Cheese. 5.2 contemporary business issues
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Lecture5.Industry4.0-ChallengesandOpportunities1.pptxIndustry 4.0: Challenges and Opportunities for Businesses
CONTEMPORARY BUSINESS ISSUES (CORP 3543)
Leicester Castle Business School
Learning outcomes
At the end of this session, you will be expected to:
Define and explain digital transformation and related concepts
Identify key digital technologies driving Industry 4.0
Appreciate how Covid-19 pandemic has accelerated digital transformation across public and private sectors
Draw the link between digital technologies and business model innovation using an industry example.
……Some of you will be able to????
Opening case: Covid 19 and the acceleration of digital disruption
According to ILO estimates, global working hours were expected to be 10.5% lower than pre-crisis period. This is an equivalent of 305 million full-time jobs.
In the informal economy, close to almost 1.6 billion informal economy workers- in the most vulnerable sectors- have been significantly impacted by lockdown measures.
Income earnings of informal sector workers is predicted to decline significantly, with the heaviest losses predicted to be in Africa and Latin America, at 81%.
As businesses re-think their models, covid-19 has accelerated the pace of digital transformation.
SECTION 1: DIGITAL TRANSFORMATION AND RELATED CONCEPTS
Digital transformation
Digital transformation is the integration of digital technology into all areas of a business resulting in fundamental changes to how businesses operate and how they deliver value to customers.
Digital transformation entails the digitisation and integration of the entire value chain of the lifecycle of products.
It often involves a change in leadership, different thinking, the encouragement of innovation and new business models
This Photo by Unknown Author is licensed under CC BY-SA
Industry 4.0
Digital transformation is linked with the idea of Industry 4.0, an integrated sociotechnical concept bringing together technological, social and organisational aspects.
“The principles of Industry 4.0 are interoperability, virtualization, decentralization, real-time capability, service orientation, and modularity” (Lu, 2017).
The concept Industry 4.0 is underpinned by the application of the principles and technologies from the Internet of Things (IoT) on the manufacturing industry. It was launched in 2011 by a council of the German Government that consisted of scientists and industry representatives (Beier et al., 2020) .
IoT enables interconnectedness since “the industry-relevant items, for example, material, sensors, machines, products, supply chain, and customers, are able to be connected” (Qin et al., 2016).
This Photo by Unknown Author is licensed under CC BY
Drivers of digital transformation
The pace of digital innovations over the last decade has led to discussions about the disruptive impacts of digital transformation in the job market.
The four key technological drivers of workforce transformations are:
High-speed mobile internet
Artificial intelligence
Widespread adoption of big data analytics
Cloud technology
Man vs Machine under Industry 4.0
Several researchers have argued that Industry 4.0 will be a socio-technical system comprising social (human) and technical (non-human) aspects, both interacting together to produce a common goal (Sony and Naik, 2020).
Conventional belief suggests that increasing automation will result in less human interaction or workerless production (Sony and Naik, 2020)..
“Humans in an Industry 4.0 setting are expected to do less physical but more mental work, increasingly communicate with partners across the value chain and react to customer preferences” (Beier et al., 2020).
Socio-technical systems framework comprise six dimensions: people, infrastructure, technology, culture, process/procedures, and goals.
Will digital transformation cut jobs, or simply change them?
According to World Economic Forum, by 2022, up to 75 million jobs will be displaced by digital transformation. However, within the same period, 133 million new jobs will emerge as a result of the new division of labour between humans, machines and algorithms (World Economic Forum, 2018)
| Examples of jobs at risk |
| Data entry clerks |
| Accounting, book-keeping and payroll clerks |
| Assembly and factory workers |
| Cashiers and ticket clerks |
| Mechanics and machinery repairers |
| Electronics and communications installers and repairers |
| Bank tellers and related clerks |
| Postal service clerks |
| Door to door vendors and salespersons |
New jobs, new skills
By 2022, at least 54% of employees will require re-skilling or up-skilling (World Economic Forum, 2018)
This include proficiency in new technologies as well human skills such as creativity, originality and critical thinking
Artificial intelligence (AI), robotics and other forms of ‘smart automation’ are poised to contribute up to 14% of global GDP by 2030 (PwC, 2018)
This is an equivalent of around $15 trillion at today’s values.
Transportation and storage, manufacturing and construction have the highest potentials for job automation.
| New job opportunities |
| * Data Analysts and Scientists |
| * AI and Machine Learning Specialists General |
| * Big data specialists |
| * Digital transformation specialists |
| * Software and application developers and analysts |
| * Information security analysts |
| * Robotics specialists and engineers |
| * User Experience and Human-Machine Interaction Designers |
Section 2: Overview of Industry 4.0 technologies
Industry 4.0 Technologies (Bai et al., 2020) 1 of 5
Additive manufacturing (3D printing):is a manufacturing technology that creates three- dimensional (3D) solid objects using a series of additive or layered development frameworks.
Artificial intelligence: is an area of computer science that emphasizes the creation of intelligent machines that work and react like humans.
Augmented reality: is a type of interactive, reality-based display environment that takes the capabilities of computer generated display, sound and other effects to enhance the real-world experience.
This Photo by Unknown Author is licensed under CC BY
Industry 4.0 Technologies (Bai et al., 2020) 2 of 5
Autonomous robots- Robotics: (are used to replicate human actions in manufacturing.
Big data analytics: refer to the strategy of analysing large volumes of data that are used when traditional data mining and handling techniques cannot uncover the insights and meaning of the underlying data.
Blockchain: is a distributed database that maintains a completely, distributed and non-tampering continuously growing list of records using new encryption and authentication technology and network-wide consensus mechanism
This Photo by Unknown Author is licensed under CC BY-SA-NC
Industry 4.0 Technologies (Bai et al., 2020) 3 of 5
Cloud: refers to any IT services that are provisioned and accessed from a cloud computing provider.
Cobotic systems: is a robot intended to physically interact with humans in a shared workspace.
Cybersecurity: refers to preventative methods used to protect information from being stolen, compromised or attacked.
This Photo by Unknown Author is licensed under CC BY
Industry 4.0 Technologies (Bai et al., 2020) 4 of 5
Drones (un-manned aerial vehicle): is aircraft without a human pilot onboard, and commonly known as a drones.
Global positioning systems (GPS): is a technical marvel made possible by a group of satellites in Earth’s orbit that transmit precise signals, allowing GPS receivers to calculate and display accurate location, speed and time information to the user.
Industrial Internet of Things (IoT): is the various sets of hardware pieces that work together through internet of things connectivity to help enhance manufacturing and industrial processes.
Mobile Technology: is the wireless communication technology integration based on the wireless devices.
This Photo by Unknown Author is licensed under CC BY-SA
Industry 4.0 Technologies (Bai et al., 2020) 5 of 5
Nanotechnology: also now referred to as molecular nanotechnology, is the particular technology to control individual atoms and molecules for fabrication of macroscale products.
RFID: refers to technologies that use wireless communication between an object (or tag) and interrogating device (or reader) to automatically track and identify such objects.
Sensors and actuators: is a device that responds to a physical stimulus (such as heat, light, sound, pressure, magnetism, or a particular motion) and transmits a resulting impulse (as for measurement or operating a control).
Simulation: refers to technologies that use the computer for the imitation of a real-world process or system.
This Photo by Unknown Author is licensed under CC BY
Section 3: Covid-19 and digital transformation
Covid-19 and digital transformation- 1 of 8
The process of digital transformation has been ongoing for years
By shutting down physical interactions, Covid-19 pandemic provided an accelerator to the pulse of this transformation trend.
This exacerbated pulse of operational adjustments produced ripple effects on other processes and factors of production throughout enterprises as well (Kudyba, 2020).
Covid-19 and digital transformation- 2 of 8
The Public Sector
Technology has proved a useful and necessary tool to help ensure that local and regional governments on the frontline of the emergency continue to provide essential public services during the COVID-19 crisis.
Local and regional governments on the frontline of the COVID-19 crisis have resorted to digital technologies to monitor, anticipate and influence the spread of the disease.
They have also used digital technologies to provide education for students who cannot access school as well as foster social cohesion while we respect physical distancing (United Cities and Local Governments, 2020).
The main challenges for governments include the need to maintain the delicate balance between privacy and security. There are also pressing challenges related to the digital divide, and accessibility.
Covid-19 and digital transformation- 3 of 8
Financial services (Deloitte, 2020)
COVID-19 has dramatically accelerated the rate of digital adoption in financial services, causing unprecedented changes in human behaviour and forcing new ways of working.
Limited mobility and shelter-in-place orders across the globe have forced rapid adoption of digital channels in financial services, condensing years’ worth of changes into months if not weeks
35% of customers have increased their online banking usage during COVID-19
There has been an acceleration toward digital and contactless payments as consumers shift a greater share of their purchases online. In response, businesses have raced to setup e-commerce capabilities to capture sales during government lockdowns.
Visa saw more than 13 million customers in Latin America make their first-ever online transaction in the March quarter of this year.
This Photo by Unknown Author is licensed under CC BY
Covid-19 and digital transformation- 4 of 8
Remote working
Nearly overnight, organisations have gone from scarcely imagining their employees working from home to individual companies transitioning tens, if not hundreds of thousands of employees to a remote work model.
A recent PwC Survey highlighted 84% of employees feel able to perform their role just as effectively when working remotely as they would in the office and 42% of companies are allowing assignments to start via remote working from the home country.
Bank of America and Wells Fargo have each transitioned over 150,000 employees, or roughly 70% of their workforces, to work from home, and have established contingency locations for their remaining trading and call center operations.
Covid-19 and digital transformation- 5 of 8
For businesses, one consequence of the COVID-19 crisis has been a dramatic uptick in the use of digital technologies that help reduce face-to-face interactions and safeguard customer and employee health and well-being
Covid-19 and digital transformation - 6 of 8
Covid-19 and digital transformation- 7 of 8
Supply Chain Resilience (KPMG, 2020)
COVID-19 disruption to trade caught many off-guard, causing disruption in the supply chain. Global lockdowns brought fragile domestic, regional, and global supply chains to a grinding halt.
The pandemic has shown that resilience against unpredictable, dramatic events require strong business models enabled by a robust digital backbone and processes that can pivot rapidly.
Good supply chain management is about two things: 1) reducing complexity, and 2) reducing uncertainty. Implementing new technologies allow a co-existence of digital enablers and humans across the different supply chain processes and activities that can help achieve these two goals.
Advanced track and trace: allows organizations exceptional visibility and control of their supply chains by tracking raw materials and finished goods all the way from point-of-origin to the final point-of- sale. Advanced track and trace solutions enable real-time tracking and immediate location analysis of assets and inventory.
Blockchain: Many leaders are applying blockchain – essentially a distributed, digital ledger – to ensure integrity and security of goods as they flow across regional and global borders. Products travel through a lot of processes and middlemen. Every product hand-off is documented in the blockchain, creating a permanent history of a product, from manufacture to sale. This reduces delays, errors, and costs, while also creating visibility, a great commodity in modern supply chains.
“Digital transformation, together with chief executive officer leadership and deployment of 2% of corporate profits over the next 10 years, can eliminate banking, healthcare, education, broadband and food deserts in minority communities and grow our economies by trillions of dollars”- Robert F Smith, Chairman and Chief Executive Officer, Vista Equity Partners
“COVID-19 has created a window of opportunity for technological leapfrogging. Our ability to recharge the economy and create jobs is largely dependent on concerted efforts to accelerate digital transformation, especially within SMEs”- Badr Jafar, Chief Executive Officer, Crescent Enterprises
“The pandemic has altered the simple acts of hospitality that are the foundations of business and society. Digital transformations must enhance human connection, anticipating the day we will all be together again”- Stephanie Linnartz Group President, Marriott International.
Covid-19 and digital transformation- 8 of 8
Leadership perspectives (World Economic Forum)
Section 4: Netflix Case Study
Digital disruption of the global film industry
For almost 100 years, the Hollywood studios ruled the global film industry.
Five major Hollywood studios have dominated the industry— Warner Bros. Entertainment, Paramount Pictures, Universal Pictures, Sony Pictures Entertainment, and Walt Disney Studios— 21st Century Fox.
In recent years, prominent streaming services Netflix and Amazon Studios have started to challenge the big Hollywood studio.
They are doing this not only through deployment of digital technologies but through the implementation of innovative business models.
The rise of Netflix
Netflix noted that it added 26 million paid new subscribers in the first two quarters of 2020 alone; in 2019, the company added 28 million subscribers in total.
A short history of Netflix
Netflix Business Model 1 of 4
Netflix began its operation in 1997 by providing services to customers through means of mailing out physical copies of movies, shows, video games and other forms of media through standard mailing system.
The Netflix business model has since transformed into an on-demand internet streaming media available to the viewers all over the world.
Netflix Business Model 2 of 4
Netflix runs on a Subscription Video on Demand (SVOD) model. Subscribers pay for a monthly plan and are given access to a vast library of media—any time, anywhere.
Netflix offers different prices based on the quality of video required- Basic, Standard and Premium.
Generally, it provides the first month of subscription for free. Basic with standard resolution is $7.99 a month, but it can only be used one device at a time.
For $10.99 a month, members gets HD video on two devices. To stream Ultra HD streaming on four devices, subscribers pay $13.99 a month.
Netflix Business Model 3 of 4
Content costs and content acquisition
In 2018, Netflix spent more than $8.9 billion cash just for streaming content. Within the first two months of 2019, It already spent $5.39 to expand its vast library through acquiring and creating content.
Netflix has a vast library because they acquire content from distributors and studios using direct purchases, revenue sharing agreements, and license agreements. This pays back to the overall revenue, as 80% of Netflix’s revenue comes from licensed content.
Since 2013, Netflix began to invest in original content, beginning with the House of Cards series. They presented this as a way of filling up more contents for users to watch.
It is expected that Netflix’s investments for original content can increase up to 50% of the overall content budget.
Source: https://www.vdocipher.com/blog/2019/03/netflix-business-model-video-selling-platform/
Netflix Business Model 4 of 4
Streaming technology and server costs
Netflix uses adaptive bitrate streaming technology to adjust the video and audio quality to match a customer's broadband connection speed and real-time network conditions.
Adaptive bitrate streaming or ABR streaming, sometimes shortened to ABS, is a technique for dynamically adjusting the compression level and video quality of a stream to match bandwidth availability.
Older video streaming approaches relied on distributing a fixed bitrate video stream. If your network connection could not support that bitrate, users could not watch the video without dramatic buffering, if at all. With ABR, users can now stream video across the Internet, with both point to point streaming and OTT services to multiple devices.
Netflix Data is stored Amazon Web Services (AWS), where terabytes of storage can be deployed to a thousand servers quickly.
It is estimated that Netflix spends around $9.6 million per month on AWS.
Netflix: Technology meets business model innovation
Baden-Fuller and Haefliger (2013) argued that “business model choice determines the nature of complementarity between business models and technology and the paths to monetization. A poor choice can lead to low profits, a good choice to superior profits”.
The dominant notion of innovation is changing from new product developments to new business models.
Business model performs two important functions: value creation and value capture.
A better business model often will beat a better idea or technology
Summary
In this session we have:
Discussed various concepts related to digital transformation
Identified key technologies driving Industry 4.0
Explored how Covid-19 has accelerated the uptake of digital technologies by governments and businesses
Discussed the case study of Netflix within the context of digital transformation and business model innovation.
This Photo by Unknown Author is licensed under CC BY-SA
