Shaping the Fourth Industrial Revolution

Today, we stand at the beginning of a transformation that will fundamentally change our economy and our society: the Fourth Industrial Revolution.

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Joe Kaeser

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President and CEO of Siemens

Today, we stand at the beginning of a transformation that will fundamentally change our economy and our society: the Fourth Industrial Revolution. It’s the largest transformation in the history of industry, and its power and speed will eclipse all that has gone before. It’s changing the way we manufacture, communicate, learn, work, and do business.

The early stages of this revolution are already behind us. Think of the proliferation of smartphones. Just ten years ago, there was no such thing; today, practically no one leaves home without one. Just a few decades ago, the Internet connected computers at just a few sites. Today, almost every human no matter where in the world can connect to a network that spans the entire globe and provides access to the greatest repository of information and knowledge ever created by humankind. Today, national boundaries are losing their significance. The flow of data and information is extraterritorial.

While the Fourth Industrial Revolution initially took hold in consumer markets, it has now reached the industrial world – a sector that accounts for 70 percent of the global exchange of goods and thus forms the foundation for the “wealth of nations,” as Adam Smith put it.

In manufacturing, “digital twins” enable engineers to design, simulate, and test sophisticated products in the virtual domain – before making the first physical prototypes, before setting up production lines, and before starting actual production. Once everything works in the virtual world, the results are transferred to the physical world – to machines, which then close the loop by reporting back to the virtual world.

The digital technologies on which this revolution is based provide the potential to conserve resources on a large scale. They also create the conditions needed to “decarbonize” the economy step by step, for instance, by enabling the transition of energy systems to renewable sources of energy. If forecasts are correct, our planet will be home to about ten billion people in 2050. Population growth alone is forcing us to make better use of available resources than we’ve done in the past. And digitalization is the decisive lever in achieving that.

However, the Fourth Industrial Revolution is not just about technology and business models; it’s also about society. If we get digitalization right, we will profit enormously. If we don’t, digitalization will further divide society and cause social unrest. And, ultimately, citizens will no longer believe governments are able to enforce the rule of law and provide security.

Millions of jobs will be eliminated, and millions of new jobs will be created

The consulting firm McKinsey recently published a study analyzing how labor markets could change. Their research indicates that, by 2030, as many as 375 million people worldwide – or 14 percent of the global workforce – will have to change occupations or learn completely new skills. Other studies assume that one of every two job profiles will no longer exist in its current form. One thing is certain: There will be radical changes in the working world.

Should this make us anxious and fearful? I don’t think so. Millions of jobs will be eliminated, but millions of jobs will also be created. Yet they’ll be different kinds of jobs! Shaping this massive, global structural transformation in the best possible way – that is the big challenge our society as a whole faces.

Worker representatives play a crucial role here. Conventional negotiation practices and negotiation strategies will no longer suffice. Both managers and workers should accept the Fourth Industrial Revolution as a fact, shape it, and view it as an opportunity. Those who refuse to accept this transformation will ultimately bear at least some of the responsibility for the loss of innovation power and the migration of jobs to other parts of the globe.

History shows that every industrial revolution ultimately created more jobs than it eliminated. And each helped create a better world. The steam engine, the mechanical loom, the assembly line, the computer – all these advances fundamentally changed the work environment but ultimately increased prosperity. And that’s how it will be with the Fourth Industrial Revolution, the merging of the real and virtual worlds. If we get it right!

Maximizing profit can’t be the sole purpose of business. What counts is how it contributes to society

How can we successfully master the Fourth Industrial Revolution?

First, we can learn from the past and lay the conceptual foundation for an inclusive society, for a “Social Market Economy 2.0.” Developed by great thought leaders such as the economist Alfred Müller-Armack in the mid-20th century, the concept of a social market economy has been Germany’s model for success ever since. Müller-Armack envisioned a sustainable economic and social order that aimed to “unite the principle of the free market with that of the fair distribution of prosperity.” This vision is more relevant today than ever before because it points the way to an inclusive form of capitalism that is accepted by society and represents a viable model for economic and social wellbeing.

To me, a further step on the path to inclusiveness is to significantly raise standards for business as far as social responsibility is concerned. Contrary to Nobel Prize winner Milton Friedman’s famous maxim, which is often condensed to “the business of business is business,” striving for profit cannot be a company’s sole purpose. Profitability is not an end in itself but a prerequisite for fulfilling a larger purpose. For only those who are strong themselves can help those who are weaker.

Today, customers, employees, political leaders, and the general public rightfully expect companies to assume greater social responsibility, for example, by protecting the climate, fighting for social justice, and aiding refugees as well as by training young people and creating jobs. In short, by fulfilling a meaningful purpose. At Siemens, we call this “business to society.” And it is this commitment that guides and inspires us.

A second critical success factor for the Fourth Industrial Revolution is education. Political leaders must do more to promote digital skills in kindergartens, schools, and universities. And business must do far more to equip employees for the digital future. At Siemens, digital skills are part of all our training curricula. If the workforce doesn’t keep pace with advances in artificial intelligence and other technologies, how will the millions of new jobs be filled?

The digital age does not tolerate mediocrity

Third, we must encourage innovation and adaptability. Digitalization has already demonstrated its disruptive power. It has turned entire industries upside down. You know the saying: “The Internet cuts out the middleman.” Indeed, the digital age does not tolerate mediocrity. It’s binary. One or zero. On or off. It’s that simple – and yet extremely difficult to accept.

Above all, there’s one thing a company should do: it should listen to and understand its customers. It should analyze value chains, always question its own business models, and invest in technologies that have a promising future. Siemens will be investing €5.6 billion in research and development in fiscal 2018 – more than ever before. And this money is flowing into future technologies such as blockchain technology, autonomous machines, and distributed energy systems – all of which are crucial for ensuring the viability of our company in the digital future.

The fourth success factor is mindset. We need the courage to tackle the tough questions. How can we secure the future of the people whose jobs will be eliminated by machines? Should we impose taxes on software and robots? Do companies that provide global IT platforms have to comply with national rules and regulations? If so, how can such rules and regulations be enforced? What freedoms, rights, and obligations do individuals have in the digital age? We need good answers to all these questions. And this calls, for the courage and the engagement of leaders in business and in the political, scientific, and religious communities.

Leaders must answer these questions

In his book Retrotopia, the Polish sociologist and philosopher Zygmunt Bauman maintains that many have lost all faith in the idea of building a future society and therefore turn to ideas of the past, ideas that are buried but not dead: “Visions that, unlike their predecessors, are not inspired by a still non-existent future but feed on the lost/stolen/abandoned yet undead past.”

Longing for the so-called good old days might give us a sense of security. But it’s a feeling that cannot last; the world is changing too fast for that to happen. So, instead of indulging in nostalgia, we should look for real answers – answers that work for us and future generations. The Fourth Industrial Revolution poses great risks for those who stand on the sidelines, who rather wait and see, and who get stuck in endless discussions. But it offers great opportunities for those who actively shape it. I think we should seize these opportunities.

President and CEO of Siemens

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