Industry 4.0 and the Smart Factory: Why Are We Still Talking about IT-OT Convergence?

In 2020, the World Economic Forum stated that a majority of the largest manufacturing organizations were stuck in pilot purgatory. When companies can’t move their most transformative ideas out of the pilot phase, they never realize the value of the pilot. Four years later, this is still the case. The aspirations and full benefits of Industry 4.0 are not being realized for at least 70% of manufacturers and their respective supply chains. Our own research at ISG has shown this number may be closer to 80%.

What are the manufacturers that are successfully applying and gaining value with Industry 4.0 doing? These companies are referred to as Lighthouse Factories – and they are attributing their success to two things. One is their ability to leverage digital implementations and technological advancements. And the second is their ability to manage a truly holistic transformation that incorporates humans, data and processes while keeping their brand identity authentic.

As of April 2024, the majority of these Lighthouse Factories are found in Asia and, more specifically, China. To date, there are 22 different maturity and capability standards for Industry 4.0, with no single one being widely accepted. The investment required for a manufacturer to become a Lighthouse Factory is in the billions of dollars and potentially years of time. The market is full of service providers and technology players trying to sell piecemeal solutions; the way forward can be confusing.

One key problem the manufacturing industry needs to solve is the divide between information technology (IT) and operational technology (OT). Companies need to finally accomplish the long-awaited IT-OT convergence. This concept originated in 2011, focusing on the cognitive shop floor and smart production enabled by:

• Flexibility of mechanical procedures

• Feedback loop for true closed-loop manufacturing

• Digital twin capabilities

• Smart and sustainable operations and production

This is not a pipedream, as successful examples exist. Most if not all OEMs are developing products using this approach. BMW and Mercedes factories in Regensburg and Sindelfingen are recognized Lighthouses. In BMW’s case, the factory was aided by the close alignment of its strategic plan to improve operating performance with its Strategy Number One program. At the Mercedes factory, the modern working practices include production staff in the design. This is a form of industrial democracy seen at the long-time manufacturing leader Semco, among other places.