Digitalization in the Manufacturing Industry - Germany

This report was written by the IESE Industry 4.0 ICP Team for the IESE In-Company-Project program.
April 2021.
DIGITALIZATION IN THE
MANUFACTURING INDUSTRY
A snapshot of the digitalization of the German Manufacturing Industry, seen through the
lens of 2021.
28 April 2021
Prepared by:
Manuel Achúcarro
Adrian Betz
Alberto Carro Melero
Natasha Müller
Alexander Nothhelfer
Gabriel Paredes

IESE ICP – Industry 4.0 and Digitalization Research
2 IESE Business School-University of Navarra
Acknowledgements
This project would not have been possible without the time and insights shared by Industry 4.0
leaders from the following companies: BSH Hausgeräte GmbH, GKN Powder Metallurgy, Grohe
AG, Henkel, Henke-Sass Wolf GmbH, Merck Healthcare KGaA, MTU Aeroengines AG, Porsche AG,
Schaeffler Automotive Buehl GmbH & Co. KG, Schenck Process GmbH, SEAT, TQ-Group GmbH,
Wittenstein SE. We would like to thank these companies not only for their time but also for their
willingness to share their knowledge to further our learning experience as EMBA students.
We would also like to thank Storm Reply for their partnership in this project, and in particular the
contributions of Michael Göbel and Stefano Longo. Last but not least, we thank our mentor, Javier
Ortiz-Olave, for his support and honesty throughout this journey.

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IESE Business School-University of Navarra
Contents
Acknowledgements.........................................................................................................................2
Contents ..........................................................................................................................................3
Executive Summary.........................................................................................................................4
Introduction.....................................................................................................................................5
Company selection..........................................................................................................................6
Interview methodology...................................................................................................................7
Results ...........................................................................................................................................10
Strategic Drivers........................................................................................................................10
Application Levels......................................................................................................................11
Data processing in production ..............................................................................................11
M2M communication............................................................................................................12
Company-wide networking with the production..................................................................14
ICT infrastructure in production............................................................................................15
Man-machine interfaces .......................................................................................................17
Efficiency with small batches ................................................................................................19
Strategic Drivers and Effects Consistency Index .......................................................................20
Discussion and Recommendations ...............................................................................................22
Strategic Consistency ................................................................................................................22
Cost Efficiency .......................................................................................................................22
New Business Models and Value Added for Society.............................................................22
Organizational Challenges.........................................................................................................23
Technology and Standardization...............................................................................................24
Conclusions....................................................................................................................................25
References.....................................................................................................................................26

Executive Summary
Industry 4.0 has transformed and continues to shape the manufacturing industry. Existing players
are seeing end-to-end processes change, new opportunities arise, as well as new challenges.
The goal of this project was to analyze the status quo and mid-term outlook of the German
manufacturing industry in terms of its digital transformation and in particular Industry 4.0
adoption, within the framework of the VDMA Industry 4.0 production toolbox. Given the amount
of literature already in circulation on this topic, it was a top priority for the project team to speak
directly with digitalization experts from the manufacturing industry to gain first-hand insights
into the strategic drivers, challenges, and enablers of moving forward Industry 4.0. initiatives –
thus allowing for both a qualitive and quantitative review.
Importantly, this project identifies the main strategic drivers behind adoption of Industry 4.0
initiatives. On a strategic level, fixed and variable cost efficiency was by far the most mentioned
strategic driver behind digitalization projects (92% of interviewees mentioned this in their top
three drivers), followed by customer service and lead time improvements.
While each organization has its own unique path on the adoption of Industry 4.0. initiatives, this
report recognises several recurring themes. These include the value of new technology, the
complexity of the IT landscape, the importance of standardization, and the challenges presented
by legacy systems. An additional recurring theme centred around people and organizational
strategy, such as cross-company collaboration, lack of skills both within the company and in the
wider market, and resistance to change projects.
It should be noted that the sample size of 13 companies is relatively small and so this project
would not claim to be a comprehensive study of Industry 4.0. However, great consideration was
given to the types of companies that were approached for an interview, and therefore, the
authors hope that this project can give an insightful snapshot into the topic for digitalization
enthusiasts, as well as provide a valuable basis for interviewed companies to benchmark
themselves and to gain new ideas for how to tackle digitalization within their own organizations
and ecosystems.

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Introduction
The fourth industrial revolution or “Industry 4.0” is changing the paradigm of the manufacturing
industry. From demand to the factories and the delivery of manufactured items, concepts such
as internet of things (IoT), mass customization, Cloud Computing, Machine Learning or
Cybersecurity, among many others, are not just transforming the idea of a traditional factory but
also allowing new players to disrupt the competitive advantages that traditional manufacturing
companies had built over decades.
Within the framework of the IESE Executive MBA In-Company Project (ICP), a team of six students
interviewed 13 manufacturers with the objective of providing a benchmark of the status of the
German manufacturing industry. The assessment is inspired by the VDMA Industry 4.0
production toolbox1. Interviewees were selected based on a target profile criteria list.
As well as identifying the status quo, this project also identifies the main strategic drivers behind
adoption the Industry 4.0 initiatives, and more specifically, behind each of the six different
applications levels provided by the VDMA toolbox. The methodology developed for the
interviews allows an assessment of the consistency between the strategic drivers for the
implementation of Industry 4.0 measures, and the impact of the measures taken in the different
application levels from each of the companies.
1 The VDMA (Verband Deutscher Maschinen- und Anlagenbau) production toolbox provides a framework to analyze different
application levels of the Industry 4.0.

Company selection
As an early step in the project, the team devised a target profile of the kind of companies that it
wanted to interview within the ICP context. These would be innovative companies in the German
manufacturing landscape, already adopting Industry 4.0, or with a huge potential to do so in
terms of value creation or market disruption.
The target companies come from different industries and vary in both employee and revenue
dimensions to reflect a representative cross-section of the German manufacturing landscape.
Selection Criteria:
Each candidate had to meet at least two of the following criteria:
1. World Class Player: Has presence with large customers and productions plants in more
than two continents
2. Innovation-driven culture and vision: Has a strong corporate culture for innovation and is
considered a lighthouse in its field
3. Already adopting I4.0: Already has factories in production phase which make use of I4.0
applications
4. Close-to-consumer production: Has a strategic position to place its production sites near
their demand sources
5. High budget: More than 1 Billion Euros available to be invested in development
6. Huge potential for economic growth through digitalization: Its industry or the company
itself has been mentioned in recent years in reports from major consulting companies
(e.g., McKinsey, PWC, BCG, Accenture, EY) as having high potential for business growth
through digitalization in the coming years
7. Market disruption: Its core business is remarkably different from that of other well-
established companies in the same industry and represents a threat to them
8. Marker of future industry trends: It is a clear lighthouse of digitalization inside its own
industry, or its products and services are used to foster transformation in other industries
9. Strong position in value chain: Its suppliers and customers are much smaller in size and
have little power to shape their business relationship
10. Region representative: Through its culture, values, and economic trends, it is considered
a national or regional flagship whose evolution is closely tied to that of its region of origin
or operation.

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Interview methodology
Each interview was structured in two distinct parts. First the interviewee was asked to identify
the main strategic drivers for the implementation of Industry 4.0-related initiatives. In the second
part, the interviewee was asked to position itself in its current stage in each of the six application
levels and in its targeted stage in the medium term (i.e., in the next two to four years).
The second part of the interview facilitates a discussion around what the main technological
enablers and barriers are that will allow (or hinder) the company to reach the medium-term
targeted stages. The interviewees were then asked to map the anticipated stages to strategic
drivers or impacts they want to achieve.
First part
The team identified a set of seven strategic drivers that define a spectrum in which any industrial
production company can position itself to acquire a competitive advantage. The first question of
the interview seeks a general view of which main drivers are behind the implementation of
Industry 4.0 measures for the company. The detail of the impact of each of the specific measures
is addressed in the second part of the interview for each of the application levels.
Strategic Drivers
1. Time to market
2. Output quality
3. Fixed costs efficiency
4. Variable costs efficiency
5. Customer service
6. Added value for society
7. New business models
Performing well in all these dimensions is almost impossible. For example, a fast time to market
may be achieved with factories closer to the demand, where there are higher salaries, so the
fixed costs efficiency is reduced. Therefore, companies decide whether to prioritize certain
drivers and so create a competitive advantage. But technological breakthroughs allow for
improvements in some or all areas without having to imply a detriment in the performance of
the others. This could be the case of fully automated factories which may have the same fixed
costs to operate regardless of where they are located.
In order to achieve a sustainable and meaningful technological development of the industry, any
technological advance or project must ultimately support improvements in one or more of these
strategic drivers. The answers provided in this first part allowed the IESE team to analyze the
consistency between the overall Industry 4.0 strategic drivers and the impact of the initiatives
taken in each of the application levels.

Second part
The second part of the interview focused on each of the six application levels defined by the
VDMA in the “Toolbox Industry 4.0” for production. The objective was to gather quantitative
information regarding the current position (or stage) for each of the application levels and where
they would like to evolve in the short term (two to four years).

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From a more qualitative perspective, in each of the application levels all the companies were
asked about the main technological enablers that would allow them to reach their milestones
and the blockers and barriers that they anticipate they will have to overcome.
Questions included for each of the application levels
The questions in each application level followed the same structure:
In which stage are you currently in?
Where do you see yourself in this toolbox in the coming two to four years?
o What reasons are there for this? What are the strategic drivers?
o Are there any blockers?
o What would you say are going to be the key technological enablers?
Additionally, based on the answers provided, the interviewee was questioned about the
expected impact of the Industry 4.0 measures implemented on their strategic drivers.

Results
Strategic Drivers
Note: Percentages throughout this report are given with respect to total number of companies
participating in the interview.

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Application Levels
Data processing in production
Application Level description: The processing of data for various applications is a key issue for
Industry 4.0 applications in production. Data processing in production can be used for simple
documentation as well as for objectives aiming at process monitoring, autonomous process
planning and control.
Results:
In their current stage, most of the participants already gather data related to their production
processes and use it to evaluate performance and KPIs. This is generally possible due to ERP
systems like SAP which have been implemented already. But it seems that, for the majority, this
data is not being used to its full potential to drive decisions and planning. Out of the 13
participants, 11 will make efforts to improve their data utilisation, while the other two believe
that they have reached their optimum. It is also interesting that only one participant in the study

aims to implement a fully automated production planning while nine decided that their goal is to
fully automate only certain processes.
The biggest blocker according to more than half of the participants is to have people in all
positions who understand the value and potential of the data gathered. Having data available is
not enough. You need people with practical know-how in the production processes, but who
also are familiar with some data and IT concepts to identify its potential use cases. It is a
challenge to find these people, as this requires extensive experience in the industry and a set of
skills that were not typical for their positions in the past.
Most of the interviewed managers consider that this data-driven optimization of the planning
process will reduce costs and increase quality as the main strategic impact. This is achieved
through a more efficient use of energy and maximizing the throughput by reducing scrap and
defects.
M2M communication
Application Level description: Interfaces for automated data exchange between machines form
the basis for numerous Industry 4.0 applications. Field bus interfaces as well as industrial
ethernet and web interfaces are applied in the industrial environment. Web interfaces and
applications with autonomous information exchange (web services) offer the advantage of a
possible separation of information and location.
Results:

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In the current stage for this application level, significant differences among the participants were
found. Those with higher production volumes see great potential in organizing their production
in a service architecture to enable interoperability and remote operations. While those with
lower levels of produced units do not see much advantage in going further than connecting those
machines strictly necessary through an internal network.
Two participants already have their production services available on the internet but properly
secured, so they are accessible by their tools and people anywhere. In these production lines,
clusters of machines communicate with the ones before and after them in the process to allow
them to prepare for the operations they are about to start or to ask for more materials in order
not to stop. This allows more flexibility in the execution of their production schedules.
One interviewee is even aiming to implement a theoretical stage 6, which is coordinating their
lines with human-friendly autonomous robots (cobots) for, among other things, coordinating
moving parts and finished goods around the factory and the warehouse without the need to
follow a fixed plan.
Some differences were also found among participants when identifying their blockers. For
participants with smaller production volumes, the high cost of replacing their legacy machines
and their long active life isn’t that attractive. They can afford production gaps but replacing their
machines while still in perfect working order doesn’t make sense in economic terms.
Three of the participants don’t plan to make any changes in this respect and they are satisfied
using industrial ethernet connectivity allowing data transfer among machines and with a central
planning system.
For the other participants with higher production volumes for whom small efficiency
improvements represent large returns, the main blockers come from the lack of widespread
standards and as well the high cost and difficulty of replacement or upgrade of their legacy
machines.

For all participants cost reduction is the main strategic impact for making improvements as
interconnectivity still improves proper process coordination and a more efficient use of resources
and energy.
Company-wide networking with the production
Application Level description: An improvement of the networking between the production and
other company levels opens up synergies and avoids duplication of work. The networking
between production and other departments facilitates unified IT solutions, standardized
workflows or consistently used file formats from which the entire company benefits.
Results:
In the current stage of this level, 10 of the 13 participants plan to implement improvements. It
seems that achieving efficient communication through digital means is a relevant goal. Most of

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the participants see the value of having a fully networked digital backbone to integrate
production with the rest of the company’s business units.
As enablers, a good ERP system is not enough. It must be well integrated not only with the
databases and digital information sources, and in addition a system must be put in place to
capture physical data and non-digitalized documents. The presence of physical data sources like
production orders or defect reports on paper is an issue because this data is costly to digitalize
and often does not make it into the system in a usable way. Thus, it is only kept for audit purposes
even when it contains highly valuable information for applications like predictive quality and
predictive maintenance. This seems to be caused by the inconvenience of the usage of digital
devices on the shopfloor or poor user experience designs for the operators. New data
digitalization devices and technologies will help here. In general, the appearance of widespread
standards will improve ERP integrations across all possible data sources and make it cheaper to
implement data consistency.
The objective to unify and simplify IT systems which have grown using different document
formats and technologies, poses a big challenge. The most mentioned blocker by far is to achieve
the necessary organizational alignment to agree on unifying standards, formats, formal
processes, IT systems and roles. It seems that data has grown supporting silos of know-how and
internal power that when touching them unleash internal political discussions.
Again, here the main strategic impact achieved through integration of the data of the production
with other parts of the organization such as controlling, marketing or R&D is to reduce costs. But
this is because it enables faster communication and processes. This saves time on carrying
production projects forward which results in lower costs, reduces the lead time of orders or new
products, and improves the customer service levels, as well.
ICT infrastructure in production
Application Level description: The infrastructure of information and telecommunication
technologies in production determines the possibilities of implementing innovative applications
and potential improvements for technical and organizational processes. In addition to the use of
central data servers, web-based communication portals may be used.
Automated processes for exchanging data with external partners within the value chain or rather
value network represent further steps towards an Industry 4.0 vision.

Results:
In the current stage, most participants see themselves moving clearly towards a more advanced
position than today, reflecting the fact that improving their ICT infrastructure is high on many
companies’ agenda. Today’s picture offers a broad spectrum of different implementation states,
but most companies are already working on pilot solutions.
Larger companies with a big number of different suppliers see the biggest blockers in the missing
standardization resulting in a plurality of IT landscapes, including incompatible cloud solutions
and data inconsistency. Moving to cloud solutions is for some of their suppliers considered to be
too expensive compared to the value that is created for them (ROI).
Overall, and in particular for smaller and medium sized companies, the number one blocker is
trust and security concerns of their management, employees and other stakeholders, asking for
awareness campaigns and a change of mindset (69%). Sharing data is associated with losing
reputation or strategic advantage rather than creating value. Limited resources within the IT
department, mostly due to other higher priorities in the companies, was another recurring
blocker mentioned throughout the interviews.
The number one enabler, mainly for large companies, is to tackle the standardization issue by
providing information, consultancy, and technology to their supplier network (54%).
Smaller companies see the main potential for improvement in the skillset of their workforce with
the clear goal of understanding and overcoming technical complexities as well as trust barriers.

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Some of the companies are looking for external parties to solve the internal problems through
cooperation with research facilities or other service providers.
Multiple strategic impacts were mentioned, with cost efficiencies being highlighted the most by
69% of the companies, throughout all segments. Cost efficiencies are mainly seen by better stock
management, but also more accurate and faster demand forecasts. Forecasting the customer
demand better was also seen as the main reason behind improvements in time to market, which
54% of the companies mentioned. Customer service was named by 54% of companies enabled
by improved flexibility with order modifications late in the production as the main driver.
Man-machine interfaces
Application Level description: Considering the increasing complexity of production systems,
human-machine interfaces move into focus. In industrial reality, the starting point is often
represented by local display units that do not have user-friendly operating concepts. New
operating concepts such as mobile tablets or data glasses that conveniently provide the right
information at the right place are potentially promising for simplifying the work of employees
and for increasing production efficiency.
Results:

The current level of implementation of man-machine interfaces is very much concentrated on
centralized / decentralized production monitoring and control. Mobile devices for relevant
workers (stage 4 from the application level) or production enhanced by augmented reality
technology (stage 5 from the application level) is rarely seen. But many companies are
experimenting with pilot projects to move in that direction that most companies have identified
as goal for the near future.
What is blocking the companies today? Many companies (46%) have identified the mindset of
their workforce with a reluctance to change and / or fear of being monitored as number one
criteria. In other cases, it was mentioned that devices are not used properly, as the workforce
was not skilled enough to deal with the technology at hand. Another blocker (31%) is the process
landscape that has not been developed yet and lags behind the fast improvements in
technological equipment. For augmented and assisted reality, the main reason was cost of
equipment, but also ergonomic problems due to bulky size and weight when wearing over an
extended period. Augmented and assisted reality was also considered a niche application, with
relevance for some specific steps in the production, e. g. assembly of complex components only.
People are the main factor preventing a higher current level. This is also reflected in the fact that
no interviewee named any technology that they would miss to move forward today. Enablers are
therefore primarily found on the human side, mainly with breaking barriers due to convenience
and ergonomic improvements. Both could contribute to an increased adoption by the workforce.
Lowering the cost of the equipment to improve the ROI was named by 15% of the companies.
By far the biggest strategic impact is seen on cost reduction (85%) by an increase in productivity
and reduction of scrap, followed by improved output qualities and added value for society,
mainly coming from improved ergonomics and working conditions.

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Efficiency with small batches
Application Level description: The trend towards individually produced goods and continuously
smaller batches leads to a rising complexity of production processes. Reaching higher efficiency
with small lot sizes is thus becoming a decisive competitive factor. In this regard, a modular
structure of the respective products or the use of flexible production facilities with the
appropriate coordination in the respective value chain can open up new opportunities.
Results:
The current and target levels are both scattered when it comes to efficiency with small batches.
This variability is strongly motivated by the industry, product, or position in the value chain.
Producers of more complex components with direct end-customers are amongst the most
advanced, today, and in the future.

High cost for a more flexible production process and facility, outnumbers the advantages in many
cases. The required automated tool chain is sometimes blocked by different states of the IT
system within one or more production sites. Legacy machinery and systems that are not meeting
the needed flexibility has been named by 15% of participants. The benefits (ROI) of replacing the
machinery are not seen by many companies.
Enablers are widely spread, and no single one has been mentioned by more than one company.
On the technology side additive manufacturing, and more flexible machinery and production
lines was mentioned. Adding AI-enabled forecasting with automatic configuration of the
machinery is adding value for another participant.
With respect to strategic impacts, most participants are targeting an improvement in time to
market (62%), cost efficiencies (46%) and customer service (31%). Cost reductions are mainly
driven by synergies through common platforms.
Strategic Drivers and Effects Consistency Index
This section evaluates the consistency between the overall Industry 4.0 strategic drivers and the
expected impact of reaching the targeted stage in each of the application levels in the short term
(two to four years). The graphs present the information provided during the interviews
aggregated and normalized so that they can be compared in the same order of magnitude.
The results show that cost efficiencies are among the main strategic drivers of the Industry 4.0.
However, the expected impact of reaching the targeted stage in each of the application levels
will generate mostly cost efficiencies while strategic goals such as developing new business
models or adding value to society might not be achieved based on the current expectations.
A detailed analysis at the application-level shows that the impact expected from the measures
implemented in M2M communication and Man-Machine interfaces are mostly oriented towards
0.00
0.05
0.10
0.15
0.20
0.25
0.30
Time to market
Output quality
Fixed costs efficiency
Variable costs efficiency
Customer service
Added value for society
New business models
Strategic Driver Expected Impact

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cost efficiencies. While in the case of the measures implemented in ICT Infrastructure and
efficiency in small batches, the expected strategic impact is related to customer service and time
to market improvements.
0.0
0.1
0.2
0.3
0.4
0.5
Time to market
Output quality
Fixed costs efficiency
Variable costs efficiency
Customer service
Added value for society
New business models
Data processing in production M2M Communication
Company-wide networking with the production ICT infrastructure in production
Man-machine interfaces Efficiency with small batches

Discussion and Recommendations
Following the results of the research, the team has identified three pillars for discussion. First,
the strategies adopted by the interviewed companies when assessing or moving towards Industry
4.0 reflect, in some cases, an inconsistency between the company-level drivers and the impact
foreseen when progressing through the stages of the given application levels. Second, the main
blocker now faced by companies involves people and internal organizational capabilities and
alignment. Finally, from a technological perspective, the current limitations for the adoption of
I4.0 lie in the lack of standardization and need of an aggregated ICT ecosystem.
Strategic Consistency
Cost Efficiency
The strategic driver that most of the companies named was Cost Efficiency. One reason for this
could be that companies are trying to better design their production cost structure in order to
compete in a market in which time-to-market and customer service are also important trends.
As shown in the results, Cost Efficiency is not limited to the overall company-wide strategy when
thinking about Industry 4.0, but it is also the starting point from which companies seek an impact
when moving ahead on most of the application levels of the VDMA toolbox.
An example of this is that of the Machine-to-Machine Communication application level in which
fixed costs efficiency was identified to be the main driver when moving towards Industry 4.0.
Considering depreciation schemas, years of operation and the investment necessary to fully
deploy modern machinery, it is expected that improving machine communication will not only
allow modernization of existing, still functioning legacy systems, but will also allow, in the
process, the definition of standards which are not present now and that represent also the main
blocker for the manufacturing industry to move towards Industry 4.0. To overcome the
widespread blocker of legacy machines new Industrial IoT out of the box solutions for upgrading
legacy machines were mentioned as a game changer.
Production monitoring and control with the aim of increasing cost efficiencies and scrap
reduction are among the main drivers or strategic impacts companies look for when moving
along the Man-Machine Interfaces application level. While some are certainly already adopting
technology at its maximum levels, the majority find it not to be ready yet. Use cases are very
limited and, as for the ICT Infrastructure in Production application level, there is no business case
to back investments.
New Business Models and Value Added for Society
On the other hand, only a few companies have found themselves pursuing implementation
strategies in which the development of new business models or adding value for society is the
main driver when considering, adopting, or consolidating their Industry 4.0 implementation.

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This is expected considering the changes to be applied within and outside the organization
(including important stakeholders as suppliers) in order to get most of the value from data
generation and density across the entire manufacturing value chain, including the necessary
people capabilities and know-how, their mindset, and the availability of an IT infrastructure able
to collect, consolidate, process, and share data in a timely, secure and efficient manner such as
cloud computing, cybersecurity and machine learning / AI.
Additionally, the Strategic Drivers and Effects Consistency Index shows that the new business
models and value added for society strategic goals are less likely to be reached, while in the case
of cost efficiencies, results might be over-emphasized. This result reflects the struggle finance
departments have during the evaluation and final approval of new Industry 4.0 business cases.
Considering the changes in mindset and organizational alignment necessary to adopt new
business models and implement innovation, this result is no surprise.
Organizational Challenges
For the Data Processing application level, the main blocker was related to education of the
workforce in the organization. More than a lack of capacity, building the necessary know-how
and mindset in order to unlock the full potential provided by data seems to be the main issue.
This comes as no surprise considering the pace of technological developments and the fact that
companies and individuals have a hard time keeping up with new trends. People with practical
know-how in the production processes who are at the same time familiar with some data and IT
concepts are hard to find. Therefore, upskilling the workforce on digital topics is required through
dedicated training programs. At the same time, it was recommended to pay attention to the topic
of attraction and retention of digital talent. This was especially a challenge for smaller companies.
While the establishment of a fully digitalized production department in which all functions and
business units communicate with each other, with the aim of making better company-wide
decisions, looks promising on paper, the identification of business cases with attractive ROIs
makes the budget allocation on the Company-wide Networking with Production application level
quite challenging. As most of our interviewees commented, people are used to work with legacy
processes and systems. Training or enabling employees to adopt new processes represents both
an organizational and a financial hurdle considering the value it can provide to the organization.
People seem to be the main barrier when moving forward in the different stages of the Man-
Machine Interfaces application level. The mindset, combined with a reluctance to change are
among the main reasons why companies cannot move forward. This result is perhaps
exacerbated by a certain lack of motivation or incentives. One can imagine what people on the
shop floor think when seeing and experiencing a partial or complete replacement of their jobs,
by technology. Layoffs and the well-known full automation strategies adopted by big
corporations across the globe are also of no help. It is then clear that the main enablers in this
application level are to be applied more on an organizational level rather than leveraging any
particular technology. Awareness of and willingness to embrace innovation should be key in
companies aiming to thrive in this direction. Here the implementation of continuous change

management programs was recommended by some participants to foster a shift in mindset
across all levels of the organization. Another proposed topic to build trust and commitment
towards the changes inherent in Industry 4.0 was employee empowerment and a more
decentralized decision-making process.
Finally, participating along the value chain and considering a more “inclusive” approach could
also be source of competitive advantage. As for the technological aspects of Industry 4.0, building
an ecosystem of partners and key stakeholders in which the exchange of data and information
takes place smoothly, as well as enabling a harmonized collaboration between the parties, could
unlock the full potential of I4.0. This strategy is seen as positive for some interviewees and as a
way to learn from peers. For others, however, trust and security when sharing information or
internal agendas has been seen a negative aspect.
Technology and Standardization
By adopting a more holistic view of the manufacturing industry value chain, one can immediately
understand that it represents an ecosystem in which all the main stakeholders involved need to
collaborate together towards a common goal: capturing additional value.
It is then interesting to see how large enterprises tend to embrace digitalization and change by
providing training and support to suppliers or other stakeholders which either do not have
internal capabilities, or do not see any value in adopting new technologies or standardizing
mainstream or usual approaches. This goes together with the concept of lean manufacturing in
which establishing closer collaboration with key stakeholders can represent an important source
of competitive advantage, regardless of the sizing of the enterprise.
The main technological enablers of the Efficiency with Small Batches application level were
named as additive manufacturing, robotics, as well as flexible machinery. There is also a
component of data modelling with the use of AI for better production forecasts. While it is easy
to accept this as the pure outcome for this level, one can argue about the priority to attribute to
it. Issues coming from standardization of legacy and still functioning machinery, the alignment of
these new technologies and processes with people’s willingness to change, would be the number
one priority in the organization before allocating budget and efforts in other enablers.
Connecting the dots and aligning with other application levels of the VDMA toolbox, having an
end-to-end IT strategy supporting better demand forecasts and the possibility of applying
changes later in the value chain, is what most enterprises seek as an impact from the ICT
Infrastructure in Production application level. Rather than considering this outcome as a single
result, one could think of it as a more holistic strategy when it comes to Industry 4.0 adoption. It
could be seen as the fundamentals from which the rest of the levels can rely upon when it comes
to the adoption and integration of new technologies through standardization. Having a well-
functioning ICT infrastructure will allow the collection of data, connecting different or remote
machines, allow man-to-machine communication, and, with the help of new technological
advancements (e. g. ML/AI), allow enterprises to achieve their goals in terms of forecasting and
efficiency.

25
Conclusions
Based on the findings of the study the following key conclusions were identified:
Strategic perspective:
• Cost efficiency is clearly the main strategic driver for Industry 4.0 adoption. It is followed
by customer service and lead time. New business models to generate additional revenues
come with a lower priority. This shows that most companies naturally focus first on their
existing business and value chain before leveraging digital capabilities for new business
development.
• The consistency index shows that the expected impact of reaching the targeted stage in
each of the application levels will generate mostly cost efficiencies while strategic goals
such as developing new business models or adding value to society might not be
achieved. In order to achieve these two goals, the decision-making process for investing
in new Industry 4.0 related projects should consider these two goals on top of the
expected financial return of measures related to cost efficiencies.
Operational challenges and solutions:
• Availability of new technologies is not the bottleneck. Technologies are mostly available
and already proven in use cases, even the ones necessary to reach the highest level 5. If
new innovative technologies are not applied, it is quite often due to lack of attractive
business cases - e.g., augmented reality.
• Rather than technologies, people are the real bottleneck that is slowing down industry
4.0. Change management is required to mobilize the entire work force from top
management, middle management all the way to shop floor workers. To upskill the
existing workforce training programs are required together with hiring digital experts to
have role models driving the change. Employee empowerment and a more decentralized
decision-making process are additional enablers.
• Legacy machines are another major blocker for Industry 4.0 adoption. The step to the
next maturity level for many dimensions depends on the replacement of old machines
and systems with new ones that offer connectivity, digital sensors and remote-control
capabilities. Brown field solutions are mostly not seen as sufficient today. Thus, the
introduction of suitable and affordable retrofit solutions to make legacy machines
industry 4.0 ready would be a key enabler to speed up digitalization.
• Utilizing Industry 4.0 to collaborate across companies along the supply chain to exchange
data and integrate processes is another enabler that in some cases is still slowed down
by lack of trust and security concerns. Wider adoption of new technologies as digital
ledger (DLT) or Blockchain could potentially solve these challenges.
• Standardization of the IT landscape, processes and formats together with a strong ICT
infrastructure are additional key enablers for lifting Industry 4.0 to the next level. The
large IT, ERP and cloud companies are constantly increasing their offerings in this regard
still it stays a major challenge for the coming years.

References
For the full VDMA Publication “Guideline Industry 4.0”, which includes the toolbox the team used
as a basis for interview, see:
http://industrie40.vdma.org/en/viewer/-/v2article/render/15540546

27
Adrian Betz started his professional career as intern in a small manufacturing plant at Bosch, producing parts for the
automotive industry. After working with BMW in product development he joined Siemens Management Consulting
where he worked on strategy, innovation and digitalization projects consulting the top management of Siemens
worldwide. After several line positions within Siemens where he was also driving digitalization initiatives and
incubating digital business models, he led the global product line for generators in the energy business of Siemens
over the last years. Besides being an Executive MBA candidate at IESE Business School, Adrian holds a Master in
Technology Management from Sydney University, a German Diplom in Business and Economics from Ludwig-
Maximilians University Munich and is currently a post-grad student at Technical University of Munich in Computer
and Information Sciences.
Alberto Carro Melero started his professional career on the energy sector, first as an intern in Endesa and afterwards
as consultant in the department of Economics & Regulation at KPMG. After four years, Alberto joined Telefónica as
Strategy and Market Manger. In this new position, he jumped to the technological sector. Initially, Alberto was
managing the impact of the European regulatory framework for the Telefónica Group and currently his main
responsibilities are identifying and managing strategic projects related to the implementation of 5G and IoT
technologies in the roaming arena. Alberto holds a master’s degree in industrial engineering by IQS, in Barcelona,
and a Master Degree in the Electric Power Sector by ICAI, in Madrid. Additionally, he is finalizing the IESE Executive
MBA in the Munich campus.
Manuel Achúcarro is a passionate problem solver and strategic thinker who started applying his passion through
software development. He has more than ten years of experience in digitalizing highly complex B2B processes and
developing e-commerce platforms. He is as well consultant in the field of digital industry and industrial IoT. He is in
parallel using his entrepreneurial spirit and working to open new offices in Spain for XITASO, the company where he
works since more than six years. He has the will to improve the productivity and working conditions in his home
country. In his free time, he is a born networker who enjoys helping those around him and creating value through
connecting people. As a hobby, he is into the world of blockchain technologies and crypto currency investments. He
holds and manages several private portfolios and is the representant of XITASO in Bitkom’s Blockchain chapter.
Manuel holds a master's degree in Telecommunications Engineering by the UPM in Madrid and is finishing his
Executive MBA at IESE Munich campus.

A passionate communicator and problem solver, Natasha Müller currently works at Microsoft Germany
conceptualizing and delivering events for business partners and customers. Natasha brings a deep-rooted belief in
the power of collaboration to work every day, and, after more than a decade at Microsoft, Natasha is more excited
about how technology empowers each and every one of us than ever before. Natasha holds an MA in Modern &
Medieval Languages from Cambridge University, and is looking forward to completing her Executive MBA from IESE
Business School.
Alexander Nothhelfer is a proven leader with a passion for robotics, technology in general, and medical devices. He
started his career in the German Aerospace Center, Institute of Robotics and Mechatronics, where he has developed
several different robotic systems mainly for terrestrial applications, such as surgical robotics and co-bots. Later,
Alexander joined Covidien as Lead Engineer for their Surgical Robotics incubator program. After acquisition of
Covidien by Medtronic, Alexander was having several roles in engineering and management, and is now the global
head of Electrical Engineering department for Surgical Robotics. Throughout his career he was mainly in new product
development but covered the entire life cycle with contributions to supply chain and manufacturing. Besides being
an Executive MBA candidate at IESE Business School, Alexander holds a master’s degree in Engineering, Electronic
Systems, from Ulster University, Belfast, and a German Diploma in Mechatronics from University of Applied Sciences
in Augsburg.
Gabriel Paredes Loza is a technology enthusiast. After getting his master degree in Telecommunications Engineering
at the university of Padova, in 2014 he started his career in the world of IT Consulting, working as a Cloud Architect
and focusing on the development of cutting-edge solutions in the AWS (Amazon Web Services) cloud, for major
Italian companies such as Telecom Italia, and Ferrero. In 2017 he moved to Germany to work in a big cloud migration
project for Vodafone Group, enhancing his Cybersecurity know-how, as he helped Vodafone with the design and
internal approval of their AWS Cloud Security blueprint. In 2019 he started working in Adidas as Data Engineer. In
this period, he cultivated his passion towards Bigdata & Analytics, and AI/ML. Following his vast technical expertise
and business acumen, Gabriel currently holds the role of Technical Lead and Account Manager in Storm Reply, one
of the top 10 AWS Premium Partners. He is in charge of one of the company’s key accounts and managing three
teams -two in Italy and one in Germany- for the development of solutions in the fields of (I)IoT, BigData, DevOps,
Cybersecurity, Mass Migration, and Cloud Managed Services. Gabriel, as the rest of the team, is about to finish his
Executive MBA and looking forward to helping companies matching technology with business goals.

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