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We have become schizophrenic – we are afraid of failing, but in failure resides innovation.

Unveiling the vision of smart manufacturing

Professor Henrik von Scheel, a futurist, strategist and speaker

Professor Henrik von Scheel is credited with coining the term "Fourth Industrial Revolution.” He has served as an advisor on digital strategy at the highest levels of the German government and currently is a sought-after speaker and author.

In an interview with Huawei Transform, Professor von Scheel tells Editor-in-Chief Gavin Allen that revolutions unfold in stages – and explains the stage we’ve reached now.

GAVIN: I've seen you described as an unshakable optimist who believes in a bright future. Presumably your optimism extends to smart manufacturing?

S: Manufacturing has never had a better time than now. It has never had so much opportunity in terms of financing, workforce and automation systems. The wealth of opportunity is immense.

Smart manufacturing is one of the most misunderstood topics. Understanding is driven by what's in the media, but that’s like a short-term drug hit. AI is so great now, right? AI is the automation of Intelligence, and when I talked about AI in 2009, they thought I was smoking marijuana. By 2016, they were all afraid AI would take away their jobs. And now AI is “Oooh, ChatGPT is so important.”

But really, AI is in its infancy. Organisms are algorithms [a quote made famous by historian and author Yuval Noah Harari] and the AI revolution will only really emerge full blown into manufacturing when we decode our DNA and can communicate chemically. Now AI is only based on language models – it’s the biggest thief of intellectual capital. It’s just stealing content and regurgitating it.

G: So we’ve never had it so good, and you’re confident it's going to get better?

S: I’m an optimist because the core element of the Fourth Industrial Revolution is people. And people have the ability to adapt. If you invest in people, you develop skills. Specialized skills become an expertise. When you have several people that have expertise, you create capability. You combine capabilities and then focus your solutions, resources, and research and development, and you develop competency. Competency is what companies compete on – but you cannot change competencies. You can only change and adapt capabilities. The core to any successful change in your organization always resides in people's ability to adapt.

A capability only lasts for five to seven years, and has to be renewed consistently. For example, let’s say that you’re a really good 100-meter runner. That doesn't mean you can export the same competence to another sport. Running 100 meters very fast will not necessarily make you a good soccer player because soccer players don’t run 100 meters in a straight line. Your competency is running fast; the capabilities are what you need to adapt.

G:  Why isn't it sufficiently understood that investing in people is at the heart of these advances?

S: When we announced the Fourth Industrial Revolution in 2007, we also said it would emerge in eight different stages [see graphic below]. Stage Six will be a consumer revolution that will be as disruptive as AI and will turn the internet inside out. 

It will not be the internet you have today. You will decide what comes to you, and decide how you manage your information. The phase after that is the fusion science revolution. And the last phase is the quantum reality revolution.

Industry 4.0 is the collision of the digital, virtual and physical worlds. The centerpiece of that is the human being. It's the merging of 77 megatrends across those eight paradigm shifts. They’re disrupting every aspect of our lives: how we interact, how we produce and consume, how our economy works, how the government is structured. It changes everything about human experience from the ground up. And the core of Industry 4.0 is manufacturing. It changes everything about how we produce, ship and manufacture.

G: Can you understand why continuous change might be potentially quite scary for a manufacturer? 

S: Yes, but set aside manufacturing and instead take your personal life. Everything in your life is unhinged. You don't trust your banking system today in the same way you did 15 years ago. You don't trust businesses, or churches, or governments, or the media in the same way you did 15 years ago. All the stable pillars we had in our life are gone. 

The same goes for companies. Every element they had that was stable is unhinged. But adapting to something is how you thrive in uncertainty. Managing the present and designing the future become core skills. 

G: But how do you get a company to appreciate that and prepare for it? 

S: The core of a company is never a product. Again, it’s people. Because people have the ability to adapt, to build expertise and skills needed in their market. Companies don’t need to make it more complicated than it is. But they are often structured silos. Between 70% and 85% of projects don’t conclude on time, produce any value, or deliver on promised revenue streams. They’re just projects to fix problems, bottlenecks, and challenges. 

But an executive is designed to manage the future. Innovation only happens in times of uncertainty, when you don't know what to do, when you make mistakes. Most companies talk about innovation, but they do transformation. Using ChatGPT can help you integrate, optimize, align, and do transformations. But ChatGPT will never bring you innovation. Innovation can only come from people.

G: Are you saying not enough companies, even in the smart manufacturing field, are being smart?

S: Manufacturing is not very mature on digitalization because companies treat it like an ERP system, focusing on process and costing US$2.5m to US$10m for a digitalization project.

Digitalization should never be focused on processes. Nobody cares about HR or financing digitalization. I tell companies, “If you're spending more than $150k you’re making a mistake, big time." The first $15k, you gather your teams together: Where do I need to connect and sensor? What is the workflow I want to measure? You focus on smart automation, sensoring, and agile workflows, and you connect the systems with robots and people.

The system and the robots give you an input. But the main governing element in digitalization are the people, the workflow. Digitalization is always related to people. Then you do digital engineering. You have your customer-centric data, engineering data, product data, the life-cycle management on the products, on the shipment and supply chain, and you have your digital twin and you combine it all in one to integrate and optimize because now you have your main workflow. This should cost you around US$30k to US$45k. Then you commit US$50k to $US100k on the shop floor, integrating it to your execution system, your operating management system. You’re connecting to your workflows, putting a robot to the 3D printer, to AI production measurement systems. And then you’re done. If you do it from the system up, you are failing by design. The process does not matter. It's the workflow that matters.

G: What's the opportunity waiting for manufacturers if they actually implement this correctly?

S: The opportunity is humungous. You can save up to 25% on your HR and financing costs immediately through robotic process optimization. Do digitalization on everything which is complex in nature – supply chain, warehouse management, and everything in your main workflows and you can save around 20% to 50% on your productivity line.

But you have to invest first to get it out. And you have your tactical operations where it's the performance and value governance. And CBAM is coming [the EU’s Carbon Border Adjustment Mechanism, a tariff on carbon-intensive products], so any product you source, or any products you export, you need to go through your value chain to do things smartly. You need to be proactive. For most manufacturers, CBAM and regulatory disruption is like a fog they cannot see through. The normal manufacturer will not spend two hours reading the CBAM document because after five minutes, their brain is exploding. But it's an additional tax of 15% to 20%. Tell me a manufacturer that can take 15% to 20% away from their profit margins. It will bring most manufacturers to the ground - and the golden rule is, they are not allowed to increase the product price. Any company not prepared by this October will be surprised – they will freak out.

G: Investments need to be made, but an awful lot of savings and future-proofing can be gained. So, why isn’t smart manufacturing universal?

S: Manufacturing has some of the hardest-working, most skilled people. But it's also the industry that invests the least in project management – and in people as well. People within manufacturing are promoted to their level of incompetence: the famous Peter Principle. They are really good with people and know the company inside out, but suddenly they’re promoted and they don't have the skills they need. They have been promoted to incompetence. But it's not their fault.

G: What’s your advice to companies looking to embark now, or wondering whether they should embark, on that smart manufacturing journey?

S: My tip is to embrace the challenges, invest in skills and people, and accept failure. We have become schizophrenic: we are afraid of failing, but in failure resides innovation. You have to fail to succeed, but failing is not accepted in society today. I always advise executives, when they’re deciding which door to go through, if it’s a door you cannot exit again once you’ve gone in, then don't go in. As an executive, you must be able to open the door, walk in, and go out again, because you need to be able to learn. You do your digitalization projects and it's okay to fail at two or three things, because your team needs to learn and be very good at that.

My advice is to see it as a game. Competitiveness and strategy are a game. You must allow yourself to go back and do better. But in summary, for people and for manufacturing, we do live in the best times. We have never had so much money, so much possibility, so much free time, so much equal rights. Everything we have today is greater than ever before. Yes, the future is challenging, but innovation resides in people and we will find the way.

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