PWC Industry 4.0 - Opportunities and Challenges of Industries PDF

www.pwc.de/industry4.
Industry 4.0 – Opportunities

and Challenges of the
Industrial Internet
Our study shows how

industrial companies
can shape the digital
transformation and unlock
new opportunities for
growth. A survey of five
core industry sectors.
Industry 4.0 – Opportunities
and Challenges of the
Industrial Internet
Our study shows how

industrial companies
can shape the digital
transformation and unlock
new opportunities for
growth. A survey of five
core industry sectors.
Industry 4.0 – Opportunities and Challenges of the Industrial Internet
Published by PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft
By Dr Reinhard Geissbauer (PwC), Stefan Schrauf (PwC), Volkmar Koch (Strategy&) and
Simon Kuge (Strategy&)
December 2014, 52 Pages, 28 Figures, Soft cover
All rights reserved. This material may not be reproduced in any form, copied onto microfilm or saved
and edited in any digital medium without the explicit permission of the editor.
This publication is intended to be a resource for our clients, and the information therein was correct
to the best of the authors’ knowledge at the time of publication. Before making any decision or taking
any action, you should consult the sources or contacts listed here. The opinions reflected are those
of the authors. The graphics may contain rounding differences.
© December 2014 PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft.

All rights reserved.
In this document, “PwC” refers to PricewaterhouseCoopers Aktiengesellschaft
Wirtschaftsprüfungsgesellschaft, which is a member firm of PricewaterhouseCoopers International
Limited (PwCIL). Each member firm of PwCIL is a separate and independent legal entity.
Table of contents
Table of contents
A Industry 4.0 – Opportunities and Challenges of the Industrial Internet..............6
B Key findings of the survey...................................................................................9
C Survey results in detail..................................................................................... 14

1 The Industrial Internet transforms the entire company and
must be part of the CEO agenda........................................................................15
2 By 2020, European industrial companies will invest €140 billion
annually in Industrial Internet applications...................................................... 17
3 In five years, more than 80% of companies will have digitized
their value chain...............................................................................................19
4 The Industrial Internet creates higher production and
resource efficiency – an 18% increase in efficiency within five years................22
5 The integrated analysis and use of data are the key capabilities
of the Industrial Internet..................................................................................24
6 Digitization of the product and service portfolio is the key
to sustainable future success.............................................................................27
7 Digitized products and services generate approximately €110 billion of
additional revenues per year for the European industry....................................29
8 The Industrial Internet paves the way for new, often disruptive
digital business models.....................................................................................31
9 Horizontal co-operation allows for improved satisfaction
of customer requirements.................................................................................33
10 The Industrial Internet holds various challenges –
policy-makers and industrial associations can help...........................................35
D Outlook and recommendations.........................................................................40
E Methodical approach........................................................................................45
Contacts..................................................................................................................48
Acknowledgement..................................................................................................50
Industry 4.0 – Opportunities and Challenges of the Industrial Internet 5

A Industry 4.0 – Opportunities and Challenges

of the Industrial Internet
6 Industry 4.0 – Opportunities and Challenges of the Industrial Internet

The fourth industrial revolution – The digitization and interconnection

characterised by the increasing of products and services (Internet of
digitization and interconnection of Things/Services) is a second important
products, value chains and business driver. It will contribute strongly to
models – has arrived in the industrial ensuring competitiveness and promises
sector. Our study, Industry 4.0 – additional revenues of 2% to 3% per
Opportunities and Challenges of the year on average. When applied to the
Industrial Internet, is based on a survey German industrial landscape as a
of 235 German industrial companies whole, additional revenues reach up to
and was conducted by the market €30 billion per year. For the European
research institution TNS Emnid. It industry sector, additional revenues
presents the essential attributes, amount to €110 billion annually.
opportunities and challenges posed
by this development. The surveyed A third major driver are the newly
companies belong to the manufacturing emerging, often disruptive, digital
and engineering, automotive and process business models that offer significant
industries, as well as the electronics and additional value to customers through
electrical systems and information and tailor-made solutions. These new
communications industries. business models are characterised by
a considerable increase of horizontal
The respondents expect that the digital cooperation across the value chains, as
transition will lead to a significant well as the integrated use and analysis of
transformation of their companies that data. They are therefore capable of better
will require considerable investment. fulfilling customer requirements.
They estimate the share of investments
in Industry 4.0 solutions will account The various opportunities, the large
for more than 50% of planned capital extent of change and the elevated need
investments for the next five years. for investments make the Industrial
German industry will thus invest a total Internet one of the most important topics
of €40 billion in Industry 4.0 every year for corporate management. However, the
by 2020. Applying the same investment numerous challenges that the transition
level to the European industrial sector, entails are also not to be underestimated.
the annual investments will be as high as Besides the partly still unclear business
€140 billion per annum. cases for the Industrial Internet at
company level, industry standards
The first significant driver for the have to be defined and agreed upon
advance of Industrial Internet solutions and questions need to be answered, for
lies in the opportunity to integrate and example, in the area of data protection.
better manage horizontal and vertical The respondents also consider the
value chains. Companies surveyed expect required qualification of employees at
more than 18% higher productivity over increasingly digitized companies to be
the next five years. While today only a major obstacle. Policy makers and
one fifth of the industrial companies industrial associations can provide
have digitized their key processes along significant support with these issues.
the value chain; in five years’ time, 85%
of companies will have implemented
Industry 4.0 solutions in all important
business divisions.

The fourth industrial revolution has for clearer differentiation in global

begun and offers attractive opportunities competition. Our study is intended to
for industrial companies. However, help identify major opportunities and
the Industrial Internet is not an end in challenges and demonstrate solutions for
itself. It is closely tied to clear economic successful implementation. The time to
objectives and holds the potential act is now!
Industry 4.0 – vision and support them in developing further. In enterprise resource planning (ERP)
this respect, the continuous digitization systems. The use of these software
mission at the same time
of the value chain is essential for the tools has led to a significant increase
industry’s future. in quality improvement (reduction
The essence of the Industry 4.0
from 550 to 12 defective steps out of a
vision, the “Internet of Things”, is
Examples of factories in which the million process steps in total) over the
the ubiquitous connection of people,
production processes are digitally past twenty years. Production volume
things and machines. This connection
supported throughout already exist – has increased many times over the same
is intended to produce a variety of new
however, these processes still have period of time, while staff numbers have
goods and services. Products, means
a low level of complexity. A “digital remained almost the same.
of transport or tools are expected to
company” with a continuous digital
“negotiate” within a virtual marketplace
value chain not only digitally integrates This study is intended to create
regarding which production elements
the shop floor, but also the development awareness of the necessary path
could best accomplish the next
and sales departments from the office to digitization within the industry.
production step. This would create a
floor. Examples of this include the two Siemens products can support users in
seamless link between the virtual world
Siemens electronics plants belonging to successfully embracing their upcoming
and the physical objects within the real
Siemens in Amberg and Chengdu. transformation into a digital enterprise.
world.
Approximately 1,000 different products

The sources of the major additional
are manufactured in Amberg. In
benefits of this vision for each respective
order to produce them in a flexible
case – and the resulting consequences –
and efficient manner, the plant uses
have yet to be defined. There are
the latest software tools, such as NX
already extremely optimised production
and Teamcenter, Product Lifecycle
processes which are executed serially
Management (PLM) programmes, for
in a well-defined sequence. These
production development, as well as a
production strategies will also be
large number of SIMATIC controllers
improved in the future and impede
and SIMATIC IT, Manufacturing
the introduction of new production
Execution System (MES) software, for
approaches. The objective of Siemens
production processes. These products Prof Dr-Ing Dieter Wegener
is to allow its customers to be more
work together seamlessly and are Siemens AG, Digital Factory Division,
competitive and to make every effort to
connected through interfaces with the “Industry 4.0” Coordinator
translated from German

Key findings of the survey
B Key findings of the survey

1
The Industrial Internet

transforms the entire
company and must be part
2
of the CEO agenda.
By 2020, European industrial

companies will invest €140 billion
annually in Industrial Internet
applications.
3 In five years, more than

80% of companies will
have digitized their value
chain.
4 The Industrial Internet

creates better productivity
and resource efficiency – an
18% increase in efficiency
within five years.
5 The integrated analysis

and use of data are the
key capabilities for the
Industrial Internet.

10

holds various challenges –
policy-makers and industrial
associations can help.
Horizontal co-operation
allows for improved
satisfaction of customer
requirements.
9
4.0
paves the way for new,
often disruptive digital
business models.
8
Digitized products
and services generate
approximately €110 billion of
additional revenues per year
7
for the European industry.
Digitization of the product

and service portfolio is
the key to sustainable
corporate success.
6
The results of the study are summarised in the following

ten key findings:
1. T he Industrial Internet 3. I n five years, more than 80% of 5. T he integrated analysis and use
transforms the entire company companies will have digitized of data are the key capabilities
and must be part of the CEO their value chains. for the Industrial Internet.
agenda. One quarter of the companies surveyed Already today the efficient analysis and
The Industrial Internet, also known as have already achieved a high degree use of data is of great significance for
Industry 4.0, not only comprises the of digitization of their value chains. half of all companies surveyed. Moreover
digitization of horizontal and vertical However, it is mostly only individual 90% of companies believe that the
value chains but will also revolutionise units and isolated applications that ability to analyse data will be decisive
the product and service portfolio of have been automated and digitized thus to their business model in five years.
companies – with the ultimate goal far. The companies expect that 86% of These companies primarily focus on the
of better satisfying customer needs. the horizontal and 80% of the vertical efficient exchange of data within their
The potential uses of the Industrial value chains will have a high degree of own value chain, the digital labelling
Internet go far beyond the optimisation digitization by 2020 and will therefore of the products and the use of real time
of production technologies. However, be closely integrated. data to steer their production.
exploiting these opportunities requires
considerable investment. The topic 4. T he Industrial Internet 6. D igitization of the product and
therefore inevitably occupies a leading increases productivity and service portfolio is the key to
position on the agenda of directors and resource efficiency – an 18% sustainable corporate success.
managers of industrial companies. increase in efficiency within Thirty percent of the companies
five years. surveyed have already digitized their
2. B y 2020, European industrial The industrial sector is required to products to a great extent and expanded
companies will invest €140 produce ever larger quantities using their portfolio to include connected and
billion annually in Industrial fewer raw materials and less energy. automated services. A mechanically
Internet applications. The Industrial Internet allows higher perfect product will no longer be enough
Over the next five years, the industrial productivity and resource efficiency to successfully withstand international
companies surveyed will invest, on and thus creates the conditions for competition. More than four out of five
average, 3.3% of their annual revenues sustainable and efficient production. respondents – with the exception of the
in Industrial Internet solutions. This The companies surveyed anticipate an process industry – therefore expect that
is equivalent to nearly 50% of the average efficiency increase of 3.3% per they will have achieved a high degree of
planned new capital investments and an year across all industry sectors due to digitization of their product and service
annual sum of more than €140 billion the digitization of value chains. This portfolio within five years.
with regard to the European industrial amounts to a total of 18% in the next
landscape. These investments will have five years. They expect annual savings of
to be used along the entire value chain in 2.6% with respect to cost reduction.
order to achieve maximum success.
Industry 4.0 will transform our entire

value chain and allows us to develop
innovative products and services.
We must act now!
CEO, manufacturer of processing machines

7. Digitized products and services 9. H orizontal co-operation allows

generate approximately for improved satisfaction of
€110 billion of additional customer needs.
revenues per year for the About half of all companies surveyed
European industry. are already convinced that closer co-
Companies which have already digitized operation with value chain partners –
their product portfolio to a great extent combined with increased horizontal
have grown above average in the past interconnection – is of great significance.
three years. Half of the companies The importance of this will further grow
surveyed anticipate double-digit in the context of Industry 4.0 in light
growth in the next five years due to of increased digitization – particularly
the intensified digitization of their where new, digital business models
product and service portfolio. One in five have to be established. More than 80%
companies even expects sales to rise by of the companies surveyed believe that
more than 20%. In total, this amounts to closer co-operation and a more vigorous
an average, incremental sales increase horizontal connection of value chains
of 2.5% per annum. Compared to all will play an important role in five years.
industrial companies in the five core
industry sectors, this is equivalent to an 10. T he Industrial Internet holds
annual sales potential of more than €30 various challenges – policy-
billion for Germany and reaches up to makers and industrial
€110 billion of additional revenues for associations can help.
the European industry in total. Companies have to master several
challenges on the way to becoming a
8. T he Industrial Internet Digital 4.0 champion. The main focus
paves the way for new, often is on high investment levels and often
disruptive digital business unclear business cases for new Industrial
models. Internet applications. Furthermore,
The Industrial Internet will have a sufficient skills to meet the needs of
lasting effect on existing business the digital world must be ensured.
models and will particularly also Binding standards must also be defined
generate new, digital – often disruptive – and tasks in the area of IT security
business models. The focal point of this have to be solved. Policy-makers and
trend comprises increasing customer industrial associations can help with
benefits through a growing range of these latter challenges in particular, by
value solutions (instead of products) and advocating uniform industrial standards
increased networking with customers at a European or international level
and partners. The special quality of and promoting efficient rules for data
the digital change lies in the rapid security and data protection.
acceleration of the speed of change.
Disruptive innovations will also cause
industry sectors like the information and
communications industry to sustainably
transform within a short period of time.

Survey results in detail
C Survey results in detail

1 T
he Industrial Internet transforms the entire company and
must be part of the CEO agenda.
The Industrial Internet, also known as
Industry 4.0, not only comprises the
digitization of horizontal and vertical
value chains but will also revolutionise
company product and service portfolios
and lead to the implementation of new,
often disruptive digital business models.
The Industrial Internet promotes both
the transformation of all important
business processes and a realignment of
the product and service portfolios. The
potential uses of the Industrial Internet
thus go far beyond the optimisation
of manufacturing techniques and
its implementation also requires
considerable investment. The issue is
therefore taking a key position at the
top of the agenda for CEO’s, directors
and managers at leading industrial
companies.
Fig. 1 Industry 4.0 comprises the networking of value chains, the digitization of
products and new business models
1
Framework for Industry 4.0
ection & collaboration

Con n
3
Innovative digital
business models
2 Industry 1
Digitization 4.0 Digitization &
of product and integration of
service offerings vertical & horizontal
value chains
Dat
a&a lit y
nalytics as core capabi
Industry 4.0 means far more to us than just an end in

itself. We associate it with clear economic aims and the
opportunity for better differentiation in global competition.
Plant manager at Digital Factory, an electronics group

Our definition of the Industrial Internet 3. Introduction of innovative digital The basis of the Industrial Internet is
or Industry 4.0 covers three aspects: business models the increased availability and integrated
The higher level of integration and use of relevant data by connecting all
1. Digitization and increased the technological opportunities products, resources and companies
integration of vertical and provided by the Industrial Internet involved in the value chain. It includes
horizontal value chains will create new, digital business the ability to generate additional value
Leading industrial companies are models. Integrated solutions or value- from available data and ultimately
digitizing and connecting functions added services are characterised by to maximise customer benefits. This
along the vertical value chain – significantly higher customer benefits requires a fundamental transformation
from the digital order process, and will revolutionise existing of processes, the product and service
customised product development and product portfolios and performance portfolio as well as the existing business
the automated transfer of product relationships. They are often the models. In sum, it is a comprehensive
data to connected planning and result of disruptive innovative process of change which can only be
manufacturing systems and further processes. Integrated solutions offer successfully driven by top management.
on to integrated customer service. new companies the opportunity
Moreover, the horizontal integration to enter existing markets and
of inventory and planning data is established customer relationships
carried out with suppliers, customers since one effect of digitization is the
and other value chain partners. reduction of traditional market entry
barriers.
2. Digitization of product and service
offerings
Digital champions expand Definition Industry 4.0
their existing range of products
with complete digital product “The term Industry 4.0 stands for the fourth industrial revolution. Best
descriptions as well as intelligent understood as a new level of organisation and control over the entire
and connected solutions (“embedded value chain of the life cycle of products, it is geared towards increasingly
systems”/“Internet of Things”). These individualised customer requirements. This cycle begins at the product
include online connection for the idea, covers the order placement and extends through to development and
regular matching of performance manufacturing, all the way to the product delivery for the end customer,
and wear data or the development and concludes with recycling, encompassing all resultant services.
of customised products with a lot
size of 1. The service portfolio will The basis for the fourth industrial revolution is the availability of all
be further extended by connected, relevant information in real time by connecting all instances involved
automated or data-based services. in the value chain. The ability to derive the optimal value-added flow
at any time from the data is also vital. The connection of people, things
and systems creates dynamic, self-organising, real-time optimised value-
added connections within and across companies. These can be optimised
according to different criteria such as costs, availability and consumption of
resources.”
Source: Platform Industry 4.0 (translated from German).

2 B
y 2020, European industrial companies will invest
€140 billion annually in Industrial Internet applications.
Over the next five years, the
235 industrial companies surveyed will
invest on average 3.3% of their annual
revenues in Industrial Internet solutions.
This is equivalent to nearly 50% of the
planned new capital investments and an
annual sum of more than €140 billion
with regard to the European industrial
landscape.
Fig. 2 In the next five years, the companies will invest 3.3% of their annual
revenues in Industry 4.0 solutions
Average annual investments in Industry 4.0 applications

Percentage of companies surveyed
40%
2
Ø = 3.3%
25%
22%
6%
3%
0–1% 2–3% 4–6% 7–10% > 10%

Amount of investments in % of annual revenues
Note: 4% of the companies surveyed provided no information on the amount of their investments.
Only a quarter of the companies have Industrial Internet solutions enable

not yet considered it necessary to efficiency improvements and reduce
channel significant investments into costs along the entire value chain.
Industrial Internet applications. By The study’s participants therefore
contrast, one third of the respondents place an equally high priority on
will take on opportunities to increase investments in the entire supply chain,
efficiency and ensure competitiveness the digitization of product development
as the most important investment and engineering, as well as in the
challenge. These companies will invest automation of manufacturing. It is
on average 7% – a major part of the only investments in the digitization
budget – in Industry 4.0 applications of sales that are rated slightly lower.
(this is equivalent to the average of the Investments cover the entire range,
top three categories with investments from connections between operation
≥ 4%). materials, machines and logistics
systems in the form of cyber-physical
systems (CPS), through solutions of
sensor technology to the exchange of
data controlled in real time along the
value chain.

Fig. 3 Investments in Industry 4.0 solutions are spread over all key areas along
the value chain
Industry 4.0 investments broken down by steps of the value chain
Supply chain 57% 32% 11%
Product development/
56% 30% 14%
engineering
Extrapolating the planned investments Planning 52% 35% 13%

of the companies surveyed to the five
Production/
industry sectors represented in the 55% 30% 15%
manufacturing
study results in an annual investment
of €140 billion by European industry. Service 56% 27% 17%
The two industry sectors that will make
above average investments in digital
Distribution 30% 43% 27%
enterprise solutions are the information
and communications (3.9% per annum)
and manufacturing and engineering Priority of the investment:
industries (3.5% per annum). High (4,5) Medium (3) Low (1,2)
Fig. 4 The European industry will invest €140 billion annually in Industry 4.0 solutions until 2020
Annual investments in Industry 4.0 solutions through until 2020
Investment amount Investment volume2

(% of annual revenues) (€ billion per annum)
Manufacturing and
3.5% 29
engineering
Automotive industry1 2.9% 39
Process industry 2.7% 35
Electronics and
3.3% 21
electrical systems
Information and
3.9% 16
communications
Total 3.3% 140
1
rojection for the entire automotive industry (economic sector 29: production of motor vehicles and motor vehicle parts).
P
2
Projection on the basis of total revenues per industry sector in the EU-28.
Companies from the information and their investments in manufacturing Overall, industrial companies across
communications industry mainly automation, recording real time data all industry sectors have realised
focus their investments on products along the supply chain as well as on the that they can only meet increasing
and services for flexible real time expansion of manufacturing execution customer requirements with significant
manufacturing planning and control. systems (MES). Planned investments investments in Industry 4.0 solutions.
This sector also places importance on by the process industry in Industrial This is the only way for them to remain
the optimisation of the logistics systems. Internet applications still lag behind competitive and to improve their own
Companies in the machine building those in the other industry sectors. competitiveness on a long-term basis.
industry, meanwhile, concentrate

3 I n five years, more than 80% of companies will have
digitized their value chain.
The Industrial Internet has now been
added to the agenda of the majority of
companies. Two-thirds of the companies
surveyed are already actively working
on digitizing and further connecting
their value chains. One fourth of the
current degree of digitization of their
value chain as high. In concrete terms,
this means that most of the companies
are already using or have implemented
Industrial Internet solutions in various
divisions.
3
respondents already classifies the
Fig. 5 The already considerable degree of digitization will increase with

Industry 4.0 in the next years
Degree of digitization of the value chain

Share of companies with a high degree of digitization (4,5)
Horizontal value chain Vertical value chain

86%
80%
24%
20%
Today In 5 years Today In 5 years
The study shows that the level of The Industrial Internet and the
digitization of the value chains will rise digitization of value chains are
rapidly in the future. It is estimated important prerequisites for all
that 86% of the horizontal and 80% companies, irrespective of their size.
of the vertical value chains will be They are necessary in order to maintain
highly digitized in five years. This competitiveness and avoid falling
kind of conscious investing in further behind the increasingly faster pace of
digitization opportunities can be seen development across industry sectors.
across all industry sectors.

Fig. 6 The digitization of value chains will significantly increase across all industry sectors
Degree of digitization of the value chain by industry sector1

Proportion of companies with a high degree of digitization (4,5)
89%
85% 84% 80%
77%
Ø = 83%
26% 27%
19% 19% 21%
Ø = 22%
Manufacturing and Automotive suppliers Process industry Electronics and electrical Information and
engineering systems communications
Today In 5 years
1
Horizontal and vertical value chain.
Fig. 7 The digitization of value chains has top priority for all companies irrespective of size
Degree of digitization of the value chain according to the size of the company1
92%
85% 82% 82%
79%
Ø = 83%
31%
27%
22% 20%
Ø = 22% 13%
> €5 billion €1–5 billion €0.5–1 billion €100–500 million < €100 million
annual revenues annual revenues annual revenues annual revenues annual revenues
Today In 5 years
1
Horizontal and vertical value chain.

Fig. 8 Industry 4.0 requires comprehensive digitization of the horizontal and vertical value chains
Horizontal value chain Vertical value chain

Supplier Company Customer Company
Sales
Planning
Network of Product development (R&D)
suppliers
Vertical value chain

Planning
Network of
customers
Pur Manufac Purchasing Manufacturing Logistics
Logistics
chasing turing
Cooperation
Service
partners
IT, shared services
Horizontal value chain/networking Finance, tax and legal
Digitization is finding its way into connection of manufacturing systems, This produced notable increases in
horizontal as well as vertical value chains the prevention of system failures and performance at the plant level and
to an equal extent. The digitization of better analytical abilities. significantly reduced the error rate in
the horizontal value chain integrates and manufacturing.
optimises the flow of information and For example, a leading manufacturer
goods from the customer through their of electronics components has already The majority of the companies identified
own company to the supplier and back. achieved a very advanced level of a clear added value in the digitization
This process involves the integration digitization in some plants. This was of the value chain. Industry 4.0 or the
and proactive controlling of all company realised by implementing various Industrial Internet is more than just
internal departments (eg, purchasing, processes and value chain optimisations, hype. It will become reality in most of
manufacturing, logistics and planning). including: the industrial companies in the next five
It also includes all the external value • Vertical availability and integration of years.
chain partners that are needed to all development, manufacturing and
satisfy customer requirements and fulfil supply chain data
requested services. • Effective data management and
improved data analysis in real time
Vertical digitization, on the other hand, • Individual IP addresses for all
is associated with securing a consistent components and systems in the plant
flow of information and data from • Automation of all important process
Sales through Product development to steps in a one-piece flow
Manufacturing and Logistics. Quality • Continuous measurement and
and flexibility can be increased and optimisation of all process steps and
costs reduced by means of optimal parameters
We already today require extensive data

and maximum transparency from our
suppliers for seamless quality monitoring
along the value chain.
Vice President, manufacturer of automation technology

4 4 T
he Industrial Internet creates higher manufacturing and
resource efficiency – an 18% increase in efficiency within
five years.
The fourth industrial revolution plays
an important role in making long-term
manufacturing efficiency possible. The
industrial sector is required to produce
ever larger quantities using fewer raw
materials and less energy. Industry 4.0
will help companies create efficient
manufacturing processes with increased
production, energy and resource
efficiency.
Many improvements may result from
the digitization of processes and value
chains, for example:
• Focussing on core areas in the
individual value chain
• Reduction of redundancies in
processes
• Minimising quality losses
• Making processes more flexible and
coherent
Over the next five years, the companies In concrete terms, increased
surveyed expect a noticeable transparency improves the utilisation
quantitative benefit from the planned of machines and systems (eg, by
investment in Industrial Internet optimising lot sizes). Digitization
applications. They anticipate an average and greater connectivity in process
efficiency increase of 18% through organisation may permit areas of
digitized enterprises across all industry work to be rationalised and may yield
sectors. This is equivalent to an annual gains in productivity. The intelligent
efficiency increase of 3.3%. In fact, more analysis and integrated use of data for
than one third of the companies actually controlling purposes also reduces the
see even greater potential. rejection rate in production.
Fig. 9 Expectations concerning the benefit of Industry 4.0 solutions are high – especially with regard to increases
in efficiency
Expected quantitative benefit of Industry 4.0 applications

Cumulative effect in 5 years (in relation to today)/Share of respondents
Increase in efficiency Cost reduction
> 20% 37% 21%
11–20% 36 % 38%
0–10% 27% 41%
Ø = 17.9% Ø = 13.8%
(3.3% per (2.6% per
annum) annum)
Besides improvements in efficiency and

cost savings, Industry 4.0 also makes
it possible to save important resources.
Head of Production, machine tool manufacturer

When asked about cost reduction, the Fig. 10 Companies expect far-reaching quality benefits of Industry 4.0 and
surveyed companies anticipate Industry higher customer satisfaction
4.0 to yield additional annual savings in
the amount of 2.6% on top of the usual Quality benefits of Industry 4.0 applications
cost savings. The expectations of the Ø
process industry for a cost reduction of Better planning and
1.9% per year are considerably more controlling (in manufac 80% 15% 5 4.1
conservative than those of the discrete turing and logistics)
manufacturing industries. Higher customer
67% 27% 6 3.8
satisfaction
Expected cost savings not only apply to
intra-company increases of efficiency
Greater flexibility
but are also the result of an increased 62% 27% 11% 3.7
in manufacturing
horizontal integration. A reduction
of production costs in the amount of
Faster time to market
2.6% per year can only be achieved if all 54% 32% 14% 3.5
(in product development)
partners along the entire supply chain
are also able to achieve individual cost
reductions and pass them on. Measured Improved quality 49% 35% 16% 3.4
against the cost reductions typical for
industrial companies of 3% to 5% per
Individualisation
annum, the planned savings due to 46% 34% 20% 3.3
of products
the Industrial Internet will make a
decisive contribution to the sustainable
increase of competitiveness of German Degree of the effect:
companies. High (4,5) Medium (3) Low (1,2)
Far-reaching qualitative benefits are

expected in addition to a measurable, companies and represent important automotive or electronics industry, move
quantitative benefit. The companies requirements for planned efficiency quality control further upstream in the
surveyed have very high expectations increases. By contrast, increased vertical value chain. They expect full information
with regard to better planning and integration allows for greater flexibility from their suppliers in order to monitor
control in manufacturing or in logistics. of manufacturing and a reduction of the the entire life cycle of a product. Only
In addition, they expect Industry 4.0 to time to market. when taking all traceability data into
provide higher customer satisfaction and account, increasing the use of sensors
greater flexibility in manufacturing. The Industrial Internet also offers the and actuators in manufacturing and
opportunity to satisfy the requirements collecting all – instead of only select –
Better planning and control are of customers in terms of traceability data (big data), the constantly rising
closely connected with the integration of material, product and process data. requirements can be fulfilled without
of horizontal value chains across Many companies, for example, in the disregarding profitability.

5 5 T
he integrated analysis and use of data are the key
capabilities of the Industrial Internet.
The analysis and use of data play a
major role in the Industrial Internet.
The rapidly growing number of sensors,
embedded systems and connected
devices (“Internet of Things”) as well as
the increasing horizontal and vertical
networking of value chains result in a
huge continuous data flow. While these
gigantic amounts of data are collected
along the entire value chain, they
have in many cases not been used in a
structured and sufficient manner.
The analysis and use of data are
already highly important for half of
all companies surveyed. The electrical
engineering and electronics industry
places a particular emphasis on this
capability due to the data intensity of
the products and solutions in the sector.
Ninety percent of the companies from
all five industry sectors are convinced
that the ability to efficiently analyse
and effectively use large data volumes
will be of vital importance for the
future success of their business model.
This evaluation also applies to those
industries in which the analysis and use
of data are not yet a top priority.
We are sitting on a pile of data today –
but we are not able to use the data in an
integrated and structured way for the
optimal control of production.
Head of Production, machine tool manufacturer
Fig. 11 The importance of data varies depending on the industry sector, but overall it is increasing significantly
Importance of the analysis and use of data for the business model
Proportion of companies with a great importance of data (4,5)
98%
Ø = 90% 87% 87% 88% 91%
65%
57%
Ø = 49% 47%
40% 39%
Manufacturing and Automotive suppliers Process industry Electronics and electrical Information and
engineering systems communications

The integrated analysis of data makes each company and lowers redundancies manufactured in which lot sizes. A big
it possible, among other aspects, to within the entire supply chain. This data solution accelerates the highly
examine processes in an integrated can lead to considerable increases of complex simulation calculations
manner and to optimise them on efficiency and thus to clear competitive required for this by a factor of 50 and
the basis of the findings made. An advantages. helps to achieve a considerable increase
automotive supplier provides an of profitability.
example of the use of modern data and In addition, the analysis and use of
analysis procedures in manufacturing. data are decisive requirements for the Today, the companies’ focus is primarily
In order to further increase the quality development of new, digital business on the safeguarding of an efficient
and reliability of the delivered products, models, the optimisation of customer exchange of data within the own value
a big data solution was recently interaction as well as the increase chain, the clear labelling of products
implemented which connects and of a company’s profitability. A large (eg, with a bar bode, RFID or NFC) as
processes huge amounts of different company from the process industry well as on the use of real time data to
sensor data on the basis of complex provides a relevant example. In order control the production. Although many
analyses (800 billion entries, or to maximise profitability, a highly companies already have large quantities
50 terabyte data per year when fully complex optimisation problem must be of data, they cannot use them in an
configured). In doing so, defective solved continuously. Current demand, integrated manner or access them at
parts can be identified and disqualified availability of machines, current raw company level. The companies surveyed
early in the manufacturing process. material prices and other process only mentioned the use and exchange of
Furthermore, increased transparency parameters are taken into account data with cooperation partners in fourth
improves the decision-making basis for to decide which products are to be place.
Fig. 12 The efficient exchange of data along the own value chain becomes
particularly important
Significance of data and analysis competences in the context of Industry 4.0
Efficient exchange of
data along the own 90% 8%
value chain
Clear labels (bar code,

79% 13% 8%
RFID, NFC)
Use of real time data

70% 21% 9%
to manage products
Use/exchange of data
with cooperation 72% 20% 8%
partners
Analysis of large data

59% 30% 11%
amounts in real time
Generating additional
data (eg, with enhanced 55% 25% 20%
sensor technology)
High (4,5) Medium (3) Low (1,2)

Industry 4.0: Existing data provides the opportunity to stand out In the context of Industry 4.0 it is
open up new opportunities with new services – or to establish essential to develop solutions in close
closer ties with customers (in the case collaboration with the users. The Bosch
The market for Industry 4.0 applications of B2B) through data services across Group has been doing this with different
is on the path from vision to reality. supply chains like inventory tracking. users in the automotive, industry and
Evidence of this could clearly be found Of course, such opportunities also consumables production for many years.
at Hanover Fair 2014, the leading entail challenges. This requires the
trade fair of the industry. Industry 4.0 development of additional competences, In the future, we see the need for
is extremely important for industrial particularly in IT areas like data investments mainly in the field of data
Germany because the manufacturing security. It will be crucial for small intelligence, i.e., for derivations of
industry remains a decisive factor and medium-sized companies to have profitable activities from the analysis
for our strong position in the world appropriate partners with the necessary of available data. We are talking
economy. Various action plans from expertise at their side. They must also about general and also far-reaching
the German federal government and make use of new services and supply IT questions such as the connection
concerted initiatives by industrial models like software as a service (SaaS). and provision of data in the requested
associations and commercial companies format. This also includes the use
like Platform Industry 4.0 underpin the The potential benefits are diverse and of control technology and specific
innovative and productivity potential directly depend on the application software architecture expertise, for
which we all see in connection with case. The collection and visualisation example, in security architectures in the
Industry 4.0. of existing process and machine context of remote access. These aspects
data from the different levels of the are becoming ever more important
From the perspective of Bosch and automation pyramid help to create new for manufacturing, but they should
its customers, we emphasize the data transparency. This provides an certainly not be a core competence of a
great significance of Industry 4.0 important impetus for the continuous manufacturing unit in the future either.
applications for the entire industry improvement process in manufacturing.
of producing companies, including In addition, analysis algorithms and The great potential of Industry 4.0 lies
logistics departments. Bosch is the refined policies for large data volumes in data and particularly in the efficient
leading supplier in this market, for help to selectively realise applications use of newly gained opportunities.
example, for industrial controlling that are tailored to the respective needs
and process technology. Moreover, it is of the end customers. These range from
also the leading consumer of Industry the continuous analysis of process data
4.0 applications with more than for the purpose of reducing scrap and
260 manufacturing plants worldwide. rework, through the monitoring of
We can already offer innovative and machine cycle times (specifically at the
tested solutions to our customers bottleneck) to maximise the output, on
which were developed by our plants as to predictive maintenance for a selective
and tested and optimised under real planning of maintenance activities and
conditions. Our customers thus profit minimisation of down time. All of this is
from the manufacturing experience of possible. Finally, we must also focus on
Bosch. automation. Both simple and complex
business processes can be initiated and Dr Daniel Hug
We expect that Industry 4.0 applications monitored with the new applications: Bosch Software Innovations GmbH,
will provide German industrial from simple notifications by e-mail, Head of Vertical Industry & Logistics
companies with a high level of diverse text message or app to automatically
opportunities. Particularly in the case initiated ordering of spare parts and translated from German
of the middle market, Industry 4.0 monitoring of maintenance orders.

6 D
igitization of the product and service portfolio is the key to
sustainable future success.
Industry 4.0 goes far beyond digitizing
processes and value chains – this change
also leads to a higher level of digitization
in the product and service portfolio.
A mechanically perfect product will
no longer be enough to successfully
compete on a global scale. The
differentiation of products is moving
increasingly in the direction of software
as well as superior sensor technology,
connectivity and generation of data.
Products that are primarily mechanical

increased by Internet-based services
related to the product. For instance, the
Industrial Internet provides the basis
for the manufacturing of customised
products at a competitive cost level (key
word: lot size one).
Examples of digitized products can

be found in all industry sectors. In
the automotive industry, for example,
customary brake systems have been
turned into modern anti-block systems
with the help of electronic control units.
6
today will be enriched by digital In manufacturing and engineering,
solutions and connectivity. This process the use and connection of appropriate
will create greater customer benefits. sensors allow optimal, preventive
Besides the direct integration of digital maintenance of machines and systems,
“intelligence” into the products itself, and ensure much more efficient
benefits may also be considerably operational management.
Fig. 13 The share of digitized products and services is rising significantly The results of the study clearly show
that digitizing the product portfolio is a
Level of product portfolio digitization widespread practice and will progress
in coming years. At present, 29% of
the companies surveyed already have a
29% high percentage of digitized products.
These companies have recognised the
signs of the times and have expanded
79% their portfolio to include connected,
34% automated services. In this context, the
+ 50% level of product portfolio digitization
does not depend on a company’s size
at all. Many small and medium-sized
37% 14%
companies are already focusing on
digitized products in order to stand out
7% in the market.
Today In 5 years
High (4,5) Medium (3) Low (1,2)
Digitization paves the way for new product ideas

which could previously not be realised in the same
manner. For example, manufacturing data can be
stored in the cloud, where it is analysed by experts
in order to identify improvement potential.
Plant manager, manufacturer of automation technology

The digitization level of products The digitization of products is a

will rise substantially in the coming phenomenon common across all industry
years. By 2020, 80% of the companies sectors. In sectors like the information
surveyed will have achieved a high and communications industry the
degree of digitization of their products percentage of digitized products is of
and services. The proportion of course already high. In the processing
companies with a highly digitized industry, the proportion of companies
product portfolio will increase by more with a high level of digitization is
than five times, from currently 7% to currently only between 22% to 27%,
40%. Each company needing to succeed depending on the industry sector.
internationally will have to face this However, the general trend is the same
challenge. for all sectors: The share of digitized
products must and will increase
substantially in the coming years.
Fig. 14 Product portfolio digitization has room for growth in the manufacturing sector
Level of product portfolio digitization by sector

85% 87%
82%
75%
Ø = 80%
48%
27% 26%
Ø = 29%
22%
Manufacturing and Automotive suppliers Electronics and Information and

engineering electrical systems communications
Today In 5 years
7 D
igitized products and services generate approximately
€110 billion of additional revenues per year for the European
industry.
The importance or the share of software
and digital elements in the total added
value of a product – and thus naturally
in company revenues as well – will
increase considerably. The digitization
of the product and service portfolio
therefore serves the purpose of securing
market share and keeping pace with
international competition. What is more,
companies also associate Industry 4.0
applications with clear growth targets.
These are very ambitious growth targets
for many companies. Interestingly, our
survey shows that the expectations of
SME’s do not differ from the estimate of
large groups.
Moreover, the results of the study

reveal that companies with a more
digitized product portfolio have
already experienced above average
growth in recent years. Nearly 70%
7
of all companies with highly digitized
The study shows that about 50% of products have achieved growth of more
companies surveyed expect double- than 6% to 10% per year in the last
digit growth in revenues in the next three years, many of them even more
five years solely due to Industry 4.0 than 10%. It must also be expected
and increased product portfolio that this trend will gain additional
digitization. Eighteen percent of them momentum going forward. By contrast,
even anticipate an increase in revenues half of the companies with a medium
of more than 20%. All in all, this results level of digitization have only achieved
in an expected increase in revenues of an increase in revenues of 5% per year
12.5% cumulated over five years. This or less.
figure is equivalent to additional growth
in revenues of 2.5% per year. Fig. 15 Companies expect a considerable increase in revenue attributable
to Industry 4.0 solutions and digitized products
Expected increase in revenue attributable to Industry 4.0

Cumulated, incremental growth in 5 years
> 20% 18%
11–20% 31%
1–10% 44%
0% 7%
Ø = 12.5%
(2.5% per
annum)

The companies surveyed expect

considerable growth in revenue across
Future growth in sales will come from the all industry sectors thanks to Industrial
services sector. The share in sales of digitized Internet solutions. The anticipated
increase in revenue of manufacturing
products and services will increase substantially. and engineering, automotive suppliers,
Head of Production, company for measurement technology the electronics industry and the
information and communications
industry amount to 13% to 14%. Only
Fig. 16 Companies with a strongly digitized product portfolio experienced the process industry has much more
faster growth moderate revenue expectations at
around 8%, cumulated over five years.
Growth in revenue depending on the level of digitization
Annual growth in the last 3 years Viewed across all industry segments,
Level of product portfolio digitization this shows significant potential for
gains in revenue. Additional annual
High (4,5) 22% 47% 31% revenues of more than €110 billion
can be expected in coming years by
Industry 4.0 solutions in Europe alone.
Medium (3) 10% 37% 46% 7%
This is equivalent to additional revenues
of €550 billion over five years. The
Low (1,2) 13% 38% 46% 3
Industrial Internet or Industry 4.0 will
thus make a considerable contribution to
Growth in revenues: growth in Europe in the next years.
> 10% 6–10% 0–5% < 0%
Fig. 17 European companies expect more than €110 billion additional revenue per year attributable to Industry 4.0
Growth in revenue attributable to Industry 4.0 per industry sector
Increase in revenue Incremental revenue2

(cumulated over 5 years) (€ billion per annum)
Manufacturing and
13.2% 23.0
engineering
Automotive industry1 13.6% 37.8
Process industry 8.1% 21.6
Electronics and
13.0% 16.9
electrical systems
Information and
13.5% 10.8
communications
Total 12.5% 110.1
1
rojection for the entire automotive industry (economic sector 29: production of motor vehicles and motor vehicle parts).
P
2
Projection on the basis of total revenue per industry sector in Europe.

8 T
he Industrial Internet paves the way for new, often
disruptive digital business models.
In the course of the Industrial Internet,
existing business models will change
permanently and in particular, new,
digital business models will be created.
The focal point for this development
is the increase of customer benefits
due to a growing range of value-added
solutions (instead of products). It
further includes the expansion of digital
service elements and the increased
connectivity between products,
manufacturing equipment as well as
customers and partners. The special
quality of digital change therefore lies
in the rapid acceleration of change.
Disruptive innovations will also cause
industry sectors like the information
and communications industry to change
permanently within a short period of
time.
Fig. 18 A sustained successful business model requires a combination

of multiple aspects of Industry 4.0
8
Key aspects of successful business models in the context of Industry 4.0
Ø
Stronger digital
networking with 72% 24% 4 3.9
customers and partners
Provision of “solutions/
systems” instead of 66% 20% 14 % 3.8
products
Expansion of digital
services with additional 64% 24% 12% 3.8
customer benefits
Efficient and safe

44% 31% 25% 3.3
cloud technologies
Development/expansion
of value services (eg, 46% 29% 25% 3.3
apps)
More direct business

45% 31% 24% 3.2
with end customers
Strengthening the own

position with regard to 39% 31% 30% 3.1
new digital players
Important (4,5) Neither (3) Not important (1,2)

New, digital business models will expand

the existing product and service portfolio
in order to ensure future growth in sales.
Head of Service, manufacturer of printing machines
Established business models will Of all the industry sectors surveyed, In the telecommunications industry,
become more data-based, efficient and the information and communications for example, digital providers have
customer-focused due to the increased industry is the most advanced with initiated significant shifts in the value-
connectivity and use of data/analytical regard to the development of such new added process and redistributions at the
abilities in all processes. Consequently, business models. Cloud-based and as- expense of the established providers.
the companies surveyed have referred a-service business models have already
to “improved planning and control established and asserted themselves Similar changes through disruptive
abilities” and “greater customer as a standard with respect to the use of digital business models must also
satisfaction” as the two most important IT infrastructures and IT applications. be expected in other sectors like the
qualitative benefits of Industry 4.0. Similarly, classic manufacturing automotive industry. A concept recently
industries like production and patented by Google foresees offering
The efficient and integrated use of engineering will offer more solution- driverless vehicles in cities. Such
data and the increasing digitization of oriented usage models instead of the vehicles are intended to transport the
products and value chains represent pure sale of physical products. Machines customer from one location to another
the focus of the new business models. and systems will be flexibly billed without a driver. In this case, Google’s
In recent years, companies have even based on consumption (eg, “printed added value is created by giving
developed business models in which pages” instead of “printers” or “printing advertisers the opportunity to bring
the value add is primarily based on the machines”). The data obtained from the customers to their own shop free of
use of data. As in the case of Google, operation of the systems will be used, in charge and to solve a classic problem for
this data is obtained by providing often turn, to create new added value (eg, as a retail businesses at the same time. Such
free digitized products. However, new “broker of print orders” with optimised a new business model would certainly
business models are mainly about utilisation of capacities over different have disruptive effects on the high
using digitization in order to break up systems). number of mobility providers.
established value chains and thus open
new sources of income which could not Conversely, the opportunity to launch
be opened with the previous business new, digital business models on
model. As a result, new business models the market by means of disruptive
lead to completely new customer innovations has already led to material
benefits. changes for entire industry branches.

9 H
orizontal co-operation allows for improved satisfaction of
customer requirements.
About half of all companies surveyed
are convinced that closer co-operation
with value chain partners – combined
with increased horizontal integration
is already of very high importance
today. This importance will increase
considerably further given the growing
level of digitization and connectivity.
As far as the next five years are
concerned, more than 80% of the
companies surveyed expect that closer
co-operation and increased horizontal
integration will be of great importance.
This likewise applies to all industry
branches surveyed and both for users as
well as providers of Industrial Internet
solutions.
9
Fig. 19 All industry sectors are focusing on cooperation and horizontal networking to a greater extent
Importance of closer cooperation with value chain partners

Proportion of companies placing high importance on cooperation (4,5)
96%
84% 87%
Ø = 84% 80%
73%
54%
47% 49%
42% 44%
Ø = 47%
Manufacturing and Automotive suppliers Process industry Electronics and Information and
engineering electrical systems communications
Today In 5 years
The main driving force for closer co- division of labour, combined with
operation and increased integration more flexibility, are further reasons
with other companies is the better for the intensification of co-operation.
satisfaction of customer needs in the According to the companies surveyed,
context of new, digital business models. the access to expert know-how and
Shorter time to market and a higher the minimisation of risks play a less
innovation speed as well as an efficient important role.
The German middle market can only

meet increasing customer requirements
through far-reaching co-operation.
Head of Supply Chain, machine and plant engineer
and constructor

Fig. 20 The main driver for closer cooperation is the ability to better satisfy
customer requirements
Most important reasons for co-operation in the context of Industry 4.0

Selection of the top 2 reasons (percentage)
Better satisfaction of
59%
customer requirements
Faster time to market 32%
More efficient
31%
division of labour
Greater flexibility 30%
Higher innovation
25%
rate/speed
Access to know-how/
12%
expert knowledge
Risk minimisation 11%
In an increasingly complex world, However, closer horizontal partnerships robust exchange of data and common
ground-breaking innovations are often are not restricted to the field of standards that allow them to stand out
only possible by involving a variety innovation. In fact, their objective is on the market and to offer customers
of companies. New business models to optimise business processes across higher added value. This is most evident
can only be developed when several value chains – in particular by means of in the information and communications
companies contribute their respective improved analysis and use of data. More industry. Future horizontal co-operation
complementary competences. A good than 70% of the companies surveyed is considered to be important by more
example of closer cooperation beyond believe that the improved exchange of than 96% of the companies in this
value chains is the development data with cooperation partners in the sector. This trend will very likely extend
of electric mobility. Automotive context of Industry 4.0 will be important to the processing industry as well.
manufacturers have merged in in the future.
interdisciplinary partnerships with
suppliers and different providers from Finally, the competitive landscape is
other industry branches (eg, chemical expected to fundamentally change
companies and material manufacturers due to closer horizontal co-operation.
of battery cells, component Companies that are part of a partner
manufacturers of electronic modules). ecosystem are progressively competing
These partnerships allow them to find together against other companies
new solutions for changed customer or other partner ecosystems. In this
needs more quickly and efficiently. system, they profit from a more

10 T
he Industrial Internet holds various challenges –
policy-makers and industrial associations can help.
The Industrial Internet is already a key
subject for all of the industry sectors we
surveyed – and this trend will become
increasingly more important in the
future. However, companies still have
to take on numerous challenges for the
10
Place two and three on the list are the
topics “insufficient qualification of
employees” (30%) and “lack of (agreed
upon) standards” (26%). Employee
qualification is an important topic across
all industry sectors. The digital change
successful, timely implementation of will alter requirements for employees
digital concepts. In this respect, focus is across all steps of the value chain – from
on the expected high investment levels development on through production to
and the often unclear cost-benefits for sales. Processes and business models
new Industry 4.0 applications. will become more agile and data-
based, and require completely new
Nearly half of the respondents (46%) employee skills and qualifications. The
stated that the unclear economic need for software developers and data
benefits and the prohibitively high analysts in industry also will once again
investments are two of the most significantly increase in the next five to
important challenges. Many companies ten years.
have not developed any specific plans
for the implementation of Industry 4.0
solutions and have also not made any
larger investments. This is because the
solutions are new for many companies
and require significant changes. The
quantification of potentials is also
complex and diverse. There is an urgent
need for more transparency and an
exchange of experience across industry
sectors.
If we do not succeed in establishing uniform

standards for the exchange of information
and data, then Industry 4.0 will fail.
Developer, manufacturer of automation solutions
Fig. 21 The lack of clarity about economic benefits is the greatest challenge The broad range of the numerous and
for Industry 4.0 complex challenges cannot be overcome
by companies alone, but also demand
Challenges for the successful implementation of Industry 4.0 joint efforts by industrial associations,
Selection of the top 2 reasons (percentage) trade unions and employer’s associations.
Besides cross-sector cooperation to
Unclear economic benefits, promote qualifications and to determine
46% and select standards, structuring
excessive investments
technological and digital change in
Insufficient qualifications Germany needs explicit support by
30% policy-makers.
of employees
Lack of standards, regulations

The list of demands that the companies
26% surveyed place on policy-makers is long.
and forms of certification
The most often mentioned topic for
Unclear legal situation which the companies need help from
concerning the use of 22% policy-makers include the promotion
external data of young entrepreneurs, international
Low maturity level of
standardisation and competitive data
20% protection laws. On the other hand,
required technologies
the topic “Expansion of the broadband
Unresolved questions
connection”, much discussed by policy-
19% makers, was relegated to one of the
concerning data security
bottom places. Only a few companies
Lack of prioritisation/support
thus regard this topic as a big challenge
18% in the context of the implementation of
by top management
Industry 4.0.
Too slow expansion of basic
13%
technologies (broadband)
Insufficient network
6%
stability/data backup

The promotion of young entrepreneurs Fig. 22 Successful implementation of Industry 4.0 requires the widespread
is more important than ever against support by policy-makers
the backdrop of demographic change.
Policy-makers can help to handle Need for support by policy-makers
the increasing need for well-trained Selection of the top 2 reasons (percentage)
employees – starting in school. Through
the Industrial Internet and growing Promotion of qualified junior
digitization, the need for employees 32%
staff (school, university)
with a foundation in mathematics, data
science and information technology in Support of international
particular will increase. Policy-makers 30%
standardisation
should create the basis for the education
that is required. They need to encourage Creation of competitive
enthusiasm for technology starting 28%
data protection law
at an early stage. In addition, the
contents of vocational trades and study Tax incentives for
courses must be adapted to the future 27%
corporate investments
requirements of the digital world.
Research and development
promotion (universities, 24%
institutions)
Provision of highly available

23%
broadband networks
Government support/aid
19%
for further training
Creation of an “Industry 4.0”

17%
industry and research cluster
Industry 4.0 counteracts the relocation of jobs to

low-income countries and enables even older
employees to work in the manufacturing industry.
Developer, manufacturer of automation solutions

Furthermore, policy-makers can When companies, associations, trade

provide support by promoting uniform unions and policy-makers cooperate,
industrial standards at the European Industry 4.0 can sustainably strengthen
or international level. Clearly defined the competitiveness of European
standards and regulations are the businesses and industrial locations
basis for the horizontal and vertical in the age of digitization. Nearly 90%
connection of value chains. They allow of the companies surveyed attach
for the seamless exchange of data and great importance to Industry 4.0 for
information on machines, systems and the German economy in the next five
software. International standardisation years. More than 50% of the study’s
is indispensable for Germany, the global participants even deem Industry 4.0
export champion, and the majority of to be fundamentally important for
industrial companies. Germany as a business location.
Fig. 23 Industry 4.0 is of great importance for the competitiveness of Germany as a business location
Importance of Industry 4.0 for Germany as a business location
Today In 5 years
Very high (5) 20% 56%
High (4) 39% 32%
Medium (3) 31% 8%
Low (2) 9% 3%
Very low (1) 1% Ø = 3.7 1% Ø = 4.4

The Industrial Internet – in the corresponding technologies expert knowledge of the association
Create change, use in coming years. Thirty percent of with that of the companies in a
machine construction products already VDMA Forum Industry 4.0. With
potentials! consist of software and automation this forum and the joint platform of
technology – and this proportion will VDMA, the Association of Electrical
Digitization will have a permanent effect
rise significantly. Engineering and Electronics Industry
on our living and working environment.
(Zentralverband Elektrotechnik- und
This development offers the full range
The study also confirms that there Elektronikindustrie e.V., or ZVEI) and
of opportunities for the industrial sector
are still substantial questions and the Federal Association for Information
to expand its leading global position.
uncertainties at many companies. Technology, Telecommunications
However, whether Germany, as an
There are no “recipes” or “blueprints” and New Media (Bundesverband
industrial nation, can turn Industry
for Industry 4.0 yet. Each company Informationswirtschaft, Tele
4.0 into a business model does not just
must find its own approach and answer kommunikation und neue Medien
depend on the sector’s companies. A
several questions in the process: e. V., or BITKOM), we are committed to
material framework must be agreed on
• What benefits can my company get promoting the vision of Industry 4.0 by
with policy-makers and society.
from Industry 4.0? developing realisable recommendations
• What adjustments to the business for action in manufacturing and
Germany’s machine construction
model have to be implemented? engineering. In this context, special
companies want to make use of Industry
• In which form is Industry 4.0 useful focus is placed on the user perspective.
4.0 and take the chance to position
for my company? The objective is to build a long-term
themselves as the sector’s lead market
• What implementation strategies and and sustainable network to exchange
and lead supplier. Industry 4.0 is about
investments does my company need? experience among the member
nothing less than the universal language
• Which measures must be applied to companies.
of manufacturing – and this language
train employees?
should come from Germany. Companies
• How does coordination and
are dealing with a fundamental change.
integration with existing production
Production processes and products
technologies, IT systems and datasets
are being digitized; manufacturers,
take place?
suppliers and customers are establishing
• Of which value-added connections is
closer networks and innovation cycles
my company a member?
are being further reduced. Production
is becoming more individual, resource-
The German Engineering Association
efficient, flexible and faster.
(Verband Deutscher Maschinen- und
Anlagenbau e.V., or VDMA) actively
This study shows that machine
supports and shapes this transition of
construction companies of all sizes
companies towards Industry 4.0. The Dietmar Goericke
are concentrating on Industry 4.0 and
VDMA combines the interdisciplinary VDMA Forum Industry 4.0,
will make considerable investments
Managing Director
translated from German

Outlook and recommendations
D Outlook and recommendations

We already have many digital initiatives in our

company – but no shared vision and roadmap in
terms of where we want to go with Industry 4.0.
CEO, machine and plant engineer
The implementation of the Industrial portfolios and customer/market entry • “Adapting quickly”: Companies
Internet represents a multi-year should be fully taken into account learning from the initial experience of
transformation process for the majority as part of this process. The starting the pioneers and quickly adjusting and
of companies, resulting in significant point is to have each company assess implementing evidently successful
changes to their value chains. Due to the its own current maturity level and to concepts for themselves – however,
extent of the expected company-wide take stock of its own competences and combined with the risk of not being
changes and the investments required digital initiatives at the company itself. able to make use of the full potential
in the next three to five years, it is The Industry 4.0 target maturity is any more.
first necessary for top management to then defined on this basis and possible
recognise the importance of the topic, loopholes can be identified. • “Waiting”: Companies waiting for a
place it on the agenda and drive it to a broad implementation of Industry 4.0
high priority level within companies. The target and the way to achieve it solutions in order to rely solely on
will, however, not be the same for every already-tested concepts with defined
In light of the importance of the company. What is more important is standards and established profitability
Industrial Internet, the statement made to determine the target maturity level analyses – however, combined with
by 18% of the companies surveyed about suitable for the respective company in the not to be underestimated danger
the “lack of prioritisation/support by relation to the different dimensions. of having fallen behind global
top management” being one of the most The required competences for the competition in a rapidly changing
significant challenges, should alarm next three to five years, depending on world.
many management boards and CXOs. the individual starting position, the
At the same time, it is advisable for customer and competitive situation as
each company to review the existing well as the willingness to invest must
competences for Industry 4.0 and define all also be ascertained. Three different
its digitization objectives, particularly strategic approaches can generally be
with regard to the changes in customer chosen in this context:
demand.
“Leading”: Companies acting quickly
Our maturity model for the Industrial while taking risks in order to use the
Internet or Industry 4.0 can help opportunities of digitization early on:
companies to systematically record co-development of concepts of Industry
existing competences and various 4.0 and possibly even creation of actual
measures in the field of digitization, standards – however, combined with
and to join them all into ongoing and the higher risk of having to first develop
planned activities in one integrated and implement new and yet untested
Industry 4.0 strategy. The areas of solutions.
processes/value chains, product/service

Precise steps for pragmatic are clearly defined measures backed

implementation, including important up with specific profitability analyses
milestones as well as the required and schedules specific to each company.
competences and resources, can be Change management should be set up
determined in the context of comparing which helps to secure change in the
the advantages and disadvantages in long-term and to show fast achievements
light of the defined target. The results with selected pilot projects.
Fig. 24 Industry 4.0 capabilities develop across five dimensions and four stages
Vertical Horizontal Digital

1 Digital novice 2 3 4
integrator collaborator champion
Business First digital solutions Digital product and Integrated customer Development of new
models, and isolated service portfolio with solutions across supply disruptive business
product applications software, network chain boundaries, models with innovative
& service (machine-to-machine) collaboration with product and service
portfolio and data as key external partners portfolio, lot size of one,
differentiator product & component
identification
Market & Online presence is Multi channel Individualised customer Integrated Customer
customer separated from offline distribution with approach and interaction Journey Management
access channels, product integrated use of online together with value chain across all digital
focus instead of and offline channels; partners marketing and sales
customer focus Data analytics channels with customer
deployed, eg, for empathy and customer
personalisation relationship manage
ment
Value Digitized and Vertical digitization and Horizontal integration Fully digitized, inte
chains, automated sub integration of process of processes and data grated partner eco
processes processes and data flows within flows with customers system with self-
and systems the company and external partners, optimised, virtualised
intensive data use processes, focus on
core competency,
decentralised decision
making & autonomy
Compliance, Traditional structures, Digital challenges Legal risk consistently Optimising the value
legal, risk, digitization not in recognised but not addressed with chain network for legal,
security & focus comprehensively collaboration partners compliance, security
tax addressed and tax
Organi Functional focus in Cross functional Collaboration across Collaboration as a key

sation & “silos” collaboration but company boundaries, value driver
culture not structured and culture and
consistently performed encouragement of
sharing

Digital novice Horizontal collaborator The key administrative processes

Industrial companies often start off Horizontal collaborators on the third are digitized and globally optimised
as digital novices on their path to maturity level integrate their value according to cost and control criteria.
the fourth industrial revolution. At chains with customers and partners. Digital champions have often
this maturity level, initial positive The digital integration of customers, established a “digital headquarters” in
digitization results have been achieved suppliers and subcontractors along which all administrative processes are
in all departments as well as in the production process, as well as optimised and frequently automated.
the individual product and service better coordination and connections Important value chain steps are also
portfolios. However, the activities with logistics service providers, can efficiently positioned from a financial
are neither coordinated nor geared create efficiency and higher quality, perspective. The digitized product and
towards a stringent schedule for the improve the processing time or reduce service portfolio has been expanded
future. Digital risks are not recorded operating costs. The product and by new, partially disruptive business
systematically and compliance is not service portfolio is connected with models. Along with innovative systems
guaranteed in all areas. external value chain partners to the and value-added services, these new
same extent in order to offer customers models incorporate new methods of
Vertical integrator end-to-end solutions across several steps performance – often with partners –
Industrial companies at the second of the value chain. Innovative concepts along the value chain. The main focus of
maturity level have already given their optimise customer communication, necessary competences is on stringent
product and service portfolio digital and customer information is saved data management as well as efficient
functions as vertical integrators. For and analysed specifically for an analytics and utilisation of (real time)
example, companies may use integrated optimal communication. Digital risks data for optimisation along the value
software (“embedded systems”) and an are managed with standardised and chain.
online connection allowing an internet- efficient methods and compliance is
based communication of the product maintained for all functions at the The development of Industrial Internet
with the production materials. The company. solutions requires high investment
operative processes as well as important levels. The economic benefit and
administrative processes are digitized. Digital champion possible competitive advantage of these
Data from product development, for The digital champion has connected solutions must be critically assessed on
example, is now available for physical its operative and administrative a regular basis. There are many ways to
manufacturing environments, logistics processes on a global scale and will become a digital champion, and each
and all systems of the company. The also have virtualised these processes in company must determine which path
functions of an online presence are used many areas. The company focusses its is the most promising one for them
for the market entry, for example, by operational performance on key areas to follow. This must be based on its
means of detailed websites and online and works with a global network of abilities and existing configuration of
product catalogues. partners. the product and service portfolio as well
as on the operative and administrative
processes.
The ‘Industry 4.0 train’ is leaving the station –

companies must decide when the best moment
for them to hop on is.
Managing Director, industrial association

First steps on the path

to digitization
Regardless of which Industrial Internet or Industry 4.0 strategy companies
chose, they can set out on their path to digitization and the application of
digital concepts with three very pragmatic steps.
1. Give all things a name

Give all products and production materials a clear ID, for example, with
a bar code and thus a unique name. Digitizing and connecting products
and the value chain can only be made possible on the basis of clear
identification. Data can be collected and a complete digital internal
description of products and product components may then be introduced.
This fosters efficient inventory and supply chain management.
2. Measure, measure, measure

Measure all process and sensor data along the entire value chain in order
to track the current state of products and production materials. Install
sensors at multiple measuring points along production and on the products
if they are not available already in order to get a comprehensive view. The
availability of measuring data allows companies to improve processing
times, increase the products’ quality and decrease process costs.
3. Connect and analyse

Connect the clearly identified products with their digital specification,
their production materials as well as their manufacturing process data.
In addition, connect the different sources of data. Create the necessary
communications and IT infrastructures in order to achieve connectivity
and to be able to combine and analyse data – ideally in real time where
possible. In doing so, you pave the way for the initial steps towards big data
management. This will allow you to define measures to increase efficiency
and optimise quality for your own company as well as for your value chain
partners.
Methodical approach
E Methodical approach

Methodical approach
PwC and Strategy& (formerly Fig. 25 Breakdown of the companies surveyed by industry sector
Booz & Company and Management
Engineers) jointly conducted the n = 235
study Industry 4.0 – Opportunities and
Information and Manufacturing
Challenges of the Industrial Internet in and engineering
communications
the third quarter of 2014. The analysis
was carried out with the kind support 20% 24%
of Siemens, the VDMA and the trade
journal Produktion.
Electronics and
The study surveyed 235 companies from electrical systems
the German processing industry as well
as the information and communications 20% Automotive suppliers
industry which were organised into
five industry sectors. The survey was
19%
carried out in collaboration with the Process industry1
market research institute TNS Emnid
by means of telephone interviews and
17%
an online questionnaire. Furthermore, 1
Chemicals, petrochemical, pharmaceutical, food, sugar, cellulose, paper, glass, steel, cement.
employees of PwC and Strategy&
conducted personal interviews with
select companies. Fig. 26 Size of the companies surveyed
The participants from different industry Annual revenues world-wide

sectors represent a balanced mix of n = 235
both large groups with a sales volume of
> €5 billion
several billion euros as well as small and
medium-sized companies. Fortunately,
we managed to attract many companies < €100 million
8%
€1–5 billion
to the survey that are market leaders in
their respective fields at both national
29 %
20%
and global level.
€100–500 million €0.5–1 billion
20 % 23%

Methodical approach
Fig. 27 Market position of the companies surveyed1 The seniority of the respondents
speaks in favour of the importance of
n = 235 Industry 4.0 for the German economy.
Thirty-seven percent of the individuals
Global market leader
surveyed are CXOs, executive or
Other
13% managing directors at their companies.
19 % Furthermore, attention was paid to a
balanced proportion of the functions
represented.
National champion
Top 3 world-wide
15 %
31%
Top 10 world-wide
22%
1
Information provided by the companies or survey participants.
Fig. 28 Function of the participants
n = 235
Other2
Finance
4% 6
%
IT, technology CXO, management board1
7 %
37%
Product Development,
engineering
11%
Sales, customer service
13% Manufacturing
22%
1
Including CEO, COO, CIO, CTO, CFO.
2
Including supply chain/logistics, purchasing.

Contacts
Contacts
PwC
Dr Reinhard Geissbauer Stefan Schrauf

Partner, Management Consulting Partner, Management Consulting
Tel: +49 89 5790-6138 Tel: +49 89 5790-5317
reinhard.geissbauer@de.pwc.com stefan.schrauf@de.pwc.com
Strategy&
Volkmar Koch Simon Kuge

Partner Principal
Tel: +49 69 97167-412 Tel: +49 89 54525-584
volkmar.koch@strategyand.pwc.com simon.kuge@strategyand.pwc.com

Contacts
About us About Strategy&

Our clients face diverse challenges, Strategy& is a global team of practice-
strive to put new ideas into practice and oriented strategy experts. Our objective
seek expert advice. They turn to us for is to give our clients that crucial edge
comprehensive support and practical at all times. In close cooperation
solutions that deliver maximum value. with them, we master their greatest
Whether for a global player, a family challenges and support them in
business or a public institution, we identifying their opportunities. We have
leverage all of our assets: experience, more than 100 years of experience in
industry knowledge, high standards of management consulting and combine it
quality, commitment to innovation and with the unique industrial experience
the resources of our expert network in and the resources of PwC. Whether we
157 countries. Building a trusting and develop a business strategy, transform a
cooperative relationship with our clients department or build new competences:
is particularly important to us – the we create the added value our clients
better we know and understand our expect from us at all times. We are a
clients’ needs, the more effectively we member company of the global PwC
can support them. network.
PwC. 9,400 dedicated people at The name “Strategy&” refers to the

29 locations. €1.55 billion in turnover. companies of the former Booz &
The leading auditing and consulting Company group and/or to PwC
firm in Germany. Strategy& (Germany) GmbH (formerly
Booz & Company GmbH).
According to the ranking at
WirtschaftsWoche, PwC belongs
to Germany’s leading consulting
companies. In the area of “Business
Excellence” – meaning value added for
clients – PwC came in at first place. In
the opinion of the 1,500 top managers,
PwC was the most successful at
increasing the operating results in its
consulting projects for clients.
BUSINESS EXCELLENCE
– FIRST PLACE –
PwC

Acknowledgement
Acknowledgement
Our special thanks go to the following persons and their companies and
organisations that have significantly supported the preparation and coordination of
the survey of companies and that have provided input for the study throughout the
entire time:
• Prof Dr-Ing Dieter Wegener, Digital Factory Division, Coordinator “Industry 4.0”,
Siemens AG
• Dietmar Goericke, Managing Director Forum Industry 4.0, VDMA
• Claus Wilk, Vice Editor-in-Chief, verlag moderne Industrie GmbH
(trade journal Produktion)
We would also like to thank the following individuals and their companies for their
kind support for the creation of the questionnaires and for the substantial validation
of the study results:
• Heinrich Munz, Senior Developer System Engineering, KUKA Roboter GmbH

• Stephan Westermann, EVP Order Execution, Production & Logistics,
Bruker Corporation
• Peter Schlindwein, VP Corporate Procurement, Rohde & Schwarz GmbH & Co. KG
• Bernd Kärcher, Head of Research Mechatronics Components, Festo AG & Co. KG
• Dr Jochen Schlick, Head of Future Field Cyber-Physical Systems, Wittenstein AG
• Markus Bauer, Head of Service Spritzgießmaschinen, KraussMaffei
Technologies GmbH
• Dr Daniel Hug, Head of Vertical Industry & Logistics, Bosch Software
Innovations GmbH
• Michael Frank, Plant Manager Bad Neustadt, Siemens AG
• Dr Bernadette Sager, Department Manager, Gasturbinenwerk Berlin, Siemens AG

www.pwc.de

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Industry 4.0 – Opportunities

Our study shows how

Our study shows how

Published by PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft

December 2014, 52 Pages, 28 Figures, Soft cover

© December 2014 PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft.

A Industry 4.0 – Opportunities and Challenges of the Industrial Internet..............6

B Key findings of the survey...................................................................................9

C Survey results in detail..................................................................................... 14

D Outlook and recommendations.........................................................................40

Industry 4.0 – Opportunities and Challenges of the Industrial Internet 5

A Industry 4.0 – Opportunities and Challenges

6 Industry 4.0 – Opportunities and Challenges of the Industrial Internet

The fourth industrial revolution – The digitization and interconnection

Industry 4.0 – Opportunities and Challenges of the Industrial Internet 7

The fourth industrial revolution has for clearer differentiation in global

Approximately 1,000 different products

translated from German

8 Industry 4.0 – Opportunities and Challenges of the Industrial Internet

B Key findings of the survey

Industry 4.0 – Opportunities and Challenges of the Industrial Internet 9

The Industrial Internet

By 2020, European industrial

3 In five years, more than

4 The Industrial Internet

5 The integrated analysis

10 Industry 4.0 – Opportunities and Challenges of the Industrial Internet

The Industrial Internet

Digitization of the product

The results of the study are summarised in the following

Industry 4.0 will transform our entire

12 Industry 4.0 – Opportunities and Challenges of the Industrial Internet

7. Digitized products and services 9. H orizontal co-operation allows

Industry 4.0 – Opportunities and Challenges of the Industrial Internet 13

C Survey results in detail

14 Industry 4.0 – Opportunities and Challenges of the Industrial Internet

ection & collaboration

Industry 4.0 means far more to us than just an end in

Industry 4.0 – Opportunities and Challenges of the Industrial Internet 15

Source: Platform Industry 4.0 (translated from German).

16 Industry 4.0 – Opportunities and Challenges of the Industrial Internet

Average annual investments in Industry 4.0 applications

0–1% 2–3% 4–6% 7–10% > 10%

Only a quarter of the companies have Industrial Internet solutions enable

Industry 4.0 – Opportunities and Challenges of the Industrial Internet 17

Industry 4.0 investments broken down by steps of the value chain

Supply chain 57% 32% 11%

Extrapolating the planned investments Planning 52% 35% 13%

Annual investments in Industry 4.0 solutions through until 2020

Investment amount Investment volume2

Automotive industry1 2.9% 39

Process industry 2.7% 35

Total 3.3% 140

18 Industry 4.0 – Opportunities and Challenges of the Industrial Internet

Fig. 5 The already considerable degree of digitization will increase with

Degree of digitization of the value chain

Horizontal value chain Vertical value chain

Today In 5 years Today In 5 years

Industry 4.0 – Opportunities and Challenges of the Industrial Internet 19

Degree of digitization of the value chain by industry sector1

20 Industry 4.0 – Opportunities and Challenges of the Industrial Internet

Horizontal value chain Vertical value chain

A Industry 4.0 – Opportunities and Challenges of the Industrial Internet..............6

D Outlook and recommendations.........................................................................40

A Industry 4.0 – Opportunities and Challenges

7. Digitized products and services 9. H orizontal co-operation allows

Fig. 5 The already considerable degree of digitization will increase with

Fig. 18 A sustained successful business model requires a combination