Digital transformation in enterprises: Industry 4.0

1 
Introduction 
By studying the history of economic evolution and development, it is possible 
to observe that the periods of great growth have always been linked to great 
productive revolutions.  
So far, we have experienced three industrial revolutions:  
• in the 19
th
 century the steam machine led to the mechanization of labor;  
• in the mid 20
th
 century the introduction of electricity allows the spread 
of mass production with the only “one best way” to produce and thus 
the standardization of production and products; 
• in the 1970s technological progress and information technology are the 
basis of the first wave of automation.  
The ability to foster significant improvements in productivity aimed at 
generating an important economic growth and therefore greater social well-
being is what connects these revolutions one with the other. 
Today, companies’ success is not due only to skills such as availability of 
capital, low labor costs and high quality of products and services, but also to 
the ability to innovate, capture and trigger “digital opportunities”. 
In the last years we have been facing another industrial revolution, led by 
continuous and swift technological and scientific development: Industry 4.0. 
New technologies such as the ones related to the Internet of Things, Big Data 
Analytics, Augmented Reality, Additive Manufacturing, 5G, will revolutionize 
production methods and will allow enterprises to gain competitiveness on the 
world market; such new technologies will change, and already are, the ways 
of producing, the business models and the organizations as a whole. 
Now the real challenge for the future of the enterprises is to be able to catch 
the opportunities offered by Industry 4.0. The digitalization path started by 
society, Public Administration and enterprises is not yet complete, due to a 
series of infrastructural, economic and cultural obstacles. 
The idea of this project is to try to give a response to the growing need to 
understand the Fourth Industrial Revolution, known as the “Industry 4.0”, not 
only as a technological evolution, but also as a tool for management to 
innovate with a look towards the future.
2 
The first chapter opens by illustrating the three Industrial Revolutions that 
have preceded the Fourth one, then an analysis of the environment in which 
the Fourth Industrial Revolution was born and is taking place, and in addition, 
a brief analysis of the different approaches among the main nations, focusing 
on the Italian context. 
The second chapter describes the technologies that enable the 4.0 
digitalization process and an analysis of the Italian market on such regard. 
Subsequently, it has been analyzed the approach and the business models 
towards the 4.0 digitalization. 
The third chapter analyzes the impacts in the different dimensions that need 
to be taken into account throughout the 4.0 digitalization process. Afterward, 
it has been done an analysis inherent strengths, weaknesses, opportunities 
and threats (S.W.O.T. analysis) of the process towards the digitalization to 
Industry 4.0.
3 
CHAPTER 1 
From the steam machine to the new concept of 
sharing data 
1.1 From the mass production to the lean production 
Between the nineteenth and twentieth centuries, on the eve of the First World 
War, 80% of the cars on the road were produced in the United States, which 
became the leader of the automobile market. In the early 1880s, first in 
London and soon after in New York, the first electric power plants were built 
and in the 1890s the internal combustion engine, designed and tested forty 
years earlier by two Tuscan physicists, was applied to the car industry and, 
at the beginning of the 1900s, to the airplane industry. The growth of the war 
industry, due to the world conflict, was also very rapid and supported by 
States’ orders. Industrial development, therefore, is not only due to the 
European conflict, but, more generally, to technological innovation and, in 
particular, to the innovations of production processes that played a decisive 
role in this regard. 
The amount of capital invested grew in proportion to the extraordinary 
development of technological innovation; at the time, revolutionary industries 
based on new energy sources, such as electricity and chemistry, and new 
materials were developed. Innovations, though, differed from those of past 
periods, precisely because of the closer relationship established between 
innovation, economics and science: the innovations that characterized the 
First Industrial Revolution, coming from the practical knowledge of 
inexperienced inventors, mostly dictated by the their experience, was 
replaced by an application of scientific research to production. Research was
4 
therefore increasingly stimulated and oriented by industry towards innovation 
in production processes. 
1.1.1 The mass production – Taylorism and Fordism 
Modernization, science and technology were therefore the basis of the 
restructuring of the companies that took place in these decades to face the 
drop in profits caused by the Great Depression of the late nineteenth century. 
An essential aspect of this process was an increasingly efficient and rational 
use of the machines, which led engineers and technicians to assume an 
increasingly predominant role within the factories. 
The next step after merely technological innovation was an innovation in 
production processes, a reorganization aimed at lowering labor costs and 
increasing productivity; according to the engineer and businessman Frederick 
Taylor, by the end of 1800’s, to enhance and to maximize the efficiency into 
companies, a modern business direction must take decisions on most of the 
tasks that were in the past left to the workers, who, according to Taylor, 
should only work according to the achievement of the objective established 
by the management called "task". In this organizational model called "Task 
Management" the management will therefore be responsible for defining a 
"Task" that workers will have to carry out daily without making changes nor 
in terms of decrease nor in terms of increase. 
  
According to what Hans. D. Prujit claims in his book written in 1997 "Job 
Design and Technology: Taylorism Vs. Anti-Taylorism", Taylorism is 
considered a strategic organizational model that separates thought from 
action: "managers plan work, and workers simply perform the orders." 
The stated goal of Taylor in scientifically organizing the work is to achieve a 
significant increase in production; to achieve that the transformation of the
5 
way of producing and, above all, the transformation in the organizational 
structure must be radical: a decidedly innovative and ambitious goal. 
In order to establish a standardized production of the worker, a task is divided 
up to have a single job for every single sequence of movements needed to 
perform the entire task. This long sequence of movements is carefully 
observed and measured to be able to find the best working methods and 
times, in relation to the individual characteristics of the worker, to eliminate 
"dead times" and to maximize efficiency. 
The division of tasks, the deprivation of autonomy in the workers, and the 
centralization of decision-making powers to the management, typical of 
Taylor’s Scientific Organization of Labor, have been legitimate in the use of 
science, in particular in the "One Best Way": to do a job always exists one, 
and only one, "best way" to do it, as for the resolution of a problem there is 
always one, and only one, optimal solution; this path and this solution can 
only be achieved by referring to science, thus employing scientific research 
methods. The objective of the one best way is to enforce in the organization 
the most convenient and efficient way to carry out a specific job. 
Moreover, besides guaranteeing a greater efficiency of the productive 
organization, it could also result as an optimal solution of the problems 
between the parts, considering that, because the pseudo-scientific nature 
that characterizes it, it appears above the parts due to the neutrality of the 
scientific method: everyone must adapt to the rules and limits dictated by 
science, all must therefore adapt to the one best way. The solutions that the 
one best way finds are impartial solutions, which do not favor nor the worker 
nor the management, but neither they oppose them; it is an objective rule 
that all employees and employers must obey to.
6 
Such new form of management and organization in the companies was first 
applied in 1914 in a car company in Michigan, the Ford Motor Company. Henry 
Ford, inspired by the theories of Frederick Taylor, has implemented a 
particular form of production, based on optimizing the work of workers by 
reducing the time typically required to perform an operation; he introduced a 
particular assembly process, never used before and still used today, called 
"assembly line".  
The assembly line allowed Ford to be really competitive in the market by 
being able to reduce the cost of production as well as by speeding up the 
production process by reducing the time to produce the car that made him 
famous, Ford Model T, from almost thirteen hours to only ninety-three 
minutes (≃-88%).  
The success that Ford reached, particularly with the Model T in 1913, was so 
high that the term "Fordism" was coined to define production systems aimed 
at mass production and based on the assembly line, which other industries 
later in the future, adopted as well. Standardization was the core of the 
scientific organization of Taylor's work, and it was also the heart of Ford's 
business organization, which emphasized this with its famous phrase: "A 
customer can have a car painted any color he wants as long as it’s black"; 
thus giving rise to mass production, a production that is characterized by the 
presence of a single standard product, the same one, for all the buyers of the 
mass market to which it is addressed. Therefore, precisely on this 
organizational model of production that allowed to minimize costs and 
production times, the Ford Motor Company founded its competitiveness which 
allowed it to win the largest slice of the car market. 
Ford’s model has also spread to other industrial sectors besides the 
automotive one. In Europe though, the assembly line spread later due to the 
obvious communication gaps between the United States and Europe, but also 
because of the world conflict. It was precisely the commitment and the desire
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that the people had to stand up after the war that pushed mass production 
into a Europe that was by that time destroyed. In Italy, during the Italian 
economic miracle by the second part of the 1950’s and the beginning of the 
1960’s, the known Italian motor company F.I.A.T. was the first large factory 
in Italy to organize its production system with the assembly line, in 1955. In 
those years, F.I.A.T.’s employees rose to a consistent number of 55.000 
workers and the production reached 1.350.000 cars in 1968
1
 which was made 
possible due to the reduced labor costs because of the assembly line. 
1.1.2 The lean production - Toyotism 
The now widespread mass production encouraged non-specialized production 
by creating stratified hierarchies of qualifications, thus the worker who carried 
out manual work was able to perform only and solely that task which was 
consequential to the one of another worker, but still essential for the purpose 
of carrying out the task, as a whole, decided by the management. In the 
unlucky event a problem arose in a department at the beginning of the 
assembly line, such as an accident or a strike the worker not belonging to 
that department would have found the production blocked. By the end of the 
1960’s, in Italy many protests to demand trade union rights arose; one of 
them was the checkerboard strike, in which “various units of the factory 
walkout for consecutive short periods rather than all walking out”
2
 and by 
doing so, they would block all the production causing huge damage to the 
employer. 
Another important reason that led to the decay of the Fordism was the fact 
that by the end of the 1960’s the demand for substitute goods was taking 
place of the demand of the durable goods because the market was by then 
                                                        
1
 “Lo Sviluppo Economico Moderno: Dalla Rivoluzione Industriale Alla Crisi Energetica (1750-1973)” by 
Pier Angelo Toninelli - page 501 
2
 “Protest and Participation: The New Working Class in Italy” by John R. Low-Beer - page 48
8 
saturated of these. Hence the demand is now concentrated on substitute and 
complementary goods or anyways smaller volumes than those to which the 
market was used to, thus the market turned out to be no longer made up for 
mass consumers. Also the energy crisis of 1973 and the consequent economic 
situation that it led, played an important role in the decline of the Ford’s 
enterprise. Before 1973, at the time of mass consumption, the price of oil was 
very low compared to the one of today and stood at almost $ 3 per barrel, by 
1973 the price rose to $11 per barrel. 
In such moment of crisis of the Fordist companies, that had dominated the 
international economic context for decades and had allowed the spread of 
consumer goods and economic development, the companies, in order to be 
more competitive, had to change their business model towards a higher 
rationalization of the production costs and the total elimination of waste. This 
was the philosophy that the engineer Taiichi Ōno, in Japan, enforced to the 
automotive factory Toyota Motor Corporation which in the 1950’s was known 
and limited exclusively to the small and closed Japanese market solely, which 
in the following years reached and exceeded, in terms of efficiency, the 
largest automotive companies, including Ford, becoming thus one of the 
largest automakers today. 
Such new way of producing and setting the tasks that were consolidating and 
spreading among the Japanese companies was the “Toyotism”; it was 
characterized by the fact that each worker, that was extremely specialized 
comparing to a worker under the Fordism, could produce per capita to a 
greater extent than in the past, using the resources available to him more 
productively. The concept was to produce more with less and, therefore more 
competitively.  
Hence the workers appear to be much more specialized: workgroups are 
created and they become responsible for the production process as a whole,
9 
thus being able to act at any stage of the process, given their high 
specialization. 
At this point, there is an actual real change in production systems that switch 
from a push logic to a pull logic.  
In the Fordistic companies the logic was push due to the way of having a 
mass production related to mass market, whereby the decisions concerning 
supply, quantities and everything related to production, occurred 
independently of the occurrence of a need and the demand; whereas, with 
the lean production the production systems are based on a pull logic, which 
is opposed to the push one, so that all the procurement, quantity and 
production decisions are taken following a prudent planning activity regarding 
the analysis of the demand or the occurrence of a need: only what is required 
by the market is produced minimizing waste and warehouse stocks.  
So the key to success that Toyota had when its export began in the 1950s 
was the good knowledge it had about consumers’ needs in various foreign 
markets following careful market researches. The first great success came 
with the launch of the Toyota Corona in the American market in the 1950s 
and with the Toyota Corolla in the 1960s. Another success factor was the 
application of a quality control system, now known as the Total Quality 
Management System (TQM), which aimed to improve the quality of products 
offered to consumers; this was recognized by the Toyota Motor Company in 
1965, when it was awarded the Deming Prize, a recognition given to 
companies with the most successful quality control system. 
Such elements of success, the oil crisis of the 1970s which was a great 
opportunity for Toyota that has always been ready to adapt to new market 
demands, the obsessive search for market adaptation and quality 
improvement, the spread of corporate social responsibility and respect for the