For many companies, Industry 4.0 remains the "next step" they should focus on, or the trend on which they are currently adopting their strategy. It reflects the fourth industrial revolution unleashed and made possible by technological advances. Key elements include automation, robotization, big data analytics, intelligent systems, virtualization, AI, machine learning and the Internet of Things.
While entire companies and industries are still in the midst of this fourth revolution, the next revolution is already underway. It is Industry 5.0.
What is Industry 5.0
The concept of Industry 5.0 is relatively new. According to the European Union, Industry 5.0 "provides a vision for industry that goes beyond efficiency and productivity as the sole objectives, and strengthens the role and contribution of industry to society". Moreover, says the EU, it "puts worker welfare at the heart of the production process and uses new technologies to ensure prosperity beyond employment and growth while respecting the planet's production limits. It complements the Industry 4.0 approach by specifically putting research and innovation at the service of the transition to a sustainable, human-centered and resilient European industry."
In other words, in essence, Industry 5.0 reflects a shift from a focus on economic value to a focus on social value, and a shift from a focus on welfare to well-being.
This is not really new. Calls for a greater focus on the welfare of social value are as old as capitalism itself, and since then we have heard different approaches such as corporate social responsibility and ESG criteria, for example. But putting people and planet rather than profit and growth at the center of the very definition of industry is something new. Never before has such a radical approach been seen in the reorientation of the industry's fundamental objectives.
The emphasis on social value and well-being is part of a development that has gained momentum in recent years in particular.
What does Industry 5.0 mean for industrial strategy?
The idea of Industry 5.0 is not limited to industry. It applies to every conceivable organization. This means that its applicability is significantly broader than Industry 4.0. Therefore, when discussing the implications of Industry 5.0 for strategy, we must take a broad, general perspective that applies to all industries. As the European Commission explains, Industry 5.0 is based on three key pillars: it is human-centered, resilient and sustainable. All three have important implications for business strategy.
Human-centered strategy
A human-centered strategy is one that fosters talent, diversity and empowerment. The most important shift this suggests is from seeing people as means (e.g., in human resources) to seeing people as ends. Or, in other words, a shift in perspective from people serving organizations to organizations serving people.
It is more radical than it seems at first glance. And this corresponds well with current developments in the labor market. In many industries and countries, finding, serving and retaining talent has become a much bigger challenge than finding, serving and retaining customers. If this development is to continue, business strategy must give it a proper place, and this is where Industry 5.0 is heading.
Today's strategy is about gaining a competitive advantage and using it to create unique value for customers. If organizations are to become truly human-centric, the first implication for strategy is that it must be about gaining a competitive advantage and using it to create unique value for employees.
Resilient strategy
As the European Commission argues, a resilient strategy is "agile and resilient with flexible and adaptable technologies." After covid-19, global supply shortages and the war in Ukraine, few would disagree that resilience is key, now and in the future.
However, it is also a more drastic change than it initially appears. While agility and flexibility are already higher on the business agenda, they do not necessarily lead to greater resilience. Businesses today are largely driven by efficiency and profit maximization, not resilience. And it is also this focus on efficiency that drives many initiatives to make companies more agile and flexible, especially in its version
lean. On the contrary, it can make them less resistant rather than more.
If resilience will indeed become one of the three pillars of Industry 5.0, it means that the main focus of the strategy will no longer be on growth, profitability and efficiency, but on creating "anti-fragile" organizations. That is, they are able to anticipate, react and learn in a timely and systematic manner from any crisis and thus ensure stable and sustainable performance.
Sustainable strategy
With today's widely shared concerns about climate change, there is little need to introduce the notion of sustainability. According to the European Commission, a sustainability strategy "drives action on sustainability and respects planetary boundaries". This implies, for example, that organizations should pay attention to the Triple Bottom Line and the Sustainable Development Goals.
Like the first two pillars, it is also a radical change. Until now, corporate sustainability efforts have largely focused on harm reduction or minimization, or Greenwashing. If anything, it will have to be business as usual, but more responsible.
However, fully integrating sustainability into a company's strategy involves much more than is currently being done. Rather than simply reducing a company's negative impact, truly sustainable companies focus on increasing their positive impact. The Industry 5.0 strategy means that companies become part of the solution rather than part of the problem.
And then?
So far, the concept of Industry 5.0 has not yet gained much ground. Companies are still betting heavily on Industry 4.0, and even earlier versions. Moreover, true sustainability has only just begun to move in earnest. However, the fact that the EU is pushing companies to the next level and building its Industry 5.0 framework on these three pillars gives companies a glimpse of what real progress will mean in the coming years.
Whether one finds this vision appealing or intimidating will vary greatly from company to company and person to person. And the extent to which it will be adopted will also be radically different. But given the major challenges and crises we face today, it is obvious that Industry 5.0 is a plausible and preferred response. Once organizations, and therefore societies, become more human-centered, resilient and sustainable, we can expect solutions to emerge.
