FULL EPISODE TRANSCRIPT

Mitch: (00:03)

We are back with another episode of Count Me In, IMA’s podcast about all things affecting the accounting and finance world. This is Mitch Roshong as your host and I'm joined by my cohost Adam Larson. We are now over 20 episodes into our podcast series and we would love to hear from you drop us a line or write us a review and let us know what you think about the accounting and finance topics we've discussed so far for today's episode. I personally think the topic is very interesting and I'm especially excited to share this episode because we were fortunate enough to be joined by Dr. Paul Juras. Adam, tell us a little bit about Paul and what you learned about the topic of industry 4.0.

 

Adam: (00:47)

Dr. Paul Juras is chair elect of IMA's global board of directors and serves on other committees for the Institute of Management Accountants. He is a certified management accountant, a CPA, and uses his expertise in strategic management accounting to teach as the Vander Wolk Professor of Managerial Accounting and Operational Performance at Babson College. He joined Count Me In to give us an overview of industry 4.0 and explain why accounting and finance professionals can benefit from learning more about its principles. I learned how industry 4.0 is going beyond just the manufacturing industry and a number of other relevant points. Let's make sure you're accounted in for all these learnings too and jump ahead into the conversation now 

 

Adam: (01:28)

Since industry 4.0 may still be considered a relatively new topic, can you give us an overview of the topic and let us know what makes it so special? 

 

Paul: (01:43)

Sure. In fact, it was not that long ago that I first heard about this topic. I came across it as part of my research and quickly realized the implications could be huge for our profession. Industry 4.0 also called I4.0 is a complex and fast evolving topic, but at the most basic level, the term refers to the combination of several major innovations in digital technology all coming to maturity right now and all poised to transform industries. The technologies include advanced robotics and artificial intelligence, sophisticated and low cost sensors, cloud computing, he internet of things, data capture and analytics, digital fabrication including 3D printing, smart phones and other mobile devices and the list goes on. These technologies are often thought of separately, but industry 4.0 is all about connectivity and that's what makes it so special. When the technologies are joined together, they integrate the physical and virtual worlds, which has led many to call this the fourth industrial revolution. The changes that are taking place enables a powerful new way of organizing global operations and smart technologies will likely redefine industry and operating models. I4.0 Might also be called smart manufacturing because of the expectation of complete visibility of manufacturing processes and the possibility of continuous process improvements using the big data collected throughout production lines. The end result could be increased production flexibility and efficiency improvements that drive down costs and reduced the time to market and we're seeing companies transform themselves through the emergence of new business models such as software as a service or equipment as a service. One examples is GEs power by the hour model or does selling us engines? Much as utility company might sell to a residence or commercial enterprise. GE sells the capabilities of its engines for some price per operating hour and the customer pays only when the plane is flying. Now, I don't know what are the transformations we are likely to see, but I know accounting and finance professionals could play a role in helping organizations through their transformation. 

 

Adam: (03:53)

You mentioned that I 4.0 has been called the fourth industrial revolution or smart manufacturing and the example with GE is interesting. Is manufacturing going to be the main industry affected by this revolution? 

 

Paul: (04:05)

A fair question and manufacturing was the original focus. Industry 4.0 is the name given to the German strategic initiative to establish Germany as a lead market and provider of advanced manufacturing solutions, but the concept has evolved and many companies have been adopting the industry 4.0 concepts and adapting them to work within their own industries. There's already been wide adoption of industry 4.0 technologies in farming. Farmers are using sensors to monitor soil conditions to determine when to water, how much to water and what fertilizers might be needed. They're using drones to monitor the crops to help determine which part of a field is ready for harvest and may be even do targeted applications of insecticides or fertilizers. Those are just a few examples of technology helping farmers grow more with less as part of what is called agriculture 4.0. There've been advances to build smart grids, managed renewable energy and distributed generation all as part of energy 4.0 we have retail 4.0 healthcare 4.0 pharma 4.0 and many other 4.0's it is hard to imagine an industry that will not be affected by or take advantage of industry 4.0 implementation. We might say we will be living in a 4.0 world. 

 

Adam: (05:22)

So what about the accounting industry? What do our accounting and finance professionals need to know? 

 

Paul: (05:28)

Looking at globally, we see a growing pressure to move ideas into tangible products in a shorter period of time with increasing levels of customization, quality and performance, all will maintaining acceptable margins. Well delivering goods and services that for more demanding customers want and doing so at a cost that preserves margins is increasingly difficult and can no longer be done by simply doing more. Let's face it, new ways of connecting people with products and products with each other will continue to emerge and all this connectivity will be providing organizations with an ocean of data. The increase connectivity may open ways to improve asset utilization or create new ways to monetize the company's assets. These are examples of the promise of leveraging big data and advanced analytics to make better decisions and take better actions, but you need to avoid analysis paralysis. What that means is that more data is not always better. The key will be effectively managing big data sources and the related analysis of that data. I view all of this change as a technology tidal wave, a tidal wave that will further drive the need for transformation. These transformations will come with opportunities, but also with related challenges, Opportunities and challenges that need to be identified and understood. Individuals who understand the implications of these emerging technologies and their potential impact on the organization can help navigate this coming see of change. Now consider the technology and analytics and the business acumen and operations domains of the IMA's managemnt accounting competency framework. These domains include the competencies required to manage technology and analyze data within an industry specific context and with the operational knowledge to envision the opportunities to capture value. These competencies seem perfectly aligned with the needs of companies that will go through and I 4.0 transformation. 

 

Adam: (07:24)

How about outside of just technology though? Are there connections to the other domains? 

 

Paul: (07:28)

Most definitely organizations will need to prioritize innovation and strategic investment or risk losing competitive advantage. The skills to perform these tasks connects high 4.0 to the strategy planning and performance domain. All the connectivity will provide detailed data that will allow us to connect financial information to the operational activities that generate that information. The data could be used to improve the accuracy of the cost of production. Now imagine being able to track the effect of a customer specific requirements on the resources of the logistics function. The data now could be used not only to improve the accuracy of the calculations of the cost of products, but can improve the calculation of customer profitability. The results could be analyzed to make recommendations about pricing, whether to even keep the customer. These examples utilize skills from the reporting and control domain. And speaking of data, how will all of this data be used and will any of it be shared? These are just two of the ethical questions that connect I 4.0 adoption to the professional ethics and values domain. And let's not overlook the fact that these transformations will necessitate collaboration with internal and external stake holders in order to capture the most value. Any new implementation effort will require the communication of a clear vision and explanation of the opportunities and challenges. And what we're talking about here is change. So change management skills for successful industry 4.0 on implementation will be required. Collaboration, communication and change management skills, all part of the leadership domain, the competency framework. 

 

Adam: (09:03)

Do you have any final remarks you'd like to share about industry 4.0 what can we expect from it in the future? 

 

Paul: (09:09)

Digital disruption is accelerating and it's anticipated to impact all industries to varying degrees. So we all need to be prepared for a 4.0 world. Although the advantages I 4.0 offers are many implementations will come with its own set of challenges. Challenges that need to be identified, understood and addressed in future podcasts. We help provide insights into these challenges such as developing a business case for I 4.0 or the data issues that will permeate high 4.0 adoption. 

 

Announcer: (09:41)

This has been Count Me In, IMA's podcast, providing you with the latest perspectives of thought leaders from the accounting and finance profession. If you like what you heard and you'd like to be counted in from more relevant accounting and finance education, visit IMA's website at www.imanet.org.