What is Industry 4.0
and why is it
important?

While the history of automation in manufacturing goes back decades, the world is now welcoming a new age of automation that could potentially outperform the human workforce. As a result, automation and the economy are likely to become even more entwined as more work is done by robots, artificial intelligence (AI) and smart devices.

Industry 4.0 technologies—such as the Internet of Things (IoT) and AI and edge computing—are having a major impact on how manufacturing is done. But what is Industry 4.0 and why is it important?

Although precise definitions vary, Industry 4.0 has to do with the evolution of technology. The concept reportedly was first introduced in Germany in 2011 and then later to a broader audience in 2016 at the World Economic Forum Annual Meeting.

Industry 4.0 technologies represent the future of manufacturing and a window into the evolving relationship between automation and the economy. Also known as the Fourth Industrial Revolution, Industry 4.0 relies on internet-enabled machinery that shares data in real time with manufacturing control systems. This could support new digital business models that allow manufacturers to more quickly pivot what and how they build to better meet the demands of the market.

In addition, the data that is created could be leveraged throughout the organization, benefiting everyone from finance teams that can create more accurate quarterly forecasts to maintenance engineers who can perform predictive maintenance that helps to reduce downtime. As a result, the global Industry 4.0 market is expected to grow to $210 billion by 2026.

Now that you have an answer to the question, what is Industry 4.0, let’s explore its impact on the economy and automation.

By its nature, automation replaces human-driven work with machine-driven work. While automation, and the Fourth Industrial Revolution specifically, could lead to massive disruption as manufacturers replace human workers with artificial intelligence and robotics, those jobs could be replaced with new roles that emerge.

According to the World Economic Forum's "Future of Jobs 2020" report, 43% of businesses indicate that they are set to reduce their workforce due to technology integration. However, 34% say they plan to expand their workforce due to technology integration, while 41% plan to expand their use of contractors for task-specialized work.

The report notes that, by 2025, the time spent on current tasks at work by humans and machines may be equal. As a result of this new division of labor, it predicts that 85 million jobs may be displaced due to Industry 4.0 automation. However, it also predicts that 97 million new jobs may emerge to meet the new needs of manufacturing. In other words, the convergence of AI and the economy is more complex than it may seem at first, and there could be a net upside potential in the end.

Just as spreadsheets decimated the paper ledger industry, for example, Industry 4.0 may help to eliminate many manual, low-skill positions. However, spreadsheets didn't stop the need for analytically minded workers; it just freed workers from the drudgery of entering numbers onto paper by hand.

Similarly, the Fourth Industrial Revolution could allow workers to shift from repetitive labor to critical thinking, analysis and problem-solving. Already, manufacturers are looking to Industry 4.0 to redeploy employees to create more value; according to the World Economic Forum, companies hope to internally redeploy 50% of workers displaced by technological automation through reskilling as opposed to making wider use of layoffs.