Industry 4.0 diagnosis.
In the previous chapters we have discussed the digital transformation that Pedro’s company underwent in five stages consisting of automation, digitalization, analytics, intelligence and interoperability.
During this time Pedro had to consider operation aspects (technically quantifiable) and above all take into account the human factor that involves qualitative aspects, such as market behavior, to the relationships between collaborators inside the company and outside with suppliers and distributors.
A good idea that Pedro had to make his plans a reality was to turn to the recommendations and principles of brilliant minds that have stood the test of time and are still valid today.
So, to carry out this diagnosis or guide to Industry 4.0, we have resorted to the legacy of Philip Fisher (1), who in his 15 points to evaluate a company with a future (2) provides us with a qualitative guide for your company to focus on the most important aspects. On this basis, technology is proposed as a magnificent tool to help us evolve towards the “Smart Factory”.
To facilitate reflection, the “Smart Factory” is divided into four domains:
Market intelligence.
Operational intelligence.
Financial intelligence.
Social intelligence.
Market intelligence:
Philip Fisher would ask:
Does the company have an above average sales organization?
Does the company have products or services with market potential to increase sales for several years?
Does management have the determination to continue to develop products or services that will increase sales potential?
How effective are the company’s research and development efforts?
Context:
“The goal of marketing is to know and understand the customer so well that the product or service fits the customer and sells itself.” – Peter Drucker (3).
All markets mature or change over time. To maintain a constant growth a company should “listen” and understand the market continuously and thus be able to improve its services and products.
Technological route:
Automation
Do you have paper-based quotations? do you have spreadsheet processes? do you waste a lot of time on repetitive tasks?
Digitalization
Is the data scattered? is order information lost? is real-time sales information available?
Analytics
Do you waste a lot of time emptying, compiling or reconciling information in different applications? do you have a lot of information but don’t know if it is relevant?
Intelligence
Are customer preferences unknown? are key indicators such as CLV and CAC (4) unknown?
Interoperability
Does production plan in real time according to demand? is there constant communication with suppliers and throughout the value chain to react to demand appropriately?
Operational Intelligence:
Philip Fisher would ask:
Does the company have a worthwhile profit margin?
What is the company doing to maintain or improve profit margins?
Context:
“If something is not worth doing, it’s not worth doing well.” – Charlie Munger (5).
Inflation, input volatility and the entry of new competitors, etc., are factors that put pressure on profit margins. Reducing operating costs is a priority in order to maintain profit margins that allow the company to prosper.
Technological route:
Automation
Are there repetitive tasks that can be done faster and more accurately with a machine?
Digitalization
Are there many shutdowns due to failures related to lack of preventive maintenance? are there conflicts between production and logistics departments due to differences in quantities?
Analytical Is the operational efficiency of machines and operation unknown? Is the actual depreciation of machines based on production cycles unknow? Is wastage unknown?
Intelligence
Can machine maintenance (cybernetic or mechatronic systems) be predicted?
Can effective improvements be implemented based on the information?
Interoperability
Do suppliers lag behind? can a “smart” value chain be implemented (suppliers and distributors react to demand and production in real time)?
Does the costing system communicate directly with production and inventories of production and raw materials?
Financial Intelligence:
Philip Fisher would ask:
How good are the company’s cost analysis and accounting controls?
Are finances healthy enough to continue to invest and ensure the company’s success in the medium and long term?
Does the company have a short-term or long-term outlook for earnings?
Context:
“A critical financial function is to provide an early warning system to identify influences that could threaten the earnings plan early enough to devise corrective plans to minimize adverse surprises.” – Philip A. Fisher (6).
Technology Path:
Automation
Is a lot of time wasted moving paper documents into the “system”?
Digitalization
Is the information scattered in files or different computers? If a user leaves, would he/she lose access to critical information for the company?
Analytics
Although there are systems in place, is there so much information that there is no financial visibility of the processes?
Intelligence
Are there alerts in the different cost centers to take timely corrective actions?
Interoperability
Are there several systems that do not “talk” to each other? Are the systems of the production, warehouse, logistics and sales centers isolated from each other?
Social Intelligence.
Philip Fisher would ask:
Does the company have outstanding working and personal relationships?
Does the company have outstanding executive relationships?
Does the company have its own pipeline of capable executives?
Does it have open and upstanding communication with the public or society?
Context:
“Human resources are like natural resources; they are often buried deep. You have to go looking for them, they are not just lying on the surface. You have to create the circumstances where they show up.”- Ken Robinson (7).
A company’s human capital is without a doubt its most valuable asset. But without an organizational culture and tools that facilitate collaboration, it will be difficult to achieve the full potential generated by the synergy of teams.
Technological route:
Automation
Is documentation done in personal applications such as spreadsheets, word processors, etc.? are there conflicts due to different versions of documents?
Is a lot of time wasted in collaborating with authorizations?
Digitalization
Is HR administration data such as vacations, working time, documents, training, etc., lost?
Is there a high cost to train staff, and does high staff turnover complicate training?
Analytical
Do you suspect that lack of staff training leads to loss of customers and low productivity?
Do you not have a database with a statistical model to know the “qualitative state” of the organization?
Intelligence
Is the staff wasting a lot of time looking for the right people to promote an initiative or clarify an issue?
Is it not known who does what in all operational areas?
Is mail the primary form of interaction for collaboration?
Interoperability
Are production operational areas isolated from engineering, design and product development areas?
Are the marketing areas isolated from the production, product design, logistics and finance areas of the company?
Bibliography:
1) https://www.investopedia.com/terms/p/philip-fisher.asp.
Philip Fisher was a widely acclaimed investor and author, best known for writing the book “Common Stocks and Uncommon Profits”. He is believed to have had a profound influence on Warren Buffett. His son Kenneth Fisher is also a well-known investor, having founded his firm in 1979.
2) Key Factors in Evaluating Promising Firms. Fisher, Philip A.. Common Stocks and Uncommon Profits and Other Writings (Wiley Investment Classics) (p. 279). Kindle Edition.
3) https://es.wikipedia.org/wiki/Peter_F._Drucker
Peter Ferdinand Drucker was a business consultant and professor, Austrian treatise writer, and career lawyer, considered the greatest management philosopher of the 20th century. He was the author of more than 35 books, and his ideas were decisive in the creation of the Modern Corporation.
4) CLV Customer Lifetime Value: https://en.wikipedia.org/wiki/Customer_lifetime_value
CAC Customer Acquisition Cost: https://www.digitalmarketer.com/blog/customer-acquisition-cost/, https://en.wikipedia.org/wiki/Customer_acquisition_cost
5) https://es.wikipedia.org/wiki/Charlie_Munger
Charlie Munger is a prominent American investor, businessman and philanthropist. He is a vice chairman of Berkshire Hathaway, the conglomerate controlled by Warren Buffett.
6) Fisher, Philip A. Common Stocks and Uncommon Profits and Other Writings (Wiley Investment Classics) (p. 280). Wiley. Kindle Edition.
7) https://es.wikipedia.org/wiki/Ken_Robinson
Ken Robinson is a British educator, writer and lecturer. D. from the University of London, researching the application of theater in education. Robinson is considered an expert on issues related to creativity, teaching quality, innovation and human resources.