Ventil 2 / 2022 • Letnik 28 1 PRENOVA POSLOVODNIH PROCESOV b uSineSS and teChnologiCal aSpeCt oF proCeSS inForMatization and autoMation in induStrial praCtiCe Mitja Cerovšek Abstract: Digital transformation brings great technological and business challenges to organizations. It helps to change the patterns of business operations and has the efect of increasing innovation and competiti- veness. At the same time, this is a great opportunity to develop and introduce many positive changes to the existing business and process model. Understanding of process informatization and automation, me- aningful integration of technology with business processes, and control and implementation of strategic directions of the organization are the three topics that need to be simultaneously managed in order to achieve an implementation of all the necessary changes. In product development, companies use the approach of informatization and automation of business pro- cesses in managing changes, which is mainly focused on achieving technological changes. Such an appro- ach is no longer appropriate and has become insufcient. We propose an approach that, in addition to the technological ones, also takes into account the business aspects of the necessary changes. Such an appro- ach enables signifcantly better interaction between all stakeholders involved in change processes. As it arises from business motives, it also leads to signifcantly better results in industrial practice. We propose a model of strategic and comprehensive approach to the necessary changes in the digital transformation of the organization, which takes into account 5 diferent areas of necessary change: strategy, business proces- ses, technology, employees and organizational culture. Proposed model has been tested and implemented in industrial practice of the automotive industry and in manufacturing of industrial equipment. Key words: Industry 4.0, digital transformation, business process, business and technological aspects of change, bu- siness renewal and informatization, process automation Introduction Numerous studies fnd that digital transformation projects fail in 70% of cases [1]. The reasons can be found in the fact that organizations generally use only the approach of informatization and auto- mation of business processes in managing change. They are interested in technological changes and new solutions that they fully trust. They install new solutions on old (existing) business processes. The approach does not work in practice because it fo- cuses mainly on introducing technological change. Such an approach is therefore no longer appro- priate and does not meet the expectations of the time. Therefore, it is necessary to fnd and apply an approach that, in addition to technological, also Doc. dr. Mitja Cerovšek, univ. dipl. inž., Iskra PIO proizvodnja industrijske opreme, d. o. o. Šentjernej takes into account the business aspects of the nec- essary changes. Existing business practices need to be supplemented by including the business as- pect as a building block of the model of necessary changes in the process of digital transformation. If the introduction of changes is based on business motives, this leads to signifcantly better results in industrial practice. Today, we pay special attention to digital transfor- mation, mainly due to the great impact of advanced digital strategies on ensuring excellent cooperation with customers and increasing the efciency of business processes [2]. With the development of new technologies, dynamic markets and custom- ers, the economic environment is taking initiatives to discover business model innovations and reno- vate products, processes and organizational struc- tures [3]. It is the philosophy and technology of the future that connects devices, products and services to the global internet. 120 Ventil 2 / 2022 • Letnik 28 2 PRENOVA POSLOVODNIH PROCESOV Figure 1 : Digital transformati- on framework [4] The foundations of digital transformation are laid on the foundations of business renewal and in- formatization, e-commerce and business process management. However, the model will not work in the long term if it is not placed on renewed busi- ness processes. Organizations and employees need to make a professional, technological, personnel and sociological shift in thinking and acting. It's mostly about business change. These need to be established on a changed business and process model of the organization, which can take us from digitalization to digital transformation (Figure 1). Concepts and backgrounds of digi- tal transformation Although the potential benefts of digital transfor- mation of production are remarkable (increasing efciency, sustainability and adaptability), only a limited number of organizations have already de- veloped their strategy to achieve top performance in this feld [5]. The digital transformation of man- ufacturing (Industry 4.0 or 'smart manufacturing') is a common term for technologies and concepts in an organization's value chain. It is based on techno- logical concepts of using and recognizing cyber and physical systems, the Internet of Things (IoT), the Internet of Services (IoS) and data mining. These al- lows us to implement new forms of individualization of customer needs. Direct customer input enables organizations to produce increasingly fexible prod- ucts, shorten production cycles and reduce costs. Newly created value is shared between the manu- facturer and the customer. The Industry 4.0 concept bridges the gap between fexible mass production on the one hand and individual-oriented production on the other [6]. Given the absence and incomplete defnition of the current framework (rules, guide- lines, boundary conditions) of the Industry 4.0 con- cept, four perspectives need to be emphasized [7]: (1) production processes, (2) machinery, tools and devices, (3) software and (4) engineering. The basic components of the Industry 4.0 model [8] are (1) mobility (number of IP devices exceeds population, more than a billion smartphones, the impact of mobile devices on daily life), (2) cloud computing (67% of adult Internet users in the USA use cloud services, cloud will replace computers), (3) cooperation (transformation of cooperation us- ing cyber-physical systems, connecting virtual and real world, use of RFID, NFC and QR technologies, shift from centralized to decentralized production control system, challenges in the feld of systems security, gradual introduction of new technologies, use of cooperation and knowledge exchange net- works, participation of employees in the process model of the organization) and (4) large amount of data (data is generated everywhere, huge growth in data last two years). Hyoung et al. [9] similarly Figure 2 : Architecture of the Industry 4.0 concept [9] 121 Ventil 2 / 2022 • Letnik 28 PRENOVA POSLOVODNIH PROCESOV Figure 3 : Conceptual framework of smart machines and tools [11] note that cyber-physical systems, cloud manufac- turing, big data analytics, internet of things, smart sensors and energy saving will play an important role in the development of smart factories in tech- nological terms. The development of smart produc- tion will not only take place at the level of individual processes and individual factories, but comprehen- sively (along the entire supply chain) also between diferent production units and between diferent entities (Figure 2). Digital integration between products and informa- tion systems enables the use of more complex busi- ness scenarios in the areas of production and mo- bility. Smart products enable the design of smart services and smart service systems. These are based on monitoring, optimization, remote control and autonomous product customization. Smart products retrieve and analyze aggregated data and include smart services based on meaningful data context [10]. Continuous improvement of machines and tools has a signifcant impact on productivity in pro- duction. Key features of Machinery 4.0 (Figure 3) include vertically and horizontally integrated cy- ber-physical systems and increasingly intelligent, autonomous and secure machines and tools [11]. The development of new key technologies in the feld of artifcial intelligence is proceeding rapidly. This triggers many changes in models, assets and ecosystems in industrial production systems, as well as changes in the development of artifcial in- telligence itself. New models, forms and architec- ture of intelligent product and technology system (Figure 4) are based on [12] integration of artifcial intelligence technology with information, commu- nication and manufacturing technology (intelligent robots, intelligent manufacturing services in cloud, intelligent services and design, data and knowl- edge services, intelligent fnancial services). With the development of Industry 4.0, the main- tenance of machines and tools is becoming an im- portant area for achieving competitive advantage. Predictive maintenance in particular is becoming a criterion for assessing the maturity of Industry 4.0 (Figure 5). Artifcial intelligence ofers methods and approaches based on the capture and processing of large amounts of industrial data in order to ensure long-term performance without failures. With the integration and support of cyber-physical systems, an appropriate approach can provide integrated maintenance planning of production facilities, which leads to the calculation of the Remaining useful life of machines and devices and to the calculation of expected loss of proft (Proft loss indicator) [13]. Industrial production is most often advanced by in- creasing its competitiveness. It achieves this large- ly through the use of state-of-the-art information technology and automation, which can provide new starting points and opportunities for growth. However, not without prior implementation of busi- ness process changes using business process man- agement methods. Figure 4 : Inteligent product and technology system [12] 122 Ventil 2 / 2022 • Letnik 28 3 PRENOVA POSLOVODNIH PROCESOV Figure 5 : Industry 4.0 maturity model [13] An approach to introducing digital transformation into industrial practice High expectations in the feld of business digital- ization and Industry 4.0 need to be meaningfully, selectively and gradually incorporated into existing industrial practices. The available resources of the organization are limited, so the correct choice of activities (actions) is extremely important. The rea- sons for the reasonableness and selectivity of all activities for the transfer of Industry 4.0 concepts into business practice (Figure 6) must therefore be directly linked to increasing competitiveness and business performance. This means introducing new business models, new or diferent products, new or diferent services, capturing and using data in products and services, increasing innovation, in- creasing productivity, creating added value for the customer and managing costs more efciently. Integrating Industry 4.0 concepts into industrial practice is not just about the connectivity, utiliza- tion and efciency of machines and tools. We want to achieve connectivity, efciency and efective- ness of the entire production chain from suppliers through manufacturers to end customers (B2C or B2B). We connect processes, products, equipment, services, people and management. We are estab- lishing inter-company integration that extends be- yond the borders of individual organizations. It is a high level of automation and informatization of production (machines, devices and tools) and its integration with business and production applica- tions, software tools and knowledge of employees. Industry 4.0 brings mostly business challenges. Albukhitan [14] lists 8 key challenges facing pro- duction organizations in the feld of digital trans- formation: (1) traditional business processes, (2) re- sistance to change, (3) inherited (existing) ways of doing business, (4) limited process automation, (5) budget constraints, (6) lack of relevant skills, (7) infexible organizational structure and (8) cyber se- curity. Vogelsang [15] among the main obstacles to the successful implementation of digital transfor- mation in manufacturing organizations includes the Figure 6 : Reasons for integrating Industry 4.0 concepts into industrial practice 123 Ventil 2 / 2022 • Letnik 28 PRENOVA POSLOVODNIH PROCESOV lack of relevant information skills (IT knowledge, in- formation for decision-making in the feld of tech- nology, process knowledge), technological barriers (dependence on individual or existing technologies, data security, existing infrastructure), personal bar- riers (fear of losing control of the data and losing the job), organizational and cultural barriers (main- taining traditional roles, lack of vision and strategy, rejecting cultural change, attitude towards culture of mistake, risk aversion, lack of fnancial resourc- es, lack of time) and environmental barriers (lack of standards and laws). Business reform and informatization must be based on a clearly defned strategy of the organization and on renewed business processes. When intro- ducing the digital transformation of the organiza- tion, the following contents should be thoroughly considered:  digital strategy of the organization,  pr oc es s changes,  t echnological changes,  employees,  or ganiza tional cultur e . 3.1 Digital strategy of the organization Based on a systematic study of the defnitions, aspects, perspectives, dimensions and models found in the literature, four key areas (Figure 7) of the organization's digital strategy can be identi- fed [16]: market entry, collaboration, performance factors and organizational factors. Regardless of the model or strategy that an organization uses to carry out its digital transformation, it must focus on addressing its ten content dimensions. Along with the ten dimensions of digital transformation, organizations need to integrate and monitor dig- ital agility in their work. This includes three con- tinuous and interconnected capabilities: conscious action, data-based decision-making, and rapid ex- ecution. An important task of top management is to create an environment for the implementation of digital transformation. Without a business map (digital strategy), what changes need to be addressed in order to be competitive, successful and efcient in the future, it is not possible to set the right goals for digital transformation. Digital strategy must become an integral part of an organization's busi- ness strategy. The action plan should be concrete, the contents precisely defned, the contractors competent and committed, and the deadlines for implementation ambitious and realistic. A study of the state and trends of digital transformation in Slovenia [17] found the following: in 44% of cas- es, the digital transformation strategy is included in the business strategy, and in 14% it is prepared independently. However, a large part of the sur- veyed organizations (33%) do not have a digital strategy. 3.2 Business Process Management The availability of digital technologies and solu- tions enables the digital transformation of busi- ness processes. At the same time, this means [18] that digital processes and products need to be created with a deep understanding of the (hid- den) needs of consumers and their behavioral patterns. The development of intelligent factories based on the recognition of ‘digital’ opportuni- ties leads to custom manufacturing. However, the essence of this process is not digital technology. The key is changes in our way of thinking and acting. Here, business processes are the second Figure 7 : Dimensions of Digital Transformation [16] 124 Ventil 2 / 2022 • Letnik 28 PRENOVA POSLOVODNIH PROCESOV Figure 8 : Role and position of business processes in the introduction of Industry 4.0 in industrial practice pillar of the chain, which enables the successful implementation of the renovation and informati- zation of business (Figure 8). If the organization's strategy represents the key orientations and goals of the operation, the business processes are the 'performers' of the instructions represented by the organization's strategy. Therefore, if business pro- cesses do not pursue the goals of the organization or are not optimally managed, then we cannot ex- pect to be able to properly automate, computerize and integrate them into a lean whole. So: success- ful digital transformation is only possible with the simultaneous renewal of business processes. The authors of the research on the state and trends of digital transformation in Slovenia [17] come to the same conclusions. When it comes to digital transformation, we are thinking mainly of business changes. Only the introduction of technology does not increase an organization’s digital maturity It is a business transformation, so the digital transfor- mation must be primarily a business initiative. 3.3 Technology change management In order to achieve their strategic goals and main- tain a competitive advantage in the digital era, organizations must periodically renew their digi- tal platforms and infrastructures. However, knowl- edge about such technology change is limited and dispersed in the organization. Technology renewal is [19] a kind of paradoxical process by which organizations remove their current techno- logical bases on which they depend. At the same time, they are establishing uncertain practices on new technological bases, which they do not know enough about. Technology renewal is a critical process of digital transformation in this sense. It requires management to make decisions in new and extremely complex situations. Technological change is happening rapidly, con- stantly and partly unpredictably (introduction of mobility, use of social networks and collaboration tools, cloud computing, analytics and business in- telligence tools, Internet of Things (IoT), Internet of Everyhing (IoE), artifcial intelligence, smart ro- bots, Blockchain Technology). Changes are faster than we are able to understand and meaningfully incorporate them into our daily work. Organiza- tions often approach them without proper critical (temporal and substantive) judgment and the nec- essary professional, philosophical and sociological distance. Technologically leading organizations in the feld of information, communication and auto- mation technologies are the initiators of creating new needs and requirements. The head (technol- ogy and technological development) is therefore faster and not necessarily smarter than the feet (business processes and employees), which can cause many challenges in the business environ- ment. An important area of integrating Industry 4.0 concepts into industrial practice is the introduc- tion and use of Manufacturing Execution Systems (MES). These systems are the direct interface be- tween the business (ERP) and process (Scada, PLC, regulators) level of operation. They enable tracking of all production parameters. Users have access to all relevant information and production data in real time. These systems increase the add- ed value of products and services. Using them we can also increase efciency and productivity. Good results in improvement can be achieved if the changes are driven by concrete business rea- sons. Information has always existed everywhere but has often been found in an isolated, incomplete and unintelligible form. In the future, the device mesh (combination of devices, including mobile devices, wearable devices, consumer and home electronic devices, automotive devices and envi- ronmental devices, which are connected with each other through network) and IoT can make these interconnected devices more secure, intelligent and responsive [20]. 125 Ventil 2 / 2022 • Letnik 28 PRENOVA POSLOVODNIH PROCESOV 3.4 Human Resource Management Employees are internal customers and often also end users of the organization's processes. In estab- lishing the process of digital transformation, we face the culture of the organization, aligning the goals of employees with the goals of the organization and improving internal communication. Industry 4.0 and Digital Transformation boost the organiza- tion awareness about positive Digital Employee Ex- perience (DEX) [21]. Technological knowledge and digital mindset of employees infuence decisions to 'participate' or 'escape' from their organization's digital transformation initiatives [22]. Their beliefs about the adaptability of personal abilities and the availability of resources afect their perception of new technologies, which represent (1) an oppor- tunity for professional growth and (2) interference with the ability to demonstrate the necessary per- sonal competencies. The authors of the research on the state and trends of digital transformation in Slovenia [17] fnd that successful digital transfor- mation is based not only on the introduction of new technologies, but also on the organization's ability to use their capabilities. The research identifes a defcit in the skills and willingness of employees to introduce the principles of digital transformation into industrial practice. Employees enter the feld of digital transformation with their abilities, characteristics, limitations and priorities. At the same time, the traditional reluc- tance to change is confronted with fear, ignorance and excessive expectations, which can largely stop the creative unrest and innovative forces of the or- ganization. It is therefore important that we estab- lish a respectful, well-meaning and honest dialogue with our employees. Realistic, timely and quality information is part of the process of making good changes. 3.5 Development of organizational culture The basic starting point for the successful imple- mentation of digital transformation is the existing culture of the organization. As decision-makers, we are extremely interested in organizational culture. The state of organizational culture mobilizes our eforts for change or makes it difcult. It is the key to adopting technology and creating an innovation environment. Therefore, caring for the culture of the organization plays a crucial role in the digital transformation [23]. The innovation of an organization is a powerful trigger for new ideas, products, services, concepts and approaches. We want to encourage the devel- opment of new business models. Organizational culture is stronger than any strategy. It can be un- derstood [24] as a crucial element in supporting a comprehensive organizational orientation towards innovation. Organizational culture is a determinant of innovation strategy. Open organizational cul- tures encourage the development of innovation environments. In contrast, closed (hierarchical) cul- tures develop a tendency to imitate or follow oth- ers. If we want to be successful in implementing our innovation strategy, we need to infuence positive changes and the gradual development of organi- Figure 9 : Model of business and technological aspects of digital transformation 126 Ventil 2 / 2022 • Letnik 28 PRENOVA POSLOVODNIH PROCESOV zational culture. We need to develop a dynamic business environment in which risk-taking is al- lowed. The entire business environment is not only defned by efciency, delivery times, costs, formal rules, policies, hierarchy and control. The results of the research [25] show that organizational culture has a positive and signifcant efect (direct and in the form of silent knowledge exchange) on the in- novative abilities of employees. Our goal is to improve existing performance pat- terns while maintaining only those that promote organizational growth, develop innovation, and create added value. Today, organizations are fun- damentally changing their business models and en- tering in completely new areas of their operations. New companies are creating new products and new services. With intellectually young and fresh staf, they create a whole new perspective on cus- tomer needs. As customer requirements change, it is necessary to fnd an appropriate response to these challenges within the organization. 3.6 Model of business and technological aspects of digital transformation Any investment in digital technologies should be directed and guided by business strategy. The challenges posed by the digital transformation are business and technological nature. With the help of technology, operating patterns change and innova- tion and competitiveness increase, which is an im- portant task of the entire management structure of the organization. However, only taking into account the business aspects of these changes can we ex - pect appropriate positive efects on the results of the organization. Model of business and technological aspects of dig- ital transformation (Figure 9) is an extended model of business renewal and informatization, which con- sisted of elements of (1) strategy, (2) business pro- cesses and (3) business informatization. In business practice, we have successfully tested it on projects in the automotive industry. Taking into account the new guidelines in the feld of Industry 4.0, digital transformations and good business practices, we expanded the model with the building blocks 'Em- ployees' and 'Organizational Culture'. Based on business practice, we fnd that these two building blocks are crucial and necessary for the success- ful implementation of changes in the organization. Technology adds a special boost to activities. For this reason, the model therefore extends the ex - isting ‘business informatization’ building block. It divides this element into two meaningful content sets: business informatization (ICT tools and solu- tions) and business automation (robotics and new smart technologies). 4 Conclusion Digital transformation helps to change the patterns of our operations and has the efect of increasing innovation and competitiveness. It ofers us a great opportunity to develop and introduce many posi- tive changes to the existing business and process model. Upgrading strategic, process and informa- tion content and awareness of the importance of employees and the role of organizational culture can establish a starting point for the overall pro- gress of the organization. This is also an extremely important task and responsibility of top manage- ment, information systems management and em- ployee development. It is sensible and necessary to fully involve employees (internal sources and in- formation) who know best their own business and production environment. The way of approaching change and the way of integrating the potentials of digitalization into the industrial environment have a decisive infuence on the achieved results and consequences. The pro- posed model of integrated approach takes into account various aspects of the necessary chang- es when introducing the digital transformation. We fnd that their implementation can be ensured by understanding, connecting and simultaneous- ly managing the fve contents of the Business and Technological Aspects of Digital Transformation Model: (1) digital strategies, (2) business processes, (3) technology, (4) employees and (5) organiza- tional culture. The proposed model upgrades on the existing ap- proach to business renewal and informatization. It takes into account theoretical fndings and at the same time experience from successfully imple- mented more than 20 projects in industrial prac- tice of the Slovenian automotive industry and in manufacturing of industrial equipment in the felds of Enterprise Resource Planning (ERP), Enterprise Content Management (ECM) and Manufacturing Execution System (MES). Based on the present- ed model, we can conclude that the technological aspect of the necessary changes today is exposed and extremely penetrating, but it is defnitely nec- essary to place it in the context of the expected business efects. We believe that the contribution of the proposed model to the successful and ef- fcient implementation of the necessary changes is very important. It provides a substantive and methodological framework for the implementa- tion of the digital transformation of the organ- ization, which has been thoroughly tested in in- dustrial practice of the automotive industry and in manufacturing of industrial equipment. In future research, it would be sensible to upgrade the pro- posed model in all its fve dimensions, and at the same time to develop and test it in diferent and additional branches of industrial practice. 127 Ventil 2 / 2022 • Letnik 28 PRENOVA POSLOVODNIH PROCESOV Reference Transformation Strategy for Manufacturing. [1] ZoBell, S. (2018). 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Pomaga spreminjati vzorce delovanja organizacij in vpliva na povečevanje inovativnosti in konkurenčnosti. Hkrati predstavlja sijajno priložnost za razvoj in uvedbo številnih pozitivnih sprememb obstoječega poslovnega in procesne- ga modela. Ključno vlogo izvedbe potrebnih sprememb pri tem lahko odigra sočasnost upravljanja treh vsebin: defniranja in izvajanja strateških usmeritev podjetja, obvladovanja poslovnih procesov ter razvoja informatizacije in avtomatizacije. Organizacije pri obvladovanju sprememb praviloma uporabljajo pristop informatizacije in avtomatizacije poslovnih procesov, ki je osredotočen predvsem na doseganje tehnoloških sprememb. Tak pristop ni več ustrezen in je postal nezadosten. Predlagamo pristop, ki poleg tehnoloških upošteva tudi poslovne vidike potrebnih sprememb. Tak pristop omogoča bistveno boljšo interakcijo med vsemi deležniki, ki so vključeni v procese sprememb, hkrati pa namenja pozornost tudi vsebinam, ki jih tehnologija ne zaznava v zadostni meri. Ker izhaja iz poslovnih vzgibov, pa hkrati vodi tudi do bistveno boljših rezultatov v industrijski praksi. Predlagamo model strateškega in celovitega pristopa k potrebnim spremembam v okviru digitalne pre- obrazbe organizacije, ki upošteva 5 različnih področij potrebnih sprememb: strategijo, poslovne procese, tehnologijo, zaposlene in organizacijsko kulturo. Predlagani model je bil preizkušen in uspešno imple- mentiran v industrijski praksi avtomobilske industrije in proizvodnje industrijske opreme. Ključne besede: industrija 4.0, digitalna preobrazba, poslovni procesi, poslovni in tehnološki vidik sprememb, prenova in informatizacija poslovanja, avtomatizacija procesa Visokotehnološka oprema za farmacevtsko industrijo, medicinske ustanove in raziskovalne inštitute Razvoj, projek�ranje, konstruiranje, validacija, digitalizacija, proizvodnja. V naše dinamično in inova�vno razvojno okolje vabimo nove š�pendiste in diplomante tehničnih smeri. Pridružite se nam. Stopimo skupaj v prihodnost. Iskra PIO d.o.o., Trubarjeva c. 5, 8310 Šentjernej www.iskra-pio.si, +386 7 39 31 400, info@iskra-pio.si 129