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Wealth Management

COUNTDOWN TO THE ‘TIPPING POINT’ OF INDUSTRY 4.0: FORECASTING THE REMAINING WINDOW FOR COMPETITIVE ADVANTAGE FROM DIGITAL INVESTMENT

Brian Foster, Head of Industry Finance at Siemens Financial Services in the UK

The key question relating to digital transformation in manufacturing is no longer ‘whether’ to invest in it but rather ‘when’ to do so. Whilst most manufacturers understand the benefits of investing in digitalised technology, Industry 4.0 requires transformational change at a pace the majority of manufacturers are not yet matching.[1] If manufacturers continue on the current trajectory, they are unlikely to meet the realities of manufacturing both now and in the future and may be disrupted by competitors and new market entrants. Accordingly, manufacturers must embrace digitalisation now in order to draw the benefits of early adoption, or else risk being left behind.

Brian Foster

Estimating the “tipping point” of Industry 4.0 – the point at which the pioneering first half of manufacturers will have substantially migrated to Industry 4.0 digital production platforms – is the focus of Siemens Financial Services’ (SFS) latest research. Manufacturers across the world are in a race against time to gain competitive advantage from Industry 4.0 investment before the ‘tipping point’ of majority adoption.

While the first 50% of players to invest in new technologies or business models will gain a significant competitive advantage over rivals – an estimated 25% gain on return on capital employed (ROCE) by 2035[2] – the second half of the manufacturing community will simply be playing a game of catch-up. Later adopters will still benefit from the cost savings and economies from digital transformation, but their investment will merely represent a must-do strategy of realignment enabling them to compete in markets at all. It is therefore critical to know how long the window of opportunity will last for manufacturers to be part of the first cohort in digital transformation.  

SFS’s latest report “Countdown to the tipping point for Industry 4.0” captures testimony from over 40 manufacturers, trade associations and academics from across the world, in order to forecast the window of opportunity for manufacturers to reap the expected return on investment (ROI) from their digital transformation initiatives.

Respondents estimated that larger manufacturers would reach this point within 5 and 7 years whereas SME manufacturers would take 9 to eleven years[3] – thus highlighting the two-tier nature of the digital race. Even within that window of opportunity, the pressure to transform remains high – after all, the competitive advantage from conversion reduces as more and more manufacturers adopt Industry 4.0 platforms.

Respondents were also asked about the proportion of manufacturers to have implemented a significant Industry 4.0 pilot. This is an important insight into the current rate of adoption, since many manufacturers start their Industry 4.0 journey by piloting new technology or solutions before embarking on a full roll-out of digital transformation. The research found that 70-80% of larger manufacturers have implemented a significant pilot project for Industry 4.0 production solutions, compared to 40-50% of SME manufacturers  Interestingly, although the advantage of scale and market power have placed larger players ahead of the game in terms of pilot testing, their digital transformation is likely to be more complex and drawn-out, thus offering small nimble players an opportunity to challenge a misconception over the achievability of digital transformation by smaller players.

Manufacturers were also interviewed for their views on the role that specialist finance was playing in enabling their digital transformation. Challenges to implementing digital transformation tend to pivot around the issue of finance – understanding the commercial benefits of Industry 4.0, knowing that there will be a reliable return-on-investment, and paying for Industry 4.0 technology at a rate that is less than or matches those expected commercial gains. These hurdles, however, can be tackled using smart finance techniques – known as “Finance 4.0” – which cover the full range of requirements, from the acquisition of a single digitalised piece of equipment, to financing a whole new factory, to even acquiring a competitor. As the pace of digital transformation gains momentum, manufacturers are increasingly making use of integrated finance options to facilitate their industry 4.0 investments and accelerate their journey towards digitalisation.

Whilst traditional financiers do not provide appropriate mechanisms for this kind of project, Finance 4.0 arrangements tend to be offered by specialist providers that have a deep understanding not only of how the digitalised technology works, but also of how that technology can be leveraged to deliver the benefits of digitalisation.

Financiers with knowledge of manufacturing in general and digitalisation in particular will adapt the finance arrangement to align with the likely benefits or “outcomes” the manufacturer will gain from the technology. Savings or gains from access to the technology are used to fund monthly payments, making the technology cost-neutral for the manufacturer. Consideration is given to the complete technology solution in order to identify the best finance package to effectively digitalise a manufacturing facility’s operation. Furthermore, equipment and technology finance options allow manufacturers to upgrade during the financing period and offer protection against technological obsolescence – providing manufacturers with an additional flexibility to roll out Industry 4.0 and grow at the same fast pace as the accelerating demand for their products.

Whilst the benefits of moving to a digitalised manufacturing environment are clear, the process of transition has to be carefully managed and commercial risk eliminated by rigorously testing new technology in the real-world production environment. This can often act as a barrier to digital transformation because the manufacturer is discouraged by the idea of having to pay for both the pilot arrangement and the scaled approach during the transition period. Recognising the challenges of transition, financing arrangements are available that defer payment for a new system until it is reliably up and running. This removes the financial challenge of having to pay for the new system while the old one is still running – and helps reduce the risk of “pilot purgatory” for manufacturers.

Ultimately, while there is momentum behind the transition to Industry 4.0, the pace of transformation could stand to accelerate, especially as incumbent players look to compete with rival economies, stay ahead of new entrants, and manage disruptive change. By enabling manufacturers to invest immediately through flexible finance solutions, they are able to secure a competitive advantage from Industry 4.0 before the tipping point is reached, after which the early-mover advantage will have largely diminished.


[1] KPMG, A reality check for today’s C-suite on Industry 4.0, 2018

[2] Roland Berger, The Industrie 4.0 transition quantified, 9 Jun 2016

[3] Siemens Financial Services, Countdown to the tipping point for Industry 4.0, 2019

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Wealth Management

HOW RESILIENT IS YOUR ORGANISATION’S SECURITY?

Kimon Nicolaides, Digital Services Group Head at MASS

 

Organisational security can be thought of like peeling the layers of an onion – with critical assets sitting in the middle protected by multiple layers, and if one layer is removed or breached, there’s another one underneath. At least that’s the way it should be – too often, however, we see a siloed approach to the different areas of security. In practice, physical, cyber and personnel security can be much more inter-related than many imagine.

The finance sector is arguably one of the more mature in terms of established security measures. However, it’s also vastly diverse, targeted by some of the most advanced threat actors, and one where even the smallest breach has the potential for significant impact, monetarily, or on market reputation, perception or confidence. Security measures should therefore be viewed holistically, led and understood by senior management, otherwise gaps for exploitation will be found by intelligent and experienced people, supported by an ever-growing arsenal of exploitation technology.

Here, we take a closer look at some of the things that comprise a holistic view of security – based on the approach we take with public sector and defence organisations.

 

Physical security

It may seem obvious, but the first layer to assess should be the physical access to your business. For all organisations, this step remains as true today as it ever has been – even for the finance industry where physical security principles have been established over many years.

This stage should go back to the basics of how an intruder could gain access, starting by reviewing the ‘perimeter’ controls. In fact, the first question is, ‘what is the perimeter?’. With the potential for distributed site facilities, linked remote assets, and supply chain dependencies, this simple question needs careful consideration.

Scenario-based analysis, using threat actor personas, motivations and objectives can really help by defining a where a ‘perimeter’ really lies. It’s also an invaluable methodology for exposing how an organisation could be exploited.

This stage should involve a review of physical controls such as fencing, access technology, CCTV coverage etc., including, their role in deterrence and detection of hostile reconnaissance activities.  Disrupting the planning cycle of attacks is often overlooked relative to direct prevention of unauthorised access.

Ultimately, security measures are only as effective as the people that apply them, so an understanding of human behaviours is essential. It’s important to consider how people’s actions affect overall site security and, why these actions occur.

Issues can range from the wearing of security badges in the street through to poor motivation and effectiveness of roving security staff or those monitoring CCTV. Simple and innocent human mistakes could form the seed of future security breaches.

 

Cyber security

The finance sector has progressed its cyber resilience considerably as it’s been dealing with threats for many years. But business sizes now range from the very large to the small and, as new forms of financial transactions evolve, protection becomes more challenging. There is an increased availability of cyber exploitation toolsets and associated managed services and coupled with a reduction in their cost – lowering the financial and technical barriers to advanced cyber-attacks.

This means that cyber security, even for the finance sector, needs to be taken to a new level and existing assumptions continuously challenged.

For example, while penetration testing regimes remain a vital tool in mitigating network cyber risk (including ‘CBEST’ which has been widely rolled out across the finance sector), these still remain a snapshot in time. While they deliver valuable depth of analysis within a network, they are often constrained in breadth of scope and can potentially leave vulnerability blind spots. Very frequent, lighter-touch cyber assessments can fill this gap as they offer a more dynamic view of ongoing vulnerabilities over a wider proportion of the estate, which could represent ‘low hanging fruit’ for the cyber actor. Assessments can be enhanced by applying modern threat intelligence techniques to rapidly identify existing compromises and potential weaknesses (including personnel and corporate digital footprint). This establishes a picture of cyber posture and vulnerabilities before any testing taking place.

Similarly, end-user device security is often viewed in terms of the encryption strength, keys etc.  However, modern methods of fault injection attack (a device’s response to artificially applied ‘fault conditions’ used to derive security credentials), can effectively sidestep assumed security measures, which would normally take decades to ‘crack’ using computer power. So, it makes sense to test a device’s vulnerability to fault injection, rather than assuming encryption alone will protect it.

For this reason, it’s crucial to examine the wider supply chain. In the finance sector, there is high dependence on suppliers of digital telecommunications and energy services, and when different systems are interconnected its challenging to pinpoint cyber resilience risks. Despite this, it’s possible to map complex information to establish risk, by identifying ‘hot-spot’ concentrations of dependencies that represent single-point failures within the complexity of the overall business operation.

 

The insider threat

The potential threat from insiders – those who might misuse their legitimate access to an organisation’s assets for unauthorised purposes – is often overlooked.

This is particularly true for financial businesses, where personal financial gain could be an incentive, or where security controls are so effective that hostile actors must exploit those with legitimate access to circumvent them. You can think of insider threat as the ‘grand master skeleton key’ of security, as there are few security measures that cannot be overcome by the right insider, or team of insiders.  Security compromises involving insiders can also have a disproportionately high business impact.

Yet many organisations consider insider risk to be mitigated simply by pre-employment screening and fail to recognise the spectrum of risks ranging from genuine human error, through to orchestrated insider activity by paid professionals. Insider cases frequently involve individuals who have been with an organisation for some years and have had some personal vulnerability exploited or exposed, or simply become disgruntled.

It’s a broad area to address. Internal governance, security culture, employee wellbeing, employment measures, corporate digital footprint, and perceived employee sentiment are some of the aspects that should be considered. When you have understood this for your own organisation, you should make the same assessment of your supply chain.

If the business is committed, it’s possible to use structured analytical methods to quantify your organisation’s maturity and assess where the key vulnerabilities and risks could lie. This understanding paves the way for improvement, and even small changes can make a big difference.

 

The hidden layers

Like an onion, there are hidden layers to security that may be overlooked so it’s important to consider physical, cyber and personnel security collectively, and to understand the dependencies you have as a business.

For example, your own environment may be protected, but if data is shared with your suppliers or partners, is it still secure? Similarly, if a supplier or partner has a security breach, what does it mean for your operation, your business continuity and your customers?

When assessing security measures, it’s essential to go an extra layer deeper and consider how a range of factors could impact your organisation and its readiness to respond to an incident.

At MASS, our security experts consist of professionals with extensive experience in preventing security breaches and performing assessments in accordance with Ministry of Defence processes, so that we can ensure our security analysis meets and exceeds industry best practice.

For more information, please visit: https://www.mass.co.uk/what-we-do/cyber-security/cyber-security-training/

 

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Wealth Management

HOW TO CATCH UP ON YOUR RETIREMENT SAVINGS

By Gerard Visser, Certified Financial Planner at Alexander Forbes

For many South Africans who were already finding it difficult to save for retirement, Covid-19 has created additional financial pressures which may take years to overcome.

If you stopped contributions to your retirement annuity, or took a payment holiday on your pension or provident fund, you might be worried about the shortfall created, and how you’re going to catch up.

Stop worrying and take action to avoid retiring with insufficient funds. There are many ways to contribute to your retirement, from employer and employee contributions to pension or provident fund, monthly contributions to a Retirement Annuity or a tax free savings account.

With many people having a reduced income due to the economic ramifications of Covid-19, it might be impossible to contribute a large monthly amount to catch up while having concerns such as debt to pay, but I recommend starting with your budget. This will aid you not only by freeing up extra funds to catch up your retirement contributions with, but could also create some peace of mind with an opportunity to pay debts off faster or save some discretionary money.

Gerard Visser

There are many reasons why it is important to follow a monthly budget. Besides reducing stress levels by keeping an eye on your spending habits, it also allows you to track your debts, finding opportunities to top up emergency funds or save extra towards your retirement. A budget goes hand-in-hand with setting and achieving financial goals.

A budget does create an additional administrative burden and requires time to update. I have my budget on an Excel spreadsheet and update it monthly when making EFT payments.

Costs for entertainment, groceries and petrol are variable in nature and change each month. You might end up not using all the funds set aside for these variable costs. Adding these leftover funds at the end of the month to your savings is a good habit to inculcate. The immediate impact might seem small but over time will make a positive outcome to both your retirement and the development of a savings mind-set.

When you are able to free up some money each month, start automating your savings. Instead of having a variable amount go towards savings, set up an automatic contribution, where you “pay yourself first”. Set up an automatic debit for your retirement savings and you’ll grow these funds without having to think about it.

One of the most important decisions you can take to help make your retirement comfortable is preserving your retirement funds when changing employer.

When starting new employment or if you are coming out of a payment holiday, try matching your employer’s monthly contribution toward your pension or provident fund, or if on a total cost to company structure, start on the maximum employee contribution percentage. By doing this as well as automating your savings, you get use to contributing those amounts and could potentially have a larger nest egg at retirement.

Remember that life happens, and your budget might come under strain – many of us have experienced this during the pandemic. If you have been going through a difficult financial time, it is time to reassess and ask yourself, what in your budget is necessary and what is actually a luxury?

It is never too late to start sorting out your finances, but the earlier you start, the better, and more achievable, the outcome will be.

 

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