WHY THIS MATTERS IN BRIEF
Industry 4.0 was about AI, automation, IOT, and was tech-centric, Industry 5.0 is human-centric and promotes more ethical and responsible capitalism.
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For many companies, Industry 4.0 is still the “next thing” they should focus on – or the trend they are currently adopting their strategy to. It reflects the fourth industrial revolution triggered and enabled by developments in IT. Key elements include automation, robotisation, big data analytics, smart systems, virtualisation, AI, machine learning and Internet of Things.
While companies and whole industries are still in the middle of this fourth revolution, the next revolution is already well on its way – Industry 5.0. Before you panic and try to make hasty decisions, let’s have a quick run-through. What does it Industry 5.0 mean and what are its implications for your current and future business strategy?
The concept of Industry 5.0 is a relatively new one. According to the European Union Industry 5.0 “provides a vision of industry that aims beyond efficiency and productivity as the sole goals, and reinforces the role and the contribution of industry to society.” and “It places the wellbeing of the worker at the centre of the production process and uses new technologies to provide prosperity beyond jobs and growth while respecting the production limits of the planet.”
It complements the Industry 4.0 approach by “specifically putting research and innovation at the service of the transition to a sustainable, human-centric and resilient European industry.”
In other words, at its heart, Industry 5.0 reflects a shift from a focus on economic value to a focus on societal value, and a shift in focus from welfare to wellbeing.
This is quite something. Of course, it’s not new. Calls for a greater emphasis on societal value wellbeing are as old as capitalism itself and echoes of it have been heard ever since – think Corporate Social Responsibility, ESG or the Triple Bottom Line, for example. But putting people and planet rather than profits and growth center stage in the very definition of Industry is new. Never before have we seen such radical emphasis on repurposing the core objectives of industry.
The focus on societal value and wellbeing fits into a development that is gaining momentum the last few years in particular. It matches the alarming and refreshing perspective on business and economics given in essential books such as Kate Raworth’s Doughnut Economics (2017), John Elkington’s Green Swans (2020), and Paul Polman and Andrew Winstons’s Net Positive (2021).
The idea of Industry 5.0 is not limited to “industry.” It applies to every sector and every organisation one can think of. This means that its applicability is significantly wider than Industry 4.0. Therefore, when discussing the implications of Industry 5.0 for strategy, we need to take a broad and general perspective applying to all industries. As the European Commission spells out in this infographic, Industry 5.0 has three key pillars: Human-centric, Resilient and Sustainable. All three have significant implications for business strategy.
A human-centric strategy is one that, according to the infographic, “promotes talents, diversity and empowerment.” The most important shift this suggests is one from seeing people as means (E.G: as in human resources) to seeing people as ends. Or, in other words, a shift in perspective from people serving organizations, to organizations serving people.
This is more radical than it may seem at first sight. And it aligns well with current developments in the job market. In many industries and countries, finding, serving, and keeping talent has become a much greater challenge than finding, serving, and keeping customers. If this development continues, business strategy needs to give it a proper place, and that’s what Industry 5.0 takes a shot at.
Strategy today is mostly about gaining a competitive advantage and using it to create unique added value for customers. This mentality is a core part of the work of Michael Porter, the most influential strategy professor to date. If organizations become truly human-centric, though, the first implication for strategy is that it needs to be about gaining a competitive advantage and using it to create unique added value for employees.
As the European Commission argues, a resilient strategy is “agile and resilient with flexible and adaptable technologies.” After Covid-19, global shortages of supplies, and the war in Ukraine, there’s few who would disagree that resilience is key – today and in the future.
Yet, also this is a more radical change than initially meets the eye. While agility and flexibility are already longer on the corporate agenda, these in themselves do not necessarily lead to more resilience. Business today is largely driven by efficiency and optimising profits, not resilience. And it is also this focus on efficiency that drives many initiatives to make companies more agile and flexible, especially in its “lean” version. If anything, this can make them less resilient rather than more.
If we are to realise that resilience will truly become one of the three pillars of Industry 5.0, it means that strategy’s primary focus will no longer be on growth, profit, and efficiency, but on creating organisations that are “Anti-Fragile,” meaning that they are able to anticipate, react and learn timely and systematically from any crisis and thereby ensure stable and sustainable performance.
Then, with the current widely-shared concerns about climate change, the notion of sustainability barely needs an introduction. Following the European Commission, a sustainable strategy “leads action on sustainability and respects planetary boundaries.” This implies, for example, that organisations should pay attention to all three Ps of the Triple Bottom Line and to all 17 Sustainable Development Goals.
Like the first two pillars, also this is a radical change. So far, corporate sustainability efforts have largely focused on reducing or minimizing damage – or on greenwashing, but let’s leave that out of the discussion. Business as usual thus, but more responsible.
Fully embracing sustainability in a company’s strategy, though, implies much more than what’s currently been done. Rather than merely reducing a company’s negative impact, truly sustainable companies focus on increasing their positive impact. In their book carrying the same title, Polman and Winston call such way of doing business “Net Positive.” Along the same lines, Elkington talks about “Green Swans,” to refer to company-generated positive disruptions aimed at making our world a better place. In other words, strategy in Industry 5.0 means that companies are becoming part of the solution, rather than part of the problem.
Then, as for what’s next so far the Industry 5.0 concept has not gained a lot of traction yet. Businesses are still heavily engaged in Industry 4.0, or even earlier versions. Also, the sustainability bandwagon has just began to start moving seriously. However, the fact that the EU pushes companies toward the next level, and builds its Industry 5.0 framework on these three pillars, provides companies with a vision of what true progress will mean over the next years.
Whether one finds this vision appealing or daunting will differ greatly between companies and between people. And the extent to which it will be embraced will radically differ as well. But given the current major challenges and crises that we are facing, it is evident that Industry 5.0 is a plausible and preferred answer. Once organisations – and as a result societies – start becoming more human-centric, resilient, and sustainable, we can expect more change and maybe for once change for the better.