Is Germany on the Cusp of the Next Industrial Revolution? "The Implementation of Industry 4.0 Will Remain Limited to Individual Cases for Now"

When industrial production melds seamlessly with modern information and communication technologies (ICT), a new economic era called "Industry 4.0" will arise, some experts predict. To explore the potential of Industry 4.0, the German federal government has launched funding initiatives worth 200 million euros. Is this money well spent? ZEW's Irene Bertschek examines the opportunities and challenges associated with Industry 4.0.

Professor Irene Bertschek is the head of the "Information and Communication Technologies" Research Department at the Centre for European Economic Research and Professor of applied empirical economics at the University of Mannheim. Her empirical and predominantly microeconometric research concerns the economic impacts of digitalisation. She studies how the implementation of ICT affects innovation, productivity, and the organisational structure of companies.

The catchword Industry 4.0 is on everyone's lips. Will it really amount to a fourth industrial revolution?

In Industry 4.0, the entire value creation chain is digital and smart. By having every single physical element, be it a machine or a component, send and receive information, inanimate objects will be able to communicate with each other directly. Fittingly, it's sometimes referred to as the “Internet of Things” or “Internet of Services”. As the name suggests, the Internet plays an essential role, linking the things, production processes, and services together. The result is greater flexibility and customisation in the creation of products and services; it certainly deserves to be called revolutionary.

What is the role of ICT in this context?

Information and communication technologies, or ICT, are key for Industry 4.0. Everything is driven by them, using all they have to offer: from the Internet to software, embedded systems, RFID tags, cloud services, big data analytics tools and much more. Even the customers may be included in the production process via social media. In the end, it's a question of creating a perfect synthesis of industrial production and ICT.

Handling big data – meaning quantities of data beyond the capabilities of conventional methods of data processing – is fundamental to Industry 4.0. What are the main issues in this regard?

First of all, it's the sheer volume of emerging data that have to be continuously analysed, as far as possible in real-time, and then, having to take the right decisions based on the results. In this context, safety is one of the main prerequisites for a smooth, efficient workflow. Materials should only be ordered for re-supply when they are really needed or can be appropriately stored; if a component's signals are wrongly interpreted, it could lead to expensive or even dangerous pile-ups, faults, or defects.

When can we expect to see large-scale implementation of Industry 4.0?

Trends in ICT are always fast-moving. However, our research shows that large-scale adoption of new technological developments doesn't happen overnight. In particular small and medium-sized companies tend to be hesitant in embracing new applications, not least due to concerns about data security. Therefore, the complete implementation of Industry 4.0 in the sense of fully-automated, independently networked production will remain limited to a few individual cases for now. Besides, fully digitising and networking production just won't make sense for every company.

What are the social and economic challenges associated with Industry 4.0?

When a company chooses to implement Industry 4.0 solutions, the biggest challenge is to do so as quickly and smoothly as possible in order to boost efficiency and productivity. As far as providers of Industry 4.0 solutions are concerned, pre-existing manufacturing know-how should be used in combination with ICT to achieve competitive advantages in international markets. The biggest overall challenge, however, is the potential effect on the workforce. Automation and networked processes can mean that machines take over tasks previously done by people. That doesn't necessarily imply widespread job losses: the task structure of employees will adapt. Rather than manufacturing or processing, jobs in the future will lean towards analytical, creative, and operational tasks. The real challenge will be to make sure that appropriate education and training is made available throughout the process of change.