The Networked Economy and Industry 4.0: Dispelling the Biggest Myths

By Dinesh Sharma & Nils Herzberg

Which is bigger – the earth, the networked economy, or Industry 4.0? Okay, so it’s a rhetorical question. We don’t really expect you to compare the size of these trends to our planet. But we’re guessing you may be wondering about the potential and impact of the networked economy and Industry 4.0 – and how the two compare.

According to Vivek Bapat, SAP’s global vice president for portfolio and strategic marketing, over the next 10 to 15 years, the networked economy has the potential to double the size of the gross world product. And while it’s too early to guess at the economic impact of Industry 4.0, it’s fair to say it will be substantial.

What the networked economy is – and is not

The biggest misconception about the networked economy and Industry 4.0 is that they are one in the same. In a nutshell, the networked economy is the hyper-connectivity between people, devices, and business. It’s about all of these elements connecting in real time. The “collaborative economy” and “shared economy” are forms of networked economies. (If you want an overview of the networked economy, here’s a terrific primer.)

The Internet of Things (IoT) is the technological foundation of this economy, connecting physical devices, people, and businesses to one another through the Internet. And Industry 4.0 is the manifestation of how the networked economy pertains to the manufacturing industry specifically.

That said, while IoT is one of the most important enablers of Industry 4.0, it’s not the only critical element. Industry 4.0 is more than technology – it encompasses guidelines, best practices, workflows, organizational design, and social engineering for companies to make the best use of technology, including IoT, and effectively compete in this new age of manufacturing.

The networked economy in action

The reason these trends are so prevalent in manufacturing is that this industry is far ahead of any other in understanding the value of a networked world. Consider the following examples.

German toolmaker Trumpf, a worldwide market leader of laser systems, has put the first “social machines” to work in a number of ways. Each smart component knows what work has already been done on it in the production line. In addition, the production facility knows its capacity utilization and communicates with other facilities. As a result, it can automatically optimize production options. Trumpf can even send its customers pictures of the machines in real time. In turn, customers can offer feedback during the production process, as the machines are being built.[1]

German manufacturing giant Siemens is using an Industry 4.0 solution to transform its medical engineering. For years, engineers needed several days to customize artificial knee and hip joints for patients. Now, with new smart software and steering solutions, Siemens can produce an implant in just three or four hours.[2]

With a customer’s permission, a John Deere dealer can remotely access the customer’s machine’s diagnostics systems via JDLink infrastructure to make sure the equipment is running optimally. By accessing data sources such as warranty information, the dealer can also proactively deliver the right service level and components to customers before they are impacted by an outage.[3]

From these examples we can see that the networked economy is clearly the product of how business networks and people networks are being enabled by the onset of IoT as the connecting tissue that enables everything to be connected. At SAP we see the networked economy transforming the way business runs – and in a time frame that is radically shorter than any other major economic transition in history. How are you experiencing the networked economy and its impact on manufacturing through Industry 4.0? Please share your thoughts in the comments or send me a tweet.

[1] Roland Berger Strategy Consultants, INDUSTRY 4.0: The new industrial revolution How Europe will succeed, March 2014

[2] Ibid

[3] http://www.deere.com/en_INT/products/equipment/agricultural_management_solutions/jdlink_telematics/service_advisor_remote/service_advisor_remote.page