We started to read many successful stories on the benefits of Digital Transformation using Industry 4.0. Academicians and economists argue that Industry 4.0 is a game changer for manufacturing. One area of great significance often quoted is that it will result in achieving sustainability. It might be difficult to achieve sustainability benefit early on when industry 4.0 is implemented, but has opportunity to result in resource optimization, waste reduction etc. There are various references of industry 4.0 to achieving pollution reduction, waste reduction, Green House Gas management, social and economic benefits by means of ensuring longevity of goods, repairs or recycling. When we further elaborate the benefits of Industry 4.0 on Sustainability the most common metrices is triple bottom line i.e., Environmental, Social and Economic benefits. Environmental benefits include the safe guarding the environment in terms of management of natural resources and ecosystem. The social sustainability contribution include how healthy and livable communities are created and finally economic sustainability includes economic growth with reduced reliance on natural and social capital
When companies start implementing the Industry 4.0, which is not a single technology but rather a mix of multiple technologies with broader dependence, predominantly the aim is to target a specific segment of benefit. It is not the real criteria to target a specific segment of digitalization, it should rather be a mix of technologies targeting multiple areas over a period of multiple years to achieve the benefit. Say for example, if an industry wants to reap the benefits of automatic equipment failure management, it can plan to achieve the same by using sensor driven equipment, associated data aggregation, real time data analysis and finally identification of anomalies. If it is to give a reasonable benefit it has be replaced with modular equipment design, that is the very basic overall plant design needs to be managed and associated human resource changes. That is whole of digital technologies of Industry 4.0 are intertwined and most of the time it is not available on the shelf to procure and adopt, it needs adoption of mix of technologies to reap the benefit.
Similarly, organizations planning to go for Industry 4.0, aim for modifying the digital foot print of equipment, plants or even digital twins consisting of drones, remote monitors etc., which will not give full sustainable benefit if associated dependent functions are not already digitized. That is to achieve benefit organizations needs to implement industry 4.0 in certain precedencies. Many academicians and researchers argue that the foremost function which needs to be digitized include the Human Resources function to derive the benefit. It needs to be managed with technologies like simulation, digitization and ultimate integration with supply chain activities. Once Supply chain functions are digitized, then the associated production processes need to be tackled which in turn integrate with material flow, information flow with supply chain functions. The digitalization of these processes will result in modularization, customization of production processes.
Such successive conversion of processes leads to an overall benefit to an organization sustainability which will result in reduction in emissions, GHG management, Waste reduction, circularity or resource recycle and pollution prevention etc. As evident in order to gain benefit from the Industry 4.0, organizations need to redesign their business processes using the Industry 4.0 to develop sustainable business models. The sustainable business models differ from traditional business models value in terms of how they provide benefits in terms of reduction in triple bottom line, resource consumption ultimately providing value to networks and stakeholders. It needs careful implementation of technologies, human resources management and business process re-engineering to achieve the benefits. Such challenges influence organizations in their selection of technologies for digitalization and force them to change their business models in terms of collection, aggregation, and dissemination of information among the stakeholders. As you know, the interconnectedness of technologies and their interdependence forcing organizations to rethink on how value is created and formulate sustainable business models.
It is a new perspective in creating and ensuring sustainability of the business models. In order to evaluate on how Industry 4.0, contribute to Sustainability, we need to alter existing business models and how we evaluate the value. It is easier to creating and delivering sustainability value by chalking Industry 4.0 initiatives but putting that into the context of business models or organizational strategy for long terms viability is a challenging proposition. What customers to serve, how to serve, what should be right kind of Industry 4.0 technology mix which can be used to derive value proposition. There are different ways a Sustainable business model can be depicted. One of the common models is based on value creation framework. It is based on value proposition, value creation, value capture. Value proposition consists of service offerings, customer segments, value for customer – society – environment. Value creation consists of activities, resources, distribution channels, technology and value capture consist of information flow and cost structure and revenues. To begin with traditional business models needed to be coupled with sustainability practices and Industry 4.0 components to achieve sustainability business model.
To conclude, Industry 4.0 offers a unique opportunity for organizations to create sustainability value, but also challenge how the value is realized. Companies plan different strategies for going Sustainable either by switching to renewable energy sources, water management or waste treatment or recycling or planning digital twins, digital plants, drone etc. This new area of research on Industry 4.0 induced Sustainability and business model development has lot of potential to organizations in achieving competitive advantage and ensure sustainability. However, it has major gaps in terms of identification, application and implementation and necessary theories and practical tools are required to be developed. Sustainability cannot be achieved or measured at near term, rather companies needed to have medium – long term strategic vision along with communication flow between top management and operations layer. Due to which a suitable business model depicting the sustainability benefits in terms of value proposition of the product and via Industry 4.0 is needed.
A major gap in assessment of sustainable business models is availability of IT tool which can provide simulation of the impact of the innovation on various stakeholders and cascading effect on network. A real-world very limited simulation of implementation of business models is carried out due to the risk to organizations and its not easy. Further not all the variables for triple bottom line framework are simulated in real world scenarios. Barrowing the principles from LCA, some of the parameters which are considered for modeling Industry 4.0 for sustainability evaluation include i. Supplies and outsourcing ii. Production iii. Functional value iv. End of life etc., for environmental scenario and similarly consists of i. Social Value ii. Social benefits and iii. Social Impacts in case of Social business model. Or taking the example from Circularity in procurement process, it needs source, recycled materials or virgin material check list etc. A simulation tool for assessment of various metrices of sustainability for various stakeholders and how it can further change with innovations will help a lot for organizations to come out with strategies. Finally, Sustainable Business Model is an area of substantial interest given it ultimately achieves sustainability ensuring a better and more sustainable well being for all including future generations.