Article: In the race for Industry 4.0, are dynamic capabilities the missing link?

Technology

In the race for Industry 4.0, are dynamic capabilities the missing link?

Industry 4.0 adoption presents significant operational and innovation benefits, with dynamic capabilities playing a pivotal role across economic contexts.
In the race for Industry 4.0, are dynamic capabilities the missing link?

The fourth industrial revolution (Industry 4.0 or I4.0) brings a transformation in the manufacturing landscape through interconnected machines, intelligent systems, and improved human-machine interactions. Such a paradigm shift towards dynamic production systems is highly relevant in high-velocity environments centred on cyber-physical systems, where attention has shifted from a machine-dominant paradigm to digitalisation. Companies such as Siemens apply robotics and data analytics in their digital factories to fully integrate data throughout development, production, and supply chain systems.

Despite I4.0’s popularity, a recent survey revealed that 29% of manufacturers face challenges cross-linking diverse databases, production systems, and customer information systems to address product defects or improve performance.

Government initiatives in developing countries

Various government initiatives in developing countries are directly influencing I4.0 adoption and the development of dynamic capabilities (DC). For example, the "Make in India" initiative aims to increase the share of manufacturing in India’s GDP by encouraging innovation and creating job opportunities. Similarly, Indonesia’s "Making Indonesia 4.0" seeks to revitalise the country’s manufacturing sector, positioning Indonesia as a global player in the fourth industrial revolution by 2030.

China’s "Made in China 2025" also stands out as a strategy focused on reducing reliance on foreign technology by promoting domestic innovations and enabling Chinese companies to compete globally. Yet, according to the United Nations Industrial Development Organisation, low skill levels, limited finances, and inadequate infrastructure in developing countries impair I4.0 adoption. Therefore, understanding the differences in I4.0 adoption between developed and developing nations remains essential for fostering global competitiveness.

Operational and innovation performance impacts: Developed vs developing countries

Research studying 213 manufacturers across six countries—three developing and three developed—ranked in the top quartile of the 2021 Global Manufacturing Risk Index reveals that I4.0 adoption significantly enhances operational and innovation performances. The interplay between I4.0 adoption and the role of dynamic capabilities (DC) in maximising its benefits underscores their importance in improving operational efficiency and innovation.

In developing economies, where resources may be more constrained, I4.0 adopters prioritise enhancing operational capabilities. For instance, they focus on improving cost efficiency, product quality, manufacturing flexibility, and overall productivity. This emphasis on operational excellence aligns with the notion of emerging capabilities, where firms strengthen their operational foundations to gain a competitive advantage amid significant trade-offs. Recent research supports this perspective, indicating that aligning capabilities in developing economies is crucial for driving digital service innovation.

In contrast, developed countries with more robust infrastructures and innovation ecosystems focus on fostering competitive innovation capabilities. Here, the goal is to drive product and process innovation by leveraging cutting-edge technologies to stay ahead in rapidly evolving markets.

The role of dynamic capabilities in performance outcomes

Dynamic capabilities play a crucial role in driving performance outcomes across different economic contexts. For example, in a developing economy, a manufacturing firm investing in DCs may prioritise training programmes to upskill employees in data analysis and technology usage, enabling them to adapt effectively to I4.0 changes.

Such investments not only improve operational efficiency but also foster a culture of innovation, which is critical for long-term success. DCs enable companies to adapt to I4.0 advancements and build sustainable competitive advantages.

Balancing technology adoption and capability development

Practitioners and managers should strike the right balance between adopting I4.0 technologies and developing associated dynamic capabilities to improve operational and innovation performance. While I4.0 adoption enhances both operational and innovation dimensions, DCs act as a mediating factor for sustained success.

Managers must recognise that without capability-building, success in technology adoption within volatile and uncertain environments may result in only a temporary competitive advantage. The dynamic use of smart systems enables flexibility and continuous learning, fostering sustained competitiveness. DCs enhance I4.0 systems by enabling interoperability, decentralisation, real-time monitoring, and modularity.

Understanding variability in I4.0 adoption

Managers need to understand that while I4.0 adoption is linked to operational and innovation improvements, these impacts vary based on economic contexts. It is, therefore, essential to strategise I4.0 deployments based on the DC micro-foundations of digital sensing, seizing, and transformation suited to respective economic environments.

To optimise I4.0 adoption, manufacturers should align their strategies with regional initiatives such as Germany’s “High-Tech Strategy 2020,” the “Advanced Manufacturing Partnership” in the USA, and India’s “Make in India.” This alignment will help firms leverage the specific strengths of their regions while addressing local challenges.

For companies in both developed and developing economies, the path forward is clear: investing in technology alone is insufficient. By balancing technology adoption and capability development, organisations can better position themselves for success in an increasingly competitive global ecosystem driven by intelligent, interconnected systems.

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Topics: Technology, Leadership, #Future of Work

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