LIGHTHOUSE' MANUFACTURERS LEAD THE WAY-CAN THE REST OF THE WORLD KEEP UP? - MCKINSEY
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‘Lighthouse’ manufacturers lead the way—can the rest of the world keep up? Manufacturing leaders are sprinting ahead with digital and analytics, and changing the rules of the game. A broad scale-up of innovation across the value chain is needed to ensure more winners share the spoils. Enno de Boer, Helena Leurent, and Adrian Widmer JANUARY 2019 • OPERATIONS
The long-anticipated Fourth Industrial Revolution By contrast, this select group of manufacturing sites
is no longer some far-off horizon. Early-adopting represent the leading edge of technology adoption
“lighthouse” factories are implementing advanced at scale. These sites serve as beacons for the world,
manufacturing and AI-driven technology, at scale, exemplifying the type of production approach
and seeing significant gains. What insights can the that can drive the next engine of global economic
leaders share to accelerate digital scale-up broadly? growth. They demonstrate how forward-thinking
What is needed to ensure these benefits spread across engagement of technology can create a better,
regions and sectors? cleaner world through new levels of efficiency
in manufacturing. Likewise, they illustrate how
Some answers to these questions are addressed in Fourth Industrial Technology at scale can transform
the paper, Fourth Industrial Revolution: Beacons the nature of work itself by upskilling and engaging
of Technology and Innovation in Manufacturing, human workers with minimal displacement.
by the World Economic Forum, in collaboration
with McKinsey & Company. The team identifies top- Lighthouses serve as real-world evidence to dispel
performing factories and explores insights from these widespread myths and misunderstandings posing
“lighthouses”—16 of the world’s most advanced sites obstacles to innovative technology adoption at
implementing technologies of the Fourth Industrial scale; in addition, these beacons shed light on the
Revolution, selected from a survey of over 1,000 characteristics, differentiators, and success factors
manufacturing sites globally. The rest of this article, that realize optimal scaling.
extracted from the full report, summarizes the key
findings. Seeing the light: a radical leap forward for Fourth
Industrial Revolution front-runners
Emitting powerful light that pierces fog and Three technological megatrends—connectivity,
darkness, lighthouses are key to maritime intelligence, and flexible automation—are the
navigation. With this research, we seek out principal drivers of a Fourth Industrial Revolution
manufacturers across a broad range of industries paradigm shift in production:
who are leading the way in Fourth Industrial
Revolution innovation. Connected within the Connectivity—Creates links between discreet
framework of the World Economic Forum’s platform, network nodes, increasing visibility
these model factories, which have been recognized
Flexible automation—Incorporates response
as Fourth Industrial Revolution “lighthouses,” are
mechanisms, automation, and remote
starting a unique learning journey that will benefit
movement
the production ecosystem.
Intelligence—Automates event recognition and
Manufacturing has experienced a decade
translation for decision making
of productivity stagnation and demand
fragmentation; thus innovation is long overdue.
Technology adoption at scale can have a radical
Where Fourth Industrial Revolution innovation
impact upon organizations. A close look at one of
has been taken to scale beyond the pilot phase,
these three megatrends can make clear just how
unprecedented increases in efficiency have
powerful this effect can be. For example, a McKinsey
occurred, with minimal displacement of workers.
Global Institute analysis projects a remarkable gap
However, most companies appear to be stuck in
“pilot purgatory.”
“Lighthouse” manufacturers lead the way—can the rest of the world keep up? 22018
WEF Lighthouses
Exhibit 2 of 3
Exhibit 1 Faster AI adoption and absorption by front-runners
can create larger economic gains
Source: McKinsey Global Institute analysis
between companies that adopt and absorb artificial transition costs, will realize the greatest benefit. Thus,
intelligence (AI) within the first 5-7 years and those the largest factor here is related to the competitive
that follow or lag behind. The analysis suggests advantage of front-runners, which by far outweighs the
that “front-runners” in AI adoption can anticipate a higher transition costs and capital expenditure related
cumulative 122% cash flow change, while “followers” to the early adoption.1
will see a significantly lower impact of only 10% cash
flow change. This shows the importance of early Identifying lighthouses
technology adoption, since companies waiting risk The lighthouses are the factories that have taken
missing a large share of the benefits. Fourth Industrial Revolution technology from pilots
to integration at scale, thus realizing significant
Company leaders who move to implementation early, financial and operational benefits. Qualification
rather than waiting for decreased technology and as a lighthouse requires meeting high standards
3 “Lighthouse” manufacturers lead the way—can the rest of the world keep up?across four categories: significant impact achieved, findings, which were then presented to a Fourth
successful integration of several use cases, a scalable Industrial Revolution expert panel from private
technology platform, and strong performance organizations, universities, and technology
on critical enablers such as change management, pioneers. This panel selected 16 lighthouses and
capability building, and collaboration with a Fourth recognized them as the most advanced production
Industrial Revolution community. sites.
Identification of lighthouses followed a Understanding lighthouses
comprehensive scanning of more than 1,000 Numerous myths and misunderstandings pose
2018
leading manufacturers across all industries and obstacles to Fourth Industrial Revolution adoption.
WEF Lighthouses
geographies. Contact with more than 150 of the most Dispelling them is vital to understanding how
Exhibit 2 of 3
advanced companies yielded proposals from many accessible the Fourth Industrial Revolution is to
companies’ most sophisticated sites to be considered organizations of all kinds.
lighthouses. Site visits were carried out to document
Exhibit 2 Locations of WEF Lighthouses around the world
Lighthouses
Phoenix Contact
Industrial Automation, DE
Sandvik Coromant
Industrial Tools, SE
Procter & Gamble
Consumer Goods, CZ
Tata Steel
Steel Products, NL Siemens
Industrial Automation
Products, CN
Danfoss
BMW Group Industrial
Johnson & Johnson Automotive, DE Equipment, CN
DePuy Synthes
Fast Radius with UPS Medical Devices, IR
Haier
Additive
Manufacturing, US Home
Appliances, CN
Bosch
Automotive, CN
Schneider Electric Bayer
Electrical Division Foxconn
Components, FR Pharmaceuticals, IT Industrial
Internet
Saudi Aramco Electronics, CN
Gas Treatment, SA
Rold
Electrical Components, IT
“Lighthouse” manufacturers lead the way—can the rest of the world keep up? 4 Lighthouses inject human capital—Contrary factories for decades. It is not incremental;
to widespread concerns about worker rather, it involves a step change—it is resetting
displacement, the lighthouse factories are benchmarks. Lighthouses leverage different
not deploying Fourth Industrial Revolution Fourth Industrial Revolution use cases to
technology to replace operators. A McKinsey transform their operations. They have, on
report suggests that less than 5% of occupations average, 10-15 use cases at an advanced stage
consist of activities that are 100% automatable and are working on the development of an
with today’s technology, while 62% of additional 10-15. Accordingly, lighthouses
occupations have at least 30% of automatable are resetting industry benchmarks for
tasks. Consequently, employees in production operational and financial key performance
enjoy a working routine which is becoming less indicators (KPIs). Some lighthouses even
repetitive, but more interesting, diversified, and outperformed their internal expectations by a
productive.
2018 factor of 2. With this transformative approach,
WEF Lighthouses lighthouses transform their operations
Resetting benchmarks—The Fourth Industrial and achieve a step change in performance
Exhibit 1 of 2
Revolution differs from the continuous increase—thereafter, they can engage in
improvement efforts that have characterized accelerated continuous improvement efforts,
Exhibit 3 Impact of Fourth Industrial Revolution use cases on select KPIs in
lighthouse factories
KPI improvements Impact range observed
10-200%
Factory output increase
Productivity increase 5-160%
OEE increase 3-50%
Productivity
Quality cost reduction 5-90%
Product cost reduction 5-40%
Energy efficiency 2-50%
Inventory reduction 10-90%
Agility Lead time reduction 10-90%
Time to market reduction 30-90%
Change-over shortening 30-70%
50-90%
Customization Lot size reduction
Source: World Economic Forum and McKinsey & Company lighthouse site analysis
5 “Lighthouse” manufacturers lead the way—can the rest of the world keep up?leveraging the new Fourth Industrial Revolution Charting a course for scale: two routes
technologies and capabilities. The lighthouses prove that there is more
than one way to embrace Fourth Industrial
Open innovation and collaboration—The Revolution. Rather, there are two principal
lighthouses demonstrate that the Fourth “routes to scale” and these routes are not
Industrial Revolution journey need not be mutually exclusive; rather, they can complement
solitary—beacons can guide the way. Indeed, each other:
lighthouses are part of an innovation ecosystem
that involves universities, startups, and other Innovation of the production system.
technology providers. Companies expand their competitive
advantage through operational excellence.
Large and small companies—Notably, They aim to optimize their production
innovation is accessible not only to large system, increasing the productivity and
organizations, but also to small and medium- quality performance of their operations.
sized enterprises (SMEs), which can achieve a Typically, they start to innovate in one or a
transformative impact by focusing on pragmatic few manufacturing sites and then roll out
solutions that don’t require large investments. from there.
From emerging and developed economies— Innovation of the end-to-end value chain.
Access to technologies is not the exclusive Companies create new businesses by
domain of developed economies. In fact, China changing the economics of operations. They
is one of the leaders with a high number of innovate across the value chain, offering new
lighthouses, and other lighthouses are located in or improved value propositions to customers
Eastern Europe. This shows that other financial by way of new products, new services,
and operational benefits are more relevant than more customization, smaller lot sizes, or
labor cost reduction. significantly shorter lead times. Companies
stay focused on innovation and transforming
High impact with minimal replacement of
one value chain first, then scale learnings
equipment—Despite the misconception that
and capabilities to other parts of the
legacy equipment and older facilities create a
business.
barrier to innovation, most of these lighthouses
were in fact created by transforming existing Value drivers for impact at scale
brownfield operations. The lighthouses exhibit five unique ways in
which they create value—differentiators that
Achieving impact at scale
transform how technology is implemented, how
The lighthouses have overcome typical challenges
people interact with technology, and how it
faced by companies, such as engaging in too many
affects business decisions as well as results:
proofs-of-concept exercises, scaling too slowly,
lacking an integrated business case for technologies, Big-data decision making—Decisions are
implementing too many isolated solutions, and not hypothesis-driven, but rather, based on
creating countless data silos. How did they overcome big data deciphered by pattern recognition—
these myriad typical challenges to achieve and not by humans.
transformational impact and agile continuous
improvement?
“Lighthouse” manufacturers lead the way—can the rest of the world keep up? 6 Democratized technology—Technology on the employees to learn the basics of new digital
shop floor is transforming ways of working, as use cases and a smooth, efficient way of
operators develop their own apps and solutions implementing them.
to facilitate and automate their tasks.
Workforce engagement—In the lighthouses,
Agile working mode—The lighthouses the leaders act as role model for the change,
implement new use cases in an agile working they communicate a clear change story
mode, which allows them to do proofs of concept through various channels and ensure all
in a short time, improve the solution based on employees feel part of the journey. Workers
learning, and go quickly from pilot to scale-up. are actively involved in the development and
This is a matter of weeks versus years. deployment of use cases.
Minimal incremental cost to add use cases— A call to action: what’s next for the world’s
Use cases can be deployed at minimal additional manufacturers?
cost, allowing factories to work on multiple To ensure the manufacturing ecosystem
areas at once. transitions as smoothly as possible through the
Fourth Industrial Revolution while avoiding
New business models—Fourth Industrial increased inequality and a “winner-takes-all”
Revolution technologies enable the lighthouses outcome, public and private leaders need to act
to develop new business models which responsibly. They have the power to influence
complement and/or disrupt the traditional the outcome of Fourth Industrial Revolution and
business and value chain. mitigate these risks with a proactive approach. The
following actions could support these goals:
Scale-up enablers
The lighthouses exhibit four distinct capabilities— Augment, instead of replace, the operator—
important success factors in the implementation Factories should deploy technologies that
journey: allow the human operators to focus on the
most value-adding activities, where the
Strategy and business case—The lighthouses
unique human skills of decision-making and
have a Fourth Industrial Revolution strategy
adaptability to new situations brings most
linked to the creation of fundamental
value—and, at the same time, create a more
business value. It is clearly articulated and
attractive workplace.
communicated, and has enterprise-wide validity.
Invest in capability building and lifelong
IoT architecture built for scale-up—The
learning—The private and public must prepare
lighthouses have an IoT architecture built for
the workforce for the Fourth Industrial
scale-up and interoperability. All information
Revolution transition, including re-tooling
flows into one central data lake and interfaces
the education system and investing in
between applications are standardized.
training as well as lifelong learning to create a
mobile workforce which can benefit from the
Capability building—The lighthouses have
opportunities related to the Fourth Industrial
a very strong focus on capability building.
Revolution.
Digital academies and smart factories allow all
7 “Lighthouse” manufacturers lead the way—can the rest of the world keep up? Diffuse technologies across geographies and firm’s manufacturing and supply chain practice, is
include SMEs—The full benefit of the Fourth the lead partner for the World Economic Forum
Industrial Revolution in manufacturing can Technology and Innovation for the Future of
only be realized if complete value chains Production project.
and production ecosystems are transformed,
including all geographies and SMEs, which The white paper originally appeared on the World
are contributing 50-60% of value add in OECD Economic Forum website and is excerpted here by
countries. Therefore, companies should diffuse permission.
Fourth Industrial Revolution technologies
across their entire production network and
include developing economies as well as 1
Bughin, Jacques; Chui, Michael; Joshi, Raoul; Manyika, James;
suppliers of all sizes. This will not only lead Seong, Jeongmin. McKinsey Global Institute. Notes From the
AI Frontier: Modeling the Impact of AI on the World Economy.
to improved overall results, but also ensure
Discussion Paper, September 2018. Accessed 7 Nov 2018,
knowledge is spread more equally. www.mckinsey.com.
2
Ibid.
Address climate change challenge with Fourth
Industrial Revolution technologies—The world
3
Bughin, Jacques; Manyika, James; Woetzel, Jonathan.
McKinsey Global Institute. Jobs Lost, Jobs Gained: Workforce
faces a significant challenge with regard to Transitions in a Time of Automation. December 2017. Accessed
climate change, with a recent report from the 7 Nov 2018, www.mckinsey.com.
IPCC stating that emissions must be cut by 45% 4
Ellingrud, Kweilin. “The Upside of Automation: New Jobs,
by 2030 to keep below 1.5°C warming. Thus Increased Productivity And Changing Roles For Workers.”
Forbes. 23 Oct 2018. Accessed 12 Nov 2018, www.forbes.com.
factories should leverage Fourth Industrial
Revolution technologies to improve their 5
“Enhancing the Contributions of SMEs in a Global and Digitalised
Economy.” OECD. Meeting of the OECD Council at Ministerial
energy efficiency, increase yield, and reduce
Level. Paris, 7-8 June 2017. Accessed 13 Nov 2018.]
waste and emissions while enhancing overall
competitiveness.
6
“Global Warming of 1.5ºC”. Intergovernmental Panel on Climate
Change. 8 Oct 2018. Accessed 12 Nov 2018, http://www.ipcc.
ch/report/sr15.
If the manufacturing sector is to benefit individual
organizations and all of society, technologies
and digital capabilities must be adopted at scale Enno de Boer is a partner in McKinsey‘s New
and across the entire value chain. Though this Jersey office. Helena Leurent is the Head of
Shaping the Future of Advanced Manufacturing
is easier said than done, the full report provides
and Production, and Member of the Executive
key opportunities and lessons learned from
Committee, World Economic Forum. Adrian
each identified Lighthouse, as well as additional
Widmer is a consultant in McKinsey‘s Zurich office.
opportunities for public-private collaboration.
The original white paper is part of the World Economic Copyright © 2019 McKinsey & Company.
Forum’s “Technology and Innovation for the Future All rights reserved.
of Production,” and was created in collaboration with
McKinsey & Company. Enno de Boer, a partner in the
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