A comprehensive guide to reinventing companies
Mastering the
Transformation Journey
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How the fourth industrial revolution is reshuffling
the economic, social and industrial model
The Industrie
transition quantified
THINK
ACT
BEYOND MAINSTREAM
T H E B I G
3
2 THINK ACT
Industrie
SPECIALDEVELOPMENT PATHS OF MAJOR INDUSTRIALIZED COUNTRIES P. 9
+25 PPTS
is the gross increase in ROCE (return on capital employed)
that an industrial business can expect through 2035
following the transition to Industrie .
Page 6
EUR 420 bn
is the potential amount of capital employed and net
profits that becomes available through the introduction of
Industrie in Western Europe's industrial sector.
Page 17
~10 m
is the number of jobs that could potentially be
recreated or shifted – triggered by Industrie .
The net effect is positive.
Page 16
THINK ACT
Industrie
3
There is more to Industrie than its technical di-
mension. Technologies like factory virtualization,
smart and intelligent machines, the IoT, the cyber
production system, 3D technology, cobots determine
the debate. Many are available already or emerging.
Companies have launched pilot projects in which
they try to embed these technologies in their current
manufacturing process. Few, however, have genuinely
exploited their potential to the full and implemented
new models.
The forth industrial revolution will transform the
economic paradigm and the mechanisms for creating
value that underpin it. Manufacturing has, in effect,
switched from a mindset of mass production to one of
mass customization. No longer is it based on scale and
volume effects but on flexible and localized production
situated close to centers of demand. It manufactures
"on demand" and no longer creates inventory, instead
dynamically adapting itself to demand. It is more pre-
dictive and auto-corrective and it involves less trial and
error. Its logic is now focused not on the product but on
usage, and it has also switched from a rigid form of la-
bor organization, inherited from Taylorism, to a flexi-
ble form – enhancing the appeal of work as a result. It
potentially represents a complete overhaul of the eco-
nomic rationale behind business.
A NEW ECONOMIC RATIONALE
The industrial model today is still based on the princi-
ple of decreasing product costs through the volume of
products manufactured: the higher the volume pro-
duced, the lower unit costs become. As a result of this,
industry has been primarily concerned with optimiz-
ing the costs and price of products and less so with op-
timizing the capital required to make them. This in-
dustrial paradigm is now being questioned because
there is only so far it can go. Given the climate of uncer-
tainty with regard to volumes – a climate generated by
the economic crisis – and the increasing diversity of
customers and their expectations, the investments re-
quired to manufacture products at the lowest cost and
in large numbers have created an inflationary trend in
capital employed caused by a lack of flexibility or the
under-use of the manufacturing base. We have devel-
oped an innovative approach to analyze the effects of
Industrie : We explore its effects on return on capi-
tal employed (ROCE). It became clear from this analy-
sis that a company makes far better use of its physical
Beyond technologies:
Industrie means a
paradigm shift in com-
panies' manufacturing
strategies.
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THINK ACT
Industrie
4
Profitability is improved
within Industrie by
means of a reduction in
labor costs and an enhanced
asset utilization rate, which
compensates for the increase
in automation-related
depreciation. Margins are
also improved thanks to the
increased value of products
and by customization and
flexibility.
Asset turnover indicates
the sales generated for every
euro of capital employed
(fixed assets and working
capital requirement).
Industrie allows better
asset use (reduction of
product changeover time;
reduced machine downtime,
inventory and maintenance
times; etc.). It is also an
indicator of capital intensity:
the lower the asset turnover,
the greater the capital
intensity in the industry.
An industry with low asset
turnover and a high margin
(automation) can offer the
same ROCE as an industry
with high asset turnover and
a low margin (obsolescence).
PROFITABILITY
(EBIT/added value)
AUTOMATION
Products with high added
value and high margins
CAPEX intensive
production
High level of automation/
modern machine parc
1 2 3
OBSOLESCENCE
Medium or low added value,
low margins
Labor intensive production
Amortized or obsolete
means of production
INDUSTRIE
High added value
products, high margins
Flexible production
High ROCE
Source: Brokers, Roland Berger
A
FUTURE PATH OR DEAD END?
THREE OPTIONS FOR DEVELOPMENT
We analyze industry development at firm and country level. By using return on
capital employed we can calculate effects and draw conclusions
1
2
3
Iso ROCE curve
(. 15%)
ASSET TURNOVER
(added value or sales/capital employed)
THINK ACT
Industrie
5
adopts a very different approach of problem solving or
correction. Instead of doing it, they make the machine
do it.
Predictive maintenance systems enable improved plan-
ning of machine downtime, since it becomes foresee-
able. This ensures that tools are used in a more effi-
cient way. The impact on the job performed by the
operator is considerable. From a logic of manual and
visual inspection, they will adopt a logic of diagnosis
and problem solving.
The cyber-production system is the upper layer of com-
mand of the factory and its suppliers: It enables mass
customization and the readjusting of production plan-
ning in line with demand variations. It will also allow
switching from a switch from push production – make
and build up inventory – to pull-production – make to
order. A yield management approach can be applied for
the product pricing, with discounts according to lead
time. All of this brings planning and logistics jobs and
management practices into question and ultimately
leads to their transformation.
We calculated the effects for the example of an automo-
tive supplier. They result in an ROCE increasing from
15 to 40% and the margin growing from 6 to 12%,
while plant utilization rises from 65 to 90%. B At first
sight the human workforce needed to operate the plant
is reduced by around half, but people still are at the
heart of the system. Firstly, the factory of the future will
offer jobs for all qualification levels. For example, oper-
ating a cobot is much easier than programming an in-
dustrial robot and requires far fewer qualifications.
Secondly, responsibilities in areas such as quality,
maintenance and security will remain. Additionally,
relationships with the internal client and the under-
standing of needs and problem solving will become
more important. Thirdly, new jobs will appear (in sys-
tems, cyber-security, big data, analytics and other ar-
eas) in the form of local and non-local skills. Work
modes will change too: teams of learners pooling local,
internal and external skills at the company will be
headed up by coaches. Finally, the quality of work life
will improve. Tiresome and repetitive tasks will be au-
tomated, leaving people free to focus on the operating
process and engage far more as part of a team. These
improvements can lend a whole new image to industry,
that is more appealing to young people and more re-
warding. C
asset in an Industrie environment. It reduces the
cost of complexity, which is borne by the digital aspect
of a product or a machine that is essentially standard-
ized. One example is the 3D printer, which is a standard
machine manufacturing an infinite variety of products,
but this is the spirit of Industrie as a whole. A
Does Industrie require more capital than be-
fore? There are several reasons to believe this is not the
case. For instance, a cobot is considerably less expen-
sive than a conventional robotic cell; the price of sen-
sors is but a fraction of what it once was; and RFID and
connectivity solutions are relatively cheaper than their
equivalent in a Kanban system, and their price is fall-
ing, as is the case with electronics. Furthermore, digi-
tal continuity requires more unified IT systems, which
is clearly cheaper than the plethora of IT systems found
at companies, with all their associated interfaces. So
overall, the additional investments in extra equipment
and software will be offset by enhanced utilization of
the manufacturing asset as a whole.
KEY TAKEAWAYS
Roland Berger has simulated the overall impact of the
transformation to Industrie at a typical factory in
the automotive parts industry. This shift is based on
five main drivers:
Virtual factories will enable new products to be industri-
alized virtually before disrupting the physical system,
thereby enhancing the ability to launch new products
quickly by drastically reducing development times in
production. This will also offer managers a new way of
overseeing operations and intervening in them.
Automated flows (via autonomous vehicles or cobots)
provide a relatively low ROCE impact, because savings
on logistics costs are partly offset by investments in au-
tomation solutions (vehicles, equipment and software).
However, the issue here is not automation, but making
the whole system more flexible and responsive and cut-
ting inventory levels and throughput, which impact on
ROCE. Such an automated system will be able to per-
form tasks that are beyond human capabilities with a
huge combination of flows and parts diversity required
by customization.
Smart machines need much fewer operators than tradi-
tional ones and are able to correct themselves and can
operate both separately to and in connection with each
other, through the night, for example. Given their ability
to operate for far longer on their own, the operator
THINK ACT
Industrie
6
B
HOW CAN FIRMS MAKE MORE
OF THEIR CAPITAL?
We simulated Industrie effects for a typical automotive supplier. ROCE
increased by 25 percentage points. We also observed better plant utilization,
higher profits and asset turnover, lower machine parc and staff investment
Selected effects of Industrie :
Source: Roland Berger
Today Industrie
PROFITABILITY
ASSET TURNOVER (sales/capital employed)
OVERALL PLANT UTILIZATION
STAFF
MACHINE PARC
ROCE
40%
15%
%
%
90%
65%
70%
100%
55%
100%
THINK ACT
Industrie
7
C
THE GLOBAL WORKBENCH OF
INDUSTRIE
Three examples illustrate the progress the new paradigm brings
to companies applying Industrie principles
GERMANY
Adidas – production sites
with maximum agility
Sportswear specialist Adidas is aiming
to manufacture bespoke sports shoes at
closer proximity to consumers. Its
"speed factory" concept will begin in
summer 2016. Outsourcing of sports
shoe manufacturing to Asia has become
increasingly unappealing for Adidas due
to the 18-month time lapse between the
design of new models and their arrival in
stores, which increases labor costs and
creates a large carbon footprint. The
new type of factory manufactures
seamless footwear thanks to an
innovative automated procedure.
Developed as part of a project embarked
on with other manufacturers and
research institutes (Johnson Controls,
KSL Keilmann, Fortis Institute and the
textile institute ITA RWTH), the “speed
factory” significantly develops the
modular approach by making man and
machine work together side by side,
with one or the other being able to
perform certain tasks. The result is a
production site that can fit into a cargo
container and uses an automated
process to manufacture individual
running shoes, thus taking local labor
costs out of the equation and
eliminating transport costs. The
innovative process also allows new
collections to be brought out in less than
45 days in order to meet demand and
requirements, a move towards fast
fashion, a business model invented by
Zara and H&M. The first “speed factory”
will open in Ansbach, Germany.
USA
Local Motors – made to order
car manufacturing
In much the same way as fab labs,
Local Motors (LM) asks prospective
car buyers a simple question: why go
to car manufacturers when there is
another choice available? In making that
alternative available, this young start-up
has created a community of members,
engineers, researchers, designers and
amateur mechanics and car enthusiasts,
giving them the opportunity to share
their experiences and skills in specific
projects, in particular the development
of open-source cars. Complementing
the initiative are microfactories, fully
equipped workshops where prototypes
can be developed and mechanized and
products assembled in short runs. The
adventure began with an all-terrain
vehicle project by the name of Rally
Fighter. Employing 107 people and
backed up by a community of 51,700
members working on 81 projects, the
company runs three microfactories and
is planning to set up 100 in all over the
next ten years, with all these sites set
to offer small but highly customized
production runs. The company originally
made its name with the LM3D, a
3D-printed car due to be launched on
the market in 2016. It also recently
teamed up with American giant General
Electric to create the FirstBuild network,
which pursues the same philosophy as
LM itself but focuses on the develop-
ment of the home appliances of
tomorrow. Ideas are shared in a social
network, while manufacturing takes
place at a dedicated microfactory.
JAPAN
Okuma – a best practice
smart factory
The Japanese machine tool
manufacturer has developed a
complete milling process capable
of operating autonomously
24 hours a day, seven days a week,
without human intervention. The
process can automatically select
cutting tools and change them when
necessary. Materials are supplied
automatically, with the system
collecting any discarded metal.
Every operation is displayed on
iPad-type tablets. Even the
continuous improvement system
(Kaizen, so beloved of the Japanese)
is automated, thanks to software
based on warning reports generated
by the machine during production.
Operators are merely on hand to
supervise the line and carry out high
value-added tasks. Complete
automation of the process leads to
productivity being doubled, with the
automatic Kaizen system doubling
it again.
THINK ACT
Industrie
8
The transformation brought about by the switch to In-
dustrie is not limited to its micro-economic impact,
though this transformation first manifests itself at an
individual company level. This switch also represents a
major macro-economic challenge faced by all major
industrialized nations. What are the routes that the
world's major industrial powers pursue? ROCE is rele-
vant both at the scale of a factory and at the scale of an
entire country. Its development reflects the develop-
ment routes taken by nations in terms of their industri-
al policy. A D
The first of them is automation, not to be confused
with Industrie . It merely increases capital employed
through the effects of investment, with companies be-
coming more capital intensive as a result. Profits in-
crease thanks to automated activities replacing manu-
al ones. Ultimately, the two phenomena tend to balance
each other out, with ROCE remaining unchanged. Con-
versely, when a country heads to industrial obsoles-
cence profits are decreasing, causing investment to
drop to a level below depreciation. In turn, capital em-
ployed falls, while asset turnover (sales/capital em-
ployed) rises artificially, which compensates for the
drop in profits and enables ROCE to remain constant.
However, neither of these two development routes per-
tains to Industrie , which is characterized by an in-
crease in both asset turnover and profit. Roland Berger
has calculated the ROCE of the industries of leading
nations and their development during the period
2000–2014, and revealed some enlightening variations
in the process.
Industrial policies implemented across the world
often pursue the same objectives: increased competi-
tiveness and relocation or preservation of activities.
However, the means of achieving these objectives and
the stakes involved for each country vary according to
the strength of their industries and economies, the lev-
el of automation they have attained and the size of
their local markets, among other factors. Every nation
thus invests in Industrie as a levered response to
specific challenges, which is why the growth in manu-
facturing value added through increased competitive-
ness is at the heart of German, Chinese and American
strategies, while France and Japan focus more on the
relocalization of manufacturing by neutralizing the ef-
fects of high labor costs. The issue of remaining a glob-
al market leader in industrial solutions is vitally im-
portant in Germany, and also to a degree in China. In
Rethinking politics:
How Industrie
makes an impact on
industrialized nations'
development routes.
THINK ACT
Industrie
9
D
DIFFERENT STRATEGIES –
DIFFERENT RESULTS
A world of deindustrialization: The US increased profits by investing in auto-
mation. France, Japan and Italy underinvested while profits shrank. Germany
alone managed to increase profits and asset turnover at the same time
PROFITABILITY
(EBIT/added value)
ASSET TURNOVER
(added value/capital employed)Source: Roland Berger analysis based on HIS and Eurostat,
remodeling of country industry capital employed since 1980
0%
07
5%
10%
15%
20%
25%
30%
35%
2000 2014
30%
20%
iso ROCECountry industry
10%
Germany
United Kingdom
South Korea
China United
States
France
Italy
Spain
Japan
Brazil
Evolution of countries' return on capital employed
(manufacturing, mining & utilities sectors; 2000 to 2014)
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Industrie
10
E
A GLOBAL BUZZ
GERMANY
Industrie platform:
Common approach BITKOM,
VDMA & ZVEI
UNITED KINGDOM
Catapult centers:
Double manufacturing contribution
to GDP
JAPAN
Revitalization/robotics strategy:
Increase the productivity of service
industries, significantly raise the
deployment of robotics by 2020
FRANCE
Industry of the future:
Support the development
of specific products (efficient
car, electric airplane, etc.)
SOUTH KOREA
Manufacturing Innovation :
Create a manufacturing ecosystem
based on new technologies/encourage
smart factory development
UNITED STATES
Advanced Manufacturing Partnership :
Create high quality manufacturing jobs
and enhance US global competitiveness
BELGIUM
Intelligent factories clusters:
Suport the development of
"Factories of the future"
CHINA
Made in China 2025:
Turn China into a strong manufacturing
nation with priority on digitization and
modernization of 10 sectors
ITALY
Intelligent factories clusters:
Structure Italian manufacturing
community to develop and leverage
research, with 4 projects
Source: Roland Berger
2010
2011
2012
2014
2015
International rollout: Initiatives launched per country
Industrie is a concept originating in Germany in 2010 and introduced
to the public by the German Engineering Federation at the 2011
Hannover Messe. Today it is known all over the world
What is Industrie ? It symbolizes the advent of the fourth global industrial revolution,
which makes use of three technological innovations – automation, the Internet of Things and artificial
intelligence – to create groundbreaking industrial and economic models. What might have
been perceived as a marketing initiative by industrial equipment suppliers became, in the space
of just a few years, a global concern shared by the industrialized world.
THINK ACT
Industrie
11
base – estimated in 2014 at 19 years old on average, sig-
nificant manufacturing job losses (- 20% between 2000
and 2014), a fall in value added (-4%) over the same pe-
riod, and a drop in profitability (-70%), French industry
is sharply decreasing. In 2014, French industry suffered
a shortfall of EUR 40 bn on its investments in relation to
its depreciation. As a result, French industry has be-
come less capital intensive, but not for good reasons.
The machine use rate fell from 85 to 81% between 2000
and 2014, with the country's ROCE dropping from 20%
in 2000 to around 8% in 2014.
Does industry of the future represent a golden op-
portunity to re-emerge as an industrial power? Despite
the weaknesses of its machinery sector, the digitization
of the production system can help France to reposition
itself, thanks to its digital and virtualization expertise
and also to its newly developed and growing start-up
ecosystem. Furthermore, the industry of the future can
present a unique opportunity to create a new manufac-
turing base, one that is able to avoid or bypass the con-
straints of labor costs and related social issues. Indus-
trie can also boost the sector's image with the
general public. Provided that the conditions are favor-
able, France could well nurture a degree of industrial
relocation and manufacture products that are current-
ly delocalized (textiles, parts, etc.), while also creating
skilled jobs.
UNITED STATES:
AN INDUSTRIAL RELOCATION STRATEGY
As a result of significant relocation to China and Mexico,
the rate of industrialization in the US is relatively low
(17% in 2014). In absolute terms, however, American in-
dustry was worth EUR bn in 2014, nearly three
times more than German industry and a figure bettered
only by China's EUR bn in manufacturing value
added. The downside is that with "only" million em-
ployees (as opposed to China's 160 million), American
industry's employment rate fell nearly 30% between
2000 and 2014, with more than five million jobs being
destroyed. For instance, Ford, GM and Chrysler have
alone shed more than 100,000 jobs, with that figure ris-
ing to nearly half a million if their suppliers are includ-
ed. In the meantime, the US has invested heavily in its
industrial sector, with capital employed doubling be-
tween 2000 and 2014. The modernization, automation,
the use of robotics in factories and high labor productiv-
ity (around 40%) have helped profits jump 54%.
France and Japan, meanwhile, more significance is at-
tached to raising job satisfaction levels, making manu-
facturing more sustainable and harnessing Industrie
to improve the image of industry. E F
GERMANY:
A DEFENSIVE/OFFENSIVE STATEGY
Germany is the only country whose industry has sig-
nificantly improved its ROCE over the last 15 years. It
has been following the route of Industrie . Despite a
slight drop in employment (9%), German industry has
seen its value added rise 80% between 2000 and 2014
and its profits jump 158%. Investments and deprecia-
tion have remained more or less unchanged over the
same period, while far better use has been made of as-
sets, and the rate of use of production equipment rose
from 85% in 1998 to 95% in 2014. As a result, Germa-
ny's ROCE climbed from 12% in 2000 to over 30% in
2014. Capital employed, which has remained constant,
produces far more today than it did 15 years ago, help-
ing to give rise to the so-called "German miracle".
About a decade ago Germany was facing several chal-
lenges: rising labor costs; rising energy costs in the fu-
ture; the need to renew infrastructure, and a shortfall in
skilled employees. Industrie can help the country
combat the risk of the competitive potential of the exist-
ing model being compromised. Germany is also a pro-
ducer of Industrie solutions, thanks to giants such
as Siemens and Bosch and a number of medium-sized
enterprises specializing in manufacturing equipment,
a sector that accounts for more than 3% of national
GDP. Germany is thus putting its faith in the develop-
ment of solutions as a means of sustaining its dom-
inance in the global market and keeping production
volumes steady. Consequently, Germany's strategy
is both defensive in nature (maintaining its production
at home, being more flexible in response to crises in
international markets) and offensive (ensuring skills
and know-how stay in Germany in order to support the
export model).
FRANCE:
A STRATEGY FOR INDUSTRIAL RESURGENCE
French manufacturing is not particularly strong. It ac-
counts – the energy sector included – for only 12% of
national GDP and million jobs. The country has
been pursuing the route of industrial obsolescence for
some time now. With an ageing manufacturing machine
THINK ACT
Industrie
12
WHAT? HOW? WHO?
Added value and
competitiveness
Aim for lower labor sensitivity,
improve competitiveness, create
entry barriers
Germany
Japan
United States
China
Footprint and new
business models
Produce personalized products
at mass production cost
France
Japan
United States
Global leadership
in solutions
Develop technologies and standards,
create export solutions
Germany
China
South Korea
Internationalization
and risk management
Build flexible production lines to balance
demand volatility, decrease capital
cost of geographical expansion
Germany
Japan
China
South Korea
Digital start-ups and
ecosystems
Create platform to enable ecosystems,
accelerate innovation via incubators and
clusters
France
China
United States
Employee satisfaction
at work
Reduce convenience at work, make work more
meaningful for life
France
Germany
Japan
Sustainability
and image
Reduce use of natural resources,
improve image of industry
France
Japan
F
AN OVERVIEW OF DIFFERENT
RATIONALES
The motivation to implement initiatives in favor of the industry sector and
the measures applied depend on the challenges that are most urgent
Source: Roland Berger
THINK ACT
Industrie
13
The US has, to some extent, followed the route of auto-
mation, with modernization and productivity increas-
ing, albeit with a level of investment that is too high in
relation to the value added generated, and, as a result,
with no improvement in ROCE. As far as the Americans
are concerned, the challenge with regard to Industrie
is a simple one: to increase value added and make
better use of modernized assets. That is the objective of
President Obama's policies, in particular the Advanced
Manufacturing Partnership, which aims to promote
Industrie in factories, increase value added, enable
the relocation of industrial activities and create
high-quality skilled jobs across the country.
JAPAN:
A STRATEGY TO RENEW INDUSTRIAL GROWTH
Japan's manufacturing value added shrank by 40%
over a ten-year period, and the country lost two million
industrial jobs between 2000 and 2014, with industrial
profits falling 80% over the same period. In the mean-
time, it has "underinvested" to the tune of EUR 160 bn.
Its inevitable deindustrialization is the result of its
proximity to China (where a number of Japanese man-
ufacturers have relocated), a strong yen dragging down
exports and an overall drop in competitiveness, exacer-
bated by the impact of the country's population de-
cline and the disastrous economic effects of the March
2011 tsunami. It is on the obsolescence route.
Reliant on a weak yen, Prime Minister Shinzo Abe's
economic policies (Abenomics) has also revealed its
shortcomings, giving rise to more expensive imports –
which are very important to Japan – but without stimu-
lating exports, with the fall in the yen mainly being used
by manufacturers to create margin rather than volume.
Not surprisingly, these developments have led to a
sharp fall in ROCE, followed by very weak asset turn-
over and low profitability. In order to halt deindustrial-
ization, Japan has belatedly committed itself to Indus-
trie , launching a raft of programs in the middle of
2015. Bearing in mind its current level of automation,
Industrie should allow it to regain competitiveness
and flexibility. Industrie also has a crucial role to
play in addressing young people's lack of interest in in-
dustry and in offsetting population decline by reviving
investment in the quality of work in factories. Finally,
it is essential for Japanese companies with a high inter-
national profile that the country should provide them
with a competitive industrial base.
CHINA:
THE INDUSTRIAL EXCEPTION
A world leader in "low-cost exports", China has evi-
dently taken good note of the threats to this model. It
has also understood that the only way it can safeguard
its industry is to upscale and go premium, especially
given the fact that there are two major obstacles to the
growth of its manufacturing value add: falling de-
mand for low-cost products and, above all, the grow-
ing problem it faces in terms of competitiveness, with
blue- and white-collar wages rising all along the east
coast, energy and land costs rising, and difficulties in
attracting workers to the center of the country, among
other issues.
China thus sees Industrie as the solution to the
challenges it faces in terms of competitiveness and up-
scaling, and also views it as a means for developing a
portfolio of industrial solutions that will allow it to
compete, in time, with Germany. Will China's industri-
alization, which like Korea and Japan has followed the
conventional blueprint of a low-cost exporter that then
upscales – prove to be the exception at the end of the
industrial miracle?
A NEW GROWTH MODEL FOR
EMERGING COUNTRIES
Industrie does indeed result in a profound upheav-
al of the development model in emerging countries by
depriving them of access to the model of conventional
industrialization and the exporting of low-cost prod-
ucts. Emerging nations have a need for industrial
goods and products that are produced locally. Thanks
to far more flexible means of production, lower capital
employed and the increasing customization of prod-
ucts, Industrie is well able to adapt to unstable mar-
kets by mitigating risk of the kind that occurs in emerg-
ing countries. The Industrie model can help
emerging nations industrialize at a local level by en-
abling more win-win cooperation between themselves
and the industrialized world through the principle of
co-localization, which is not new in itself but which has
the potential for far greater development.
Foreign partners can thus provide the production
means and the technology to develop products and
are paid for the use of industrial assets. As a result,
the "host" country creates added value around a raft
of design, marketing, sales and product distribution
activities.
THINK ACT
Industrie
14
One of the most delicate questions regarding the
fourth industrial revolution concerns the impact it will
have on jobs. Will the quantity of employment de-
stroyed by digitization and automation be compensat-
ed for or not by the creation of activity linked to the
benefits they bring? The fact of the matter is that In-
dustrie involves a large number of jobs, and the im-
pact in terms of the reduction in the quantity of work
in the factories of the future, compared to those of to-
day, is potentially significant.
In the next industrial transition, however, it is not
volumes, the scale effect or the labor cost factor that
will create value, but product customization, and, in
economic terms, the reduction of capital employed to
obtain them. These new value drivers possess consid-
erable potential for creating new activities and jobs.
With Taylorization, the specialization of tasks and
the standardization of the product, Ford was able to
cut the time it took to make one of his cars from
hours to just . In ordinary circumstances, this
would have led to a 90-percent drop in employment,
but given that mass-produced cars were considerably
cheaper to make, ultimately a much wider section of
the population could afford them. This drove de-
mand, which increased much faster than the rate of
production, hence generating jobs in numbers that
exceed the employment fall caused by the reduction
in labor per unit. This mechanism for converting pro-
ductivity into purchasing power, which then drove
production, was also the cornerstone of Les Trente
Glorieuses (as the 30-year period between 1945 and
1975 was known in France).
THE TRADITIONAL ACTIVITY RECREATION
DRIVERS ARE AT A HALT
During the successive waves of automation, manufac-
turing volumes offset the increase in productivity in
jobs. More recently, industrial productivity gradually
translated into reduced costs instead of increased vol-
umes that led to a growth in services triggered by in-
creased customer spending power. At the same time,
the productivity of the industrialized nations was the
catalyst for a boom in emerging countries, which ben-
efited from work being transferred to them.
In the four decades that have followed the era of au-
tomation, industrial job losses have been compensated
for by three drivers of alternative economic activity,
which have now ground to a halt. In the last 15 years, five
An opportunity for
social change: Industrie
can set new
impulses for growth
and employment.
THINK ACT
Industrie
15
G
POSITIVE PROSPECTS FOR TALENT
AND EMPLOYMENT
In our model we assume an adoption rate of 50% for Industrie solutions
until 2035. We observe where jobs are disappearing, being replaced and where
completely new ones are being created in Western Europe. The net effect
is expected to be positive
Number of employees
in industry [m]
Source: Roland Berger
2015 2035
Relocation of
activities lever-
aging Industrie
business
model
Industrial
productivity
( m)
Lack of com-
petitiveness
( m)
Investment in
Industrie
solutions
( m)
Reinvestments
in new indus-
trial products,
equipment
Reinvestments
in new services
activities
Approx.
10 m jobs
THINK ACT
Industrie
16
the value-creation mechanisms are fundamentally dif-
ferent in nature to those that have emerged in previous
industrial revolutions.
THE NEW PARAMETERS OF THE
EMPLOYMENT EQUATION
In the future, Industrie will allow products to be
manufactured locally with optimized industrial assets
and relatively little labor. The concern now is to in-
crease flexibility, customization and quality, among
other factors. It is no longer a question of improving
prices or volumes. The issue at stake is knowing how to
generate alternative economic activity and employ-
ment as part of this new deal, by means of mechanisms
that are very different to those we have seen to date.
During the third industrial revolution, automation,
mass production in factories and delocalization had
the principal effect of optimizing cost prices, by raising
volumes to a level at which investment was justified. In
the next industrial transition, it is not volumes, the
scale effect or the labor-cost factor that will create val-
ue, but the customization of products and services,
and, in economic terms, the reduction of capital em-
ployed. This ROCE economy has considerable poten-
tial to create value, and thereby activity and jobs, albeit
in ways that differ to those we are familiar with. G
Deindustrialization of European industry will con-
tinue to a certain extent until 2035. Based on historical
data we estimate than million jobs will be destroyed
by the effects of productivity and million by the loss
of competitiveness in relation to other regions. The
next factor mirrors the impact of the gradual introduc-
tion of Industrie before 2035, by envisaging that
only 50% of industrial companies will have chosen to
harness the full potential that Industrie has to offer,
and that the remaining 50% will only use certain tech-
nological building blocks with a view to becoming
more competitive. Industrie will accelerate the rate
of job losses, with around an additional million be-
ing destroyed, thereby doubling conventional industri-
al productivity. Only million jobs would be left in
an industrial sector that has become largely and, at
the very least, competitive once more.
RECREATION OF EMPLOYMENT
OUTPACES DESTRUCTION
At the same time, the manufacturing base will have
been modernized by solutions, allowing capital
million industry jobs have been lost in Western Europe,
with industrial jobs now accounting for only 15% of to-
tal jobs in the zone. While such falls were always offset
in the past, this is not the case anymore:
1. Outsourcing to services (which accounted for around
35% of the fall in industrial jobs before 2000) has di-
rectly contributed to the growth of industry-related ser-
vices: logistics, maintenance, security, industrial sub-
contracting, etc. Over the last 15 years, this particular
driver represents less than 10% of the fall in employ-
ment and no longer generates employment.
2. Industrial productivity (which accounts for around
45% of the fall in industrial jobs), through cost cutting,
translates into customer spending power, which has di-
rectly contributed to the growth of services and has cre-
ated jobs in number. A turning point has been reached
here: with the development of digital technologies ser-
vices productivity is increasing to a degree that is no
longer capable of offsetting industrial job losses.
3. Lack of competitiveness in industry, which accounts for
45% of lost jobs, has had the effect of transferring ac-
tivities to more competitive countries, often at low
cost, either through delocalization, non-replacement
or reinvestment in the activity, creating millions of jobs
there. In enabling countries with high costs to become
competitive again (protecting them from labor costs,
in particular), Industrie has brought an end to the
low-cost model. As a driver of job creation in emerging
countries, the low-cost model is destined to decline in
emerging countries, which will have to find an alterna-
tive growth model.
The loss of momentum of these three employment
transfer drivers has already had visible effects that have
hit the global middle classes notably through a rise in
inequality. This also feeds a sense of pessimism as to
the future of work and society as a whole, where en-
forced inactivity will be the fate of most of the popula-
tion, while an overqualified minority will enjoy all the
benefits of the digital economy. The fact is, though,
that every time some jobs – or occasionally a great
number of them – disappear, others crop up in their
place, while the employment figures generated by in-
dustrial revolutions have always been largely positive.
Why should things be any different this time? Like ev-
ery industrial revolution before it, Industrie has
considerable potential to create value, and this will be
converted into new activities. The new element is that
THINK ACT
Industrie
17
KEY FIGURES
How Industrie initiatives could contribute to more
value contribution and recreation of jobs
Hemployed to be used more gainfully. In making better
use of its base, industry will draw less on capital em-
ployed. Profitability and ROCE will rise and create
new investment opportunities – a key aspect in the
funding of new projects and in creating new jobs. We
have assumed that most of those jobs will be created
in Europe1. In the model, the creation of value linked
to the growth of ROCE, which rises from 18% in 2015
to an average of 28%2, will potentially generate EUR
420 bn, in the form of excess profit (after tax) and sav-
ings in capital employed. Provided that most of it is
reinvested in the European economy, this investment
capacity should generate added value of EUR 850 bn3.
What does this mean for the labor market? In this
model, manufacturing jobs account for 12% of the to-
tal number of jobs, while manufacturing value added
represents 15% of the total value added – figures that
are not dissimilar to the current ones. However, it is
also estimated that other jobs will be created as a result
of the value generated by Industrie , in services as
well as manufacturing. We estimate that this develop-
ment represents the creation of potentially upwards
of ten million new jobs. That would be enough to off-
set the overall fall. Around three million of these jobs
would be created in manufacturing, with the remain-
ing seven million coming in new services4. Out of the
three million new manufacturing jobs, we estimate
that million would come from the industrial relo-
calization of activity formerly based in Europe (for
example, from textile , the manufacture of parts,
toys, furniture, etc., or in other sectors that have long
since been delocalized) or from activities that are on
the verge of being delocalized. Though a moderate es-
timate, this figure conveys the idea that relocalization
requires new, ultra-optimized and automated solu-
tions with low numbers of employees to be as compet-
itive as other low cost countries. The jobs that are cre-
ated by new industrial activities bear little resemblance
to old ones and are based on an entirely different busi-
ness model. Assets take the form of a product platform
and a services ecosystem that are highly standardized
and are used extremely efficiently,ioffering customiza-
tion, user-oriented services and management of the
customer-community interface. H
1 It was assumed that the jobs created abroad from foreign investments are offset by the jobs created by foreign countries investing in Europe.
2 18% for the half of industry that remains conventional and 38% for Industrie .
3 Based on asset turnover of for manufacturing and for services.
4 We have envisaged that 35% of the reinvestment would come in manufacturing (double the national average) and 65% in services, as this value creation
would come from industrial companies, which are more inclined to reinvest in their sector than the economy as a whole (20-80).
new jobs could be created in
the service sector alone.
m
is the potential return on capital
employed in Western Europe until 2035 –
compared to 18% today.
28%
net profits and savings in capital
employed would be the value effect
of Industrie .
420 bn
would be the share of manufacturing jobs
on total jobs in 2035.
12%
THINK ACT
Industrie
18
Industrie also provides an economic rationale
founded on the creation of new value. New industry
generates its value by increasing the use of an asset or
product – which translates into a lower cost of use for
the customer – and by reducing capital employed for
the producer. This shift in the economic paradigm,
which is what creates new industry's value, is the factor
that will create alternative economic activity and jobs
in the years to come.
There is an urgent need to gain a better under-
standing of this transformation, to comprehend and
explain it in more detail. Only then will we be able to
plan for a transitional phase that is already largely un-
der way, and brings concomitant problems: unemploy-
ment, deindustrialization, the disintegration of large
groups, social tensions, unsuitable skills, etc. With a
view to keeping this phase as short as possible, we
must start anticipating the imminent restructuring of
the social, employment and investment model. There
is a new world waiting to be built.
A WORLD OF NEW SERVICES
Another characteristic of Industrie , as with digitiza-
tion, is that it puts a premium on usage rather than the
possession of goods (. matching services, pay-as-you-
go). As a result, even though the price of the product
remains the same, the customer's total outlay is signifi-
cantly lower because they pay for usage only, thus free-
ing up spending power. This virtuous circle is radically
different to the core concept of our development to
date. Price per unit and production volumes will no lon-
ger be of concern. Instead, it is the volume of use that
increases and the cost of use that decreases, while as-
sets and products remain constant or diminish.
We estimate that the creation of value has the po-
tential to generate nearly seven million jobs in ser-
vices, thereby satisfying the additional spending power
freed up by reduced cost of use for consumers. By con-
sidering how basic needs are fulfilled, we can under-
stand the huge potential to create new services, in the
field of education and training, health, leisure, access
to knowledge, mobility, food and human contact,
which are continually developing and far from being
satisfied for all Europeans, in terms of either quality or
cost. We will thus see digital for solutions to various
aspects of mobility and access to accommodation,
health or education emerging.
What these figures reveal above all is the scale of
the shift in employment that is about to take place.
Nine million of the 25 million people employed in
manufacturing will change activity, moving primarily,
to services, while the remaining 16 million will see
their jobs change significantly. This signals an urgent
need for us to prepare the ground for training the pop-
ulation for such a transformation, at every level.
CALL FOR ACTION
Industrie provides us with the means to rethink our
industry as part of this new environment and ensure
that it remains strong in industrialized nations. It re-
sponds to four key issues: the increased competitive-
ness of assets, flexibility, the ability to respond to
changes and shifts in demand, and the regionalization
of production. It also responds to humanity's aspira-
tions, which occupy a more central place in industry
than ever before. Finally, it also paves the way for some
sort of renaissance in cottage industries, by making it
viable to have small structures situated closer to popu-
lation centers.
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Les classes moyennes face à la
transformation digitale
Since 1990 the manufacturing sector in
France has been facing major challenges.
The country still has not found a shared
vision of how to adapt to the digital
transformation of industry. We are looking
for a strategy to protect the industrial base
and the nations' industrial employees.
Additive manufacturing
As industrial digitization proceeds apace,
fully automated 3D factories are realizable
and anticipated. The market for additive
manufacturing/3D printing has grown 20
percent on average every year since 2004.
We expect a wide variety of technological
innovations to considerably broaden the
scope of applications and support further
growth.
Nouvelle donne industrielle,
nouveau modèle économique
This books explores the impact of the
transition towards Industrie . It looks
into industrial strategies, industrial policy,
developed and emerging countries, skills
shift and the recreation of activities. It aims
at developing a vision of the end game, to
better prepare the upcoming transition.
Of Robots and Men
Automated solutions for logistics are
making very fast progress. Now, they
allow human operators and machines to
work within the same warehouse. The
impact will be twofold: Within companies
automation will dramatically reduce
logistics costs; on the labor market
unemployment will be the consequence.
Roland Berger, founded in 1967, is the only leading global
consultancy of German heritage and European origin.
With 2,400 employees working from 36 countries, we have
successful operations in all major international markets. Our
50 offices are located in the key global business hubs. The
consultancy is an independent partnership owned exclusively
by 220 Partners.
19THINK ACT
Industrie
TA
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