"Is industrial automation at a turning point?"
- is the title of a report recently published by McKinsey. In our perception, factories are moving towards greater automation and autonomy, software-defined and AI-controlled systems are conquering the factory floor and many devices increasingly resemble smartphones with robotic arms. Not only are the products produced in factories, such as mobile phones, watches and cars, becoming smarter, but the factory itself can be seen as a smart "product". Every factory can "package" and utilise the advanced processes and experience of other factories.
The McKinsey report analyses two scenarios to show the most likely path of industrial automation in the future: Improvement and change, and companies' responses to them.
Industrial automation, scenario 1: Reform (more than 15 years)
In this scenario, there is a slow introduction of technology trends in continuation of the previous speed of change and an equally slow standardisation. Innovations (e.g. low-code/no-code and digital twins) are only utilised for specific use cases and industries.
Industrial automation, scenario 2: Revolution (5 to 10 years)
The disruptive introduction of technologies leads to a data- and software-driven production sector with proactive adoption of new business models, widespread use of disruptive technology adoption is leading to a data and software-driven manufacturing sector with proactive adoption of new business models, widespread use of cloud technologies and a semi-closed ecosystem with a centralised and adaptable platform.
Digital transformation jobs wanted
From a business model perspective, the hardware and software solutions used in the factory will adopt the X-as-a-service model and pay as you use, reducing the factory's risk and cost of trialling new automation technologies. From a talent perspective, manufacturing companies need more specialised new digital transformation jobs to handle new industrial automation systems.
Despite the steady growth of industrial automation in recent decades, the market structure has barely changed. However, McKinsey believes that this development will be accelerated by the emergence of disruptive technologies, changes in the manufacturing landscape, labour shortages and ESG efforts. The vision of smart manufacturing will certainly become a reality, but McKinsey does not comment on whether this will happen in five to ten years or more than 15 years.
Internet giants, software providers & co. need to upgrade
The four main categories of providers on the market - internet giants, traditional automation companies, software providers and specialised automation companies - will evolve dynamically in part based on their own advantages. Their strengths and weaknesses are obvious, as illustrated in the figure below: Dark for strength, as capability decreases, the colour gradually becomes lighter.
To strengthen their weaknesses, Internet giants need to expand their knowledge in the industrial sector and build partnerships with established automation providers and system integrators. Traditional automation companies could consider improving the balance of their IT capabilities and strengthening their advantages in cloud platforms, software and the Internet of Things through acquisitions or organic collaboration.
Potential action plans for industrial companies
Regardless of which scenario materialises, we can prepare and shape our strategies in the coming period. McKinsey has therefore suggested some potential action plans for industrial automation companies after 2023:
Automation strategy review
The aim is to assess the impact of potential automation scenarios on key parts of the business, including the product portfolio. M&A opportunities should be part of any strategy consideration.
Creation of new automation businesses
As the automation market is changing, there are plans to create a completely new, independent automation business in an intrapreneurial environment similar to a start-up.
Strengthening the sales strategy
It may be possible to redefine the sales strategy and sell more by changing the approach or channel or other changes.
Develop new revenue streams
Automation vendors could create new products, supported by analytics. These new products could be centred around predictive maintenance or involve moving to an as-a-service business model.
Adoption of AI technology to support automation
Automation providers should consider the use of AI technologies, including generative AI, to develop new automation products in areas such as digital twins and low-code/no-code robots.
Conclusion
"Bold hypothesis, cautious verification" - dealing with uncertainty is our common approach. Technical developments and new competitors are changing the shape of the industrial automation market.
Even if no one can predict exactly how things will develop, there are clear steps that all automation players can take now to position themselves for the future. It's about selectively taking bold steps while keeping options open.