Since 2014, India has sought to boost manufacturing and increase its contribution to national GDP from 15 to 25 per cent. But in spite of strong government support, the number has barely moved. A recent report by the World Economic Forum in collaboration with McKinsey suggests why.
In Fourth Industrial Revolution (4IR): Beacons of Technology and Innovation in Manufacturing, researchers studied over 1,000 manufacturers across the globe and found only 16 'lighthouse' factories which are leading the way in adopting 4IR technologies such as advanced analytics (AA) and cloud computing. Europe boasts nine lighthouse factories; China takes the second spot with five; Saudi Arabia and the US have one each and India has nought.
India cannot afford to fall behind in 4IR adoption, says another McKinsey Global Institute study, as there could be a significant gap between leaders and laggards. Leaders stand to reap outsized benefits such as over 120 per cent rise in cash flow and a 50 per cent increase in productivity and energy efficiency besides 30-90 per cent reduction in time-to-market. Laggards will either see a much lower impact or face a sharp decline in competitiveness. To avoid being similarly disrupted, manufacturers in India must catch up with early adopters. Fortunately, the country's robust consumer base, increasing foreign investments and fast-growing MSMEs are formidable growth drivers that can provide the competitive edge India needs.
India can learn from the 16 lighthouses, which share several traits. First, they embrace three technology megatrends - connectivity, intelligence and flexible automation. Digital connectivity helps increase visibility by linking discrete network nodes; data-enabled intelligence identifies and translates deviations so that operators can apply remedies quickly; finally, flexible automation enables response mechanism and remote movement. More importantly, lighthouse factories apply technology to augment, not replace, their employees, dispelling the myth that digital technologies will displace human capital. When integrated at scale, 4IR technologies become injectors of human capital, transforming traditional manufacturing.
For instance, a lighthouse located in the Netherland's Ijmuiden and owned by Tata Steel has an AA academy that trains data scientists, data engineers, digital translators (those who connect AA and business teams) and managers. It has helped create a workplace that focuses on value-added tasks.
India can accelerate these gains as the country is set for a demographic dividend over the next 20 years with 300 million people entering the workforce. They represent a new wave of digital natives well-suited to advanced industries powered by 4IR technologies. And thanks to the multiplier effect - every manufacturing job is estimated to generate two-three jobs in related activities - 4IR technologies could fuel a new wave of job creation.
What Makes It Happen
One of our global studies says companies are testing an average of eight solutions at any given time and India tops the chart with a reported average of 10.6 pilots. Given that, there should be dozens of lighthouses by now. But there are only 16. It is because most manufacturing innovations are stuck in the pilot purgatory - repetitive testing cycles which never reach scale due to inadequate co-ordination between business units, difficulties in integrating old and new systems and lack of talent. Pilots often stumble when leaders fail to plan for organisational and cultural changes required for wide-scale rollouts.
Again, one of the lighthouses shows the way out. Schneider Electric's site in Le Vaudreuil, France, has created a 3D digital replica of the entire plant that simulates how day-to-day operations will change. Managers can test new ideas with operators who can provide feedback and share best practices over the company's social network. This way, new technologies and processes are better supported on the ground, speeding up adoption.
Clear governance and commitment to pilots help form a solid foundation for adopting 4IR technologies at scale. Also, CEOs and CXOs must lead as role models, especially in India, where change must come from the top. Boldly investing in cutting-edge technologies, morphing organisational structures and questioning the time-tested fabric of conventional industrial excellence are the final prerequisites to drive change. There is still time for Indian manufacturers to overcome hurdles but only if we act now.
Navtez is Senior Partner and Soumyadeep is Expert Associate Partner at McKinsey & Company; inputs by Ruchin Kulkarni and Amrut Rajakarne