Without recycling clichés or hype, we all recognize the unprecedented challenge facing the industrial sector. With a responsibility to its shareholders, employees and customers, industry executives are in triage mode and are urgently addressing the health and safety of their employees, changes in demand, commodity pricing and supply chain security.
This article covers a simple question: should digitalization plans be reconsidered in response to the devastating consequences of Covid-19?
The short answer is yes, but the automatic response should not be to freeze all digitalization plans as a knee–jerk reaction to the current situation. We need to balance reductions in the “nice to haves” with existing plans that can still be justified.
In the ideal scenario, existing investments in digitalization transformation should have been made on solid business cases with demonstratable returns. In reality, we have not lived in an information bubble and the outsized influence of industry analysts and technology vendors has likely resulted in digitalization plans that are less critical in the short-to-medium term.
Let’s start with a sober view of the current situation. Whereas past disasters (both manmade and natural) have disrupted parts of the world, the spread of Covid-19 has been less discriminating and is rapidly impacting the lives of all of us. So even if the magnitude is not the same, the industrial sector has historically dealt with the consequences of recessions, the collapse of commodity prices, financial liquidity crises. The list goes on and we have been here before.
Let’s consider that there will be an end-date to Covid-19. As many of us face lockdown, we can take some solace from the decrease in new cases in Wuhan and the global rush to develop a vaccine. In the end, the world will survive.
With this in mind, the process of reevaluating existing plans should be done rationally. Although discussions about the potential opportunities from crises are both crass and unnerving, responsible businesses need to consider how to navigate Covid-19 so that they are in the best possible position when we reach the safety of “the day after.”
The first step is to do a hard audit of current digitalization programs, and new criteria should be applied with respect to existing and new decisions. This process does not need to be overly complex and should address fundamental issues as to whether digitalization initiatives impact the business in a meaningful way and to perform a cost/benefit analysis of maintaining, delaying or stopping.
This re-prioritization exercise should be done sensibly and be based on at least three different post-Covid-19 scenarios, ranging from best case to worst case. Modelling these scenarios (and the impact on the business) requires discipline, because decisions will be difficult to make.
The next thing to do is to evaluate the financial stability of your digitalization vendors. In the case of startups, billions of dollars in venture capital funds have been invested in the Industry 4.0 sector. In these new circumstances, some of the smaller and less resilient startups may not have raised sufficient capital to weather the storm.
This is not the forum for a sales pitch, but I do believe that sharing information on the SKF approach is beneficial to the wider community. At SKF, we view digitalization as a journey to a very specific place: asset performance. Seen through the prism of performance (or rotating equipment performance), investments in innovation include Artificial Intelligence (Presenso) and Oil as a Service (RecondOil).
With asset performance as a central pillar of our strategy, the focus on outcomes and results percolates throughout our entire organization. It has also forced us to reconsider business models, and to align our interests with those of our customers.
We raise this issue because in difficult times, the “as a service” model becomes more compelling in an environment in which we are all trying to minimize risk and cost. The industrial world has much to learn from technology companies such as Microsoft that have shifted their business to a pay-per-use model. The next iteration, the pay-per-performance model that has been adopted by OEMs such as SKF and others, should be carefully considered when evaluating digitalization plans, especially if upfront capital outlays can be reduced or eliminated.
In conclusion, with scarce funds for investments, it is time to evaluate and rationalize existing Industry 4.0 plans. At the end of the day, when we exit from this period, the underlying challenges facing industrial many industrial plants – unscheduled and costly asset downtime, legacy OT systems vulnerable to cyberattack, aging infrastructure, etc., – will still exist and will continue to impact the bottom line.
There is no turning back the innovation clock and digitalization will continue to play a critical role in the future industrial plant. We should use the Covid-19 crisis to re-think Industry 4.0 so that we emerge as strong as possible on the other side.