Honda Foundation Report No. 181
Commemorative Lecture at the 41st Honda PrizeAward Ceremony on the 17th November 2020

Industrie 4.0:
Enabler of Economic Growth and Social Benefits

Dr. Henning Kagermann
Chair of the Board of Trustees; Former President acatech
Global Representative & Advisor Plattform Industrie 4.0

Dr. Henning Kagermann
Chair of the Board of Trustees; Former President acatech
Global Representative & Advisor Plattform Industrie 4.0■Date of Birth
July 12th, 1947
■Education Background & Academic Experiences
1972: Diploma in Experimental Physics at the LMU
Munich1973-1982: Doctoral-thesis & additional post-doctoral
thesis in Theoretical Physics at the TU
Braunschweig
1985: Apl. Professor in physics at TU Braunschweig■Company Experiences
1982: Development Manager of SAP AG
1991: Executive Board of SAP AG
1998-2003: Co-CEO of SAP AG
2003-2009: CEO of SAP AG■Political Activities
2009-2015:

The first Chairman supervising the
Executive Steering Board at EIT Digital(former EIT KIC ICT)
2009-2018:
President of acatech – National Academyof Science and Engineering
2010-:
Chair of the Steering Committee of theInnovation Dialogue
2010-2018:
Chair of the NPE, National Platform forElectric Mobility
2010-2018:
Member of Hightech Forum2017:
Global Representative and Advisor of the
Platform Industrie 4.0
2018:
Chair of the National Platform Future of
Mobility
2018-present: Chair of the acatech Board of Trustees■Other Activities
Henning Kagermann held/holds various cooperate board
memberships, such as KUKA (since 2017), Munich Re(until 2019), Deutsche Post (2009-2019), Deutsche Bank
(2000-2018), BMW (2010–2018), Nokia (2000–2014) andothers. He is a member of the Honorary Senate of the
Lindau Nobel Laureate Meetings. Additionally, he wasa member of the Senate of the Max Planck Society anda member of the board of trustees at the Max Planck
Institute for Informatics and the Technical Universityof Munich.

■Major Publications
・Reinventing your business model: M. W. Johnson, C.M.
Christensen, H. Kagermann, December 2008, Harvard
Business Review (hbr.org)
・IT-Driven Business Models: Global Case Studies inTransformation: H. Kagermann, H. Osterle, J. M. Jordan,
English version 2010
・Future Business Clouds: Appelrath, H.-J./Kagermann,
H./Krcmar, H. (Hrsg.), Ein Beitrag zum ZukunftsprojektInternetbasierte Dienste für die Wirtschaft (acatech STUDIE),
München: Herbert Utz Verlag 2014
・Recommendations for implementing the strategic initiative
INDUSTRIE 4.0. Final report of the Industrie 4.0 Working
Group (Position paper): Kagermann, H./ Wahlster, W./ Helbig,J., Berlin 2013
・Smart Service Welt – Recommendations for the Strategic
Initiative Web-based Services for Businesses Final Report:
Smart Service Welt Working Group/acatech (Eds.), Berlin,
March 2015
・Innovationspotenziale der Mensch-Maschine-Interaktion(acatech IMPULS): Kagermann, H., München: Herbert Utz
Verlag 2016
・Industrie 4.0 in a Global Context: Strategies for Cooperatingwith International Partners (acatech STUDY): Kagermann,
H./Anderl, R./Gausemeier, J./Schuh, G./Wahlster, W. (Eds.),
Munich: Herbert Utz Verlag 2016. (Print version available)
・Fachforum autonome Systeme – Chancen und Risiken fürWirtschaft, Wissenschaft und Gesellschaft. Herausgeber:
Fachforum autonome Systeme im Hightech-Forum.
Kooperationspublikation, 2017
・Work in the Digital Transformation – Agility, Lifelong Learningand the Role of Employers and Works Councils in Changing
Times: Jacobs, J. C./Kagermann, H./Spath, D. (Eds.): A paperby the acatech and Jacobs Foundation Human Resources
Working Group – Forum for HR Directors on the Future ofWork (acatech DISCUSSION), Munich 2017
・Revitalizing Human-Machine Interaction for the Advancementof Society – Perspectives from Germany and Japan (acatech
DISCUSSION): Henning Kagermann, Youichi Nonaka (Eds.),
Munich 2019
・European Public Sphere: Henning Kagermann, Ulrich Wilhelm(Eds.), Gestaltung der digitalen Souveränität Europas(acatech IMPULS), 2020

This report is the gist of the commemorative lecture at the 41st Honda Prize Online Award Ceremony on 17th November 2020.

〈Words from the Laureate〉
Receiving the Honda prize is a great honour and acknowledgment for the successful work of all experts
who helped establishing the brand Industrie 4.0 and those who continue to implement the original
concepts within the organization Plattform Industrie 4.0.
Mass customization, business models of the digital age like everything as a service and the vision ofcomposable and adaptable business processes have been discussed for many years.
In 2009 I retired from SAP, still under the impression of the suddenness and intensity of the economiccrisis and convinced that economic shocks will be more frequent and that we had to improve our ability
to absorb them easier and smoother.
As recently elected president of acatech, national academy of science and engineering Germany, I was
nominated to chair a working group of the Hightech Forum of the German government with themission to recommend strategic projects for the application area “Communication”.
Leveraging the experience with service-oriented –architectures, the internet of things, data andservices and the transition from embedded systems to cyber-physical systems, merging real andvirtual space, two proposal were made later coined “Industrie 4.0” and “Smart Service Welt”.
After the initial publication together with Wolfgang Wahlster and Wolf-Dieter Lukas the concept
attracted high attention worldwide. The broad network of acatech within both, the science andbusiness community, was instrumental to assemble a project group of about 40 experts, chaired bySiegfried Dais and myself, with the mission to work out the concept and develop recommendations fora successful implementation.
In April 2013 the final report was published and presented to chancellor Angela Merkel at the
Hannover fair. Securing the competitiveness of the German industry and paving the way towards asustainable, resource-efficient economy was and still is the driving motivation. How can we release
employees from exhausting and routine work and how can we establish better and more fulfilling ways
of working in the future? Questions which were discussed intensively and promising with theconstructive participation of the unions.
During the subsequent years I initiated with the support of our government and my colleagues fromacatech the projects “Smart Service Welt”-together with Frank Riemensperger- and later“Autonomous Systems”, which emphasized new societal and ethical challenges, particularly for aharmonized human machine collaboration.
International cooperation was one of the key objectives from the very beginning and since 2017 I havethe opportunity to promote Industrie 4.0 as Global Representative and Advisor. Sharing knowledge,
experience and best practise is key for success just as mutual respect that solutions may differ as aresult of diverging societal trends and culturally related approaches to solve issues.
Many have contributed, but only a few could be mentioned. I owe all of them thanks for stimulatingideas and enormous support.

Industrie 4.0:
Enabler of Economic Growth and Social Benefits
Henning Kagermann

Distinguished Guests and Dear Friends,
Right now, we are experiencing a second wave of the COVID-19 pandemic in Europe,
unfortunately. Whatever conclusions we draw, one is for sure: we have to accelerate thedigital transformation. That was exactly the same conclusion we came to 10 years ago when
we saw the last economic crisis.

Fig. 1〈Fig. 1〉 When I retired in 2009 from SAP, I was still under the deep impression of thesuddenness and the intensity of that crisis and felt the need to improve our strategic ability
to absorb unexpected shocks more easily. I also believed that we could leverage the advances1

in key technologies which had reached a level of maturity to implement them on a broad scale.
So the main idea was to use these technologies and merge the real and the virtual space into
so-called cyber-physical systems taking advantage of the progress we had made at theinternet of things and services. Connecting not only people but also smart objects, leveraging
service-oriented architectures, composing services and data from different sources into new
business processes, opens up opportunities for innovative business models, but also for newsocietal solutions in areas like education and media.

Fig. 2〈Fig. 2〉 At the same time, the government commissioned the so-called Research Council torecommend strategic projects to secure the competitiveness of our country after the economiccrisis. In my function as president of acatech, I was asked to chair the working group
communication. Obviously, the ideas I just explained apply to all application domains shownin Fig. 1, but we were convinced that focusing on production and transportation is of highest
priority because countries with a strong manufacturing backbone got better through the crisis.
In 2011, Wolfgang Wahlster, Wolf-Dieter Lukas, and I published an article and introduced thebrand Industrie 4.0 for the first time. It got immediately high attention worldwide as you canconclude from the number of publications.
What were the success factors for this broad acceptance? Let me mention only a few: We
focused on Germany’s strength: manufacturing. We could fall back on the broad network ofacatech and convince experts from different domains to support the concept and join apowerful working group. We got strong support from government, from business and theunions, and –very important- from representatives of other countries.
Last but not least, I have to admit, that we made the claim, “this is a revolution” attracted a
lot of attention.

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Fig. 3〈Fig. 3〉 Finally, the vision we outlined was convincing because it promised significant
progress not only for the economy but also for the society at large scale.
If you look to the economic aspect, we promised a shift from mass production to masscustomization producing individual tailor-made products under the condition of mass production.
We requested a move from traditional automation with pre-determined outcome to learningand self-adapting machines and environments to react in real time to changes in customer
demand as well as to unexpected disruptions.
As a result, we expected a significantly higher productivity and adaptability.
From the very beginning, resource and energy efficiency was a goal in order to decouple
economic growth from resource consumption. And finally, the promise of better and moremeaningful work, job creation through near shoring and the inclusion of older and disabled
people supported by autonomous systems.

Fig. 4〈Fig. 4〉 One can describe our journey in three phases.
The first was Industrie 4.0, combining the operational processes with the IT processes,

3enhancing everything digitally: machines, products, components, tools, aiming for ad-hoc
connectivity and fast decentral decision-making and leveraging recent progress in artificial
intelligence and human-machine interaction. That required a fundamental rethinking of all
business processes and future workplaces.
In the second phase, we asked ourselves what are the business models of the fourthindustrial revolution. The answer was: smart services created in dynamic ecosystems -data
driven and based on digital technology platforms.
Meanwhile it became obvious, the flexibility and adaptability we needed required the implementationof learning and self-determining autonomous systems. This is the third phase. However, inthe future autonomous systems will play an important role not only at work but also at ourdaily commute with driverless cars and at our smart homes with service robots and intelligent
chatbots. A holistic view of the social, legal and ethical implications, of moral algorithms andautonomous systems was needed.

Fig. 5〈Fig. 5〉 If you want to make a long-lasting impact you must secure new concepts throughlong-term institutionalization. Already in 2013, the leading business associations agreed to
set up an organizational platform and two years later the German government joined andestablished the so-called Plattform Industrie 4.0, a body in which hundreds of experts
continue to work on use cases, standardization, reference architectures, security issues, thelegal framework and the future of work. Somewhat later, a working group was added with thefocus on future digital business models, building on the ideas resulting from the strategic
project Smart Service Welt.
After all, the project on autonomous systems led to a second organizational entity:
Germany’s platform for artificial intelligence – “Lernende Systeme”.

4Fig. 6
〈Fig. 6〉 During Phase 1, the smart factory and the implementation of cyber-physicalsystems have been in the center of our discussions. In future, smart products would know
how to be manufactured and they would actively support production processes.
Machines are intelligent and can negotiate independently which one can best take over the
next order. Digital assistance systems support the employees, converting them into smart
operators; robots leave their cages and become co-workers in hybrid teams. With that, we
believe we would end up with learning and adaptable factories. To achieve that ambition
semantic standards are important as well as digital twins, which are digital representationsof physical objects with all the capabilities and functions that these objects might have:mechanical, electronic, hydraulic etc. The bridge between the analog and the digital world isthe so-called asset administration shell. A lot of conceptual and standardization work has been
done since then to position the asset administration shell as a common tool in the community.

Fig. 7〈Fig. 7〉 Standardization and semantic interoperability calls for strong international
cooperation. As this slide shows, the main countries Germany is working with, in order to5move this concept forward, are the EU, mainly through a trilateral corporation with France
and Italy, the US and in Asia, Japan and China.

Fig. 8〈Fig. 8〉 Now in the second phase, we asked ourselves again what is the business model ofthe digital economy, given the concepts just outlined are broadly implemented.
Usually, you start asking what will be the value proposition, and our answer was:individualized product-service bundles on demand, with superior user experience and atendency towards “everything-as-a-services”- business models with low switching costs andtherefore no lock-in.

Fig. 9〈Fig. 9〉 Next question is what is the supporting value-creating architecture? Obviously, it’sbased on smart data, an independent resource and generator of business value. Data arerefined from raw big data into smart data on digital technology platforms, which are the6digital factories of the future, and the basis for dynamic business eco-systems where manybusiness partners work together in order to response seamlessly to shifting consumer demand.
The employees are equipped with digital assistance systems and get more and moreindividualized training in needs-based units on the job, making them smart talents. Thatallows, then, to finally answer what the appropriate profit formula could be. In this setup you
are flexible to implement different pricing models, either based on output or on usage, ontime, or on value.
How are smart services created? As I already said: in dynamic ecosystems on digitaltechnology platforms. On the lowest level, you find all kind of digitally enhanced objects:
products, tools, components or appliances, and they generate nearly for free huge amounts ofreal-world data. These data are locally pre-processed and converted into smart data on thelevel of edge computing where OT meets IT.
Next, data are shared either within an enterprise or amongst members of an ecosystem,
supported by digital technology platforms which also serve as tool boxes of innovative new IT
solutions, f.e. in the area of advanced analytics or Artificial Intelligence.
This is the basis for the development and distribution of smart services with superior user
experience. The architecture allows to compose services from different industries into newofferings and innovative solutions and facilitates a convergence across industries, sometimes
called integrated industries, starting point for disruptive data-centric business models.

Fig. 10〈Fig. 10〉 Will all of this result in higher quality of work and therefore higher quality of life?
Of course, if the corresponding adjustments are made in the organizational structure andleadership style. It starts with implementing an agile working environment with flexible
working time, individual skills management and so on. Also advanced human-machinecollaboration must be implemented supporting a symbiosis of human and machine which

7benefits both. A key role plays life-long learning, tailored to the needs of the individual
worker and provided on-demand and on-the-job, supported by digital tools and AI-based
mentoring. However, this requires a joint preparedness and responsibility from both
employees and enterprises to secure life-long employability in the market - even beyond therequirements of the employer. Therefore, employees must be more self-reliant and managers
must delegate decision making to decentralized teams more often and be able to provide
leadership in ambidextrous structures, a combination of appropriate organizational set-ups
for existing proven business areas and new disruptive ones in parallel.

Fig. 11〈Fig. 11〉 Within the third phase of our journey we developed recommendations for the
introduction of autonomous systems. The challenge is that they perform actions withconsequences which cannot be anticipated because they continue to learn and act according
to their acquired knowledge base.
But we want them to perform responsible actions, which requires explicit knowledge,
acquired through advanced sensor technology and AI, but also implicit knowledge, forexample certain laws of nature, like Maxwell's equations, but more important: legal andethical rules. So, a combined knowledge base for their environmental model which they needin order to act responsible without unintended damages to the environment, but also for theirself-model to make them self-aware of their own limitations, the limits of their performance,
potential shortage of energy or shortage of time to perform the calculations necessary to
decide on the next action.
All of that requires consistent safety levels but also consistent legal and ethical rules as wellas consistent human-technology interaction.

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Fig. 12〈Fig. 12〉 That’s why we engaged two years ago with colleagues from Japan, from bothscience and businesses, to work on a new paradigm of human-machine interaction.
Back in 2013, the recommendation from the working group Industrie 4.0 already indicated aradical transformation of jobs, and asked for life-long learning and a new design of work places.
Similar observations were made in Japan’s Society 5.0, with the goal to create a society where
one can resolve social challenges, raising the question how artificial intelligence will change
working environments. The project team identified similar social challenges like aging population
or increasing diversity, but had to accept that according to different historical backgrounds
and social structures, in some cases local experts would recommend different solutions.

Fig. 13〈Fig. 13〉 This discussion results in a new hybrid model of working combining the demandfor close cooperation between human and machine to jointly solve problems in hybrid teams

9with the need to be able to perform as many tasks as possible remotely, reacting to the newchallenge of social distancing from the current pandemic.
The result is a new kind of business processes engineering. For each task must be decided
whether the task can be better performed by machines, like transactions or predictions, or byhumans, like making judgements, creating something new, or if machines can complementhumans f.e. by amplifying their physical strengths, or if humans can complement machinesby training them or interpreting their results.
The same procedure has to be applied to the discussion which tasks can be done remotely or
onsite. The ultimate goal is to get a level of flexibility where most tasks are hybrid and can be
performed either remotely or onsite. Cyber-physical systems and digital twins are exactly the
instruments that help us converting more and more of the tasks into hybrid ones.

Fig. 14〈Fig. 14〉 What’s next? Last year, experts from the German organization “Plattform
Industrie 4.0” evolved the Vision for Industrie 4.0 up to 2030 with the headline: shaping
digital ecosystems globally. That means we must continue to make progress withinteroperability and international cooperation in open ecosystems which permit plurality,
diversity, and flexibility. We continue to aim for a sustainable economy where economic
growth is decoupled from resource consumption and for autonomy or rather sovereignty as
self-determination on all levels: team, company, ecosystem and country.

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Fig. 15
〈Fig. 15〉 What does self-determination mean in the context of a connected economy?
Mainly the freedom to select the technology of choice, the business partner of choice or thelocation of choice, in particular the location where data are stored and processed. A potential
answer is GAIA-X, a framework for open collaboration. Open to all business partners, as longas they support European values.
GAIA-X addresses both layers, the infrastructure layer with edge- and cloud computing,where it’s about frictionless portability, interoperability, and free choice of location. And thefederation of data and services in open data spaces for all business domains, providing
generic development tools and applications for advanced analytics or artificial intelligence.
Last but not least, the required federation services are provided in the area of compliance,data privacy, data security, e-identity.

Fig. 16〈Fig. 16〉 What are the missions the Honda Foundation is committed to? One is how to11resolve issues caused by economic growth. One answer is the concept of circular economy, afundamental transformation of the entire life cycle of a product, starting with the selection of
raw material, ending with the collection of used components and products in its entirety andhigh-quality recycling. But in between there are three phases where we can take advantage
of Industrie 4.0, smart services and autonomous systems. First, the design phase, where it’s
about designing products for reusability of components, and re-manufacturability, tackled bysmart engineering, one of the characteristics of Industrie 4.0. In production and distribution
significant resource efficiency will be gained from introducing digital twins and otherconcepts of Industrie 4.0. And during the phase of usage, smart services make a huge
contribution with new as-a-service business models.
For two years, acatech is moderating a circular economy initiative to push these topics along.

Fig. 17〈Fig. 17〉 Another mission the Foundation is committed to is resolving issues caused bytechnology; a key topic raised by many stakeholders during our work on autonomous systems.
The final recommendations were presented to Chancellor Angela Merkel and to Prime
Minister Abe in 2017.
More than hundred experts from all societal groups had agreed on these recommendations
and the conclusion that autonomous systems provide not only situational adaptability, theyalso have the potential to solve major social issues. But there are challenges, in particularlegal and ethical issues. That’s why we recommended to implement autonomous systems via
use-cases, gradually and experience-based, and decide case by case if they are beneficial forthe society. If not, we should not pursue those cases any longer.

12Fig. 18
〈Fig. 18〉 Whenever legal or ethical issues are concerned, the slogan “Value by Design”
comes up. In reality, technology is never neutral. It depends on the intention with which atechnology was developed. Is this maximizing advertising revenues or keeping the attentionof a consumer as long as possible on a certain web page?
Of course not if we engage in a democratic debate where we expect a balanced and trusted
reporting on different opinions in order to make up our own one and to achieve public
compromises during this debate, respecting societal values.
In Fig. 18, I have listed a few examples and the associated technological components. One
value is diversity and openness, tolerating a plurality of opinions. This objective has an
impact on the underlying search algorithm or recommendation systems. If one promotes
transparency and accountability, the traceability of source and the publication of source codeis important. A fair balance of economic competitiveness and social welfare requires
reconciling openness and IP protection, which calls for open standardized interfaces andavoiding lock-in. The right balance between individual rights and collective purposes calls fordata protection and portability.

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Fig. 19
〈Fig. 19〉 Managing these challenges which emerge from the current disruptive transformations,and balancing out very carefully the three dimensions of sustainability, requires effective
partnerships among all stakeholders to build trust and credibility and decision-making basedon best available evidence.
Most challenges are global and call for international cooperation. So, we must strengtheninternational cooperation, share our knowledge, our experience and our best practice. It may
be that in some cases, a solution of a country differs from the solution another country adopts
due to diverging societal trends, or to culturally related problem-solving approaches. But our
response can only be self-determination and open collaboration, and not self-sufficiency andprotectionism.
Thank you.

■ This report can be viewed in the Honda Foundationʼs website.
You may not use the proceedings for the purposes other than personal use without the express writtenconsent of The Honda Foundation.

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Editor in chief

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