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Time of change
Big business in Poland will need to change and harness the potential of Industry 4.0 or become a drag on the economy.
What is a typical industry major in Poland AD 2017? Rankings of top domestic companies suggest it is a state-controlled business in the fuel and energy or financial services sectors.
What is its role in the economy? It is a ‘whale’ creating a kind of ecosphere that attracts smaller organisms, in this case small and medium-sized enterprises. It also plays an important role on the local labour market. The PKN ORLEN plant in Płock, for example, employs roughly 5,000 people and, according to very conservative estimates, creates seven times more jobs outside the refinery, mainly in the SME sector. All told, close to 35,000 people and several hundred small-to-medium firms have work thanks to the Płock refinery.
Operating primarily in the global commodities sector (energy, fuels and other commodities), a typical Polish major is exposed to global risks. In addition to the classic risk factors, like the economic and commodity cycles or pricing pressures from international competitors (e.g. from countries with lower labour/energy costs or laxer climate/environmental standards), new ones are emerging, like the progressive digitalisation and new business models that put consumers and their needs at the centre of attention.
At innovation-driven companies, automation, robotics and artificial intelligence are making inroads into every possible aspect of the business. What can be automated will be automated, and what can be robotised will be robotised. Businesses that employ digital robots and artificial intelligence are more agile and efficient. They are capable of identifying or even creating consumer needs in no time, delivering what is needed cheaper and faster than analogue companies.
Risk also comes from consumers, who rely on digital technologies to make investment and consumption decisions, and who consult their choices and share opinions through social networks. The risk of losing consumer trust can have far-reaching implications. The VW emissions scandal has actually led to a drop in demand for diesel-powered passenger cars. Consumers are more likely than was previously thought to choose hybrids, and are showing increased interest in electric cars. Consumers (as voters) have also decided that nuclear power plants in Germany will be closed.
There is an important conclusion to be drawn from all this. Polish corporations can and should proactively seek to harness the digital revolution to gain a competitive edge and strengthen consumer relations. They can because they have the means to do so. They should because they are the only ones with facilities that can be used to test new solutions in the fields of energy or petrochemicals. They should because there is no alternative. If Polish companies resist change, they will go under taking with them the vast army of contractors and employees.
Simply swapping an analogue business model for a digital one is no guarantee of success. Firstly, a clear business goal of digital transformation and a strategy for its implementation need to be defined. Digitalisation is not an end but a means to an end. Secondly, a company needs to mobilise adequate resources and accept the fact that it would be a long-term investment, as the thing at stake is not its financial performance but sheer survival. Thirdly, a determined senior management team is needed.
A combination of these three factors offers a chance of success. We know from experience that large, mature companies tend to refuse to redesign their business models unless faced with a real threat. A common reason for this approach is transactional thinking – we are making money now, so we are good. We will think of changing the business model when it no longer works. The problem is that when it no longer works it is too late to change it. This conclusion is of particular relevance to companies in the fuel, energy and extraction industries, characterised by long asset life cycles.
At PKN ORLEN, we have been keeping a close eye on advances in digitalisation, and we recognise an urgent need to adjust our business models even though our current financial condition is the best on record. We share our observations and conclusions in the ‘Economy 4.0. Time of change for industry’ report, soon to be published on our website.
Adam B. Czyżewski, Ph.D., has been the Chief Economist at PKN ORLEN since 2007. He specialises in the changes of the global energy sector that are driven by economic policies and revolutionary innovations.