Essay on Financial Business Models and Industry 4.0

Information technologies evolve every day. As a consequence, organizations have been forced to make fundamental changes to their business models due to the sophisticated manner in which data is being utilized to create value. Nowadays, data generated through the use of a specific product or service has become an essential resource for business organizations. The advent of sophisticated data-gathering and analytics capabilities have resulted in a dramatic shift towards an information-based economy (Sniderman, Mahto, & Cotteleer, 2014). One such sophistication is the rise of a phenomenon known as Industry 4.0.

The phenomenon of Industry 4.0 was first introduced in 2011 in Germany as a proposal to redesign Germanys economic policy into one that is based on high-tech strategies (Roblek, Mesko & Krapez, 2016). According to Roblek, Mesko and Krapez (2016), the concept of Industry 4.0 is meant to actualize a perpetual interaction and exchange of information between humans, humans and machines, and also between machines themselves. Put in another way, Industry 4.0 technologies envisage a concept where machines not only process the product but also receive real-time communication from the product on the expectations of such machinery during the production process (Sniderman, Mahto, & Cotteleer, 2014).The essence of Industry 4.0 is to create added value to organizations through new automation and integration. These capabilities create the necessity for adapting financial business models into Industry 4.0.

Industry 4.0-also referred to as the Internet of Things (IoT) in countries such as the United States -has been dubbed the fourth industrial revolution. It is anticipated that the period of fourth industrial revolution will be characterized by full implementation and digitization of processes and extensive use of electronics and information technologies (Roblek et al., 2016).Since systems communication is an integral part of recent developments in information technology, adapting Industry 4.0 is expected to engineer an evolution of ways organizations deliver information to the shareholders and other interested parties.

Industry 4.0 will lead to new ways of creating value in finance functions of firms. Digital technologies in the form of Industry 4.0 will help the function to be performed in a much more efficient manner (Roblek et al., 2016). It is expected that raw materials, components, and products will be a given their own identity in smart factories through interconnection and simulation to level where they could negotiate each other. This means that customers will be involved in the manufacturing process of goods. Put simply, the customers will receive goods according to their specifications through direct participation in the production process (Horak, 2016; McKinsey & Company, 2016). This is expected cut down costs thereby improving the financial performance of business organizations.

Participation of customers in the value chain will have a significant positive impact on the marketing function of many manufacturing organizations. Marketing plays a vital part in connecting the customer to the product, service delivery and also in fostering financial accountability. Marketing value is obtained by the degree to which an organization connects to the customer (Moorman & Rust, 1999). That is to say, consumers leverage on what type of goods to be produced makes marketing in these technological settings a high-value-creating process. As the connection between manufacturers and consumers increase, it is expected that more value will be derived from the marketing function. The consequence of application these technological applications is a fundamental shift on way marketing will be done.

Since there will be a real-time exchange of data between the customers and the manufacturers of goods, it can be expected that the cost of the entire process of marketing will dramatically come down. Manufacturers could provide customers with the remote maintenance of their products as a result of real-time communications with smart goods enabled by sensor technology. Porter and Heppelmann, for instance, note that sensor technology provides information on about the pending service needs of motor vehicles, and their locations allow relevant departments to stage parts and schedule maintenance. A further combination of data on product warranty with that of product use and performance will enable motor companies to reduce costs of repairs and maintenance related to warranties (Porter & Heppelmann, 2015).At the same time, connectivity of manufactures with customers and remote maintenance of cars will make it possible for manufacturers to know the life cycle of such products, and this is likely to help them in offering additional services such as recycling (Roblek et al., 2016).Such outcome will reduce the amount of resources that are committed to marketing activities, resulting in reduction of operating expenses.

As already pointed in the preceding discussion, the defining characteristic of Industry 4.0 is the intricate interconnectivity between cyber-physical systems and humans. Through this enhanced interconnectivity, it is expected that the efficiency in distribution and procurement of goods and services will be significantly improved. Already some companies have adopted systems that allow replenishment of stock messages to be conveyed to suppliers in real-time (Horak, 2016). However, with the actualization of Industry 4.0, IoT, and Internet of Services (IoS), procurement will be carried out on a real-time cycle. In other words, the function of procurement will not only be done by organizational departments but will also involve real-time collaboration with the suppliers. As a consequence of automatic data exchange between units, humans and machines, efficient management planning and control in supply and value chains will be realized (Roblek et al., 2016).

Another area that industry 4.0 will revolutionize is high-tech financial services. With the development of a technology known as blockchain, the financial sector is expected to change significantly thereby affecting they businesses are run. Blockchain technology entails making peer-to-peer transactions on a network in the absence of the endorsement of a trusted third-party. It is the technology upon which Bitcoin transactions are conducted (Kettley, 2018). The technology records transactions on a distributed ledger, giving every participating network a secure audit of all transactions ever done on such networks on a real-time basis. This will enhance transparency. The ability of this technology to actualize transactions without intermediaries is expected to remove barriers to trading systems while improving transparency in asset transactions across the borders (Cheng, Zeng, & Yuang, 2017). As a result, the cost of conducting asset transactions with individuals around the globe will be reduced significantly. The ability to make transactions with limited hindrance from geographical boundaries suggests that organizations will have to adapt their current business models in order to sustainably compete.

Data and analytics provide an opportunity for new tools that will help in extracting value from large amounts of data found in common pools. For instance, it will allow accountants to obtain previously unreachable data on a real-time basis through embedded sensors. Access to large volumes of data in real-time creates the potential for huge benefits as it will help companies evaluate predicted outcomes so as to understand better the impact of critical decisions in so far as the application of financial resources are concerned(Roblek et al., 2016). Besides, audits of financial transactions will be more efficient as standards of audit will be programmed into machines which will be capable of self-auditing (Dai & Vasarhelyi, 2016). Due to these developments, current financial models must be adapted into industry 4.0 for organizations to attain competitiveness as cost management will be an essential finance function in the near future.

Are there Barriers to the Implementation of Industry 4.0?

The hope for industry 4.0s ability to deliver higher value to business organizations remains high. Many companies are optimistic that adaption into the new technological tools provided by the Industry 4.0, IoT and IoS will improve their efficiencies thereby adding value to their portfolios (Sniderman et al., 2014). However, several barriers have to overcome before this new technological resource confers benefits to the users.

One barrier that needs to be overcome is the lack of business case for the committing financial resources to the adoption of Industry 4.0 technologies. In a survey conducted by PwC involving five core industry sectors in the UK, results indicated that adoption of Industry 4.0 increased resource efficiency by 18% within five years (PwC, 2014).However, most IT departments of companies fail to make a case for investing more resources in data and systems due to the complexities involved in tracing the exact added value of Industry 4.0 to their firms. One of the reasons for this failure is that the interconnected nature of Industry 4.0 gives financial analysts a lot of challenges in quantifying the value of smart systems because added value is not only derived from organizational systems alone but also includes other resources external to the organization(Roblek et al., 2016; McKinsey, 2016).

Some organizations also have concerns over their data since linking corporate data to external smart objects is risky. In particular, many organizations have concerns about sharing their data with third parties providing Industry 4.0 resources. These organizations fear loss of data as well as loss of competitive advantage due to unauthorized access of sensitive company information. Although there are mechanisms that can be used to insulate firms from loss of data, many organizational leaders still feel that such cautionary measures do not guarantee total safety of data on online platforms (Sniderman et al., 2014; McKinsey, 2016).In effect, they are cautious in embracing these technologies.

Lack of a skilled labor force has also been identified as one of the barriers preventing the adoption of Industry 4.0.In integrating OT and IT systems through the adoption of Industry 4.0 practices, most organizations face shortages of talents to execute and maintain the new systems. Although the number of engineers trained to handle unstructured data and big data tools is growing, the demand far outstrips the supply (Sniderman et al., 2014; Horak, 2016).

Conclusion

For the last six years, Industry 4.0 has grown quite significantly. Results from its application show that it is the technology of the future. Its expected principal feature is that it will lead to the development of smart objects-it will create an interconnected system through which seamless communication between humans and machines will be actualized. Manufacturers who have implemented the nascent forms of the technology report that it creates better productivity as well as enhances resource efficiency. However, barriers such as inadequate data engineers, insufficient financial resources, and fears of cyber attacks must be overcome for the potential of Industry 4.0 to be realized.

References

Cheng, S., Zeng, B., & Yuang, Y. Z. (2017). Research on application model of blockchain technology in distributed electricity market. IOP Conference Series: Earth and Environmental Science, 1-12.

Dai, J., & Vasarhelyi, M. A. (2016). Imagineering audit 4.0. Journal of Emerging Technologies in Accounting, 13(1), 1-15. doi:10.2308/jeta-10494

Horak, J. (2016). Does Industry 4.0 influence the efficiency of financial management of a company? The...