applications in some of our 250 factories around the world. Second, we are optimizing value flows right up to our end customers. And third, we are managing global networks. THOMAS RINN A key component of our networking strategy is our proprietary cloud Partner and platform. The Bosch IoT Cloud offers a secure technical infrastructure Member of the for scaling up networked solutions. Many of our solutions and projects, Global Executive as well as those of our clients, already build on this infrastructure. We Committee at also manage and analyze large volumes of data, especially in the area Roland Berger of industrial engineering. A key aspect of networking is trust. How safe is the data and who does it belong to? Dealing with data transparently and ensuring clear agree-

; P. 2: Illustration: Ben Kircher/Heart Agency Ben Kircher/Heart 2: Illustration: ; P. Reeg Andreas ments about how it is used form the basis of a relationship of trust. At Bosch our customers have the first and last word about how their per-

Cover: Photo: Photo: Cover: sonal data is used. That is our answer to privacy concerns. What is yours?

COO Insights 2016 4

Competition 4.0 opens up unique opportunities for new business models 40 Japan is modernizing As long as newcomers and incumbents do the necessary its industry. Robots play a work quickly and thoroughly vital role 18

INDUSTRIE 4.0

It's all about Industrie 4.0: How companies can profit globally from digitization 08 Illustration: Julia Julia Illustration: Ettlich Reeg, Andreas 5: Photos: P. Ettlich; Julia INC, Illustration: ∙ DENTSU ATR © 4: Photos: P.

COO Insights 2016 5

Inside Heaven-sent business The cloud is changing the rules 6 Redefining work and of industrial automation value creation What leading thinkers have to say 36 about digital transformation. 8 A guiding star for the decades ahead Established industrial nations and developing countries are turning to Industrie 4.0. 14 360° networks From development to service: Companies benefit in multiple ways from Industrie 4.0. 18 Pythons and products Firms that make their products and processes fit for the future will be the winners in Competition 4.0. 22 People, markets and machines Yesterday's science fiction is today's reality: How digitization is changing our lives. 28 "We want to be the 'Intel Inside' of the digital economy" Bernd Leukert, Product Chief at SAP, talks about cultural change at SAP, the significance of having German roots in the cloud business, and Industrie 4.0 in Europe. 36 Heaven-sent business The cloud is changing the rules of industrial automation. New entrants don't have much time left to rethink. 40 I, Robot? Deregulation, collaboration, digitization: Japan is starting to catch up. 44 COO workshop Invitation for further thought: Figures and studies from Roland Berger. 46 Why the new industrial revolution affects us all Professor Thomas Bauernhansl on the opportunities created by Industrie 4.0. Masterminding the digital transformation at SAP. Interview with Bernd Leukert, 47 Terra Numerata Product Chief at SAP Roland Berger's digital network unites industry and functional expertise and connects them to 28

Illustration: Julia Julia Illustration: Ettlich Reeg, Andreas 5: Photos: P. Ettlich; Julia INC, Illustration: ∙ DENTSU ATR © 4: Photos: P. digital communities.

COO Insights 2016 6

STATEMENTS

"The fourth industrial revolution has the potential both to increase Work economic growth and defuse some of the biggest global challenges facing humanity." and value Klaus Schwab, Founder and Executive Chairman of the World Economic Forum

creation "Europe is in a position to create its own secure backbone. It is now a question of pushing ahead with redefined EU-wide standards and laws across all industries." Reinhard Ploss, CEO, Infineon

Entrepreneurs, "The time to capitalize on digital managers, academics: factories is now. The US ticks all What leading thinkers say the right boxes to be the future of digitized automotive about Industrie 4.0 manufacturing." Stephan Keese, Senior Partner, Roland Berger, Chicago

"After surveying the landscape, we are convinced that we are at an inflection point – the early stages of a shift as profound as that brought on by the Industrial Revolution." Erik Brynjolfsson and Andrew McAfee in "The Second Machine Age"

COO Insights 2016 Statements 7

"The value-creation cards will be reshuffled over the next five years. The place and type of service provision will change and all economic areas will have to do their homework." Professor Thomas Bauernhansl, Fraunhofer Institute for Manufacturing Engineering and Automation IPA and University of Stuttgart

"In Europe, many of the conditions for Industrie 4.0 remain far too fragmented." "You need to decide whether you Volkmar Denner, CEO, Robert Bosch want to be part of the change – or be changed yourself." "But even if intelligent systems can Joe Kaeser, CEO Siemens AG take on more and more of the standard tasks, it will remain indispensable for "Work is not disappearing, it is being successful companies to exploit and redefined. As production becomes develop their employees' experience." networked, the demand for specialists in Bernd Leukert, Product Chief at SAP mathematics, computer science, natural science and technology will grow." Henning Kagermann, President of the German Academy of Science and Engineering (acatech)

"This is an opportunity for social change: Industrie 4.0 can provide entirely new impetus for growth and employment." Max Blanchet, Senior Partner, Roland Berger, Paris

COO Insights 2016 Cover story Deep dive 1 Deep dive 2 A guiding star for the decades ahead Industrie 4.0 has revolutionized production. Different actors have different motives. But progress is nothing if not rapid.

Radical innovation: Bringing digital innovation into the physical world. Startups for the Internet of Things and a renaissance of production. INDUSTRIE 4.0 USA

Technical mastery: Bringing excellence in engineering into the digital world. Visionary concepts that integrate technology, society and business. United Kingdom, Sweden, Norway, Germany, France,

Spain, Italy Ettlich Julia Illustration: 8–9: P. 9

Scalability: Speed: Innovation through Practical application of application. Massive quick wins and a long-term expansion of smart strategy. Use of mature factories and large-scale technology, strategic manufacturers that

development of key strengthen their products technologies. through internal demand. China Japan, South Korea

f there is one term that is electrifying Head of Industrial Internet and 3D Print- More knowledge than businesspeople, academics and poli- ing at German digital association Bitkom. actual plans ticians around the world it's Industrie Where the fourth industrial revolution is I4.0. First widely used five years ago at the For the United States this process is a picking up speed: Industrie 4.0 has yet to 2011 Hanover Trade Fair, Industrie 4.0 chance to bring lost production back to arrive for SMEs in particular. and other buzzwords like it – the Indus- the country and reindustrialize the econ- trial Internet, advanced manufacturing omy. Low energy prices, combined with a – describe a process that will bring about highly innovative IT scene, form a good Transportation & logistics 6% 1.3% nothing less than a new industrial revo- basis for success in the race for tomor- lution. Established industrial nations row's customers. The intelligent han- hope it will deliver more efficiency and dling of huge amounts of data will repre- Financial services 19% 3% greater competitiveness, which could sent a decisive competitive advantage in Automotive industry lead to a renaissance of industrial pro- the coming years, and this is an area

duction in high-wage countries. Emerg- where American champions such as Chemicals & ing markets such as China, on the other Google and Amazon are unmatched in pharmaceuticals 29% 9% hand, want to make the leap from being the world. Experts believe that North Amer- the "workbench of the world" to being ican companies will profit in particular technological pioneers in products and from new services and business models. 35% 6% production processes. Similar to Germany's Industrie 4.0 Plat- HIGHLY NETWORKED AND form, the US Industrial Internet Consor- Mechanical EXTREMELY FLEXIBLE tium (IIC) strongly promotes the fourth engineering Although the focus of international ini- industrial revolution. Leading German 46% 14% tiatives such as the "Industrie 4.0 Plat- technology companies such as Siemens, form" in Germany, the "Industrial Inter- SAP and Bosch are also involved here. net Consortium" in the US and "Made in The German and US bodies agreed to cre- China 2025" differs slightly in each case, ate a partnership in March 2016 to jointly they all share a common vision: Tomor- promote the topic. "The Industrial Inter- row's manufacturing will be highly net- net means gathering data from machines 47% 21% worked and extremely flexible. Ubiqui- and using it to generate useful insights tous sensors and intelligent algorithms for our customers," says Jeff Immelt, will ensure that products can be manu- CEO of General Electric (GE), one of the IT & factured in batch size as small as a single companies participating in the IIC. "This telecommunications item – but still in series quality and with creates value in the trillions and will the same costs as mass production. transform GE." On average: Whoever sets the standards in this global Knowledge of Industrie 4.0 18% race will be among the winners of global- In China transforming the economy is Existing or planned ization for decades to come. "Industrie one of the top priorities of the Commu- Industrie 4.0 projects 4% 4.0 is definitely the guiding star for the nist Party. It takes a strategic approach to

P. 8–9: Illustration: Julia Ettlich Julia Illustration: 8–9: P. decades ahead," says Wolfgang Dorst, this process. In 2015 the government Source: ZEW 2015

COO Insights 2016 10 Cover story

DIFFERENT WORLDS To compare the level of activity in the area of Industrie 4.0 for different sectors, Bitkom examined 203 applications from the Industrie 4.0 Platform. Mechanical engineering was the biggest sector (28 percent of applications). In terms of type of application, assistance systems for automation solutions was the dominant category (34 percent, right). Industries Application categories 26 5 4 28

A B

Order-driven production Order-driven within the corporation production in a connected world

12 7

C D 16

Value-based services Value-based services Manufacture of computers, electronic for delivered for own plants/ goods, optical goods and electronic products machines Mechanical engineering equipment 13 5 34

6

E F

Automotive industry Assistance systems for Assistance systems Manufacture of basic metals and Other manufacturing industries automation solutions for enhancing energy fabricated metal products efficiency

9 4 3 3 3 7

G H

Transparency and Adaptive adaptability of factory delivered products

Manufacture of furniture Manufacture of chemical Manufacture of rubber, Manufacture of food 10 and other articles, repair and pharmaceutical plastics, glassware and products, beverages and 5 and installation of products ceramics tobacco products machinery I J

Figure to be read as follows: Mechanical engineering, for example, accounts for 28 percent of all Industrie 4.0 applications. It contributed 10 percent of all applications in the category Assistance systems for automation Adaptive Smart

solutions (E) and 4 percent of all applications in the category Value-based services for own plants/machines (D). logistics engineering Ettlich Julia Illustration: 10–11: P.

Source: Bitkom 2016

COO Insights 2016 Cover story 11

launched the Made in China 2025 pro- FOCUS ON EFFICIENCY gram, its answer to the German Indus- trie 4.0 initiative. In June 2016 a fund of What do companies hope to around USD 3 billion was set up for the achieve through Industrie 4.0? purpose of modernizing industry. The 80 Better acquisition of the German robot manu- 70 69% processes facturer KUKA by the Chinese Midea 60 Group was part of this strategy, as is the 50 interest shown in other companies such 40 as Aixtron (equipment for the semiconductor industry) and SGL (carbon-based 30 20 products). 57% Expand the 10 product range 6% One of China's chief goals is greater au- Better capacity tomation for small and medium-sized utilization 12% enterprises (SMEs). From the point of

view of the Chinese, the digital econo- More flexible work my is the key to future prosperity. At the organization last G20 summit in Hangzhou, Presi- dent Xi Jinping called for more support 13% 50% worldwide for innovation in this field. INDUSTRIE 4.0 In his closing speech to the meeting, he Address new Faster told the delegates, China would forge customer groups implementation of individual customer ahead with structural reform to open requirements up a new path for global growth. 14%

Companies in Japan and South Korea, Develop new business models 44% which are already highly developed, are or change existing 17% primarily concerned with increasing models 19% Lower production their productivity through intelligent costs networking. Greater automation and Better planning of the increased use of robots not only re- maintenance windows Lower personnel costs duce costs, however – they are also a way to avoid the consequences of rapid demographic change in these coun- Source: Bitkom 2016, survey of 364 firms with 100 employees or more. tries. Driving the change in these countries are major industrial conglomer- rative robots. Within Europe, Germany the new paradigm. In November 2015, ates, which are developing networked is the most important driver of the for example, the Center for European production systems initially for use in fourth industrial revolution. Germany Economic Research (ZEW) published a their own companies (see report on not only builds the machines that are study that has some surprising find- page 40). used in factories around the world, it is ings: "Only 18 percent of companies are also itself a key consumer of new pro- aware of the term Industrie 4.0, with In Europe, too, international competi- duction technologies. large companies much more frequently tiveness and demographic change play informed than small ones." And just an important role in the restructuring IMPLEMENTATION IS JUST BEGINNING four percent of those interviewed said of industrial production. Europe can Industrie 4.0 has been a discussion top- that they were "already digitizing and build on its relatively well-developed in- ic in the German business, academic networking production processes as frastructure and its large number of and political worlds for many years part of Industrie 4.0, or planning to do qualified employees. Industrie 4.0 prom- now. As a result, Germany also has the so in the near future." ises jobs that are also suitable for older most comprehensive data on the cur- workers, thanks to new technologies rent level of implementation by firms "We were surprised by the results our-

P. 10–11: Illustration: Julia Ettlich Julia Illustration: 10–11: P. such as augmented reality and collabo- and what companies want to achieve in selves. We expected a much higher level

COO Insights 2016 12 Cover story

of recognition," says Professor Irene The industry in the number two spot is Some industry pioneers already have Bertschek, Head of the Research Group no surprise: Manufacture of computers, their sights firmly fixed on Industrie 4.0, Information and Communication Tech- electronic goods, optical goods and the new guiding star. "Even if develop- nologies Information at the ZEW. "There electronic equipment accounts for ments have been evolutionary rather are some individual pioneers, but there 26 percent of all concrete projects and, than spectacular, a lot has happened in are also other companies that have no once again, assistance systems for auto- recent years," says Professor Jürgen Jas- capacity for the topic or who see Indus- mation solutions are the commonest perneite, who has been dealing with the trie 4.0 simply as the logical continua- applications. In third place comes the topic of Industrie 4.0 at the Fraunhofer tion of automation." automotive industry, which accounts Application Center Industrial Automa- for 16 percent of projects and likewise tion in Lemgo for many years now. 14 The level of recognition also depends focuses on assistance systems for auto- "Companies have built up new compe- very much on the industry in question, mation solutions. tencies, especially for developing smart- 13 however. Particularly companies er products and optimizing produc- in the fields of IT and telecom- EFFICIENCY INNOVATIONS tion." munications, the electrical TO THE FORE industry and mechanical en- "Current applications Unlike smart products and smart pro- gineering understood what mainly relate to automa- duction, however, companies have so far Industrie 4.0 was about. The tion", says Wolfgang Dorst, neglected smart services – new, intelli- transportation and logistics summarizing the results of gent services relating to their products, sector, by contrast, came bot- the study. "These are efficien- says Professor Jasperneite. In the area of tom of the list – despite the fact cy innovations, not break- networked production, the topic of re- that Industrie 4.0 will be of great impor- through innovations." Dorst is clear, al-time analysis of machines, plants and tance here as supply chains become however, that there is no alternative to entire factories is high on companies' more closely integrated in the future. Industrie 4.0 and its disruptive changes: agendas – a further indication that pro- "The critical thing is for as many compa- cess optimization is currently the stron- The Bitkom study "Industrie 4.0 – Status nies as possible to start off down the gest driver of Industrie 4.0. But there are and Prospects" reveals what pioneering road now." also some companies that are tapping German companies are doing in this re- the potential of Industrie 4.0 above and spect. Based on individual analyses of beyond efficiency improvements. 203 applications from the "Industrie 4.0 6 Platform", it provides an overview of the FROM MARATHON BRINGING MANUFACTURING BACK industries in which companies are al- FROM ASIA ready carrying out projects and the most TO SPRINT 5 One such company is the sports article important categories of applications. Speedfactory not Industry 3.0: manufacturer adidas, which has already The top industry, accounting for 28 per- Adidas uses a highly automated, implemented Industrie 4.0 in some ar- cent of all applications, is mechanical individualized production system eas. Rather than producing sports shoes engineering, which focuses on assis- that dramatically speeds up the in large quantities in Asia – the old In- tance systems for automation solutions. introduction of new products. dustry 3.0 approach – adidas plans to use its Speedfactory, a production facil- ity located close to its customers, highly 2 automated and able to produce individual running shoes in a short space of time. "In today's constantly changing 1 world, our consumers want the latest Adidas Speedfactory and newest products – and they want Delivery within a few them now," says Herbert Hainer, CEO at days or weeks adidas until September 2016. This is 1 where the Speedfactory does its name justice: New shoes reach the customers in a matter of days or weeks, not after 18 months of design, production and

shipping from Asia to Europe or the US. Ettlich Julia Illustration: 12–13: P.

COO Insights 2016 13 Traditional production 18 months to market launch The first Speedfactory is located in Ans- INDUSTRIE 4.0 PAYS 17 bach near the adidas headquarters and should be producing around 500,000 DIVIDENDS pairs of shoes as early as 2017. The sec- Not just increased profitability: 16 ond Speedfactory will be built in the US the impact of Industrie 4.0 for a typical next year. "When I joined adidas in 1987, automotive supplier 15 production had just been moved to Asia," says Hainer. "Now we've come full Profitability circle and production is coming back 14 here." Today Industrie 4.0 6% 13 % Individualized mass production and the return of industrial jobs to high-wage countries in the West are two of the key promises of Industrie 4.0, as exempli- ROCE fied by adidas. If the fourth industrial revolution is to be a success, the broad mass of small and medium-sized enter- Today Industrie 4.0 prises need to share the enthusiasm for 15% 40 % the topic currently shown by pioneering companies. Bridges need to be built for them today so that Industrie 4.0 does Capacity utiliza not take them by surprise at some point tion of plants in the future.

Today Industrie 4.0 Companies that successfully manage 65 % 90 % the change to the new world of industrial production can hope to see a significant increase in profitability. Roland "When I joined Capital turnover Berger has calculated how Industrie 4.0 (sales/invested Adidas in 1987, affects return on capital employed capital) (ROCE) for an automotive supplier, as production had an example. With a virtual factory (sim- Today Industrie 4.0 ulation of the production process), auto- 80.6% 100% just been moved mated material flows, intelligent machines, predictive maintenance and a to Asia. Now networked production system, the supplier's ROCE increases from 15 to 40 Personnel costs we've come full percent. This increase is due to im - proved productivity caused by falling wage costs, greater added value and op- Today Industrie 4.0 circle and 100 % 55 % timized capacity utilization of equip- production is ment. Industrie 4.0 also leads to higher capital turnover: Each euro or dollar in- coming back vested leads to higher sales, partly be- Machine cause machines can be adapted faster to park here." new products and have shorter down- times. Projecting the figures for Western Today Industrie 4.0 Herbert Hainer, CEO at Adidas European countries, Roland Berger esti- 100 % 70 % until September 2016 mates ROCE of 28 percent in the year 2035 thanks to Industrie 4.0, compared

P. 12–13: Illustration: Julia Ettlich Julia Illustration: 12–13: P. to 18 percent today. Source: Roland Berger 2016

COO Insights 2016 Cover story Deep dive 1 Deep dive 2 360° networks From development to service: Companies benefit in multiple ways from Industrie 4.0.

by Oliver Herweg The art of the O-ring

O-ring Small component, big choice: O-rings come in various sizes. Industrie 4.0 makes it easier to select smallest the right one. inner diameter 3.56 mm

100

200

300 Checking the parameters

major deviations largest inner diameter target range 400 mm minor deviations

1.5 Thicknesses 1.5 mm–8.4 mm Illustration: Julia Julia Illustration: Ettlich 14–15: P. Deep dive 1 15

ometimes progress comes from the cess. They can configure their O-rings is most likely to offer solutions for each most unexpected places. From sales around the clock, check their availability type of company. Freudenberg Sealing of O-ring seals, for example. O-rings and in the case of selected customers or- Technologies is a good example of how Sare used in industry, as well as in millions der them immediately. The company's sales of individualized mass products can of regular faucets. Customers of Freuden- sales staff and engineers also benefit from be made more efficient through having a berg Sealing Technologies can use the no longer having to deal with standard in- web shop: A complex piece of software company's online O-ring Configurator to quiries. Instead they can concentrate on guides customers through the selection order specific models from a portfolio of more demanding tasks. The O-ring Con- process, makes sure the chosen item is fit almost 30,000 articles. Choosing the right figurator is a good example of the changes for purpose and meets the relevant ISO O-ring may sound like a simple task but in that are taking place in Industrie 4.0. Prod- standards, and allows selected customers fact it requires a great deal of experience ucts that can be individualized are becom- to place their order immediately. and know-how. "You need a whole range of ing more and more important – as are engineering skills to choose an O-ring that sales tools that can help customers config- VIRTUAL MACHINES is going to function reliably," explains ure and order those products, while at the Another area where Industrie 4.0 has many Christophe Meyer, Senior Manager of Dig- same time saving suppliers from having to potential applications is in production ital Business Development at Freudenberg deal with too many inquiries. planning. Companies that manufacture Sealing Technologies. "Besides the dimen- bulk mass products or complex products sions of the installation space, you have to But Industrie 4.0 is not just fundamentally can benefit particularly here. For example take into account the operating tempera- changing the sales process. The new para- Grieshaber, a German Mittelstand compa- ture, what it is you're sealing, the pres- digm will affect the entire value chain, ny based in the town of Schiltach in the sure load and other factors." from sales, product and production de- Black Forest. Each year Grieshaber turns sign, purchasing and production to logis- up to 3,500 tons of aluminum into That's where the O-ring Configura- tics and aftersales. Different companies high-precision parts for the automotive tor comes in. It takes customers are affected in very different ways by the industry, specializing in parts that are par- step-by-step through a series of changes. Roland Berger has classified the ticularly difficult to manufacture. The questions about the O-ring and different types of businesses and identi- company uses complex multi-spindle ma- where it is going to be used. Cus- fied where in the value chain Industrie 4.0 chines with Siemens controls for produc- tomers are then shown a design tion. cockpit where they can check that all the figures are in the Grieshaber uses the Siemens NX Virtual green range; any deviations are Machine tool for NC programming and shown in yellow or red, depend- simulation. All the processing operations ing on how big they are. The can be programmed on a normal desktop O-ring Configurator then selects Custom work not computer as if the operator were standing the products from the Freuden- directly at the machine. The operator can berg catalog that best meet the cus- mass production then check that everything works as tomer's requirements. Next, the ma- planned before actual production starts. terial assistant suggests the option The business model is critical This not only avoids collisions, it also cre- that best suits what it is the customer The benefits of Industrie 4.0 and how ates transparency over the sequence and wants to seal and the operating tempera- urgently you need to act depend on the duration of individual processing steps. A nature of your business. ture, from 30 different options. "The big- simple graphic shows how long the indi- gest challenges when designing the O-ring Analyze the value chain vidual tools on the spindles are in use. De- Configurator were categorizing the differ- Where in the value chain you should tailed timing data provided by the virtual ent technical design parameters, program- focus on implementing Industrie 4.0 machine also forms a basis for optimizing ming the software so the options were dis- depends critically on what segment production: Given the large numbers of played correctly, and designing a tool that you are in. items produced, saving a tenth of a sec- customers could use intuitively, without Develop your own strategy ond off a process can quickly add up to having expert knowledge," says Meyer. Companies must develop their own savings of several days over the course of a Industrie 4.0 strategy – blanket year. MAKING LIFE EASIER FOR ENGINEERS solutions are of little use here. Freudenberg's customers now benefit But it's not only in configuring machines

Illustration: Julia Julia Illustration: Ettlich 14–15: P. from a fast, uncomplicated ordering pro- that Industrie 4.0 solutions provide great-

COO Insights 2016 16 Deep dive 1

er accuracy. During the production pro- chines. "In the past we had to stop the cess, quality can be further improved by "In the past we machines and program the new process intelligent technology. The industrial con- had to stop the parameters manually. That took a lot of nectivity specialist Weidmüller from the effort, and the experience of the machine city of Detmold in North Rhine-Westpha- machines and operators was important," explains Horst lia has seen how this works in the met- Kalla from Weidmüller. "With the new al-processing industry. The company pro- program the new technology this is no longer necessary, duces metal parts for industrial which avoids interruptions and signifi- connectivity using complex, multi-stage process parameters cantly reduces the amount of rejects." forming processes that need to be extremely accurate even when making large manually. That took SMOOTH SUPPLY-CHAIN PROCESSES quantities of items. To ensure consistently Businesses also face particular challenges high quality, Weidmüller uses a camera a lot of effort. With when it comes to logistics. In the age of system that continuously monitors pro- Industrie 4.0, logistics will change notice- duction and automatically counteracts the new technology ably due to the increasing integration of any deviation from the specified geometry suppliers, manufacturers and logistics of the work pieces. this is no longer partners. Smooth processes are essential necessary." for tomorrow's supply chains. Pioneering Thanks to this technology the manufac- companies such as Herma from Filder- turing process can run continuously, stadt in southern Germany demonstrate Horst Kalla, Weidmüller even where deviations occur due to tem- how modern technology can be used to perature fluctuations or wear on the ma- optimize logistics. Between 700 and 800

WHERE DOES THE GREATEST POTENTIAL LIE? Industry clusters can be formed along the three axes "lot size", "individualization" and "automation potential". The higher the line, the greater the potential. The width of the band shows the importance of Industrie 4.0 for different stages in the value chain. High High Lot size Lot Standard Low Medium Low Configured Engineered

Individualization

Automation potential Degree of automation Low Low or Medium High Clusters "Cottage-industry products" Mass production Customer-specific serial products Medium (i.e., standardized items, with high automation potential large lot sizes)

Examples Musical instruments, Clothing, rolling bearings, Vehicle injection-molded parts, Julia Illustration: Ettlich hand-painted porcelain, roof tiles, tools circuit boards, packing materials

mechanical watches 16–17: P. Source: Roland Berger 2016

COO Insights 2016 Deep dive 1 17

pallets of adhesive materials and products pallet or wrong truck." Guidance systems uses GPS to tell you where the nearest re- currently leave the plant every day, and for forklift trucks are just one element in pair shop is and gives you its telephone that volume is growing around 10 percent tomorrow's logistics systems. Numerous number." Drivers can also use the app to a year. "We have to avoid faulty shipments research institutes are already working on read the QR code on the defective vehicle because they lead to high costs and major solutions such as autonomous intra-logis- part, which ensures that the breakdown problems with getting the products to our tics systems that draw on the principles of service brings the right spare part. customers on time," says Frank Baude, swarm intelligence. head of logistics at Herma. CONNECTED INFORMATION Delivery of the goods is not the end of the The vehicle repair shops can also access OPTIMIZED SHIPPING LOGISTICS product life cycle, of course. Industrie 4.0 the SAF-Holland online catalog via the Herma uses a broadband location meth- creates lucrative market opportunities in app, and get details on how to install the od to optimize its shipping logistics. Each the area of intelligent services. As with spare parts correctly. If shipping the part forklift truck is fitted with four tags that sales, businesses can exploit these oppor- would take too long, the app tells you the are used to determine their position and tunities by using online solutions that give closest dealer that has it in stock. This direction of travel to within a few centime- end users or dealers easy access to spare connecting of location information, parts ters. A display screen directs drivers to the parts, for example. The automotive suppli- identification via the QR code and access location of the pallets and the waiting er SAF-Holland uses its SH Connect app to to the current inventory makes the app a truck. "The system knows exactly where meet these expectations. "The app is useful model for aftersales solutions in the age of the goods are in the shipping area and for truck drivers who urgently need spare Industrie 4.0. which truck they need to be loaded onto," parts while on the road, for example," says says Baude. "So we can immediately see if Thomas Piroth, responsible for strategic Contact: a forklift truck is heading for the wrong business development at SAF-Holland. "It [email protected]

Service

Logistics

Production

Purchasing

Production planning

Design

Distribution

Industrie 4.0 in each Customized products with a Configured products with Standardized products with Configured products stage of the value chain large element of manual simple manufacturing complex manufacturing with complex manufacturing production processes processes process

Illustration: Julia Julia Illustration: Ettlich Vehicle wiring harnesses, Customer-configured sports Refrigerators, cell phones, Automobiles, airplanes bodywork tools, control shoes, configured seals, power tools, computers

P. 16–17: 16–17: P. cabinets, gas turbines configured furniture

COO Insights 2016 Cover story Deep dive 1 Deep dive 2 Pythons and products Competition 4.0 opens up unique opportunities for new business models – as long as newcomers and incumbents do the necessary work quickly and thoroughly.

by Ralph Lässig and Christoph Schäff

f you want a foretaste of tomorrow's tainer management and monitoring mo- automation solutions, take a look at bile radio communication stations. the ModBerry 500 produced by the IPolish company Techbase. The small box The ModBerry demonstrates that hard- houses a single-board computer based on ware will almost become a product just the Raspberry Pi, a long-standing favorite like any other in the age of Industrie 4.0. with millions of school kids, students and Suppliers who don't want to lose out in electronics enthusiasts. But the develop- Competition 4.0 cannot rely exclusively on ers of the ModBerry have a different appli- populated boards in the coming years – cation in mind: industrial automation, "If we put the unless of course their products contain previously the domain of expensive spe- unique know-how for lucrative niche appli- cial hardware. The tiny box packs ample computer in an cations. This is not the only fundamental computing power, storage space and in- change facing industrial suppliers, either. terfaces, while the open-source operating industrial box and Industrie 4.0 will lead to serious upheav- system Linux provides a stable platform als in discreet manufacturing. Established for numerous applications. implement the and new suppliers will have to make changes to their development, produc- "In our experience many processors are necessary tion, integration and mastery of automa- replaced after just a short time, so we protocols, it offers tion systems. Supply chains will expand chose a tried-and-tested solution like the and a fundamental shift will occur in the Raspberry module," says Bartosz Bielawski even more features focus of value creation. from Techbase. "Also, software is much more important than hardware these than other solutions Three levers are the key to success. Suppli- days. If we put the computer in an indus- ers need to build new software competen- trial box and implement the necessary on the market." cies as value creation shifts away from protocols, it offers even more features hardware and towards programming. than other solutions on the market – at a They must recognize the opportunities much lower cost." Techbase's customers Bartosz Bielawski, Techbase and risks created by the waning impor- use the ModBerry in areas such as ma- tance of hardware and react in a timely chine-to-machine communication, con- manner. Moreover, through partnerships, Julia Illustration: Ettlich 18–19: P.

COO Insights 2016 19

Newcomers create competition for incumbents

Suppliers must adapt their portfolios SUPPLY CHAINS AND THE FOCUS OF VALUE CREATION SHIFT

INDUSTRIE 4.0 LEADS TO COMPETITION 4.0 Standards replace special solutions

mergers or acquisitions they need to bring external know- how into their organizations so they can quickly adapt their portfolios to the new environment. 3EXTERNAL DRIVERS 1 NEW KEY COMPETENCIES AND A NEW WAY OF HARDWARE BECOMES THINKING A PRODUCT JUST LIKE More than anything else, mastering ANY OTHER new software architectures will be essential for suppliers. Future require- Value creation shifts ments will differ significantly from toward software those of the past. For example, instead of hardware programming languages Internet languages such as Java such as C, "Internet languages" such as and HTML5 gain in importance Java and HTML5 will increasingly be used for automation. The communication standards in Industrie 4.0 will also come from the Internet: Everyone agrees that Internet Protocol (IP) will ultimately replace proprietary standards and protocols in factories. Suppliers will also have to tread new ground in the area of data management. On the one hand, Big Data plays a key role for their customers in op- Drawing inspiration from the timizing their processes; on the other, programming language Python and the idea of with increasing vertical integration of Industrie 4.0 as a guiding star, the illustration is based

Illustration: Julia Julia Illustration: Ettlich 18–19: P. data, the importance of booking-based on the "Serpens" constellation – the Serpent.

COO Insights 2016 20 Deep dive 2

Bundle employees NEW KEY COMPETENCES AND A in incubators NEW WAY OF THINKING

Occupy lucrative niches 1

RECOGNIZE THE OPPORTUNITIES Outsource subgroups AND RISKS OF COMMODITIZATION of the company

SUCCESS3 FACTORS 2

Sinking margins and cutthroat competition

databases such as SAP may also grow, you outsource a subgroup of the compa- compared to real-time data from manu- ny, giving it a degree of autonomy and facturing execution systems (MES). using it as a startup for generating inno- The rules of the vative ideas. For suppliers it will be important not just to build new software competencies but game for RECOGNIZE THE OPPORTUNITIES to adapt to a completely new way of 2 AND RISKS OF COMMODITIZATION thinking and a new approach. Program- companies are The prospects for pure hardware suppli- ming in Java not only enables plat- ers are not good in Competition 4.0. Few- form-independent software develop- changing. Small, er possibilities for differentiation will ment, it also calls for different software lead to declining margins and cutthroat architectures. For particularly time-criti- flexible units can competition. As we saw before, unique cal projects, in future it will be possible selling points are really only possible to use fault-tolerant programming lan- speed up with software or through innovation in guages such as PHP and Python, in which the business model, such as additional applications can be developed much fast- innovation. modules or a particularly well-designed er than in C or assembly language. user interface. Another option is to intro- duce extra functions offering clear added The rules of the game are changing. How value compared to regular features or can suppliers adapt with the necessary open-source products, and making users speed? Two approaches are possible. The pay for them – for example, free engine first is an "incubator approach", in which control with an optional chargeable you bundle creative employees with the module for wear monitoring. right mindset in a separate internal unit, helping them develop new ideas. The sec- Combining free and chargeable features, ond is an "excubator approach", in which if done in a strategic fashion, can im- Julia Illustration: Ettlich 20–21: P.

COO Insights 2016 Deep dive 2 21

Join the M&A game

Expand services through forward integration

Become a winner in the digital transformation

FORGE NEW UNIQUE OPPORTUNITIES PARTNERSHIPS FROM COMPETITION 4.0

3

prove a suppliers' market prospects. Us- Forward integration may also be an attrac- and continue to offer core elements of the ing open-source software creates a broad tive strategy. Expanding the range of ser- portfolio themselves. Otherwise they risk user base for generating revenue from vices offered can reduce the complexity of losing their leading position and being add-ons. What is crucial, however, is that the relationship between industrial cus- seen merely as second-tier suppliers. the open-source software does not im- tomers and their suppliers. Producers of pinge on the core know-how of the pro- drive systems, for example, might want to UNIQUE OPPORTUNITIES FROM vider. add integrated drive control solutions to COMPETITION 4.0 their portfolio. Suppliers of engines could Industrie 4.0 is both good and bad news for FORGE NEW develop a solution for executing individual suppliers. The bad news is that the cards are 3 PARTNERSHIPS three-dimensional motion profiles. Manu- being reshuffled: Companies cannot afford Standard hardware rather than tailor-made facturers of robotic systems could use their to rely on the current success of their product solutions for automation: Suppliers of in- systems knowledge to offer a complete range or market position given the rapid pace dustrial software must adapt to this future solution for assembly lines. of technological change. Only those players trend and try to build on existing solutions that do the necessary work quickly and thor- rather than coming up with their own inven- Expanded portfolios like these require oughly, positioning themselves along the tions. One option is to use open-source or companies to rapidly develop new compe- three strategic levers, will remain successful. standard APIs from the IT world. Companies tencies. This can be done through strategic The good news is that the upheaval brought can also integrate "software as a service", for partnerships, acquisitions and mergers. about by Competition 4.0 opens up unique instance incorporating Big Data algorithms Suppliers will increasingly have to join the opportunities for newcomers and innovative or artificial intelligence into their product M&A game in the future. But before they do incumbents. Make your products and pro- range. Developing your own software only so, they need to answer some fundamental cesses future-proof today and you can be a makes sense if this creates possibilities for questions. In which product areas does a major winner in the digital transformation differentiation. As with PCs, in the world of partnership make sense? Where would an that is taking place in industry. Competition 4.0 suppliers should use exist- acquisition be useful? In which areas is no ing products from the "community" wher action needed? It is crucial that suppliers Contact:

Illustration: Julia Julia Illustration: Ettlich 20–21: P. ever technically possible. retain their knowledge of the entire system [email protected]

COO Insights 2016 PEOPLE, MARKETS AND MACHINES

Intelligent products and tailored services: Digitization is revolutionizing the way we live and work. Yesterday's science fiction is today's reality.

Lending a hand With the da Vinci Surgical System, doctors can perform operations remotely. The robot allows the surgeon to work with greater accuracy, while the minimally invasive technique reduces the risk to patients. P. 22–23: Photos: Christian Thomas, ©2016 Intuitive Surgical, Inc. Surgical, ©2016 Intuitive Thomas, Christian Photos: 22–23: P. Photo Story 23 P. 22–23: Photos: Christian Thomas, ©2016 Intuitive Surgical, Inc. Surgical, ©2016 Intuitive Thomas, Christian Photos: 22–23: P.

COOCOO Insights Insights 1 20| 201616 24

At your service Server farms are the nerve centers of a networked, digital economy. In the old days telephonists used to connect people by hand; nowadays computers send huge amounts of data around the globe in the blink of an eye. P. 24–25: Photos: Christian Thomas, Photographer's Choice/GettyImages Photographer's Thomas, Christian Photos: 24–25: P.

COO Insights 2016 25 P. 24–25: Photos: Christian Thomas, Photographer's Choice/GettyImages Photographer's Thomas, Christian Photos: 24–25: P. 26 Photo Story P. 26–27: Photos: Christian Thomas, PR/Tesco Thomas, Christian Photos: 26–27: P.

COOCOO Insights Insights 1 20| 201616 Photo Story 27

Shopping walls No more waiting in line. In a Seoul subway station commuters can shop with the help of an app. You photo- graph the QR code under the picture of the product and the goods are delivered directly to your home. A

P. 26–27: Photos: Christian Thomas, PR/Tesco Thomas, Christian Photos: 26–27: P. similar service is also available at London's Gatwick Airport.

COO Insights 1 | 2016 28

"We want to be the 'Intel Inside' of the digital economy."

COO Insights 1 | 2016 COO interview 29

Bernd Leukert, Product Chief at SAP, talks about cultural change at SAP, the significance of having German roots in the global cloud business, Industrie 4.0 in Europe – and hypoglycemic Japanese bus drivers.

Interview: Thomas Rinn, Carsten Rossbach and Thomas Reinhold Images: Andreas Reeg

SAP has long been selling a digital prod- transparency and offers insights into uct. What about SAP's own digital trans- competitors' products. Some people formation? don't like that, but if you don't address Well, if I said there wasn't one I would this area of competition you'll soon be clearly be in the wrong job! In the past out of the game entirely. the software, which we've now been That's what a lot of people are saying. building for the last 44 years, supported How do your clients react? core value-added processes. In the future When the president of a bank tells me it will become a part – an essential part, that more than 50 percent of his bauspar even – of those value-added processes, contracts now come via Internet plat- including for traditional manufacturing forms rather than the branches, then ob- companies. viously there's going to be a major re- What do you base that on? think in the banking and insurance In the old days you had a Production market – and at SAP, too. One of the Manager or Plant Manager, plus an IT things our Chief Digital Officer is going Manager. The two functions were clearly to do is create an online store, a bit like separated in the company's organiza- the Apple Store. We want to offer prod- tional chart. In the future they can no ucts on a smaller scale, not only to CIOs longer be kept apart. Some firms are al- and COOs but also to the heads of busi- ready trying to break down the divisions ness units, whether they are Chief Pro- by appointing a Chief Digital Officer curement Officers, Chief Finance Offi- who makes the two sit down at the same cers or Chief Marketing Officers. We table. want to give them with the tools for opti- And SAP? mum control of their business areas us- We have a Chief Digital Officer – partly ing digital support. because we plan to distribute our soft- That sounds almost as if the Chief Digital ware in future through digital channels Officer's role was that of a sales manager and partly because in the age of Big rather than the person responsible for Data we want to explore new, digital digitization at SAP. business models with our clients and The question is, what comes first? If I on their behalf. In the future, sales spe- want to drive the transformation, I can cialists will still visit clients to show try to turn the world upside down and them the products, and they will still convince my employees about the change present the products to clients at trade process. Or we can start at the other end fairs, but these activities will become and try to transform SAP internally by re- much less important. defining our commitment to clients. A lot more will be sold via digital market- And is it working? places? Well, it begins with sales, but that's not Yes, because digitization creates market where it ends. It also affects develop -

COO Insights 1 | 2016 30 COO interview

"Today we develop software together with our clients," says Bernd Leukert (center). In conversation with Roland Berger Partners Thomas Rinn (left) and Carsten Rossbach. ment, the area that I'm responsible for. Bernd Leukert Consuming software from the cloud will The way we develop software has changed be the standard default model in the fu- fundamentally. In the old days we tried After completing his Master's in Business ture. No company is setting itself the to understand the market, recording Administration at the University of goal of owning and operating a datacen- specifications and requirements in docu- Karlsruhe, Bernd Leukert studied for a year ter with all its hardware. What they want ments that were then approved in review at Trinity College Dublin, Ireland. On his is to use the software. Today the only ar- processes. In the traditional waterfall way home he bumped into a friend who gument for running a datacenter your- model that meant software development was working at SAP. self is that it gives you control over the followed by quality assurance and mar- data and its security. The question is no ket launch, followed by feedback pro - What started out as a chat over a cup of longer whether I should set up, under cesses. We had to wait 12 to 18 months coffee became the cornerstone of his the CIO, an IT department whose job is just to get the feedback. professional career. In 1994 he began to be constantly testing, installing and Is it quicker now? working as a software developer at running software. Yes. Today we develop software together SAP R/3. Since 2014 he has been a But there's more to it than that. with our clients. One company recently Member of the Executive Board of SAP The second argument is that companies suggested setting up a joint "Internet of with global responsibility for the will find it increasingly difficult to keep Things lab" with us. In other words, our development and delivery of all products up with the fast-paced cycles of digital clients have the expertise in whatever in- across SAP's product portfolio. change. Their IT departments need to be dustry it is, and we provide the digital permanently up-to-date with the latest competence. In the digital world you In addition, he heads strategic innovation knowledge. Sometimes it's the CIO who can't build software without defining initiatives and drives the development of puts on the brakes, although he's actual- new business models. new growth opportunities at SAP, for ly the person who should be driving digi- Talking of business models, you have been example in the area of the Internet of tization within the firm. But he needs a active in cloud transformation for many Things, Industrie 4.0 and SAP S/4HANA. team that can actually implement what years now. What has been your experi- the market offers. We are seeing a change ence? from having a product to simply using it, Reeg Andreas 30: Photo: P.

COO Insights 2016 COO interview 31

from ownership to consumption. The At the time, we made the mistake of … and then reach those target groups important thing is how quickly you can transferring SAP Business ByDesign to functionally and via business areas, in implement innovations in the company, the cloud as an entire suite, while the some cases regionally. So, you get rid of how quickly you can use those innova- market was initially only looking for par- your own customer basis in order to posi- tions to generate value. If you block the tial solutions. Prior to the acquisition of tion the new product … path with your own IT solutions, you risk SuccessFactors, Ariba, Concur and Hy- Well, not quite. We wouldn't have been being quickly overtaken by solutions bris, integration was considered easy; able to build close relationships with the from the cloud. later it became a major dilemma. What heads of HR departments like those we SAP has intentionally cannibalized itself. the market taught us was that you must gained by acquiring SuccessFactors. Sud- Did you face any resistance? How did you consciously give up known assets in or- denly we had a development and sales keep people on your side during the revo- der to later revitalize them and convince organization that was focused exclusively lution? customers of the added value of integrat- on HR directors and their departments, That was a major transformation for SAP. ed business processes. and had built up relationships with pre- We had to suddenly explain to our staff, You say the cloud is coming. In the past cisely this group. The CIO was, intention- after telling them for years that margin the CIO was your customer but now that ally, our second point of contact. We was important in the capital market, that is less and less often the case. In other didn't just acquire a piece of software, a now growth in the cloud was the impor words, at the same time you have to shift datacenter and a cloud business – we tant thing in the short term, and with it the focus of your people onto other target acquired customer relationships. market presence and market penetra- groups … … which would have been inconceivable tion, and only then margin. That is par- Exactly. simply through organizational growth. ticularly difficult for a company listed on the DAX and rated by financial analysts on the basis of traditional criteria, while new startups are rated purely on the ba- GROWTH IN THE CLOUD sis of growth. Cloud services are becoming a significant factor in sales growth at SAP. Their share of total Do you have a secret recipe for cultural sales is set to almost triple by 2020, with even stronger growth in terms of hard cash. change? I can only tell you about my experience. If you think you can leave existing struc- 2015 2020 tures unchanged and simply add new goals you are doomed to failure. Later on you will realize, painfully, that no change Approx. has actually taken place. You need to EUR 2.3 bn 11% EUR 7.5–8 bn 29% consciously establish a new business model and a new way of working, ideally in a separate organization. We recognized and implemented this at SAP. The second thing we had to learn – and this was the reason we made some acquisitions – was that moving into the cloud doesn't mean transferring overnight all Approx. the software that controls your core pro- EUR 18.5 bn 89% EUR 18.5–20 bn cesses from your on-site datacenter to a 71% cloud datacenter. So, there are organizational forces that resist change? Yes. But the person who makes the pur- TOTAL: EUR 20.8 bn TOTAL: EUR 28.0 bn chase decision about moving to the cloud is usually not the IT boss but the Head of Sales or the Head of Procure- SAP sales: Cloud Software licenses and support, services ment.

P. 30: Photo: Andreas Reeg Andreas 30: Photo: P. Why is it important to bear that in mind? Source: Oxford Economics/SAP analysis update 4/2016

COO Insights 2016 32 COO interview

The second thing we could never have managed is the internal transformation – teaching the team that we're not just build- "In the digital ing software anymore but also responsible for operating it. We had no experience of what it meant to provide customers with a system 24 hours a day, 7 days a week, 365 world you can't days a year. In contrast, the CIO of every customer's company had this experience, but they were too slow. Through the acquisition we bought in speed as well as access build software to the decision-makers. What can we expect to see from SAP in the area of service? We've heard about full responsibility for topics such as mo- without defining bility in the area of processes. Two points. First, we're making all SAP's core business processes available as digital services. But we're going further than new business that. The other thing is that we plan to provide software that will support the new business models that are made possible by digitization. And I use the word models." "support" intentionally: We don't plan to take over the business models. We want to be the "Intel Inside" of the digital economy. Is there any alternative for SAP? from A to B, taking into account traffic We could have become to the industry jams? If I'm driving into downtown Hei- what Google is for consumers. That delberg, say, I'd also like to be able to re- would have put us in direct competition serve a place to park my vehicle using an with our clients. But we decided against integrated system and not turn up on a it. We want to function as an enabler for Saturday morning to find all the parking all our clients, providing them with a dig- garages full. And you can take this further. ital platform and building services Once I've found a place to park my vehi- through co-innovation. cle, I currently have to search for a park- And the second point? ing meter using a card or chip, then go We are active in 25 different industries back to my vehicle. Why can't I just get in and we want to enable our clients to offer my car and go, and have the system iden- digital services across all industries. I tify the vehicle and send me a monthly never get tired of telling automobile bill, like with my cell phone? The same manufacturers that although they can goes for filling up with gas or booking "only" offer mobility as a service, they restaurants. The vehicle manufacturer have a tremendous opportunity: Their could charge the party involved a small customers own the vehicle, in other fee each time. At SAP, we want to be the words the platform. They can offer a firm that networks industries and ser- whole host of other mobility services via vices and brings them into the vehicle. that platform through digital access. So, we're just at the beginning of the road. SAP-Kunden sollen digitale What sort of services are you discussing The same thing goes for other industries. Services über Industrien with them? Customers don't really want to own air hinweg anbieten können. Why should the vehicle only offer me a compressors, they want to consume navigation system that shows me the way compressed air. If German manufactur-

COO Insights 2016 33

ers claim to have a quality advantage, they should offer to put a compressor in your factory and just invoice you for use of the machine. But they already do – Kaeser, Air Liquide. Why do we need SAP? Because we can make it digital. We can continuously monitor the state of the compressors. We know all about connecting end devices to platforms via sensors, offering evaluations, triggering warnings from the service center, prefer- ably before the compressor breaks down. That's predictive maintenance. Turning this into a business model – along the lines of "my vehicle never breaks down" or "my compressor has zero downtime" – is a clear competitive advantage. We have the necessary platforms on which to connect innovative business models to a digital core. That brings the Head of Pro- duction and the CIO together. Suddenly they discover that they like each other and want to work together. But there are plenty of companies specializing in monitoring solutions that can beat you on price or speed because they occupy niches. Is size an advantage or not? Of course, such companies do exist. They make our life difficult with some clients, there's no denying it. But many of them have problems when they try to go beyond the pilot project, proof of concept or isolated area of business to global roll- out. That's where scalability comes in. That's what separates the wheat from the chaff. Suddenly the client needs service centers in Latin America, Asia and southern Europe – and it realizes it's sourcing the service from a startup. So, really, you are saying you support operator models with software? Yes – innovative, digital business models. Many companies are unable to go on delivering services for long without advance payment. They need to be selling machines in order to be financially stable. Could SAP act as a partner by supporting financing models? What we offer is a risk-sharing model. We don't want to develop financial services as such.

COO Insights 2016 34 COO interview

annual revenues as a fine, so if they do it 25 times that's all their revenues gone for "We want to be the year. We've always supported these ethical principles. Data security, data protection … Do your clients still see you as a German company the firm that or as a multinational corporation? We are a global company with our head office in Germany. Our company is com- mitted to the moral principles of the networks Western world and respects – and indeed goes beyond – the requirements of both German and European data protection regulations. industries and Is it sometimes useful to position yourself as a European company, as people still have reservations about giving their data to the cloud? services." Yes, there's no secret about that. It's not just about technology, it's about trust. For more than 40 years we have had access to our clients' data and intellectual property. And we have never misused it. Don't you have to, for your business to be eryone should be offering their own plat- That's something I'd like to stress. This successful? form. Other companies also want to be is something that is highly valued in dig- I don't think so. Companies are willing the enablers for digital business models. itization. In my discussions with deci- to share the risk with us along with the How many platforms can there be? sion-makers, security and trust are al- benefits. For instance, we offer to devel- I have a strong opinion about that, one ways among the top-three discussion op digital solutions without the client that not every company agrees with. points. So, having our head office in Ger- having to pay for the licenses right away. That's what we thought. many and having the ethical roots of a This will be the next pillar of our busi- I look them straight in the eyes and ask German firm gives us clear advantages. ness that grows in importance as a result them what they want their company's Let's leave SAP for a moment. You were of digitization. The only risk for clients is core competence to be going forward. If one of the key individuals driving the In- if they change their model and have to they want to compete with SAP, Microsoft dustrie 4.0 Platform. How satisfied are pay large fees to SAP for licenses or to the and IBM, that's their prerogative. We you with the progress that has been cloud, but their customers haven't ac- don't plan to start producing lawn mow- made? cepted the new business model yet. If ers or refrigerators – although we could, We have made great progress moving the we're willing to share the risks with our and indeed some IT companies are actu- topic of Industrie 4.0, which was focused clients and co-innovate with them, then ally doing this, such as Google and Apple on production, onto digital services. In the days are over when SAP makes pre- with their cars. I believe that companies particular we have brought together licensing deals worth millions. that do not look for a strong IT partner businesses, social partners, trade Instead you have a more sustainable busi- will fail sooner or later. unions, politicians and academics, and ness model, one that allows for advance Firms that work with you don't need to also given SMEs and Mittelstand compa- planning. worry that you will monetize their data nies access to digitization via the Labs Exactly. Machines and plants are getting again elsewhere? Network Industrie 4.0. Without a large connected, vehicles are being networked, No. We give our clients a written guaran- initial investment. That was an extreme- and that also makes advance planning tee of that. The European General Data ly big hurdle. easier in our industry. But for the finan- Protection Regulation with its right to So, what's next? cial market, it still means that neither data protection and privacy will ensure Now we need to make it clear to everyone the customer nor SAP has those big up- that other corporations do the same in that the industry's digital race will not be front deals at the beginning. the future. Any company that breaks the won or lost in Germany or Europe. We

In the age of Industrie 4.0 it seems like ev- rules will have to pay 4 percent of its must open ourselves up and work with Reeg Andreas 35: Photo: P. COO interview 35

partners in the US (the Industrial Inter- Who do mean when you talk about Asia – Why not put sensors in their uniforms net Consortium) and Asia. We have made China? Japan? that can spot if they're feeling tired or great progress, enabling access to tech- The Chinese are very ambitious. They about to go hypoglycemic even? If they're nology, creating a model for how to de- want to turn Made in China into Inno- tired, sounding an alarm is enough. If fine and deploy standards – the reference vate in China by 2025. Anyone who they're going hypoglycemic, the bus can architectural model RAMI 4.0 – and pro- knows how disciplined Chinese compa- be automatically brought to a controlled viding practical examples. The next step nies are should see this as a wake-up call. stop. We're also talking to mining com- is to increase our cooperation with part- Digitization is also a fresh opportunity panies. Sensor technology is already ners in Asia and the US. For the first for Japan, which after kaizen and lean al- used in the passages and shafts but not time, the IIC's quarterly meeting took most got left behind. I often visit Japan to attached to the miners themselves. place this September in Europe, in Ger- position smart services and the Internet Recently there was a fatality at a German many – or, more precisely, at SAP. We of Things and forge innovation partner- chemicals company when an employee spearheaded this, together with Bosch, ships. And not only with the traditional was crushed by a machine after he en- because we are represented on both com- electronics group that everyone automat- tered an area where he shouldn't have mittees. Digitization will not be con- ically thinks of, but also with clothing been. Sensors installed in safety clothing tained by national or continental bor- manufacturers. could make the machines shut down ders. In fact that lack of physical That sounds interesting … automatically in emergency situations. boundaries, if politicians allow it, is one For example, in one Japanese city we're The necessary technology for this already of the great things about digitization. planning a pilot project with bus drivers. exists. What will support for jobs look like in the future? We will see machine-learning and artificial intelligence being used in all applications. We need to transform our own applications into a decision-making support system. I see this as a major trend that will lead to the transformation of society. Should we be worried? The Mittelstand will change as a result of intelligent algorithms and machine- learning. But even if intelligent systems can take on more and more of the standard tasks, it will remain indispensable for successful companies to exploit and develop their employees' experience. At the same time new business fields and jobs will emerge in the digital world, creating new employment opportunities. The result will be a shift in skills. Do we talk too much about digitization in physical processes and too little about digitization in intellectual work – in administration, office work, freelance pro- fessions? Yes. We will see a massive change in intellectual work. Personally I believe that machine-learning, artificial intelligence and understanding the environment in which people operate will become much more important in the future and will

P. 35: Photo: Andreas Reeg Andreas 35: Photo: P. Seeing the bigger picture: "Increase cooperation with partners in Asia and the US." start entering our everyday lives.

COO Insights 2016 36 Cloud business Heaven-sent business

The cloud is changing the rules of industrial automation. New entrants don't have much time left to rethink. Top management must get involved.

by Carsten Rossbach and Daniel Lock

ield, machine, factory, enterprise: BASIC SERVICE: CLOUD INTEGRATION Many engineers still divide the New service providers are already fight- F world up along the lines of the clas- ing for market share with their various sic automation pyramid. Their new com- business models. In the simplest model, petitors from the IT industry take a rath- the company enables its clients to con- er different perspective: Thinking in nect to the cloud and the many services it terms of cloud categories means that in- offers. Firms such as New York-based stead of physical objects you see digital Temboo connect sensors and other hard- layers in which new business models can ware from the Internet of Things to on- emerge. At the bottom, in the physical line services and databases via the cloud. layer, we have the sensors, actuators, em- The company acts as a digital go-be- bedded computers and network compo- tween, performing critical security func- nents – supplying metrics for production, tions such as authentication on behalf of performing actions, doing calculations its clients, as well as transporting data. and relaying information. Here little has Temboo even offers simple feedback and changed. But directly above the physical control mechanisms. For example, its cli- layer, in the cloud service layer, is where ents use the cloud service to determine the competition for new solutions for In- the level of water tanks and to detect and dustrie 4.0 begins – solutions such as pre- deal quickly with any leaks. Other compa- dictive maintenance for machines and nies monitor medical trials or enhance maximum transparency about the cur- data analysis. These companies do not rent performance of factories or wind provide their clients with anything more Bloomberg/GettyImages Photo: 36–37: P. farms, say. than data transport and simple evalua-

COO Insights 2016 Deep dive 3 37

tions, and this applies to all applications. The clients have to do the data storage, management and analysis themselves.

FROM ANALYTICS TO COMPLETE SOLU- TIONS Other providers of cloud services also perform the latter tasks on behalf of their clients. Companies such as Xively and Ama- zon with Amazon Web Services (AWS), for instance. In addition to pure connectivity, their clients can access mathematical tools that they can use to analyze stream- ing data in real time, for example. This requires so much computing power that outsourcing it to the cloud makes sense for many businesses. Other firms take up the offer of NASA's Mars rover to store and analyze large volumes of patient data and measurements.

Providers of complete cloud solutions for entire industries go one step further. Tra- ditional industry heavyweights are trying to gain a foothold in this segment of the market with a combination of years of industry knowledge and newly developed IT know-how. Besides automation, they also offer control of certain applications. The Siemens MindSphere, for example, is a platform that besides secure data transport and storage also enables companies to optimize their industrial assets; MindApps provide predictive maintenance for plants and enable them to be optimized in line with predefined criteria, such as energy or resource consumption. GE's Predix-Cloud is a similar product. With its help, apps can be developed for the predictive maintenance of wind turbines, for example.

The machine-tool company TRUMPF has also recognized the potential of the cloud. Through its subsidiary AXOOM it offers a digital platform on which cus- Cloud calling: Companies tomers can easily network all the steps in are outsourcing more and the value chain. "Consistency of the hor- more jobs, and service providers izontal value chain is currently a major are expanding their range of issue in industry," says AXOOM's CEO

P. 36–37: Photo: Bloomberg/GettyImages Photo: 36–37: P. services. Florian Weigmann. "Companies want maximum transparency – from tender-

COO Insights 2016 38 Cloud business

CLOUD EXPANSION ing, material procurement, production as possible to the customer's location in planning, material management and pro- order to achieve reaction times in the More and more processes and services are duction to shipping and invoicing." Each milliseconds. moving to the cloud – and global spending customer has its own specific needs and is growing accordingly. uses a different software system, so the DIFFERENTIATE ALONG FOUR offer can be structured in a modular fash- DIMENSIONS ion. That way it will suit clients needing Companies aiming to establish them- an ERP solution as well as firms looking selves as providers of cloud services can for a manufacturing execution system differentiate themselves from the compe- (MES), say. tition in four key areas. Besides the services they offer (integration into the Spending ENCRYPT AND CONNECT cloud, analysis and data management or on cloud Via the Internet, machines produced by complete industry solution), the pay- different manufacturers can be encrypt- ment model, the technology platform, infrastructure ed and connected to the AXOOM cloud. and the level of value creation play a crit- The infrastructure for European custom- ical role. ers is located in Germany, guaranteeing data protection. "Our clients see current In terms of payment models, pay-per-use data from production on dashboards," gives customers the greatest flexibil- says Weigmann. "This includes informa- ity and at the same time ensures tion about the condition and utilization cloud providers a relatively of the machines. With permission from high margin. The basis for cal- 13.1% other clients, it is even possible to carry culating the fee can be the amount out benchmarking between different of computing time used, for instance, or CAGR from 2016-2020, from companies." the volume of data traffic. Providers of USD 37.1 bn to USD 59.5 bn complete industry solutions often charge Deutsche Telekom offers its clients a sim- a basic fee, which may depend on the ilar service with its Cloud of Things. number of users. In a freemium model, Again, firms can transport their data to customers can use certain services for the cloud and have it evaluated. "This of- free but have to pay for anything that fer is a kind of toolbox with all the basic goes beyond the basic offer. functions needed for the Internet of things," says Marketing Manager Chris- The technology platform is another area tian Krebs. "It saves our clients a lot of for possible differentiation. Service pro- Spending on effort when developing the solution, the viders need to decide which services they public cloud required IT infrastructure and the securi- want to use to make themselves stand out ty measures, for example." Besides dis- from their competitors. For particularly services playing current sensor data and provid- time-critical applications it would be pos- ing functions based on the data such as sible to combine cloud and edge comput- alarms and predictive maintenance, the ing, for example, whereby data would first Cloud of Things also helps protect be processed locally then sent to the against theft by using GPS to localize ma- cloud. The services offered by different chines (geo-fencing) and supports auto- providers can easily be combined using matic firmware updates. Unlike most of networking, making it simple for compa- its competitors, Deutsche Telekom has nies to adapt their level of value creation its own network. In the future it will be in line with their own offer. They can de- 19.4% able to support wireless networking of cide what services they want to provide equipment and devices using the new themselves and where it would make CAGR worldwide from 2015-2019, from mobile communication standard 5G, for more sense to include services from part- approx. USD 70 bn to more than USD 141 bn example, or carry out local data analysis ner companies. Alliances will therefore using "edge computing", where time-crit- play an important role in the world of the

Source: IDC 2016 ical calculations are carried out as close cloud. Firms providing complete solu- Ettlich Julia 39: Illustration: P. Ettlich; Julia 38: Illustration: P.

COO Insights 2016 39

Enabling services

Platforms for intelligent Integration and services governance Analytics

Storage Security 2 (Embedded) AUTOMATION LAYER computing Cloud services Predictive maintenance

Analytics sensors and other input & output devices

1 Plant control systems 3 PHYSICAL LAYER BUSINESS OPERATIONS LAYER

tions for specific industries could get to- the issue at CIO or CTO level: The CEO enabling them to improve their products gether with Amazon to buy basic function- needs to be fully involved. little by little rather than waiting until alities, say, allowing them to concentrate they find the perfect solution. on their core competencies. Large companies especially should not see cloud services simply as an extension DON'T DELAY TOP MANAGEMENT MUST GET INVOLVED of their traditional business. A more This new way of thinking goes against Many companies have already jumped on promising approach is to outsource these many established habits in industry. But if the cloud bandwagon – international cor- activities to new units that can act flexibly, companies fail to adjust on time, the porations such as Siemens and GE as well like startups, and report directly to the cloud will not be shone through with rays as startups. New entrants don't have CEO. Firms must also pay close attention of opportunity but rather hang menacing- much time left to position their offer in to cyber security right from the outset: In- ly over the providers of traditional auto- this fast-growing market. Top manage- creasing networking based on known IT mation technology with the promise of ment must get involved: The new services standards makes industrial plants more storms ahead. must be developed quickly and at the susceptible to attacks. Finally, companies same time form part of a long-term cor- should pursue a flexible development ap- Contact:

P. 38: Illustration: Julia Ettlich; P. 39: Illustration: Julia Ettlich Julia 39: Illustration: P. Ettlich; Julia 38: Illustration: P. porate strategy. It's not enough to push proach and work with pilot customers, [email protected]

COO Insights 2016 40

I, Robot? Deregulation, collaboration, digitization: Japan is modernizing its industry. And robots are playing a vital role.

by Daisuke Nakano

COO Insights 2016 Industrie 4.0 in Japan 41

apan is a land of future technolo- the area of information and communica- centage growth rates in the double dig- gies. It doesn't matter if it's fuel tion technologies by 2020. Wider-ranging its. According to the International J cells, sensors, or nanotechnology – is the interdisciplinary Strategic Innova- Federation of Robotics (IFR), in 2014 an- the island country is a leader in many sec- tion Program (SIP), which will provide JPY nual revenues reached USD 10.7 billion. tors. When it came to digitization, howev- 50 billion to projects in ten industrial sec- er, for a long time Japan assumed an tors during the current fiscal year (by the A STEP FURTHER observational role. That could now be end of March 2017). "The robot boom marks one of the most changing. For around the last two years, important milestones in the implementa- the Internet of Things (IoT), Big Data, and The government is placing especially tion of the fourth industrial revolution," Industrie 4.0 have been at the top of the high hopes on robot technology – a sec- says Joe Gemma, President of the IFR, government's priority list: By the time tor in which Japan is a worldwide leader. presenting the latest figures. With their Tokyo hosts the 2020 Summer Olympics, According to the Ministry of Economics digital interfaces, industrial robots can be the so-called "fourth industrial revolu- in Tokyo, Japan produced a good 50 per- seamlessly integrated into the networked tion" should be generating around 5 percent of all industrial robots worldwide in structures of smart factories. The number cent of the gross domestic product. 2011. Even if this share may have of purchased service robots is also in- changed in the meantime, manufactur- creasing, according to the IFR. Japan is The plan is to reach this goal through a ers such as Fanuc, Yaskawa, and taking this trend a step further – with the number of initiatives. For one, Japan Kawasaki Heavy Industries are produc- development of increasingly advanced wants to relax regulations in certain ar- ing for a market that boasts annual per- models including the so-called "human- eas, for example by promoting the com- oids" that have human-like limbs. mercial use of drones and bringing self-driving cars to the streets of Tokyo by Since 2000, for example, Honda has been 2020. A closer collaboration between developing the Asimo robot that can make businesses, science, and politics will also Japan could friendly greetings, open cans of soda, and be pushed. This will treble the amount of climb stairs. The mobile company SoftBank research funds that companies provide to especially is marketing a service robot called Pepper universities and other institutions by that's fitted with a screen and language sys- 2025 – to the figure of JPY 240 billion profit from tem. And the electronics group Toshiba is (around EUR 2.1 billion). programming robots that look like young the increased women at first glance – including facial ex- INNOVATION AND ICT pressions and gestures – for tasks as recep- In addition, several platforms and com- application of tionists and interpreters. Some of them are mittees have been newly set up in which already in use: At a hotel near Nagasaki, the company representatives, scientists, and robots. concierge, receptionist, porter, and wake- public officials can work together to plan up call service are all robots. the funding of promising industrial sec- Robot Revolution Initiative Council tors. Among them is the Smart Japan ICT In order to promote the even faster Strategy, which is seeking to make Japan spread of robots and their digital net- the "most active country in the world" in works, in May 2015 the government start-

COO Insights 2016 42 Industrie 4.0 in Japan

ed the Robot Revolution Initiative Council SPREADING FAST led by the former head of Toshiba, Ta- With the help of robots Japan hopes to modernize its industry. dashi Okamura. More than 300 companies are members. On one hand, the Industrial robots: Service robots: Council concentrates on increasing the Japan has great ambitions on the The market is expected to grow by use of robots in nursing care, hospitals, domestic market a factor of 20 within 5 years and in disaster control. On the other JPY bn JPY bn hand, on nothing less than the moderni zation of the whole of Japanese industry, 600 60 2014-2015 including the integration of IoT, Big Data, and artificial intelligence (AI) in the pro- 2019-2020 duction process. 1,200* 1,200*

The government and experts agree:

Japan could especially profit from the in- *JPY 1,200 bn correspond closely USD 11.5 bn creased application of robots. The economy is suffering from an aging and shrinking population. Economists fore- OUTPACING THE COMPETITION cast that the demographic shift could No comparison: estimated annual shipments of multipurpose lead to negative growth rates. In many industrial robots ('000 units). sectors – and especially in construction and care – the labor shortage is already Asia/Australia Europe America leading to problems. "Our mission is to offset a declining gross domestic product 2013 2014 2015* 2018* caused by a drop in labor productivity 98.8 139.3 169 275 with the help of innovation," says Yuko 43.3 45.6 49.5 66 Harayama, who helped shape the tech- 30.3 32.6 36.2 48 nology policy of the Japanese government as a member of the Council for Science and Technology Policy.

CONFORMITY VS. CREATIVITY The problem: Japanese society values con- *forecasts formity over creativity. Organizations are less open and strict hierarchies are still Source: World Robotics 2015

A different approach What is the e-F@ctory have a large data pool, but Alliance? can't use it optimally. We want Making data usable: Mitsubishi Electric It is a company group founded to make data not just visible, by Mitsubishi Electric. With but also usable. around 300 partners, we offer Who are your partners? intelligent solutions for For the most part, they come production processes. Our from three sectors: system goal is to reduce total costs integration, software for our customers. To this end, providers, and device suppliers. Takeshi Tamai, we connect manufacturing German companies such as Deputy General Manager levels over easy-to-use Eplan and Balluff are among e-F@ctory Strategy and interfaces with the IT level. them. The strength of Business Planning Project Many of our customers already Mitsubishi Electric P. 42: Photo: PR/Mitsubishi Electric PR/Mitsubishi 42: Photo: P.

COO Insights 2016 Industrie 4.0 in Japan 43

the norm. In addition, there's a lack of IT cell phone providers, transport compa- From the customer's specialists. "We lack data scientists, but nies, and public authorities and makes also planners who understand how to im- them accessible to everyone. "There is a point of view plement this data into products and ser- housewife blog, for example, that uses In Japan, the customer isn't just so much vices," says professor Ichiro Sakata, Direc- the data to forecast how crowded Disney- "king" as "god". Those looking to optimize tor of the Policy Alternatives Research land Tokyo will be on any given day, at their customer relationships should take Institute at the renowned University of any given time," says Gou Soda, who is this perspective on board. Tokyo. That leads to a lack of interest on responsible in the Cabinet Office for the the part of many companies in how they development of Resas. Elsewhere, thanks 1. TARGET GROUPS AND BRAND can use their data optimally. "Even when to Resas, Japanese mayors are able to an- VISION data is collected and recorded, it isn't alyze the trade flows of local companies A good product does not guarantee used as the basis for making decisions." for the first time. success. Companies must understand what added value their CLOSER TIES WITH GERMANY Both Industrie 4.0 and Big Data have customers want and orient Although Japan's companies traditionally done a lot in Japan. What is still missing themselves accordingly. place great worth on interaction with their is a strengthening of international colla 2. PRESENCE AND customers, the use of social media and AI boration. This will be about setting stan- ATTENTIVENESS is still inadequate. Sakata is convinced dards as much as expanding into foreign Interactions with the customer that Japan's companies won't just under- markets. Japan and Germany resolved to don't only serve sales purposes. stand the needs and desires of their cus- be more closely involved with each other They help to convince a customer tomers better through the use of technol- in the field of Industrie 4.0 with the sign- of a product and its uses as well as ogy, but will also lower their costs. ing of a Memorandum of Understanding helping to foresee changing needs. Personality profiles, for example, can be in April. Groups such as Mitsubishi 3. COSTS DOWN, USE UP created with AI to show which employee Electric and Siemens are working on the Smaller and lighter component s would be best suited for a sales conversa- compatibility of their standards. And and modules improve efficiency. tion with which customer. "That would be Japan's major corporations are looking Partnerships with innovative very time-saving and promote efficiency," abroad more and more when it comes to suppliers are essential to says Sakata. investing in IoT technology. This growing achieve this. openness means growing opportunities 4. REDUCE DELIVERY TIMES Still, the use of personal data is contested – not only for Japan's economy, but also Those who supplement their in Japan and security is often insuffi - for German companies seeking strong stocks with flexible intermediary cient, as numerous scandals have prov- partners in the Far East. products can quickly make a larger en. To ensure that Big Data is useful, the variety of products and services government has built platforms such as Contact: available. Resas, which combines the databases of [email protected] 5. OPTIMAL DELIVERY DATES In order to limit the costs of their inventory holdings, companies should determine an optimal time lies at the manufacturing sectors. Since we founded How do things differ from frame for delivery, for themselves level. In order to collect the e-F@ctory Alliance Germany? and for the customer. the incidental data, 13 years ago, we've Our approach is different. In 6. ADDITIONAL REVENUE however, and digitally completed around 7,000 Japan, we build gradually Extensive consulting with the measure it, filter it, analyze projects worldwide. One on available solutions, customer on the use, handover, it, feed it into an IT system, example is the digitization whereas Germany is and disposal of the product and use the results in of an Intel semiconductor pursuing the "ultimate enables increased sales. real time to manage factory in Malaysia. By smart" vision. So far the 7. REINVEST PROFITS production processes, containing costs and results are similar. Nowhere Companies should make funds we need an alliance of improving the decision- is there a factory that's available to create added value for experts. making process, USD 9 completely "smart". Instead the customer. Moreover, in- Who are your customers? million is now saved there we're seeing a lot of small vestment in artificial intelligence They come from several annually. steps in this direction.

P. 42: Photo: PR/Mitsubishi Electric PR/Mitsubishi 42: Photo: P. enables gains in productivity.

COO Insights 2016 44 COO workshop COO workshop Food for thought: relevant knowledge and studies from Roland Berger

MAKING DIGITAL 3.3 billion German market TRACKS 2.4 billion French market A large part of railroad companies' costs relate to maintenance. What will digitization mean for this sector, 1.5 billion with its annual business volume of Italian market EUR 16 billion in Europe? We talked 16 to executives from the railroad indus- of the annual total market try. We propose six levers for moving volume is spent maintaining 1.2 billion UK market services in the direction of a digital rolling stock in Europe Maintenance 4.0: share data, invest 0.9 billion in sensors, review the overall picture, 6.0 billion Polish market trust external experts, employ inno- Other markets vative methods, and improve your own competence. 0.7 billion Spanish market http://rbsc.eu/2agr378

THE TAKEOVER MERRY-GO- INDUSTRIE 4.0 ON "ARTE" ROUND The impact of Industrie 4.0 is felt right There's a lot of noise about M&As at across the economy. Be part of this revolu- the moment. Consolidation among % tion, training your employees and digitizing automotive suppliers is fueled by the 40 production – otherwise you run the risk of need to develop expertise in technolo- Automotive suppliers will likely getting left behind. So says Thomas Rinn, gy, materials and processes. A study lose 40% of their current sales due Partner at Roland Berger, in an in-depth by Roland Berger reveals that many to technological changes. documentary produced for the French- components for internal combustion German TV channel ARTE. SMEs in parti engines and pure mechanical drives cular still lack the necessary momentum. will soon wane in importance, current Thomas Rinn's French colleague Max Blan- sales falling by as much as 40 per- chet, also a Partner at Roland Berger, says cent. They will be replaced by compo- that many businesspeople are still hesitating nents for alternative drives, electronic because they confuse the concept of Indus- parts for networking, driver assis- trie 4.0 with automation. In the documenta- tance systems for automated driving ry Rinn, Blanchet and other experts from and new lightweight materials. Our Roland Berger talk about the great possibili- magazine ACC Insights analyzes the ties opened up by Industrie 4.0. biggest challenges facing suppliers. http://rbsc.eu/1QLYfzg http://rb.digital/2fawkRw

COO Insights 2016 COO workshop 45

Showdown in the energy sector Positioning of energy supply company

The trends of digitization, decentralization and technology convergence are threats to the traditional energy markets. They mean shrinking mar- Niche or harvest Leadership or kets and dwindling margins for the companies that strategy niche strategy produce and trade energy. New products and players are emerging, calling traditional business into question. The transformation of the energy advantages competitive Clear landscape is gathering speed, unhindered by na- Market structure tional borders. The only credible response to these developments is an entrepreneurial one, combining courage and flexibility. To enhance company value and prepare themselves for further competi- Quick Harvest strategy tion in the (very) near future, a leadership, niche or divestments or quick divestment harvest strategy can be just as appropriate as quick divestments. Only if energy companies develop new businesses will they be able to sur- advantages competitive clear No vive the competition. Unfavorable market structure Favorable market structure

Level of digitization (self-reported) Digital Index for Poland

Average EBIT Average operating Companies reporting the greatest degree margin revenues of digital maturity are also ahead in terms of their financial results. In Poland, these companies recorded the highest average 10% PLN 2 EBIT margin in 2015, at 10 percent, with EBIT margin billion average operating revenues of PLN 2 billion (almost EUR 470 million). By contrast, the least digitized companies had an EBIT margin of just six percent with average revenues of PLN 26 billion (EUR 6 billion). The current Roland Berger Digital Index suggests that Poland should focus on digitally transforming production and developing the professional skills 6% PLN 26 of its workforce in order to expand its EBIT margin billion competitive edge. Poland is already ahead of the Czech Republic, Hungary, Romania and Bulgaria in this respect.

http://rb.digital/Digital_Index

COO Insights 2016 46 FamousLetzte lastAntwort words

Why the new industrial revolution affects us all

by Thomas Bauernhansl

By 2020 an estimated 50 billion objects and 4 billion people will To establish these value-creation systems, companies need to be connected to the Internet. The potential services for people, form both strategic partnerships and loose cooperation agree- vehicles, household appliances and machines are innumerable, ments with a large number of players – actors in the Internet including new forms of economic activity such as the sharing economy, for example, or even their own competitors. The plat- economy (use rather than buy or own) and prosumer models, in forms themselves must be open and attractive so that partners which consumers are integrated into value creation. At the core get connected quickly. Openness, a willingness to change, and of this development are new system architectures known as cy- the ability to cooperate are increasingly the key success factors ber-physical systems (CPS), one of the most frequently dis- here. New business models are emerging around how user data cussed but often misunderstood concepts of the fourth indus- is accessed and used. Here we are likely to see a substantial shift trial revolution. in core competencies and service offerings in the direction of IT The physical part of a CPS consists of a man-machine interface and Big Data. in which new forms of interaction are possible, such as speech US corporations such as Google and Amazon are already trying and gesture control or augmented reality. The CPS uses sensors to transfer their dominant position on the Internet, with its focus to help build a comprehensive digital picture of users' behavior. on services in consumer markets, to the Internet of Things and The cyber part of the CPS comprises a platform on which the hence to industrial markets. Asia will quickly implement cost-ef- data from the CPS is processed. For example, the data is cor- fective automation, to all intents and purposes skipping the related with other data from social networks, resulting in new third industrial revolution. Europe, and Germany in particular, services for users, as well as for the CPS. Thus, the truly intelli- will be able to secure and expand its own value creation through gent functions are located on the platform and no longer tied to Industrie 4.0. the physical system. This revolutionary architecture makes It is crucial for customer value that all services are available via completely new value-added systems possible. a single platform. Customers are not interested in logging in to We can now integrate customers and entire development com- multiple platforms and saving their data in various locations. munities into the further development of services and products, The value-creation cards will be reshuffled over the next five thereby massively reducing the complexity costs of personaliza- years. The place and type of service provision will change and all tion, as well as the transaction costs. In addition we can dynam- economic areas will have to do their homework. ically adapt a product's functions to user demands throughout its life cycle, charging variable costs for this (pay-per-use). Plat- form-based business ecosystems blur the borders between B2B and B2C. The focus is no longer on the value chain – the journey Professor Thomas Bauernhansl from raw material to end customer – but rather on user-centric Since 2011 Director of the Fraunhofer Institute for Manufacturing value creation on platforms, with all the related economic net- Engineering and Automation IPA and the Institute of Industrial work effects. The concept of business-to-user or B2U arises, in Manufacturing and Management (IFF) at the University of Stuttgart. which the objective is to quickly meet all the needs of end users.

COO Insights 2016 47

Terra Numerata Publishing In an exponential world, mastering the digital transformation in-house is all but impossible. The skills required come from a range of disciplines and are seldom found information under one roof. Publishers Terra Numerata™ unites those skills scattered across the conti- Thomas Rinn nents, and it connects the dots of the fragmented digital company Roland Berger GmbH environment. In this sense, it aims to link Europe with the high-tech Sederanger 1 hubs in Palo Alto, Shenzhen and Shanghai. 80538 Munich +49 89 9230-0 Combined with Roland Berger's international network of experts www.rolandberger.com and extensive knowledge of markets, Terra Numerata™ brings the Responsible for content in accordance with best of the different worlds: sectorial and functional expertise plus German press law connection to digital communities. This alliance meets the key expectations of corpo- Dr. Michael Zollenkop rate as well as startup players. It is open for collaboration and co-creation between Project management partners, focused on making the digital transformation happen. Thomas Reinhold (Chief Editor), Dr. Katherine Nölling (Managing Editor) In Berlin, we have a joint cooperation with Visa Europe: the SPIELFELD digital inno- Editorial advisory board vation hub, where everyone learns from anyone. It is all about agility and the hunger for the new. Wilfried Aulbur (India), Alexander Belderok (Netherlands), Max Blanchet (France), Roland International ventures fund e.ventures collaborates with Roland Berger to offer Falb (Austria), Oliver Herweg (Germany), Ralph learning journeys, trend radars, and business model disruption sessions with Lässig (Germany), Watson Liu (China), startups. Paolo Massardi (Italy), Tomasz Narloch In Paris, Roland Berger collaborates with NUMA, a startup incubator and accelera- (Poland), Per I. Nilsson (Sweden), Thomas Rinn tor, one of the key reference points of the digital environment in France. We offer (Germany), Carsten Rossbach (Germany), Sven Digital Labs, prototype development, and we help to launch innovative startups. Siepen (Switzerland), Jonathan Wright (USA), Dr. Michael Zollenkop (Germany) In the US, Roland Berger joins forces with Wind River, a leader in delivering software Design for the Internet of Things, to offer the full range of strategic, business, technology, Blasius Thätter (Art Director), and developmental requirements for automotive customers. Axel Springer SE Corporate Solutions Terra Numerata™ and Roland Berger tackle key stakes of digital transformation: from (Design) internal efficiency, revenues and a sustainable value proposition, to new disruptive Translation business models. Join us! Dr. Nick Ukiah, Warsaw Printing Giro Druck, Hamburg Contact: Circulation Anne Bioulac 3,500 Senior Partner, Paris Office, Western Europe Copyright notice +33 1 5367-0321 The articles in this magazine are protected by [email protected] copyright. All rights reserved. Disclaimer The articles in this magazine do not nec- Get in touch: essarily reflect the opinion of the publisher. rolandberger.com Do you have any questions for the editorial new.rolandberger.com team? Are you interested in studies twitter.com/RolandBerger conducted by Roland Berger? Then please facebook.com/RolandBergerStrategyConsultants e-mail us at: linkedin.com/company/roland-berger-strategy-consultants [email protected]

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COO Insights 2016 NEW! ROLAND BERGER .COM

Individualized mass production and the return of industrial jobs to high-wage countries in the West: two of the key promises of Industrie 4.0 INDUSTRIE 4.0? STEP THIS WAY! THIS STEP INDUSTRIE 4.0?

2016

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