In a bygone era, technology may not have been a top priority for small businesses. That's certainly not the case today. In the manufacturing sector, in particular, the rush to embrace and embed new manufacturing technology to break down the barriers between the physical and digital world, known as "Industry 4.0," is the latest example of how organizations are increasingly becoming more sophisticated in order to compete.

Yet some confusion exists regarding the meaning of Industry 4.0. While many definitions exist, the Boston Consulting Group, a global consulting firm, provides a clear and concise explanation of Industry 4.0 as a "transformation that makes it possible to gather and analyze data across machines, enabling faster, more flexible, and more efficient processes to produce higher-quality goods at reduced costs."

With this definition in mind, how should small-business owners apply Industry 4.0 and its principles to ensure their ability to compete? Further, how can small businesses select or develop the appropriate technology to improve their standing in the market while mitigating the risks accompanying Industry 4.0?

Have the Courage to Ask "What if ..."

By embracing Industry 4.0 and deploying connected devices, a more intelligent approach to manufacturing results, hence the emergence of the term, "smart factories." Before a small business can jump on the bandwagon, it must develop a clear understanding of what it hopes to accomplish. Yet too often, small-business owners invest in technology that allows for minor improvements to existing operations that fall short of truly transformative changes that can catapult the company to previously unattainable levels of performance.

Therefore, before embarking on a new investment, take the time to create a vision for the future and how technology might help your company reinvent itself. Some call this approach "blue sky thinking," while others view it more negatively, labeling it "wishful thinking." Nonetheless, planning for and unleashing the power of technology as a reorganizing force requires a compelling view of what the future might look like.

But before your company can embark on a technology overhaul, there are some critical questions that small-business owners should ask themselves:

• What if an investment in technology could allow your company to gather real-time data regarding how your customers use your products or services?
• What if such data could uncover additional revenue streams? How might that information improve your company's ability to compete?
• What if a technology enhancement could enable your company to outmaneuver your competitors and create new categories within your industry?
• What if technology could let you know when to perform preventative maintenance on a robot in your factory, allowing you to further optimize your manufacturing processes?
• What if the data gathered by a robot's sensors could help identify ways to streamline your manufacturing processes, reduce waste or prevent accidents?

Some companies engage a suitably qualified consulting firm to force them to think creatively about the future and their use of technology. Others may rely on their internal teams. Regardless of how your company approaches this task, the goal is to begin the process of harnessing the power of technology.

Create a Compelling Business Case

While blue sky thinking is a part of the picture, beginning a transformative journey needs to be justified. Before investing in technology, set aside the time to create a business case that includes the quantitative and qualitative benefits you expect to generate. For example, if the technology investment allows your company to create a new type of product or service not offered by any of your competitors, quantify the stream of revenue you anticipate capturing.

By the same token, if the technology investment provides unprecedented access to customer interactions through your mobile app, website and email marketing campaigns, document how that information could improve your company's knowledge of individual preferences, and by extension how you might use that data to drive revenue and personalize service.

Security as a Core Competency

Pursuing Industry 4.0 also requires a willingness to prioritize security as a "non-negotiable." Along those lines, CSO magazine reports that many smart factories present enticing targets for cybercriminals due to a lack of security. In fact, the Industrial Internet of Things remains highly vulnerable to hacking. Therefore, before installing connected devices, manufacturers must understand how the threat increases as they continue their journey toward Industry 4.0.

According to the 2018 Verizon Data Breach Industry Report, while most cyberattacks in the manufacturing sector are opportunistic in nature, 86 percent involved a targeted effort, with 89 percent coming from an external source. This means that hackers, including those working for foreign governments, breached a manufacturer's defenses with a specific goal in mind. In fact, 47 percent of attacks against manufacturers involved the theft of intellectual property. Further, Verizon's report notes that 66 percent of attacks involved hacking, while the remaining 34 percent happened due to the delivery of malware. Consequently, when developing advanced technology or using a third-party platform, connected devices must include protections against unauthorized access, including the use of sophisticated passwords, encryption and protocols to prevent the injection of malware.

Win Your Employees' Support

Given the pace of innovation, small and large businesses alike face an unrelenting pressure to adopt new manufacturing technology or risk being overtaken by competitors. Nonetheless, while it's important to have a vision of the future and a case to justify the costs, many companies overlook the significance of enlisting support from every level of the company. Unfortunately, it's human nature to resist change. Mitigating the risk accompanying new manufacturing technology hinges on your ability to explain in detail the business reason for the investment and the resulting changes it will produce. Therefore, long before the plan becomes operational, make sure everyone in the company understands the new landscape and their role in ensuring a successful deployment.

The opinions expressed and information contained in this article are given in good faith, may be subject to change without notice, and are as of the date issued. The accuracy and completeness of this information is not guaranteed. Since each client's situation is unique please review your specific objectives and needs with your advisor and/or tax planning professional.