Industry 5.0 is Reframing the Conversation on Digital Transformation

It’s not just a chronological upgrade from Industry 4.0, but a wider idea of society and sustainability with humans at the center.

“Are we getting ahead of ourselves?” asked the moderator at the EIT Digital Grow Digital event in Brussels earlier this month when faced with the term Industry 5.0.

It’s easy to be skeptical. The paint has hardly dried on Industry 4.0 and yet here is another buzzword term to get the consultants licking their lips. But is that fair? These things are hardly set in stone, and surely anything that helps organizations frame their transformation thinking around modern challenges must be a good thing, right?

Sean O’Reagain certainly thinks so. Speaking from the Grow Digital stage in Brussels’ Anderlecht district, the deputy head of Industry 5.0 for the European Commission’s Directorate General for Research and Innovation argued that Industry 5.0 is not a chronological upgrade to 4.0, but reflects how the working world and digital technologies have changed over the past couple of years. The idea is that Industry 5.0 embraces advances in AI and metaverse technologies around three core pillars: human centricity, sustainability and resiliency. It is also about decentralization, personalization and collaboration.

“There is a clear impression that industry, with its focus on digitalization to drive down costs and enhance profitability, has become too focused on the factory floor,” said O’Reagain, “and has become a little bit disengaged from its wider role in the economy, in society, and was perhaps becoming less attractive.”

A widening view of digital transformation

O’Reagain was referring to industry’s ability to compete in the job market for a new generation of digitally literate workers. Competition is fierce, he says, and industry needs to broaden its focus to ensure it can sustain itself in years to come. The point is that any digital transformation has to be more than just the technology. Everything—people, sustainability, resiliency, digital twins, VR/AR—is interrelated, and transformation must reflect that.

Jani Kangas, strategic innovation management lead at Nokia Labs, agreed with this idea of a framework within which industry can operate to understand how to evolve and address issues simultaneously. Nokia Labs has its own ideas on industry 5.0, although Kangas said the business does not actually use the term. Nokia Labs focuses on metaverse technologies and how they relate to industry and enterprises, within which skills development (and recruitment) and developing environmental, social and governance (ESG) measures into a competitive advantage are seen as key strategies.

This need to merge physical and virtual worlds in work—to engage digital natives but to also reduce impacts and improve collaboration—is not new, but it is the formalized approach of Europe that makes it interesting. So much research is going into how this impacts industry that it is impossible to not look on with some interest. Europe has a reputation for regulation—it’s currently working on the world’s first AI Act—something which sparks concern among entrepreneurs and investors, as it can limit innovation. But it can also deliver incentives and opportunities.

The role of regulation in Industry 5.0

Any regulation is there to avoid a wild west approach to innovation, although the EU does encourage so-called “sandbox regulation” for startups, limiting regulatory impact on new ideas and creativity.

Harald Schöning, vice president of research at Software AG, warned against too much regulation. He said that there is a danger that regulation could stifle transformation in Europe and that both governments and industry had to work together to find the right conditions for industry in Europe. Organizations, he said, are already working towards ESG goals through existing carbon reporting legislation, so there was really no need to re-invent the wheel.

For O’Reagain, though, it is so much more than that. While he sees regulation as occasionally a necessary vehicle for change, he says the focus has to be on manufacturing and engineering skills. He refers to MIT’s “hub and spoke” model of putting the emphasis back on developing modern manufacturing skills, as well as President Biden’s Inflation Reduction Act, which focused on manufacturing development and putting people at the center.

“What we were hearing from executives is that if industry is to be successful in its digitalization, it needs to be much more effective at bringing together the capacity for greater speed and accuracy of digital technologies,” said O’Reagain, adding that this in turn should enable the workforce, by bringing together human and machine capabilities to stimulate innovation and creativity.

So, is regulation a part of this?

“This process must be driven by innovation, and we shouldn’t do anything that in any way hampers innovation,” added O’Reagain. “I think it is for industry to adopt Industry 5.0 and our role at the European level really should be to ensure the right framework is in place. So, making sure that at the policy level there is coherence, clear directionality and an appropriate level of incentives.”

Putting people and society at the heart of digital transformation

The question remains as to how industry achieves these human-centric, collaborative, sustainable, decentralized, resilient and yet high-productivity goals. Is there a priority here, or is the point that Industry 5.0 is a way of simultaneously delivering on everything all at once?

“I think at this moment, resilience is probably the critical thing we need to get right,” said O’Reagain. “Because we’re still in a very uncertain business environment. On sustainability, I think what’s important is that digital technologies are used in a way that companies no longer think about it in terms of not doing the bad things, but rather making a positive contribution to sustainability, by using digitalization to improve the production processes.”

At the heart of this is skills and skills investment. While the Industry 5.0 concept is built around modern technology tools such as digital twins and VR/AR, it is really centered on people and not machines. To that end, the need for investment in ongoing skills development is stark. Europe is good at the research level, bringing together stakeholders in nurturing innovation. It is, perhaps, less successful at attracting outside money—at least until recently. Europe as a manufacturing base is not new, especially in more traditional industries such as automotive, but Intel’s investment in a new fabrication plant in Germany last year has boosted confidence that the region can now compete.

The challenge for industry is how to influence skills development and even education. Skills are a strategic tool for industry, and there is now an urgency to develop raw material manufacturing locally, driven as much by geopolitical issues as supply chain fragilities experienced during the pandemic. But influencing change is not easy, at least in isolation, which is why Europe thinks collaboration and cooperation are key. By focusing on people and skills, it hopes that digitization will have more relevance. The theory is that Industry 5.0 will meet the needs of people and societies and not just the needs of markets, making it more attractive, sustainable and resilient in the process.