“Industry 4.0,” or the fourth industrial revolution, can offer both opportunities and risks for the Japanese economy.
It is a term to describe the future state of the economy, particularly manufacturing, based on the connectivity of everything, or the “Internet of Things” (IoT). This connectivity includes not only PCs and mobile phones, but also cars, manufacturing equipment and other devices.
Although Japan is said to lag behind other developed nations, a recent gathering discussed whether the country could thrive in this new economy.
A consultant, an IT service company president, an employee of the same company and a university professor, all of whom are Japanese, delivered presentations and discussed related issues at a symposium organized by the Keizai Koho Center, titled “The Future of Industry (Industry 4.0) and Japan’s Economic Growth,” in Tokyo on March 18.
IoT and manufacturers
The first speaker, Chiaki Kato, associate principal of McKinsey & Company, delivered a presentation, titled “IoT and digitization of manufacturers: Global trends and implications to Japan.”
“We consider IoT to be very important and we are increasing the hiring of data specialists globally,” Kato said.
Throughout the course of executing its day-to-day consulting work, McKinsey & Company carefully monitors the following three issues: which companies is venture capital being invested in; what are the future projects innovative companies are working on; and where have former McKinsey & Company employees gone.
Kato then showed his company’s survey, the “McKinsey Industry 4.0 Global Expert Survey 2015,” addressing how Japanese companies lag behind Americans and Germans in terms of embracing Industry 4.0.
His figures showed that when asked, “Do you think Industry 4.0 presents more opportunities than risks?” about 90 percent of American and German companies responded affirmatively to the question, while only 80 percent of Japanese companies did so.
He showed a graph, illustrating that about 80 percent of American companies and about 60 percent of German firms said they were sufficiently prepared to take a chance on Industry 4.0, while only about one-third of Japanese said they were.
The attitude of McKinsey & Company’s Tokyo office’s clients is in line with the survey results. Kato said that their excuses of not moving forward with IoT, included: “We understand the case studies of innovative foreign companies and the concept (of IoT), but it still seems as if it’s too far in the future;” “Things are still unclear and therefore, it’s too early for us to make a move;” and “Partnering with American and German companies that are advanced (in IoT) now will narrow our future options of business development.”
Kato then explained how IoT-related technology could improve business operations, including development, procurement, production, logistics, sales and services.
Using an oil refinery as an example, Kato showed how a company could reduce costs and enhance efficiency by managing tanks, pumps and refinery facilities with a single system, rather than three separate systems.
In another example, a pharmaceutical company’s productivity increased 20 to 30 percent after analyzing the activity patterns — frequency and duration of meetings for example — of its researchers.
Kato said his company usually advises clients to start with what they can, such as hiring software engineers, investing in venture companies and exchanging opinions with foreign companies further along in embracing IoT.
“The conclusion is that the world is ready to take on IoT, and we should get going,” Kato said.
Digitization of things
Shoji Nozaki, technical director, 3DS Business Transformation Japan at Dassault Systemes K.K., was the second speaker, giving a presentation, titled “Digitization of things and creation of experiences.”
Dassault Systemes is the software arm of French company Groupe Dassault, which owns various businesses such as real estate, wineries, newspapers and aircraft parts manufacturers.
Dassault Systemes has 14,000 employees of 123 different nationalities and offers “3-D experience solution,” simulation software mainly for manufacturers. It has 200,000 customers across 12 industries in 140 countries and 12,600 partner companies.
Its customers include automakers such as Toyota Motor Corp. and those in the aerospace and defense industry such as Boeing among many others.
Nozaki explained trends in the manufacturing industry, including a focus on the consumer experience, mass customization, IoT, remote control, 3-D printing, sustainability and others.
“Innovation in the manufacturing industry starts with digitization,” Nozaki said, showing a diagram indicating that profit margins are highest when the degree of digitization and business innovation are both high.
He also explained Dassault Systemes’ business history and its path to 3-D experience, which can, for example, model how cars stop with or without anti-lock braking systems, aiding automakers’ research and development.
The company developed 3-D design software in 1981; 3-D DMU, or digital mockup, in 1995; 3-D PLM, or product lifecycle management, in 2001; and 3-D experience in 2012.
“It’s inevitable that products become commoditized as consumers do pay for experiences,” Nozaki said. “In a virtual world, one can experience so many things.”
He then introduced several examples of innovations reached through cutting-edge 3-D technology.
He showed a slide of Virtual Singapore, which uses Singapore data, including geometric, geographic and topographic data, demographic data, as well as climate and infrastructure information, to visualize how the city functions. Users can see the effects of urbanization in digital format and develop optimal solutions to various challenges such as logistics, environmental conservation, security and community services.
He also introduced a 3-D experience software user, AKKA Technology, which is using the technology to develop driverless taxis.
In another example, a train maker uses the 3-D experience software to design trains, simulate train operations and manage manufacturing operations.
“We want customers to see IoT as a business tool. The need for speed is critical nowadays and I’m confident the 3-D experience is useful,” Nozaki said.
The third speaker, Hiroyuki Morikawa, a professor at the Research Center for Advanced Science and Technology at the University of Tokyo, delivered a presentation, titled “IoT offers opportunities for Japan.”
“IoT is nothing special. It’s simply the digitization of things that currently aren’t digital,” Morikawa said.
He presented an example of an operator of a comedy theater who installed facial recognition software in the back of the seats and charges based on the amount of laughter, rather than charging a fixed ticket price.
“I wouldn’t do this if I were the theater manager because it would discourage audiences from laughing,” he said.
On the contrary, the theater’s sales increased 30 percent after the installation and customers were satisfied with the change, he said.
“The combination of IoT and legacy businesses has the potential to greatly increase profit,” he said.
For example, a bus operator used big traffic data to optimize the location of bus stops, improving its financials. Additionally, a paper recycling company installed chips in recycling boxes and collected data on how full the boxes are, maximizing efficiency in making collections.
Morikawa then pointed out that Japan has much fewer information communications and technology (ICT) engineers in ICT user companies compared to the U.S., advising more Japanese ICT companies to employ more.
He then showed a video of a hologram communication robot, developed by a company called Gatebox, which has an appearance of an anime girl, carrying on a conversation in a robotic voice, turning on a TV after being asked to and waking up a person.
Morikawa then presented his view that IoT will change society dramatically, similarly to the way the Industrial Revolution did.
Paraphrasing Peter Drucker, he said, “Steam trains prompted the emergence of railway services, and railway services lead to postal services, newspapers, banks and other new industries.”
“There must be something new that will emerge after the development of broadband communications.”
In a Q&A session, Kato, Morikawa and Dassault Systemes K.K. Managing Director Seiji Kajiya answered questions from the moderator, Toray Industries Inc. Senior Advisor Shinichi Koizumi, and audience members.
On do’s and don’ts for top managers to accelerate IoT measures, Morikawa said top management should not pay too much attention to sales and profits because heavy focus on those will discourage staff. Kato said they should not “wait and see,” but move quickly. Kajiya noted that they should not try to revise existing systems, but create something from scratch.
Asked how to help small companies with little money to invest, Kato and Morikawa said it is essential to raise awareness of the usefulness of IoT. Morikawa added that he sees more chances in remote areas of Japan because IT company presidents have stronger connections with local legacy businesses such as paint shops and carpenters than in urban areas.
Asked what to do about cyber security, one of the biggest risks facing IoT, Morikawa said it is a difficult issue because heavy focus on security means less freedom in using IoT.
“The problem is that Japanese companies do not place high value on security engineers,” he said.
Kato also agreed that balance between security and freedom is important. Kajiya said it is important to store data using high-security cloud storage.
An audience member asked why Japanese companies are not prepared to invest in IoT.
Kato said it is because it’s difficult to estimate sales and profit from IoT-related investments.
Another audience member asked how to use IoT to revitalize local economies.
Morikawa said: “IoT is the center of the revitalization measures for municipalities. We have to continue to raise awareness of the benefits of IoT.”
Kato said large Japanese companies tend to think cloud storage has security issues and in-house storage is more secure. He urged large companies to try cloud storage because the level of security of cloud storage has improved dramatically and proven sufficient.
Kajiya said it might be better to store sensitive data on private clouds, a type of cloud computing that delivers information to a single customer instead of multiple customers.