The difference between the terms Fourth Industrial Revolution and Industrie 4.0 matters

There are two terms that many of my clients use interchangeably, which really bothers me. The first is the term “the Fourth Industrial Revolution”, and the other is “Industrie 4.0”. What bothers me is that these two labels represent two concepts that only partially overlap. Sometimes they are conjoined with an “and” in a sweeping statement to emphasise just how pervasive and disruptive a specific technology is, and how utterly unprepared everybody is.

The Fourth Industrial Revolution is a concept that was popularised by Klaus Schwab and the World Economic Forum (although the name goes back almost 50 years). Many international consultancies have also developed instruments and advisory services around this theme (I admire their animations and graphics). The Fourth Industrial Revolution is a banner over many new technologies. Most of the technologies that are highlighted by the WEF are not new, e.g. 3D printing, sensors and artificial intelligence, whereas the narrative of the Fourth Industrial Revolution highlights the effects of the convergence of several scientific and technological domains (take a look at this link to read more about some of the technologies). Due to the reach of digital technologies, smartphones and global software platforms, new applications of technology are spreading very fast. It almost seems as though the rapidity of technological development is increasing, and that the depth and breadth of convergence and its impact on industries, firms, governments and whole societies is potentially disruptive. Hence the “revolution” part.

I must add that not everybody is convinced of this revolution. Some argue that we are still in the third revolution, albeit in a second or third extension. Others argue that we are already undergoing the fifth or sixth revolution. Then one might also argue that revolutions are usually not predictable, or that revolutions go hand-in-hand with massive social, political and institutional upheavals, which we have not yet really seen. Others, like Carlota Perez argue that these revolutions are unavoidable, and that governments have a key role to play in preparing for societies to cope with these wave of change. In fact, we have not seen massive employment displacement in Europe attributed to massive technological disruption, despite all the machines, robots and drones. I for one am also not convinced that the technologies and their convergence are revolutionary. What I find really eyebrow-raising is the immense interest of capital and political elites in technology, and all the hype around these technologies. I must also confess that I am impressed by how well the applications, use cases and adaptation paths of many of these technologies are described on the web. For instance, take a look at the Blockchain use cases on the WEF site here.

The second label is Industrie 4.0. It is usually spelled this way because the concept originated in Germany as the rallying cry of their new “High-Tech Strategy” which has emerged over the last ten years. The German high-tech strategy has a dual focus. The first and often overlooked emphasis is on continuing the incremental and export-oriented technological development that German manufacturers are known for. It builds on Germany’s current excellence and ability to innovate, especially at the level of product and process technologies.

The second and more frequently discussed drive of the German Industrie 4.0 strategy is all about digitalisation, knowledge intensification, trust building, dialogue and networking (some topical areas are described here). Digitalisation is not only about connecting things to the internet, but also about manufacturers being smart about integrating their suppliers, clients and internal processes. Improving the competitiveness of German manufacturing and making the society, workplaces and communities healthier and happier in the future are recurring themes. So are the environment, the circular economy and the importance of investing in longer-term technological platform and capability development. What only a few people in Germany would acknowledge is that this high-tech strategy was a response to the realisation that Germany was not as digitally savvy as one would have expected (to see the Tuft Universities renowned digital performance assessment of countries head over here). The Industrie 4.0 strategy in Germany (and now also in many other countries) is already quite mature, decentralised and, dare I say, pervasive. Also, Germany is very critical of its own performance. For instance, the Federal Ministry for Economic Affairs and Energy (BMWi), publishes an annual assessment (only in Germany) of the digital performance of Germany on their website at www.bmwi.de).

 

In Germany, and increasingly in other EU countries, it seems that every university, technology centre, industry association and consultancy is involved in cluster activities, Industrie 4.0 readiness assessments, technology demonstration, research and so on (look here to see a list of “testbeds” in Germany). The snowball is gaining momentum. Different ministries and spheres of government are coordinating around clearly described projects that are managed transparently and concurrently (look at the Platform Industrie 4.0 website to see the number and composition of initiatives). Many initiatives, such as industry mobilisation, making constructive policy inputs, developing standards for data integration, compatibility, etc. are being driven by private sector organisations, private sector representatives, science and engineering bodies or associations (Here is a link to the National Academy of Science and Engineering website).  Manufacturers in Germany are at this moment spoiled for choice when it comes to choosing which technology service provider to use to solve a problem or test a new solution (link to use cases, link to tech support centres). Both public and private service providers are striving to be relevant, at the cutting edge and valuable to the private sector.

Now this second label, Industrie 4.0, is something that the developing world should take note of. This industrial strategy is about much more than adding digital capability to existing products and processes. It is about a modern digital business model which is smart, has strong feedback loops within the organisation and beyond, and reaches out to suppliers, supporting institutions, clients and devices ( go here to assess your readiness and to see how wide this assessment is). It is not only a public strategy, but has now become a private sector strategy too. It is about deep integration, collaboration on long-term technology and capability development, co-funding, skills development and standards, and is globally focused.

I believe that this second label has the potential to disrupt the developing world far more than the Fourth Industrial Revolution notion can. If we do not respond, our developing country manufacturers may be left behind.

This is not about tweaking existing products, adding sensors or tracking data. It is about improving the ability of organisations to make sense of change, future possibilities and their performance within this fluid context. It means that those local companies that could be globally competitive would be under pressure if they were not able to tap into or track this gaining momentum in Europe and elsewhere.

Decision makers in business and government in developing countries often underestimate the funding and effort that go into building trust, collaboration and joint problem solving or policy making in Europe and beyond. Both Industrie 4.0 and the Fourth Industrial Revolution are not about products or process technologies, they are about new business models and new ways of collaborating, with the long-term intent of laying new foundations for the future.

If you are a supplier to European manufacturers, be alert, be proactive! Get involved.
If you are competing with European products and businesses, be awake!

This is not a project for your design team, your IT department or functional managers. This is a strategic re-think of your whole organisation and how it develops new capabilities, how it measures and interprets data and how it works with other organisations. This is not a quick fix, this requires a longer-term holistic re-think of your technological capability, of the new applications that may be possible and of new forms of collaboration, co-competition and integration all enabled by digital technologies.

So why do I argue we need to understand these terms? I see the Industrie 4.0 movement as a strategic and intentional approach to shaping the future. While the Fourth Industrial Revolution narrative of the WEF and others helps us to understand what has already changed. It helps us to respond better, while the other urges us to actively get involved in shaping the future. I know this difference is subtle, and I know that the WEF is also trying to shape the future, but the popular narrative about the revolution is unfortunately often about technologies and how we respond to them.

Shawn in Wonderland

I have not posted anything for the last 3 months. I have been on an amazing adventure which is so similar to Alice in Wonderland that I might be asleep and still dreaming.

It started with a long-pursued opportunity to help a unit in the South African government prepare and think through the consequences of the “fourth industrial revolution” and the fuzzy collection of Industry 4.0 gadgetry that will soon overthrow our lives. By all popular accounts, this revolution will smack us hard, because the narrative in South Africa is that we are behind and falling further behind. The prophets blame all our usual reasons for this impending doom: our poor education system, our unskilled workforce, an unemployable youth, labour unions, capitalist greed, our government policies, inequality, high costs of everything, low public investment, corruption and the easter bunny. (OK, I made up the last one.)

Now don’t get me wrong. I know we are drifting sideways in many respects, maybe even regressing in some areas. For example, our economic complexity is in decline. Our technological capability is dropping. Many of our traditional sectors are uncompetitive. I have been working in the high-tech sectors and I know how hard it is to get to any kind of scale. Our institutions struggle to adapt, are underfunded, and our business people face high uncertainty, as much uncertainty as our public officials.

It is clear to me that the pace and convergence of change is increasing. The amount of information is increasing. We all are drowning in documents, reports, blog posts, emails, journals and correspondence. The demands both on specialists and generalists are increasing. So there is definitely something cooking.

But is it an industrial revolution?

Are revolutions not full of social unrest, upheaval of institutions, overthrowing of  government structures?

That is the big question that I started with. I must admit the empirical and academic evidence is thin on this topic. The only people excited are geeks and suppliers of gadgets. This really bothered me, so I tried to figure out what all the things are that I would have to understand to sense, monitor, track and possibly predict where technologies are changing, how these shifts could affect our institutional structures, industries and jobs.

So I went on the most amazing reading journey. Down the rabbit hole I went.

I started by exploring the literature on how technological change happens, how technology cycles unfold. I could get lost in little forests of papers, books and articles by many of my favorite scholars. I followed ideas down paths (to the 1980’s) and came back again to 2018. Actually, not much has changed since the early writings of Nelson, Pavitt, Lall, Freeman, Edquist, Perez and many others. I admire these scholars because they really grasped the principles at such a fundamental level that not even the arrival of the internet really nullified any of their theories. I then investigated technological evolution and was again inspired by the clear writing of Arthur, Hidalgo, Hausmann and Rodrik (on structural change and industrialisation).

Then I stood back and wondered about all the innovation, tinkering, risk taking and failing that had to happen to lead to the patterns that I found in the chapter on technology. Again, I went into a forest, this time looking at innovation, how it happened, did not happen and why. I was inspired by the work of Dosi, Fagerberg, Malerba, Dodgson, Teece, Utterback, Clark, Henderson and Christensen.

For a week I felt paralysed by these two forests. Are they really two different domains deserving separate chapters, or should they be integrated into one? In the past I have treated them as separate. So, I procrastinated and forged into one of my favorite topics, that of innovation systems and how they change.

It was always my intention to hold back on this walk into the innovation system forest, as I wanted to look at everything here with new eyes. I plunged into my favourite authors, Nelson, Dosi, Freeman, Fagerberg, Srholec, Lundvall, and some more Nelson, and many other authors I admire. I was again struck by the importance of building technological capability, increasing absorption capacity and the importance of social, technical and other meso organisations in all of this.

Towards the end of the innovation system week I ventured into the work of Johan Schot and Frank Geels, Andy Sterling and Ed Steinmuller (the SPRU network), and got lost in the world of socio-technical transformation. I could look at the literature on institutional change and discovered the work of Thelen. I spent a whole day just reading up on Carlota Perez, and the next day I went back to the earlier works of Christopher Freeman (which then lead me down the archives of the SPRU). Perez is one of the few scholars who even mention the word “revolution” and she argues that developing countries must embrace rapid technological change to achieve structural change.

I came out of this forest dazed, confused and inspired. All at the same time. I decided I had to integrate my innovation chapter into the technology chapter. It took me three days to integrate them. I also tried to integrate the socio-technical transformation section into innovation systems.

Then I went away on a weekend in the Bushveld in the Limpopo province in South Africa. Somewhere while breathing fresh air in the country-side I realised that technology and innovation had to be separated, largely because there is a tendency in South Africa to focus on linear innovation (science=>technology application => innovation). I recalled something that my late business partner and friend Jorg Meyer-Stamer repeatedly said.

“Technology is about action, about harnessing natural phenomena to achieve something. Innovation is about a difference, it is about doing something differently”.

For my client to measure and track technological change would not be too difficult. Measuring innovation will be much harder, as a lot of the innovation caused by the “revolution” are about changes in social technologies, organisational culture and strategy.

Four weeks into my study and I was left with one messy section. It involved reconciling my views on innovation systems with the socio-technical transformation and multiple pathways literature. It felt like I was stuck in mud. The common factor between these fields is the importance of adaptive meso institutions, tied with a balanced supply side and demand side interventions. Context matters in both these fields, far more than firm level technological use and innovation practices. What I like about the social technical transformation literature is their focus on developing “niches” based on unique contextual opportunities or challenges, and their recognition of how change unfolds and spills over in time. Too often innovation systems treats the system like a static network of publicly funded organisations.

So that is where I am now. My first draft literature study is complete. I’ve had so much fun during this journey. You would notice that I did not mention economic complexity much. The days that I somehow cannot account for was spent on that, but I really tried not to get sucked in too deep. In the end I decided not to include this in this study.

Stay tuned for a future update about what I discovered.

Industry 4.0, IoT, 3D printing and more. Why some technologies diffuse so quickly and others don’t

Revised on 2 March 2018.

I receive questions daily about the Internet of Things, Industry 4.0, 3D printing and many other technologies and whether and how I think these technologies will disrupt manufacturing and education in particular and the world in general. These questions are not only from government officials, but also from businesspeople, friends and fellow geeks.

Let me briefly state that I don’t believe it is possible to spot a paradigm shift in the future or in the present. So I would be hesitant to predict whether or when all these big changes will happen. However, when we look back we can spot shifts. Technological change typically takes places slowly but surely, and then at a certain point there is a massive shift. The point I would like to make is that even the futurists have great problems predicting the direction of that sudden shift. We must also consider that technological paradigm shifts almost invariably do not work out the way they are predicted to do before they occur.

For the last few decades many major technological advancements have been heralded as game changers. The advances are often generalised as sweeping statements about large-scale change. However, in most cases, new advances take a long time penetrating our daily lives, if they ever get that far.

So let me rephrase the original question a little. Perhaps the question is more about figuring out which technologies are diffused quicker than others, and why. This is something that we can calculate to some degree using a short history and the current status quo of assessments of technologies that are being touted as near-term game changers.

Dissemination of technology or knowledge always consists of at least three elements. I will for now ignore the process of diffusion for the sake of brevity. There is a supply side, a demand side and some kind of institutional or social construct that enables and even multiplies the diffusion.

The supply side is often most optimistic about how their ideas are going to change the game. The demand side is often naive about how useful a new technology is in real terms. Many potential users simply wait and see. Then there are the institutional mechanisms that operate at local, national, regional and international levels. There are lots of tensions at this institutional level, because this is where a whole range of social technologies, formal and informal, have to emerge or change. Just think of how US-based software companies are constantly coming up against data privacy groups in Europe. I am sometimes grateful that the institutional level takes time to change. Changing institutions to enable knowledge dissemination often requires multiple knowledge domains, different management levels and social play-offs. Often changing institutional support to improve diffusion must also cater for integrating and synchronising many other simultaneous change processes that are not only technological. They could be about regulations, rights and creating new forms of organisation. Furthermore, physical technology does not always change things the way we expect. After all, innovation is a process of combination and recombination, both at the level of physical technologies and also at the level of social technologies.

There are typically a few constraints that frustrate the diffusion of new technologies broadly speaking. The first is the fixed costs of the technology itself. Fixed costs slow down supply (otherwise we would already have electric vehicle charging points throughout the country), and also slow down demand (I cannot afford a Tesla yet).

Suppliers like to think that their solutions will fix social mechanisms, but this is often the area where change is the slowest. Social technologies often take the longest time to evolve (for instance in developing standards and regulations for electric vehicles, charging points and recycling of batteries). By evolving, the technology itself often changes with respect to its use, meaning and value  – often beyond what the originators had in mind. Thus while individual users can quickly adopt a new technology or idea, formal institutions, regulations and supporting infrastructure often take longer to adapt to new ideas. This means that the supporting ecosystem that enables new ideas to be quickly diffused perhaps adds additional costs (perhaps massive infrastructure investment or learning is needed), or fails to reduce costs in the diffusion of ideas. This is where the second constraint comes in. It depends on how complex are the required social changes. I mentioned earlier that institutional diffusion must also integrate different complementary technologies. For instance, using a smartphone to make phone calls is easy (single technological paradigm). Using a smartphone to manage or monitor a part of a production line requires many complementary and concurrent capabilities and technologies. It may even require completely rethinking organisational structures, production lines and supplier networks. Simply put, if the new idea is very complicated to use (due to the many concurrent investments and capabilities that are needed), then the costs goes up in terms of education, regulation, infrastructure, coordination, specialisation, management and so on. Just think of what it would take for South Africa to adopt driverless electric vehicles …

Perhaps this also explains why individual companies (think hierarchies) tend to absorb technologies easier than societies or economic sectors. Inside a company management can overcome coordination failures much easier than within a sector or broader society. Meso institutions such as universities and technology transfer organisations are very important for overcoming these coordination costs, but they tend to change slower.

The complexity of technology and its demands on the meso organisation is important in my work. I help these organisations figure out how to navigate the complexity of new technology adaptation and diffusion. It requires an understanding of users, some understanding of technologies, but a lot of understanding of the process of change and organisation. I don’t think I would be able to do my work without my understanding of market failures, especially with regard to failures in the capturing, dissemination, absorption or valuing of knowledge.

There are lots of amazing technological ideas out there that have been tried, tested and measured and found to be effective. Many companies here in South Africa are already using these technologies. So supply and demand exists, and in many cases there are transactions. Yet many of our industries, enterprises, universities and policy makers don’t know how these technologies can save costs, improve efficiency or strengthen resilience. Nor do they know which ideas will stick or have the most impact. So there is a missing institutional capability that reduces the complexity of the technology. What is often missing are institutions that make the dissemination of new ideas easier and cheaper. It is often more the case that the users (and possibly suppliers) don’t know how much the full implementation or use of these ideas would cost, or what skills, complementarities or networks are needed to master new ideas. Many market-supporting social technologies (in the form of institutions and networks) are lacking. Somebody must reduce the search, evaluation and coordination costs. This is where the complexity lies. And neither do we want our institutions to try and implement every new technology – this is where social balance and a longer-term vision are required.

So now I can get back to trends such as the Internet of Things or digitisation of the manufacturing environment. Many manufacturers know about Computer Aided Design (CAD) simulation or even rapid prototyping. But how can we reduce their risk of trying 3D printing, or how can they add more sensors to their production facilities so that they can improve measurement and control? It is not just about the cost of using the technology once or twice. There are issues that are holding entrepreneurs back from simply rushing to an online store and hitting “buy now”. Where would they get the trained staff from? How would they train existing staff? How would they manage a new competency? What would it cost to certify or maintain? Where would they find new customers or suppliers, and what would it cost them to develop the complementary capability and optimally use the new technology? And most importantly, how do we reduce their risks of trying something in different combinations? These are the issues that a network of institutions must consider as they craft their technology extension and demonstration strategies.

For me there is a strong role for technology intermediaries to play in demonstrating, perhaps on a small scale, how new technologies can be integrated into existing workplaces. This means that technology intermediaries must be funded to host (and master) a wide range of complementary technologies, so that entrepreneurs can combine what they have in place with the capabilities of these technology intermediaries. Or that new entrepreneurs not burdened by sunk investments can use their agility to gain access to complementary technologies in order to create new markets. These institutions should not be measured by how many companies fully absorb new technologies (this could lead to perverse incentives), but perhaps by how many companies have tried, engaged with and been exposed to new ideas.

At the same time, policy makers should look at ways to introduce new technologies into developing countries beyond demonstration or technology extension. Some countries such as Germany or Singapore have also been purposefully supporting disruptive incumbent enterprises by supporting the uptake of new technologies. Sometimes you can demonstrate until you are blue in the face, but incumbents won’t change if they don’t have to, and small enterprises sometimes simply cannot build up the momentum to challenge the status quo.

I would like to end this blog by briefly summarising what I’ve been discussing. For me the question of how new technologies may affect our lives is too focused on the hardware  and the geeks who love it. Even though I admire the suppliers and developers of new technologies, and I really admire the sophisticated users who are constantly inducing the emergence of newer and greater technologies, I believe that the real change we need is in getting better at creating responsive institutions that lower the costs for suppliers and buyers to try new things. This is where we can overcome many of the costs that slow down the absorption or dissemination of new technologies.

 

South African Research units and funding scenarios

I have been holding back on this post for a while, because it touches on a very sensitive situation here in South Africa regarding the student protests about university fees (see #feesmustfall). In South Africa, many of our research and technology development units that are publicly funded are hosted by universities. These centres depend on students and particularly post graduate students to deliver services to industry. At the same time these centres depend on industry to commission research, prototypes and to also take up the graduates. With the massive shortage of funding in the education sector, many of these centres and their hosting universities are starved of funding.

In August, I was helping a leadership team think through their industry strategy. I realised that their strategy was dependent on two implicit assumptions. Firstly, that the student unrest about the fees would be contained and short lived, with government miraculously finding funding from somewhere to relieve the pressure in the system. Secondly, they assumed that the private sector would somehow remain keen to invest in R & D, problem solving and prototyping despite the political uncertainty and adverse business conditions that we have in South Africa at the moment.

I helped the team to develop a set of scenarios, and this is what this post is about. It was a spur of the moment idea at the end of a meeting.

A simple way to develop scenarios would be to take the two assumptions (we usually use uncertainties) and to construct a simple 2 x 2 matrix. I know a 2 x 2 matrix has many shortcomings, but this simple matrix was to allow a team to explore several topics they have been hesitant to consider collectively. This was about helping a group make sense so that they could develop some actions together. With the leadership team, we wrote an assumption about the stability at the university on the horizontal axis. On the left we have a stable political environment at the university, with some high uncertainty about how long the peace would last and how much public funding will be available. On the right hand side we wrote that the situation becomes both unstable and uncertain. This axis is all about the stability of the hosting university.

On the vertical axis we wrote at the top that business people remain optimistic and continues to draw on the facilities and the services of the research centres, while at the bottom we formulated the opposite.

This simple matrix gave us four quadrants which we numbered 1 to 4 clockwise.

Scenario_Matrix

The instruction to the team was to think of each of the quadrants in the extreme of the two assumptions of the quadrant if they both played out. I won’t repeat all that was said here, but will just briefly capture some ideas. In quadrant 1, the situation at the university was stable, while business people continued to draw on their resources. The group agreed that this was the preferred quadrant!

Then they consider quadrant two, where the university was in chaos, and industry had to find alternatives for their services, or they were stuck. Trust relations developed with industry over many years were harmed (again).

In the 3rd quadrant, industry is depressed or paralysed, while the university is unstable. Everybody loses. Good graduates can’t find work, good researchers and lecturers lose hope and possibly leave the system, while business slowly but surely falls behind because the instability is very local. Globally competitors are investing, expanding and growing because the world goes on.

In the 4th quadrant the industry is depressed, meaning that demand from industry is possibly suppressed. The stability at the university is uncertain, meaning little investment takes place. The university does not have the resources to build capability or offers that helps industry, while industry does not have the resources to expand their investment. The whole system just hangs there waiting for something to give.

Now I know that this little scenario exercise was done very fast (we spent an hour on this), and yes, I know it does not address the fundamental issues that the university and government (and politicians) have to sort out. But the leaders quickly realised that their whole strategy was based on a quadrant 1 scenario. In fact, the very academics that always complains about the short term focus of the private sector were now trapped in a short term survival mode themselves. No industry or society can increase its wealth, prospects or competitiveness by waiting, especially when global competitors are at the door, looking for opportunities! This quick exercise helped the team to realise they needed to expand their offerings to be ready for the very likely other quadrants. They also realised that they had to think of ways of adapting their strategy so that the small steps they could take with their existing resources would lay “platforms” or stepping stones for an as diverse as possible range of future alternatives. For instance, one of the technology centres decided to shift its focus from a product development to a process enhancement focus, because there was a strong interest from industry to find ways of improving operations, cutting costs and improving flexibility.

The scenario dialogue enabled several follow up meetings  where the team could draw in more people and together re-imagine their future alternatives. Everybody was relieved that they had some options, where before this meeting they felt trapped without many options.

What I tried to illustrate in this post is that a simple scenario exercise could be a great instrument to help a team realise that despite almost certain disruptions, they could still think in the short term and the longer term. They had some options, they could even create more. By anticipating the future they also felt more ready for the disruptions that we are all waiting for.

For me it was also important to see how this team realised that their clients (industry) also faced huge uncertainties, and that if the research centre could offer services that reduce risks and costs while at the same time creating alternatives for market and technological development. Somehow shifting the focus from their own survival (and fears) towards the needs of industry and graduates looking to complete their research helped them move forward. Thus I could help the team consider how they could ensure their clients continue to innovate, which in turn helped the leadership to better understand how they themselves then have to be innovative.

Innovation was instigated!

 

 

 

Republish: The ‘fourth industrial revolution’: potential and risks for Africa

The ‘fourth industrial revolution’: potential and risks for Africa

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Klaus Schwab, the World Economic Forum founder, holds his book about the Fourth Industrial Revolution.
Reuters/Denis Balibouse

Ross Harvey, South African Institute of International Affairs

Klaus Schwab, the founder of the World Economic Forum, argues that the single most important challenge facing humanity today is how to understand and shape the new technology revolution. What exactly is this revolution, and why does it matter, especially for Africa? The Conversation

The “fourth industrial revolution” captures the idea of the confluence of new technologies and their cumulative impact on our world.

Artificial intelligence can produce a medical diagnosis from an x-ray faster than a radiologist and with pinpoint accuracy. Robots can manufacture cars faster and with more precision than assembly line workers. They can potentially mine base metals like platinum and copper, crucial ingredients for renewable energy and carbon cleaning technologies.

3D printing will change manufacturing business models in almost inconceivable ways. Autonomous vehicles will change traffic flows by avoiding bottlenecks. Remote sensing and satellite imagery may help to locate a blocked storm water drain within minutes and avoid city flooding. Vertical farms could solve food security challenges.

The machines are still learning. But with human help they will soon be smarter than us.

The first industrial revolution spanned 1760 to 1840, epitomised by the steam engine. The second started in the late 19th century and made mass production possible. The third began in the 1960s with mainframe computing and semi-conductors.

The argument for a new category – a fourth industrial revolution – is compelling. New technologies are developing with exponential velocity, breadth and depth. Their systemic impact is likely to be profound. Policymakers, academics and companies must understand why all these advances matter and what to do about them.

So why does the fourth industrial revolution matter so much – specifically for Africa? And how should the continent approach the risks and opportunities?

Exciting opportunities

The revolution’s most exciting dimension is its ability to address negative externalities – hidden environmental and social costs. As Schwab has written:

Rapid technological advances in renewable energy, fuel efficiency and energy storage not only make investments in these fields increasingly profitable, boosting GDP growth, but they also contribute to mitigating climate change, one of the major global challenges of our time.

Some countries’ growth trajectories may follow the hypothesised Environmental Kuznets Curve, where income growth generates environmental degradation. This is partly because natural capital is treated as free, and carbon emission as costless, in our global national accounting systems.

The hypothesised Environmental Kuznets Curve.

New technologies make it possible to truncate this curve. It becomes possible to transition to a “circular economy”, which decouples production from natural resource constraints. Nothing that is made in a circular economy becomes waste. The “Internet of Things” allows us to track material and energy flows to achieve new efficiencies along product value chains. Even the way energy itself is generated and distributed will change radically, relying less and less on fossil fuels.

Perhaps most importantly for African countries, then, renewable energy offers the possibility of devolved, deep and broad access to electricity. Many have still not enjoyed the benefits of the second industrial revolution. The fourth may finally deliver electricity because it no longer relies on centralised grid infrastructure. A smart grid can distribute power efficiently across a number of homes in very remote locations. Children will be able to study at night. Meals can be cooked on safe stoves. Indoor air pollution can basically be eradicated.

Beyond renewable energy, the Internet of Things and blockchain technology cast a vision for financial inclusion that has long been elusive or subject to exploitative practices.

Risks

No revolution comes without risks. One in this case is rising joblessness.

Developing countries have moved away from manufacturing into services long before their more developed counterparts did, and at fractions of the income per capita. Dani Rodrik calls this process “premature deindustrialisation”.

The employment shares of manufacturing, along with its value addition to the economy, has long been declining in industrialised nations. But it’s also been declining in developing countries. This is unexpected, because manufacturing is still the primary channel through which to modernise, create employment (especially by absorbing unskilled labour) and alleviate poverty. Manufacturing industries that were built up under a wall of post-independence protectionism are starting to decompose.

Rodrik D, ‘Premature deindustrialisation’, Journal of Economic Growth, 21, 2016, p. 19.

The social effects of joblessness are devastating. Demographic modelling indicates that Africa’s population is growing rapidly. For optimists this means a “dividend” of young producers and consumers. For pessimists, it means a growing problem of youth unemployment colliding with poor governance and weak institutions.

New technologies threaten to amplify current inequalities, both within and between countries. Mining – typically a large employer – may become more characterised by keyhole than open heart surgery, to borrow a medical metaphor. That means driverless trucks and robots, all fully digitised, conducting non-invasive mining. A large proportion of the nearly 500 000 people employed in South African mining alone may stand to lose their jobs.

Rising inequality and income stagnation are also socially problematic. Unequal societies tend to be more violent, have higher incarceration rates, and have lower levels of life expectancy than their more equal counterparts.

New technologies may further concentrate benefits and value in the hands of the already wealthy. Those who didn’t benefit from earlier industrialisation risk being left even further behind.

So how can African countries ensure that they harness this revolution while mitigating its risks?

Looking ahead

African countries should avoid a proclivity back towards the import substitution industrialisation programmes of early independence. The answer to premature deindustrialisation is not to protect infant industries and manufacture expensively at home. Industrialisation in the 21st century has a totally different ambience. In policy terms, governments need to employ systems thinking, operating in concert rather than in silos.

Rapidly improving access to electricity should be a key policy priority. Governments should view energy security as a function of investment in renewables and the foundation for future growth.

More generically, African governments should be proactive in adopting new technologies. To do so they must stand firm against potential political losers who form barriers to economic development. It pays – in the long-run – to craft inclusive institutions that promote widespread innovation.

There are serious advantages to being a first mover in technology. Governments should be building clear strategies that entail all the benefits of a fourth industrial revolution. If not, they risk being left behind.

Ross Harvey, Senior Researcher in Natural Resource Governance (Africa), South African Institute of International Affairs

This article was originally published on The Conversation. Read the original article.

Radio interview on technology

Following the interview on Cliffcentral.com two weeks ago on innovation during The Leadership Platform show, I was asked to return. This time the conversation was about technology. You can download the podcast here.

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Richard, Shawn and Daniel (left to right)

 

After 30 minutes, the attention switched to a small and medium enterprise. I had invited Daniel Paulus, one of my clients, to the show to be interviewed. Daniel is one of the founders of the Louie Daniel jewellery company, a speciality retailer of custom made jewellery and diamonds. They are one of the leadership teams that I have been coaching on technology, innovation, strategy and culture.

I promise to reveal more about my formal coaching programme shortly.

 

Instigating Innovation: Tech push fallacy is still alive

Let me continue with the Instigating Innovation series. I will slowly shift my attention to the technology intermediaries, research centres and technology transfer organisations that exist in many countries to overcome persistent market failures in the private sector. Yes, I know it is a shock for some, but these centres do not really exist to promote the technical careers or the of these people in these centres, nor to promote a specific technology in itself. From a systemic perspective, these kinds of technological institutions exist because they are supposed to overcome pervasive causes of under investment in technology (and skills development) and patterns of poor performance of enterprises. Economists describe the last two phenomena as the result of market failures, mainly caused by information asymmetries, a lack of public goods, high coordination costs, economies of scale and a myriad of other challenges faced by enterprises (hierarchies), markets and networks.

The challenge is that very often the technology these intermediaries promote become an objective in itself. The technology, embodied in equipment, processes and codified knowledge, becomes the main focus. So now we see technology centres being created to promote Industry 4.0, or 3D printing, or environmentally friendly technology. While I am the first to admit that I am helping many of my clients come to grips with industry 4.0, additive manufacturing or environmentally friendly technology, we must not confuse means with ends.

About 20 years ago, my late business partner Jorg Meyer-Stamer and his colleagues at the German Development Institute developed the Systemic Competitiveness framework. Many of my posts on technological capability and innovation systems are based on this Systemic Competitiveness, but I wont go into this right now (perhaps I can do that in a later post), but will only state this this model has greatly influenced my thinking of how technological capability can be developed in order to upgrade, improve or stimulate the competitiveness and innovative behavior of enterprises and state institutions. In one of my current research contracts I had to retrace the evolutionary economics origins of this framework and I found the following paragraph in one of the early publications:

“A further fallacy also played a role in the past: the establishment of technology institutions was based on the technology-push model, according to which breakthroughs in basic research provide impulses to
applied research, which these in turn pass on to product development. In fact, however, research and development is for the most part an interactive process; and it is frequently not scientific breakthroughs
that impel technological progress, but, on the contrary, technological breakthroughs that induce scientific research, which then seeks to interpret the essence and foundations of a technology already in use.”

What struck me was the past tense in the first sentence. So many of the technology institutions I am working with are still established on these same grounds. A technology push model. Actually, much of economic development has the same mindset, a solution-push model. It implies that clever solutions are developed in a clinical and carefully managed environment, and then is made relevant to business people (as Jorg often said “stupid business people”) through iterations of “simplification” and “adaptation”. Don’t get me wrong. I am the first to promote scientific discovery. But this has its place. Modernisation of industry must start from the demand side:

  • where is the system now?
  • What is preventing companies from competing regionally and internationally?
  • What kind of failures, both in business models but also in markets are repeating over and over again?
  • What kind of positive externality can we create?
  • How can we reduce the costs for many enterprises to innovate and become more competitive?

Only then do you start asking what kind of technological solutions, combinations, coordination effort or demonstration is needed. Perhaps no new equipment or applied research is needed, maybe something else must first happen. Some non technical things that I have seen work are:

  • mobilising a group of enterprises into a discovery process of common constraints and issues
  • arranging exchange between researchers, academics and business people at management and operational levels
  • hosting interesting events that provides technical or strategic inspiration to the private sector
  • helping companies overcome coordination costs
  • making existing technology that is not widely used available to industry so that they can try it
  • placing interns at enterprises that have different skills than the enterprise use at the moment
  • arranging visits to successful enterprises; and many more.

The truth of the matter is that the innovative culture of the technology institution, and its openness to learn from the industries it is working with are much better predictors of whether the industries around them will be innovative. If the technology institutions are bureaucratic, stale or rigid, nobody in industry will be inspired by them to try new ideas, new technologies, explore applying technology into new markets, etc. Just like we can sense when we arrive (or contact) a succesful enterprise, so we can all sense when we have arrived at an innovative technology institution. It looks different, there is a vibe. It is information rich, everywhere you look you can see ideas being played with, things being tried, carcasses of past experiments can be seen in the corner.

I can already hear some of my customers leading technology centres reminding me that I must consider their “funding mandate from government” and their “institutional context in universities” as creating limitations in how creative they can be, and just how much demand orientation they can risk taking. Yes. I know this. In the end, leaders must also create some space between the expectations of their funders (masters?), their teams and their target industries. In fact, how leaders balance these demands and what is needed by their clients, students and staff can probably be described as business model innovation. If you cannot get funding from government for what you believe is required, just how creative are you to raise this funding through other (legal) means?

We have seen over and over again that it is not the shiny new piece of equipment in the technology centre that inspires industry; but the culture of the technology centre, the vibe, the willingness to try crazy ideas to make even old stuff work better or combining old and new. Ok, I agree, the shiny equipment excites geeks like me, but this is not all that matters.

My main point is this. Technology Institutions should focus on understanding the patterns of performance or under-performance in the industries and technology domains they are working in, and should then devise innovative products, services and business models to respond to these. This means working back from the constraint to what is possible, often through technology. To be effective in helping entrepreneurs overcome the issues they are facing would require that these technology institutions are innovative to the core. Not just using innovative technology, or offering some innovative services, but also in how these institutions are managed, how they discover what is needed and in how the collaborate with other institutions and the private sector.

To instigate innovation in the private sector, publicly funded technology institutions need to be innovative themselves.

 

Source:

ESSER, K., HILLEBRAND, W., MESSNER, D. & MEYER-STAMER, J. 1995.  Systemic competitiveness. New patterns for industrial development. London: Frank Cas. Page 69

 

 

Instigating Innovation: Accelerating Experimentation in industry

Originally published Feb 2016, revised March 2018

When innovation centres, technology transfer centres, applied research platforms and other similar organisations wish to help industry with innovation, one way could be to assist companies to experiment with new ideas. I will simply refer to these centres from now on as innovation and technology support centres. In most of the places where I work these centres are often hosted by or associated with universities, applied research organisations or technology transfer organisations.

One way to support industry to experiment is through various technology demonstration-like activities, allowing enterprises access to scarce and sophisticated equipment where they can try out new ideas. In its simplest form, a facility allows a company to order samples to a certain specification so that the company can see whether a particular process will be able to meet a particular specification or performance criterion. A slightly more intensive form of technology demonstration allows visitors in and a technology and its application is demonstrated (eyes only, no touching!). Very often equipment suppliers play this role, but in many developing countries equipment suppliers act more as agents and cannot really demonstrate equipment.

In Germany I saw demonstration facilities where the pro’s showed the enterprises how things work, and then they stood back to allow teams from companies to try things out themselves.

A critical role of innovation support centres is to provide industry with comparative studies of different process equipment. For instance, an innovation centre supporting metal-based manufacturers, providing the industry with a comparison of the costs and uses of different kinds of CAD systems could be extremely valuable to the industry.

Maker labs, Fablabs and similar centres all make it easier for teams that want to create or tinker with an idea to have access to diverse technologies, reducing the costs of experimenting. However, the equipment in these labs is often not so advanced, but it can often be very diversified. In my experience these centres are very helpful when it comes to refining early idea formation and prototyping. However, helping manufacturers to experiment with different process technologies, different kinds of materials, substitute technologies, etc. is a binding constraint in many developing countries. The costs of gaining new knowledge is high, and the high costs of failure make companies wary of experimenting.

Innovation support centres must be very intentional about reducing the costs of various kinds of experiment if they want manufacturers, emerging enterprises and inventors to try new ideas. These innovation centres can play a role by:

a) assisting companies to organize themselves better for experimentation internally

b) assisting many companies to organize themselves better for experimentation collaboratively

c) conducting transparent experiments on behalf of industry collectives.

In my experience, graduates from science disciplines often understand how to conduct experiments because their course work often involves time in a lab. They know basics such as isolating variables, managing samples, measuring results, etc. However, engineering graduates often do not have this experience (at least in the countries where I have mostly been working). The closest many engineering graduates will ever get to an experiment is a CAD design or perhaps a 3D printed prototype.

Therefore it is necessary for a range of these innovation and technology support centres to assist companies at various hierarchical levels to experiment.

At the functional or operational level, organising for experimentation involves:

  • creating teams from different operational backgrounds
  • creating multiple teams working on the same problem
  • getting different teams to pursue different approaches
  • failing in parallel and then regularly comparing results
  • failing faster by using iterations, physical prototypes and mock-ups.

According to Thomke, results should be anticipated and exploited – even before the results are confirmed.

At a higher management level, organising for experimentation involves:

  • Changing measurement systems not only to reward success, but to encourage the trying of new things (thus encouraging learning and not discouraging failure).
  • Moving from expert opinion to allow naivety and creativity.
  • Preparing for ideas and results that may point to management failures or inefficiencies elsewhere in the firm (e.g. improving a process may be hampered by a company policy from the finance department).

Getting multiple companies and supporting organisations to experiment together is of course a little more difficult. Management of different organisations have many reasons to conceal failures, thus undermining collective learning. One way around this could be to use a panel or collective of companies to identify a range of experiments, and then to have these experiments conducted at the supporting institution in a transparent way. All the results (successes, failures and variable results) are carefully documented and shared with the companies. However, to get the manufacturers to use these new ideas may require some incentives. In my experience, this works much better in a competitive environment, where companies are under pressure to use new ideas to gain an advantage. In industries with poor dynamism and low competition, new ideas are often not leveraged because it simply takes too much effort to be different.

Promising ideas from experiments can be combined and integrated after several iterations to create working prototypes. Here the challenge is to help industries to think small. First get the prototype process to work on a small scale and at lower cost before going to large scale of testing several variables simultaneously. An important heuristic is to prototype on as small a scale as possible while keeping the key mechanical or scientific properties consistent. More about this in a later post. (Or perhaps some of the people I have helped recently would not mind sharing their experience in the comments section?)

I know that this is already a long post, but I should like to add that Dave Snowden promotes Safe2fail probes, where teams are forced to design a range of experiments going in a variety of directions even if failure is certain in some instances. In my experience this really works well. It breaks the linear thinking that often dominates the technical and manufacturing industries by acknowledging that, while there may be preferred solutions, alternatives and especially naive experiments should be included in the overall portfolio. To make this work it is really important that the teams report back regularly on their learning and results, and that all the teams together decide which solutions worked best within the context.

 

Source:

THOMKE, S.H. 2003.  Experimentation matters: Unlocking the potential of new technologies for innovation. Harvard Business Press.

 

 

Instigating innovation in traditional industries

Originally published in January 2016, revised in March 2018

The average manufacturer in a developing country often grapples with the notion of innovation. That is why such industries are often called “traditional“, although almost all industries will have one or two outliers. While governments, such as the South African government, offer incentives to stimulate innovation, most manufacturers do not identify with the term “innovation” the way governments use it. For instance, when governments use the word “innovation” they often mean “invention“, in other words something that can be protected, copyrighted and owned (see more about the differences between innovation and invention here). While I understand the argument for patenting and protection, I think this narrow definition of innovation is inhibiting many industries from increasing their productivity and competitiveness by copying what works elsewhere (this is just a process of catching up). It also fails to recognize that in many value chains the manufacturers themselves make components or sub-systems that go into overarching architectures (defined by standards, compliance, specifications), so their design authority is limited in scope.

Innovation_invention

Here is a list of synonyms from thesaurus.com for innovation that I have assessed to see how enterprises might understand or react to these words:

  • Modernization – many enterprises dream about this but often do not have the financial means nor the organizational capability to pull it off (one day, some other time)
  • Contraption – many innovations and most inventions result in one of these. You can see them standing in  corners in most factories
  • Mutation, addition, alteration, modification – this is what most innovations in traditional industry would look like. They are doing this all the time as their machines get older, but this behaviour is mostly not recognized nor speeded up.
  • Newness, departure, deviation – the bolder enterprises with more financial and organizational capability might try these, but it takes capital to maintain.

Most people understand innovation as an outcome, but the word is a noun that implies change and novelty. It is about a shift, even if it is often incremental. The reason why so many of our enterprises in South Africa are not regarded as innovative is because they struggle (or perhaps do not have the organizational capability) to manage several simultaneous change processes. As Tim Kastelle posted some years ago, change is simple but not easy. Although this is often described as a technology problem it is really a management problem (see some older posts here). I would go even further and state that in many industries the margins are so narrow that even those enterprises that have a reasonable management structure would struggle to finance many innovations at the same time.

However, in my experience of having visited more than 50 manufacturers every year since 2009, I am always stunned and awed by how ingenious these companies can be. They keep old machines running, often modifying them on the fly. They operate with a fluctuating and unreliable electricity supply, inconsistent water pressure and often hardly any technical support. What policy makers often do not realize is that in developing countries it takes a lot of management time and capacity just to keep the throughput going. The time and effort to go and explore “change” beyond what is necessary in the short to medium term is very costly. The costs of evaluating new ideas, new technologies, new markets and better suppliers are all far greater in developing countries than in developed countries. Yet at the heart of innovation is the ability to combine different inputs, different knowledge pools, and different supporting capabilities with different market possibilities.

There are two implications for innovation promotion practitioners.

  1. The process of instigating innovation must start with recognizing how companies are innovating NOW. How are they modifying their processes (and products), and how much does it cost? What are the risks that are keeping them from introducing more novelty? Perhaps they could use the Horizons of Innovation to create a portfolio of innovation (change) activities that can be identified at the enterprise or industry levels.
  2. It is hard if not impossible for different manufacturers in most countries to figure out what others are struggling to change at a technological level. Use your ability to move between enterprises to identify opportunities to turn individual company costs into public costs (this is often cheaper). Do not take the innovation away from enterprises, but use your meso level technology institutions to try and accelerate the learning or to reduce the costs of trying various alternatives. Be very open with the results to enable learning and dissemination of ideas.

The process of instigating innovation must start with recognizing where manufacturers are naturally trying to change, just as a change process in an organization must start with understanding current behaviour, culture and context. Somehow innovation has become so associated with contraptions and narrow views of technology that the body of knowledge of organizational development and management of change have been left behind.

Four functions of innovation and technology management

Originally published in November, 2015, revised in March 2018

I would like to continue the “Instigating Innovation” series (see opening post herewhere to start and the post about culture here). The idea behind this series is that I explain innovation management concepts that can be used by both enterprises and technology transfer and industry support institutions.

To recapitulate: I believe that many industries are struggling to modernise because their supporting institutions use completely different frameworks to manage innovation (or perhaps the supporting institutions make their choices as randomly as enterprises do). One of the first concepts that a tech transfer institute or industry support organisation should transfer to enterprises is “how to manage innovation and technology”. Just because there is an engineer or an MBA/PhD in a company does not guarantee effective or creative management of innovation and technology.

Today I shall focus on the four broad functions that must be managed strategically in every enterprise and supporting institution. Even if someone in the organisation has the job title of Innovation Manager or Technology Manager, these functions should still be visible throughout the organisation. In other words, this is not somebody’s job, but it helps if somebody coordinates these activities.

The four functions agreed by most scholars and innovation experts can be summarised roughly as:

  1. Searching and scanning for new ideas and technologies, both within and beyond the organisation. This includes looking at technologies that could affect the clients of the organisation, and technologies that could disrupt markets and industries.
  2. Comparingselecting and imagining how different technologies could impact the organisation, its markets and its own innovation agenda.
  3. Next comes integrating or deploying the technology or innovation into the organisation. This includes adjusting processes and systems, scaling up implementation, and project managing the whole change process.
  4. The last step is often overlooked, but new technology and innovation often make new ideas, innovations and improvements possible. I call this last step exploiting the benefits of a new technology or idea. This could involve leveraging some of the additional benefits or features of a technology, perhaps by creating a new business unit focused on an adjacent market or particular offering.

When I visit institutions, organisations and companies, I always ask “who is thinking about change taking place beyond your industry or key technology?”. I cannot tell you how often I hear that “the CEO” or “the production manager” are on top of new developments and will be attending a tech fair next year. How can this huge responsibility fall on the shoulders of one or two people, who are at the same time biased towards the current strategy which favours justifying past (sunk) investments? Or if you ask “How did you choose between two technologies?”  you will be surprised how little time was spent considering new business opportunities, or how few companies asked for on-site demonstrations or samples from their preferred technology providers.

I will refrain from being too critical of technology transfer institutions and industry-supporting organisations, except to say that these organisations should be a prime example to industry of how to scan, evaluate, compare and integrate new ideas and technologies. We don’t just want to see the shiny machines and neat facilities, we want to understand how you arrived at your decisions, and how you made the best of your investments after implementing the change. Furthermore, industry wants to know what’s next, or what’s beyond their vision and how it may affect their industry.

To bring it all together, the technological upgrading of industries is plagued by many different market failures. These failures include the tendency NOT to invest due to high research costs, due to fears about making the wrong choices, or because so many decisions and changes must be made at the same time – this while the business continues, markets fluctuate, and technologies change faster and faster. Companies (and institutions) cannot afford just to kick start innovation management immediately before making a change (or when forced by external forces to make a decision). These functions must be managed strategically on a continuous basis, both at the level of top management and within the different functions of the organisation. Both companies and their supporting institutions need to manage innovation and technology, not only from an operational perspective (striving for continuous improvement, etc.) but also from a strategic point of view.