JEDDAH — The unfolding Fourth Industrial Revolution (4IR) builds on the advances brought out by the first, second and third industrial revolutions which liberated humankind from animal power, made mass production possible and brought digital capabilities to billions of people. However, the 4IR is fundamentally different. It is characterized by a range of new technologies that are advancing at breathtaking speed and are fusing the physical, digital and biological worlds, impacting all disciplines, economies and industries, and even challenging ideas about what it means to be human. Five key technologies are mainly driving this fusion: Artificial Intelligence (AI), the Internet of Things (IoT), Augmented Reality (AR), 3D Printing and Advanced Robotics.
However, governments and businesses need to move quickly and create the right opportunities while avoiding the perils, said Andreea Zugravu, Principal, Government and Economic Development - A.T. Kearney in an exclusive interview.
She said for Saudi Arabia, Fourth Industrial Revolution can be an incredible accelerator to achieve Vision 2030 by facilitating greater trade and integration, localizing supply chains, rapidly upskilling a young population and driving innovation.
Excerpts from the interview follow:
• What protocols, partnerships and practices can address the policy dilemmas and unintended consequences of the Fourth Industrial Revolution?
For companies, speed is the defining factor of this transformation, and the key to being successful. If companies cannot develop at a pace that allows them to win, they will fall behind very quickly. Effective, long-lasting transformation in the new context requires an immediate, intense focus on understanding the technologies and how they can create value within the business, while developing the culture and skills to execute the change.
For governments, success will come from their ability to shift and being orchestrators of comprehensive 4IR ecosystems. Success in the future of production requires a bigger framework, encompassing research, technology, innovation, education, labor and industrial and trade strategies that need to track and move with the external environment.
Governments, together with businesses and members of civil society, have five cross-industry and cross-technology areas of action to drive inclusive adoption of technologies and foster a healthy 4IR adoption: up-skilling the workforce, investing in innovation, integrating the country into the global value chain, as well as strengthening the institutional framework and ensuring sustainable resource management.
• Definitely, the 4IR offers a lot of opportunities. However, if there are pitfalls, what are they? and how do we avoid them?
The pitfalls of the Fourth Industrial Revolution have been discussed at length, with limited understanding. They include the inability of organizations to adapt to changes and be left behind, the failure of governments to employ and regulate new technologies to capture their benefits, new cyber security and privacy concerns, growing inequality, and fragmentation of societies.
We aim to avoid them through international and local efforts: Internationally, a global dialogue is critical, and locally, Saudi public and private sector leaders need to cooperate to overcome historical barriers to innovation and prepare the country for rapid technological advancement.
• Moral and ethical concerns arise as the 4IR evolves, especially with regard to economic and social development, value creation, privacy and ownership, and individual identity. In this context, how do we design human-centered products and services?
The convergence of production technologies is opening the door to a long-time business aspiration: mass personalization. Previously, business economics dictated that production costs correlated strongly with production volumes. This paradigm is shifting, and technologies equip producers with new capabilities to create smart, connected and
personalized products that enable a richer customer and user experience. Smart and personalized offerings will come in two distinct forms: physical personalization, where technologies create distinctive forms, fits and functions; and smart personalization, where sensors and connectivity create special digital offerings. In the pharmaceutical industries, 3D printers will be able to manufacture drugs with a dosage unique to a patient’s condition and genetic code. In other contexts, product personalization will materialize through the configurability of goods. Smart fabric is changing the textiles industry, whereby garments will become increasingly configurable by the user.
In the context of moral and ethical concerns of 4IR, we must design human-centered products and services by conducting a coherent global dialogue around ethics, evaluating each technology, and developing its code of conduct.
• Facing an exponential speed of change in technology, how can leaders recognize adaptive challenges to their organizations and build resilience?
The world is shifting from simple digitization (the Third Industrial Revolution) to innovation based on combinations of technologies (the Fourth Industrial Revolution). Companies must avoid getting trapped in traditional, linear thinking, and must constantly reexamine the way they do business, while leaders need to understand their changing environment and constantly challenge the assumptions of their operating teams.
Unlocking the value of the 4IR will depend largely on the ability of business and government leaders to improve the technical readiness of the technologies, educate the necessary skilled workforce, foster inclusive diffusion and adoption, ensure availability of underlying infrastructure and address issues of data governance and cybersecurity.
– The speed and cost of overcoming technical limitations: While most technologies have viable commercial solutions, technical restrictions limit their utility, and the cost of entry, especially for smaller producers, is prohibitive.
– Diffusion and adoption: Most technologies are restricted to large-scale producers. Adoption is a bigger challenge than readiness, both within the supply chain and geographically. Within the supply chain, 99% of firms are SMEs that struggle to understand and take advantage of these technologies. A recent study of 4,500 German SMEs found that fewer than 20% had heard of Industry 4.0, much less taken steps to implement it.
– Availability of skills: While industry value chains are evolving rapidly to adapt to the new digital normal, a key determinant of speed and success is the ability of players in the value chain to rapidly transform their strategic mindset and digital capabilities. New skills and capabilities across most organizational functions are required to support technology adoption. The number of open production jobs in the US has been rising; in fact, 2016 stands at the highest level in 15 years, as producers struggle to find the talent required in the market. For example, of the nearly 200 million workers in the US workforce, only one in ten is self-rated as digitally savvy. This gap should concern companies and governments, given that digital capabilities are critical to innovation, growth and productivity. In developing economies, digital savviness is presumably much lower, potentially creating a digital divide in the workforce.
– Availability of underlying infrastructure: To compete in future production chains and nations must have quality infrastructure. Developing it to underpin these technologies depends on countries’ ability to support the infrastructure in various areas, from reliable energy sources to adopting fifth-generation mobile networks or wireless systems (5G). While infrastructure alone will not suffice for global leadership, lack of it will cause nations to fall behind and will create serious obstacles for company networks of supply chains.
– Governance gaps: Sustainable diffusion and adoption of all five technologies depends on a viable and defensible global governance system for data, cybersecurity and ethics. As IoT and distributed production take hold, existing policies and regulations are not enough to cover the commercial/non-commercial transmission of data, ownership of data, taxation of revenues, value-added tax, tariff applications and treatment of IP. Challenges of cybersecurity and interoperability are hindering producers from reaping the benefits of digitalization and automation. According to IBM, production was the second most hacked industry in 2015, behind healthcare. Automotive producers were the top target, accounting for 30% of all attacks among manufacturing industries. No established frameworks or best practices currently exist for managing and resolving conflicts associated with AI applications and systems.
• New technologies are making possible a transformation in almost all spheres of economic and social life. How do we seize such opportunities and create more sustainable systems in areas such as energy, mobility, production, health, education, gender and work?
Creating more sustainable systems will allow Saudi to seize new opportunities and build a more sustainable future:
o Energy: Saudi can leverage its unique geographic and environmental circumstances to become a leader in renewable energy and resource management, by encouraging research and development through targeted incentives and by funding and facilitating partnerships with leading foreign companies
o Mobility: Saudi can encourage the early adoption of new technologies such as electric and autonomous vehicles, as well as encourage partnerships and joint efforts with technology companies, who have become direct competitors of traditional automotive companies through their mobility services software.
o Production: Saudi can leverage 4IR technologies to localize supply chains, activate SMEs and encourage experimentation and create jobs.
o Health: Saudi can encourage research and encourage partnerships between local and international researchers and industry leaders. Health topics of the future include preventive medicine and e-health, Artificial Organ Bioengineering & Regenerative Medicine and others.
o Education, gender, and work: Saudi can encourage early childhood education, innovate and implement ‘future-ready’ curricula, digital fluency, and lifelong learning for workers.
• How can communities, companies and the country itself (KSA) better prepare for the coming economic changes?
The Kingdom can prepare for the coming economic changes by:
o Improving basic education, preparing the workforce for the future and up-skilling where necessary
o Cultivating the innovation ecosystem through investments, incentives, and policies, and continuing improving the technology infrastructure and encouraging technology adoption.
o Integrating the country into the global value chain through trade and investment, as well as enabling SMEs.
o Strengthening the institutional framework and ensuring sustainable management of resources
• What would production be like under the 4IR? How would the 4IR impact the current system of production in Saudi Arabia? Will it be drastically changed? How would it impact the supply chain?
4IR would enable Saudi producers to successfully compete locally and internationally. The technologies enable small-scale, on-location production, and would make the production process more flexible, involving fewer steps, shorter lead times, lower capital requirements, and even batch sizes of one.
4IR holds tremendous potential for Saudi production and will contribute directly to economic growth and diversification through expansion of key technology markets, mainly IoT, AI, advanced robotics, 3D printing and enterprise wearables. It will also contribute indirectly through productivity gains, revenue growth, and investments. A.T. Kearney estimates this value to be as much as SR1 trillion by 2030, or roughly 3 percent of GDP per year.
4IR would have a big impact on supply chains. Supply chains would become localized, with investment in 3D printing technology central to this effort.
• Will it disenfranchise the small entrepreneurs and lead to jobs losses; or on the contrary, create more jobs and encourage more capitalists?
4IR will encourage small entrepreneurs and represents an opportunity for the country to build up its SME ecosystem, as SMEs are essential to realizing the benefits of the Future of Production. SMEs and start-ups are becoming a source of global technological disruption that generate significant economic value. Saudi investors have acknowledged this value through substantial investments in such companies abroad. Saudi leadership can reproduce this success at home by launching programs to foster its community of SMEs and startups.
• Since 4IR encourages dynamism in production with the use of artificial intelligence, IoT, and enterprise wearables enabling algorithmic design optimization, customer co-creation, and voxel level control leading to streamlined workforce, will the overall outcome not lead to mass unemployment?
While many experts disagree on the composition of the workforce of the future, all agree that 4IR is reshaping labor markets in ways that will make them largely unrecognizable over the next 20 years. The sectors that will see the greatest job losses are those that rely on expats for low-wage jobs while middle-wage workers will need to
meet “up-skilling” requirements to compete, and in other cases job losses will be significant but limited to the non-national labor force.
In fact, according to one global estimate, 4IR will induce a net gain in jobs, and of children entering primary school today, 65 percent will work in jobs that do not yet exist. Targeted education programs initiated today can enable this young cohort to enter the workforce better prepared, with limited need for significant up-skilling on the job.
• As the 4IR requires a new breed of workers so to speak, is it not contrary to the government’s thrust of creating more jobs for Saudis since the revolution demands a certain level of skills to get employed?
The sectors relying on expats for low-wage jobs are the sectors that will witness the greatest job losses. Middle-wage workers will still be able to compete by “up-skilling”.
4IR will indeed change the labor market as we know it, but it also has the potential to induce a net gain in jobs, according to one estimate. Saudi has to work hard to prepare its future workforce by improving basic education, equipping workers with the right skills, and incentivizing them on joining the private sector.
The technologies of the 4IR also hold a bigger promise: that of rapid upskilling. Saudi companies and governments can implement augmented reality and virtual reality trainings to ensure rapid development of market-ready skills.
• What are required of individuals and organizations in preparing for and embracing 4IR future of production?
Individuals already present in the workforce are required to stay up-to-date and up-skill as soon as it’s necessary, to stay relevant and keep on adding value to their organization. The up and coming generation, on the other hand, must equip itself with in-demand and relevant skills, and hit the ground running once in the workforce.
Technologies compel companies to invest in and transform their operations, business models and culture; The rationales for business to invest in new technologies include getting products to market more swiftly, improving efficiency and productivity, differentiating product offerings and, crucially, making better products. The demonstrable benefits brought by new technologies mean their deployment is inevitable. Most large-scale producers have already contemplated and experimented with technologies through pilots. They will increasingly move from “visioning” and experimentation to full scale transformation and implementation of the digital and technology agenda to create value. As for the rest of the organizations, they must understand their changing environment, reexamine themselves, challenge their own assumptions, and innovate constantly.
• The 4IR future of production offers a potential SR1 trillion opportunity in KSA by 2030, how will the manufacturing and retail industry benefit on this?
Manufacturing and retail are the sectors that have the most potential to benefit from 4IR, with estimated contributions in indirect value of up to SR430 billion and SR400 billion, respectively. Mainly, this value can come through:
o Digitization and automation, which can increase efficiency and productivity and cut costs
o IoT, which can better connect marketing to customers
o AI, which can lead to better demand forecasting
• With the expected transformation be unlike anything humankind has experienced before, do you think the younger generation of Saudis can cope and adopt to this turn of events? What is required of them to adopt and sustain the new changes?
The younger generation of Saudi’s has the potential to cope and adapt. They will have to equip themselves with in-demand cognitive and social skills (such as critical thinking, communication, and adaptability) and new technical skills (such as data-based decision-making). They also have to join and contribute to the private sector much more aggressively, as that sector will be the driving force behind of the 4th IR.
• What could hold back this revolution?
Saudi Arabia faces three primary challenges that could hold back this revolution:
o The human capital challenge, with education in the country below the global average, large numbers of Saudi nationals not “future-proof” yet, and Saudis still overwhelmingly preferring public sector jobs.
o The innovation and sustainability challenge, with impactful public-private cooperation still needed and the country still relying on non-sustainable resources such as oil.
o The global value chain integration challenge, with reforms and innovation needed to leapfrog regional and global counterparts.
• How should we prepare?
The country should prepare for 4IR by:
o Improving basic education, up-skilling the workforce and driving employment in the private sector
o Cultivating the innovation ecosystem and public-private partnerships through investments, incentives, and policies, and ensuring sustainable management of resources through encouraging renewable energy projects for example.
o Integrating the country into the global value chain through trade and investment, as well as enabling SMEs. — SG
