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com
G00270283

Industrie 4.0 The Ten Things the CIO Needs

to Know
Published: 30 October 2014

Analyst(s): Stephen Prentice, Simon F Jacobson, Bettina Tratz-Ryan

Industrie 4.0 is a German-Government-sponsored vision for advanced

manufacturing. However, the scope of coverage and increasing awareness
in other regions gives rise to considerable confusion. Here are the basics
every CIO needs to know.

Key Findings

Industrie 4.0 is not new. It is the latest incarnation of a framework for assembling technologies
and business concepts across multiple disciplines and sectors.

Industrie 4.0's true impact across supply chains will not be felt for five to 10 years in
mainstream organizations. Many organizations will need to mature their existing business
strategy foundations in order to participate.

Industrie 4.0's ultimate impact is very broad across multiple industries, and beyond digital
business, it will impact society and the environment.

Industrie 4.0 encompasses many technologies and business designs, including the Internet of
Things and digital business, but is not synonymous with, or a replacement for, any one specific
technology.

Recommendations

Industrie 4.0 will force alignment across and between IT and operational technology (OT). CIOs
should work to build mutual trust and alignment across these organizational divides.

CIOs should work closely with their manufacturing and business process counterparts to build
performance-based maturity levels on an end-to-end basis to support the interconnected
nature and flexibility that Industrie 4.0 presents

Most organizations will find themselves best served by breaking the sweeping aims of Industrie
4.0 down into much smaller and simpler (and ultimately achievable) elements. CIOs should work
with manufacturing stakeholders to identify smaller, more immediately beneficial incremental
steps and focus their investments on these.

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Table of Contents
Analysis.................................................................................................................................................. 2
1 What Is Industrie 4.0?....................................................................................................................2
2 What Is Gartner's Position on Industrie 4.0?.................................................................................. 3
3 What Does Industrie 4.0 Include?.................................................................................................. 3
4 Is Industrie 4.0 Confined to Germany, Austria and Switzerland (DACH)?........................................5
5 Is Industrie 4.0 Relevant Only for Manufacturing Companies?........................................................6
6 What Other Initiatives and Processes Will Industrie 4.0 Impact?.....................................................6
7 What Vendors Are Playing a Significant Role in Industrie 4.0?........................................................6
8 What Should CIOs Do About Industrie 4.0?................................................................................... 7
9 What Will Be the Key Challenges of Industrie 4.0?......................................................................... 8
(10) How Is Gartner Addressing Industrie 4.0?..................................................................................9
Recommended Reading.........................................................................................................................9

List of Figures
Figure 1. Industrie 4.0 in Perspective...................................................................................................... 5

Analysis
Industrie 4.0 is the subject of numerous inquiries to Gartner analysts from CIOs trying to understand
what it is and what they need to do about it. This research note provides a succinct overview that
answers the most common questions and provides greater insight for CIOs facing calls from their
CEO, chief supply chain officer (CSCO) or vendors to develop a blueprint for Industrie 4.0.

1 What Is Industrie 4.0?

Industrie 4.0 is a framework that seeks to describe the future state of manufacturing operations.
Industrie 4.0 proposes such a broad technology and business framework that practically every new
and emerging trend can find a home inside wherein lies much of the confusion that surrounds
this all-encompassing terminology. Industrie 4.0 is not a single technology or even a group of
technologies that can be implemented.
In simple terms, Industrie 4.0 is a German-Federal-Government initiated vision for a digitally enabled
industrial economy. The underlying concept is to connect embedded systems and smart production
facilities to generate a digital convergence between industry, business and internal functions and
processes. Industrie 4.0 refers to a fourth industrial revolution (following water/steam power, mass
production and automation through IT and robotics) and introduces the concept of "cyber-physical
systems" to differentiate this new evolutionary phase from the electronic automation that has gone
before. The term was first used in 2011, and a working group presented a set of implementation
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recommendations to the German Federal Government that were finalized in April 2013. With
industrial production playing a key role in the German economy, government support and backing is
designed to maintain and enhance the competitive position of German manufacturing in the world
market and create smarter products and a more sustainable manufacturing base and build a more
skilled workforce. Although Industrie 4.0 starts with advanced manufacturing, the ultimate impact
will transcend into other segments including utilities and smart cities where, at some point,
production activities will be coordinated (or even suspended) to accommodate increased energy
demand within the smart grid and other elements of the smart city. These touch the development of
new IT- and technology-centric education and work opportunities, as well as the development of
real-time data that will operate and manage broadband information and communication technology
(ICT) infrastructure, buildings and traffic systems.

2 What Is Gartner's Position on Industrie 4.0?

To summarize Gartner's position on Industrie 4.0 (see Evidence 2):

Industrie 4.0 is the latest incarnation of a framework for assembling multiple technologies and
business concepts in multiple industries together. It is not new.

Industrie 4.0 will force multifunctional convergence between internal functions and processes
inside an enterprise and across industry lines. However, the direction and timelines are unclear
and depend on individual abilities of organizations to adopt and transform.

Industrie 4.0's true impact will be felt in the next five to 10 years. Many organizations will need
to mature existing business strategy foundations in order to completely participate.

Industrie 4.0's ultimate impact spans beyond digital business and multiple industries. It will
impact society and the environment.

Industrie 4.0 associates with many other technology paradigms, like the Internet of Things, but
is not synonymous with or a direct replacement for any one specific technology.

Vendor ecosystems must evolve to support the new information availability and interoperability
requirements. This will span IT/OT and multiple business processes (production, supply
planning and financial).

3 What Does Industrie 4.0 Include?

Industrie 4.0 is an over-arching framework that brings together a wide variety of different
technologies and emergent trends to move toward its ultimate realization. Several organizations
interpret that Industrie 4.0 is synonymous with the Internet of Things; however, it is much broader.
Its key components include:

The convergence and alignment of IT and OT: Existing embedded process control systems,
sensors and tags are critical to creating an integrated manufacturing capability. However, this is
more than technology by straddling the IT/OT domains, Industrie 4.0 challenges both parties
to integrate and collaborate from starting positions that are typically well-separated and reflect

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significantly different (almost opposing) cultural, organizational and governance perspectives,

which makes this very challenging.

Internet of Services: This connects production facilities that are virtualized across geographic
locations and company boundaries via extensive use of cloud services and high-speed
networks.

Information integration and availability is another critical element of Industrie 4.0. This builds on
big data and predictive analytics to provide resource-efficient high-quality production by
extending traditional factory flexibility to individual processes, not just individual production
lines or factories, to best handle the dynamic and increasingly complex nature of demand,
service and product mixes.

Industrie 4.0 also acknowledges the growing role of new technologies such as 3D printing and
smart machines and the need for a mixed (human/robotic) workforce working safely in the same
space, with human augmentation technologies including exoskeletons and augmented reality to
provide both physical support and contextually sensitive assistance and training.

Most importantly, Industrie 4.0 also reflects Gartner's Digital Business Framework by proposing that
the product (or something of an economic output or equation of economic currency, such as a unit
of power, a well-educated employee, a real-time bit of information that will make the delivery of an
item more efficient) becomes an information container and active participant in its own life cycle and
interactions, both during manufacturing and beyond. Finally, Industrie 4.0 extends beyond the
production environment to support environmentally sustainable localized manufacturing facilities
integrated into smart cities.

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Figure 1. Industrie 4.0 in Perspective

Digital
Security
and Risk

Industrie
4.0

Scaled
Performance

Digital
Rapid
Security
Integration
and Risk

Adaptable
and Flexible

Internet of
Things

Source: Gartner (October 2014)

4 Is Industrie 4.0 Confined to Germany, Austria and Switzerland (DACH)?

Industrie 4.0 is an interpretation of the combined influence of many global trends by the German
Government and selected German manufacturing organizations such as Siemens and Bosch.
Although the majority of pilots, incubation and experimentation are confined to the DACH region,
the globalized nature of operations for DACH-headquartered and non-DACH-headquartered
organizations will prohibit Industrie 4.0 from being remanded to a single market. We are already
receiving inquiries from other geographies especially the Asia/Pacific region.
A growing number of (broadly) comparable initiatives are emerging elsewhere, including the Smart
Manufacturing Leadership Coalition (U.S.), the European Factories of the Future Research
Association (EFFRA) and, more recently, China's "Made in China 2025" initiative. Given Germany's
prominence on the global economic stage, we anticipate other similar programs to emerge. Also,
and predating Industrie 4.0, Gartner recognized the direction of future manufacturing operations
and introduced the concept of Manufacturing 2.0 in 2007 (and updated it in 2010; see

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"Manufacturing 2.0: A Fresh Approach to Integrating Manufacturing Operations With DDVN"), using
it as an umbrella framework with comparable aims. Specifically, Manufacturing 2.0 focuses on using
service- and collaboration-based architectures to let manufacturers dynamically reconfigure sensor
and mobile-worker-supported product supply networks to make products both on-demand and
right the first time.

5 Is Industrie 4.0 Relevant Only for Manufacturing Companies?

At this point in time, Industrie 4.0 is largely applied to manufacturing segments. The substantial
initial focuses are on smarter and efficient production but also the ability to handle increasingly
complex products and individualized demand. This is critical for the German export industry.
However, even within the manufacturing segment, its applicability varies by industry. While
improving flexibility and quality are end-state objectives, discrete and process manufacturers are
taking different paths to Industrie 4.0. For example, Gartner has observed several process
manufacturers focused on asset performance management while discrete manufacturers are
pursuing projects focused on improving quality in machining and final assembly.
As the notion of interconnected processes and cyber-physical systems comes to reality, Gartner
anticipates that this framework will expand into other segments including smart cities, utilities,
public sector, telecommunications and media, knowledge industries, insurance, and wholesale.
However, at present, a foundation within manufacturing which is the underlying driver of
economic competitiveness is the focus of the greatest attention.

6 What Other Initiatives and Processes Will Industrie 4.0 Impact?

In broad terms, every industry that is becoming more automated or more data-driven or that
deploys more technology will be caught up under the umbrella of Industrie 4.0. Equally, anything
that is connected to the Internet, or that produces data (or consumes it) to optimize operations and
generate value is a potential target. As such, current trends such as the Internet of Things, big data,
predictive analytics and the full scope of digital business (the generation of new business value from
the confluence of people, business and things) are inextricably entwined with Industrie 4.0. Having
said that, it is critical to reiterate that Industrie 4.0 is not synonymous with the Internet of Things.

7 What Vendors Are Playing a Significant Role in Industrie 4.0?

The Industrie 4.0 consortium is led by acatech (National Academy of Science and Engineering,
Deutsche Akademie der Technikwissenschaften) and consists of the following consortia members:

Robert Bosch

Infineon Technologies

ABB Group

Phoenix Contact

Festo

Wittenstein

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Siemens

T-Systems

Trumpf

HP

IBM Deutschland

SAP

Industry organizations include Bitkom, VDMA and the German Electrical and Electronic
Manufacturers' Association (Zentralverband Elektrotechnik- und Elektronikindustrie [ZVEI])

More broadly, Industrie 4.0 represents a significant opportunity for technology providers to promote
their expertise and extend their market reach. In recent months, we have observed significant
interest in Industrie 4.0 coming from a wide range of technology companies both those that are
versed in transactionally based IT spaces and from those with an operational technology (OT)
background with a strong focus on process control and manufacturing automation. CIOs should be
careful of transactionally based IT vendors trying to promote a wider use of IT within manufacturing
processes but that (in general) do not have deep manufacturing expertise. Their approaches are
often characterized as "how IT thinks manufacturing should be run" as opposed to the more
established perspective of the manufacturing domain experts. In the long term, their lack of
traditional experience may allow new ideas and approaches to be introduced, but in the shorter
term we expect them to struggle to integrate classic IT approaches into an environment that, at
least for the near term, will still be dominated by engineering-oriented OT systems. Finally, we see
signs that IT service companies such as cloud service providers (CSPs) and data centers are now
investigating Industrie 4.0 as a (potentially huge) new business opportunity to substitute for the
slowdown in their core markets. This includes the broadband initiatives of the Digital Agenda, as
well as the development of distributed data center designs for multiple locations. Again, these
providers often focus on IT transformational initiatives (versus business and technology intertwined)
and appear to lack the core manufacturing expertise regarded as essential by their potential clients.

8 What Should CIOs Do About Industrie 4.0?

Industrie 4.0 is a far-reaching and aspirational initiative that has great promise, but it also represents
a quantum leap that is simply too great for most organizations to take at this time.
We believe that organizations will be best served by breaking the sweeping aims (and to some
extent the "one size fits all" approach) of Industrie 4.0 down into much smaller, more manageable
elements and focusing their investments to take smaller incremental steps. These might include:

Combining data from both internal and external sources to improve decision making in creating
feedback loops to improve product and process designs.

Developing the competencies (and mutual trust) to better integrate IT and OT within the
organization, including the integration of security and risk management across these two
domains.

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Inventorying existing IT support for manufacturing and identifying where further digitalization is
needed.

Developing performance-based maturity within the manufacturing function, as well as supply

chain functions as a whole, to support the interconnected nature and flexibility that Industrie 4.0
presents (see "Apply the Gartner Maturity Model to Evolve Manufacturing Excellence").

Understanding how the underlying technologies of Industrie 4.0 may impact the localization of
manufacturing operations (rather than globalization) to determine the optimal tradeoffs between
cost, innovation and supply.

Working toward concurrently developing smart products and smart manufacturing processes,
but on a focused and incremental basis where the investments can be clearly justified and the
benefits are clearly apparent.

9 What Will Be the Key Challenges of Industrie 4.0?

The challenges lie in the vast gulf that currently exists in existing manufacturing, and "traditional"
silo-based environments between the engineering processes and thinking of OT and the data and
transaction processes that dominate the traditional IT space. The path to Industrie 4.0 will require
high levels of alignment integration of both data from multiple sources and processes and cultural
factions within an organization. Often, workforce skills lack the progress of technology adoption, so
HR development has to be built in sync with the advancement in technology implementation. Data
may provide the visibility as to what is actually happening in the environment, but it is the processes
that provide the robust and reliable environment expected in manufacturing. Gaining flexibility will
not be easy without risk of losing the existing reliability. On the data side, there is still much
development work to be done in most environments to move from offline (and in some cases
manual, paper-based) data collection to the automated, real-time online data collection that is
required.
Further integration will also be required horizontally across the diverse manufacturing and valuecreation chains, from product design and development through just-in-time and "lean"
manufacturing into the distribution chain. Simultaneously, vertical integration between the various
organizational functions (plan, source, make and deliver not to mention sales and marketing) will
be necessary. Hence the transition to Industrie 4.0 requires huge levels of change not only within
discrete functions such as manufacturing (as well as within discrete subelements such as the
operation of both a single machine and a series of machines operating in sequence), but also
across the entire organization touching almost every department and function. This is clearly
both challenging and resource-intensive difficult at a time of economic volatility and continuing
uncertainty. It also needs to leverage the broader economic and cultural aspects of a digital
economy and environment, which includes the integration of third-party data and use cases.
Analysis of direct and indirect impact of Industrie 4.0 on environment, urban planning and societal
development is a key responsibility of executive leadership. Complicating matters, critical
underlying trends such as the Internet of Things and even the analytics and data collection of big
data are still in the early developmental stages (although progressing quickly), thus making it
difficult to adopt into an operational manufacturing environment where reliability and robustness are
taken for granted.

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(10) How Is Gartner Addressing Industrie 4.0?

Because of the regional nature of Industrie 4.0, it is not a term widely used by Gartner, but we have
a well-established body of research and ongoing activity (under the Manufacturing 2.0 and IT/OT
banners) that addresses the aims and ideals of Industrie 4.0 especially the steps, transitions and
challenges of reaching such a high level of connectivity and automation from today's typical
manufacturing environment. In 1988, AMR Research coined the term manufacturing execution
systems (MES) and built on this in subsequent work including the concept of the demand-driven
value network (DDVN). When Gartner acquired AMR Research in 2009, multiple strands of research
and broad expertise were amalgamated under the Manufacturing 2.0 banner, including a maturity
model for manufacturing excellence created in 2013. Current research continues to integrate
ongoing research in digital business and other developments.
Beyond the umbrella of manufacturing coverage, Gartner also provide broad coverage of many
constituent elements that lie within the Industrie 4.0 framework. These include digital business, the
Internet of Things, big data and analytics, IT/OT integration, smart machines, human augmentation
and augmented reality, the challenges of hybrid workforces, and smart cities.

Recommended Reading
Some documents may not be available as part of your current Gartner subscription.
"Internet of Things Scenario: When Things Negotiate"
"Get Ready for Digital Business With the Digital Business Development Path"
"Apply the Gartner Maturity Model to Evolve Manufacturing Excellence"
"Digital Business Requires Redefining the Scope of Manufacturing Operations"
"Hype Cycle for Leaders of Manufacturing Strategies, 2014"
"The Five SMART Technologies to Watch"
"The Internet of Things Is Giving Technology a Voice and a Vote"
"Digital Marketing, Internet of Things and 3D Printing Are Digital-Business-Driven Disruptions for
Supply Chains"
"The Internet of Things Is Moving to the Mainstream"
"Realize the Benefits of IT and OT Alignment and Integration"
"2014 Strategic Road Map for IT/OT Alignment"
"Hype Cycle for Operational Technology, 2014"

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Evidence
1. "Recommendations for Implementing the Strategic Initiative Industrie 4.0. Final Report of the
Industrie 4.0 Working Group"
2. Sessions with leading manufacturing organizations and conference presentations at Gartner's
Supply Chain Summits.

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