The green-eyed automaton: has Brexit opened the door to Industry 4.0?

The green-eyed automaton: has Brexit opened the door to Industry 4.0?

There is an intriguing pattern of how people around the UK voted in the EU referendum. Wealthier, service-driven areas, like London, voted to remain, while notably poorer, industrial areas, such as Northern England and Wales, voted to leave. Many people feared losing their jobs to immigration, with 52% of Brexit voters thinking immigration could be better controlled outside the EU. Manufacturing is inextricably tied to the EU, so are they now safe?

It could be argued that they shot the wrong target. From power looms to digital technology, the main threat to employment is rarely immigration, but automation. We are on the brink of the fourth Industrial Revolution – involving cyber-physical, data and cloud technologies – which looks set once again to change the face of work, particularly in the industrial sector.

In the face of substantial economic challenges ahead, will employers be pushed to use new automating technologies to eliminate costly labour?


First things first: what is the state of industrial work at the moment?

The industrial economy employs around 2.6 million people in the UK and accounts for circa 10% of national economic output. As a proportion of jobs, East Midlands has the highest, at 12%, followed by West Midlands and Yorkshire and the Humber. Investment in manufacturing has historically declined and the steel industry was recently shaken to its core, not to mention the farmer’s pay crisis. However, overall, industrial work has experienced a surge in recent years. In particular, the automotive industry, which employs 700,000 people and produced a record 1.5 million cars in 2015, while the chemicals industry employed 158,000 people 2015, up 11% on the previous year.

All in all, the picture was starting to improve.


What is the potential impact to industry of leaving the EU?

Industry leaders were dreading a Leave vote. While it is too early days to understand the true impact of the Brexit, we can speculate:

  1. Drop in the value of the sterling: the pound reached a historic 31 year low at news of the Brexit. This will make exports cheaper (and manufacturing generates 50% of all UK exports), but imports more expensive. Over half of our imported fruit and vegetables come from the EU, which means the price of groceries will go up
  2. Removal of subsidies: 55% of farmers’ income comes from the EU, supported by the annual £3b in subsidies provided through the Common Agricultural Policy (CAP). The removal of this will also push up prices and stifle production
  3. Rise in the cost of trade: one of the main economic benefits of the EU is free trade. 35% of UK goods exports go the EU, including 58% of UK-built cars, which could be severely impacted by an introduction of tariffs. Furthermore, the EU has a bigger clout in trade negotiations with markets like China, meaning the UK could lose further trade power.
  4. Scarcity of talent: manufacturing relies on both casual labour and high skilled talent (such as in R&D, which accounts for a whopping 70% of UK innovation investment). Closing borders would create a scarcity of talent that would damage growth. This could be exacerbated if other countries decide to retaliate by making it difficult for British expatriates to work there

What does this mean for employment?

A number of other talent trends are combining to make life difficult for industrial leaders, including ageing (over one million people, or 34%, of manufacturing employees are over 50), productivity (bar Italy, the UK is the least productive country of the G7), and generational trends (young people don’t want to be farmers). Along with a potential lack of access to casual and highly skilled international talent means employers face the quandary of trying to improve efficiencies in the face of rising labour costs. This will lead many to take drastic action.

Some believe that we will see a drive to rid the UK of EU employment laws, such as Agency Workers Regulations, which gives temp workers more rights, while others predict companies will lobby the government to allow immigration in certain areas. However, the CIPD argues that how laws are transposed into the UK is too complex to change, and the UK may be forced in EU divorce settlements to maintain labour laws so as not to undercut the competition.

In any case, these actions are unlikely to be enough to source needed talent, making it increasingly likely that companies will look towards automation.


What is so important about Industry 4.0?

Technology has historically been the Great Job Displacer, with those of three successive Industrial Revolutions over the last 150 years – steam, steel, digital – each transforming the work landscape. We are now on the brink of Industry 4.0. A new approach involving cyber-physical systems (CPS) data and cloud technologies is already seeing highly intelligent, connected and automated machines (such as AI, IoT and additive manufacturing) able to self-diagnose, self-optimise, and support organisations in complex physical and cognitive work, for clear business benefit. Indeed, the IDC predicts that IoT could would be worth $167 billion in potential revenue to manufacturing industries (including chemicals). For example, attaching sensors to wind turbines can boost their efficiency by 5%.

Indeed, the demand for industrial robots across the world is predicted to rise by 15% a year until 2018 and Industry 4.0 has the potential to add £352 billion to the UK economy over the next 15 years. Currently, the UK has been an Industry 4.0 laggard, ranking 14th in the world in terms of robot technology investment, with just 71 robots per 10,000 people (versus, for example, 300 in Germany and Japan). However, the turmoil caused by the Brexit may accelerate this investment.

But what might the result be on the workforce?

35% of all UK jobs are predicted to be ‘computerised’ in the next 10-20 years, with administrative or routine manual activities in the most danger. For example, Foxconn replaced over half of it 110,000 strong workforce with robots earlier this year, while Rio Tinto famously uses fleets of self-driving mining trucks.

But full automation doesn’t have to be the only option. Government-funded initiatives, such as HVM Catapult, look to work with organisations to develop innovative automating technologies using the skills of the existing workforce. John Deere leverages IoT in agriculture, developing sensors in plants that communicate current and potential issues and needs to farmers through their phones. Knapp AG is augmenting workforces through its AR picking technology, wherein pickers’ use see-through displays on their headsets to help them locate items more quickly and accurately. And finally, we are seeing a rise of the cobot, such as Sawyer, which works alongside humans on a factory line to perform highly dextrous work.


Industry 4.GO: What should industry leaders do next?

PA uses a Workforce Futures workshop methodology to help clients identify the macroeconomic trends that will have the greatest impact on their industry, and through building scenarios based on different configuration of those trends, develop futureproof strategic workforce plans.

To get the thinking going, we suggest industry leaders consider the following:

Future worlds: Scenario plan the impact of uncertainty on business and talent

Given the massive uncertainty of the UK’s future place in the world, employers could undertake scenario planning to prepare for alternative futures. In particular they need to understand the different ways their business and talent could be affected by the combination of emergent macroeconomic trends, from the economic to the social. For example, how would connected technologies combine with the removal of EU subsidies to impact the skills profile and affordability of future farmers? How could chemical plants maintain access to specialist skills in the face of restricted international talent as well an ageing workforce?

Into the abyss: Explore how Industry 4.0 solutions will change talent

The possibilities of Industry 4.0 technology are vast, and so it is imperative to understand how work and the workforce will change. For example, if people will have to work closely with robots and AI, wearables, and IoT, could this result in a lesser focus on some skills, such as craftsmanship, and a greater focus on data science and robot co-ordination? Also, what could be lost through automation or augmentation? Polanyi’s Paradox states ‘we know more than we can tell’, that is, informal, unmeasurable skills, are an essential part of business success. Say a product design is completely automated, could the algorithms used miss out on more intuitive or creative design elements? Could a network of sensors really ‘read’ the mood of a cow herd better than a human?

Brave new world: Identify both the obvious and subtle answers

As with all change that involves people, there will be both obvious and not-so-obvious solutions. For example, will chemical plant companies need to start investing more in training to up-skill their employees in using predictive analytics, or should they hire in that talent externally – or even buy an AI software to do the work? What could a logistics company do with its people if its transitions to using entirely self-driving vehicles? Would they all leave? Could they be retrained to do other tasks, such as vehicle maintenance? Finally, we worry about the robots taking over, but we often forget about human error and irrationality. A robot at a Volkswagen plant in Germany killed a worker, but it was found to be caused by human error. In a previous article, we discussed reports of fear-driven violence towards robots, akin to the weavers’ destruction of power looms in the nineteenth century. If a car factory line introduces cobots, how should leaders build a more robot-familiar workforce? What precautions would need to be in place that both protects the emotions of human employees and the physical safety of robots?


Are you ready for Industry 4.0?

If change is the only constant, then surely in today’s Post-Brexit world, uncertainty is the only standard. But, to quote Einstein, ‘in the midst of difficulty lies opportunity’, and Industry 4.0 technologies offer precisely that for industrial leaders. Through careful assessment of business goals against macroeconomic trends, an exploration of the impact of technology on talent, and a heightened awareness of both the obvious and not-so-obvious talent solutions, companies can bravely face this new era, armed with the right technology to transform their business.


Tara Jones is a director in PA Consulting’s London office, where Dennis Layton is a principal.

The authors would like to thank Andrea Alexander, Mauricio Arnau, Lori Dobeus, Kirill Dushkin, Lauren Miller, and Katie Smith for their contributions to this report.

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