Department of Business and Management Course of Managerial Decision Making THE IMPACT OF INDUSTRY 4.0 ON CORPORATE STRATEGIES. Digital Transformation and Continuous Innovation. Prof. Luigi Marengo Prof. Luca Panaccione SUPERVISOR CO-SUPERVISOR Sara Elia CANDIDATE Academic Year 2018/2019 0 | P a g e Table of contents INTRODUCTION…………………………………………....................................................... 3 CHAPTER I 1.1 Competitive Advantage in XXI century….................................................................................... 5 1.2 Countries’ competitiveness…………........................................................................................... 6 1.3 The most digitally advanced Industries ………………………………………………………… 9 1.4 Digital Transformation……………………………………………………………………..….. 10 1.4.1 Digital Disruption…………………………………………………………………...…… 11 1.4.2 Facing Digital Disruption with a Digital Strategy……………………………………..… 12 1.4.3 Achieving a Successful Digital Transformation………………………………….……… 18 1.5 Industry 4.0……………………………..……………………………………………………… 21 1.5.1 Additive manufacturing………………………………………………………………….. 23 1.5.1.1 Additive Manufacturing Technologies……………………………………………. 29 1.5.2 Artificial Intelligence…………………………………………………………………….. 36 1.5.2.1 Robotics………………………………………………………………………...…. 38 1.5.3 Augmented and Virtual Reality………………………………………………………...... 39 CHAPTER II 2.1 The necessity of continuous innovation……………………………………………………….. 41 2.1.1 Business case: Netflix……………………………………………………………………. 42 2.1.2 Business Case: Blockbuster…………………………………………………………..….. 43 2.1.3 Business case: Amazon………………………………………………..………………… 46 2.2 Industries Reaction to Digital Disruption……………………………………………………… 47 2.2.1 Business Case: Uber………………………………………………………………..……. 49 2.3 Digital transformation of Supply Chains………………………………………………………. 52 2.3.1 Business Case: Amazon…………………………………………………………….…… 55 2.4 Digital Supply Networks (DSNs)…………………………………………………………..….. 59 2.4.1 From Traditional Supply Chains to DSNs……………………………………………….. 60 2.4.1.1 Business Case: Siemens PLM…………………………………...…………………… 62 1 | P a g e 2.5 Consumer Experience and Industry 4.0…………………………………………………...…… 63 CHAPTER III 3.1 Banking Industry………………………………………………………………………………. 68 3.1.1 Business case: DBS Bank………………………………………………………….….…. 73 3.1.2 Business case: Citigroup...……………………………………………………….………. 84 3.2 Automotive Industry…………………………………………………………………………… 88 3.2.1. Business Case: Nissan Motor…………………………………………………………… 90 3.2.2 Business Case: BMW……………………………………………………………………. 91 3.2.3 Business Case: Audi………………………………………………………………...…… 92 3.2.4 Business Case: Volkswagen…………………………………………………………...… 92 3.2.5 Business Case: Toyota…………………………………………………………………… 93 3.3 Airport & Airline Industry……………………………………………………………………... 94 3.3.1 Business Case: Assaia Apron AI……………………………………................................ 94 3.3.2 Business Case: SkyLights VR Headsets……………………………………………….… 96 3.3.3 Business Case: Singapore Airlines…………………………………………………….… 96 3.4 Healthcare Industry……………………………………………………………………………. 97 CHAPTER IV 4.1 The changing nature of work……………………………………………………………..…... 100 4.2 Sustainability and Industry 4.0……………………………………………………….………. 101 CONCLUSION………………………………………………………………………………. 103 REFERENCES………………………………………………………………………………. 104 SUMMARY……………………………………………………………………… 110 2 | P a g e INTRODUCTION Retaining a competitive advantage in this century requires striving for continuous innovation and taking in serious consideration a digital transformation. Furthermore, due to the fourth industrial revolution, there has been a wave of innovative technologies that is pervading the economy and, as all the previous industrial revolutions, is having a momentous impact on society. Therefore, it is becoming increasingly necessary to implement Industry 4.0 technologies in companies, because they have proven to be able to improve considerably firms’ performances in various industries. These technologies are several and are able to affect every aspect of an organization. Operations, transportation, production, designing, clients’ perception of brands and all activities conducted in a firm can be considerably improved with innovative tools and the results are so noticeable that it is inevitable that Industry 4.0 has a direct impact on businesses’ entire corporate strategies. The first chapter of this thesis begins with an introduction of the topic. The competitive landscape of this century is presented and it is apparent how the most valuable companies in the world, such as Apple, Microsoft, Facebook, Amazon, Alibaba and so on, are all firms with a clear digital strategy and a distinct technological advantage. Consequently, it is evident that pursuing a digital strategy is an essential point for the management in companies that wish to reinforce their position in their industry, instead of risking to be overcome by new entrants or by other incumbents that have decided to reinvent their business. The chapter is structured according to this logic, so there is a brief overview regarding competition and the degree of digitalization common in different industries. Then, the concepts of digital transformation and Industry 4.0 are discussed. The purpose is outlining the most important notions to achieve a successful digital transformation and explaining some of the Industry 4.0 technologies: big data and analytics, autonomous robots, simulation, horizontal and vertical system integration, the industrial internet of things, additive manufacturing, artificial intelligence, virtual and augmented reality. In the second chapter, there is a focus on how it is not sufficient to reinvent a business only once, in general. In fact, not even being a digital disruptor protects businesses from being disrupted by other new entrants or competitors in the future. Moreover, while the typical reaction to disruption has been an attempt to legally block innovation and having various initiatives be declared illegal in several industries in the past, these approaches are not sustainable in the long run. The best way to avoid being surpassed is centering the corporate strategy on the idea of continuous innovation and adapting to technological advances, seeing them as the opportunities they are and not only as challenges. 3 | P a g e The chapter analyzes the digital transformation of the supply chain, focusing also on digital supply networks. Then, it continues by introducing the impact that Industry 4.0 technologies have on the customer decision journey and on the experiences that firms are able to offer to their clients, thus strengthening their brands. The third chapter is an analysis of different industries. Various practical examples are examined, in order to evaluate the impact of Industry 4.0 technologies in the real world and not only in theory. These are meant to give a glimpse of the variety of their applications and their significant impact on companies. In particular, the industries that are discussed are banking, automotive, airport, airlines and healthcare. Finally, the dissertation is concluded with observations regarding the general impact of Industry 4.0 on the economy as a whole, the society and the nature of work itself. The technologies introduced with the fourth industrial revolution also have an important potential role to play, considering a solution to the issue of scarcity of natural resources. They could be the key to achieve a circular economy, decrease waste and realize a sustainable industrial value creation from the point of view of economic, social and environmental sustainability dimensions. 4 | P a g e CHAPTER I 1.1 Competitive Advantage in XXI century Maintaining a competitive advantage in the new century is becoming increasingly challenging; adopting efficient strategies and being open to changes to respond to disruption from new incumbents is essential. In the last years, digital transformation has proved to be crucial to grow the business and boost performance. In an article published on the Harvard Business Review in 2016, an analysis had been done on the USA landscape and the way in which digital innovations impacted it. The authors began by citing research done by the McKinsey Global Institute that noted how the U.S. economy operated at only 18% of its digital potential and the broader economy did not show the kind of productivity gains that digital technologies should have enabled. This result was explained by differentiating between the “haves” companies and the “have-mores” ones. These terms are used by the authors to differentiate two groups separated by a wide gap due to the way in which they handled digital technologies, accessible to almost every individual, company and sector in the USA economy. Basically, the “have-mores” groups included companies and sectors that were using their digital capabilities more, to innovate and transform how they operated. The 18% figure was useful to compare how the entire economy was performing compared to the “have-mores”, which had evidently a significant competitive advantage. Excluding some exceptions, the technology, media, financial services and professional services sectors mostly ranked among the have-mores, whereas, generally, the laggard sectors included government, health care, local services, hospitality and construction. The most digitally advanced sectors increased their productivity and improved profit margins, but their extraordinary performance was not enough to compensate the others, whose lower productivity weighted more on the broader economy due to their contribution to GDP and employment. This study