Digital Transformation in Industry Digital Twins and New Business

Lecture Notes in Information Systems and Organisation 54
Vikas Kumar
Jiewu Leng
Victoria Akberdina
Evgeny Kuzmin Editors
Digital
Transformation
in Industry
Digital Twins and New Business
Models
Lecture Notes in Information Systems
and Organisation
Volume 54
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Vikas Kumar · Jiewu Leng · Victoria Akberdina ·
Evgeny Kuzmin
Editors
Digital Transformation
in Industry
Digital Twins and New Business Models
Editors
Vikas Kumar Jiewu Leng
Bristol Business School State Key Laboratory of Precision
University of the West of England Electronic Manufacturing Technology
Bristol, UK and Equipment
School of Mechanical Engineering
Victoria Akberdina Guangdong University of Technology
Department of Regional Industrial Policy Guangzhou, China
and Economic Security
Institute of Economics Evgeny Kuzmin
Ural Branch of the Russian Academy Department of Regional Industrial Policy
of Sciences and Economic Security
Ekaterinburg, Russia Institute of Economics
Ural Branch of the Russian Academy
of Sciences
Ekaterinburg, Russia
ISSN 2195-4968 ISSN 2195-4976 (electronic)

Lecture Notes in Information Systems and Organisation
ISBN 978-3-030-94616-6 ISBN 978-3-030-94617-3 (eBook)
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Preface
Drivers and Effects of Digital Transformation in Industry
The rapid development of information technology has led to limitless possibilities

for collecting, processing and analyzing big data, which has changed approaches to
managing production processes. The reasons for such changes lie in the need for
fast and precise product modeling in conditions when the demand for customized
products has increased significantly. In just a short period of time, the concept of
digital twins has grown from an abstract theoretical idea into a mature technology
that is widely used in a vast variety of industrial sectors.
We can confidently say that today digital design and digital twins are becoming
drivers of digital transformation in industry. The effectiveness of digital doubles
has been proven by world leaders. It is widely recognized that digital twins lead to
significant effects throughout the product life cycle: design, production, after-sales
service and disposal.
The digital twin is a system of interconnected digital models of a product
and production processes, and the parameters of these models can be controlled
completely in a virtual environment. The effectiveness of digital modeling is ensured
by the thousands of virtual and full-scale physical tests. The digital twins “are
learned” during operation, and it becomes “smarter.” This process is accompanied
by the replenishment of databases, datasets of decisions and knowledge, which ulti-
mately leads to the creation of technologically related solutions and changes the
production paradigm.
The 3rd Annual International Scientific Conference “Digital Transformation in
Industry: Trends, Management, Strategies” (DTI2021) held in Russia (Ekaterin-
burg) on October 29 was devoted to digital design and modeling in industry, anal-
ysis of technological trends and economic effects of digital twins of equipment,
technological processes and industrial products.
Traditionally, the conference aimed to assess the trends and prospects of
digital transformation in industry and industrial markets, as well as to substantiate
v
vi Preface
successful digital strategies. Every year, industrial enterprises and executive authori-
ties, researchers in the field of economic, technical and engineering sciences take part
in the discussion platform of the conference. This book presents the best scientific
studies of the conference. What conclusions did the conference give us?
Firstly, we have seen that digital transformation is deepening. The authors consider
the economic efficiency of digital twins, their role in the development of industrial
sectors and value chains. The articles note that enterprises that use digital twins adapt
faster to rapidly changing trends and events, increase their productivity and begin to
manage resources more efficiently. And this directly affects their competitiveness.
The scientific discussion has shown that it is possible to create a digital twin not only
of production processes and products, but also of social and economic systems.
Secondly, the scientific studies of authors have shown that digital transformation
in different industries is characterized by some common trends, but at the same time,
each industry proceeds in its own way. This concerns technological features, labor
productivity, industry risks and necessary investments. In the articles, you will see the
features of digital transformation in metallurgy, energy, aviation sector, refrigeration
and air conditioning sector, wood-furniture sector, etc.
Thirdly, in the book, you will find articles on the ecosystem approach to digital
transformation. These are, first of all, digital ecosystems in industry, including such
elements as manufacturing enterprises, suppliers, dealers, research centers, univer-
sities, associations, etc. In addition, the articles will focus on digital platforms in the
industry. The ecosystem approach to digital platforms relies on autonomous agents
who contribute to the value of the digital platform.
Fourthly, authors note significant regional peculiarities in the digital transforma-
tion in industry. The articles study the experience of the European Union, in general,
and Italy, Germany and Portugal, in particular. The authors highlight the process,
resource and institutional features in these countries. The Russian experience of
digital transformation in industry is widely represented. You can also see an article
dedicated to digital twins for the development of territories.
Fifthly, the authors of this book claim that not only technologies and production
are being transformed, but also business models. You can find articles on the use
of artificial intelligence in process management, an innovation business model for
sustainable development, strategies for digital transformation by financial and indus-
trial groups and SMEs. The authors also focus on human resources for Industry 4.0,
personnel competencies and successful teams in the digital environment.
Preface vii
The articles are an integral structure that characterizes the main trends of digital
transformation in industry. The book will be interesting for researchers, entrepreneurs
and policymakers.
Bristol, UK Vikas Kumar

[email protected]
Guangzhou, China Jiewu Leng
[email protected]
Ekaterinburg, Russia Victoria Akberdina
[email protected]
Ekaterinburg, Russia Evgeny Kuzmin
[email protected]
About This Book
The book offers a selection of the best papers presented at the Annual International
Scientific Conference “Digital Transformation in Industry: Trends, Management,
Strategies” (DTI2021), held by the Institute of Economics of the Ural Branch of the
Russian Academy of Sciences (Ekaterinburg, Russia) on October 29, 2021.
The focus of the conference in 2021 is on digital design and modeling in industry,
as well as the analysis of technological trends and economic effects following the
introduction of digital twins of equipment, technological processes and industrial
products. The aim of the topics discussed is to create an idea of introduction mech-
anisms for digitization processes and specify successful strategies of digital trans-
formation in all sectors of industrial enterprises. The experience of developed and
developing economies, as well as of small and large enterprises in implementing IT
and other technological innovations, is scrutinized.
Among the topics covered in the book are the perception of Industry 4.0 basic
technologies and the extent to which they affect digitalization processes, modeling
the procedure and structural links between digitalization components and its factorial
influence on the entire industrial sector, as well as industrial enterprises and regions
and exploring the practice of using digital twins in the energy, metallurgical, aviation
and other industrial sectors, etc.
These topics will be of great interest to academics, researchers and practitioners.
Headliners
• Gives insights into the latest research in the digital economy

• Presented new trends in the development of digital twins and new business models
• Gathers valued experience in implementing IT and technological innovation in
industrial production
ix
Contents
Digital Twins in the Industry: Maturity, Functions, Effects . . . . . . . . . . . . 1

Grigoriy Korovin
Architecting Digital Twin-Driven Transformation
in the Refrigeration and Air Conditioning Sector . . . . . . . . . . . . . . . . . . . . . 13
Carolina Bandeira, João Barata, and Nuno Roque
Practical Application of the Concept of Digital Twins in the Aviation
Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Ekaterina Sycheva and Polina Shpak
Digital Revolution in the Energy Sector: Effects of Using Digital
Twin Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Wadim Strielkowski, Gordon Rausser, and Evgeny Kuzmin
Digital Twins in Russian Metallurgy: Prerequisites and Limitations
of Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Olga Romanova and Dmitry Sirotin
Digital Twin of the Social System: Calculating the Environment’s
Reaction to the Company’s Activeness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Mikhail Samosudov
Networking in the Platform Development of Ecosystems . . . . . . . . . . . . . . 85
Svetlana Tsohla and Nataliia Simchenko
Digital Ecosystems in Industry: Conceptualization and Strategic
Aspects of Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Anastasia Nikitaeva and Roman Serdyukov
Digital Platform for Regional Industry: Prerequisites
and Functionality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
Victoria Akberdina and Anna Barybina
xi
xii Contents
Towards Digital Twins for the Development of Territories . . . . . . . . . . . . . 121

Arina Suvorova
Digitalisation of the Economy and Regional Development . . . . . . . . . . . . . 133
Irina Turgel, Alexander Pobedin, and Aksana Panzabekova
Structural Effects of the Introduction of Cross-Industrial Advanced
Manufacturing Technologies: Experience of the European Union . . . . . . 149
Olga Smirnova and Alena Ponomareva
Best Regional Practices for Digital Transformation in Industry:
The Case of the Industry 4.0 Program in Portugal . . . . . . . . . . . . . . . . . . . . 163
Luciana Peixoto Santa Rita, Joaquim Ramos Silva,
and Reynaldo Rubem Ferreira Junior
Digital Transformation and Current Trends in the Technological
Development of the Industrial Complex: Russian Experience . . . . . . . . . . 183
Olga Smirnova and Lyudmila Chesnyukova
Knowledge Analysis on the Industry 4.0 Diffusion in Italian
Manufacturing: Opportunities and Threats . . . . . . . . . . . . . . . . . . . . . . . . . . 195
Gionata Morelli, Fabio Musso, Federica Murmura, and Laura Bravi
Development of the Digital Economy: A Case Study of 5G
Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 215
Yuchan Wang
Digital Transformation of a Public Lighting Infrastructure:
A Sustainable Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 227
Alberto Cerezo-Narváez, Manuel Otero-Mateo,
Andrés Pastor-Fernández, José Sánchez-Ramos,
and Pablo Ballesteros-Pérez
Additive Manufacturing as a Digital Design Technology
in the Wood-Furniture Sector: Benefits and Barriers to Its
Implementation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 247
Laura Bravi, Federica Murmura, and Gilberto Santos
Strategy for Digital Transformation of Financial-Industrial Groups . . . . 269
Wang Can
Theoretical Framework of Business Model Innovation Exploration
for Sustainable Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 281
Yan Zhaoqiang
Open Innovation in Industry 4.0—A Risk Assessment Framework
for SMEs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 291
Vitor Anes, António Abreu, Ana Dias, Pedro Carmona,
and Teresa Morgado
Contents xiii
Digital Transformation of Russian Industry: The Specifics

of Large, Medium and Small Enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . . . 307
Elena Mezentseva
Business Model Innovation for the Internet of Things . . . . . . . . . . . . . . . . . 321
Carsten Deckert, Jannik Kalefeld, and Martin Kutz
Analysis of Visual Modeling Tools Development for Complex
Production Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 335
Andrey Vlasov and Alexander Naumenko
Impact of Digital Technology on Supply Chain Efficiency
in Manufacturing Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 347
Xuan Wang, Vikas Kumar, Archana Kumari, and Evgeny Kuzmin
Options, Structure, and Digitalization of Value Chain Management
Objects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 373
Alexey Tyapukhin and Zhanna Ermakova
Artificial Intelligence Disclosures in Sustainability Reports:
Towards an Artificial Intelligence Reporting Framework . . . . . . . . . . . . . . 391
Enrique Bonsón and Michaela Bednárová
Economic Indicators of the Algorithm for Introducing Artificial
Intelligence into the Automated Process Control System . . . . . . . . . . . . . . . 409
Maksim Vlasov and Anna Lapteva
Integrating a Project Risk Model into a BI Architecture . . . . . . . . . . . . . . . 423
Marco Nunes, António Abreu, Jelena Bagnjuk, Célia Saraiva,
and Helena Viana
Impact of Digital Transformation on Labor Productivity Growth
in the Manufacturing Industry in Russia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 433
Olga Romanova and Alena Ponomareva
Trends, Factors and Guidelines for the Development of Human
Resources for Industry 4.0 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 447
Daria Mikhalkina and Anastasia Nikitaeva
Digital Transformation and Its Staffing in the Russian Economy . . . . . . . 461
Michael Djanelidze and Nataliia Shestakova
Priorities of Human Resources Policy in the Context
of Digitalization and the COVID-19 Pandemic . . . . . . . . . . . . . . . . . . . . . . . 481
Yulia Otmakhova and Dmitry Devyatkin
About the Editors
Dr. Vikas Kumar is Director of Research and Professor of Operations and Supply
Chain Management at Bristol Business School, University of the West of England,
UK. He is also Visiting Professor at Ton Duc Thang University, Ho Chi Minh City,
Vietnam. He holds a Ph.D. degree in Management Studies from the University of
Exeter and a Bachelors of Technology degree in Metallurgy and Materials Engi-
neering. He serves on the editorial board of several international journals and is
Regular Speaker at international conferences. He has guest-edited a number of special
issues in high-impact journals. He is also Reviewer of more than 15 international
journals. He has published more than 200 peer-reviewed papers and contributed four
books. His current research focus is on sustainable supply chain management and
supply chain 4.0. Among his other research interests are short food supply chains,
circular economy and operational excellence.
Dr. Jiewu Leng is Associate Professor from State Key Laboratory of Precision
Electronic Manufacturing Technology and Equipment, Guangdong University of
Technology, China. He received his Ph.D. degree from Xi’an Jiaotong University in
2016. He was Postdoctoral Fellow at the Department of Information Systems, City
University of Hong Kong, under the support of the “Hong Kong Scholars” program
from 2018 to 2020. He is Grantee of the Outstanding Youth Fund of Guangdong
Province, China. His current research interests include blockchain, smart manufac-
turing and digital twin. He has published more than 60 papers on IEEE Transac-
tions on Systems, Man, and Cybernetics: Systems, IEEE Transactions on Services
Computing, Renewable and Sustainable Energy Reviews, Journal of Cleaner Produc-
tion, Journal of Manufacturing Systems, Journal of Intelligent Manufacturing, and
Knowledge-Based Systems, etc. Eight highly cited papers have been included in ESI
database. His Google H-index is 24. He has chaired several special sessions in inter-
national conferences including IEEE ICMA 2015, IEEE ICNSC 2018, CIRP iPS2
2019 and IEEE CASE 2019. He is Entity Member Representative to IEEE Stan-
dard Association. He has guest-edited three special issues in SCI Journal Symme-
tries, Scientific Reports and Security and Communication Networks. He also served
as Associate Editor of International Journal Frontiers in Mechanical Engineering
xv
xvi About the Editors
and Editorial Board Member of International Journals Scientific Reports and Digital
Manufacturing Technology. He has won two first prizes of the Guangdong Provincial
Science and Technology Award.
Dr. Victoria Akberdina is Deputy Director of the Institute of Economics of the

Ural Branch of the Russian Academy of Sciences. She heads the Department of
Regional Industrial Policy and Economic Security. She performs fundamental and
applied research on the problems of industrial policy formation, forecasting method-
ology and modeling the evolution of the economic and technological development of
industrial complexes and conducts research on the structural proportions of economic
development. The issues of digital transformation of the industry have become a focus
in her publications in recent years. She is also Author of the computer program “Dig-
ital transformation of Regional industry.” She is Author of more than 150 scientific
papers, and more than 20 scientific projects have been implemented under her leader-
ship over the past 5 years. Since 2015, she has been Full Member of the International
Academy of Sciences of Ecology, Human Security and Nature (MANEB) in the
section “Economics and Law.” In 2019, she was awarded the title of Corresponding
Member of the Russian Academy of Sciences.
Evgeny Kuzmin is Researcher (Academic) of the Department of Regional Economic

Policy and Economic Security of the Institute of Economics of the Ural Branch of the
Russian Academy of Sciences. He is Reviewer of high-impact international journals
including Journal of Cleaner Production (Elsevier), Entrepreneurship and Sustain-
ability Issues, etc. He has over 150 published scientific papers. He has participated in
the implementation of more than ten research projects supported by grants from the
Russian Foundation for Basic Research, the Russian Humanitarian Science Founda-
tion, the Russian Science Foundation and the Ministry of Education and Science
of Russia. His research interests are risk, uncertainty, economic crises, sustain-
ability, public–private partnerships, investments, business planning, industrialization,
industrial policy, industry markets, modeling, economic growth and development,
entrepreneurship and business activity.
Digital Twins in the Industry: Maturity,
Functions, Effects
Grigoriy Korovin
Abstract A digital twin is one of the most important technological concepts within
Industry 4.0. The term is often used in current research and practice on industrial
transformation. The article determines the place of a digital twin, highlights its most
important characteristics, the technologies used, and evaluates the possibilities of
application and effects for the industry. In the author’s opinion, it is important to
assess the twin maturity, which allows separating this concept from the means of
industrial automation. The complexity studying this object predetermines the need
to use the methodology of collecting fragmented data, systematization of scientists’
opinions, and analysis of practical experience. The author identified definitions of the
digital twin concept and formulated the necessary features of a digital twin, including
a virtual multidisciplinary model of the object, automatic and bi-directional data
exchange, and intelligent control capabilities. Maturity criteria were proposed for
classifying digital twins; the key digital technologies were distributed on a maturity
scale. In terms of the use of a digital twin in industry, the author proposed the structure
of the main economic effects in improving the quality of business processes, creating
a product, and implementing industrial innovation. An important area of further
research is to analyze the economic security of the use of digital twins and data, as
well as address the problem of information overload.
Keywords Digital twin · Industry transformation · Digital twin maturity
1 Introduction
The focus on Industry 4.0 is related to the scale of the impact of new digital tech-
nologies on the economic, social, and production fields. The implications of digital-
ization for industry, markets, and the economy are expected to manifest in improved
process efficiency across the entire product lifecycle, the development of new busi-
ness models, changing work environments, and transforming skill requirements. This
G. Korovin (B)
Institute of Economics of the Ural Branch of the Russian Academy of Sciences, 29 Moskovskaya
St., 620014 Ekaterinburg, Russian Federation
e-mail: [email protected]
© The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 1

V. Kumar et al. (eds.), Digital Transformation in Industry, Lecture Notes in Information
Systems and Organisation 54, https://doi.org/10.1007/978-3-030-94617-3_1
2 G. Korovin
is especially true for the process of creating complex industrial products, for which
a new technological base of design became available, making it possible to integrate
heterogeneous development tools, remote groups of developers, and suppliers of
modules to implement at each stage of development verification and virtual testing
of elements and the product as a whole.
The concept of a digital twin is already at the heart of industry transformation
projects. The author believes that it will determine the trajectory of industrial devel-
opment for a long period. Surveys of managers of industrial companies confirm
the relevance of the topic both in Russia and worldwide. Research and Markets’
study claims that creating a digital twin will soon become a standard procedure for
manufacturing: 92% of professionals believe products need an interface to connect to
digital twins, 36% see the benefits of digital twins, and 53% of them plan to use digital
twins in their operations by 2028 [22]. PwC, based on a survey in 2018, revealed
that 60% of companies are implementing or planning projects to introduce digital
twins [21]. A survey of Russian companies confirms the importance of digital twin
technology in achieving technological leadership, according to 52% of respondents
to the survey [4].
The described trends allowed formulating the purpose of the study as defining
the essence of a digital twin, its key features, and opportunities for application in
industry, taking into account its maturity.
2 Methodology
The technological complexity of a digital twin and its importance for industry requires
the search for new scientific approaches to study its application in industry, determine
its types, main functions, assess the applicability and economic effects. The study of
this object is accompanied by the constant development of the views of scholars and
practitioners, a variety of standards. The complex of digital twin technologies is in
the convergence field of digital and physical reality, including many new promising
technologies with unexplored potential [20]. Lack of reliable statistical information
on the experience of implementation and use of digital twin in the industry predeter-
mines the use of scientific observation methods, analysis of publications, collecting
information from company reports, summarizing the experience of development and
application of digital twins, and evaluation of existing and prospective economic
parameters of the digital twin market. We focused on articles on the use of digital
twins in industry, where we can trace the level of maturity from industrial automation
to digital technologies.
Digital Twins in the Industry: Maturity, Functions, Effects 3
3 Results
3.1 Definition of the Digital Twin Concept
It is believed that the digital twin concept was first mentioned in 2002 in relation to
new opportunities for cheaper product development. The peculiarity of this concept
was the informational unification of “real” and “virtual” spaces [9]. Forerunners of
the digital twin are the concepts of product avatar [13], intelligent product [30],
digital blueprint [2], digital shadow [5], device shadow [26], digital thread [27], and
others. A generalization of these and complementary concepts can also be found
in Trauer’s review article [30]. The main area applying this technology is industrial
activity, despite the attempts to create digital twins of processes, living and inanimate
natural objects, fields, stores, customers, cities, etc.
Generally, it must be said that the understanding of the digital twin is rather unclear
at the moment. In a 2018 High-Value Manufacturing Catapult study, about 90% of
tech professionals surveyed described a digital twin as a virtual copy of a physical
object used to monitor its performance [12]. The study of scientific and practical
materials allowed distinguishing several conceptions of the digital twin (Table 1).
Several concepts complement the digital twin concept like the “digital thread”
[17] and “digital master” [15], but they cannot be considered equal [25].The most
important and widely used concept in this field is the component part of the twin—the
digital shadow. It is necessary to generalize the concepts to highlight the key features
and meanings scientists and practitioners put into this technological phenomenon.
The technologies of computer support for modeling, analysis of technological
preparation of production, and tools to track the technical state of equipment, models
of physical objects have been widely used in the industry long before the concept
of a digital twin. In the author’s opinion, these technologies are characteristic of the
pre-digital stage of industrial development. The key characteristics of the current
stage of development of these technologies, in the author’s view, are the use of
integration means of these elements, the ability to process big data, the emergence
of simulation, predictive, analytical capabilities in digital twins. The use of these
technologies characterizes a high level of maturity of the digital twin.
3.2 Key Features of a Digital Twin
We can formulate the key features of the digital twin, which allow separating this
concept from the automation tools widely used earlier in the industry. The first three
features are mandatory and technical solutions that do not meet these features cannot
be called digital twins with the necessary level of maturity:
4 G. Korovin
Table 1 Approaches to the digital twin definition

Digital twin concept Definitions of the digital twin concept
General A digital copy of a living or inanimate physical
entity, allowing a virtual entity to exist
simultaneously with a physical one [24]
Virtual model Digital dynamic model in the virtual world, fully
corresponding to its physical object in the real
world, with the ability to simulate its
characteristics, behavior and performance [32]
Simulation of the production system based on
simulation rules as part of production forecasting
and planning [23]
Digital representation of an active unique
product… that includes its selected
characteristics, properties, conditions, and
behavior through models, information… [29]
Uses the best available physical models, sensors,
and historical data to accurately reflect the life of
its twin—a physical object [6]
Data exchange means with a physical object A means of exchanging information between the
two spaces via sensors, models, and actuators [19]
A virtual dynamic representation of a physical
system connected to it … for bidirectional data
exchange [30]
Digital technological complex A set of digital technologies applying approaches
from statistical analysis, machine learning,
chemistry, physics, control theory, reliability
theory, mass service theory, numerical modeling,
and optimization
The complex of functions An exact virtual replica of a physical system that
represents all of its functionality or is an element
of a cyber-physical system presents data about the
production system to employees [1, 8]
A trainable system… making it possible to get the
first live sample of a product that meets the
requirements of the specification, as well as
predicting its behavior
Designed to reflect all manufacturing defects and
updated to reflect wear and tear caused by
operation; has smart management features
(Deloitte)
• A model that represents the most accurate virtual representation of a physical

object in the form of a model defining the design, functions, technological param-
eters, current technical state, the behavior of the physical object, and other its
properties, refined based on real data obtained from the object;
• Automatic and bidirectional data exchange with a physical object, receiving sensor
data from the physical object and transmitting control actions to the object;
• Using artificial intelligence tools, the ability to observe and simulate the behavior,
predict the state of the physical object and diagnose potential malfunctions, and
optimize performance;
• The model components can be data characterizing the life cycle stages of the
object: from market research, design to the results of operation and disposal.
A digital twin can be represented in the form of basic elements and information and
management links (Fig. 1). In this case, the sensors, in the author’s opinion, should
be included in the loop of the digital twin since they are an integral part, not being a
necessary element of the physical object.
Physical object
Physical characteristics and processes
Sensors
Data on the object

Control actions,
object behavior
optimization of
serviceability)
(performance,
Computing and data storage tools
condition,
Digital shadow
A set of object behavior
models (physical,
(collected, processed,
functional, structural,
analyzed object data)
etc.)
Digital
twin
contour
Object visualization, decision-making assistance, simulation, and

prediction of object behavior (including during the development
stages)
Cyberphysical system
Production management system
Individual users
Fig. 1 Digital twin structure

6 G. Korovin
Table 2 Digital twins maturity level features in the field of functions, and technological complete-
ness (from low to high)
Digital twin technological completeness Digital twin functions performed
High-precision digital model using physical Object monitoring and diagnostics
process models Technical data storage (individual physical
Digital twin associated with a physical object processes, design, data on materials, on
Adaptive digital twin capable of updating based operating modes, on production and assembly
on data received from a physical object technologies, customization possibilities;
Intelligent digital twin with machine learning, resource, financial constraints) [3]
event forecasting Interaction with a physical object
Digital twin that combines technical tasks for Simulation of object states
optimizing operational activities with financial Prediction of future states
models Optimization of the production process based
Autonomous digital twin controlling the object on data
and making decisions about controlling the
object [18, 20]
3.3 Classification of Digital Twins by Maturity Level
The variety of approaches to the understanding of digital twins leads to various

approaches to their classification [15]. Based on an attempt to combine the existing
classifications and highlight the most significant criteria, this paper will not consider
the criteria of the object complexity [28], the degree of integration [16], the level
of efficacy [3], the stage of the life cycle [14], etc. The classification allows distin-
guishing the maturity level in the field of functions, and technological completeness
characteristic of digital twins (Table 2).
Models of relatively simple objects, such as a single part, should be referred to
a digital model and digital master rather than a digital twin as understood in this
study. Functions related to the state monitoring of the industrial facility and process,
the storage of production data also belong to industrial automation. According to
the criterion of technological completeness of the physical processes model, data
on the design, assembly features, and materials, on operating modes, separately are
rather elements of the digital master—a digital model containing data for the product
manufacture. The functionality and technologies used determine the maturity level
of the digital twin.
3.4 Technological Base of the Digital Twin
It is difficult to limit the set of technologies related directly to the digital twin, but
one can say that technologically, digital twins are becoming central elements of the
cyber-physical system [1]. Summarizing the information on the creation of digital
twins in the industry allowed presenting current technological directions:
• accurate modeling of geometry, physical properties, and behavior of a physical

object;
• sensors and means of obtaining information about the object means of integration,
storage, processing, and data interpretation from the physical object;
• means of interaction between a person and a digital twin;
• means of communication and data transmission;
• automation and remote control of a physical object.
The main technologies used in the digital twin are related to obtaining and processing
data, building accurate models, and conducting analysis and simulations [16]. In the
author’s opinion, they can be placed on a maturity scale of the digital twin: from the
level of industrial automation to the level of full autonomy (Fig. 2).
As already noted, digital twins of the initial type have been working in industrial
automation for a long time. As for modern digital twins, they are not just a means of
automating production but allow solving a set of issues associated with accelerating
the development of prototypes, accelerating the product launch to the market, creating
Market research,
Financial models PLM
consumer research
Interaction with
Artificial intelligence Simulation software
a person, autonomy
Cloud,
Deep Learning Machine Learning
Edge Computing
Big Data VR/AR

Digital twin maturity
Wireless data
IoT
transmission
Multidisciplinary modeling Software for technical analysis
Industrial robots, CNC, additive technologies, drives MES, APS, ERP
Sensors, scanners, Object status tracking

CAD/CAE/CAM
cameras systems (SCADA)
Fig. 2 Providing technologies on the digital twin maturity scale

8 G. Korovin
and testing product modifications, reducing the number and cost of full-scale tests. A
twin of a specific product part, even at the design stage, can identify the main design
flaws with the help of digital visualization and analysis [7]. In the author’s view, the
pinnacle of technological development and the main feature of the digital twin is to
ensure the autonomy of products, equipment, enterprises, etc. This autonomy must
be ensured throughout the object’s life cycle, including the development, production,
and self-improvement of the object [23, 31].
3.5 Application of Digital Twins in Industry
Analysis of available public information shows that digital twins of varying maturity
are used in many industries, and the scope of their application has expanded beyond
the high-tech sector. It should be noted that often, companies can work to create digital
twins, but information on this activity may not be available. Information is available
on the use of this technology by aviation companies Airbus, Boeing, Russian UDK,
OKB, shipbuilding companies Wartsila, Sredne-Nevskiy Shipyard, Malakhit, auto-
motive companies, including world-leading companies, as well as KAMAZ PJSC.
Digital drones of various maturity levels are used in train production and operation
by Transmashholding, Alstom, and SimPlan AG. The companies ADNOC, Aker
BP, Royal Dutch Shell, McDermott, and Russian Lukoil, Gazpromneft, and Sibur
declared the use of digital twins. Siemens has developed a digital model of turbine
operation and maintenance; General Electric has developed a power plant twin. GE
Renewable and Arctic Wind introduce wind turbine solutions.
Table 3 Economic effects of using a digital twin

Scope of economic effect Effects of using a digital twin
Business processes Improving the company’s business model based on reliable
operational data on production
Making proactive business and production decisions
Production planning and overall quality improvement; effective
integration of module developers and suppliers
Providing access to remote and geographically distributed equipment
Creating a product Early detection of product defects, based on actual data and
operational scenarios
Optimization of the structural safety margin
Reduced design time, reduced costs due to virtual testing [10]
Innovations Rapid prototyping, testing of innovative solutions
Obtaining information about the properties of the future product, the
ability to test the market prospects of the product
Effective implementation of enhancements in the form of program
updates and new modules based on operating data
The practice of creating and using a digital twin in the industry allowed deter-
mining the main effects of its use (Table 3). We believe, it should not be limited to the
product life cycle stages but concentrate on the occurrence and nature of the effect.
Factors inhibiting the development of the digital twin market should be called a
relatively high cost of projects of this type. According to estimates of The High-Tech
Software Cluster, the cost of a project to create a digital twin is not less than 50,000
euros (up to 200,000 euros for complex projects), while it is projected to decline
due to the technology and market development [11]. Overall, according to Credence
Research, in 2018, the global market for digital twins was $3.76 billion. It is projected
to reach $57.38 billion by 2027. The share of industrial production in this market is
estimated at 25% [9]. Gartner predicts that by 2021, the share of large companies
using digital twins will grow to 50%.
From the perspective of digital twin manufacturers, several companies in the
Russian Federation can supply technology, components, developments in the field of
mathematical modeling, and finished products. Traditionally, the Russian Federation
has a strong position in software for modeling physical processes in the nuclear and
aerospace industries. However, at the moment, the leading countries in the develop-
ment of technology and the creation of digital twins can include the United States,
China, Germany, India, Japan, South Korea, and Brazil.
4 Discussion
In our opinion, the use of the maturity criterion made it possible to distinguish
a digital twin among the means of industrial automation. The importance of the
maturity criterion has been demonstrated in the field of the functions provided and the
technologies used. The proposed necessary features of a digital twin raise the question
of whether we can call a digital twin individual industrial automation technologies,
three-dimensional object models, and data sets.
The article does not sufficiently consider the issues of the effectiveness of the
digital twin use. Reports about the need to invest additional large financial resources in
the development of a digital twin cause doubts about the economic feasibility of using
and the payback period of this technology. Perhaps the answer will be to reduce the
cost of a digital double, to show the effect of a scale, or to choose separate industries
where the use of digital doubles will be most applicable. In addition, the author
considers it important to study the problems of economic security, data efficiency,
information overload, the possibility of ensuring full autonomy of production based
on digital twins.
10 G. Korovin
5 Conclusion
The digital twin for industrial companies can potentially create new value, new
sources of revenue, reduce costs, and provide new technological capabilities
throughout the product lifecycle. The development of digital technologies, increased
data transfer rates, growth of computing power, and the development of artificial
intelligence will increase the efficiency and reduce the cost of digital twins. The
industry is transforming towards autonomous industrial facilities, coordinated with
each other, capable of self-diagnostics and troubleshooting. Digital twin technology
will significantly impact the process of designing new industrial products, predicting
their characteristics, possible operating conditions, reliability of materials, etc.
Acknowledgements The research was carried out following the task of the Institute of Economics
of the Ural Branch of the Russian Academy of Sciences.
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Architecting Digital Twin-Driven
Transformation in the Refrigeration
and Air Conditioning Sector
Carolina Bandeira , João Barata , and Nuno Roque
Abstract Digital twins are a key pillar of the ongoing industrial revolution requiring
a strategy tailored for each sector of the economy. However, contributions addressing
the sectoral level of analysis are still nascent in the digital twin literature. This paper
has a dual research objective of (1) identifying the digital twin potential at a sectoral
level of analysis and (2) investigating whether the existent Enterprise Architectures
(EA) approaches and languages meet the requirements for the creation of digital twin
architectures. A design science research project was conducted in a leading business
association representing the Refrigeration and Air Conditioning Sector (RACS). Our
findings reveal that RACS digital twins will need to address the grand challenges of
climate change and sustainability. Moreover, the digital twin-driven transformation of
RACS will be more effective in cooperation between different supply chain segments,
increasing the importance of business associations’ role in the definition of refer-
ence architectures for their sector. Our results also extend recent research suggesting
the use of ArchiMate language for digital twin developments. This contribution is
relevant to sectoral digital transformations supported by digital twin technology,
providing the foundations for future sectoral enterprise architecture frameworks.
Keywords Digital twin · Enterprise architecture · ArchiMate · Refrigeration · Air

conditioning
C. Bandeira (B) · J. Barata

University of Coimbra, CISUC, DEI, Pólo II, Pinhal de Marrocos, 3030-290 Coimbra, Portugal
J. Barata
N. Roque
Portuguese Association of the Refrigeration and Air Conditioning, Avenida Gomes Pereira, 71 A,
1500-328 Lisboa, Portugal

14 C. Bandeira et al.
1 Introduction
The Digital Twin (DT) concept is evolving side by side with the disruptive digital
transformation in industry. These digital representations of physical objects “that
support not only a prognostic assessment at design stage (static perspective), but
also a continuous update of the virtual representation of the object by a real time
synchronization with sensed data” [1] are still emerging in different sectors of the
economy. For example, in the refrigeration and air conditioning industry addressed in
our research, DTs can leverage the digital transformation, helping digitalize energy
systems aligned with efficient and sustainability strategies [2]. However, sectoral
architectures that support DT developments are still lacking, for example, exploring
the possibilities for Heating, Ventilating, and Air Conditioning (HVAC) systems
throughout the lifecycle [3], at both design time and run time.
Enterprise architecture (EA) is a discipline attempts to capture the business and
technology logic using models accessible to different organizational experts [4].
Through those models, enterprises can understand the “as-is” situation and estab-
lish a vision for the “to-be” architecture that will develop the business increasingly
supported by information technologies [5]. There are influential EA frameworks
to assist in the steps of architectural analysis and development (e.g., TOGAF [6]),
but also languages like ArchiMate [7], suggesting a service-oriented and layered
approach to EA. The most critical layers in ArchiMate are: strategy (courses of
action, capabilities, and resources which can be used to model the strategy of an orga-
nization), business (e.g., processes), application (e.g., software), technology (e.g.,
hardware, networks), physical (e.g., equipment), and the implementation and migra-
tion (programs, portfolios, project management, and plateaus that can be used in gap
analysis) that will guide digital transformation. Moreover, it is possible to model the
motivation behind organizational change [8].
Enterprise architecture benefits are becoming more visible in Smart Manufac-
turing Systems (SMS), updating the business models and assisting companies in
keeping up with innovative technology [9]. A SMS is defined as a “highly connected,
knowledge-enabled industrial enterprise where all business and operating actions
are optimized to achieve substantially enhanced productivity, sustainability, and
economic performance” [10]. Industry 4.0 [11] and digital twins [12] give the first
steps to incorporate EA models. However, there is a shortcoming of guidelines to
adopt ArchiMate in the sectoral-level or product-level of DT developments. The gap
found in the literature and contacts with industry experts gave a solid motivation to
set up our research project. It started in cooperation with a national association for
the refrigeration and air conditioning. The overall research objectives addressed in
this paper are:
• RO1: Identify the potential of digital twins in the refrigeration and air conditioning
sector;
• RO2: Propose initial models for sectoral digital twin-driven transformation.
Architecting Digital Twin-Driven Transformation … 15
The remainder of this paper is structured as follows. Section 2 presents background

literature. Subsequently, the design research approach is presented, followed by the
work conducted in cooperation with an important business association in Portugal.
Section 5 discusses the findings and highlights design principles for sectoral digital
twin architectures. The paper closes in Sect. 6, presenting the main limitations of our
study and the opportunities for future research.
2 Literature Review
This section presents a bibliometric analysis of digital twin literature and the main
trends in this vibrant field of research. Next, the link between enterprise architecture
and digital twins is discussed.
2.1 Digital Twins
Several definitions for DT can be found in the literature, namely as being “a digital
representation of a physical element or assembly using integrated simulations and
service data” [13] and “that mimics the real-world behaviour due to the data analyt-
ical and decision-making capability of DT ” [14]. Through the alignment between
data integration and the application of data algorithms, the DT “can perceive, monitor,
synchronize mirroring, simulate, calculate, and test the behaviour” [15] of the
correspondent physical device. The different contributions in DT highlight (1) the
crucial role of data obtained in the physical realm and providing the basis for digital
processing and optimization, (2) the real-time communication between the physical
and digital parts, and (3) the extension of product-service system value with new
interactive layers available to their users.
Figure 1 reveals three relevant clusters of digital twin literature in Web of Science
and meaningful keywords found in the sample of 2587 papers (search using “digital
twin”, all fields, no time restriction).
The analysis presented in Fig. 1, created with VOS Viewer [16], shows the co-
occurrence of significant keywords (30+ occurrences; minimum cluster size of 8).
Each node of the network shows a significant keyword in digital twin literature, and
the lines illustrate the most relevant connections between them. The size and thick-
ness of the elements are proportional to their relevance. The red cluster of papers (on
the left) includes important industry 4.0 technologies (e.g., blockchain, BIM) and
priorities for digitalization (sustainability, automation, integration). Sustainability is
unquestionably one of the most critical strategies for digital twins [17] and also a
priority to the refrigeration and air conditioning sector. On the top, the blue cluster
includes papers from the system structure and architecture of digital twin advances.
Fig. 1 Bibliometric analysis of digital twin literature in Web of Science
Finally, the green cluster emphasizes digital twins’ predictive and intelligent perspec-
tive, namely, with the adoption of artificial intelligence and new models and algo-
rithms to optimize systems and predict critical events in the physical realm (e.g., in
maintenance).
2.2 The Role of Enterprise Architecture in Digital Twin

Design
The EA can be referred to as “a coherent whole of principles, methods, and models

that are used in the design and realization of an enterprise’s organizational structure,
business process, information systems, and infrastructure” [5]. EA helps find the
alignment between business and IT goals to “bridge communication gap between
stakeholder, as well as manage control and evaluate the complexity of enterprises,
processes, applications, and infrastructure” [9]. Therefore, EA seems suitable to
model the different layers and elements of the digital twin. For example, the sensors
(technology), the functions or processes supported, the application components, or
even the strategy of the digital twin development.
Many EA frameworks have been developed. For example, TOGAF, DoDAF,

FEAF, or the Zachman framework. In general, the mentioned frameworks cover four
correlated domains: Business architecture (business processes of an organization),
Data architecture (structure of the logical and physical data resources), Applica-
tion architecture (landscape of applications, their interactions, and relationships to
processes), and Technology architecture (software and hardware capabilities required
to support the business processes, data, and application services of the organization)
[8]. Moreover, frameworks provide guidance and the key steps necessary to create
an architecture and manage strategic change [18].
ArchiMate is a popular EA modeling language [7] EA models serve two important
proposes: the first is to build a structure to align the enterprise strategy with the IT
goals while providing ways of communication of the different involved stakeholders,
considering the different perspectives; the second is to provide to the companies an
overview of Industry 4.0 components to derive potentials for further improvements
[11].
There are also some limitations in adopting these frameworks for our study. For
example, it is possible to get inspiration from TOGAF and ArchiMate [7] to model
digital twins in specific sectors of the economy. However, these essential tools do
not fit precisely in the scope of digital transformation of an entire economic sector.
Other examples, like FEAF [19], DoDAF [20], or the Zachman framework [21] were
not built for creating the implementation (an instantiation) of specific artifacts like
digital twins. Therefore, we could not find EA frameworks specifically created for
manufacturing sectors like the refrigeration and air conditioning addressed in this
research. Our requirements will include to (1) model the digital twin architecture
with a language accessible to different experts, (2) propose a digital transformation
methodology, (3) address data analysis requirements in the supply chain, (4) follow
the strategic priorities of sustainability and climate change that are so crucial in the
selected sector of the economy.
The authors of [22] propose a new methodology based on IT value, workgroup
ideation, and Enterprise Architecture Management (EAM), as an approach for orga-
nizations to structure the introduction of Big Data. The methodology consists of the
following steps: (1) developing ideas for Big Data usage, (2) assessing these ideas
regarding their potential value, as well as the required changes to the organization
architecture, and (3) implementing them coherently in the business. With this, EA
can assist in developing emerging technologies like Big Data, an important part of
the DTs of the future, and help the industry manage the digital transformation. In the
scope of data analysis of the DT, there must be resourceful data sources that can be
leveraged to optimize the performance of the DT.
As each sector has its own business scope, competencies, processes, skills, and
administrative infrastructure, the IT operations must be targeted to its business
strategy. Aligning the IT strategy with the business services potentiates the tech-
nology transformation of the business and serves the needs of the stakeholders [23].
Moreover, inspired by studies like [22] for the context of Big Data, our literature
analysis confirmed the necessity to create EA modeling approaches to align busi-

ness and IT with increasing volumes of data and leverage industry transformation
supported by digital twins.
3 Research Approach
Design science research (DSR) is a popular research approach in studying infor-

mation systems, aiming to produce knowledge with the design of artifacts [24, 25].
These artifacts can be “constructs, models, methods, and instantiations” [25] and
generate new design knowledge to real-world problems [26, 24]. Therefore, DSR
was considered suitable for our purpose to build a digital twin architecture in the
sector of refrigeration and air conditioning.
Our work is depicted in Fig. 2, according to the DSR grid proposed by [26].
DSR starts with the problem formulation and evolves in building, evaluation,
and theoretical development iterations [25]. The first research cycle had a problem-
centered initiation [25] with a literature review on digital twins and enterprise archi-
tecture and contacts with industry experts of a leading national association repre-
senting over 500 companies. The design of digital twin models followed and the
demonstration of its utility [17] with an evaluation made by experts in refrigeration
and air conditioning.
Our case company is a private non-profit business association whose primary
objective is to defend the common interests of its members, providing a wide range
of services to member companies, covering all multidisciplinary fields relevant
to the sector. Their mission is to promote the development of a favorable legal
Problem Research Process Solution

Digital twin architectures Delimitation to the refrig- The architecture of sector-
for specific sectors of the eration and air condition- specific digital twins mod-
economy are still scarce ing industry; Modeling of a eled in ArchiMate
digital twin; Evaluation
Input Knowledge Concepts Output Knowledge

Digital twin concepts; Sec- Digital twin; Enterprise ar- Design principles to model
tor-specific information; chitecture digital twins with Archi-
ArchiMate specification Mate; Identification of key
structural and behavioral
elements of air-conditioned
digital twins
Fig. 2 A summary of the selected design science research (Adapted from [26])
and regulatory environment and contribute to the development of the refrigera-

tion and air conditioning sector. The activities of the companies represented by
our case company are diverse: design, consultancy, energy certification, manufac-
turing, imports, representation, distribution, retail, installation, maintenance, tech-
nical assistance, building automation and control, and indoor air quality. The type
of products and services includes ventilation, air conditioning, heat pumps, refrig-
eration (professional, commercial and industrial), renewable energies, and building
automation control.
According to the business association, the building automation and control
systems are more advanced in adopting digital twin technology. Their goal is
to continuously monitor facilities equipment, ensure proper maintenance and
cost reduction. Accordingly, sensing technologies are already adopted. However,
the previous segments of the refrigeration and air-conditioning supply chain,
namely, equipment manufacturers, distributors, and equipment installers, are not
yet exploring the digital twin potential. Moreover, digital twins are not yet widely
available to the end-users of this type of equipment (e.g., freezers, air-conditioned)
at home.
Interestingly, a search in Google Scholar using the keyword combinations “air
conditioning digital twin” and “freezer digital twin” returns 0 results, while “fridge
digital twin” appears in one paper that presents it as an example [3], revealing the
need for more studies in this area. As stated by [3], “most research to-date focusses
on the monitoring of production equipment or large assets”, which is insufficient for
the needs of the industrial product service systems from the early stages of design
and manufacturing to the end of life [3].
ArchiMate [7] was the language selected to model the digital twin-driven trans-
formation of the selected sector. Two reasons justify our choice. First, the potential of
ArchiMate to model Industry 4.0 systems [11]. Second, the recent studies emerging
in the literature link enterprise architecture techniques in the design of digital twins.
For example, the work of [12] proposing an enterprise meta-model that also models
a digital twin with ArchiMate and the study presented by [27] that details the appli-
cation layer of an intelligent transport system. However, there is a lack of studies
addressing a sector-level of analysis, and none of the important papers found in our
literature review addressed air-conditioning digital twins.
ArchiMate is a visual language offering “an integrated architectural approach
that describes and visualizes different architecture domains and their underlying
relations and dependencies” [7]. This language includes different elements repre-
senting behavioral, structural, motivational, and a composite architecture presen-
tation. The ArchiMate framework can be used to develop an architecture of the
enterprise strategy, business, application, technology, physical, and implementation
and migration. As stated by the foundational work of Zachman “[w]ith increasing
size and complexity of the implementations of information systems, it is necessary to
use some logical construct (or architecture) for defining and controlling the inter-
faces and the integration of all of the components of the system” [28]. Therefore,
an architectural approach to digital twin development can be valuable to industrial

sectors of the economy investing in this concept.
The following section details the design and development stage of our DSR.
4 Architecting Digital Twins in the Refrigeration and Air

Conditioning Sector
The work of [13] presents three key elements of DT developments, namely, (1)
modeling, (2) connection, and (3) advanced data analysis. Under the scope of
modeling, it will be necessary to create a 3D visualization of the object, where
the user can interact with the virtual system and use the system service through
the interface. This element is associated with the ArchiMate business layer, which
models the usability processes of the DT for air conditioning. Connection refers to
the integration of the data, which can be acquired (e.g., from temperature sensors,
air quality sensors, humidity sensors, or pressure sensors) and saved in data clouds.
This scope translates the technology layer, representing the conception of the DT
and the configuration of the digital infrastructure. The following step is the data
analysis, using intelligent applications, artificial intelligence (AI), analytics, and Big
Data processing. The application of computer science algorithms allows to convert
unrelated data into relevant usage information and decision making, contributing
to address the problems of advanced planning and scheduling, product and process
quality improvement, fault diagnosis, defect analysis [9], exploring the application
layer.
This section describes the main steps of our exploratory research with the business
association and the design and development stage evolving in steps of (1) strategic
development, (2) holistic evaluation of the sector, and (3) product-level modeling
example.
4.1 Digital Twin-Driven Sectoral Architecture—Strategy

and Motivation
According to the experts contacted in our study, the vision of digital twin technology
for refrigeration and air conditioning needs to contribute to several strategic goals,
namely: sustainability, lower carbon footprints, energy performance optimizations,
lifecycle planning, equipment durability, maintaining environmental conditions for
health and wellbeing, continuous monitoring, and active and preventive mainte-
nance. Moreover, policymakers must balance the environment’s needs, economy, and
energy reduction [29]. Therefore, the strategy and motivation layer of the architecture
proposed will guide the next steps of the modeling process (Fig. 3).
Fig. 3 ArchiMate model for the sectoral strategy and motivation (Source Own elaboration)
Figure 3 presents the strategy and motivation layer. On the right, the elements
“Costumer”, Associated Companies” and “Climate Action European Commission”
present the key stakeholders interested in the sectoral EA and its digital transforma-
tion. On the left of these elements are represented the drivers, “Stakeholder Satisfac-
tion”, “Business Performance” and “Sustainability”, that motivate the organization
to implement necessary changes. The main goal is to “Increase Customer Satis-
faction”. Therefore, this element is connected to other three goals, from different
scopes, that converge to the main goal: “Be more sustainable”, “Allow User Inter-
action” and “Increase Optimization”. The priorities for this sector are presented as
a tangible outcome and connected to each set goal, being respectively: “Decrease
CO2 Emissions” and “Save Energy & Cost”; “Monitor Performance”; “Simulate &
Apply Optimization” and “Forecast Fails & Apply Maintenance”. The course of
action presents the suggested tactics for the sector.
4.2 Sectoral Landscape for Digital Twin Developments
The strategy and motivation for sector-specific digital transformations will guide
the investment priorities. Next, it is necessary to model the sectoral structure and
behavior in the entire supply chain. Figure 4 presents the overall architecture.
There are four main segments in the refrigeration and air conditioning supply
chain: manufacturers, installers, distributors, and technical management (also
referred to as building automation and control systems). The supply chain and the
Fig. 4 Sectoral digital twin architecture for RACS (Source Own elaboration)
product portfolio are represented in the business layer at the top of Fig. 4 (yellow
elements). For the sake of simplicity, only a few strategy elements are included in
this model—identified in Fig. 3.
Each product requires a detailed analysis of the digital twin configuration,
including physical and digital components. Ultimately, the sectoral product offer
will be transformed into a product-service system that includes the physical value of
the equipment and the digital support to their stakeholders (e.g., advice for energy
reduction). The links between the application layer (blue) and the technology and
physical layers (green) are bidirectional, as suggested in the work of [12]. On the
one hand, the digital twin requires a cloud-based architecture and related software
and hardware infrastructure. On the other hand, the digital twin will also serve the
physical layer of the architecture (e.g., real-time monitoring and actuation). Both
the products digital twins and the supply chain digital twin (addressing aspects like
manufacturers equipment, transport, real-time monitoring of the fleet of digital twins
of a specific brand) are essential to the sector. This high-level sector model offers the
foundation for more detailed modeling of each product.
4.3 Air Conditioning Digital Twin Model
The model shown in Fig. 5 provides an overview of the Technology, Application,

and Business layers for an essential product of this sector: air conditioning devices.
Figure 5 presents an ArchiMate model for the product level of analysis (air condi-
tioning example). The model represents the core physical and digital components
of the DT, the services it provides to the processes triggered using the DT, and
Fig. 5 Digital twin architecture for air conditioning products (Source Own elaboration)
the different stakeholders. Making a bottom-up interpretation, the Technology layer

(green elements) represents the structure and behavior of the technology infrastruc-
ture and components of the DT. This layer serves the Application layer (in blue),
composed of the software systems that will support the processes represented in
the Business layer (yellow). In the Business layer are key stakeholders with direct
interaction with the DT, already identified in the sectoral model. For example, the
Customer, the Technical Management (also referred to as building automation and
control systems Management), or the System Distributor.
Following the services that Air Conditioning can yield and the new services that
can be achieved via Industry 4.0, the Business layer of the architecture models the
process of using the DT of Air Conditioning. The “DT for AC” process (on the top-
left) is triggered when the user powers the equipment and starts. Once the equipment
is working, several functionalities are possible to perform in the context of Software as
a Service—SaaS—to serve the Consumer. The Digital Twins processes architecture
is grouped by equipment processes supported by the DT, namely: “Climatization
Process”, “Optimization Process” and “Life Cycle Process”.
5 Discussion
Enterprise architecture is an exciting approach to identify the current landscape of

an economic sector digitalization (“as-is”) and identify opportunities for new devel-
opments (“to-be”) [5]. Our exploratory study with the business association found
that it is possible to expand the EA concept to the entire supply chain. The integra-
tion of different segments of refrigeration and air conditioning (e.g., manufacturers,
installers, distributors, and facility managers) allows a broader perspective of the
digital twin features, crossing the borders of a particular company. For example, a
digital twin model for air conditioning manufacturers could identify opportunities to
create a digital replica of the equipment, helpful to the end-user, and data collection
from the fleet—interesting to evaluate or simulate the product performance under
different operating conditions. However, it could miss digital twin opportunities for
installers (e.g., product instructions) or technical managers interested in real-time
warnings for system maintenance. Combining digital technologies with business
models can generate significant value for enterprises [30], and business associations
are interested in developing the value of data sharing within the entire supply chain.
For example, digital twin operation data is valuable for manufacturers and technical
managers, and simulation data is interesting for different segments.
Digital twins can be modeled with EA languages like ArchiMate. We decided to
use the existing ArchiMate elements (e.g., actors, processes, components) in our test.
Although this language was not explicitly developed for the economic sector’s needs,
it can produce comprehensive digital twin architecture, useful for communication
with the experts. Nevertheless, the adoption of ArchiMate for digital twin modeling
is still nascent, and new guidelines are necessary to assist enterprise architects. Our
work may contribute to strategic enterprise architecture modeling [31] of sector-

specific digital twins.
Developing EA models for different sectors of the economy is necessary. First,
it is possible to identify similarities in different product types suitable for a digital
replica. For example, air conditioning digital twins could inspire the development
of digital twin models for smart fridges (e.g., evaluating the use of the equipment
to propose energy-saving measures or automatically adjusting energy consumption
according to the door opening profile, minimizing food waste suggesting meals).
Second, sectoral digital twin models can assist companies with different aims (e.g.,
manufacturing, services, research), sharing the motivation to improve their economic
sector. The models may be used to improve system performance, influenced by both
design and control strategy [2]. Modeling digital twins for specific sectors of the
economy offers an opportunity to link academics and practitioners in envisioning
more impactful digital transformation, producing digital twins that serve the interest
of different stakeholders. Sector-specific digital twins may also boost data market
initiatives.
The lessons learned in our project allowed us to propose the following design
principles useful for future sector-specific digital twin transformations.
• Design principle 1: Identify the grand challenges affecting the economic sector.
Temperature increase and energy optimization are priorities for refrigeration and
air conditioning, but other sectors may have other priorities (e.g., safety, resource
conservation). The strategy and motivation layers (Fig. 3) of ArchiMate can be a
good starting point.
• Design principle 2: Integrate the need of supply chain segments and regulatory
compliance requirements. The models can be iteratively improved with more
stakeholders’ concerns identified and consequently more opportunities for new
digital twin features.
• Design principle 3: Start with a top-down and upstream approach to improve the
EA views, then check the bottom-up and downstream coherence. The first part of
this principle suggests that the sector strategy should be followed by the business
architecture structure and behavior (e.g., process modeling), then the application,
technology, and physical layers. The upstream analysis will start from the needs
of the society (e.g., governments) and end-users and then follow each segment of
the supply chain until the earlier stages of raw material production. The suggested
approach will produce models that give priority to the customers’ needs. Then,
it is necessary to identify if the sectoral model for the digital twin will have
the necessary foundations (bottom-up modeling starting from the physical and
technology layer) to produce the necessary data and physical-digital interaction
relevant to all the participants in the supply chain.
• Design principle 4: Model the strategy, the sector, and the product portfolio.
Sectoral models must represent all the sector actors and allow the identification
of digital twins’ integrated value. However, each product has particularities that
need more specific models. For example, air conditioning has different digital
twin features compared to smart fridges (out of the scope of our study).
The suggested principles complement the well-known practices for EA development

lifecycles [5, 6], emerging from the design work conducted in this research.
6 Conclusion
This paper presented an architectural approach to evaluate the potential of digital

twins in the refrigeration and air conditioning sector. ArchiMate language was used to
model relevant views of the industry strategy, business, applications, and technology.
Extending previous studies pointing to the applicability of ArchiMate in Industry 4.0
[11], our work reveals its utility for the design and communication of digital twins
in critical economic sectors like refrigeration and air conditioning, highly motivated
by climate changes and sustainability goals.
There are also limitations in our exploratory study that must be stated. First, this
is our first attempt to model digital twins at a sectoral level of analysis. Therefore,
the models are not yet complete, requiring an evaluation by different companies.
Second, the results are restricted to the refrigeration and air conditioning sector.
Third, ArchiMate was considered interesting for our purpose and valuable during
our meetings with the practitioners, but other EA languages could be tested. Fourth,
our EA approach addressed the main concerns of a sectoral association, but it is
possible to include more stakeholders like governments or energy providers. Finally,
the models provide a high-level digital twin analysis suitable for business associ-
ations, but more specific models and specifications are necessary for digital twin
developers.
Future work in this area is promising. Besides the opportunities raised by the
study limitations, it would be interesting to create a complete set of ArchiMate view-
points for sectoral digital twin transformation. These templates could assist enter-
prise architects in envisioning the multiple implications of digital twin development
at different levels of the architecture. Moreover, it will be important to compare the
“to-be” architecture presented in this work with the innovation projects conducted by
the companies pertaining to refrigeration and air conditioning. The business associ-
ation participating in our work aims to follow their associates’ digital transformation
initiatives closely. Another opportunity is the creation of ArchiMate extensions for
digital twins. Lastly, sectoral associations need new forms to design and communicate
their associates’ digital transformation opportunities and challenges. EA approaches
can be tested for this purpose, but a sectoral enterprise architecture framework is a
priority for future research.
Acknowledgements The authors are grateful for the collaboration of APIRAC in this study. This
work was partially supported by national funds through the FCT—Foundation for Science and
Technology, I.P., within the scope of the project CISUC-UID/CEC/00326/2020 and by European
Social Fund, through the Regional Operational Program Centro 2020.
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Practical Application of the Concept
of Digital Twins in the Aviation Sector
Ekaterina Sycheva and Polina Shpak
Abstract Today, the issue of digitalization can be called the most relevant. Reengi-
neering of business processes and progress in the field of information technology
correlate with the relevance of creating innovations in the system between equipment
and a human. The focus of attention is payed on the concept of a data transmission
network—Internet of Things, technologically equipped physical objects for inter-
acting with each other or with the external environment. One of the most promising
new information technologies is the concept of digital twins. With the simulation of
production processes using the digital twin concept, it becomes possible to monitor
and identify potential failures even before they occur. The active formation of this
system by extensive software and hardware complexes and the integration of their
solutions are in demand and relevant tools for digitalization of the country’s economy
and, in particular, the aviation sector. In this article, the authors analyzed various indi-
cators of the state programs of the Russia in the field of digitalization of the aviation
industry, mainly representing the results of the involvement of integrated information
systems in the activities of enterprises, as well as the impact of digital twins on the
efficiency of technological processes.
Keywords Digitalization · Innovation · Digital twin · Aviation industry
1 Introduction
The increase in the main performance indicators, the increase in the productivity of
industrial aviation enterprises, the reduction in losses in the production cycle become
real only thanks to the use of the latest materials for the introduction of innovations in
E. Sycheva (B)
Saint-Petersburg State University of Civil Aviation, 38, Pilotov Str., Saint-Petersburg 196210,
Russian Federation
P. Shpak
Baltic State Technical University “VOENMECH” D.F. USTINOV, 1, 1st Krasnoarmeyskaya St.,
Saint-Petersburg 190005, Russian Federation

30 E. Sycheva and P. Shpak
technological processes. Namely: the use of autonomous robots, augmented reality

technologies, smart sensors in a full cycle of simulated production and operational
processes. Internet of Things (IoT) contributed to the focus of the economy on the
field of informatization. Deep Analytics and Big Data are the main drivers of growth
for the country’s economy, also act as a new resource for creating the most profitable
supply chains, forming production ecosystems at the junctions of industrial market
segments, and creating efficient production processes [1]. Every year, the number of
leading enterprises in the aviation industry is growing, which actively use elements
of a smart enterprise and the concept of digital twins for the most effective plan-
ning based on data coming from production online [2]. The authors emphasize the
importance of this paper in the in-depth study of the prospects for the impact of digi-
talization on the economy of the aviation industry, this issue is especially relevant at
the present.
The research on the impact of the COVID-19 pandemic on air transport markets
has focused on the aviation sector of the economy, in particular, aviation enter-
prises. Their dominant goal is to discuss the Government’s actions to mitigate the
consequences of this crisis.
For example, from the point of view of studying the impact of air travel restric-
tions imposed during the COVID-19 pandemic on the aviation industry, real-time
indicators extracted from social networks were monitored to measure how travel
restrictions affected the relationship between passengers and airlines. In addition, a
model was developed to predict passenger traffic during a pandemic [3]. The data
of this model confirm that in the first quarter of 2020, the impact of aviation losses
could lead to a decrease in global GDP by 0.02–0.12% [3].
With the onset of the crisis caused by the COVID-19 pandemic, there was great
uncertainty about the continuation of the side effects of social integration on the
demand for air transport. The sharp reduction in air travel in 2020, although global,
had different intensity in different countries and was dictated by the unpredictable
spread of new COVID-19 variants [4]. In addition, government restrictions as a
response, such as the closure of enterprises or the temporary suspension of their
work, were heterogeneous and in many cases far from effective. In this vein, we note
that countries characterized by a low level of digitalization, among other factors,
have taken less stringent measures. It should be noted that as a result, the increased
unemployment rate caused by the persistence of the pandemic situation can lead to
long-term socio-economic consequences for a large number of countries.
It is difficult for traditional business models to compete with the principles
of digital platforms that allow aviation enterprises to easily penetrate the borders
of various sectors and industries. Increasingly, traditional approaches, such as
monitoring the work of competitors, are becoming less useful [5].
Those leading companies that actively use artificial intelligence and other infor-
mation tools to obtain unlimited coverage of consumers receive a completely new
level of impeccable service of their products.
The basis of “lean” production is the continuous improvement of control systems
due to the digitalization of the aviation industry sector through the use of robotics
[6]. Accurate mathematical models that predict demand allow companies to literally
Practical Application of the Concept of Digital … 31
produce products to order, due to the fact that there is no need to manage working
capital. The introduction of predictive maintenance, repair and operations (MRO) will
bring the operational readiness of all equipment to one hundred percent [6]. In addi-
tion, the integration of own production processes of aviation industrial enterprises
with customers and suppliers has become possible thanks to digital technologies.
In the future, this will allow the most accurate prediction of additional functions or
product improvements expected by the consumer, increasing the competitiveness of
the company.
2 Background
2.1 Digital Technologies
A number of papers have been written on the topic of digitalization of aviation

enterprises, as well as factors affecting the effectiveness of this process.
Thus, Oladyev [7] conducts a broad review of various new digital technologies
designed to optimize and alleviate existing problems at air enterprises. In partic-
ular, the implemented technology “ADS-B (Automatic Dependent Serveillance-
Broadcast) which is designed to conduct constant online monitoring of ground traffic
on taxiways, displaying data on the altitude and speed of piloting” [7]. Also, the
author notes that this “digitalization is designed to intensify flight safety, efficiency
in the field of flight routing, the effectiveness of planning the activities of airlines as
a whole” [7].
Zakharenkova [8] also singled out the ADS-B program among the advanced tech-
nologies for digitalization of aviation enterprises, noting “the feasibility of the fact
of controlling the aircraft Independently of the presence of flight attendants”. In
addition, the author in his work considers the digital technology “NEXTT (New
Experience in Travel and Technologies), this greatly facilitates the process of pre-
flight inspection of passengers and luggage, thereby optimizing flight management
to the fullest extent” [8].
Afanasieva and Vdovin [9] note that the central task of intensifying the aviation
industrial sector of the economy is the integration of innovative digital technologies.
In particular, these scientists provide analytical calculations on the implementation of
the State Program of the Russian Federation “Development of the aviation industry
for 2013–2025”, also “a model of digital transformation of the aviation industry sector
has been developed. In this regard, the authors note that the airlines must comply
with the established rules of the new operation in order for the digital transformation
to bring the most effective results” [9].
The problem of the introduction of innovative technologies from the point of view
of ensuring security is addressed in his work by Elin [10]. In particular, the author
focuses on the widespread use of the concept of digital twins due to their uniqueness
and effective work, as well as on such an aspect of this issue as “legislatively fixed
provision of information protection in the case of integration and further application

of the concept of digital twins” [10].
Summarizing, we can note a certain consistency of the above-mentioned authors
that the problem of effective implementation of innovative technologies, and in partic-
ular, the system of digital twins, is relevant, and is the most important modern tool
for the intensification and optimization of all processes at the enterprise.
Automation has always been considered the most promising direction in the devel-
opment of industrial enterprises. Increasing the economic performance of the enter-
prise, improving working conditions for personnel is possible due to the exemption
from direct human participation in production processes, and concentration on basic
operations. Automation can be effectively applied in production with mass produc-
tion, as well as where the technological process is more labor-intensive. Due to the
fact that developers of automated software systems are responsible for maintaining
low prices, shortening delivery times, compact size, high energy efficiency and main-
taining extended functionality, it can be assumed that the difficulties of implementing
digitalization for product development organizations.
In this regard, we can say that without resorting to significant material costs and
quickly enough to solve most economic problems—engineering modeling. Ensuring
the profitability of the business with the help of modeling with full cost control
becomes possible when making design decisions that allow optimizing various
operational characteristics of the product.
Using a theoretical research method, the authors of this article analyze indicators
that reflect the current practice of allocating costs under the state program, system-
atize ways to implement digitalization of aviation industrial production, and also,
using synthesis, make up a rating of priority technologies for achieving technolog-
ical leadership and the entry of Russian companies into international markets [11]. In
addition to the above, the generalization method formalized the urgent tasks facing
engineering modeling and the features of smart production.
The increase in the volume of digital technologies used leads to an increase in
the density of placement of certain electronic sensors. This, in turn, leads to some
difficulties related to energy consumption, weight, size and overheating of products.
When creating intelligent products, engineers use software modeling tools that help
them solve the most important tasks, with respect to some of the characteristics that
are presented in Fig. 1.
Thanks to the capabilities of engineering modeling, developers of intelligent prod-
ucts are able to achieve significant success in various fields, finding and making
balanced decisions during production, in terms of energy efficiency, weight, power
and other key aspects of the manufactured product.
2.2 Smart Production in Aviation Industry
Modern trends in informatization and digitalization of industry (Industry 4.0) are

primarily related to the integration of the idea of smart production. Two levels of
TASKS
Resistance to external factors.

“Smart” devices are, first of all, reliable functionality in various, including extreme, conditions, the
circumstances of which are often impossible to determine in advance. Physical testing does not
guarantee a definite picture of the conditions and scenarios of the device, but even so, the product
should work under any suggested conditions.
Communication and receptivity.

Many current devices can be called “smart”, as they perceive their environment, taking into
account its parameters, and can also “communicate” with similar devices, helping to make the most
informed decisions, get quick results.
Weight, size, cooling, power.

With the development of digital technology, the frequency of sensor placement is increasing, which
is fraught with additional problems related to volume, weight, energy consumption and overheating
of products.
Reliability and safety.

Many “smart” devices used in the aerospace industry, medicine, and the automotive industry often
operate under extreme safety conditions.
Integration.
Due to the fact that devices are becoming more complex, at the final stages of creating the product
itself, sometimes quite serious difficulties arise when separately designed components are
assembled into a single system.
Fig. 1 Actual tasks facing engineering modeling [12]
integration include smart production systems, namely: horizontal and vertical inte-
gration [13]. When vertical—in a single network of operations within the enterprise,
unification takes place at all stages of production. When horizontal—the enterprise,
customers and suppliers are united in supply chains of any geographical scope.
The transition from a conservative automated system to a more flexible and fully
integrated system that uses continuous data flows of production and operating systems
to adapt to new requirements can be called a new stage represented by digital factories.
Combined into a single communication network elements for data interchange
represent a smart production, which in turn allows you to actively make improvements
at different stages of the production cycle, reduce losses and reduce costs from
equipment downtime, promptly respond to new requests from consumers of the
product, optimize supply chain management processes. It should be noted that in
a competitive market for an aviation industrial enterprise, this serves as a factor in
strengthening positions.
The authors believe that attracting investments in the development of smart

production should begin with the presentation of certain opportunities and advantages
of digital transformation. With ubiquitous digitalization, new advantages appear and
horizons of opportunities expand, allowing manufacturers to begin transformation
processes even with one piece of equipment, at any level. When mastering the tech-
nology, you can increase the scale of transformation by switching to other production
processes or lines, eventually covering the entire enterprise or even the network. Indi-
vidualization of the study of individual scenarios guarantees that the created smart
production meets the needs of the enterprise.
It is also worth noting that it becomes obvious that it is possible to solve various
issues in the development of smart production related to improving the quality of
products, as well as the efficiency of equipment and reducing the costs of the enter-
prise as a whole. Such improvements, in turn, accelerate market entry and are able
to increase the profitability of production. All components of smart production are
capable of self-generation of extensive data sizes. After analyzing this information,
you can find problems in the performance of the equipment that require adjustments.
Corrective optimization precisely defines smart production, highlighting its signifi-
cant advantages over conservative production [14]. The ability of self-optimization
inherent in smart production allows you to quickly find the dynamics of quality dete-
rioration, predict possible deterioration in the future, and identify the causes that may
be related to equipment, the environment or the human factor. The authors consider
the identified features of smart manufacturing according to Fig. 2.
Smart production can be organized in different ways—within or outside the
production location. Meanwhile, there are a large number of options for using indus-
trial and digital technologies, depending on the specific needs of the organization.
The authors of this study have identified a set of new technologies that facilitate the
movement of information flows between digital and physical objects [15].
These technologies are the basis for a digital supply chain, and also create various
opportunities for digitizing production processes. Some key production processes
of a smart enterprise, examples of digitization of the main business processes using
various kinds of industrial and digital technologies in aviation industrial production
are presented in Table 1.
The system of smart production of aviation industry enterprises makes it possible
to integrate the technology of digital twins. This makes it possible to digitize all oper-
ations, going beyond the integration and automation itself to the stage of forecasting
capabilities. As a practical example, we can cite the actively implemented concept
of a digital twin of the aircraft climate control system. In order to design the climate
control system most effectively, it was necessary to assess the degree of interaction
of its components before conducting the tests themselves in the summer. The opera-
tion of the climate control system at the system level was investigated by employees
of Tianjin University from China and Purdue University from the United States of
America. They also carried out three-dimensional CFD calculations (Computational
Fluid Dynamics) using a software package [1]. The research of the above-mentioned
employees was presented within the framework of the CARE consortium to special-
ists from Commercial Aircraft Corporation of China (COMAC) and Boeing. It is
PECULIARITIES OF
SMART PRODUCTION
Optimization
- minimization of costs for the cost and quality of products;
-predicted performance;
-increasing efficiency and production, increasing the life of equipment;
-logistics with minimal involvement of people and high automation of the
production process.
Flexibility
-operative restructuring of production;
-adaptive planning and the ability to make changes;
-flexibility in order tracking;
-Observation of the consequences of making a change in real time.
Transparency
- demand forecast through customer feedback;
- actualization of information for making effective decisions.
Intensification
-automation of stock replenishment;
- online security control;
-prediction and troubleshooting;
- identification of problems with the quality of the supplier's products at an
early stage.
Connectedness
- online data exchange with customers and suppliers;
-regular data retrieval by means of sensors, taking into account the
location;
-cooperation between departments.
Fig. 2 Features of smart production [12]
assumed that these companies plan to create their own prototypes (virtual) for subse-
quent modeling of climate control systems. It is also planned to conduct experiments
in order to confirm all calculations of the aircraft’s climate control systems, which in
turn will be able to improve the main characteristics of these systems. In addition to
many of the results achieved in the aviation industry, attention should be paid to the
indicator confirming that a group of scientists [2], using numerical modeling of the
water intake device of the Be-200ChS model aircraft, was able to adjust the calcula-
tion model and lead to satisfactory results of matching experimental and calculated
data, namely: up to an acceptable 12–15% for a set of control points, which in turn
Table 1 Ways to implement digitalization of aviation industrial production [13]

Process Implementation methods
1. Maintenance • Sensors on all equipment to track operation and predict the need for
maintenance
• Expert systems (augmented reality) that facilitate the
implementation of their repair and maintenance functions by
personnel
2. Production operations • Digitization of the technological process using the digital twin
concept
• Autonomous robots for performing standard operations
• Adaptation of production processes for the rapid production of
spare parts and prototypes for aircraft
• Use of online inventory and production data for advanced planning
3. Quality • Control of all equipment parameters online in order to predict the
possible occurrence of quality problems
• Application of optical methods in the process of aviation production
for quality control
4. Warehouse operations • The use of autonomous robots when performing warehouse
operations
• Assistance to personnel using augmented reality during loading
operations
5. Resource audit • Analysis of stocks of raw materials and components for their
optimization
• RFID tags (sensors) for tracking the movement of finished
products, tools, location of raw materials, etc.
contributed to the conclusion about the adequacy of the model itself for calculating
hydrodynamic forces, designed by a hardware and software complex specializing in
these tasks [2].
In addition to the above, it is necessary to note the high degree of interest of the
Russian Government in the development of scientific research and digitalization of
the economy and the aviation industry, in particular.
According to the state program “Development of the aviation industry for 2013–
2025”, which was approved by the Decree of the Government of the Russian Feder-
ation No. 303 dated 15 April 2014, in terms of the subprograms “Aircraft Construc-
tion”, “Aircraft engine building”, “Helicopter Construction”, “Aviation units and
devices”, “Aviation Science and Technology”, “Integrated development of the indus-
try”, the main goal is to create a domestic competitive aviation industry, which should
ensure the widespread involvement of the Russian Federation in the world economy,
by increasing the volume of GVA in the aviation construction industry by 2.9 times
compared to 2013 [16].
In addition, the focus is fixed on the development and preservation of Russian
aviation science as the best scientific and experimental base capable of conducting
research work not lower than the level of the world’s best scientific institutions, while
ensuring regular certification tests for new aircraft models [16].
10
9
8
7
billion rubles
6
5
4
3
2
1
0
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
years
Fig. 3 The volume of budget allocations of the state subprogram 7 “Aviation science and
technology” in the period from 2015 to 2025, billion rubles [16]
In accordance with the stages of subprogram 7 “Aviation science and technology”,

it is proposed to consider the amounts of budget allocations presented in Fig. 3.
The total amount of budget allocations under the subprogram is 8299 billion
rubles. Figure 3 illustrates that the lowest financial flow occurred in 2015, while the
maximum amount of budget resources was allocated in 2016 and 2018. It was also
revealed that the main of the most important indicators characterizing efficiency is
the stock ratio. As can be seen from the Fig. 3, there is no increase in the volume
of budget allocations allocated by the Government of Russia. Based on the results
of the authors’ research [15], we note that in the period from 2018 to 2021, there is
a tendency for the growth of the above indicator, which is due to a decrease in the
number of employees involved.
Accordingly, by 2024, the Russian Federation is expected to complete research
related to the study of the introduction of digital twin technology for aircraft engines
[17]. The most difficult and time-consuming process in creating a digital twin can be
called the development of a variety of highly specialized mathematical techniques
and models for the operation of each part, of which there are thousands in an aircraft
engine. Nevertheless, the use of digital twin technologies contributes to a significant
reduction in the cost and reduction of the process of developing new engines [18].
The same time, the digital twin is able to reduce the cycle of creating power units
to 5–6 years, reducing the cost of their design by 28.9%, i.e. by almost a third.
In addition, certification currently takes time, including a whole range of tests for
safety, reliability and confirmation of various characteristics; this, in turn, leads to
the fact that all the necessary changes to the engine design can be made already at
very late stages of its design [19]. Such work leads to a significant increase in the cost
and timing of finishing the product. In the context of the above thesis, we note that
from January 2022, it is planned to introduce a new standard in the field of digital
doubles in the Russian Federation (GOST R 57700.37-2021 “Computer models and
modeling. Digital doubles of products. General provisions” [20].
Augmented / virtual reality devices

Flexible production lines
Precision technology
New production technologies
Digital technologies of quality management

Smart production lines
Materials and raw materials for new production technologies
Automation and control technologies
Product data management technologies
Additive technologies: 3D and 4D printing
Technologies for the development and production of materials
with specified properties
Computer solutions for engineering
Computer design
Computer optimization technologies
The concept of digital twins
Product lifecycle management technologies
Computer Engineering
0 5 10 15
%
Fig. 4 Profiles of needs for new production technologies for 2019 [12]
In the future, the use of the digital twin concept helps to reduce the certification
period [17]. This will inevitably lead to a reduction in risks and financial losses for
developers of aircraft engines associated with inefficient use of production facilities
and delayed entry into the market of products.
Based on the research conducted in 2019 [12], it can be confidently stated that
the concept of a digital twin and its application in the aviation industry have great
potential (Fig. 4) to introduce this innovative technology.
In comparison with other innovative technologies, the concept of digital twins
shows a fairly high level of interest among such companies as PJSC United Aircraft
Corporation (PJSC UAC), JSC TVEL, JSC United Engine Corporation (JSC UEC),
etc.
The survey data presented in Table 2, which was attended by 127 experts, confirms
the high demand for development and research in the field of digital twins technology.
The main criteria for the selection of experts were the heads of departments and
departments of aviation enterprises applying technological innovations in the field
of engineering modeling. All the results of the experts’ answers were summarized
in a matrix of scores of the same scale. The error rate is 0.002%, the approximation
confidence index (R2 ) is 0.97.
The market for the concept of digital twins in the Russian Federation is at the
initial stage of formation, however, it is already possible to conclude that several large
projects have been implemented, most of which were initiated by state-owned enter-
prises or companies with state participation [21]. Thus, KAMAZ PJSC, Gazprom
Neft PJSC, UEC JSC, Rosatom State Corporation, Rostec State Corporation have
already launched pilot projects in this area [12]. Statistics record the following figures
Table 2 Rating of the most priority technologies for achieving technological leadership and entry
of Russian companies into international markets [12]
Rank Rating of the most priority technologies for achieving Percentage ratio (%)
technological leadership
1 Mathematical modeling, computer engineering 34
2 The concept of digital doubles (digital twins) 21
3 Optimization technologies (multiparametric, multidisciplinary, 16
etc.)
4 Technologies for the development and production of materials 15
with specified properties
5 Product lifecycle management technologies 14
Total 100
for the total volume of the digital twins market: Russian enterprises exceeded 111
billion rubles in 2018 [22]. According to the indicators of 2017–2019, the foreign
market was at the level of $ 1.56 billion, according to the forecast, it should reach
$ 17.54 billion by 2026, with an average annual growth rate of more than 35.32%
[12].
The wide functional application of the concept of digital twins in the aviation
industry determines the relevance of this study and the need to highlight the latest
developments in this area. In this vein, the development of a hybrid digital twin
is fully based on the concept of a complex digital twin [23]. Such modification
implies, in addition to the generally accepted physical sensors, the use of virtual
sensors that provide information about the measured parameters of an object based
on mathematical modeling using a complex functional model.
3 Discussion
Summing up the results of the study, the main advantages of the hybrid digital twin
system model should be noted:
• motivated presentation of the necessary requirements for new production equip-
ment;
• the possibility of determining the quantitative deviation of many parameters of
the equipment from the initial state in places where there are no physical sensors
or they cannot be installed;
• reducing the impact of the human factor on the results obtained;
• availability of the ability to quantify the impact on the performance of the system
and its efficiency of individual pieces of equipment;
• identification of the sufficiency of the quality and volume of maintenance work
performed on equipment;
Fig. 5 The principle of operation of the hybrid digital twin concept
• confirmed performance planning of technological installations, taking into

account the provision of the most optimal operating modes for all equipment
included in their composition.
The system model of physical processes, which is part of an industrial solution,
allows you to get a significant advantage over digital equipment counterparts, which
are based only on industrial equipment technologies.
Figure 5 schematically shows the principle of operation of the hybrid digital twin
concept.
It is an indisputable fact that the competitive advantage in the occupied market
in the dynamic competitive struggle of designing intelligent devices is provided by
one of the most important technologies—engineering modeling. Supply chains and
production processes are increasingly permeated by Industry 4.0 technologies every
year. However, only personal control by the company’s management of all transfor-
mation processes is able to ensure the implementation of digital transformation of
production in the shortest possible time.
4 Conclusions
The realities of the modern digital technology market are such that all modern airlines
will soon have to adopt the concept of smart production and digital twin technologies
to change existing business models, despite all the difficulties of the transition from
conservative production to a new model.
Smart production is able to predict future results based on previously obtained
data, as well as data coming online, which in turn will lead to an increase in uptime
and prevent many security problems.
Digital twins are able to provide the Russian engine-building industry with a more
effective response to various market needs and, probably, use a modern business
model: to switch from engine supplies to the sale of flight hours.
Earlier, the authors of this study have already noted that the concept of digital twins
is able to radically reduce the multiple costs of enterprises already at the initial stage
of creating new models of engines. Among other things, in the Russian Federation,
it is planned to simplify the certification procedure and launch serial production of
power units.
Thus, having analyzed the general position of the Government of the Russian
Federation in relation to the digitalization of the economy through the development
of state programs, in particular, the state program “Development of the aviation
industry for 2013–2025”, the subprogram “Aviation Science and Technology”, we
can conclude that there is a high degree of involvement and interest in improving
the results of the introduction of digital technologies and increasing overall compet-
itiveness from their use. This positive trend has an impact not only on the aviation
industry, but also on the entire economy of the Russian Federation as a whole.
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Digital Revolution in the Energy Sector:
Effects of Using Digital Twin Technology
Wadim Strielkowski , Gordon Rausser, and Evgeny Kuzmin
Abstract The energy sector today is undergoing the digital revolution. The Internet
of Things (IoT) and its subset, the Internet of Energy (IoE), that comprise, for
example, smart meters, artificial intelligence (AI), or virtual reality (VR) with their
practical application to the energy sector all together contribute to the enhancement
of the smart energy grids of the future. Our paper focuses on the overview of the
digital twins’ technology that are increasingly used in the smart grids. We discuss
their application and usefulness for the improvement of the safety, security and relia-
bility of the energy networks that include a two-way flow of information and power.
Furthermore, we examine various types of digital twins and show use cases related to
design, operation, control and safety of systems, testing, regulation, operator training
and maintenance planning for energy utilities. Our research provides some innovative
examples that might become the inspiration for the policy-makers and stakeholders
working in the field of energy economics and policy.
Keywords Smart grid · Digital twin · Energy and power sector · Industry 4.0
1 Introduction
We are now living in the times of the 4th Industrial Revolution, in which industries are
changing at an unprecedented rate as a result of the advance of digital technologies
and the ‘Industry 4.0’ is becoming a frequently-used term [5, 27, 50]. The digital
revolution includes emerging innovations such as Internet of Things (IoT) [or its
W. Strielkowski (B) · G. Rausser

University of California Berkeley, 303 Giannini Hall, Berkeley, CA 94720, USA
G. Rausser
E. Kuzmin
Institute of Economics of the Ural Branch of the Russian Academy of Sciences,
29 Moskovskaya St., 620014 Ekaterinburg, Russian Federation

44 W. Strielkowski et al.
subset known as the “Internet of Energy” or (IoE)], data science, machine learning
and cloud computing, smart grids [26, 42]. Technology has been adopted by all major
industrial sectors in recent years, and the energy sector is no exception.
The digital revolution in the electric industry is the result of many new technologies
and an exponential rise in data storage and processing. These technologies will
continue to drive innovation and create new business models for energy delivery
such as new ways to manage networks and shift demand highs from onetime of the
day to another [35, 44]. Energy storage has become a central element of the energy
system, and digital technologies make it possible to create virtual power plants in
which aggregate electricity consumers can switch off the machinery needed to modify
their demand to match supply [3, 9].
The most obvious signs of the shift from large-scale centralized, distributable
energy to clean, decentralized, and personal energy can be seen in advances in renew-
able energy technologies such as wind and solar, but behind the scenes, a new digital
backbone has been established that enables wind turbines, solar panels, and batteries
to produce and store electricity in the workplace [12, 13, 38, 41].
Digital transformation is a key component of the energy transition, enabling the
integration of more renewable energies into the electricity system, increasing grid
reliability and helping to manage energy demand. With regard to the above, the use
of digital technologies in the energy sector will bring a number of benefits. One
can note that industrial users account for 40% of the world’s energy consumption,
so there is a great opportunity to increase energy efficiency and take advantage of
the main trends in this sector. By using new technologies to reduce waste, we can
reduce energy consumption in 5% of industries from 13 to 29%. Energy companies
and consumers can benefit from the vast network of connected electronic devices
not only phones and computers but also smart meters, fitness monitors, air quality
meters and other technologies [45].
Technological development and the introduction of IoT in industry have to the
novel emergence and trends in energy research [4, 6, 37, 40]. It is important for energy
companies to implement the promise of digital innovation on a large scale and on a
global basis. To meet these challenges, network operators must make the most of their
opportunities, which requires energy companies to invest in the Internet of Things [7].
In the mining, oil and gas industries, IoT solutions that integrate machine data anal-
ysis to meet the requirements and to achieve operational efficiency will set energy
companies apart from others. An MIT report entitled “Transforming the Energy
Industry with AI” shows how companies are using artificial intelligence (AI) solu-
tions in everyday operations such as oil exploration and cybersecurity applications
to automate monitoring and detection of cyber-attacks [25].
The prevailing approach to digital innovation in energy has been to create point
solutions by applying technologies to limited areas of application and changing the
way people work. Energy companies often succumb to point solutions when they
delegate digital IT functions to operate through a technology lens, lack mandates, or
redefine other functions and their work. In addition, energy companies of all stripes
expect to find value in digital technologies as tech-savvy organizations with a history
of ingenuity. But when it comes to technology, they are trying to lay their foundations
Digital Revolution in the Energy Sector: Effects … 45
by invading the dreaded data lake and racing to use it. Moreover, energy companies
have failed to generate significant business value with digital technologies because
their approach fails to take into account the unique challenges they create and the
extraordinary inertia. A major and growing impact on operations are cyber risks as
the oil and gas industry increasingly depends on connected energy, automation and
remote operations. These various scenarios do not capture how artificial intelligence
and data science will continue to transform the energy industry. Industrial Revolution
that shifted the humanity’s approach to energy sources, created most of the issues
we are facing today [39].
Thence, it can be stated that there is no way to predict with certainty how certain
digital technologies will interact with certain energy systems and applications in
complex real-world situations involving multiple policy objectives and uncertain
unintended feedback. These reasons have led us to rethink the use of digital twin
technology in the energy sector. We will take a step-by-step look at how digital twins
contribute to the improvement of smart grids, how they affect energy efficiency and
energy conservation. The conclusions are based on a literature review among the
most cited publications. This approach is the main one in our study. Examples of
the use of digital twins will constitute a collection of best practices that can be
disseminated to achieve the goals of sustainable development. We are convinced that
digitalization offers a rare opportunity to transform the energy system, which tends
to change slowly [48].
2 Digital Twins in Industrial Energy Efficiency and Energy

Saving
Digitalization offers energy companies the opportunity to establish new business

models and sustainable strategies for energy generation and provision [17]. One of
the tools is digital twins. Nowadays, digital twins’ solutions find a more widespread
use in the energy sector to combine machine learning, artificial intelligence, and
software analysis of data from production facilities into digital simulation models
[8, 15, 29].
There is a holistic digital production environment in which artificial intelligence
is used to run virtual simulations with diverse data sources such as historical data,
future demand forecasts and weather data, enabling multiple optimization scenarios.
Sensors and models of local energy systems which are set up using digital twins
using digital twins offer a number of advantages in the design and operation phases
and facilitate energy sharing and trade based on different business models [46].
This means that digital twins are crucial for industries such as electricity, as
they enable control over energy resources distributed over the network, with the
appropriate software to analyze and visualize the data [2]. This information can then
be used by high-performance computer models to predict which technologies like
solar panels, heat pumps, smart thermostats and energy-efficient water heaters should
be installed to save energy.
In fact, the tool called the Digital Energy Twin, reflects the actual performance
and energy consumption of buildings by integrating information about the design and
use of buildings with a wealth of real-time operating data ranging from buildings and
software commands, sensor data, equipment levels, energy consumption and weather
data. Once building operation is modeled with an accuracy of 98%, we can assess
the impact of different energy saving systems and upgrades and empower building
owners to make better investment decisions [30, 36]. For instance, continuous use
models are precisely the type of models that are most advantageous for the production
of energy efficiency in industrial machinery via the digital twins framework and the
advantages can be applied to the entire plant, resulting in massive energy savings
and reducing the environmental impact [24].
The latest digital technologies aim to provide decision-makers with the informa-
tion required to develop smart solutions that identify the most effective and resource-
efficient ways of reducing the use of fossil fuels energy in communities [43]. Just
to provide an example, a prototype of a community interaction model enables real-
time visualization of energy data from the Trent Basin community in Nottingham,
England, including information on renewable energy production and storage, energy
consumption data and general information on homes [19]. The digital twins analyze
the changing areas of energy consumption and continuously evaluate energy sources.
While asset managers want to make informed decisions about building investments
and municipalities with strict emission reduction requirements, digital twin tech-
nologies that simulate building operations can be a valuable decision-making tool
[21].
Data centers with digital twins can collect data from the entire plant lifecycle,
from planning, construction, renovation, operation and demolition phases to improve
sustainability and be resource-efficient in making economic and environmental deci-
sions [34]. Furthermore, large sets of digital twins can be used to estimate energy
demand and supply, indoor air quality, thermal comfort, carbon emissions, operating
and maintenance costs, renovating and replacement needs of buildings (including
recycled waste and building materials), the repayment periods of carbon emissions
and life-cycle energy conservation measures.
Digital twins encompass both real and virtual space, and the flow of data between
them allows us to experiment and carry out comprehensive analyses of the informa-
tion [16]. Digital twins help users organize their information by providing a single
view of truth, enabling faster maintenance and operational decisions and ensuring
that decisions are based on the most accurate data available. Digital twins are at the
heart of the progress of integrated information modeling, which enables asset-centric
organizations to converge their technical and operational information technologies
through immersive visualization and analytics visibility. Digital twins are a new
form of intelligent management that makes networks more data oriented, seeking a
global vision of the environment around them that makes them more demanding and
dynamic.
In the energy industry, digital twin technologies enable the development and main-
tenance of intelligent networks with high-tech sensors, machine learning models and
improved performance monitoring. It is envisaged that they will become the back-
bone of smart grid deployment, renewable energy management, better integration
and more efficient transmission by bringing together mix of cyber, physical systems,
cloud computing and smart industrial solutions [1].
The introduction of digital twins in the energy sector will make it possible to strike
a balance between supply and demand, enable a proactive approach to operational
issues and allow for a faster restoration of electricity supplies and a reversal of black-
outs. Current methods and data infrastructures for industrial energy saving will be
reviewed to demonstrate the potential of precise and effective digital twin infrastruc-
ture in the industry. The tendency to offer a promising future for the development of
twin digital energy saving systems in the energy saving industry.
The combination of various services, large amounts of data and processes, the
need for mobile access of information and compelling reasons to propose energy
management solutions that work in the cloud all constitutes the open, live access to
information and digital engineering model that companies need to implement in a
networked data environment. Digital twin technologies can significantly reduce the
associated costs and risks to the construction, maintenance and performance of the
utility industry by investing in AI-driven IoT testing to increase the reliability and
credibility of the offerings. Recording and structuring real-time and historical data
enables the implantation of reliable digital twins to facilitate the control, simulation,
efficiency and maintenance of equipment and extensions.
Digital twins are viable because of the abundance of high-quality data today
needed and because it is possible to obtain data on a sufficient scale to provide
sophisticated models based on this data, as the volume of data collected with digi-
talization exponentially increases. In any existing plant or energy facility, digital
twins can first use reality models to capture conditions and link them with sensor
information to understand operation and maintenance in context.
3 Visualization of Physical Assets in Energy Sector
Here, we will provide some examples of the operational digital twins. The first
example is the Siemens COMOS (WalkInside) which represents a 3D virtual reality
visualization software that provides virtual environments and immersive training for
power plant operators. COMOS enables the use of 3D engineering data for the basic
details of the engineering phase and the start-up phase of operation and provides
transparent and real-time asset information throughout the asset life cycle. The use
of intelligent 3D models enables COMOS to make plant construction safer and more
efficient. In the energy sector, oilfield operators collect and analyze vast amounts
of well data that they use to create digital models to guide drilling in real time
[32]. Singapore used detailed virtual models for its urban planning, maintenance and
disaster preparedness projects. Creative and motivating approaches include the use
of EPCs, CAD models and system laser scanners to present the user with a 3D VR
simulation of the working environment and navigate like a video game [11].
In addition, there is a Virtual Reality (VR) technology helps power the industry
by providing training and education for workers in immersive environments. For
instance, many oil and gas companies are finding innovative ways to leverage the
benefits of VR for underground studies, training and simulations, and to develop
improvised processes and products. Power professionals will use it for compre-
hensive operator training, engineering and design inspections, plant operation and
maintenance, and crisis simulation. The cooperation will help to create interactive
virtual environments and create digital representations of physical assets.
The true value of the digital twin capability begins with the tool of choice in the
engineering toolbox, since it streamlines the design process by eliminating many
aspects of prototype testing. Unreal enables engineers and architects to design and
build virtual reality environments using a powerful editor, toolsets and interaction
model for design and VR world building. In the context in which VR is present, it
is a powerful technology that enables realistic and interactive visualization of our
construction models and improves the communication process between the project
participants.
Important components of digitalization such as the IoT, sensor technologies,
virtual reality, intelligent platforms and networked solutions synthesize large assets
and information. The software like the above-mentioned Siemens COMOS repre-
sent unified data platforms that provide plant designers, plant operators, companies
and management solution partners with a continuous data flow to meet their specific
needs in all the projects and disciplines involved. Digital twins are dynamic data
models that contain data attributes of actual physical assets. The data attributes of
the actual physical object are linked to sensors that measure multiple variables to
represent real operational conditions and key information such as installation date
and other important elements [28, 49]. Today, the technology can create an immer-
sive VR environment in which a true 1:1 scale 3D model is created using repeat-
able millimeter-accurate data as input. The ability to explore and experience the
3D content as one was there with a digital representation of the physical assets and
surrounding environment creates a seamless workflow between the environment and
the reality captured by virtual immersion [10]. Risk assessments are useful to enable
engineers and stakeholders to determine whether or not an early design is feasible, to
identify potential problems and to make the necessary adjustments before physical
assets are created. Asset owners by predicting asset failures and non-fulfillment using
digital representations can improve availability and excessive physical repair costs
and in some cases plan calendar maintenance and reactive repairs without increasing
asset downtime.
The use of digital twins of life cycles simulates, predicts and optimizes product
production systems so that digital representatives can invest in actual physical proto-
types. In a networked data environment, the use of digital 3D engineering models for
planning, design, commissioning, operation and maintenance is expected to reduce
annual operating costs in the field by up to 30% [47].
4 Digital-Twin Energy Saving System in Smart Grids
Energy providers are expanding their use of software tools to evaluate and manage
smart grids by digital twins. Digital twin technologies enable digital representations
of physical network values, processes, systems and technical information, enabling
us to better understand and model network performance. Virtual digital replicas can
be created with information from vast amounts of design, manufacturing, inspection,
repair, sensor and operating data. Using digital twins to model grids and substations,
designers can scale up the equipment and predict how it will behave in different
operating scenarios. Data exchange between large volumes of different software
systems enables utilities to plan, operate and maintain their networks. Under the
umbrella of cybersecurity, the digital landscape offers complete transparency at the
machine, plant and fleet level, provides plant diagnostics, performance monitoring
and operation optimization and creates new opportunities for utilities to manage and
market their assets.
World’s leading technological giants such as Bentley and Siemens are working
together on several software solutions and collaborations including a digital twin for
the power grid which will enable a common simulation and modeling environment
for the power grid. Various asset-intensive industries, including utilities, use digital
twins to manage and operate assets. Plant registers built on power plants, substations,
plants and infrastructure can be transformed into BIM-enabled digital twins, for
example with Bentley’s iModel Technology, a dedicated container for the exchange
of information and models on plant infrastructure. By bringing together a mix of
cyber-physical systems, cloud computing and smart industrial solutions, digital twin
technologies will become the backbone of smart grid deployment, renewable energy
management, better integration and efficient transmission in the energy sector.
Utilities need to understand how to integrate distributed energy generation and
digital power grids within the parameters of their regulatory environment. In a
competitive and uncertain market, companies need to consider different scenarios
and analyze real-time data streams to generate power plant operations, planning, and
maintenance to save money. Accurate and dynamic digital twin models for plant
generation, transmission and distribution of electrical networks and operators need
to be trained to deal with a wide range of malfunctions encountered by operators in
real life operations.
Digital twins can also optimize and help to save the energy in city planning and
operation. For example, planners in the city of Versailles have used digital twins
in the city’s transportation network to model the flow of goods and logistics and
formulate a plan to reduce congestion for suppliers, improve energy efficiency and
reduce air pollution [18].
The current methods of data infrastructure for industrial energy saving, which
are being investigated here, show the potential for a precise and effective digital
twin infrastructure in the industry. The digital twin technology in the energy
industry enables the development and maintenance of intelligent networks with
high-tech sensors, machine learning models and improved performance monitoring.
By bringing together a mix of hyperphysical systems, cloud computing and smart

industrial solutions it can become the backbone of smart grid deployment, renewable
energy management, better integration and efficient transmission.
The introduction of digital twins in the energy sector enables a balance to be
struck between supply and demand, enabling a proactive management of operational
problems and a faster restoration of power supplies and a reversal of blackouts.
Digital twins can reduce the carbon footprint of new buildings by optimizing
energy efficiency of construction process and monitoring and controlling the supply
chain of materials and products to reduce carbon. In addition, digital twin technolo-
gies can significantly reduce the associated costs, risks, design, maintenance, and
performance of the utility industry by investing in AI-driven IoT testing to enhance
the reliability and credibility of supply.
At the urban level, the so-called virtual model of the digital twin of an urban
system allows policymakers to test planning decisions that impact urban infrastruc-
ture, people and resource consumption, including energy efficiency. Digital twin
technology simulates building operation as a valuable decision-making tool for asset
managers who want to make informed decisions about building investments and
municipalities with strict emission reduction requirements. For urban planners who
focus on energy efficiency, the digital twin offers the opportunity to simulate how new
developments, planning and changes in a city affect a range of energy-related indica-
tors including solar radiation, traffic flows on roads and on foot, heating and cooling
demands and many others. For example, if a company operates a cost-effective system
for a specific location, a digital twin could decarbonize the energy system.
With digital energy twins, builders and building owner teams are able to under-
stand the system capabilities they need at different occupancy and density levels.
Digital twins are used to emulate the physical and operational characteristics of
power plants and other utilities during construction to improve the operation, main-
tenance and service life of physical facilities. The tool that can be called the digital
energy twin, reflects a building’s actual performance and energy consumption by
integrating building design and use information with a wealth of real-time operating
data such as building automation systems (BAS), device command and sensor data,
equipment levels, energy consumption and weather data.
A digital twin based on the Sphinx could open relevant systems to analyze
changing energy consumption areas and carry out continuous assessments of energy
sources. In the discipline of Building and Energy Management, a digital twin is
a combined representation of a powerful building information model (BIM) and a
real-time stream of data originating from building sensors [22]. Once the building
operations are modelled with 98% accuracy, we can assess the impact of various
energy-saving systems optimizations and upgrades and empower building owners to
make better investment decisions [23].
A recent report by a professional services firm draws on case studies, including the
Nanyang Technological University of Singapore who tested the use of Digital Twin on
its 200-building campus to reduce energy consumption, water consumption, carbon
emissions and waste. Digital Twin’s data analyzed a five-year period to propose
changes in the building operation, resulting in a 31% reduction in energy consumption
and a 96-kiloton reduction in carbon emissions [14]. The technology was also used
to test the performance of the first 3D printed bridge in the world, using data for
future iterations of the design.
Digital twins are at the forefront of advancing integrated information modeling,
enabling asset-centric organizations to bring together their engineering, operations,
and information technologies through immersive visualization, analysis, and visi-
bility. Utilizing research data on how each part of the system functions and reacts to
the environment and supported by data provided by sensors in the physical world, it
can be analyzed to simulate real conditions and to respond to operational changes.
Recording and analyzing real-time and historical data from various platform
enables the implantation of reliable digital twins that facilitate the control, simula-
tion, efficiency and maintenance of equipment and extensions. With a holistic digital
twin production environment, artificial intelligence can be used to run virtual simu-
lations using various data sources, including historical data, future demand forecasts,
and weather data, enabling multiple optimization scenarios.
5 Conclusions
All in all, it can be stated that thanks to the ongoing digital revolution in the energy
sector, digital twin technologies are finding ubiquitous and frequent usage in the
development of the of smart grids. This process is likely to impact the formation and
the shape of the smart grids of the future energy systems.
The introduction of digital twins in the electricity sector will allow for a balance
between supply and demand, enable a proactive management of operational problems
and enable a faster recovery and reversal of blackouts. Digital twin technologies in the
energy industry will enable the development and maintenance of intelligent grids with
high-tech sensors, machine learning models and improved performance monitoring.
Digital twin technologies will significantly reduce the associated costs and risks to
the construction, maintenance and performance of utilities as the industry invests in
AI-driven IoT testing to build reliability and credibility of offerings.
Nowadays, in our digitalized and interconnected world, quite a few energy utilities
already successfully developed the process of moving the data into the structures of
the digital twin framework and equipping it with real-time data feeds for operation
on the ground. However, an unknown number of private players are using digital
twins to manage hydropower plants, nuclear reactors and power grids.
Therefore, it is necessary to be guided by some principles for the enhancement of
smart grids. Governments should strive to provide technology-neutral delivery routes
and neutral policy platforms for digital energy, for example in relation to the role
of smart meters and other energy management systems, and allow a large number
of companies to compete with each other and find new business models to serve
consumers [33]. Policymakers should design a range of energy policies to ensure
adequate flexibility in dealing with new developments in digital communications
technologies that continue to develop in ways that are difficult to predict [31]. The
ultimate goal of these recommendations is to change the state of the energy sector.
We believe that digital technological will be make energy systems more connected,
intelligent, efficient, reliable and sustainable [20].
Finally, we can conclude by saying that thanks to the advances in computer science
and creative programming, digital twins can be used during construction to replicate
physical and operating characteristics of power plants and other utilities, helping to
improve the operation, maintenance and service life of these plants.
Research limitations are due to the applied methodological approach and the
available data. We admit that the literature review is incomplete and some trends
in the development of digital twins in the energy sector have not received sufficient
space in the study. We see prospects for further research in the field of generalizing
assessments of the effectiveness of using digital twins.
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j.techsoc.2020.101364
Digital Twins in Russian Metallurgy:
Prerequisites and Limitations of Use
Olga Romanova and Dmitry Sirotin
Abstract The most important factor in the systemic transformation of the produc-
tive sector of the economy is modern information and communication technolo-
gies, among which technologies for the formation of digital twins are becoming
increasingly important. The article is devoted to studying the application of these
technologies in metallurgy, one of the basic industries of the Russian economy. The
article aims to identify the existing prerequisites and the most significant limitations
of introducing digital twins in Russian metallurgy. The study hypothesizes that the
technological level of modern metallurgy allows the use of digital twins as an effective
tool of the modern organization of metallurgical production. The information base
of the study was the indicators of state programs and industry strategies, industrial
statistics data, materials of analytical and consulting firms. The methodological basis
of the study consisted of the scientific works on digital and sectoral economics. The
use of comparative, structural-logical, and statistical analysis allowed identifying
the prerequisites for introducing digital twins in Russian metallurgy and substanti-
ating the validity of considering modern metallurgy as a promising object of digital
transformation. The emerging trend of metallurgical production intellectualization
has been established. The authors have carried out a review of the best practices of
the largest Russian metallurgical companies on the use of digital twins. The study
reveals the limitations of the development and application of digital twin technologies
in metallurgy. In the research process, it is substantiated that to implement the existing
prerequisites for introducing digital twins in Russian metallurgy and removing the
identified limitations, it is required to develop special measures to improve the legal
and managerial support of this activity.
Keywords Digital twins · Metallurgy · Digitalization prerequisites and

limitations · Intellectualization of production · Best practices
O. Romanova (B) · D. Sirotin

29, Moskovskaya St., 620014 Ekaterinburg, Russian Federation

58 O. Romanova and D. Sirotin
1 Introduction
A global trend of world development is the construction of a digital society, the

conceptual basis of which is the creation of a common platform of interaction between
the subjects of the modern economy [1, 26]. Only based on such a platform, it is
possible to solve the problems of implementing the latest production cycle, the basis
for the formation of which is knowledge, information, big data, and communication.
Among the latest information technologies that define the digital transformation
of the productive sector of the economy, digital twin technologies are becoming
increasingly important. The purpose of the article is to analyze the opportunities and
identify the limitations of the development of digital twins in Russian metallurgy.
A review of research in the development of modern information technology [2, 10,
16, 22, 33, 40, 43], the digitalization of metallurgical production as one of the basic
industries in Russia [7, 11, 23, 25, 27, 37, 38], and the generalization of the best prac-
tices of steel companies in this area were the basis for forming the hypothesis of this
study. The idea of the hypothesis is that the technological level of modern metallurgy
allows changing the traditional view of it as a conservative industry and justifying
the prospects of using digital twins as an effective tool of the modern organization
of metallurgical production. To confirm the hypothesis, it is necessary to establish
the place and role of digital twin technologies among modern digital technologies;
consider the validity of identifying metallurgy as an object of digital transformation
and intellectualization of metallurgical production as a prerequisite for the introduc-
tion of digital twins; confirm based on the systematization of research on the use of
digital twins as an effective tool for modern organization of metallurgical produc-
tion; summarize best practices in the use of digital twins by Russian metallurgical
companies; to formulate the limitations of digital twins in Russian metallurgy.
2 Prerequisites for the Development and Implementation

of Digital Twin Technologies in Metallurgy
Digital transformation of industry based on the latest information technology is one

of Russia’s most important tasks of economic activity management. To solve it,
numerous measures of both organizational and legal nature have been taken over the
past decade, aimed at increasing the overall level of digitalization of the economy,
developing specific information and communication technologies, and encouraging
the implementation of end-to-end digital technologies. The adoption of such special
organizational and legal measures is an important and necessary prerequisite for the
digital transformation of the Russian industry as a whole and metallurgy – one of its
most important industries.
Digital Twins in Russian Metallurgy: Prerequisites … 59
2.1 Modern Metallurgy as an Object of Digital

Transformation
Metallurgy, both worldwide and in Russia, has significantly changed its technological
appearance. Today, this is an industry where considerable attention is paid to devel-
oping high-tech, customer-oriented production, digitalization, and ecologization
[2, 22].
Modern metallurgy has the necessary prerequisites to identify it as one of the
most important objects, where the implementation of the latest information tech-
nology provides different types of effects. This is due to the sufficient stability and
high degree of debugging of technological processes in metallurgy, the constant
introduction of new technological solutions in the current production, the pres-
ence of successful experience of experimental work, and many years of practice
to modernize the existing metallurgical production. In metallurgy, there is a long
positive experience of various kinds of optimization studies. They aim to generate
various effects, including productivity growth, reduced waste, saving investments,
and other resources. A large amount of data has been accumulated here, and various
processing methods allow the industry to apply the latest information technology.
Metallurgy is one of the leaders in the Russian manufacturing industry in the use of
digital technology and the volume of investment in digitalization. In 2019, metallur-
gical companies invested more than 49 bln rubles for these purposes, which is more
than 30% of the total cost of the manufacturing industry for digitalization.
Metallurgy plays an important role in successfully implementing the Strategy for
Digital Transformation of Manufacturing Industries to Achieve “Digital Maturity”
by 2024 and 2030 [15]. The need to achieve “digital maturity” in key sectors of
the economy is emphasized, which is defined in the national goal “Digital Trans-
formation.” The methodology for assessing enterprises’ “digital maturity” level was
tested in January 2021 as part of a pilot volume that included 150 industrial enter-
prises of various industry affiliations. Among the leading companies, whose level of
digital maturity exceeds 70%, with the average value of this indicator being 53.89%,
the metallurgical enterprises (United Metallurgical Company JSC and Vyksa Steel
Works JSC) are ranked second and third with the digital maturity level of 75.19% and
74.46%. This is significantly higher than the average value for industrial enterprises,
confirming the possibility of effective development by metallurgical enterprises of
the latest information technology, including digital twin technologies.
IT solution groups with different weighting ratios were formed to assess the digital
maturity of enterprises (Table 1).
Table 1 shows that the group of IT solutions in the field of data sources has
the maximum value of the weight ratio (3) in metallurgy, which is completely
justified. It is followed by IT solutions groups related to systems for collecting,
storing, analyzing, and visualizing data sets (2.9) and groups of IT solutions in the
management of financial and economic activities of organizations (2.9), which is also
unobjectionable. However, the weighting ratio of the IT solutions group in the field
of project management, research, development, and implementation seems clearly
Table 1 IT solutions groups and their weight values

IT solution groups Industriesa
Metallurgy Chemical industry Machine construction
Project management, research, 1.8 1.4 2.6
development, design, and
implementation
Production activities management 2.8 3 2.8
Fixed assets and human resources 2.3 2.3 2.3
management
Data sources 3 3 3
Financial and economic activities of 2.9 2.5 3
organizations management
Managing the content of 2.3 2.3 2.3
organizations
Systems for collecting, storing, 2.9 3 3
processing, analyzing, modeling, and
visualizing data arrays, ensuring the
integration process
Other solutions 1 1 1
a The weight ratios are indicated depending on the priority of the IT solution within the industry on
a scale from 1 to 3: 0—not used; 1—low; 2—medium; 3—high
Source Ministry of Industry and Trade of Russia [14]
undervalued (1.8). However, this ratio is higher than, for example, in the chemical
industry (1.4); it is significantly lower than in mechanical engineering (2.6). At the
same time, metallurgy is experiencing a growing rate of new technological solutions
that are modernizing and transforming the industry. This increases the importance
of decisions in the field of project management, research, development, and imple-
mentation and determines the need to increase the weight ratio for the marked group
of decisions at least to the level of that in mechanical engineering (from 1.8 to 2.6).
2.2 Intellectualization of Metallurgical Production
The intellectualization of metallurgical production, as the authors understand it, is

characterized by a whole set of indicators. They include the increasing share of
creativity and creative work of industry workers in production, social and personal
sectors due to the intensification of universal information links. The most important
indicator of the intellectualization of metallurgical production is the use of the latest
information technology in the industry, i.e., the achievement of its digital maturity.
A new view of metallurgy as a modern industry, in which the intellectualization of
production is becoming more apparent, is largely due to its successful development
in countries such as Germany, Italy, China, etc. In these countries, metallurgy is not
only largely prepared for large-scale digitalization but is already characterized by

increasing digital maturity and is largely intelligent in nature. One of the companies
that actively develops technologies for metallurgy under Industry 4.0 is the German
company SMS group GmbH. A special place in its research is the development
of a “smart smelter”, where almost full autonomous and intelligent steelmaking is
ensured.
Cooperation with the Italian company Danieli (Digi&Met division) is also of
particular importance for the formation and increase in the level of digital matu-
rity of Russian metallurgical enterprises. Its goal is to develop and implement new
metallurgical enterprises based on using the latest information technology and imple-
menting new business models. The company proposed an approach to creating a
“digital plant”, with its subsequent transformation into a “smart plant” [5, 35]. The
functioning of a smart plant allows for reliable, efficient, flexible, customizable, and
environmentally friendly metallurgical production that meets the requirements of
intelligent production to a certain extent. The financial results of the digitalization of
steel production, according to Digi&Met estimates, are an additional 2.7% revenue
per year, with annual cost reductions of 3.2%. Return on investment in the project of
digitalization of the metallurgical enterprise can be 55% over two years, for two to
five years—37%, for the period over five years—8% [7, p. 34].
3 Digital Twin Technologies—The Basis of Modern

Metallurgical Production Organization
The development of the latest information technology has actualized the emergence
and the possibility of applying “digital twins” technologies for the digital transfor-
mation of the productive sector of the economy [11, 16]. A digital twin is a digital
copy of a physical object, which can be created for any real production assets—steel-
making furnaces, rolling mills, machine tools, etc. [42]. The copying object transmits
in real-time the data of various parameters that allow reproducing its state model.
This approach considers the accumulation of experience based on a wide range of
data, which contributes to forming an extensive Big Data database for modeling
possible states and forecasts of changes in technological systems.
The previously unavailable capabilities served as the basis for forming the modern
direction of metallurgical production organization and maintenance of metallurgical
equipment, including its maintenance by current condition. Implementing such a
strategy allows reducing maintenance costs by 25%, by 70%—the cost of eliminating
accidents, by 35%—unplanned downtime while increasing labor productivity by 20%
[21, p. 403].
Analysis of available statistics and publications in this area allows considering
digital twins as a critical tool to improve production efficiency at different stages of
the life cycle of metallurgical objects. In the period of design—it is the possibility to
obtain its various models and the possibility to choose the most effective one; in the
manufacture of products—evaluation of the accuracy of manufacturing of individual

elements of the object and the object as a whole, the possibility of identifying faults; at
the stage of operation of real production assets—monitoring the technical condition,
identification of failure causes, which allows maintaining metallurgical equipment
depending on the technical condition of each physical object [39, 44].
The use of digital twin technology allows determining the environmental impact
of different modes of operation of metallurgical equipment. Such technological solu-
tions in metallurgy are the first stage in solving the most important task—production
of green metals and the transition to a carbon-neutral operation in the industry.
The General Electric Corporation and Siemens AG played a defining role in the
development of the digital twin concept. At General Electric facilities, digital twins
are used for product design, equipment monitoring, manufacturing processes, and
aftermarket product support.
Digital twins are becoming increasingly common in Russia as well. Positive results
in this direction have been achieved in metallurgy [24, p. 109].
4 Largest Russian Metallurgical Companies-Leaders

in the Introduction of Digital Twin Technology
Russian metallurgists successfully cooperate in digitalization both with foreign

companies and with Russian universities and academic science. For example, serious
research is carried out at the Peter the Great St. Petersburg Polytechnic University.
Among the research in metallurgy, it is important to note the creation of digital twin
technologies for thermomechanical processing of steel, the main purpose of which
is to control the structure and properties of hot-rolled and heat-treated steels with
different chemical compositions. The industrial use of digital technologies of thermo-
mechanical processing of steel is constantly expanding [5]. In Russia, the industrial
development of digital twin technologies of thermomechanical processing of steel,
developed at the Peter the Great St. Petersburg Polytechnic University, took place
at Severstal PAO [28]. The use of the created digital twins was multipurpose and
demonstrated their high efficiency. The use of digital twins allowed improving the
mechanical properties of thick tube steel plate while maintaining the metal plasticity.
In addition, the cost of rolled products was minimized by reducing the molybdenum
content. The strength properties of the thick sheet were also improved due to the
addition alloys, which reduced the content of expensive elements [28, p. 10].
Severstal PAO. At Severstal PAO, in addition to the application of digital twin
technologies for thermomechanical processing of steel, the startup format considers
the possibility of implementing a digital twin model based on statistical and physical
modeling methods. This model allows predicting equipment failures and improves
the efficiency of metallurgical production as a whole [29]. Severstal’s divisions devel-
oped and implemented a digital twin of the continuous etching unit (CEU-3) at the
Cherepovets Metallurgical Combine in 2019 [30]. The “Adelina” digital model used
in this process allowed increasing the productivity of the CEU-3 by 5%. In 2020,
this model was supplemented with an intelligent agent “Ruban”, which increased the
productivity of the unit by another 1.5%. Unlike classical machine learning models,
which accumulate knowledge from a database of historical data, “Ruban” learns
by exploring the environment of a machine digital twin [31]. In 2020, Severstal
implemented a project to introduce a digital twin created based on process mining
technology to optimize business processes. This allowed the company to optimize the
processes of procurement, external logistics, management of the so-called “master
data”, i.e., data on identifiable objects, such as counterparties, materials, goods,
processes, etc., shared in the interacting systems [32].
MMC PJSC. Magnitogorsk Iron and Steel Works PJSC is one of the industry
leaders in the digital transformation of production. The MMC Digitalization Strategy
is implemented here, under which about 200 projects will be completed by 2025, of
which 48 will develop data analytics, 22 will be related to the application of digital
twins, 51 to the industrial Internet of Things, 51 to the digitalization of internal
communications. Net present income from the implementation of the Strategy, devel-
oped and implemented in partnership with Deloitte Consulting, will be 6.3 bln rubles
by 2025 [12]. The topic of digital twins occupies a special place in this Strategy. Espe-
cially for their development back in 2019 in the scientific and technical center of the
plant, the Group of Mathematical Modeling and System-Analytical Research was
formed. In 2021, with the participation of the South Ural State University, the plant
is implementing a project to improve the energy efficiency of power plants by intro-
ducing an automated system of digital twin power units. The system used reads up
to 100 parameters of the unit and increases its efficiency [41].
JSC Holding Company Metalloinvest. As part of the implementation of the
Strategy for Digitalization of Production, the holding held a startup competition
in 2021 to find technically and economically feasible solutions in this area. One of
the priorities of the competition was the development of digital twins, to which the
organizers referred “the technology of augmented reality for assessing the state of
assets, modeling the thermal balance of buildings and structures based on 3D” [13].
In 2020, EVRAZ PJSC, together with The Boston Consulting Group, launched
the Advanced Analytics program, under which projects with an expected economic
effect of $12 million per year are implemented at six enterprises of EVRAZ Group.
An end-to-end scenario-based production planning system was implemented earlier,
which allowed creating a digital twin of the production line at the West-Siberian
Metal Plant with an annual economic effect of 600 million rubles [8]. In 2021,
more than a hundred projects were underway at EVRAZ’s facilities, coordinated by
the company’s plans to digitize its operations through 2023 inclusive. Digital twin
technologies, which have already proven their effectiveness, occupy a significant
place in these plans [9].
The NLMK Group of Companies (Novolipetsk Steel Company) is also promoting
digital technologies and creating a digital eco-environment. At their production sites,
the group’s companies implement elements of digital twin technology. For example,
the Stoilensky Mining and Beneficiation Plant has implemented an intelligent system
for optimizing the mill operation during ore processing. It also uses a machine vision
system to monitor the quality of incoming raw materials [19]. The implementation of
the “Gefest” project allowed building an optimal logistics system for the steelmaking
shop at Novolipetsk Steel Company with an economic effect of up to 100 million
rubles per year [20].
The Pipe Metallurgical Company (TMK OAO) is actively working to create
digital twin technologies. The digital twins implemented at TMK’s plants allow
simulating production processes, virtually selecting equipment settings, testing them,
and identifying the best option. As a result of such implementation at the Volga and
Seversk pipe plants from 2018 to 2021, the economic effect amounted to about 500
million rubles.
Programs for mastering digital twins are currently being implemented at Taganrog
Metallurgical Plant and Sinarsky Pipe Plants. Chelyabinsk Tube Rolling Plant (86.5%
of shares owned by TMK since March 2021) plans to create a full-fledged system of
digital twins. Back in 2019, the “steelworker assistance algorithm” was introduced,
created based on machine learning techniques used to create digital twins. This
allowed controlling the composition of steel, minimizing the consumption of raw
materials in its melting, and getting an economic effect in one of the shops of the
plant about 50 million rubles [4].
In addition to the purely economic benefits of digitalization of metallurgical
processes, modern digital solutions play an increasing role in reducing the industry’s
environmental impact. It is possible to note some achievements in this area of
metallurgical enterprises. For example, NLMK is implementing a project to create
automated environmental monitoring systems developed using machine vision tech-
nology. The systems allow continuous monitoring of air quality in the cities where the
company’s production sites are located. NLMK Group companies pay great attention
to the processing of technogenic formations with the elimination of the consequences
of their storage. The implementation by Novolipetsk Steel Company of one of the
projects in this area allowed processing 6 million tons of man-made mineral forma-
tions, restoring 25 hectares of land occupied by them, and reducing greenhouse gas
emissions by 85 ktons. In 2021, all of these factors contributed to NLMK Group’s
status as a Sustainability Champion, awarded by the Worldsteel Association [18].
The certain success of industrial, including metallurgical, companies in Russia in
implementing digital twin technologies has allowed setting fairly high targets for the
growth of the number of enterprises using these technologies. It is known that under
the Order of the Ministry of Digital Development of Russia of November 18, 2020
No. 600 “On approval of methods for calculating target indicators of the national
development objective of the Russian Federation “digital transformation”, the share
of enterprises using digital twin production technology should increase from 15% in
2020 to 80% by 2030.
5 Limitations of Digital Twin Technologies in Metallurgy
Metallurgy is one of the most important industries in the manufacturing industry of

Russia. Its development closely correlates with both metal-consuming and extractive
industries. With the general correspondence of the directions of development of
Russian companies to global technological trends, the pace of implementation of
digital solutions lags far behind the pace of developed countries. According to the
various experts’ estimates, this has led to Russia lagging in the development of
digital technology by 5–10 years [17, p. 4]. Therefore, the general state with the
digitalization of all industries will be a kind of deterrent to applying digital twin
technologies in metallurgy.
The use of digital twin technologies plays a defining role in forming an ICT
ecosystem in which participants interact, share resources, and transform certain
types of resources into others. In the course of its functioning, the inclusion of the
ecosystem in the production process provides the emergence of additional income
with their subsequent conversion into the human, technological, financial, and other
resources of development [3, p. 95]. However, as long as the ICT ecosystem is only
in its formation stage, the digital twins of intelligent metallurgical production will
not realize their potential to effectively coordinate the innovative development of
equipment, product manufacturers, and end-user requirements. The acceleration of
the formation of an effective ICT ecosystem that affects the implementation rate of
digital twin technologies depends on both internal capabilities of companies (human
resources potential of metallurgical enterprises, technological level of production,
etc.) and external conditions, the most important among which are the availability of
the latest information technology, funds availability, the level of competition in the
industry. The insufficient level of development of automated process control systems
at many metallurgical companies, the lack of necessary digital maturity of produc-
tion processes, the lack of required competencies and the low level of digital literacy
of employees of metallurgical companies, the undeveloped practice of working with
data, and the lack of skills in their management—all this creates serious limitations
for the widespread implementation of digital twins in production.
It is known that today almost any function in metallurgy can be supported by
digital systems. However, the main task is to determine each plant’s readiness for
digitalization since the risk of investing in production facilities with low digital matu-
rity is considerable. The existing methodologies for assessing digital maturity need
significant refinement, considering the specifics of metallurgy and the special role of
digital twins in the further transformation of the industry. Intelligent metallurgical
production with implemented digital twin technologies is interpreted by experts as
the inevitable future of the industry [6, 36]. However, the key barrier to the future
is, in addition to all of the above, the high cost of projects in this area, the lack of
financial resources from metallurgical companies, and the quality of the business
climate.
Legislation in the field of digitalization of the economy, aimed at stimulating
the introduction of digital technology, is of particular importance. This problem is
extremely important because, according to experts, over the next 3–5 years, hundreds
of millions of “things” in the world will be presented in the form of digital twins,
helping to improve production processes, increase their efficiency, replace tradi-
tional control and monitoring devices, etc. [34, p. 33]. However, the current regu-
latory system and business climate do not allow for proper support of metallur-
gical companies’ interest in developing and implementing digital twin technologies.
Solving these problems will contribute to forming a new image of steel companies as
modern, high-tech companies with a fundamentally different system of organization
of production.
6 Conclusion
The conducted research has confirmed the validity of considering the modern metal-
lurgy of Russia as a promising object of digital transformation. The systematized
experience of Russian metallurgical companies shows the feasibility of the wide
application of digital twins in metallurgy, providing a variety of types of effects. The
hypothesis is confirmed that the use of digital twin technologies is an effective tool and
determines the modern organization of metallurgical production. It is shown that such
an organization corresponds to the initial stage of production of “environmentally
friendly metals” and will contribute to the functioning of the industry in the mode of
achieving carbon neutrality. The general situation with digitalization of all industries
in Russia is a limiting factor for the use of digital twins technology in metallurgy. It
is concluded that to implement existing prerequisites for the widespread introduction
of digital twins in the Russian metallurgy, special measures are needed both at the
state and corporate levels to develop a digital culture and improve the organizational,
legal, and managerial support of this activity. Further research should answer the
question, which is the role of exports in the sector, has Digital Twins contributed to
improve the external performance? It is also necessary to study the best practices of
the largest metallurgical companies in the world from the use of digital twins was
carried out.
Acknowledgements The article was prepared under the research plan for the Institute of Economics
of the Ural Branch of the Russian Academy of Sciences for 2022.
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Digital Twin of the Social System:
Calculating the Environment’s Reaction
to the Company’s Activeness
Mikhail Samosudov
Abstract The paper discusses the possibility of calculating the reaction of the envi-
ronment in the form of incoming resource flows to the actions of the company using a
comprehensive mathematical model of a social system functioning in an active envi-
ronment. The study focuses on calculating the expected trajectory of the company’s
movement for management and the marketing activities. The developed theoretical
base allowed us to create an agent-based simulation model of a social system that
was applied to compute the dynamics of the system. It can be used to create decision
support systems for enterprises’ managers of any scale and area of activity, since the
specifics of a particular system is considered by combining the values of phase vari-
ables. The novelty lies in the fact that the research shows the possibility to calculate
the environment’s reaction, the mechanism for considering the cumulative activeness
of agents, as well as the mechanism for converting messages that are invariants of
the socio-economic space into information affecting of agents’ behavior. The result
of the calculation can be recorded in the digital twin of the social system and used
to automate company management.
Keywords Digital twin · Mathematical model · Agent-based model · Active

system · Automation of management
1 Introduction
The appearance of the Industry 4.0 concept stimulated discussion of the use of
computers in various areas of activity and, in particular, in the automation of manage-
ment of social systems. The basis of the concept is the inclusion of a virtual image of
the social system in the production and management system in the form of a mathe-
matical model or a digital twin of the enterprise [1, 8, 9, 13, 25]. One of the purposes
of the digital twin is to increase control precision. But today digital twins are created
mainly for technical objects used in the activities of enterprises.
M. Samosudov (B)
State University of Management, 99, Ryazan Ave., 109542 Moscow, Russian Federation

72 M. Samosudov
The social system is a strictly dynamic active system moving in a strictly dynamic
active environment. That is, the system and the environment do not have stationary
states, they are constantly changing, and the activeness of agents creates uncertainty
in the dynamic characteristics of the values of separate parameters (phase variables),
which is fundamentally impossible to eliminate. As a result, for sustainable func-
tioning, control actions are fundamentally necessary to ensure the adaptation of the
system to constantly changing conditions.
One of the most significant tasks of the organization of precise management of
social systems is the calculation of the trajectory of its movement in the socio-
economic space (SES), which ensures the preservation of the functional stability of
the system and the achievement of the target state corresponding to the goals of the
key participants of the social system.
The presence of such a trajectory is a principal condition for the possibility of
precise management of the social system, which, in turn, is necessary for the imple-
mentation of automatic and automated enterprise management systems. Such systems
can be both an “active adviser” of a decision-maker [4, 5] and a subject of manage-
ment if the necessary data and legal grounds are available. But to do this, they
must allow calculating the dynamics of the social system in the SES, considering the
expected control actions of the subjects of management and disturbing environmental
influences.
For organization of precise management of the social system, as shown in [19]
and considering the results of [17], three indicators are sufficient (provided they
are properly calculated)—the coefficient of functional sustainability, deviation from
the calculated trajectory of movement, as well as the profile of activeness of key
participants in the social system. The sustainability coefficient shows how much
the system can maintain the ability to function (a detailed analysis of the influencing
factors and a simplified calculation is shown in [17]). Deviation from the trajectory of
movement allows determining the danger of falling into the areas of unacceptable and
inexpedient states of the system and take timely measures to correct the movement.
Considering the activeness of the participants allows making a forecast of the future
state.
In turn, to calculate the trajectory reflecting the change in the phase variables
of the system over time, it is necessary to be able to calculate the reaction of the
environment to the state of the social system that has changed due to controlling and
disturbing influences and, in particular, the change in its activeness. The experience
of implementing computational approaches in management and marketing activities
shows that the most rational is the creation of automated systems that calculate
the reaction of the social system and the environment to the actions of managers
and specialists of the company—numerical calculation manually is possible, but
requires considerable effort and time, which significantly reduces the value of such
a calculation. It is possible to achieve acceptable accuracy by forming the necessary
qualifications of specialists, but this requires several years of intensive training of
specialists in a special program, which is a significant deterrent for many companies.
Digital Twin of the Social System: Calculating … 73
But the automation of this work requires the creation of software solutions that
differ significantly from those available on the market and, accordingly, calcula-
tion algorithms. In turn, this requires a special mathematical apparatus that allows
considering all the factors affecting the evolution of the social system.
In general, the task of a social system is to form such an impact on the environ-
ment that will ensure the occurrence of an incoming resource flow (IRF) necessary to
maintain its ability to function, as well as prevent the occurrence of undesirable active-
ness of agents (this is the impact that agents have on the environment, preventing
the occurrence of an incoming resource flow, for example, a negative customer feed-
back). One of the components of IRF is incoming cash flow. The necessary resources
are determined by the function and conditions of the functioning of the social system,
including goals, objectives, expectations, and requirements of key participants in the
social system. The impact on the environment is carried out through information
and resource flows directed at certain participants of the SES. In the SES, there is a
redistribution of resources controlled by agents, flows of resources and messages are
formed, propagating through transmission channels. In turn, these flows affect other
agents, change their activeness, which leads to a change in the aggregate resource
and information flows in the SES.
Thus, considering the nature of social systems, to calculate the management
impacts, it is necessary to be able to calculate the activeness of the company required
to obtain a proper incoming resource flow. To do this, in turn, it is necessary to
have algorithms that allow considering the cumulative activeness of agents (not only
participants of the social system in question, but also of its competitors) and calculate
its impact on the company’s IRF.
Considering the above, the purpose of the article is to show the possibility of
calculating the activeness of the social system and the result of this activeness in the
form of resource flows originating from the SES point towards the social system,
using the formed approaches. It also requires defining a mechanism for converting
messages received by the agent into information that impacts the behavior of the
agent at a point in the SES.
The novelty of the paper, in comparison with previously published ones, lies in
the fact that the mechanism of accounting for the activeness of individual agents in
determining the activeness of the social system in the SES is determined, as well as
in determining the mechanism for converting messages transmitted by agents, which
are invariants in the SES, into information impacting the behavior of agents at the
corresponding point of the SES.
The structure of the article is as follows. First, we consider the general logic
connecting the entities that determine the state of the social system and the result
of its interaction with the SES-resources, the probability of the agent performing
conditioned actions, message transmission channels and messages received by the
agent from other participants through which they implement their activeness in the
SES. Next, the mechanism of converting messages into information at a specific point
of the SES and the influence of this information on the behavior vector of the agent’s
(the probability of him performing certain conditioned actions) is considered. This
mechanism makes it possible to determine the result of the cumulative activeness of
74 M. Samosudov
many agents who are participants in the social system, as well as participants in the
SES.
2 Literature Review
A digital twin is often called a computer model that simulates the behavior of a
real object [3, 8, 24, 26, 27]. Although, it is advisable to distinguish between the
mechanism for calculating the dynamics of the system—a simulation model and the
real digital twin—a digitized image of an object, information about the values of
phase variables at specific points in time.
Agent-based models are increasingly being used to model social systems [2, 6, 7,
10, 14]. But there are disadvantages of the approaches used. The main ones, perhaps,
are the following.
Information as an influencing factor is either not considered at all or limited and/or
simplified—as an unchangeable entity, in the form of fixing the fact of receiving or not
receiving information. In some works, the term “message” is used (see, for example,
[11]), but, in fact, in the meaning of “information”, which seems fundamentally incor-
rect. Information in the socio-economic space is not an invariant entity, it depends
on the point of the SES. Invariant is a message, the interpretation of which generates
information that impacts the development of the situation at this point of the SES.
Thus, Klebanov and Antropov [12] noted that “different agents, due to their character
traits, can perceive the same information differently”. The influence of information
on behavior is also confirmed by experiments of biologists (see, for example, [23]).
Messages are often considered in a very restricted sense. For example, Kartvelishvili
and Lebedyuk [11] interpreted “message” as a “control signal and feedback signal”
without specifying the content of the message. In addition, in fact, the message is
equated with the information received by the agent. At the same time, real messages
in social systems, even pursuing the same goal of influence, may differ in style,
language, etc. All this requires consideration in the simulation model. Therefore, it
is necessary to form mechanisms to take into account the variability of information
depending on the point of the SES.
The “rigidity” of the agent (agent model). It often does not imply variability—the
agent has certain interests and desires, needs, attitude to risk, etc. At the same time,
the real agent is changeable, and its main parameters depend on the information
received, which is formed as a result of the interpretation of messages got by a
person. The information obtained influences subjective assessments of incentives
and restrictions associated with certain actions, which affects the likelihood of these
actions.
In part, this is also implied by other authors. For example, the following agent
characteristics are defined in [15]:
• independence, the ability to act autonomously and make decisions on issues of
interaction with other agents and influence on the environment;
• ability to interact with other agents;

• the presence of a specific goal or goals that affect his behavior;
• variability and learning ability based on accumulated experience;
• the rules of the agent’s behavior may change based on the experience gained.
At the same time, the choice of an agent is often significantly limited in models
(see, for example, [28]), which seems to be a very significant simplification compared
to reality. It seems more appropriate to consider the process of the influence of
information flows on the agent and, for example, calculating the gradient, determine
the most likely human behavior.
Another significant problem of traditional models is the limited number of types of
resources under consideration. Economic models often solve the problem of financial
resources, which, firstly, is a traditional and, secondly, an obvious and easily measur-
able resource. At the same time, the number of types of resources used in the activity
is much larger—informational, material and conditionally material, spatial, social,
intellectual, time. Moreover, for different situations, different types of resources have
different significance, which determines the value of the resource for the agent.
An invariant is a phenomenon considered as a resource, but the value of a
resource is an amount that depends on the point of space in which the corresponding
phenomenon is regarded, on the subjective assessments of the agent.
Basically, the models are not comprehensive, taking into account all the factors
affecting the dynamics of the social system. In part, this is due to the disadvantages
of the theoretical base used, on the basis of which mathematical models are formed.
For a comprehensive solution of the problem, a unified theory of the social system
is needed, taking into account the whole set of laws that determine the dynamics of
the social system in the socio-economic space.
3 Methodology
To solve such problems, the method of mathematical modeling, in specific, simulation

modeling, is most suitable. The formed theoretical base [18, 20] and the model
based on it allows us to consider any phenomena in any social systems, regardless
of the forms, areas of activity and scale—companies, state and public organizations,
informal social associations, etc. The specifics of the structure and activity of a
particular social system are determined by a combination of values of phase variables
(system parameters). But in this paper, we will use the terms “company” and “social
system” as synonyms—it is possible to strictly prove the absence, from the point
of view of their structure and functioning, of principal differences between social
systems engaged in commercial and, for example, philanthropic activities, but this
is not part of the objectives of this work.
76 M. Samosudov
For this paper, this statement should probably be considered as a hypothesis

requiring confirmation. But it is based on the results of the author’s long-term obser-
vations, as well as numerous thought experiments and the study of the construction
of social systems (see [17]).
A comprehensive mathematical model of a social system functioning in an active
environment is used to model the situation [18]. It consists of several particular
models—“corporate person”, “interaction of subjects”, “occurrence of incoming
resource flow” and “evolution of the system”. This is an agent-based simulation
model reflecting the dynamics of the social system in the SES. Here we will mainly
consider a company or firm as a special case of a social system, the target function
of which is the generation of incoming cash flow—one of the components of IRF. In
general, if necessary, these arguments can be extended to any social system, including
non-profit, state or public organizations.
The essential features of the model are considering the activeness of agents and
the operating environment of the system,—SES,—as a set of agents, as well as the
separation of the entities of the model into invariant, conditionally invariant (i.e.,
independent of the SES point within a specific task) and dependent on the SES point
(on the parameters of the subjective subspace). Invariant entities are transmitted
messages and resources. Conditionally invariant are artificial transmission channels
created by agents and owned by them. And the value of resources and the information
received from messages are entities that appear in the subjective subspace and depend
on the point of the SES.
The dependence of the information transmitted and received by agents on the
SES point is a significant difficulty in modeling. The approaches considered in the
paper allow us to do this, which allows us to introduce a calculated approach into
the process of making managerial and marketing decisions.
For the analysis of social systems, a resource-functional approach [20] is used,
which presupposes the consideration of social systems as functional systems designed
to implement a specific function, which requires a certain set of resources. Resources
are considered in a broad meaning—not only financial and other material resources,
but also all types of non-material resources—organizational, intellectual, social,
informational, etc., which, as a rule, are not taken into account in account systems of
organizations but are of great importance for calculating the activities and dynamics
of social systems. The developed methodic approaches make it possible to quantify
all types of resources, as well as to calculate the necessary number of resources
for performing separate actions and activities in general. The source of resources is
the participants of the system. They transfer resources by performing actions due
to dissatisfaction with their situation and the emergence of an impulse of activeness
due to the discrepancy between expected and desired benefits [17, 18].
The evolution of the social system in the SES, as Schmidt, Churyukin, Romanova
and other authors note, is described by the Markov process [6, 16–18, 22]. That
is, its future state depends on the current state and does not depend on the past. In
general, this is explained simply—the resource base accumulated by the company
is important for the future result; as well as the activeness and behavior vectors of
agents at each point of the SES that have developed at this moment (arises due to
the divergence of behavior vectors under the impacting of information flows, some
of which are the company’s information flows).
If the accumulated resource base allows you to perform actions that lead to a suffi-
cient divergence of the behavior vectors of the SES participants so that the appropriate
resource flows to the company arise, then there are resource flows originating from
these SES points and directed towards the company, forming into IRF.
4 Results
The environment (SES) responds to the company’s presence and activities with an
incoming resource flow (IRF), including incoming cash flow. The response of the
environment depends on the activeness of the company as a set of economic agents,
which, in turn, is determined by the state of the social system.
The state of any social system and environment is described by a set of phase
variables that make up four groups of system parameters—those that determine
the behavior of participants, resource base parameters, institutional environment
parameters and parameters of activeness. The social system is, in fact, an area of the
SES isolated by an institutional cover, in which a definite functional concentration
of resources is provided due to the structured activeness of agents. Some of the
resources are expendable, which necessitates the receipt of such resources from the
SES to support the functioning of the system. The institutional cover is, simply put,
a set of rules that determine the order of interaction in this area of the SES. This
is one of the factors structuring the activeness of the system participants. Another
factor determining activeness is information flows.
The activeness of a company is determined by the activeness of its participants—
the source of activeness in the SES is an economic agent, the SES point.
The general logic is as follows:
• The resources in the SES distributed among agents who could dispose of them.
Agents, performing actions, exchange resources and messages that are distributed
through their chosen transmission channels, because of which flows of resources
k k
R̂ kj and R j and messages M̂ kj and M j , respectively, originating from the j-th to
the k-th point and entering the j-th from the k-th point arise in the SES.
• The probability of an agent transferring resources controlled by him is determined
by the probability of his performing the corresponding conditioned actions.
An action is an act of converting a resource base controlled by a person, as a result
of which resources appear (are created) and disappear (are spent), change their form,
spatial–temporal and social localization.
• The probability of an action depends on the information received by the agent
before the action, the need for certain resources and its resource base—based on
this, subjective assessments of stimuli, limits and the probability of consequences
of the action are formed, which determines the probability of the action.
78 M. Samosudov
• The information received by a person is determined by the activeness of agents

interacting with him and the interpretation of messages obtained from them, a
set of formal and informal rules (the institutional environment of interaction), as
well as auto-information—information formed by the person himself based on
the information he received earlier to eliminate the uncertainty of the situation.
• The activeness of the agents is realized by sending messages through the selected
channels. These messages are interpreted by the recipients in accordance with the
alphabet they use, which leads to the appearance of information in the subjec-
tive subspace of these SES participants and, accordingly, the divergence of the
behavior vector and their performance of certain actions.
Thus, considering the activeness of agents in the calculation, in particular the
messages transmitted and received by the participants, we can determine the change
in the behavior of agents receiving messages. And this, in turn, allows you to calculate
the probability of their performing certain actions and, correspondingly, the resource

flows emanating from them. The resource flow R (t) entering the social system
will be equal to the sum of the resource flows coming towards this system from all
k-th points of the SES:

R (t) = k
R̂ (t) (1)
k
Let us take a closer look at the mechanism of the impact of messages transmitted by
active agents on the behavior of agents and, accordingly, the probability of resource
transfer.
The behavior of an agent is the probability of certain conditioned actions being
performed by him. In the model, behavior is considered by way of the behavior
vector B(O)—a matrix of dimension 1 × n, each member of which determines the
probability of a person performing the n-th action from the basis of the behavior
vector O:
B(O) = ( p(o1 ), p(o2 ), ..., p(ok )), ok ∈ O (2)
Based on the analysis of information about human behavior [17, pp. 422–432],
it was determined that it is equal to the probability of choosing an action, based on
an assessment of the significance of resources received and lost when performing
an action—stimuli and limits. It is essentially important to consider the dualism of
action—a person not only decides which action to perform, but also chooses between
“doing” and “not doing”, and for “not acting” there are stimuli and limitations that
need to be taken into account in the calculation. For applied tasks, the value of the
behavior vector component can be calculated using a simplified formula:
S(ok ) + L(¬ok )
p(ok ) = −1 (3)
S(¬ok ) + L(ok )
where p(ok ) is the probability of a person performing the action ok ; S(ok ), S(⌐ok ) are
the total stimulus for action ok and not the actions ⌐ok ; L(ok ), L(⌐ok ) are the total
limit for actions ok and not the actions ⌐ok . The values of cumulative stimuli and
limits are calculated as follows:

S(ok ) = sm (ok ), L(ok ) = ln (ok ) (4)
m n

rm hav. j + rm r ec. j p(rm r ec. j , ok ) γ j
sm (ok ) = (5)
rm need j
γ j
rn need j
ln (ok ) = (6)
rn hav. j − rn los. j p(rn los. j , ok )
νr ec. j νlos. j
p(rm r ec. j , ok ) = , p(rn los. j , ok ) = (7)
νr ec. j + νnot r ec. j νlos. j + νnot los. j
where sm (ok ), l n (ok ) are the stimulus-motive and limit-motive for action; p(r m rec.j , ok ),
p(r m los.j , ok ) are the probability of obtaining and losing resources as an effect of the
action (depends on the conditions of interaction—the behavior of active participants,
the institutional environment); ν rec.j , ν not rec.j , ν los.j , ν not los.j , are the number of cases
known to man of receipt, loss, non-receipt and non-loss of resources due to the
fulfillment of an action ok ; γ j are the coefficient of nonlinearity, depending on the
characteristics of a person (for more information, see [17, p. 148]).
It is worth noting that the calculation of cumulative stimuli, limits, stimuli-motives
and limits-motives for action is shown. For “non-action” values are calculated
similarly.
We introduce an axiom defining that at any given time there is a nonempty set
of conditioned actions of the j-th agent: ∀t∃O j (t) = ∅. Since an action is an act of
converting resources, at any moment a person somehow uses the resources available
to him, moreover, he spends part of the resources, and uses part without reducing
their number, but at the same time he does not have the opportunity to carry out other
actions that require these resources. At the same time, it should be considered that
any action is accompanied by the transmission of a message to agents interacting
with a person. Then, at any time, the resource base controlled by the participant
is converted and flows of resources and messages flow from it towards the agents
receiving resources and messages through the transmission channels selected by the
active agent:

∀t∃on ∈ O j (t), on : R j , R̂ kj , M̂ kj (8)
Messages are a set of signals by which a person encodes the transmitted infor-
mation in accordance with the alphabet he uses. The alphabet of the j-th agent Mj
is a matrix that defines the signals used. Signals are a set of primary elements of
information (symbols, image, sound, color, etc.) applied to encode meaning when
80 M. Samosudov
transmitting messages. Each signal μn , in accordance with the way of thinking of

the j-th agent, determines the information that contributes to the fact that the k-th
participant, after receiving the message, will transfer certain resources in exchange
for the resources received from the j-th agent:
k
M j = {μ1 , μ2 , ..., μn }, μn : μn → R j , R̂ kj (9)
From the viewpoint of the agent interaction in the SES, the meaning of any
message is a set of stimuli and limits for performing certain actions or, in another
way, a translatable vector of behavior.
The message flow M̂ kj transmitted by the j-th agent to the k-th agent is formed
based on his ideas about the perception of signals by the k-th agent and the resources
desired by him:
M̂ kj (t) = M j × B̃ j (t) (10)
and the values of the elements of the signal selection matrix B̃ j (t) depend on the
resources needed by the j-th subject and his idea of the behavior vector of the message
recipient in the basis of signal interpretation:

B̃ j (t) = ϕ B j (O), R j need (t) (11)
In a simplified version, the elements of the matrix B̃ j (t) are binary (1 or 0), that
is, choosing or not choosing a certain signal from the alphabet to form a message.
The alphabet and, consequently, the understanding of signals is formed in a person
during his activity as a result of receiving or not receiving resources after performing
actions.

Once at the k-th point of the SES, the message is converted into information I k (t),
which influences the behavior of the k-th agent—a set of stimuli and limits for certain
actions. It is important to emphasize that the message is an invariant in the SES, and
the information received arises in the subjective subspace due to the interpretation
of the message by the agent in accordance with the alphabet of the k-th agent Mk .
Moreover, all messages received from all j-th agents at the time of decision-making
matter:

j
I k (t) = φ M k (t), Mk (12)

j

Accordingly, the change in the behavior vector Bk Ok , I k (t) at time t under

the influence of information I k (t) is a matrix of dimension 1 × n, each element of
which is a divergence of human behavior [21]:

Bk Ok , I k (t) = div Bk1 (Ok ), div Bk2 (Ok ), ..., div Bkn (Ok ) (13)

∂ Bk (on ) ∂ Bk (on ) ∂ Bk (on ) ∂ Bk (on )
div Bkn Ok , I k (t) = + ··· + + + ··· + +
∂s1 (on ) ∂sx (on ) ∂l1 (on ) ∂l y (on )

∂ Bk (on ) ∂ Bk (on ) ∂ Bk (on ) ∂ Bk (on )
+ + ··· + + + ··· + , on ∈ O j
∂s1 (¬on ) ∂sx (¬on ) ∂l1 (¬on ) ∂l y (¬on )
(14)
And the vector of the agent’s behavior at time t is defined as follows:
Bk (Ok , t) = Bk (Ok , t0 )+
⎛ t ⎞
t

+ ⎝ div Bk1 Ok , I k (t) dt, ..., div Bkn Ok , I k (t) dt ⎠ (15)
t0 t0
If the information received by the k-th agent due to the interpretation of messages
received from active agents creates the necessary divergence of the behavior vector,
then he will perform the necessary actions and there will be a resource flow from the
k-th towards the j-th agent (or the social system under consideration).
The state of the company, in particular the totality of organizational resources,
social institutions structure the behavior of its participants, which determines the
activeness of the system in the SES. And its activeness in an environment with a
certain state determines the response of the environment—IRF, part of which is
incoming cash flow.
5 Discussion
The statement that the presented approach makes it possible to describe any
phenomena and processes in any social systems is based on the observations and
thought experiments of the author, as well as on the experience of decision-making
in the management system of the Group of companies “Delicate Moving” (www.per
eezd.ru) for more than 13 years. Now this is a hypothesis, and it certainly requires
verification, which will be done in subsequent works.
The developed approach makes it possible to calculate the company’s activeness
in the SES as the total activeness of its participants. This makes it possible, using the
agent-based modeling method and the laws of the social system’s dynamics in the
SES, to calculate the change in the activeness of agents receiving messages from the
company, which makes it possible to compute the change in resource flows in the
SES, including the incoming resource flow of the social system, which is the reaction
of the environment to the company’s activeness. At the same time, the activeness of
the company is determined by the parameters of the system, and the trajectory of
82 M. Samosudov
movement reflects the change in the values of the parameters over time. Thus, it
becomes possible to calculate the reaction of the environment to a change in the
company.
For such a calculation, reference information is required—parameters of informa-
tion transmission channels (a set of agents receiving information through the channel,
subsets by types of perception and life situations in which they are located, messages
of other agents transmitted through this channel, distortions that the channel intro-
duces into the transmitted messages); parameters of agents (the alphabet they use,
the resources they have, the resources they need, as well as the behavior of agents in
the basis of conditioned actions that determine the choice of a channel for obtaining
information in various life situations, as well as the interpretation of signals used by
the company to generate messages). It is also necessary to ensure that the content of
messages received by these participants from the company and other active agents
is recorded. They should be converted, using reference information (the alphabet of
agents, their vector of behavior in the basis of conditioned actions for interpreting
messages, etc.), into the values of stimuli and limits associated with certain actions
(the translated vector of behavior) and based on this, the impact of the company on
the environment is calculated. Accounting the activeness of agents in the company’s
information system will make it possible to predict changes in the state of the social
system due to the reaction of the environment to its impact.
6 Conclusion
The developed model uses measurable entities, and dependencies involve operations
on sets, differential and integral calculations, which makes it quite easy to imple-
ment computational algorithms. It is comprehensive and allows one to simulate the
processes of interaction of agents, as a result of which it makes it possible to simulate
the evolution of a social system in the SES, determined by the activeness of economic
agents, as a change in the values of phase variables reflecting the state of the system.
The simulation result, of course, will be probabilistic type, but the accumulation of
data will gradually increase the precision of the calculation. The mechanism given in
the paper takes into account the impact of any agents and the precision of calculations
is determined only by the computational capabilities of the subject of management,
as well as the availability of the above-mentioned reference information. To produce
such information, it is advisable to organize research programs that allow obtaining
information about the parameters of various types of agents. This is certainly signif-
icant work, but the availability of such information will significantly improve the
precision of control actions, which will certainly lead to significant resource savings.
The developed model can be used to build a digital twin to the social system,
which, in turn, can be utilized in decision support systems to model the consequences
of managers’ decisions. The accumulation of information about the values of the
parameters of agents who are participants in the social system, about the resource base
used, as well as the fixing of formalized and non-formalized rules of interaction in the
digital twin will allow not only calculating control actions more precisely, but also
ensuring continuity when changing managers, which will promote the sustainability
of the functioning of companies.
The digital twin can also be used for the development of scientific activities. In
particular, for the theoretical study of organizational pathologies (undesirable states
of the social system characterized by a decrease in the speed of development of the
organization) and possible ways out of crisis situations of social systems. In addi-
tion, it becomes possible to calculate SES parameters by modeling the dynamics of
enterprises with known values of phase variables and comparing them with observed
phenomena. This allows us to talk about the development of theoretical economics
(by analogy with the development of theoretical physics at the beginning of the
twentieth century).
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Networking in the Platform Development
of Ecosystems
Svetlana Tsohla and Nataliia Simchenko
Abstract The article focuses on the issues related to the networking in the platform
development of ecosystems based on the analysis of the experimental transforma-
tion of network structures in governance following the principles of the new systemic
approach. The problem of networking is setting on the basis of platforms and varieties
of the organizational structures according to the type of governance. The platform
basis of the network structures development in governance has been rationalized
from the methodological perspective and exemplified by such kinds of networks as
distribution, franchise and outsourcing. The network structures are characterized by
efficient performance and appeal for the potential participants willing to be inte-
grated, which explains their expansion and popularity. The digitalization gives new
opportunities to the companies which make for the use of the innovative forms of
production, consumption and exchange via digital cooperation. New digital struc-
tures eliminate barriers between the industries, create potential for cross-functional
products and service development. The results of the networking in the platform
development of ecosystems confirm the experimental nature of the transformation in
the network structures in governance, which makes the ground for further elaboration
of the methodology applied for the systemic analysis in the ecosystems’ economy
development.
Keywords Ecosystem · Networking · Platforms · Organization structures of

management · Experiment of networking
1 Introduction
Theoretical basis of the digital economy is developing under a new paradigm of

networking in the ecosystems. The concepts of ecosystems are in focus of promi-
nent scientists, international organizations and national governments worldwide.
On the one hand, in many international publications the ecosystem is considered
S. Tsohla (B) · N. Simchenko

V. I. Vernadsky Crimean Federal University, 4 Vernadsky Ave., 295007 Simferopol, Russian
Federation

86 S. Tsohla and N. Simchenko
from the viewpoint of sustainability in the circular economy. The experts estimate
that overall population growth leads to the increasing number of consumers and
greater resource consumption required for sustenance. It is crucial to differentiate
between the prospects of economic growth and prospects of raw materials and energy
resources consumption. New technologies and transition to the circular economy
provide for the opportunities and advantages of ecologically responsible growth
when the resources are limited [2].
The research into the circular economy carried out by BEROC scientists provides
evidence that R-imperatives lead to emergence of multiple risks which are inevitable
and result from the different development patterns around the globe. Evidently,
an effective tool to prevent possible conflicts may be differentiated responsibility
attributed to different countries; respectively, the most developed ones will dominate
in the development of circular systems whereas the developing ones will have to
reassess the strategies and methods they use to address the current challenges while
focusing on the introduction of circular economy models [6].
2 Literature Review
Current scientific papers encompass issues on the formation and development of

entrepreneurial ecosystems which create new consumer value and emerge as transi-
tional structures between a company and a market [1, 7–10, 12, 18]. Current condi-
tions contribute to the greater interest in the study of network structures in managing
technological business projects among the researchers in the global science; the
competitive advantages of such projects are determined by an innovative digital (high-
tech) idea. For instance, the research team of Danube University Krems (Austria)
suggested a classification of the key indices of the digital entrepreneurship efficiency
in order to identify its impact on the multidimensional digital transformation of the
economic processes. Additionally, they carried out critical analysis of the digitaliza-
tion and digital entrepreneurship indices taking into account the three dimensions of
the modern innovative system: the entrepreneur, the entrepreneurial activity and the
ecosystem [19].
In many cases, the best strategy for platform growth may be joining different
networks with one another. The success of any platform business depends on
attracting a big number of users and data collection on their interactions. Such assets
remain valuable in a number of scenarios and on different markets. Companies using
them and successful in one of the market segments often diversify their business and
improve their economy [22].
Networking in the Platform Development … 87
3 Methodology
The study of the conditions for networking in the platform development of ecosys-
tems was based on the use of analytical methods for reviewing the scientific inter-
disciplinary literature of the Scopus and Web of Science databases for the devel-
opment of ecosystems and their impact on the economic development of organiza-
tions. The authors use the methods of organization analysis of digital transformation
of networks, platforms and governance structures in specific companies, as well
as methods of integration of heterogeneous economic data on the development of
economic relations in the development of platform ecosystems.
4 Results
4.1 New Network Structures in Governance
The multiple interconnections in business processes are regulated through the organi-
zational structure in order to create the company’s most efficient mode of operation.
The organizational structure is often designed in accordance with the governance
principles set by the company. There are different kinds of organizational struc-
ture design which have developed and keep developing as the scale of the company
development increases, the goals change and the external environment transforms
(see Fig. 1).
• Linear: the governance is specialised to conform with the functional

subsystems of the organization.
Hierarchical • Divisional: centralised coordination and control with decentralised
type management
• Project: the governance is designed to meet the requirements of a certain

project.
• Matrix: the governance is carried out according to the targeted
Organic type programmes through functional committees
• Cross-functional: the governance of the professional task force

cooperation.
Multidimens • Network: the autonomous performance of the participants of the structure
ional type united by mutual colloboration and cooperation governance
Fig. 1 Varieties of the organizational structures according to the type of governance

The hierarchical type of the governance structures which comprises the linear-
functional and divisional governance structures defines the governance organiza-
tion of the diversified companies for the purpose of their business diversification in
the dynamically changing environment. Their implementation in big corporations
requires giving certain independence to the business subdivisions.
The global market of goods and services leads to strong competition between the
companies, high efficiency and quality of service and quick reaction to the external
changes.
The formation of the organic governance structures (project, matrix) implies orga-
nization of the targeted functional cooperation between the internal subdivisions
combined with project governance. Implementing them in national and transnational
corporations allows changing the organizational form while adapting to the changing
market environment.
The modern level of sensitivity to the changes in the environment and flexibility
in the reaction to them contributes to the emergence of new upgraded organizational
structures.
The multidimensional type of the organizational structure (cross-functional,
network) is characterized by the multivariance and makes the foundation of the flex-
ible approaches to the organization structuring and ability to react to the internal and
external changes. Their implementation allows setting the mode of shared responsi-
bility as per the structure elements, coordinate program execution and performance
of the company’s branches and regional offices [17].
Each organizational structure of any type displays a number of advantages which
play an essential part in the company’s performance once it has been implemented
and, similarly, each structure has certain flaws which can become a determining
factor when changing the organizational form.
The organizational structure always complies with the principles of the company’s
performance. As such, a structural organization does not guarantee strong perfor-
mance and success in business, but it is targeted. When the business environment,
internal or external factors change, new ideas have to be introduced for the sake of
further efficient development.
4.2 Platform Base of the Network Structures Development
The companies responded to the modern-day challenges and desire to monitor the
ongoing changes in the market by conducting experiments aiming at governance
improvement and finding new organizational forms.
Network cooperation helps to find opportunities for building partnerships, start
joint enterprises and define trajectories for business expansion. Various forms of
cooperation allow developing multiple network structures characterized by different
levels of administration and make beneficial connections within the framework of
the internal cooperation as well as the cooperation between companies and groups of
companies. The joint companies specialize in performing certain functions or doing

certain kinds of activities when implementing the networking.
The most common kinds of networks are the following ones:
• distribution network, when the main company creates special conditions for
cooperation whose goal is distributing goods by separate distributing companies;
• franchise network, it is a special form of partnership between the participants
acting on certain purpose under the name of the franchiser;
• outsourcing network, it is a special form of partnership between companies
focusing on performing separate functions (work and services).
Network structures are highly economical and attractive from the perspective
of integrating participants, which, therefore, has provided for their spread and
popularity.
The transition to the new technological mode and digital transformation of the
economy have created environment for emergence of network organizations with a
virtual structure. The digitalization opens up new opportunities for the companies
which allow implementation of new forms of operation, consumption, cooperation
and exchange via digital cooperation.
New digital structures break down sector-specific barriers and reveal prospects
for cross-functional products and services.
Such a kind of structure is based on cooperation between independent functional
partners from different sectors or functional areas through active use of modern
information technologies which broaden the horizons of distant cooperation.
The companies do not differentiate between the internal and external members.
The participants of such kinds of cooperation act as a team that has been formed
according to the respective competences for further distribution of tasks targeting
the creation of a unique product. Within the framework of the virtual network model
all the stages of making a unique product turn into a complex of services provided
for cooperation. All networks comprise a range of interactions among participants, a
focus on governance involves the use of institutions and structures of authority and
collaboration to allocate resources and to coordinate and control joint action across
the network as a whole. The governance is fueled by the technology of work coordina-
tion by means of implementing general standards, rules and processes. The partners
are constantly involved in the process of information exchange, take collective deci-
sions and use both internal and external fixed and virtual assets. Researchers believe
that external network effects are caused by “innovations being based on communica-
tion” and the fact that “stronger connections and integrity enhance growth indices”
[15].
The attractiveness of integrated information structures is explained by the high
economic indices, professionalism of the participants and effectiveness of the
network organization. The interaction processes are conducted on the platform base.
The implementation of the platform model includes definite stages of the startup
and activation plan:
• Development of a workable organizational structure;
• Implementation of the lean production and flexibility concepts;

• Elaboration of an adequate strategy of market placement.
Experts state that platforms perform better in both short- and long-term periods
according to the key financial parameters. Companies only dealing with platforms
or such that mostly do platform-based business have average income which is the
multiple of 8.9 [14].
The network platform as a part of the technology and software connects all the
participants of the partnership for the purpose of creating mutually beneficial possibil-
ities. The practicability of the platform is proven by the network effect and intergroup
external effects.
Platforms are multifaceted and their development may take unexpected turns.
Their key function is to play an organizing role in creating multidimensional values
by completely integrating the abilities and needs of the participants as well as by
building up a powerful governance of the whole system. The marginal utility the end
consumer gets on the platform is affected by the increase in the number of members
in another group of end consumers (e.g., customers) on the platform. Eventually, a
platform works as a multiplicator for its network.
Successful platforms provide for more effective exchange by reducing transaction
costs. However, not all the network projects are successful. Some platform networks
fail to reach the scale or never bring profit and disappear; in other cases, should the
right business strategy have been selected, a platform can become successful at a
later stage of development [4]. Due to this fact, each separate integration is created
to be unique and special. The organizational principle is adopted through modelling
a new network and is tested, as a rule, by carrying out an experiment.
According to some researchers, the organizational structure of the company affects
the way the tasks are completed and the problems are solved. Using an experimental
platform for structuring a company can help reveal the problems caused by manipu-
lating the network structure for the sake of increase in performance [21]. With greater
experience and working knowledge of the benefits of network structures, as well as
an understanding of what outcomes can be expected, decision makers may be more
prepared to make changes [11].
The greater is the diversification of the cooperation, the greater impact has the
formation of multidimensional platforms responsible for the production and imple-
mentation processes. Scientists have to cope with structural issues, such as character-
izing the topology of a complex wiring architecture, revealing the unifying principles
that are at the basis of real networks, and developing models to mimic the growth of
a network and reproduce its structural properties [3].
In the digital economy, the cross-sectoral interaction of structures is based on
the digital platforms development [20]. Due to digital platforms, companies reach
another scale in terms of almost unlimited numbers of customers, artificial intel-
ligence technologies and other tools providing for high quality. In some situations,
platforms may take advantage of their big user database to attract even larger number
of users due to the integration of separate extra functions. There are well-known
Table 1 Network organizations with a complex of service offerings for different segments
Country Company and services
China WeChat: financial, domestic and government services
Indonesia Gojek: food delivery, taxi, courier service, financial services
Japan Line Corporation: logistics for restaurants, food delivery, payment system
Russia Yandex Go: taxi, carsharing, public transport, shipping services, food delivery and
delivery from restaurants
Singapore Grab: taxi, food and parcel delivery, bike and scooter rentals, credit arrangement,
payment system, online healthcare, insurance
USA Uber: taxi, carsharing, payment system, food and goods delivery
examples of successful network organizations which managed to establish multilat-

eral relations and develop a complex of service offerings for different segments (see
Table 1).
The scale of use is one of the main features of any big active platform offering their
service to different kinds of end customers. The global survey revealed that there are
176 platform companies around the world whose market value is over 4.3 trillion US
dollars [5]. In the OECD countries, the COVID-19 pandemic caused a surge in the
use of online platforms; in the segments that do not require personal presence the
increase in traffic amounted to 20%. In the countries with better developed digital
infrastructure and higher level of digital literacy there was an even steeper increase in
the indices. This may serve as evidence that investments in such opportunities can be
a way towards developing better resistance to economic upheavals in the future [16].
At the present time, general statistics does not give a clear-cut and full answer
to the key questions regarding the role, nature and size of platforms. Defining the
economic capacity of the organization of the network structures engaged in platform
interactions is a complex task due to the scale of cross-sectoral and transborder
potentials and their fast and dynamic development.
In McKinsey’s opinion, the influence of platforms will only accelerate [13]. When
estimating the prospects related to platforms, companies have to analyze the key
properties of networks that they are going to use and consider the ways to enhance
the network effects.
Therefore, the results of the experiments that have been performed allow outlining
specific advantages of network structures in governance and detecting the weak spots
of the network companies when building up a new platform organization.
5 Discussion
The challenges arising from studying the forms of networking in the platform
development of ecosystems are explained by the dominance of the platformization
processes in the economic relations. “The new systemic approach” is marked by
certain permanent systemic transformations in the system structure; thus, judging

by the inherent properties of the methodologies applied in the hierarchical and
networking topology of the systems, we may conclude that the conventional princi-
ples of the system theory are subject to deep-rooted changes related to the antecedence
of the functions and the subordination of the structure. Therefore, the traditional
approach to the generation of the economic value of benefits in the economics has
been radically changed as it is based on the development of network effects. It is
essential to take into account the principles of the ‘new’ systemic approach in the
process of ecosystem activity regulation and their sustainable independent perfor-
mance over a long period of time from the perspective of designing new network
structures in governance.
The above scientific challenge originates from the need to find solutions to the
growing social and economic problems related to the systems losing their stability,
increasing intellectualization and dematerialization of technologies in the digital
environment. The unprecedented development of digital technologies results in the
dramatic changes in the concept of the society’s sustainable development, makes
a considerable impact on the structures of the economic systems, which, conse-
quently, leads to the reinterpretation of the prospects of the economic growth as well
as raw materials and energy resources consumption. The building-up discrepancies
between the digital technological development and the economic systems losing
their sustainability calls for the introduction of new platform-based business models
and stimulation of the new network structures development in governance based on
breakthrough information technologies, which will allow creating new workplaces.
Thus, the relevance of the research lies in the theoretical and methodological rational-
ization of the digital economy development according to the principles of the ‘new’
systematic approach and transformation of the network structures in governance.
6 Conclusions and Future Research
The research in the field of networking in the platform development of ecosystems

allowed to determine the experimental nature of the transformations happening in
the network structures in governance based on the principle of the new systemic
approach. The platform base of the network structures development in governance
has been methodologically rationalized and exemplified by such kinds of networks as
distribution, franchise and outsourcing networks. The network structures are charac-
terized by low-cost performance and integration benefits for the participants, which
has led to their expansion and popularity. Digitalization opens up new opportunities
for companies as it encourages use of innovative forms of production, consumption,
cooperation and exchange via digital cooperation. New digital structure overcome
cross-sectoral barriers and contribute to the development of cross-functional goods
and services. As in the course of the research dedicated to the networking in the plat-
form development of ecosystems the experimental nature of the network structures
transformation in governance has been confirmed, it enables further methodological
elaborations in the systemic analysis applicable to the development of economic

ecosystems.
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Digital Ecosystems in Industry:
Conceptualization and Strategic Aspects
of Development
Anastasia Nikitaeva and Roman Serdyukov
Abstract The economic, social, and technological processes accompanying

Industry 4.0 and leading to revolutionary changes in society have led to a sharp
decrease in the effectiveness of organizational forms of the previous decades. New
conditions and the operating environment of enterprises in the industrial segment
of the economy, coupled with new technological capabilities, initiate the emergence
of new forms of organizations. Methods of scientometric and content analysis were
used in the paper to prove that digital ecosystems occupy an important place among
such forms. The paper presents a comparative analysis of three core approaches to
conceptualizing the category “digital ecosystem”. An analysis of the thematic litera-
ture was carried out based on the study of the “Web of Science” database. As a result,
it was revealed that most of the research is devoted to the technological component
of digital ecosystems. At the same time, the establishment of effective digital ecosys-
tems requires the disclosure of their economic and organizational aspects. The paper
defines the main criteria and areas of activity for building a digital ecosystem of an
industrial enterprise. It enabled us to give examples of measures of supporting and
stimulating industrial digitalization through the transition to digital ecosystems.
Keywords Digital ecosystems · Industry 4.0 · Digitalization of industry ·

Ecosystem model of industrial development · New forms of economic organization
1 Introduction
The fourth industrial revolution (Industry 4.0) is revealed throw various technolog-
ical, social, economic processes. It is supported by the various strategies of new indus-
trial development. It leads to the formation of new conditions, factors, challenges,
A. Nikitaeva · R. Serdyukov (B)

Southern Federal University, 105/42, Bolshaya Sadovaya Str., Rostov-on-Don 344006,
Russian Federation
A. Nikitaeva

96 A. Nikitaeva and R. Serdyukov
and opportunities for economic development. On the one hand, the old forms of orga-
nization of activities are becoming ineffective, and inadequate to the new economic
conditions. On the other hand, cutting-edge digital technologies and the digital trans-
formations associated with their use open up new opportunities for organizing the
activities of economic players.
The increased role of information technologies and awareness of the benefits of
their use makes them the main driver of organizational transformations. It covers
not only industrial enterprises, but also the economy as a whole. However, for the
industry, digitalization is a critical tool for increasing production efficiency. The
significant expansion of digital technology capabilities and the risks associated with
their emergence and spread, have led to an increase in the complexity of business, the
formation of a new environment for its functioning, the emergence of fundamentally
new business models, as well as new ways of organizing the value creation process
[3]. Digital transformation actually changes the DNA of manufacturing structures
[7]. Based on this, one of the main issues of economics is the search for new forms
of economic organization and ways to transition to them. To remain competitive
and continue to develop, enterprises need to evolve and adapt their activities to the
conditions of the new operating environment. The response to the presented changes
was the formation of a new ecosystem model for the development of economic actors.
This is due to a change in the nature of the relationships between market entities
to a more flexible one; transformation of the value chain, when traditional linear
value chains are replaced by distributed digital value chains; blurring the boundaries
between the real and virtual world, as well as the formation of cyber-physical and
intelligent systems [27].
The establishment of digital ecosystems is becoming a response to these chal-
lenges. At the same time, the balance of digital ecosystem research is currently
shifting to the technological dimension. This occurs while it is already understood
that an organizational and economic strategy for the transition to digital ecosys-
tems is required. At the same time, the conceptualization of digital ecosystems in
industry and the theoretical design of methods and mechanisms for their formation
are necessary. This paper is aimed at these research objectives.
2 Literature Review
The Fourth Industrial Revolution and the large-scale transformations of society asso-
ciated with it in the last decade have been researched by many scientists. Industry
4.0 or the fourth Industrial Revolution is a new approach to production and a new
stage of maturity of manufacturing companies, characterized by the mass introduc-
tion of advanced technologies that form new cyber-physical systems that connect all
processes and subsystems of the company with each other, ensuring the integration
of business and industrial manufacturing [4].
Digital Ecosystems in Industry: Conceptualization … 97
Industry 4.0 affects all spheres of human life, having a significant impact on
its economic, environmental, and social aspects [11]. The highest degree of digi-
talization, automation, virtualization and decentralization is predicted for industry
[11].
During the study of Industry 4.0, the subject/object focus of its conceptualiza-
tion has been shifted. If in early studies the definitions of Industry 4.0 were focused
on manufacturing processes (digitalization of production), then in later scientific
research, attention is paid more to the paradigm shift towards the digital transforma-
tion of value chains in industry [11]. Following this logic, Industry 4.0 is nothing more
than digitalization of the processes of creating and delivering value at all levels [11].
It is actually about the formation of “a hyper-connected system of smart materials,
components, equipment, focal factories, suppliers, distribution channels, and even
customers” [11]. This hyperconnected system is the basis of a new ecosystem model
of the organization of the economy, forming a digital ecosystem of the enterprise.
Digital ecosystems have recently become the subject of research in the economic
sphere. At the same time, the very concept of “ecosystem” has been studied for a
long period of time in global scientific literature. An analysis of a wide range of
studies and publications indicates that there is no single approach to the definition
of the concept of “ecosystem”. The variety of definitions of the term “ecosystem” is
due to different approaches to its study and modeling.
The ecosystem model of interaction comes from the evolutionary theory in
biology [17]. The term “ecosystem” was first introduced in 1935 by the British
ecologist Arthur Tensley and meant any combination of interacting organisms and
their environment [32]. Much later, the term ecosystem was borrowed by the social
sciences.
G. Kleiner understands the socio-economic ecosystem as “a localized complex
of organizations, business processes, innovative projects and infrastructure entities
capable of long-term independent functioning due to the circulation of resources,
products and systems” [18].
In the context of Industry 4.0, ecosystems acquire a new dimension associated
with the digital transformation of the economy. The category “digital ecosystem” is
emerging.
As with the diversity of ecosystem definitions, there is also a diversity of defi-
nitions of the term digital ecosystem. Digital ecosystems have become widespread
in various fields of economics, simultaneously being an interdisciplinary value, as
evidenced by a wide range of scientific papers from different fields of knowledge,
such as biology, economics, IT, sociology, and philosophy.
The analysis of studies devoted to the study of digital ecosystems in the economy
allows us to identify three main approaches to their definition.
The first approach is a digital ecosystem as a digital analogue of biological
ecosystems. The use of the concept of “ecosystem” has been used both to describe
biological systems and socio-economic systems, which is explained by a number
of similar characteristics, such as: structure, functions, principles of functioning,
conditions for interaction and exchange of resources with the external environment.
However, in economic systems, unlike biological ones, the relationship between the
elements is characterized by great mobility and flexibility. In economics, the term

“ecosystem” became widespread in 1993 after it was applied to business ecosys-
tems in James Moore’s work “Predators and Victims: The new ecology of compe-
tition” [22]. According to James Moore, the business ecosystem is “dynamic and
co-developing communities consisting of diverse actors who create and receive new
content in the process of both interaction and competition” [24]. Moore includes the
business community, which consists of a company, its consumers, suppliers, market
agents, channels of movement of goods, owners and other interested parties, public
and private organizations, competitors, as part of the elements of the ecosystem [23].
Drawing an analogy with biological systems, the scientist argued that the interests
of consumers, as well as the growth of capital and investment, underlie the birth and
functioning of business ecosystems. The continuity of some properties of biological
ecosystems by economic (business, digital) ecosystems, namely: reliability, self-
organization, and self-management, scalability, the ability to provide complex solu-
tions to complex and dynamic tasks, as well as the automatic composition of these
complex solutions is reflected in the works of Gerard Briscoe, Simon Levin [6,
20]. Subsequently, Moore’s interpretation of the ecosystem was supplemented and
expanded by Ron Adner.
He highlighted conditions that make an ecosystem economic. According to the
scientist, an ecosystem is a “multilateral set of partners who must interact to realize
the main value proposition” [1], and the conditions for the formation of an economic
ecosystem are the presence of economic relationships, competition between enter-
prises, and the presence of stakeholders directly or indirectly interested in the devel-
opment of the economic ecosystem [1]. The idea of biological continuity is also
reflected in the works of Janine Benyus. In her opinion, a huge amount of experience
and solutions to many project tasks have been accumulated in nature [5]. It can also
be applied to digital ecosystems.
The second approach is related to the consideration of digital ecosystems as the
new (more mature) evolutionary form of business ecosystems. In the context of new
realities and widespread digitalization, an increasing part of the business is moving
into the digital space, digitizing the concept of business ecosystems. As a result,
digital business ecosystems combine both digital and business ecosystems.
Business ecosystems have been extensively studied by scientists from different
research perspectives (including strategy, competitiveness, supply chains and other
stakeholders, platform management, new enterprises, etc.) [13].
Ron Adner and Rahul Kapoor define a business ecosystem as an interdependent
and complementary space that includes a dominant firm and suppliers, customers,
competitors, and complementary companies from various industries [2]. Paul,
Reeves, Schussler specify that within the framework of such interaction, products or
services are created that together make up a common solution [30].
Marco Iansiti and Roy Levien define business ecosystems as “free networks
of suppliers, distributors, outsourcing companies, manufacturers of related prod-
ucts and services, technology providers and many other organizations that influ-
ence the creation and implementation of the company’s own proposals” [15]. Graza
and Camarinha-Matos define business ecosystems as joint network organizations
united by long-term strategic intentions and including virtual elements [12]. The
digital nature of business ecosystems is evident in the definition of Jacobides M. The
scientist points out that ecosystem partners “are digitally networked, have modular
architecture, and are not controlled by hierarchical structures” [16].
Based on the analysis of the aforementioned definitions, it can be concluded
that each participant of the digital business ecosystem is involved in the process
of creating value, and the value itself is mutually created for all participants of the
ecosystem. Consequently, each ecosystem participant benefits from such interaction
and is motivated to continue functioning within the ecosystem. Thus, the process
of value creation goes beyond the firm, its transformation takes place as a result of
which, it acquires a distributed and digital character.
The third approach is related to the consideration of digital ecosystems from the
perspective of a platform approach. According to this approach, the digital platform
is the core around which a digital ecosystem is formed, linking its participants and
internal subsystems of enterprises. In a broad sense, digital platforms are a core
building block of the ecosystem, which is a virtual infrastructure that greatly simpli-
fies the interaction between its users and the implementation of transactions between
them, providing access to resources and their exchange, to create value for all partic-
ipants. Gawer and Cusumano understand digital platforms as “products, services,
and technologies organized into a common structure through which a company can
create derivative products, services, and technologies”, the scientists also note that
digital platforms require the development of appropriate competencies in the field of
information technology, but this is not the main competence for the industry [9, 10].
A feature of digital platforms is the strengthening of the effect of network external-
ities, which consists in increasing the cost of products/services and the value of the
ecosystem as a whole, as the number of platform participants increases [8].
Parida, Burstrom, Visnjic, Wincent define an ecosystem based on a digital platform
as a network in which the orchestrator (the owner of the digital platform) encour-
ages/stimulates ecosystem participants to develop complementary innovations, and
as a result, the network of firms shows significant interdependence [29].
Helfat, Raubitschek and Nambisan, Baron point out that an ecosystem based on
a platform can be considered a digital ecosystem when it is mainly based on Internet
or data-based technologies [14, 25].
Despite the high interest and a large number of studies on digital ecosystems,
most of the articles is devoted to the technological component of digital ecosystems,
their modeling and architecture, rather than their content and establishment as forms
of economic activity organization, as well as strategies for transition to them.
3 Material and Methods
The study was conducted from the standpoint of systemic and ecosystem approaches.
The methodology of this study is based on a combination of quantitative and
qualitative analysis.
Based on the research of the essence of ecosystems in the socio-economic dimen-

sion, keywords were previously formed to frame the subject area. With the help of
the formulation of key-words queries in scientific database, an empirical massive
of data on the subject of the study was formed. The Web of Science system was
chosen as an information search platform. It was determined by three main factors.
First, the inclusion of a significant number of scientific publications in the database
is based on strict selection. Second, the coverage in the database of publications
on natural, technical, social sciences, humanities, and art (this is important because
of the interdisciplinary nature of digital ecosystems). Third, the presence of built-
in scientometric tools in the Web of Science. Then the generated data array was
analyzed using scientometric tools. In addition to the quantitative analysis, a content
analysis was performed to conceptualize the category of the digital ecosystem of an
industrial enterprise.
The methodology adopted in this study is illustrated in Fig. 1.
Fig. 1 Methodology overview

The use of content analysis, comparative methods, and grouping allowed us to

solve several research problems. On the one hand, to identify the main approaches to
the definition of digital ecosystems. On the other hand, to define the core components
of digital ecosystems. It further made it possible to localize the transformation zones
of industrial enterprises for the formation of digital ecosystems.
4 Results
According to the Web of Science database, there are 9285 scientific papers on the
request of “digital ecosystem OR digital ecosystems”, and more than half of them
fall on the period 2016–2020. The analysis shows a positive trend in the number of
studies (Fig. 2). If 278 papers were published in 2009, then in 2020 their number
was 1273.
The interest in digital ecosystems is also confirmed by the steady increase in the
citation of publications (Fig. 3). The h-index for the Web of Science metric is 131,
which indicates the demand for scientific research on this topic.
Research on digital ecosystems is divided into Web of Science categories as
follows (Fig. 4). The results obtained confirm the fact that more attention is paid
in the literature to the technological component of digital ecosystems than to their
organizational or economic component. This is also confirmed by the distribution
of scientific papers by research areas, where Computer Science (2348 papers) takes
the first place, Environmental Sciences Ecology (2151 papers) takes the second
place, Engineering (1441 papers) and Remote Sensing (1070 papers) take the third
and fourth places accordingly, and only in fifth place is Business Economics (978
papers).
1200
Number of publications, pcs.
1000
800
600
400
200
2009 2013 2014 2015 2016 2017 2018 2019 2020
Year
Fig. 2 Dynamics of studies in the subject area “digital ecosystem”

1400 22000
1300 20000
Number of publications, pcs

1200
18000
1100
Number of citations, pcs

1000 16000
900 14000
800 12000
700
600 10000
500 8000
400 6000
300
4000
200
100 2000
0 0
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Year
Pulications Citations
Fig. 3 Dynamics of studies and citation in the subject area “digital ecosystem”
Fig. 4 Distribution of scientific papers devoted to digital ecosystems by Web of Science categories
Among these publishers are Elsevier (1459 publications), IEEE (1246 publica-
tions), and Springer Nature (1170 publications). The results obtained indicate the
attention of the world’s leading publications to this field of research.
According to the authors, it is impossible to strictly adhere to one of the approaches
in determining the digital ecosystem, since each of them has its disadvantages and
limitations. The first approach considering economic digital ecosystems as a digital
analog of biological ecosystems has some limitations related to the fact that economic
digital ecosystems have much greater flexibility and mobility between its elements,
and also have their unique elements, which causes them to differ from biological
ecosystems and the features of their functioning. The third approach, which focuses
on digital platforms around which the digital ecosystem is built, is mainly techno-
logical in nature, paying attention to the architecture of platforms and the specifics of
their modeling and functioning. In this case, the digital ecosystem is considered an
infrastructure that ensures the interaction of parties. However, this is a rather narrow
vision and understanding of the digital ecosystem, because the digital ecosystem is
not a tool, but primarily a new way of organizing activities that can help adapt to the
new realities of the digital economy. According to the author’s opinion, not just the
way of interaction between the participants changes, but the nature of interaction and
the essence of the relationship between them, as well as the boundaries of organiza-
tions and the value chain. In our opinion, the second approach most fully reflects the
essence of digital ecosystems. However, a more meaningful and complete definition
of the digital ecosystem is possible due to the convergence of all three approaches.
Only then is it possible to fully determine the content of the concept of “digital
ecosystem” as an interdisciplinary value.
Based on the convergence of the three approaches, the authors define digital
ecosystems as a meta-organizational form supported and interacting with the external
environment and depending on its conditions, represented by a set of interacting,
complementary, and interdependent participants (enterprises, suppliers, competitors,
consumers). At its core is a digital platform providing technological infrastructure
for their integration into the ecosystem, cooperation, and coordination, in order to
implement strategic intentions, create and receive value.
Despite the high scientific interest and an adequate degree of knowledge of digital
ecosystems, there is still a lack of understanding of what is necessary for the transition
to digital ecosystems and how to implement it. An empirical study on the example
of industrial enterprises in the South of Russia (more than 75 industrial enterprises
participated in the survey) revealed an insignificant number of digital ecosystems and
a low level of readiness for their implementation [28]. Digital transformation and the
transition to digital ecosystems requires the organization not only to digitize their
resources and activities, but also to comprehensively rethink and change its strategies,
ways of interacting with stakeholders and reengineering the main processes [21].
However, it is important to understand that the strategies of the transition to digital
ecosystems as the level of resource expenditure will be different for its participants.
Conventionally, we can distinguish the orchestrator of the digital ecosystem, i.e. the
dominant firm /owner of the digital platform around which the ecosystem is built,
and ecosystem partners (suppliers, manufacturers, competitors). In our opinion, it
is a priority to consider the issue of the formation of the digital ecosystem from
the orchestrator’s side, since the viability of the digital ecosystem and its properties
depend on him.
In addition to certain actions that form a digital ecosystem, the orchestrator needs
competencies and some criteria. Firstly, he must understand his target audience and
their needs, and understand what can and cannot be done. Secondly, the dominant
company must have an adequate level of technological and human resources. More-
over, human resources are given the main role in the digital ecosystem, since this is
a perfect another personnel group with the necessary digital competencies, as they
make it possible to design and build digital platforms, transition to digital ecosys-
tems, as well as maintain its infrastructure and interactions within it. Thirdly, due
to the high variability of the external environment, the orchestrator must be able to
adapt quickly to its changes, as well as be prepared for risks. Fourth, since digital
ecosystems contribute to the development of innovations, the orchestrator must be
open and ready for them.
The strategy of transition to digital ecosystems is based on several actions:
1. Improvement of business processes and their automation
2. Digitization of enterprise resources, increasing the share of digital assets.
3. Formation of a new “digital” corporate culture and development of digital
competences among staff.
4. Introduction of industry 4.0 technologies (industrial Internet of Things, artificial
intelligence systems, cloud computing, and big data processing systems, expert
systems, virtual and augmented reality technologies, etc.)
5. Creation of data protection systems, cyber defense.
It is also important to note that external conditions, largely emanating from govern-
ment authorities, have a significant impact on the pace of digitalization of industry
and the transition to digital ecosystems, for example, the approval of uniform stan-
dards, support programs, specifics, and strategies, as well as roadmaps. It will greatly
contribute to reducing uncertainties when building their ecosystems, as well as facili-
tate access to the necessary resources. For example, in Russia, in July 2021, a strategy
for the digital transformation of manufacturing industries was presented to achieve
their “digital maturity” [31]. The strategy proposes an integrated approach to digital
transformation based on 5 directions/projects: the Smart Manufacturing project, the
Digital Engineering project, the Products of the Future project—customization of
industrial products and repair according to condition, the New Employment Model
project, and the transition to digital public administration project [31]. Another
example is the approval of the national standard of the Russian Federation on
“Computer models and modeling. Digital doubles of products. General provisions”,
defining the general provisions of their development and application, as well as
standardizing several concepts [26].
5 Conclusion
The conducted research allowed us to draw several conclusions. First of all, in the
new conditions of Industry 4.0, industrial companies need to look for new forms of
organizing their activities to maintain competitiveness [19]. One of the most impor-
tant forms of this type, is ecosystems that acquire a strong digital component. The
conducted scientometric analysis revealed an increase in the number of studies of
digital ecosystems. The research conducted using quantitative (scientometric) and
qualitative (comparative, content) analysis methods revealed three main approaches
to the definition of digital ecosystems of industrial enterprises: a digital ecosystem
as an analogue of a biological ecosystem; a digital ecosystem as the advanced evolu-

tionary form of a business ecosystem; a digital ecosystem as a platform. The authors
justified, that digital ecosystems go beyond the technological infrastructure of indus-
trial enterprises and practically determine their functioning and interaction with the
external environment. When forming ecosystems, it is necessary not only to create
a digital platform as a technological core. It is also important to build relationships
with value creation participants in a new format. With this in mind, it is necessary
to identify strategies and mechanisms for the establishment of the digital ecosys-
tems of industrial enterprises. At the same time, the strategies for the formation of
digital ecosystems should strictly correspond with the overall development strategy
of the enterprise, changing it in the new circumstances of Industry 4.0. Moreover, the
orchestrators of digital ecosystems play a particularly significant role here. The study
allows us to conclude that, in practice, the formation of the digital ecosystem of an
industrial enterprise should cover a set of solutions. We are talking about the reengi-
neering and digitalization of business processes, the transition to distributed rational
use of resources, the creation of digital corporate culture, the introduction of cutting-
edge technologies of the digital economy, and the improvement of cyber security.
We can talk about changing the entire business model of an enterprise through the
implementation of an ecosystem approach to the organization of its activities. The
search for drivers, tools, and enables for the transition to digital ecosystems, taking
into account the specifics of territories, industries, and enterprises themselves, should
be identified as future research areas.
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Digital Platform for Regional Industry:
Prerequisites and Functionality
Victoria Akberdina and Anna Barybina
Abstract The paper briefly reveals the theoretical background of digital platforms in
industry, identifies the types of platforms and their features. Challenging the domi-
nant mode of digital platform studies that presume a global example, this paper
purposely situates the platforms in regional terms. It confirmed the architecture and
functionality of the digital platform in an industrial region. The Urals, the largest
industrial territory of Russia, was studied as a research polygon. The purpose of
the study was to prove the necessity of creating such a regional digital platform.
The authors identified the prerequisites for the platform—geographical proximity
of producers and buyers, a significant share of intra-regional trade, common insti-
tutional conditions. The paper presents the results of a strategic session with key
stakeholders—regional authorities, industrial enterprises, R&D and investors. The
authors systematized the stakeholders’ requests in order to offer the functionality
of the digital platform. Currently, the project of the Urals’ industry digital platform
(UIDP) is in the stage of public discussion.
Keywords Digital platforms · Regional industry · Regional digital platforms ·

Digital transformation in industries
1 Introduction
Digital platforms are a unique phenomenon in the existing world [1]. They radically
transform not only the manufacturing processes, but also change the principles of
industrial organization. While traditional industrial enterprises create value within
V. Akberdina (B) · A. Barybina

29, Moskovskaya Str., Ekaterinburg 620014, Russian Federation
A. Barybina
V. Akberdina
Ural Federal University, 19 Mira Str., Ekaterinburg 620002, Russian Federation
110 V. Akberdina and A. Barybina
the company structure or supply chain, digital platforms deal with an ecosystem of
independent agents, jointly created value and multiplicatively increased effects.
Digital industrial platforms are the next stage of digital transformation in industry.
In Europe, the USA and China, large industrial companies are creating digital plat-
forms that are considered not only as a market place, but also as a new digital business
model [9, 14]. A few years ago, the digital platform in the industry was considered
exclusively as a trading platform for placing orders for raw materials, semi-finished
products and goods. But today, a significant part of production is concentrated on the
digital platforms of contract manufacturers specialized in specific product niches.
This means custom-made production using equipment from an independent manu-
facturer that provides full control of the production and technological cycle, as well
as compliance with the required quality level according to customer requirements.
Technologically, being a set of algorithms, industrial digital platforms organize R&D,
production, operation, predictive and after-sale maintenance, disposal, etc. Such a
model greatly reduces transaction costs in production chains.
At the same time, the regionalization of digital platforms should be understood
as a tendency to create digital relationships between producers and consumers in
territorial proximity, as a process that is autonomous from the globalization forces.
Unlike globalization, which is characterized by the loss of territorial identity, digital
regionalization emphasizes the importance of geography. Regional models of digital
platforms differ from global platforms and bring to the fore a territorial inquiry about
where producers and consumers are located [21]. For regional industries, it becomes
an element of the local positioning strategy, the regional authorities consider it as an
opportunity for industrial growth and maintaining employment [2].
In Russia, the process of digital transformation has been started up—institutional
conditions are being formed, national projects, federal and regional programs are
being implemented, national priorities in terms of end-to-end digital technologies
have been determined. But most Russian industrial enterprises are slow to change
business models and introduce radical digital innovations. Therefore, the digital
platforming in Russia is still reduced to state information platforms. Any digital
platform is started up as a pilot project on a narrow segment in order to determine
scaling vectors. In Russia the process of initiating pilot projects of digital platforms
has begun.
In this regard, the purpose of this paper is to justify the concept of a regional digital
platform for the industrial region taking into account the opinions of key regional
stakeholders. The authors hypothesize the relevance of regional digital platforms as
opportunities for deep use of the territories’ potential to ensure industrial growth.
On the one hand, the rational spatial concentration of industry is one of the leading
factors of economic growth. On the other hand, network relations make no sense in the
immediate proximity of manufacturing enterprises, and, accordingly, the industrial
“saturation” of some territories. This paper is an extension of the research presented
by the authors earlier [3].
Digital Platform for Regional Industry: Prerequisites … 111
2 Background
The study of academic literature, the experience of global corporations, and the
opinions of leading expert communities led to the justification of the special role of
digital platforms in the industry. Already today we say that Industry 4.0 will lead
to the creation of vertically and horizontally interconnected industrial value creation
networks [4, 8, 15], which, in turn, will change not only industry markets, but also
the structure of value chains. The technological and economic effects of Industry 4.0
will transform industries into industrial digital platforms.
The transformation of industries into digital platforms will create economic value
creation ecosystems, expanding value chains and involving consumers in innovative
processes [8, 17]. Due to the accumulation of big data, algorithmization of their
processing and intelligent data management, interaction takes place on the digital
platform customers, suppliers and partners, taking into account the interests of all
interested parties [15].
The “physical” industrial complex includes network-connected productions [3],
industrial and consumer markets, engineering and science infrastructure. A digital
industrial platform is essentially a virtual model of physical objects that have
their own digital twins. It includes all the same industrial enterprises, consumers,
service infrastructure and other elements, but the basis of their relationship is digital
transactions.
We will use the widespread well-established concept of a digital platform [7, 11,
15, 16] as a developed ecosystem based on the relationships of industry elements
(manufacturing enterprises, suppliers, dealers, research centers, universities, associ-
ations, etc.) carried out in a digital environment, ensuring a reduction in transaction
costs due to effective specialization and division of labor. We emphasize the following
well-established approaches to digital platforms:
• a process approach based on the logic of value creation in industrial production [6,
13, 15, 17]. This approach makes it possible to implement in a digital environment
the process of value creation from R&D to production, sale and operation;
• a technological approach involving the study of clusters of digital technologies
that ensure the qualitative transformation of the industrial complex [5, 11];
• a sectoral approach based on the identification of existing and promising industrial
markets involved in digital transformation [8, 9, 11, 14].
At the same time, the latest conceptual papers on digital platforms demonstrate
the development of the research paradigm [12, 18]. So far, digital platforms have
mainly been analyzed from separate paradigms, such as economics, engineering,
business and humanities. The interdisciplinary ecosystem approach to the new digital
platform paradigm relies heavily on autonomous agents who contribute to the value
proposition of the digital platform [10, 12]. This basic principle emphasizes the
need for digital platforms to provide and coordinate an ecosystem of interacted and
interdependent actors [18, 19]. It is this concept that fully corresponds to the goal of
our research—to offer a digital industrial platform for the ecosystem of the region.
We will consider the digital platform from the position of key stakeholders in the
regional ecosystem.
3 Methodology
3.1 Research Design
To study the cases of digital platforms, a content analysis method and a functional
approach were used. Following common research practice, a qualitative empirical
research approach based on inductively analyzed in-depth expert interviews was
applied.
The study was conducted during a strategic session, which was attended by
key stakeholders—regional authorities, industrial enterprises, R&D centers and
investors. The strategic session was held to study the existing and expected needs
of the platform participants in information (datasets), information services and the
communication and financial environment. The work of the participants of the
strategic session was organized into sections representing the interests of groups:
Government, Science, Industry, Investor. The participants formulated proposals
(requests) for other groups, which were jointly discussed and analyzed. Further work
with the participants of the strategic session was proposed. The list of requests from
different groups of participants was clarified and detailed, and a roadmap of actions
was defined. This ensured that the needs of all potential participants of the digital
platform were taken into account as fully as possible.
The assessment of the prerequisites for a regional digital platform in a particular
region was carried out on the basis of regional commodity exchange, considered in
dynamics.
3.2 Data Sample
The Urals, the largest industrial territory of Russia, was studied as a research polygon.
The starting point was the task of developing interregional cooperation within the
Urals macroregion in order to make greater use of its scientific and industrial poten-
tial. The prospects for the development of the economy of the Urals are connected
by the fuel and energy complex, which provides up to 50% of the exports of the
Russian Federation, the development of electric power, oil and gas processing and
petrochemistry; as well as the manufacturing industry and the military-industrial
complex.
To assess the prerequisites for the creation of a digital industrial platform in
this macro-region, data on intra-regional commodity exchange for the period 2016–
2020 were used. We analyzed an export to other regions of Russia and imports
from other regions, and the balance of intraregional trade exchange. The strategic
session was held in October 2020 in Yekaterinburg (Russia), the capital of the Urals
macroregion. The strategic session was attended by 62 experts from stakeholder
groups—government, industry, science and investors. We studied the functionality
of 36 industrial platforms and ecosystems of 16 regional share-based platforms to
highlight the key functions required for a regional digital industrial platform.
4 Results
4.1 Relevant Functionality of Digital Platforms
To understand the functionality of the future digital platform, we needed to understand

what types of platforms there are in the industry, as well as what types of regional
digital platforms exist. After analyzing 36 digital platforms in the industry (USA,
China, Germany, Italy), we came to the conclusion that there are two fundamentally
different types of digital platforms.
A Digital industrial platform Type 1 (DIP-1) is a digital ecosystem focused on
creating value in industrial production through direct interaction between the buyer
and supplier, as well as the implementation of digital transactions between them.
This type includes two subtypes of platforms:
• information and communication platform, both providing information exchange
and operational communication between participants of the industrial market
(examples of this type of platforms are electronic catalogs of industrial products,
catalogs of production capabilities of enterprises, etc.);
• a transactional platform that provides communication, financial and legal support
for transactions (examples of this type of platforms are procurement platforms
for public needs and the needs of private companies).
A digital industrial platform Type 2 (DIP-2) is a complex of interconnected digital
technologies that provides a digital product lifecycle based on the industrial Internet
of Things and the modeling of digital twins. This type of platform is by the essence
of the digital business model of the product and corresponds to digital life cycle
of products based on the industrial Internet of things and modeling of digital twins
[12]. Thus, the basis of such a platform is the product and its digital counterpart,
around which all participants “gather”—the segment of development and design, the
segment of the main production itself, assemblers, suppliers, as well as the segment
of consumers [5, 6, 20]. Moreover, it is the manufacturer of the final product that
determines the standards of interaction.
On the other hand, along with the platforms comes a form of regionalization,
localization in a certain environment, country or region, through the “soft” deliberate
exclusion of other regions for the purpose of import substitution and the development
of domestic production. Such platforms are regional entities, and we should pay
attention to how platforms “build” regions and, indeed, often assume regions. A
case study of 16 regional platforms (China, Sweden, Italy) showed that the term
“regional digital platform” can mean two things: (1) a subnational or local context
denoting a country’s region (for example, the Ural macroregion of Russia); and (2)
grouping several countries into geocultural regions (for example, the Asian region).
Such dimension of the regional platform as the mobilization of its quasi-monopoly
power seemed extremely important.
We consider that a regional digital industrial platform should be Type 1. This type
of platforms is the first evolutionary step in creating more complex platform models.
And its creation does not require much money at the first stage and can be created
in the PPP-format (public–private partnership).
4.2 Prerequisites for a Digital Platform in the Ural

Macroregion (Russia)
The Ural macroregion (Federal District) includes 4 regions—Sverdlovsk Region,

Chelyabinsk Region, Kurgan Region and Tyumen Region (with autonomous territo-
ries). Each region is unique in its own way.
In general, the Ural Federal District is characterized by a high level of interregional
relations between the regions that are part of it. The share of the district’s products
in the volume of imports of the Ural regions ranges from 9% in the Kurgan region to
40% in the Tyumen region. Also, the Chelyabinsk region is a large region in terms
of the volume of imports of products from other regions of the Ural Federal District.
The Sverdlovsk Region has a significant positive balance of export and import of
products to the territory of the Ural Federal District. The region occupies 54% of the
export and 13% of the import. The main import trading partner is the Tyumen Region,
which accounts for 63.2% of the import. The products of the Sverdlovsk Region are
exported mainly to the Chelyabinsk (52.3%) and Tyumen (46.5%) regions (Fig. 1).
In the Chelyabinsk region, the import and export within the Ural Federal District
region are approximately the same with a small positive balance. The main import
of products from the Ural Federal District to the territory of the Chelyabinsk region
is provided by the Tyumen region (74.6%). The main consumer of products of the
Chelyabinsk region in the Ural Federal District region is the Sverdlovsk region,
which accounts for 67.8% of all shipments of the Chelyabinsk region to the territory
of the District. About a third of the supplies get on the Tyumen region.
The absolute volume of interregional commodity exchange in the Kurgan region
is small, however, there are also structural features here. Kurgan region has a slight
negative balance of interregional import and export. The main Ural suppliers of
products to the Kurgan region are Sverdlovsk (53.4%) and Chelyabinsk (41.1%)
regions. The directions of export of products of the Kurgan region are relatively
balanced—about 40% falls on the Chelyabinsk region, and about 30% each on the
Sverdlovsk and Tyumen regions.
140
120
100
80
60
40
20
0
Tyumen Region Chelyabinsk Region Kurgan Region Sverdlovsk Region
(with autonomous
territories)
Export from Ural Federal District Import to Ural Federal District
Fig. 1 Volumes of interregional import and export of industrial and consumer products to the
regions of the Ural Federal District, billion rubles [22–25]
Fig. 2 Structure of Sverdlo

interregional import of vsk
industrial and consumer Region,
products to the regions of the 13.2%
Ural Federal District [22–25]
Kurgan Tyume
Region, n
8.4% Region
(with
autono
mous
Chelyab territori
insk es),
Region, 40.1%
38.3%
The main partner of the Tyumen region in interregional commodity exchange is

the Sverdlovsk region—69.6% in the volume of imports and 79.9% in the volume
of exports.
The regions of the Ural Federal District have been integrated into the processes
of interregional cooperation for a long time and quite successfully. It opens up
opportunities for creating a regional digital industrial platform (Figs. 2 and 3).
4.3 Requests from Key Stakeholders
Following the results of the strategic session with key stakeholders interested in
creating a regional digital industrial platform, the main requests for the functionality
Fig. 3 Structure of Tyumen

interregional export of Region
industrial and consumer (with
products to the regions of the autono
Ural Federal District [22–25] mous
territori
es),
5.8%
Chelyab
Sverdlo
insk
vsk
Region,
Region,
36.5%
54.0%
Kurgan
Region,
3.7%
of the platform were identified. Thus, industrial enterprises highly value the opportu-
nity to receive orders from state corporations and monopolies, protected transactions
and technical requirements (Table 1). Rather, the low significance of interaction with
science through the platform turned out to be ambiguous. Industrial enterprises inter-
acting with the digital platform get an additional opportunity: (a) monitoring, analysis
Table 1 Requests of the

Request for the digital platform’s Frequencya (%)
“Industry” stakeholder to the
functionality
digital platform’s
functionality The needs of state corporations and 90.2
monopolies
Protected transactions 87.6
Technical regulations 78.4
Competencies: technologies, products, 75.1
equipment
Investment 74.9
Innovative projects (products, technologies) 72.6
Criteria for selecting projects for investment 70.3
Statistical data by industry 54.9
Territorial development plans, infrastructure 34.1
projects
Plans for innovative development of 32.4
industries
Interaction of science and industrial 12.7
enterprises
Expertise 10.6
a Multiple answers possible

“Science” stakeholder to the
functionality
functionality Demand for R&D 91.5
R&D financing 90.2
Participation of enterprises in the initial 88.6
stages of TRL
industries
Interaction of science and industrial 56.2
enterprises
R&D expertise 48.7
and forecasting of the development of sales markets and production technologies; (b)
to attract investors for the development of production, to use state support measures;
(c) to introduce scientific and technical developments and innovative products; (d)
to create cooperative chains; (e) to create clusters; (f) to lobby interests.
R&D centers (the “Science” stakeholder) are interested in such functions of the
digital platform as identifying the demand for R&D, financing R&D and participation
of enterprises in the initial stages of TRL (Table 2). R&D centers carry out through
the digital platform a request for state support measures, for the industrial partners in
scientific, technical and innovative activities; R&D expertise, analysis of financial and
resource support for R&D are available through interaction on the digital platform.
The investors are interested in the state protection of investments and private prop-
erty, the protected transactions and the information about the regional development
priorities (Table 3). An investor on a digital platform should be able to assess the
effectiveness, to create innovative products and to form an investment portfolio.

“Investors” stakeholder to the
functionality
functionality Investment protection 98.2
Regional development priorities 81.6
Professionally prepared projects 70.5
Territorial development plans, infrastructure 69.4
projects
industries
The need for production assets 52.1

“Government” stakeholder to
functionality
the digital platform’s
functionality Industry analytics 95.2
Demand for R&D 85.6
Demand for investment 84.1
Proposals for industrial policy 70.3
measures
Information on personnel needs 63.9
Information about competencies 52.7
Regional authorities demonstrate such requests to the digital platform’s function-

ality as an industry analytics, the demand for R&D and the investment (Table 4).
The provision of this information makes it possible: (1) to monitor, analyze and fore-
cast the markets of industrial products and production technologies; (2) to support
industries and regions (territories).
The study of the stakeholders’ needs allowed us to determine the preliminary
functionality of the regional digital industrial platform.
Thus, we have determined the following. The main functionality of the Urals’
industry digital platform (UIDP) will include the main features: search for part-
ners; search for resources; search for investors; marketing data; search for needs;
assessment of potential and efficiency; the protected transactions.
5 Conclusion
We conducted an in-depth analysis of digital platforms in the industry, identified

the types of platforms, as well as the specifics of their regionalization. The study of
intraregional commodity exchange in the Ural Federal District allowed us to justify
a significant number of transactions on a regional digital platform. The strategic
session with key stakeholders gave us the opportunity to understand the needs and
wishes for the digital platform’s functionality.
We assume that the platform belongs to the MaaS-type (Manufacturing as a
Service) [12, 13, 15]. Firstly, the platform makes it possible to use the assets of
regional enterprises more efficiently. Secondly, the platform increases the trans-
parency of pricing. The platform becomes a prototype of a trading exchange. This will
create conditions for market competition, ensure greater transaction speed and effi-
ciency. Thirdly, the platform will be associated with effective localization. Geograph-
ical proximity of the platform participants means faster delivery speed and lower
transportation costs.
Acknowledgements The paper was prepared with the support of RFBR grant No. 20-010-00719,
“Simulation of cross-industrial networking processes in the industrial complex based on hybrid
technologies”.
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Towards Digital Twins
for the Development of Territories
Arina Suvorova
Abstract Management of territorial development is a complex and extremely impor-

tant process that requires advanced technological solutions and efficient methods of
regulating socio-economic systems. The digital twin technology holds enormous
potential in this respect although some of its possibilities still remain unexplored and
unexploited. This study aims to identify and describe the characteristics of the digital
twin of a territory. To this end, the research literature on this problem is analyzed and
systematized. A special emphasis is made on the theoretical foundations underlying
the concept of digital twin and its main interpretations. The study also discusses
the use of digital twins for territorial (urban) development and the features that
distinguish city digital twins from their industrial counterparts. The idea of a digital
twin of a territory, like digital twins in other spheres, is based on representing a real
object (system) in a virtual environment. This virtual replica is created and constantly
updated through automated collection and processing of massive amounts of data.
Importantly, there should be a two-way flow of data between the real and virtual
space. In the case of city projects, however, changes in the virtual environment do
not provoke direct responses from its real-life counterpart. Some adjustments in the
physical object may, occur, however, if local governments take into account the results
of digital twin simulations in their decision-making. Digital twins of territories are
sophisticated constructions, elaborated within the interdisciplinary frameworks, and
open to the public. These projects are usually highly dependent on socio-economic
processes and the degree of civic engagement.
Keywords Digital twin · Territorial development · Theoretical analysis · Smart

city
A. Suvorova (B)
Institute of Economics of the Ural Branch of the Russian Academy of Sciences, 29, Moskovskaya
St., Ekaterinburg 620014, Russian Federation
122 A. Suvorova
1 Introduction
Digital twins (DTs)—the concept which has attracted a lot of scholarly interest in
recent years—can be created for a wide range of applications as their capabilities and
sophistication grow. While initially, the idea of creating virtual copies of real objects
and using them for simulations to test different scenarios took root in the industrial
sphere, today virtual copies are used in architecture [16], economics [45, 60], ecology
[39, 45, 60], and medicine [14]. Moreover, in addition to physical objects, modeling
can be employed for complex social and economic systems.
As the concept and application of DTs are evolving rapidly, researchers, analysists
and administrators working with them have to deal with the growing number of
challenges. Among the questions most widely discussed in research literature are
the differences between digital twins and other automation components and tools
[1, 10]; the choice of the most efficient methods of modeling and virtualization
of physical objects [32, 63]; ways to assure data security and confidentiality [28];
and possibilities of digital twin integration [50]. These questions are reconsidered
and reinterpreted as more scholarly attention is given to social relations, economic
processes and other factors that have diverse impacts on socio-economic objects.
Moreover, as DTs start to be applied at the level of cities or regions, new challenges
arise, for example, ethical issues [5, 38] or risks involved in civic engagement [61].
The task of building an accurate DT becomes extremely complicated if the physical
object to be copied is a large territorial system (e.g., a district, city or region) involved
in multiple interactions with the external environment and comprising many elements
connected through non-linear and constantly changing relationships. On the other
hand, the explosive growth of digital technologies (systems for big data collection and
processing, self-learning systems, blockchain, cloud technologies, etc.) can make the
problem of creating digital twins of territorial systems solvable, although it will still
remain a complex, time-intensive task. This article focuses on the aspects that need
to be considered to adopt the digital twin technology for territorial development.
To this end, it is necessary to investigate the theoretical foundations of the digital
twin concept, especially the criteria that distinguish it from other forms of virtual-
ization and simulation. Some of the existing practices of DT application for regional
development will be analyzed to determine to what extent these cases correspond to
the theoretical criteria. In addition, the key characteristics of DTs of territories will
be identified and described.
2 Methodology
The digital twin concept is underpinned by a comprehensive interdisciplinary

methodological approach that encompasses many principles related to modelling
and digitalization. The focus of this study is the development of theoretical and
methodological aspects of “cloning” territorial systems in virtual space. This focus
Towards Digital Twins for the Development of Territories 123
determines the choice of the systematic approach [53], which allows me to consider
large amounts of heterogeneous data while concentrating on a set of key questions
(specified in this study’s targets). The study draws from the analysis of the corpus of
publications in high-impact journals. The publications were selected in October 2021
from the Scopus database by using search terms “digital twin”, “digital shadow”, and
“city digital twin”. Moreover, the study relies on the evidence of DTs application for
territorial development and management, mostly as part of the smart city projects in
different countries.
3 Results
3.1 Digital Twin Concept: Theoretical Foundations
A digital twin is commonly understood as a digital representation of a unique product

or unique system that comprises its selected characteristics, properties, conditions,
and behaviors by means of models, information, and data [51]. It is a widely recog-
nized fact [3, 18, 19] that the term “digital twin” was coined by Dr. Michael Grieves
from the Florida Institute of Technology. In his work “Virtually Perfect: Driving
Innovative and Lean Products Through Product Lifecycle Management” [24], he
put forward the idea that for every physical product, with the help of digitized data,
there may be constructed a virtual counterpart that can perfectly mimic the phys-
ical attributes and dynamic performance of its physical twin. It should be noted that
initially, M. Grieves used other terms—mirrored space model [22] and informa-
tion mirror model [23]—but it was the term “digital twin” that eventually entered
common use in research literature and the manufacturing sector. Since the concept of
the digital twin appeared, there have been tremendous changes not only in the termi-
nology but also in the tools used to create virtual models as well as in the amount
and quality of information needed for this purpose. While initially the data were
limited, they were collected manually and stored on paper, with time the explosive
growth of digital technologies has created opportunities for automated data collec-
tion, processing and storage, thus making the information more suitable for creating
precise virtual copies of physical objects [25]. Therefore, in today’s understanding
of a digital twin it is not simply a representation of a physical object in the virtual
environment, but a representation obtained through artificial intelligence, machine
learning, and advanced analytics. The massive big data are continuously generated
and collected via sensors, UAVs and other tools for data capture [12]. Other advanced
technologies that are vital for digital twinning include Radio Frequency Identifica-
tion (RFID) [64], the Internet of Things (IoT) [33, 46], the Industrial Internet of
Things (IIoT) [9], Ethernet [62, 65], cloud technologies [4] and so on.
The aerospace industry has proved to be a trailblazer in the use of DTs [7, 54],
turning this technology into a major trend in many other spheres. The increasing
124 A. Suvorova
search for new DT applications in the real economy has engendered multiple, some-
times dramatically different interpretations of the concept, its characteristics, and
possibilities of use [29].
Nevertheless, the key aspects of the original concept developed by M. Grieves
have retained their significance. The core of a DT is constituted by the bidirectional
flows of data and information that tie the virtual and real space together. The virtual
space, in its turn, consists of virtual subspaces, which can be used to perform multiple
operations such as data aggregation, modelling of different situations, optimization
of the object’s performance, and so on [25]. In order to transform physical objects and
their virtual copies, a constant exchange of data between the two is necessary. Thus,
DTs can be adjusted for use on different stages of a system’s lifecycle: for instance,
in manufacturing, the process involves the creation of a Digital Twin Prototype, the
Digital Twin Instances or their combinations—Digital Twin Aggregates (for more
on this, see [26]).
Thus, apart from manufacturing, the idea underpinning the concept of digital twins
is quite universal and has a vast scope of potential uses. Nevertheless, most of the
evidence concerning successful practices of digital twinning has been accumulated in
the industrial sphere [44, 52]. Other application areas for the DT technology include
smart construction, smart infrastructure, smart cities and regions.
3.2 Application of Digital Twins to Address Problems

of Urban and Regional Development
Digital twins of territories are most widely discussed in relation to cities, although
there is sufficient evidence showing the possibilities of DT use for modeling city
districts [42] and regions [55]. In fact, the DT concept fits well into the current
research agenda of urban studies, especially smart city development [40], sustainable
urban development [21], and the creative city [49]. For a smart (creative, sustainable)
transformation, a cutting-edge toolkit is needed to process large volumes of data, to
automate and digitize the processes running or those that will be running within the
territory. According to MarketsandMarkets, the global digital twin market size is
expected to grow at a CAGR of 58% and by 2023 to reach $15.7 billion [11].
As the term starts to be used more and more frequently by urban scholars and
public officials, its meaning is becoming fuzzier and it risks turning into another
“buzz word”. Therefore, claims that DTs are created for certain cities or regions
should be viewed with a certain degree of skepticism.
City DTs are quite often understood as virtual models of cities (for instance,
3D models [20, 36]) based on large amounts of data [34, 35] and used to visu-
alize processes in cities, to model various situations, to build forecasts and to make
evidence-based decisions [31, 58]. Many popular applied solutions presented as
examples of city digital twins follow this principle. Quite illustrative in this respect
is the cloud-based service Bentley’s OpenCities Planner [41], which was applied
in Stockholm, Helsinki, Göteborg, etc. OpenCities Planner can be used to integrate

data repositories to create comprehensive models reflecting the real-life territorial
systems, to visualize these systems with the help of special software, and, based on
data analysis, build different what-if scenarios (including scenarios involving human
behaviour in environments). Another interesting example is the project Antwerp
Smart Zone realized by Interuniversity Microelectronics Centre (imec), an interna-
tional R&D organization, as part of the City of Things program [2]. The City of
Things looks for answers to the complex urban problems or needs in the world
of high technologies and the project in Antwerp is associated primarily with the
creation of the city’s digital twin, which accumulates the data on traffic, air quality,
and noise. Some of the tools used to create DTs are used in Boston’s 3D GIS City
Model, which enables the government to modify 3D cityscapes to reflect new build-
ings [6]. Another example is the platform Virtual Singapore, which can be used by
city planners to conduct virtual experiments, run simulations and develop analytical
applications [56].
Even though these projects are of significant practical interest, it would be incor-
rect to describe them as digital twins of territories. On the other hand, such models
share a number of features with DTs: they are virtual replicas of the real object
(complex system) and are formed (and constantly updated) with the help of high-tech
systems of data collection and processing. These models enable prompt responses of
local authorities to emergencies and provide a feasible solution to many problems of
territorial development. They, however, lack one important feature that DTs have—
the two-way flows of data between the real and virtual space. The data on everyday
urban processes and systems are used to adjust the parameters of the virtual model,
but the changes in the virtual model (e.g., the choice of the optimal scenario) do
not necessarily lead to corresponding changes in the real environment. Thus, such
models are not digital twins in the true sense of the word, a more appropriate term
would be “digital shadows”—simplified copies lacking a feedback connection [15,
47, 48]. Some adjustments of the real environment may occur, however, in response
to the changes in its virtual equivalent if local governments and other regulatory
bodies take into account the results of DT simulations in their decision-making [43].
The creation of relatively simple digital copies of territorial complexes or their
individual elements is an important step towards incorporating DTs into the practices
of urban and in the future regional development [13]. This process requires further
elaboration of the territorial DT concept, which, in its turn, implies thorough analysis
of the physical object’s characteristics as well as a more in-depth understanding of the
differences between this type of DTs and their counterparts in the industrial sphere.
3.3 Characteristics of Digital Twins of Territories
The term “digital twin of a city (or a region)” may seem quite ambiguous: for instance,
there is uncertainty surrounding the object to be copied. The impression that may
be formed is that DTs replicate socio-economic systems (or their elements) located
126 A. Suvorova
Table 1 Comparison of DTs of territories and industrial DTs

Indicators DT in manufacturing DT of a territory
Level of complexity Cyber-physical system Cyber-physical
system-of-systems
Determinants of the model’s key Production processes Socio-economic
parameters processes
Co-creation and co-implementation No public engagement Active public
of DTs with citizens engagement
Degree of openness Rather closed than open Rather open than closed
Sphere of creation/application of DTs Industrial system Interdisciplinary sphere
within a given territory—these systems comprise physical objects as well as local

inhabitants, businesses and so on. It is, however, quite obvious that at this stage, the
creation of a DT of a whole territorial community is a rather far-fetched prospect. It
is possible to build a digital model of such community and use it to estimate future
outcomes of certain processes or to forecast the changes in the population distribu-
tion patterns [57] or in economic relationships [37] for evidence-informed decision
making. Therefore, it would be more reasonable to focus on the environment where
the community lives and works, in other words, the object that will be copied by
the DT should be a large-scale system of assets (buildings, infrastructure, ameni-
ties) located and arranged within the given space. The DT may replicate individual
elements of this system (e.g., its energy supply system [17] or logistics hub [27]).
In this case, it may appear that the only difference between a DT of a territory
and a DT of a particular element is the scale and complexity of the original object.
The differences, however, go beyond that and relate to at least five extra criteria that
can be used to compare different types of DTs (see Table 1).
The digitized data can cover a diversity of relationships and processes. To build
a DT of a territory, it is necessary to take into account the interactions between
people and their environment. On the one hand, it is the inhabitants of the territory
that shape the ways in which the key objects in their territory operate: the inhabi-
tants’ activities are thus a key factor in the transformations of the territory. On the
other hand, inhabitants of the territory constitute the main stakeholder in territorial
development, who determines the priorities and directions of transformations, sets
the parameters of optimality and thus helps public administrators to choose the best
option from a range of possibilities. All of the above determines the importance of
civic participation in territorial projects involving the DT technology [8, 30, 59].
If the local community is not engaged, such projects lose much of their meaning.
The format of such engagement can be different: participation in public discussions
about transformations of the territory via online communication platforms; auto-
mated alert messaging via special services, etc. Openness is another important factor
that determines public engagement in the creation and implementation of a DT of
a territory: virtual models (or their parts) can be made accessible to everyone (or
to specific categories of stakeholders), have an easy to use, intuitive and attractive
interface. Importantly, the development of urban and regional environment always

involves multiple transformations of different spheres, which means that DTs of
territories should be interdisciplinary and based on the integration of various data
from different sources and efforts of many specialists from different domains—not
only IT and modelling, but also engineering, architecture, social studies, economics,
and so on.
4 Discussion
The idea of the construction and use of DTs to address problems of territorial devel-
opment is gaining popularity: the number of publications on this topic in high-impact
journals is growing as is the number of cities with virtual copies of their own, which
can be later “reborn” as full-fledged digital twins. It is, however, obvious that this
area of knowledge is at its early stage of development. A theoretically valid and
methodologically sound foundation for digitalization in manufacturing can greatly
contribute to solving certain questions, which are important for increasing industrial
research potential, such as the questions about assessing DTs’ role among simpler
systems. However, the extant studies laying down the foundation have to be updated
and expanded.
This study explores the idea and possibilities of using DTs to tackle problems of
territorial development. Since the main focus of this study was made on the concep-
tual framework underpinning the DT technology and on the differences between DTs
of territories and industrial DTs, the publications on digitalization and modeling in
other spheres were excluded from the scope of the study. Nevertheless, it should be
noted that research on the use of DTs in medicine, natural sciences and other vibrant
fields could contribute to a better understanding of the yet unknown aspects of DT
use for territorial development. Other topics of special interest in this sphere are the
limitations of the idea of digital twinning, the most promising big data tools which
can be used to create the most accurate virtual copies of complex systems, and ways
of data transmission from the virtual to the real environment.
5 Conclusion
A digital twin is a universal tool to work with large and complex systems, for example,
cities or regions: it can be used to analyze the development of these systems, to
conduct virtual experiments, to make forecasts and to take evidence-based decisions.
It is, therefore, necessary to explore the potential that DTs hold for such demanding
task as management of territories from the theoretical and applied perspectives.
In this study, the classic understanding of the term “digital twin” was compared
with the use of this term in the context of regional and urban development and in
the industrial context. The analysis has shown that the term “digital twin” fails to
128 A. Suvorova
accurately describe the majority of the current virtual city models. A set of unique
characteristics of DTs of territories has also been identified.
These findings point to avenues of further inquiry on digitalization of territorial
complexes.
Acknowledgements This research is supported by grant 20-78-00067 of the Russian Science

Foundation.
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1617-6
Digitalisation of the Economy
and Regional Development
Irina Turgel , Alexander Pobedin , and Aksana Panzabekova
Abstract The digitalisation of industry is an urgent aspect to develop regional

economic systems, which involves introducing state-of-the art information and
communication technologies into the activities of enterprises. Digital transformation
is accompanied by a corresponding transformation of the structure of interregional
interactions, influencing the depth and degree of regional differentiation, as well as
the competitiveness of individual constituent entities of the Russian Federation. In
this article, the authors assess the impact of digitalisation on the development of
regions of the Russian Federation by determining the depth of digital transformation
and the unevenness of digitalisation processes among the constituent entities of the
Russian Federation. The purpose of the research is to study the digital transformation
processes in a territorial context taking into account its impact on territorial differen-
tiation and the cyclical nature of economic development. As a result of the research,
the authors determined that in most constituent entities of the Russian Federation, the
second stage of digital transformation is being implemented, while the country’s terri-
tory is highly differentiated in terms of digitalisation performance. The authors have
proposed several possible scenarios for the implementation of digital transformation
processes in Russian regions.
Keywords Industry 4.0 · Regional development · Digital transformation · Spatial

differentiation
I. Turgel (B)
Ural Federal University, 19, Mira St., Ekaterinburg 620002, Russian Federation
A. Pobedin
Ural Institute of Management—Branch of the Russian Presidential Academy of National
Economy and Public Administration (RANEPA), 66, March 8 St., Ekaterinburg 620144, Russian
Federation
A. Panzabekova
Institute of Economics of the Science Committee of the Ministry of Education and Science of the
Republic of Kazakhstan, 29, Kurmangazy St., Almaty 050010, Kazakhstan
134 I. Turgel et al.
1 Introduction
The current stage of development of the world economic system can be characterised
by a high degree of variation and dynamism, as reflected in the state of individual
subsystems and processes. Technological innovation is a key driving force behind
these sweeping changes. In the context of accelerating socio-economic processes,
a prerequisite for the competitiveness of both individual enterprises and regional
economic systems is the synchronous transformation of production processes in line
with new technological requirements [24]. Currently, digitalisation is an integral part
of such a transformation. Companies that were the first to make their way through
digital transformation significantly outperform competitors due to higher produc-
tivity of both labour and equipment, lower costs, and increased safety of production
processes, which is accompanied by significant changes in the activities of enter-
prises and business model adjustments. A typical feature of the early twenty-first
century is the transition to the so-called Industry 4.0, within which digitalisation
encompasses both all the most important processes of the production chain and the
organisation of inter-firm interactions [14].
In Russia, the foundations of digital transformation were laid in the Strategy for
the Development of the Information Society in the Russian Federation in 2017–
2030, as well as in the Programme "Digital Economy of the Russian Federation",
which provides for incentives to digitise all the key sectors of the Russian economy.
The most important condition for successful digitalisation in Russia is to provide
stakeholders in economic processes with access to modern network technologies,
programmes, new digital equipment, and ICT technologies based on access to the
Internet and other modern data transmission channels [6].
The digitalisation of industry goes along with the introduction of new types of
equipment based on robotics, resource-saving and waste-free technologies, as well as
production automation. Contemporary information systems ensure prompt decision-
making and productivity growth of all factors of production, increased competitive-
ness, development of new technological solutions, and introduction of them into
production.
These processes claim special attention at the regional level. Russia is charac-
terised by high differentiation of territorial development, when the spread between the
conditions and indicators of individual regions can reach high values. In this context,
digital transformation can become a powerful driver of territorial development, serve
as a mechanism to overcome the lag of individual regions, and improve their compet-
itiveness by contributing to the balanced development of the entire country. In this
work, the authors set the goal to study the digital transformation processes in a
territorial context taking into account its impact on territorial differentiation and the
cyclical nature of economic development.
Digitalisation of the Economy and Regional Development 135
2 Literature Review
The digital transformation of both the socio-economic system as a whole and indi-
vidual subsystems, including industry, is a major focus of interest of the research in the
modern scientific community [23]. A statistical analysis of the impact of the degree
of digitalisation on the level of economic development, investment, and employment
is carried out [6, 9, 13, 15, 18, 22]. Some researchers emphasise a stable positive
relationship between the development of contemporary information infrastructure
(including the Internet speed) and the economic growth rate [3, 21].
Separately, researchers consider the features of digitalisation processes in various
countries and regions including developed ones [5] in the Asia–Pacific Region [11],
Africa [8, 17, 20], Arab countries [25] and Russia [12, 19, 27].
Special mention should be made of the works that reveal the theoretical
and methodological features of digital transformation processes. In the study by
Vertakova et al. [26], the structure of transformation processes in the economic system
is analysed; the following levels of digital transformation of industry are distin-
guished: the level of existence (change in objects and subjects of social conscious-
ness), the level of manifestation (change in conditions, values), and the level of
implementation (implemented changes).
Some researchers focus on the digitalisation of industrial enterprises. Kovalchuk
and Stepnov [10] introduce the "new digital space" concept, which includes enter-
prise production processes implemented in the digital environment. Behrendt [4]
distinguishes business processes, primarily transferred to the digital environment.
Maltseva and Bragina [13] explore the possibilities of increasing labour productivity
through digital transformation.
Glezman et al. [7] highlight the basic properties of digital technologies (innova-
tion, integrability, criteria, flexibility, minimality, and functionality), as well as key
stages of digitalisation, such as computerisation of industry, provision of network
exchange, application of innovative software, production of digital devices and
components, production of robotics, implementation of digital management models,
creation and implementation of cyber-physical models. In the monograph edited
by Lavrikova, Doctor of Economics Andreeva [1] considers the prerequisites for
the digital transformation of the Russian industry and provides a methodology for
assessing digitalisation.
Some authors consider the digital transformation processes in the context of
individual regions [2, 7].
However, there is a shortage of works that consider the digital transformation
processes in the context of the interregional differentiation processes considering the
impact of the ICT integration into the economic system on the regional development
processes.
The informational background of the research was made up of digital society devel-
opment indicators in the regions of the Russian Federation published on the official
website of the Federal State Statistics Service (https://rosstat.gov.ru/). For the anal-
ysis, the following indicators of the constituent entities of the Russian Federation
were selected: the proportion of entities that used personal computers, the entities’
costs associated with the deployment and use of digital technologies, the number
of professionals in information and communication technologies, the proportion of
entities that analysed big data (in % of the total number of entities), the share of enti-
ties by the area of using IoT technologies (in % of the total number of entities) in the
energy consumption optimisation and automation of production processes, manage-
ment of logistics and product movement, the volume of gross regional product, the
volume of shipped goods of its own production, works and services performed on
their own by economic activity. The analysis used the most recent data published at
the time of writing, for 2020 or 2019, as well as the trend data over the past 10 years,
if available.
A variation factor was used as the main indicator of territorial differentiation; the
maximum, minimum and average values were also determined. In addition, according
to individual indicators, ranking was carried out, as well as leaders and those lagging
behind among the regions were determined.
For the Tyumen and Arkhangelsk Regions, data without taking into account the
autonomous areas in order to avoid duplication of information (the Khanty-Mansiysk,
Yamalo-Nenets and Nenets autonomous area were analysed separately) were used.
A correlation analysis with the Pearson coefficient was carried out; control calcu-
lations of the Kendall and Spearman Tau-b coefficients were also carried out. For
calculations and analysis, the SPSS statistical package tools were used.
When classifying the stages of digitalisation, as well as the criteria and indica-
tors used for each stage, the authors used the previous research results including the
monograph edited by Lavrikova and Andreeva [26, pp. 184–188], where the stages
of digital transformation of industry are distinguished as follows: (1) primary infor-
mation and communication digitalisation; (2) electronic data sharing with external
network partners; (3) use of custom software; (4) production of information and
communication technologies and equipment; (5) production and use of robots and
sensors (industrial Internet).
A feature of this research, which determines the scientific novelty, is the study of
the stages of digital transformation of the economy in the context of the uneven social
and economic development of Russian territories. The authors assumed that digital
transformation can become a tool to reduce disproportions in territorial development,
as well as enhance the stability of regional social and economic systems against the
consequences of unfavourable macroeconomic environment.
4 Results
At the moment, Russia consists of 85 constituent entities of the Federation including

22 republics, 46 regions, 9 territories, 3 cities of federal significance, 4 autonomous
districts and 1 autonomous region. The constituent entities of the Russian Federation
can be characterised by a high degree of heterogeneity of social and economic devel-
opment; for example, Moscow accounts for 21% of the gross regional product of
all regions of the country, 20% of all economic funds, 15% of retail trade turnover,
while Moscow is home to 8.6% of the population of Russia. For comparison, the
share of the Sverdlovsk region, one of the regions advanced in industrial develop-
ment, in which 2.9% of the country’s population live (and the region includes a city
with over a million people), accounts for only 2.7% of the gross regional product in
the Russian Federation.
Historically, Russian industry has been a territorial development driver by
strengthening the internal and external ties of regions, determining the employment
pattern and increasing the competitiveness of individual territories. However, the third
and fourth industrial revolutions significantly change the role of legacy industries by
presenting new demands and providing new opportunities. Currently, a quarter of the
Russian GDP is accounted for by industrial products but the consequences of global
transformation processes are increasingly affecting the activities of Russian enter-
prises in most Russian regions, the share of the industrial sector is steadily decreasing
each and every year. Digital transformation in industry is a necessary response to the
challenges of a new stage in the development of the world’s economic system, and it
is carried out in stages [1]. At the first stage of digital transformation, industrial enter-
prises are computerised; in most Russian regions, this stage should be recognised
as completed (see Fig. 1). The transition to the second stage means high integration
of information technologies into the external and internal relations of an enterprise.
Document flow, accounting, HR recordkeeping, and some other processes begin to
be carried out with the features provided by the contemporary IT environment.
Fig. 1 Distribution of constituent entities of the Russian Federation by the share of entities that
used personal computers (2020, %)
At the third stage, the IT environment tools are used to enhance the efficiency of
management activities, research and development, procurement, and sales manage-
ment. A significant part of the processes in entities is carried out through corporate
automation tools represented by CRM, ERP, and SCM systems. At the moment,
many regions are going through this stage, the distribution of the constituent enti-
ties of the Russian Federation by the number of entities with CRM, ERP, and SCM
systems is extremely uneven (see Fig. 2).
The fourth stage of digitalisation goes along with the development of its own
information products and technologies. Among the most important trends at this
stage are the Internet of Things, the use of electronic twins, the widespread use of big
data analysis in management decision-making collected through the contemporary
information environment tools.
According to the 2020 data, in most of the Russian regions, the proportion of
entities, that use big data analysis, does not exceed 3–5% (Fig. 3); in Moscow, which
is the digitalisation leader among the constituent entities of the Russian Federation,
the proportion of such entities is 8%, and the Internet of Things integrated into
Fig. 2 Distribution of constituent entities of the Russian Federation by the number of entities that
had CRM, ERP, and SCM systems (2019, %)
Fig. 3 Distribution of constituent entities of the Russian Federation by the share of entities that
use Big Data (2020, %)
activities of 10%, on average in Russian regions, only 3–4% of entities use the
Internet of Things.
To assess territorial differentiation according to the degree of digitalisation of
regional economic systems, the variation factor was used, and also, as additional
indicators, the ratio of the minimum and maximum values of indicators among the
constituent entities of the Russian Federation with the average was calculated. In
addition to special indicators of the information economy, general economic indica-
tors were also considered, such as GRP and the volume of products shipped, in order
to compare the differentiation in the field of digitalisation and the level of interre-
gional differentiation in the country as a whole. For the calculations, the 2020 data
were used, except for two indicators, since at the time of preparing the material, the
data had not yet been published. The calculation results are presented in Table 1.
As can be seen from the data presented, the degree of differentiation in terms of
the economy digitalisation parameters differs significantly depending on the specific
Table 1 Differentiation of constituent entities of the Russian Federation by certain economic

indicators
Indicator Min/mean Max/mean Coefficient of variation
Costs of entities associated with the 0.02 51.16 1.36
implementation and use of digital
technologies, 2020
Number of information and 0.04 20.84 0.93
communication technology
professionals, 2020
Number of entities that had CRM, 0.06 6.09 0.68
ERP, and SCM systems, 2019
Proportion of entities that analysed big 0.33 4.87 0.24
data (as a percentage of the total
number of surveyed entities), 2020
Proportion of entities by areas of use of
IoT technologies (as a percentage of
the total number of surveyed entities),
2020
Optimisation of energy consumption 0.33 3.04 0.32
(electrical, heat) in the territory of the
entity
Automation of the production flows, 0.23 3.04 0.36
management of logistics, and product
movement
GDP, 2019 0.05 17.26 0.89
Volume of the shipped goods of own
production, works, and services
performed on their own, 2020
Mining operations 0.001 14.89 1.32
Manufacturing 0.001 13.19 0.92
indicator. The largest gap between the constituent entities of the Russian Federation
is recorded in terms of the entity’s costs for the use of ICT, and the maximum value
differs from the average by more than 50 times. For this indicator, the ranking result
is quite expected; the cities of Moscow and St. Petersburg, as well as the Moscow,
Samara, and Astrakhan Regions, are in the top five. The Chukotka Autonomous
Region, the Altai Republic, the Tyva Republic, the Karachay-Cherkess Republic,
and the Jewish Autonomous Region are at the bottom of the list. In terms of the
number of ICT specialists, interregional disparities are also significant, although less
pronounced than in terms of the volume of ICT expenditures, the variation factor
was 0.93, and the best indicator was 20 times higher than the average. Moscow,
St. Petersburg, and the Moscow Region are also in the lead here but the Sverdlovsk
Region and Tatarstan rank 4th and 5th. As far as the rest of the digitalisation indicators
are concerned, the gap between the territories is significantly lower. In terms of the
number of entities with the CRM, ERP, and SCM systems, the variation reaches 0.68,
the leader (Moscow Region) is only six times higher than the average. Differentiation
by the share of entities analysing big data and using the Internet of Things is not high.
It should be noted that the territorial asymmetry in terms of digitalisation parameters
is quite comparable with the asymmetry in relation to general economic indicators.
In terms of dynamics, it is of interest to consider changes in the interregional
differentiation parameters in terms of the volume of goods shipped (in general and
in relation to innovative products) (see Fig. 4).
As can be seen from the above calculations, the general economic differentiation
between territories is very stable, although it has tended to increase over the past
10 years (the variation factor increased from 0.91 to 0.95). However, the differences
in the volume of production of innovative products over the period under review
changed significantly and clearly showed two periods, from 2010 to 2013 and from
1.30
1.25
1.20
Variation factor
1.15
1.10
1.05
1.00
0.95
0.90
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Fig. 4 Differentiation of the constituent entities of the Russian Federation by shipped goods of
their own production, works and services performed on their own (variation factor)
1.60
1.40
1.20
Variaon factor
1.00
0.80
0.60
0.40
0.20
0.00
2016 2017 2018 2019 2020
Fig. 5 Differentiation of subjects of the Russian Federation by economy digitalisation indicators

(variation factor)
2013 to 2020. During the first period, interregional differentiation increased rapidly,
from 1.13 to 1.28; in subsequent years, on the contrary, there was a decrease to
1.09; the influence of macroeconomic dynamics is very likely here since the period
of 2014–2015 can be characterised by a decrease in economic growth in Russia, a
sharp collapse of the national currency and a deterioration in some other indicators.
Therefore, the leading regions during this period slow down innovation activities
allowing other territories to narrow the gap.
Unfortunately, it is not possible to trace the information transformation trend data
at the territorial level over 10 years for most indicators; based on the available data,
the analytic horizon is limited to a period of 4–5 years (even then, not in all areas of
analysis). Figure 5 shows the interregional differentiation trend data in the ICT costs
of entities, the number of ICT staff, and the number of entities that use high-tech
information systems (including CRM). According to the considered indicators, the
inter-territorial differentiation in the country is quite large but its changes are not
always linear. The gap between regions in ICT spending widened from 2016 to 2019
along with the relatively stable macroeconomic parameters of the country as a whole;
but in 2020, the differentiation is decreasing amid economic problems associated
with the pandemic. A similar pattern has already been noted for the innovative goods
shipped. Differentiation in terms of the number of ICT specialists and the number
of entities with CRM systems changes without a clear trend; it increases in some
years while decreasing in others, and the reason is most likely in the nature of the
considered indicators which measure the presence of a certain phenomenon but not
the efficiency of economic activities; it is preferable to increase the volume of cost
indicators reflecting the digitalisation results; unfortunately, most indicators in this
area currently officially published in Russia, are not that kind but record only the
quantitative and not qualitative side of the introduction of digital technologies.
Table 2 Calculation of the correlation matrix in relation to the industrial production index for the
constituent entities of the Russian Federation and some economy digitalisation data (unloading
from the SPSS information complex)
Indicator ICT costs ICT staff CRM Bigdata Internet of Internet of
Things, Things, power
production sector
Pearson −0.136 −0.130 −0.060 −0.048 −0.058 −0.074
correlation
Value 0.214 0.236 0.580 0.662 0.595 0.500
(double-sided)
N 85 85 85 85 85 85
To conclude the analysis, it is required to test the hypothesis about the stabilising
role of digital transformation processes for regional development; they enhance the
economic system resilience in dealing with adverse environmental factors. There are
studies stating a positive relationship between the development of the ICT sector
and economic growth in the regions [16] but they did not consider the impact of
digitalisation on the dynamics of economic growth during the crisis period.
The traditional arsenal of correlation analysis is quite suitable for measuring the
presence of a relationship between ICT development and the sustainable develop-
ment of regions. Since 2020 is the most recent crisis year in the country’s devel-
opment in the historical perspective, it was decided to use the industrial production
index for April 2020 as an indicator of a region’s macroeconomic stability, when
there was a significant deterioration in economic dynamics. In relation to this indi-
cator, a comparison with the regional digitalisation indicators used earlier to analyse
territorial differentiation was made (Table 2).
For the calculations shown in Table 2, the Pearson correlation as the most popular
toolkit was used; however, similar calculations with the Kendall and Spearman Tau-b
coefficients were carried out, which, however, did not provide any significant differ-
ences in the results obtained. The assumption that digitalisation development reduces
the vulnerability of a region is not confirmed. For all five investigated digitalisation
parameters, no significant correlation between the variables was found. Therefore,
in April 2020, the economic dynamics in the regions deteriorated regardless of the
development of the ICT sector, although the global trend indicates that it was the IT
sector companies that proved to be the most resilient to the crisis consequences, also
due to the increase in remote forms of communication between market entities and
the increased use of IT infrastructure. It is possible that a higher degree of digital
transformation is required to manifest such an effect than is currently in the Russian
regions. According to the authors, this issue is still relevant and requires further study
with broader statistics.
5 Discussion
Differentiation of territorial development is a fairly typical phenomenon, especially

for spatially extended countries. The determining factors of inter-territorial dispari-
ties can be various climatic and geographic conditions, uneven natural resource base,
uneven distribution of production facilities and the existing settlement system, devel-
opment of transport infrastructure, etc. A major factor determining the importance of
individual regions in the inter-territorial ties is economic growth and its determinants
including technical progress. In the context of the transition to another technical and
economic setup determined by the parameters of Industry 4.0, it seems very timely to
assess the consequences of the new technological revolution for spatial and regional
development, since there is an opportunity to direct and adjust the spatial projection
of digital transformation at the initial stage of technological changes.
Previous studies have proven the significant impact of digitalisation on regional
development. There are positive effects of digital transformation on the growth of
labour and capital productivity, and the rate of economic growth. In particular, using
regression analysis tools, the direct impact of the labour and capital digitalisation
on regional growth has been proven; it is measured through the number of people
employed in the ICT sector and the ICT costs of entities [16].
However, the impact of digitalisation is not always limited to any positive effects.
In particular, a possible variant of a destructive digital transformation is considered,
which can be characterised by rapid and radical changes in enterprises; it results in
impairing the ability to compete and undermining the financial potential of firms
[24].
Three scenarios of digital transformation can be considered in the context of the
impact on the regional development processes (see Table 3).
Among the above options, the third scenario is undoubtedly the best, although
the implementation should be accompanied by the improved implementation of
industrial policy measures and an increase in the transparency of mechanisms for
distributing financial assistance between regions. In the current situation, the second
scenario is more likely, which can be partially confirmed by the research results.
Implementation of the first scenario should be recognised as the most negative option,
while the technological inferiority of certain territories will not be preserved, but there
will be a significant loss of the competitive edge by the national economy as a whole.
6 Conclusion
Based on the research conducted, the main conclusions can be formulated as follows.
At first, the digital transformation process in Russia as a whole and in the regions of
the Russian Federation can be considered to have begun; in recent years, investments
in the ICT sector have grown significantly, employment in this area has increased,
and government support measures have increased.
Table 3 Scenarios of the effects of digital transformation on the territorial development in Russia
Scenarios Rate of digital Spatial coverage Digital Implications for
enablement investment territorial
performance differentiation
Scenario 1 Slow Narrow, first of all—the Low, part of the Insignificant, due
largest urban funds, including to weak
agglomerations—Moscow those allocated economic effects
and St. Petersburg, to a with the state
lesser extent—other support, were
million-plus cities, as well invested in
as regions with a priority unpromising
order of financial support projects or
outdated
technological
solutions that do
not allow
providing
enterprises with
a competitive
edge
Scenario 2 Average Narrow, primarily covers Average, part of Strengthening
regions with a high new territorial
concentration of labour digitalization differentiation,
and capital resources, in projects turn out the leaders of
addition to large to be highly past years
cities—regions with a high effective, consolidate their
resource and industrial providing an position,
potential opportunity to backward and
reduce the cost depressed
of current territories lag
production or even further in
increase the
production of socio-economic
fundamentally development
new products
Scenario 3 Above average, Substantial spatial Above average, Smoothing
approaching the coverage—from 30 to including due to differentiation by
pace of digital 60% of the constituent wide spatial strengthening
transformation entities of the Russian coverage and economic growth
in leading Federation (over time), general and increasing
overseas also through ensuring agglomeration the investment
countries competitive access to effect on the attractiveness of
financial support with country’s areas presenting
equalizing coefficients by economy a problem in the
area past
Secondly, it can be stated that the first stage of digital transformation is complete,
and it is accompanied by large-scale computerisation of the economy. At present, the
second stage is well in progress, and the transition to the third stage is being carried
out, but this process is accompanied by extreme territorial unevenness, so far, signs
of the fourth stage can be recorded only in an insignificant number of regions not
exceeding 10% of the constituent entities of the Russian Federation on average.
Third, the differentiation of regions according to individual digitalisation indica-
tors in general coincides with the average values of general economic differentiation,
which is also typical of the past periods of the country’s development. The accuracy
of current analytics is hampered by the scarcity of the information base on digital
transformation processes provided by official Russian statistics.
Fourthly, unfortunately, the scale of digital transformation does not yet make it
possible to significantly reduce the impact of crisis factors on regional development;
perhaps further integration of digital technologies will make it possible to increase the
stability of regional socio-economic systems, as the experience of foreign countries
shows.
Fifthly, at the moment, one can state the provided "window of opportunity" for the
implementation of one of the three key scenarios for the impact of digital transfor-
mation on regional development in the Russian Federation; the transition to the third
most favourable scenario requires increased attention to the effectiveness of industrial
policy measures and increased transparency and competitiveness in the distribution
of the federal aid for large state projects and programs to stimulate scientific and
technological developments.
Acknowledgements This research has been funded by the Science Committee of the Ministry of
Education and Science of the Republic of Kazakhstan (Grant No. AP09260795).
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Structural Effects of the Introduction
of Cross-Industrial Advanced
Manufacturing Technologies: Experience
of the European Union
Olga Smirnova and Alena Ponomareva
Abstract The economic and industrial transformation is currently determined by the

success of scientific and technological progress in such knowledge fields as informa-
tion technology, biotechnology, nano- and microelectronics, robotics, etc. It is worth
noting that technology does not develop in isolation. The convergence of technolo-
gies leads to a mutual reinforcement of their effectiveness and expands their scope of
application. The formation of cross-links between industries and the use of advanced
technology by enterprises impacts the industry’s structure and the entire economic
system. The article deals with cross-industrial innovation as one of the drivers of
economic development and a factor in transforming the economic structure. The
article deals with the technological transformation of national EU economies in the
context of growing global trends of digitalization and green economy. A review of
the technological transformation of developed countries’ economies seems appro-
priate in terms of the continuity of best practices of technological modernization
of the economy. Trends in the use of advanced technologies in various economic
sectors are analyzed, using the example of EU countries, which can be adapted to
emerging markets. The dynamics and structure of using such advanced technologies
as new materials, robots, micro-and nanoelectronics, and industrial biotechnology
were analyzed. As a result of the study, it is shown that today’s competitive technology
is the product of a non-linear innovation process. It is concluded that the effective
cross-industrial relations of EU enterprises are formed under the development of the
cluster form of interaction.
Keywords Cross-industrialization · Advanced technologies · Technological

innovations · Structural analysis · Digitalization
O. Smirnova (B) · A. Ponomareva

29, Moskovskaya St., Ekaterinburg 620014, Russian Federation
A. Ponomareva
O. Smirnova
Ural Federal University, 19, Mira St., Eekaterinburg 620002, Russian Federation
150 O. Smirnova and A. Ponomareva
1 Introduction
In the present dominant knowledge economy, technology is becoming a major factor

in competitive and sustainable development. The issues of technological transfor-
mation, especially the digital industry transformation, are increasingly discussed by
economists [14, 22, 23, 25]. The increasing pace of digitalization of the economy
is affecting all areas of economic systems. For the competitive development of
industry, the most important factor is access to modern technological solutions
providing production with greater resource efficiency, the lowest cost, and reduced
environmental damage.
The EU countries are world leaders in socio-economic development and the
competitiveness level of industrial production [5]. In 2020, the EU introduced a
new industrial policy with the main priority of the dual transition to green and digital
technologies. The objective of the declared industrial strategy is, above all, to increase
the global EU competitiveness and strengthen the technological Europe autonomy.
According to this strategy, the environmental friendliness of industries and commit-
ment to the use of circular economy technologies are significant conditions for their
competitiveness. Also, a strategic direction for Europe is to increase investment in
research and technology implementation in areas such as artificial intelligence, 5G,
data and metadata analysis. In 2018, 10% of European companies used Big Data
technology, and 25 companies used cloud computing services in their operations [6].
The technological industry transformation in the EU is based on the formation
of a single space of scientific research with free movement of scientists, knowledge,
and technology, in transparent and open competitiveness [8, 21]. The new EU indus-
trial policy is based on open science. New forms of partnership between industrial
enterprises, state funds, and society are being formed.
The article aims to consider the experience of using advanced cross-industrial
technologies in EU countries. Analysis of the dynamics and structure of diffusion in
various sectors of the economy is carried out by assessing the effects of “spillover”
of the introduction of technology and the cross-industrial effects of the impact of
advanced production technologies on the economy.
2 Literature Review
Increasingly, the process of innovation emergence, including technological innova-

tion, is non-linear. A derivative of the open innovation model is based on the inter-
actions of different fields of knowledge, the so-called cross-industrial innovation
model [3]. The effectiveness of cross-industrial innovation in unrelated industries is
increasingly discussed in scientific publications (Huang and Ji [10], Mahnken and
Moehrle [16], Lyng and Brun [15], etc.).
The industry transformation is a permanently dynamic process, during which
the current technological modes in the industrial sector change [24]. This process
Structural Effects of the Introduction of Cross-Industrial … 151
includes a whole system of mutually correlated processes, the result of which is a

change in the set of technologies prevailing in production. Certainly, the main factor
in changing technological modes today is the global trend of digital economy devel-
opment. A single digital space contributes to the development of network interactions
and transforms relationships between participants in the value chain.
Studies by the World Economic Forum show that soon there will be no economic
and social sectors not transformed by digital technology [20]. The research concludes
that the greatest effect from the use of digital technology will have an economy in
which “not only traditional industries and services will be well developed from the
standpoint of digitalization, but, above all, cooperative links between them will be
formed” [12, 20].
However, the basis of the fourth industrial revolution is not just digital transfor-
mation. Technological convergence and the formation of hybrid technologies are
currently of particular importance when changing technological patterns. Conver-
gence refers not only to mutual influence but also to the interpenetration of technolo-
gies. In this process, the boundaries between individual industrial technologies are
blurred, and at the interdisciplinary level, their greatest effectiveness emerges. The
appearance of cross-industrial open industrial-service ecosystems, including many
different information systems for managing enterprises and devices, is taking place
[20].
The cross-industrial transformation of industry is understood as the technological
inter-industrial interaction of the industrial complex and its cross-contracting with
other economic sectors. The innovation of industrial technology can be used, in addi-
tion to common linear models, in industries not directly related to each other [1].
Unlike closed innovations, which occur within a single organization (from devel-
opment to market launch), the cross-industrial model will produce multiplicative
effects in different economic sectors. This model involves active cooperation of
institutions both within the triple helix (science, business, society) and horizontal
integration of the company to strengthen the effects of scientific and production
cooperation. A breakthrough in scientific and technological development is impos-
sible without increasing the innovative activity of industrial companies and their
effective cooperation.
Changes in obtaining and transferring knowledge and technology have their trends
and features (Fig. 1). One is the multidisciplinary nature of technology, the introduc-
tion of traditional technologies into new markets with altered functions. Also, with
the development of new forms of innovation, ethical and social problems, such as
the impact of technology on privacy and the environment, are increasing [3]. The
dynamic trend of multidisciplinarity and the globalization of technology reinforces
the importance of the cross-industrial model of innovation.
There are many examples in the history of worldwide technological development
where technologies have been more effectively applied in sectors other than those in
which they originally appeared [3, 9]. For example, there are three types of cross-
industrial uses of space technology. The first is direct use. The technologies were not
originally designed for production outside space conditions but later successfully
adapted to terrestrial conditions (materials, coatings, electronic sensors, computer
Technologies of the past Technologies of the present Technologies of the future
single-disciplinary are two-disciplinary multidisciplinary
macrosystem microsystem nanosystem
local regional global
physical information intelligent
vocational highly specialized multidisciplinary training

training specialized scientific multidisciplinary scientific
general college
degree degree
products provided with local products provided by local products adapted to local
resources components resources
Fig. 1 Changes in requirements and technology trends [3, 4]
programs, etc.). Some technologies are also dual-use, developed in parallel—for use
in space and on Earth. There is also an indirect emergence of technology; its creation
took place outside the space industry but was based on its development. For example,
medical equipment for deep tissue cooling is based on using cryogenic fluids [3].
The essence of the open and cross-industrial innovation model is to change the
internal processes of innovation management. These processes must become more
open; there is a technology diffusion process through the joint action of univer-
sities, laboratories, start-up companies, suppliers, consumers, and manufacturers.
Under such conditions, the place of internal competition of industrial enterprises
must prioritize the need for their interaction and cooperation to obtain new technolo-
gies and knowledge, allowing them to enter the international market with high added
value products. This trend necessitates the emergence of new business models that
enable effective collaboration to generate innovation while maintaining competition.
Innovations created in one industry affect others: there is a so-called “knowledge
spillover” between fields of knowledge. This process has been termed “spillover
effects” (secondary effects). This spillover effect can be the impetus for developing
new processes, products, and services in related industries [13].
To facilitate cross-industry innovation processes, a structural approach is needed
to change innovation processes at the company level. Currently, Russian companies
are facing the issue of their production and organizational business processes being
unprepared for technological transformation and digitalization trends. The issue of
the lack of necessary skills and competencies is also relevant. The success of creating
and implementing cross-innovations largely depends on the network interactions of
companies and the closeness of their scientific and production relations [2]. One of
the effective organizational forms of such interactions for implementing the model of
cross-industrial innovations is cross-industry innovation clusters, which have become
a relatively new direction of cluster development [17].
The creation of innovative clusters with the participation of high-tech industry

occupies a special place among industrial policy tools both in Russia and other
countries [8, 11]. This form of interaction is effective for developing the innovative
potential of local economies (at the regional level) and is used in many countries with
developed economies (USA, Italy, Germany, France, etc.). In a general sense, a cluster
is understood as an integrated structure with many links and interdependencies. The
basis for the creation and successful functioning of modern clusters is infrastructure
and technology [11].
Cross-industry innovation clusters use a system of knowledge and technology
dissemination based on cross-links. In a cluster, participants have a competitive
advantage in the form of specialization, which allows minimizing the cost of
implementing innovations [3] and reducing the risks of inefficient or unclaimed
technological innovation.
The literature review has concluded that there is a growing trend of knowledge
interdisciplinarity, the non-linear nature of the creation and dissemination of tech-
nology. Cross-industrial introduction of technologies can help reduce the risks of
technologies not being in demand, increase the economic effects of their implemen-
tation, and change the economic structure. In particular, this is influenced by the use
of military and space technologies in the civil sector and advanced manufacturing
technologies in the social, service, and management spheres. In the following article,
using the EU example, a study of advanced production technologies in various sectors
of the EU economy is conducted.
The rapid rise of advanced technologies is transforming businesses, industries and

the society and it is profoundly changing the future competitiveness and employment
dynamics of nations. Traditionally, the source industries for cross-industry technolo-
gies are advanced high-tech industries, such as space engineering, chemistry, and
biopharmaceuticals. New industries that have successfully applied cross-industry
innovation technologies are packaging materials and waste recycling.
The starting point of this analysis has been 16 advanced technologies that
are a priority for European industrial policy, which enable process, product and
service innovation throughout the economy and hence foster industrial modernisa-
tion. The advanced technologies within the focus of this report include advanced
materials, advanced manufacturing, artificial intelligence, augmented and virtual
reality, big data, blockchain, cloud technologies, connectivity, industrial biotech-
nology, Internet of Things, micro- and nanoelectronics, mobility, nanotechnology,
photonics, robotics, and security.
The level of uptake of advanced technologies has been measured based on a
variety of sources such as the business survey, production indicators, text-mining of
company websites and available Eurostat indicators.
Technology generation and exploitation have been captured through patenting

activity and production and trade of technology-based components in the EU coun-
tries. The patent indicators measure the ability to produce new technological knowl-
edge relevant to industrial application. Production indicators measure the relevance
and dynamics of the production and absorption of advanced technology based
components.
Using the example of EU countries, the study analyzes the effects of cross-
industrialization, that is, the use of advanced technologies in various sectors of
the economy. The analysis includes a study of the dynamics and structure of the
introduction of advanced production technologies in the manufacturing, service,
agriculture, finance, and management sectors. The application of such advanced
technologies, which have traditionally been implemented to a greater extent in the
manufacturing sector, is considered. This is the use of modern materials, robotics,
micro- and nanoelectronics, industrial biotechnology.
The study is based on patent data collected by the European Commission [7].
The patents have been localized based on the location of the legal owner of the
patent application, and therefore the analysis reflects the owner/applicant of the
technology. The advanced manufacturing technology use rates considered reflect
the proportion of businesses that have incorporated advanced technology into their
company’s operations or production in the overall sample obtained from the ATI
survey. This survey was conducted in 2019 and 2020. The 2020 study included 1500
companies from France, Germany, Italy, Spain, Denmark, Sweden, and Poland. The
2019 survey is based on a sample of 900 firms from 11 countries. This survey covers
enterprises of different levels, from small and medium-sized to large companies [7].
The study does not take into account the impact factor of the COVID-19 pandemic.
4 Results and Discussion
Advanced manufacturing technologies use technological and organizational inno-

vations to improve products or manufacturing processes. They are based on tech-
nologies based on robotics, automation technology, or computer-integrated manufac-
turing. Future technologies developed in the Industry 4.0 concept include the intro-
duction of networking between machinery, equipment, buildings, and information
systems, the ability to monitor and analyze the environment, the production process
and own state in real-time, the transfer of control and decision-making functions to
intelligent systems, etc. Advanced technologies such as Big Data, Blockchain, Cloud
Computing, artificial intelligence, augmented, virtual reality technologies, and other
advanced areas of modern science underlie economic growth, competitiveness, and
digitalization of production. The new generation of technology enables economic
benefits from analyzing and using data, improving and accelerating production
processes, reducing the number of transactions, and a host of other new opportuni-
ties. These technologies are used in the industrial sector and are already widespread
in all sectors of the economy (Fig. 2).
Agriculture
Government & Education
Retail & Wholesale
Transport & Logistics
Utilities and Oil & Gas
Healthcare
Professional Services
Financial Services
Process Manufacturing
Manufacturing
Telecommunication
Discrete manufacturing
15 25
Percentage of enterprises
Fig. 2 The use of advanced technologies in various sectors of the EU economy, 2020 [7]
According to the 2020 survey, advanced technology is generally mostly used in the
manufacturing and telecommunications sectors. About a third of all manufacturing
EU companies use advanced technology in their business activities. The agriculture
sector is the least involved (17.13%).
Technologies for creating new modern materials allow for new properties of prod-
ucts and services and reduce their cost. As a result, the use of new materials provides
new quality goods and services in manufacturing and the aerospace industry, trans-
portation, construction, health care, and others. The use of new materials, including
recycled materials, in addition to the economic effects, can reduce energy use and, as
a consequence, carbon dioxide emissions into the environment. Also, technologies
for developing new materials allow obtaining the equivalent of scarce materials.
Figure 3 shows that in 2020, compared to 2019, new materials technology is
increasingly used in non-manufacturing enterprises. Among the industries with the
sharpest growth in the use of these technologies, one can note the education and
management sector (8.38%), the agricultural sector 4%, the financial sector and
telecommunications (more than 10%), more than 16% of service sector companies
use the technology of new materials.
Robotization, both in manufacturing and services, has not stopped at its fast-
growing pace. Robotics encompasses the design, construction, implementation, and
operation of robots. Robotics technology currently allows obtaining robots of various
categories. These are specific robots designed to perform a specific task, they can
be stationary or mobile, but their functionality is limited. Multi-purpose robots are
designed to perform several functions, and here is an opportunity to personalize
their functions for the company’s tasks. The new generation of cognitive robots can
make decisions and reasoning, allowing them to work in complex environments. It
is important to note that they are capable of learning and making decisions.

Manufacturing
Telecommunication
Retail & Wholesale
Healthcare 2020
Financial Services 2019
Agriculture
0 10 20 30
Fig. 3 The use of modern materials in various sectors of the EU economy [7]
In continuous manufacturing, the share of EU enterprises using robots in 2019

was 1/3, and in 2020 it is already half of all surveyed enterprises (Fig. 4). The
functionality and complexity of the work performed by industrial robots continue
to gain momentum. A large increase is noted in telecommunications, from 3 to
20%. In the financial sector, about 25% of companies surveyed in 2020 use robotics
technology. In 2019, fewer than 10% of organizations in the sector were using robots
in their operations.

Manufacturing
Telecommunication
Retail & Wholesale
Healthcare 2020
Financial Services 2019

Agriculture
0 10 20 30 40 50 60 70
Fig. 4 The use of robots in various sectors of the EU economy [7]


Manufacturing
Telecommunication
Retail & Wholesale
Healthcare
2020
Financial Services
2019
Agriculture
0 10 20 30 40
Fig. 5 The use of micro-and nanotechnology in various sectors of the EU economy [7]
Nanoelectronics is an interdisciplinary science and combines different areas of

electronics. The laws of interaction of electrons, other charged particles, and quasi-
particles with electromagnetic fields in various media, and the use of this inter-
action to create electronic devices by nanotechnology, are studied. The advances
in modern microelectronics amaze with their boldness of technical solutions and
their wide range of applications. The use of nanotechnology leads to the develop-
ment of intelligent nano- and micro-devices and systems, which entails enormous
changes in vital areas such as health care, energy, the environment, and manufac-
turing. Figure 5 shows that micro and nanotechnologies are penetrating all sectors of
the EU economy. It is important to note the large increase compared to 2019 in the
discrete manufacturing industry. It is also noticeable in non-manufacturing industries
such as telecommunications, the financial sector, sales, and services.
An analysis of the use of industrial biotechnology is of particular importance for
assessing cross-industry effects (Fig. 6). Industrial biotechnology integrates knowl-
edge from such sciences as biochemistry, microbiology, molecular biology, and
applied sciences. Biotechnological processes involve the use of microorganisms, cell
and tissue cultures. The application of biotechnology has become more common in
the industrial processing and production of chemicals, materials, and fuels. Microor-
ganisms, or components of microorganisms, are used to produce products and allow
for economic effects in the form of reduced energy consumption or reduced by-
products. More and more technologies and products based on biology are appearing
in the market. In the early stages, biotechnology was associated with enzymes used
in the food, agricultural industry. On the other hand, modern technologies include the
production of biochemical products and biopolymers from agricultural or forestry
waste.
Manufacturing
Agriculture
Retail & Wholesale
Telecommunication
Financial Services
Healthcare
Government & Education 2020
2019
0 10 20 30 40
Fig. 6 The use of industrial biotechnology in various sectors of the EU economy [7]
In 2019, these technologies were most prevalent in health care, utilities, and
energy in the EU. However, in 2020, one can see widespread adoption of biotech-
nology in industries. According to the 2020 survey, more than 34% of European
continuous production plants use them. They are also becoming widespread in agri-
culture, telecommunications, and trade. Such trends point to the increasing cross-
industrial effects of technological and organizational innovations and their increasing
multidisciplinarity.
The analysis shows an increasing spread of technologies developed on an inter-
disciplinary basis, as well as the presence of spillover effects—technologies initially
used in some sectors are spreading with great speed to other areas of economic
activity. The presence of such effects, in the authors’ opinion, is associated with a
large number of cross-connections of European enterprises, the spread of interaction
in the form of inter-regional and inter-industry clusters.
The effects of technology spillovers between industries in the long term inevitably
change the sectoral structure of the national economy. The cross-industrial applica-
tion of advanced production technologies will allow the formation of a more balanced
structure of the economy, which will increase its resistance to various external shocks
[18].
The development and application of cross-industrial innovation in clusters have
many advantages. First of all, these are competitive advantages—the development
of radical innovation leads to the creation of new industries, which also changes the
industry structure and increases the competitiveness of the national economy. Cross-
industry interactions also reduce the risks of not using innovation, and the experience
of using the technology in other industries helps reduce the cost of additional research.
5 Conclusions
The global mainstream of today’s competitive development for the industrial

economy is its digitalization and focus on the green economy principles. This
trend must, to some extent, affect all areas of the economy, industry, and the social
sphere. The study shows that the spread of advanced production technologies leads
to the transformation of the industrial sector and, in the long term, changes the
sectoral structure of the economy. Trends of digitalization and green economy change
approach to the implementation of industrial policy [6, 19]. It is important to note
that industrial policy is understood in a broad sense and interpreted as structural in
European countries. Cross-industrial technology is becoming a factor in creating a
balanced economic structure.
The technologies in demand today are the product of a non-linear process of
innovation. The economy’s competitiveness can be ensured by advanced technolo-
gies derived from the intersection of different knowledge fields. Interdisciplinary
research, the involvement of business in the creation of new technologies, and active
inter-industry cooperation are of great importance when reducing the technological
dependence of national economies’ industries on the global technology market. The
practice of using advanced technologies in the EU countries shows that in addition to
the space industry, cross-industrial technologies are being developed in chemistry and
new materials, medicine, biology, information and communication, mechanical engi-
neering, and electronics. The cross-industrial use of technology represents a signifi-
cant potential for economic growth in a networked environment due to synergies and
spillover effects.
The study shows the increasing spread of production technologies in the non-
production sphere, which will lead to changes in the sectoral structure of the economy
in the long term. Also, this cross-industry spread of advanced technologies shows
the balanced structure of the EU economy.
Advanced technology on an interdisciplinary basis is a basic condition for an
early transition to a cycle economy. In the context of digitalization, more demands
are placed on business. This cannot but affect the organization of business processes;
there are new forms of interaction in clusters, business networks, virtual structures.
New forms of interaction will allow enterprises to respond more flexibly to technolog-
ical challenges. The proper support for the spread of such new forms of organization
as inter-industry clusters by the state will maximize the cross-industrial effects in the
economy as a whole.
Acknowledgements This article was prepared with financial support from the Russian Foundation
for Basic Research, Project No. 20-010-00719, “Modeling cross-industrial networking processes
in the industrial complex based on hybrid technologies”.
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Best Regional Practices for Digital
Transformation in Industry: The Case
of the Industry 4.0 Program in Portugal
Luciana Peixoto Santa Rita , Joaquim Ramos Silva ,

and Reynaldo Rubem Ferreira Junior
Abstract The Portuguese government, through its program for Industry 4.0,
Portugal I4.0, has been supporting projects aimed at the digital transformation of
the economy by mobilizing European funds and governmental subsidies from the
Portugal 2020 Program. The objective of this study is to analyze the best regional
practices for digital transformation in the industry 4.0 in this context. The following
research questions arise: which are the best practices for digital transformation in
Portugal under this Program and what was the impact on the competitiveness of
Portuguese industries after the implementation of these technologies through the
Incentive Value from 2017 to 2019? The methodological approach is correlational,
and it establishes a relationship between the I4.0 Incentive Value and Competi-
tiveness in order to identify the best regional practices for digital trans-formation
in the Portuguese industry. The hypothesis of this study is accepted for the period
2017–2019, since the factors that make up the industry 4.0—European Fund—Incen-
tive Value dimension are associated to the degree of competitive-ness, which was
measured by a set of related variables. Further studies are necessary for longer periods
and with a broader scope, the result shows the relevance of the Program.
Keywords Digital transformation · Regional practices · Industry 4.0
L. P. S. Rita (B) · R. R. F. Junior

Federal University of Alagoas, Campus, AC Simões, Alagoas 57.000-000, Brazil
R. R. F. Junior
J. R. Silva
University of Lisboa, Rua Miguel Lúpi 20, 1279-048 Lisboa, Portugal
164 L. P. S. Rita et al.
1 Introduction
According to market logic, the convergence between manufacturing and the basic
technologies of Industry 4.0 (I4.0) makes it increasingly essential for companies
to formulate innovation strategies to strengthen their technological capabilities.
Also, digital transformation changes industrial processes and procedures, as well as
changes the relative positions of key actors in the value chain and intellectual prop-
erty regimes. In this shifting landscape, [1, 9, 38, 40, 41] agree on the distinction
of three sectors in which industry 4.0 stands: (1) core technologies (hardware, soft-
ware, connectivity); (2) basic technologies (analytical, security, artificial intelligence,
electrical, 3D systems); and (3) application technologies (home, personal, company,
manufacturing industry, infrastructure, vehicles, etc.). In view of this distinction,
it should be noted that Industry 4.0 is a peculiar concept to the Fourth Industrial
Revolution (4IR), which accompanies digital transformation, automation and data
exchange in technologies including the internet of things (IoT); big data; 3D printing
(additive manufacturing); cloud computing; autonomous robots; augmented virtual
reality; industrial internet of things (IIoT); cyber-physical systems; block-chain; arti-
ficial intelligence; intelligent sensors; smart logistics; drones; simulation and digital
twins; smart factory; nano-technology; biotechnology, among others [2, 4, 6, 10, 14,
17, 18, 24, 26, 27].
Since the technological evolution leads to the convergence between the compo-
nents and the knowledge of new technologies [29, 30], the I4.0 allows the manage-
ment of industries that manufacture products with greater complexity, but also with
flexibility. Thus, the 4IR, through the digitalization and interconnection of all objects
(projects, parts, machines, devices, etc.) implies a significant improvement in the
manufacturing systems. In contrast with previous industrial revolutions, I4.0 is based
on the creation of networks and interconnectivity between existing assets and tech-
nologies, therefore not limiting itself to the replacement of existing assets and tech-
nologies, and mainly using Information and Communication Technologies (ICT).
After the implementation of the I4.0 concept in Germany, other countries have also
progressed in the use of their inherent technologies, and in this context patent rights
must be emphasized insofar they are crucial for companies because of their exclu-
sive nature, corresponding to rights of their owner To address the above-mentioned
challenges, this paper puts forward the following research objective: to analyze the
best regional practices for digital transformation focusing on the case of Industry
4.0 Program in Portugal, from where two research questions arise: which are the
best regional practices for digital transformation in the Industry 4.0 Program of
Portugal, and what was the impact on the competitiveness of Portuguese industries
after the implementation of the industry 4.0 technology-enabling projects through
the Incentive Value from 2017 to 2019.
Therefore, based on the Portuguese case, and starting from the questions that were
just raised, this research contributes to deepen the study of I4.0 in the domain of the
best regional practices for digital transformation in a theoretical, methodological and
empirical way. From the theoretical point of view, there is an analysis that allows
Best Regional Practices for Digital Transformation … 165
inserting the digital transformation in the context of the industrial structure. From a
methodological point of view, the study contributes applying a comparative analysis
to the literature on the relationship between digital transformation and the techno-
logical conditions from the I4.0 perspective. In empirical terms, the study focuses
on how the digital transformation in industry can configure a prerequisite for the
competitiveness of industries in the country. These results are the first step to create
a digital platform that delivers a comprehensive assessment of digital transformation
over time.
The structure of the article is organized as follows. Section 1 covers a brief
introduction to the core issues. Section 2 presents the conceptual framework and
develops the analytical structure of our approach. In Sect. 3 the methodology that
was followed is described. Section 4 shows the results that were obtained in the
empirical research. In Sect. 5 the main results are discussed. The paper closes stating
the main conclusions, the study limitations, and offering clues for further research.
2 Background
2.1 Industry 4.0
The literature has investigated many aspects of 4IR, both in the field of applications
and in the academy [18, 33, 34]. The I4.0 has been considered a new industrial stage
in which several emerging technologies converge to provide digital solutions. For
the purpose of this paper, it must be considered that the inventions of 4IR can be
classified in three big categories, each of which is subdivided into several technolog-
ical domains: (i) Main technologies (hardware, software and connectivity) that allow
transforming any object into an intelligent device connected through the Internet; (ii)
Enabling technologies (big data, artificial intelligence, 3D systems, human–machine
interaction) that are used in combination with linked objects; (iii) Application tech-
nologies (home, personal, company, transformation industry, infrastructure, vehicles)
in which the potential of linked objects can be explored [35, 36].
Under this approach, [38, 39] use a more restricted definition, where I4.0 is
connected to intelligent manufactures in which new and distinct technologies change
the organization of value chains. The scope is the “digitalization” of production that
integrates with the new ICT. This conception of I4.0 has reflected a strong will by
national governments to promote reindustrialization, being smart industry its central
element [38, 40]. Naturally, smart industry requires wide availability and integration
of the factory with the entire product life cycle and production chain activities [7, 16],
including changes in the way people work. In fact, the smart industry depends on the
adoption of digital technologies to collect real-time data and analyze it, providing
useful information to the manufacturing system [42].
2.2 Governmental Subsidies
Moreover, the literature often suggests that I4.0 will expand the opportunities for
many regions, create new regional leaders combined with the potential to shift the
geography of knowledge production in various directions. This is, in any case, one of
the aspects to be analyzed in the present study. On the one hand, there is a focus on
management among the different research advances referring to I4.0 [5, 8]. In addi-
tion, research is progressing on specific technologies and industry-focused issues
[12]. However, little emphasis has been placed on the role of governmental subsi-
dies when executing I4.0 projects and the impact of these technologies on business
performance [16].
On the other hand, several empirical studies have described the issue of subsi-
dies to innovation activities mainly using financing, tax incentives, special loans and
similar policies. Among these studies, [3, 11, 15] evaluate the impact of an innovation
program in Italy, noting that the subsidy increased the number of patent applications
submitted by beneficiary companies. Other studies [15, 19, 20] concluded that subsi-
dies are one of the most widely used international instruments because they reduce
the costs associated with R&D and innovation. More recently, it has been observed
that public interventions are primarily aimed at reducing the effective cost of R&D,
promoting cost sharing and encouraging companies to invest in research and thus
improving the efficiency of innovation activities [25, 28].
In this context, governmental subsidies can reduce the cost of R&D activities
for companies and generate more innovation by motivating additional private R&D
spending [28]. Government R&D funding also changes the behavior of recipient
companies and affects the innovation pattern [21, 23]. Direct subsidies used in isola-
tion or with tax incentives strengthen the R&D orientation of small and medium-sized
enterprises (SMEs) [15]. As such, governmental R&D subsidies play a positive role
in innovation. It is also important to note that credit promotion policies, with public
guarantee, can also provide incentives for existing low-cost access to financial capital
to promote innovation efficiency [8].
Another important aspect pointed out by Sung [11, 28, 29] indicates a positive
two-way causal relationship between company innovations and variables like R&D
subsidies, availability of internal innovation resources and industry competition.
Also, [58] conclude that subsidies can promote technological competition, but they
can also limit innovation when there is an oversupply of subsidies. In addition to
this issue, the study by [41] stated that special loans and tax credits positively affect
a firm’s innovation performance, while direct allocations sometimes have negative
effects. From this perspective, a preferential tax policy was found to have a significant
positive impact on R&D efficiency, but not on the market conversion efficiency. Also,
[11] found that financial support from the government has a significant negative
impact on R&D innovation efficiency, but government tax support has a significant
positive effect on R&D innovation efficiency. And finally, [40] noted that direct
financial support from the government has no impact on improving the efficiency
of technological innovation in high-tech industry. Regarding governmental R&D
subsidies, this section highlighted that they are used as a tool to foster technological
development or support in general, innovation, start-ups, etc. The conclusions of this
section indicate that subsidies and their use can be a strategy to differentiate and
generate results for organizations as sources of competitive advantages; the results
can however be diverse.
In this first moment, the study carried out was of an applied nature, being designed
from documental research through the use of secondary data.
In a second moment, the study can be categorized as a causal study with the
objective of testing the relationships between variables. The aim was to establish
relationships between two or more concepts or the degree of relationship between
these concepts, considering that the formulation of hypotheses in studies of a corre-
lational nature validates the association between variables and not the causality of a
phenomenon. As such, the effects of the incentive value of the European Union (EU)
Funds on the competitiveness of Portuguese industrial companies were analyzed
through projects focused on I4.0 technologies in two dependent samples of the
periods 2017–2018 and 2017–2019. Thus, the study evaluates companies enrolled
for the receipt of EU Funds, which had implemented I4.0 projects in the same
period, arising from the Partnership Agreement between Portugal and the European
Commission, called Portugal 2020, under the scope of the Operational Program of
Competitiveness and Internationalization—COMPETE 2020.
In this sense, the COMPETE database was used, consisting of the set of projects
that were approved between 2016 and June 2020. It should be noted that only compa-
nies receiving subsidies for projects with an initial project execution date of January
2017 were considered, with those companies being analyzed that appeared in the indi-
cator base from 2017 to 2018 and from 2017 to 2019, i.e., a period of 1 or 2 years.
Companies with projects executed after 2018 were not considered. At first, in the
selection of the two samples, the definition of specific I4.0 measures was not identi-
fied in the COMPETE base, but projects in different measures were included, such as
R&TD—Copromotion, R&TD—Individuals, R&TD—Mobilizing Programs, SIAC,
Innovation—Productive, Innovation—RCI, IQ SME—Individuals, IQ SME—Sets,
IQ SME—Vouchers. Therefore, a first search was made with keywords related to
the subjects and description of the projects supported by these measures. Specifi-
cally, keywords related to I4.0 were applied: I4.0, Industry 4.0, Artificial Intelligence
(AI), Internet of Things, Robotics, Cloud Computing, Machine Learning, Additive
Manufacturing and Simulation.
After searching for keywords with the terms in Portuguese, English and acronyms,
a second criterion was applied regarding the year the project started. This returned 123
companies with projects implemented in I4.0 enabling technologies. Next, teaching
and research institutions were discarded, leaving 91 companies. After a new analysis
of the companies, there were companies with projects executed after 2017, resulting
in the exclusion of about 44 companies and leaving about 36 (thirty-six) industries

for analysis with projects implemented between 2016 to 2018.
Subsequently, a research model was developed that allowed for the proposal of the
relationship between variables: the dependent variable was Industry Competitiveness
(Operating Revenue, Number of Employees, Total Factor Productivity (TFP), Gross
Value Added, EBITDA and Net Profit) and the independent variable was Industry
4.0 Incentive Value (EU Financing).
The following precepts explain the choice for the model with its dimensions and
factors. The traditional ex-post competitiveness indicators (performance, market-
share and profitability, the so-called revealed competitiveness), as well as the ex-ante
indicators (efficiency), provide the means, within the new productive paradigm, to
determine the factors that generate competitiveness. As competitive performance is a
variable summarizing all the conditions that influence competition over a given period
of time, there is a way to derive causes or interconnections between the variables
that determine competitiveness in the industry.
For the set of companies with subsidized projects that were filtered from the
COMPETE base, the economic-financial database Orbis Europe was accessed, which
contains detailed financial information on 120 million European companies. The
database has 10 years of detailed financial information and analysis and modeling
of the financial indicators, including the variables used in the research model.
The data obtained through the research were analyzed with statistical techniques
that allowed us to decide on the acceptance or rejection of the established associ-
ations. Non-parametric statistics were chosen because of the small number in the
samples and the suspicion that the data were not normally distributed. The number
of companies was 36 (thirty-six), thus constituting a small group of information for
analysis according to non-parametric statistical techniques (Siegel, 1975). In order to
test some associations in the SPSS software, the group was divided into two samples,
one considering the time frame 2017–2018 and the other the time frame 2017–2019,
which were also considered of a higher degree and a lower degree, both in terms of
dimensions and factors, allowing for the application of difference tests. A level of
5% was established as significant for the hypothesis test. This is the standard level
applied in social sciences and appropriate for samples with a size close to 50, which
is the specific case of this study.
The following tests were used in the analysis [38]:
A. Kendall rank correlation coefficient tests are applied when several variables are
studied simultaneously to determine how they are interrelated. The more the
given index approaches a certain level, the higher the correlation.

S= (sign(x[ j] − x[i])) ∗ (sign(y[ j] − y[i])) (1)
i< j
The following equation is used to test the significance of the Kendall

coefficient:
c2 = k(N − 1)W (2)
B. The Wilcoxon signed-rank test is used to compare whether the rank measure-
ments of two samples is equal when the samples are dependent.

X 1, Y 1 . . . X n , Y n . (3)
Thus, Di = Xi – Yi, for i = 1, 2, …, n. Therefore, the sample D1, D2, …, Dn is

obtained, resulting from the differences between the values of each pair.
Hypotheses are established to perform the Wilcoxon Test:

H0 = pi(+) = pi(−) pi(+) > pi(−)

H1 = pi(+) = pi(−) pi(+) < pi(−) (4)
H0: There is significant correlation between the variables (Operating Revenue,

Number of Employees, Total Factor Productivity (TFP), Gross Value Added,
EBITDA and Net Profit) when they are correlated with the EU Fund variable
(Industry 4.0 Incentive Value).
H1: There is no significant correlation between the variables (Operating Revenue,
EBITDA and Net Profit) when these are correlated with the EU Fund variable
(Industry 4.0 Incentive Value).
4 Results
4.1 Best Regional Practices for Digital Transformation

in Industry 4.0 in Portugal
The industry 4.0 Program in Portugal is part of the National Strategy for the Digi-
talization of the Economy developed by the Ministry of Economy and the Digital
Transition Strategy to be deployed through a set of measures based on three axes of
action: (1) Accelerate the adoption of I4.0 in the structure of Portuguese businesses;
(2) Promote Portuguese technological suppliers as I4.0 players; and (3) Turn Portugal
into an attractive pole for investment in I4.0.
The industry 4.0 Program is currently in Phase II. Phase II of the program was
launched with the objective of fulfilling a decade of sustained convergence with
the European Union, described in the National Strategy for the 2030 Horizon. This
phase was developed with contributions from over 50 entities and is characterized as
transformative in relation to Phase I, which was mainly demonstrative and mobilizing
in nature. In this new phase, it is estimated that 600 million euros in public and private
investments will be mobilized in the next two years. The various initiatives should
involve 20.000 companies, train more than 200.000 workers and finance more than
350 transformation projects.
The government has set up COTEC to supervise the implementation of I4.0
in the country. COTEC Portugal is responsible for industrial transformation solu-
tions and the mobilization of decision makers and entrepreneurs within that purpose.
This context created a collaborative platform (PI4.0) co-financed by public funds,
involving business groups and state agencies like the Strategic Committee [16].
According to data from, the strategy is based on above-mentioned three action
axes. The process was designed from the bottom up, with contributions from hundreds
of stakeholders from various key sectors and the definition of over 60 measures.
Since 2016 (when the first phase began) the organization has been based on six
priority directions: human resources training, technological cooperation, creation of
I4.0 startups, funding, investment support, internationalization and legal and regu-
latory adaptation. Four working groups were also created for priority sectors where
digitalization has more impact (tourism, clothing, agri-food and automotive). Later,
sectors such as construction (in particular with the diffusion of Building Information
Modeling, or BIM), and connected healthcare were added.
Through the various initiatives carried out inside and outside the country - national
meetings, innovation conferences, technical visits to manufacturing facilities and
missions at international industrial trade shows such as Hannover Messe—the orga-
nization promoted reflection on such topics as the transformation of professions
and jobs, the role of collaboration in innovation, the relationship between humans
and machines and business training. The importance of the circular economy, the
imperative of cyber-security and the distinction of excellence in industry were also
highlighted.
The measures include the sharing of knowledge, experiences and benefits as a
way to stimulate the massive transition to I4.0. To this end, it uses such tools as Shif
4.0, which allows companies to make a self-diagnosis about their digital maturity.
The new phase of the industry 4.0 Program also provides for a set of measures to
promote, facilitate and finance the access of companies to experimentation with I4.0
methods and technologies, as well as to support their scale-up and digital transition,
employing tailored credit solutions. New support tools for Productive Innovation will
be launched and, among other measures, technology-industry collaboration platforms
and cyber-security training will be promoted.
In this context, IAPMEI, which is the public institution for the support of SMEs,
is the partner of firms in the promotion of the available Incentive Systems that are
distributed according to three types of action: R&D, Productive Innovation and the
Digital Economy for R&D projects in cyber-physical systems; Virtualization and
Simulation; Artificial Intelligence; Digitalization; Augmented Reality and Wear-
ables; Nanotechnology and Advanced Materials; Energy. According to, the following
incentives are in place for the R&D action:
• SI R&D to support projects comprising industrial research and experimental
development activities leading to the creation of new products, processes or
systems, or to significant improvements in demanding products, processes or
systems. The beneficiaries of this measure are companies of any nature and legal
form, and the following subsidies are part of the action: Non-Refundable Incen-
tive (INR) up to 1 M euros per beneficiary (after 1 M euros: 75% Non-Refundable
and 25% Refundable); Base Rate 25% up to (Limit (ESB)):—Industrial Research
Projects: 80%—Experimental Development Projects: 60%.
• SI R&D Centers that support projects seeking to create or reinforce the internal
competencies and capabilities of the companies through the creation of struc-
tures dedicated to the implementation of R&D and the necessary certification of
research, development and innovation management systems through the NP 4457
standard, contemplating direct costs (expenses with technical personnel dedicated
to streamlining the R&D centers; HR training; technical, scientific and consulting
assistance required to structure the centers; scientific and technical instruments
and equipment, software for the project, among others) and indirect costs. The
beneficiaries of this measure are SMEs of any nature and legal form. In the case
of co-promotion projects, non-business entities of I&I system are also beneficia-
ries through the Non-Refundable Incentive (INR)—50% for SMEs and 15% for
Non-SMEs (only in co-promotion).
For Productive Innovation projects, the focus is on connectivity actions, intelli-
gent production processes, additive manufacturing, intelligent machines, advanced
materials, modular operations, 3D printing, and autonomous robots. The incentives
vary between 15 and 75%, with 50% of the total amount provided through a non-
refundable subsidy, to be granted under SI Innovation; 50% of the total amount is
provided through a bank loan without interest, associated to a financial instrument
funded by strategic program of Portugal 2020.
Industry 4.0 vouchers seek to promote the definition of an own technological
strategy in order to improve the competitiveness of the company, aligned with the
I4.0 principles [58]. This measure is meant to achieve digital transformation through
the adoption of technologies that allow for disruptive change in the SME business
models (acquisition of consulting services in order to identify a strategy conducive
to the adoption of technologies and processes associated with I4.0, particularly in the
strategy design and implementation areas applied to digital channels for the manage-
ment of markets, channels, products or customer segments; design, implementation,
optimization of Web Content Management (WCM) platforms, Campaign Manage-
ment, Customer Relationship Management and E-Commerce, etc.). These vouchers
have a unit value of 7.500 euros and are meant to support more than 1.500 companies,
representing a public investment of 12 million euros.
The SI Individual Project Qualification aims to strengthen the business training
of SMEs through organizational innovation, applying new methods and processes
and increasing flexibility and responsiveness in the global market by using intangible
investments in the area of competitiveness (organizational innovation and manage-
ment, digital economy, brand creation and design, product, service and process
development and engineering, protection of industrial property, quality, knowledge
transfer, distribution & logistics, eco-innovation, professional training, HR hiring).
The strategic plan for phase I of Portugal i4.0 was composed of 60 public and
private measures and private measures grouped into six major axes of priority
action: Capacity Building of Human Resources; Cooperation Ecosystem; StartUp
i4; Financing and support to investment; Internationalization; Legal and Normative
Adaptation.
Among the various existing public instruments in the Phase I (Table 1) that support
investment in the transition to a more digital economy, two stand out: the Vale Industry
4.0 and the Incentive System for Productive Innovation i4.0.
It also connects those best regional practices for digital transformation in industry
to the eleven initiatives identified in COTEC’s Industry 4.0 Phase II report (Table 2).
In order to fill the identified gaps and leverage a generalized transition to Industry
4.0, phase II of Portugal i4.0 considers it necessary to act in three strategic lines:
Generalize i4.0, Empower i4.0, Assimilate i4.0, and strategic lines: Generalize i4.0,
Empower i4.0, Assimilate i4.0 [22].
4.2 Analysis of the Non-parametric Tests
As explained above, Kendall’s correlation was used to assess whether variables were
correlated or not when interconnected (Table 3).
As can be seen, the variable Industry 4.0 Incentive Value has no correlation with the
variables Productivity and Employees. However, a high correlation can be observed
between Operating Revenue (0.958) and the Ind. 4.0 incentive value, followed by
a high correlation between EBITDA (0.776) and the Ind. 4.0 incentive value. This
is important to confirm the fact that they are dependent variables and belong to the
same order group.
Subsequently, the normal distribution of both samples was verified, adopting the
Wilcoxon signed-rank test with the defined hypotheses (HA, HB, HC, HD, HE, HF) in
order to assess whether there were statistically significant differences between the ex
ante and ex post periods for the receipt of the Industry 4.0 Incentive Value. Revenue
volume is a performance indicator par excellence. The analysis of performance was
carried out through the Operating Revenue variable, which is defined as sales and
services rendered during the financial year, excluding value added taxes and other
directly related taxes.
In turn, the efficiency analysis was carried out first through the employment
variable. The efficiency indicator translates a company’s capacity to generate prod-
ucts at efficiency levels equal to or higher than those observed in other companies,
mainly with regard to prices, quality, services, price-quality ratio, technology, wages
and productivity. Indeed, the qualification indicators consider the incorporation of
technical progress in products as well as business organization and the cooperation
between firms and public and private investments.
In general, competitiveness depends on adjusting the strategies of companies to
the current competition standard. It is important to highlight that the success of
companies ultimately depends on the reproduction of these factors in the internal
Table 1 Policy measures phase I [13]

Measure Description Benefits Execution
Framework program It sets out the It contributes to Implemented
horizon 2020 framework for EU creating a society and
support for R&I economy based on
activities, knowledge and
strengthening Europe’s innovationby exerting a
scientific and leverage effect that
technological base and mobilizes additional
promotes the benefits funding for research
for society as well as development and
better exploitation of innovation, in order to
the economic and achieve the R&D
industrial targets and the 3%
potential of innovation GDP target forresearch
and R&TD policies and innovation across
the EU by 2020
Portugal 2020—Vale I Supports projects in The support is aimed at In implementation
Industry 4.0 the scope of Portugal companies, under any Applications open
2020 that aimed at legal nature and form, periodically
acquiring consultancy being considered as
services in R&TD eligible as eligible
activities and investments the
technology transfer acquisition of
services, aiming to consultancy services in
intensify the national R&TD activities and
intensify the national acquisition of
effort in R&I and technology transfer
create new knowledge services through
to increase the non-refundable
competitiveness of incentives.
companies reimbursable incentives
SIFIDE II The Entrepreneurial The support is aimed at Implemented
SI R&D Research and the creation or
Development Tax improvement of a
Incentives System, in product, a process, a
force during the period program or an
from 2013 to 2020, equipment or
aims to support R&D equipment, which
activities. It has the present a substantial a
goal of continuing to improvement and
increase the which do not result of a
competitiveness of simple use of the
companies by current state of the art.
supporting their efforts of existing techniques
in R&D
Table 2 Policy Measures Phase II [13]

Measure
Evaluation of digital maturity
Industry 4.0 experience
Innovation stimulus
sectorial and digital training and development
Learning factories
Experimentation and apprenticeships
Digital connectivity
Industry 4.0 coaching
Innovation risk management
Access to finance
Financing and transformation
Table 3 Kendall correlation

Gross EBITDA Net Productivity Employees Operational Ind. 4.0
added profit revenue incentive
value value
Gross added 1 0.032 0.023 0.239 −0.003 0.098 0.545
value
EBITDA 0.076 1 0.276 0.176 −0.009 −0.007 0.776
Net profit 1 0.454 1 0.041 0.189 0.085 0.486
Productivity 0.041 −0.029 0.087 1 0.183 0.038 −0.034
Employees 0.189 −0.056 0.075 0.183 1 −0.057 −0.032
Operational 0.085 0.176 0.006 0.038 −0.057 1 0.958
revenue
Ind. 4.0 0.086 0.005 −0.008 0.045 −0.032 0.958 1
Incentive
value
plan and in the market performance of the organization. One of the conditions for
the implementation of I4.0 is the impact on industrial productivity. In this work,
total factor productivity (TFP) was used as the amount of product obtained with a
weighted unit of all production factors [1]. TFP = Y/aK + bL), where: Y is the
product; K is the capital factor; L is the labor factor; a and b are the weights of the
respective factors.
Gross Value Added (GVA) is another variable related to competitiveness and
production efficiency. It is the final result of the productive activity over a given
period. GVA is the difference between the value of production and the value of
intermediate consumption, leading to surpluses.
EBITDA is an indicator of a company’s financial profitability and efficiency year

by year. It shows a business’ potential to generate cash, because it indicates how much
money is generated by operating assets. EBITDA means Earnings Before Interest,
Taxes, Depreciation and Amortization. By also eliminating the effects of depreciation
and amortization of the company’s assets, EBITDA brings the result closer to the
cash potential of the business.
Finally, net profit makes it possible to analyze the competitiveness and effi-
ciency of the company, especially through the comparison of different years and
its competitors.
The situation was analyzed based on the mean difference test of the scores obtained
for the dimension Ind. 4.0 incentive value and the factors Operating Revenue, Number
of Employees, Total Factor Productivity (TFP), Gross Value Added, EBITA and Net
Profit (Table 4).
The evaluation of the results of the hypothesis tests reveals that of the six variables
in the first sample with the 2017/2018 variations, only Operating Revenue had a
statistically significant difference between the results of the companies before and
after the execution of the projects. Indeed, between the two periods of time and
considering the application of the incentive value, only one variable showed an
increase or upgrading of competitiveness based on the execution of the projects.
However, the evaluation of the results of the hypothesis tests reveals that in the
second sample with the 2017/2019 variation—that is, a longer period of maturity
of the competitiveness variables—the six variables had a statistically significant
difference between the results of the companies before and after the execution of the
projects considering the application of the incentive value (Table 5).
A general result of the indicators analyzed to verify the differences in significance
by performing two tests (Kendall Correlation and Wilcoxon test) is that the appli-
cation of the model to the research problem seems to be reasonable. As such, there
is evidence that the stimulated value component (EU funds) could have an associa-
tion with the degree of competitiveness over a longer period of analysis, i.e., sample
2017–2019.
Table 4 Wilcoxon signed-rank test of samples related to the 2017/2018 variation

2017/2018 variation Significance Hypothesis test related samples
Ind. 4.0 Incentive value × Operating 0.162 Retain the null hypothesis
revenue
Ind. 4.0 Incentive value × Employees 0.004 Reject the null hypothesis
Ind. 4.0 Incentive value × Productivity 0.002 Reject the null hypothesis
Ind. 4.0 Incentive value × Net profit 0.001 Reject the null hypothesis
Ind. 4.0 Incentive value × EBITDA 0.002 Reject the null hypothesis
Ind. 4.0 Incentive value × Gross added 0.003 Reject the null hypothesis
value
Table 5 Wilcoxon signed-rank test of samples related to the 2017/2019 variation

2017/2019 Variation Significance Hypothesis test related samples
Ind. 4.0 Incentive value × Operating 0.807 Retain the null hypothesis
revenue
Ind. 4.0 Incentive value × Employees 0.278 Retain the null hypothesis
Ind. 4.0 Incentive value × Productivity 0.278 Retain the null hypothesis
Ind. 4.0 Incentive value × Net Profit 0.196 Retain the null hypothesis
Ind. 4.0 Incentive value × EBITDA 0.972 Retain the null hypothesis
Ind. 4.0 Incentive value × Gross added 0.151 Retain the null hypothesis
value
5 Discussion
In this section, the research hypotheses are analyzed and the results are discussed,
considering the validity of the proposed model and the statistical significance of
the coefficients. According to the presented results, the hypothesis is rejected for
2017–2018 and accepted for 2017–2019. The central hypothesis of this study is
accepted, since the factors that make up the industry 4.0—EU Fund—Incentive
Value dimension have an association with the degree of competitiveness (Oper-
ating Revenue, Number of Employees, Total Factor Productivity (TFP), Gross Value
Added, EBITDA and Net Profit) in the 2017–2019 period. Although the same did
not happen in the 2017–2018 period, that result leads us to conclude that it is impor-
tant to analyze longer periods for a more consistent evaluation of the process, even
when it comes to new and rapidly developing technologies. Moreover, the Wilcoxon
Test confirmed the association between the Ind. 4.0 Incentive Value and the degree
of competitiveness. In addition, it should be noted that when companies are sepa-
rated into two samples—one for a longer and the other for a shorter period—the
revenue factor has different mean scores in these two groups, discriminating the
most competitive ones. This means that operating revenue would be the only vari-
able that would have an implication for increased competitiveness in the smaller time
period of 2017–2018.
In this analysis, we highlight that:
H0—There is significant correlation between the variables (Operating Revenue,
EBITA and Net Profit) when they are correlated with the European Fund vari-
able (Industry 4.0 Incentive Value) in the 2017–2018 period. This hypothesis
was rejected. Only Operating Revenue had a statistically significant difference
between the results of the companies before and after the execution of the projects.
H0—There is significant correlation between the variables (Operating Revenue,
EBITA and Net Profit) when they are correlated with the European Fund variable
(Industry 4.0 Incentive Value) in the 2017–2019 period. This hypothesis was
accepted for six variables through the Wilcoxon test.
In the Kendall Coefficient test, the variable Ind. 4.0 Incentive Value has no corre-
lation with the variables Productivity and Employees. However, a high correlation
can be observed between Operating Revenue (0.958) and the Ind. 4.0 incentive value,
followed by a high correlation between EBITDA (0.776) and the Ind. 4.0 Incentive
Value.
The results suggest, therefore, that there are different intensities of the effects of
the governmental subsidies of the industry 4.0 Program on the competitive position
of Portuguese industries in the two periods under analysis, pointing to a relevant role
of industrial policy when the period of analysis is longer, directly identified, in the
strategic direction of the firms. The analyses revealed that there were variations in the
competitiveness of the industry when the longer 2017–2019 period was considered.
As a result, we consider it important to monitor these processes throughout their
evolution, including relatively short periods, in order to obtain more accurate and
consistent results, as we suggested at the beginning for countries that are filling
the progress gap, even if historical experience is scarce. It is important to note that
no previous research has been identified addressing the relationships between the
constructs that make up the research model, making it impossible to compare the
results obtained with the results of other studies.
When measuring the competitiveness, we also found that the means for the period
2017–2018 were lower, but no statistically significant differences were identified with
the 2017–2019 period. We also confirmed that the more adherent the project was
to I4.0 technologies, the more favorable the competitive position of the industries
in 2018 and in the following period. However, the subsidy does not influence the
competitive position in relation to the type of company, whether or not it belongs to
a group, or due to its location (for example, whether it is from the North, Center or
South of Portugal, whose contexts present differences from this point of view). One
aspect that deserves to be highlighted is the role of the size of the firm as measured
by the number of employees and its direct effect on the competitive position. The
results suggest effects of similar intensities of the size on the competitive position
in both periods under analysis. In a way, the results point to a greater competitive
capability of larger firms, although this is to be expected.
6 Conclusions
The study had peculiar characteristics since it analyzed the best regional practices
for digital transformation to the industry 4.0 Program in Portugal and the role of
European Union funds regarding the competitiveness perspectives of companies
developing I4.0 projects with enabling technologies. Faced with this objective, the
I4.0 determinants in Portugal and the role of government agents in promoting these
enterprises were presented. As such, it should be stressed that the contextual analysis
initially proposed as a general objective enabled an understanding of the industry 4.0
Program in Portugal and of how it consolidated the competitive positions in industry.
The study was developed through a methodological approach as a descriptive and
a correlational nature, seeking to establish relationships between the Incentive Value
and Competitiveness or the degree of relationship between these concepts, in order to
identify, through quantitative arguments, the role of EU funds in the competitiveness
of I4.0 in Portugal. For the purpose of the study model, the definition was assumed
that the companies that were more oriented to receiving funds had a better competitive
performance. Above all, it was assumed that the funds were a way to expand the base
of the competitive dimensions. It would be also possible to claim that more dynamic
and effective companies are also the ones more attracted to explore European funds.
Therefore, the association would probably also happen due to other factors like new
markets, more effective training, redesigned processes and so on.
The study relied on the use of non-parametric statistical techniques. Kendall’s
rank correlation coefficient and the Wilkinson Test were used to interpret the results.
Based on this, the study’s general results reveal that in the first sample, the incentive
value is not fully correlated with competitiveness, since only the hy-pothesis that
contained the Operating Revenue factor presented significant levels. According to
the presented results, the central hypothesis of this study is accepted, since the factors
that make up the industry 4.0—European Union Fund—Incentive Value dimension
have an association with the degree of competitiveness (Operating Revenue, Number
of Employees, Total Factor Productivity (TFP), Gross Value Added, EBITA and Net
Profit) in the 2017–2019 period.
Although the same did not happen in the 2017–2018 period, that result leads us to
conclude that it is important to analyze longer periods for a more consistent evalua-
tion, even when it comes to new and rapidly developing technologies. In the field of
industrial policy, the results of this study are also important from the perspective of
decision makers. As the funds are disputed for various uses (Collie, 2005), even in
the context of I4.0, and since their scrutiny is politically relevant, a thorough analysis
of these investments, including short periods of a few years, can be a valuable tool
to improve decision making and avoid waste.
Despite the methodological care applied in carrying out this study, some limita-
tions should be noted for the adequate understanding of the results expressed here and
the consequent consideration of their implications. The focus in a specific country is
a study limitation. Within the other limitations of the present work, the restriction of
choosing one model to measure the best regional practices for digital transformation
in industry and fund receipt dimensions with a limited number of factors should be
noted, since the research option was to evaluate only result measurement indicators.
It is clear that the case under study is only a small sample, but its extension or even
generalization to other cases may improve the effectiveness of the “upgrade” process
that the country wants to put into practice. Thus, comparative studies, both sectoral
and cross-country, conducted according to quantitative or qualitative methodologies,
may also bring significant added value to the research. Another necessary perspective
would be to focus on the management of the funds deployment process in order to
understand to what extent it influences the success of the subsidized companies when
measured through competitiveness.
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Digital Transformation and Current
Trends in the Technological Development
of the Industrial Complex: Russian
Experience
Olga Smirnova and Lyudmila Chesnyukova
Abstract Digital transformation (Industry 4.0) is characterized by the large-scale

coupling of technologies in industrial production, high operating activities based
on cyber-physical systems, and the introduction of digital technologies in business
processes, which have already proven their effectiveness in world practice. The study
aims to assess structural changes in the industrial complex of Russia in the digital
economy. New technologies used in industry are identified as a result of the study
based on the concept of Industry 4.0. The analysis of the introduction dynamics of
digital technologies in the industrial complex of Russia, which involves the intensi-
fication of innovative long-term development, is carried out. The authors present a
theoretical model of digitalization of the industrial complex, based on a set of interre-
lated components from the beginning of the digital design and modeling technology
development to further production, through networks of industrial cooperation and
subcontracting, including logistics, sales, and subsequent service of digital services,
IT services, industrial things from the Internet.
Keywords Digital transformation · Industrial complex · Industry 4.0
1 Introduction
Currently, the development of the industrial complex in the context of digital trans-
formation is determined by many technologies already available in the industrial
market, such as cloud computing, advanced robotics, 3D printing, artificial intelli-
gence, the Internet of Things (IoT), and big data analytics. All of these, in addition
to the technological transformation in the industry, are giving way to new forms of
value creation such as the “collaborative consumption economy” and new forms of
O. Smirnova (B)
L. Chesnyukova
Ural State University of Economics, 62, 8 Marta St., Ekaterinburg 620144, Russian Federation
184 O. Smirnova and L. Chesnyukova
networking such as inter-industry clusters, business networks, and virtual structures,

which will emerge as these technologies come together, generating new products and
services, new business models, new forms of labor activity. The widespread use of
digital technologies, the development and implementation of new technologies, and
technological innovations can positively impact the development of the industrial
complex of Russia.
The Boston Consulting Group report defines the digital economy as all economic
activity based on digital goods and services, whether new business models or trans-
formed business models. The document discusses three dimensions of the digital
economy: the impact on value creation of 9% direct impact, another 9% induced
impact, and 1% additional externalities [9]. According to the Institute for Statistical
Studies and Economics of Knowledge of the Higher School of Economics, the share
of digital technology in the value-added of the business sector is 3.4%, while for
OECD countries, it is 5.4% [17].
New joint research conducted by PwC and ABBYY shows that one of the threats
faced by actors in the industrial complex in the implementation of digital technology
is the lack of skills or resources to effectively manage modern technology [23].
These threats faced by industrial complex entities must be addressed through digital
adaptation. Thus, in an increasingly flexible, connected, and technological market-
place, businesses will need to remain competitive and economically, socially, and
environmentally sustainable.
The article aims to analyze the development of Russia’s industrial complex under
digital transformation, to highlight promising areas of industrial complex develop-
ment from the perspective of modern technology based on the implementation of
tools of Industry 4.0 in industrial production.
2 Literature Review
The modern development of the industrial complex is impossible to imagine without

the widespread introduction and use of information and digital technologies. Studies
on the adaptation and implementation of digital tools in the real economy confirm
that in the global perspective, the future of the industrial complex depends on the
implementation of advanced digital technologies in the business environment [13,
18]. New technological solutions provoke the transformation of existing business
processes (inter-industry clusters, business networks, and virtual structures), society,
and the economy, affecting value chains, production, and trade.
The issues of digital and technological transformation of the industrial complex
are considered in the works by Romanova [2, 24], Pozmogov [22], Tolkachev [32]
from the position of using digital technologies in the business environment to extract
additional income and competitive advantages. The main trends of digital transfor-
mation in real economy organizations are reflected in the works by Alcácer [3],
Bauernhansl [6], Cheng [10], Filippov [11], Landro [18], Morrar [21], Tapscott [31],
who considered digitalization as an implementation of Industry 4.0 tools.
Digital Transformation and Current Trends … 185
Economists Frank, Mendes, Ayala, Ghezzi consider the digital transformation

(Industry 4.0) in terms of stimulating technology, considering the increase in the value
of the production process and management systems in the production environment
[12]. These approaches are considered complementary concepts. The scientific article
by Sima, Gheorghe, Subić, Nancu aims to substantiate the relationship and the impact
of Industry 4.0 on the development of human capital and consumer behavior [29].
A study by Androniceanu, Georgescu, Tvaronavičiene, Androniceanu identifies the
impact of digitalization on labor productivity in many developed countries and indus-
tries [5]. Economists Gisario [14], Miśkiewicz and Wolniak [20] conclude that the
introduction of digital technology in the industry leads to increased energy efficiency
and is a competitive advantage. The articles by Glotko, Polyakova, Kuznetsova, et al.
provide theoretical provisions, approaches, and principles of digitalization of state
regulation in the field of industrial data and define the essence and forms of this
regulation [15]. Guseva and Dmitrieva supplement these provisions by studying the
relationship between digital technology and engineering solutions and justify the
transition to new models based on information technology [16].
The research results presented in the works by Akberdina [1, 2], Bodrunov [7,
8], Gribanov [13], Sukharev [30] allowed the development of an applied toolkit for
studying the digital transformation of Russia’s industrial complex. The transition to
digital platforms is a key tool for the digital transformation of the industrial complex;
it forms a digital environment whose individual elements interact with each other.
3 Materials and Methods
Let us highlight the key technologies used in the industry based on Industry 4.0:—
Artificial Intelligence (AI), the Internet of Things (IoT), blockchain (BC), and supply
chain traceability. These technologies complement each other in industrial processes,
playing specific roles in the industry digitalization (Industry 4.0): AI as a set of algo-
rithms that improve business processes in industrial manufacturing; IoT allows the
control and management of remote access, automated devices that improve efficiency
in the industry; identification and electronic traceability system that allows greater
data transparency from beginning to end in the supply chain and analyze the actions
of IoT, improving efficiency in industrial manufacturing; the use of blockchain tech-
nology in industrial production, in the era of digital technology to function effectively
in a business environment according to the criteria of multiple participants without
the participation of third parties.
The use of the above technologies positively affects the efficiency of busi-
ness models, production flexibility, and the level of service of the industrial
complex. These digital technologies simultaneously create additional opportunities
and threats associated with advanced information and digital technologies, providing
outstripping industrial development.
The introduction of digital tools in industry will increase the efficiency of industrial
production and increase the competitiveness and adaptability of business structures.
Fig. 1 The model of Production chain and industry digitalization tools

digitalization of the
industrial complex of Russia Development Production Logistics Sale Service
– Digital 1) Digital – Digital – Electronic 1) Digital
design and factory warehouse commerce services,
modeling 2) Industrial 2) IT services,
cooperation and 3) Industrial
subcontracting IoT
networks
Digital services
infrastructure
Digital competition Digital service

level connection
Digital industry
development
Factors influencing the Industrial complex

development of transformation
digitalization
Regulatory framework and digitalization strategy for the industrial complex
Figure 1 presents a theoretical model of digitalization of the industrial complex of

Russia, including digital tools at various stages of the production chain. In addition,
the model highlights the most relevant technological opportunities identified in the
context of the transformation of the industrial complex in the transition to Industry
4.0.
The proposed model defines a systematic relationship between each chain compo-
nent, placing it in a value network of suppliers and customers forming a digital
ecosystem and digital platforms of the industrial complex providing a logistic archi-
tecture of production and product delivery industries of the industrial complex, and
potentially brings a rapid adaptation of the company to market needs.
Analysis of the impact of digital technologies on the development of the indus-
trial complex of Russia is an important strategic task. Currently, the Ministry of
Digital Economy of Russia is developing the National Index of Digital Economy of
Russia. The methodology for calculating the index is expected to be approved by the
end of 2021. The index development is based on the world’s leading practices and
considers the country’s peculiarities. The application of this methodology will make
it possible to analyze the digitalization process of the industrial complex and create
an appropriate assessment of the industries that form the Russian industrial complex
[4].
A comprehensive methodology for technological development directions of the
Russian industrial complex is based on primary Rosstat indicators for 2010–2020.
The analysis includes the following indicators: (1) distribution of digital technolo-
gies in the industrial complex organizations that used personal computers, websites,
local area networks, servers, and global information networks [1, 30]; (2) dynamics
assessment of the use of new technologies and technological innovation in the indus-
trial complex; (3) structure analysis of research and development costs for high-tech,
medium-tech, and science-intensive types of economic activity. In addition, the struc-
ture of the industrial complex is assessed by indicators [1, 2, 30]: the share of mining
and manufacturing in Russia’s GDP; analysis of the growth rate of labor productivity;
the degree of depreciation of fixed production assets in Russia.
The proposed methodology of comprehensive analysis allows assessing the degree
of digitalization of the industrial complex and identifying development opportunities
associated with the introduction of technology in the organization of the industrial
complex. Note that developing a digital access infrastructure is critical to provide
individuals and businesses with access to digital content and services and enable
operators in the supply chain (e.g., application and content providers) to interact
with each other without third-party involvement.
4 Results and Discussion
The industrial complex is the defining sector of economic activity in Russia. Let
us analyze the structure of the manufacturing and extractive industries according to
Rosstat indicators for 2010–2020 (Figs. 2, 3 and 4). Industry occupies a key position
in the GDP structure and forms more than 25% of Russia’s gross domestic product
(GDP) [26].
From 2010 to 2020, in general, there was a slight increase in the industry share
in GDP; extractive industry—0.45%, manufacturing—0.53%, and high-tech and
knowledge-intensive industries—2.03% (Fig. 2).
Active transition to the development and implementation of new technologies and
technological innovations in the industry will increase labor productivity, which is
determined by the ratio between the indicator of production volume (GDP) and the
resource use indicator (Fig. 3) [1]. In the Russian economy as a whole, according
to Rosstat, from 2010 to 2020, there was a slight increase in labor productivity—
1.3% [28]. Based on the average growth rate in projected 2020, labor productivity
was 101.2%, indicating a slight decline. There was also a slight increase over the
entire period in manufacturing (3.6%) and mining (0.9%). In the forecast 2020,
35
25
15
5
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
mining
manufacturing industries
including high-tech and knowledge-intensive industries
Fig. 2 The share of mining and manufacturing industries in Russia’s GDP for 2010–2020 [26]
106
104
102
100
98
96
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
in the whole economy mining manufacturing industries
Fig. 3 Dynamics of labor productivity growth rates for 2010–2020, % [28]
60
55
50
45
40
35
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
in the whole economy mining manufacturing industries
Fig. 4 Dynamics of the depreciation degree of fixed assets in Russia, % [28]
the growth rate of labor productivity in manufacturing was 3.6%, which indicates
some positive dynamics. In turn, in the extractive industries, labor productivity, in
general, will remain unchanged. This is due to the low level of manual labor and the
predominance of mechanization and automation in industrial production.
Labor productivity in industry is influenced by various factors, including the
degree of wear and tear of basic production assets of enterprises (Fig. 4).
For the analyzed period from 2010 to 2020, there is a decrease in the indicator by
1.9%, which indicates the renewal of equipment (Fig. 4) [28]. The wear of equipment
is 1.1% and in the extractive industries 0.9%, which indicates a high degree of wear
of equipment employed in the manufacturing and extractive industries for the whole
period in the manufacturing industry. At the same time, industrial production is more
capital-intensive than other sectors of the economy, and at present, the modernization
and transformation of the industrial complex are proceeding at a slower pace.
85
80
75
70
65
60
55
50
45
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Total
High-tech economic activities
Medium-tech economic activities
Knowledge-intensive economic activities
Fig. 5 Dynamics of the share of domestic expenditures on research and development in priority
areas of science, technology, and engineering in the total volume of domestic expenditures on
research and development in Russia, 2010–2020, % [27]
The development of digital technologies in industrial production involves the

intensification of innovation. Let us consider the indicators of innovation activity
(Fig. 5; Table 2). There is a slight increase in the volume indicator of innovative goods,
works, and services by type of economic activity: mining—the growth was 2.60%;
manufacturing—the growth was 1.46%, which indicates the positive dynamics [27].
Let us analyze the dynamics of the share of domestic expenditures on research
and development in the priority directions of science, technology, and engineering
development in 2010–2020; this indicator varies significantly depending on the type
of economic activity (Fig. 5) [27]. In the knowledge-intensive types of economic
activity for the entire analyzed period, there is a slight increase of 0.55%. In high-
tech economic activities, there is a decrease of 0.25%. In medium-tech industries,
which include manufacturing, an increase of 10.78% is noted.
As part of the study, let us highlight indicators of the use of digital technology
in the industry in Russia, such as the use of organizations of local computing and
global information networks of the industrial complex [1, 30], organizations’ use of
personal computers, servers, and websites. Let us assess the components of digital
technology in the economy of Russia as a whole and highlight their impact on
industrial development (Table 1).
According to Table 1, from 2010 to 2020, there was a decrease in the use of
personal computers in the surveyed organizations for all types of activities by 1.4%.
There is also a change for the worse in the extractive (−2.35%) and manufacturing
(−1.52) industries. For the analysis of the share of organizations that used servers,
a positive trend is noted in the economy as a whole; the increase is 12.15%. A
pronounced positive trend is observed in manufacturing (13.75%). In the extractive
190
Table 1 Economic growth rates of indicators of the share of organizations that used personal computers, servers, websites, local computing, and global
information networks, % [25, 27]
Type of activity Indicator 2011/2010 2013/2012 2015/2014 2017/2016 2019/2018 2020/2019
Total Personal computers 100.3 100.0 98.4 99.7 99.5 86.3
Servers 108.2 104.2 179.3 99.6 100.7 86.2
Organizations with a website 115.8 109.3 105.7 103.3 102.0 85.2
Local area networks 104.2 102.4 94.5 98.1 99.4 86.1
Global information networks 102.6 101.4 99.1 100.1 100.0 –
Mining Personal computers 100.7 102.0 98.0 96.6 98.6 83.6
Servers 94.6 96.8 185.4 96.1 99.5 78.7
Manufacturing industries Personal computers 100.3 100.2 99.6 98.5 100.0 87.8
Servers 111.2 103.7 201.8 104.5 102.1 85.3
O. Smirnova and L. Chesnyukova
Table 2 Economic growth rates of indicators of the use of new technologies and technological
innovations in the extractive and manufacturing industries in 2012–2017, % [27]
Type of activity Indicator 2013/2012 2015/2014 2017/2016
Mining Growth rate of the share of 91.429 89.231 92.727
organizations that carried out
technological innovation, %
Growth rate of the number of 88.430 78.698 90.250
new technologies acquired by
organizations, %
Manufacturing industries Growth rate of the share of 99.167 99.180 116.102
organizations that carried out
technological innovation, %
Growth rate of the number of 82.896 87.484 110.680
new technologies acquired by
organizations, %
industry, the growth rate was 7.70%. The intensity of the server use in the manufac-
turing industry compared to the mining industry is related to the specifics of produc-
tion and the need to analyze and store big data. In general, the share of organizations
that used websites has positive dynamics, but in the extractive industries, the growth
rate of indicators is lower than in manufacturing. In terms of the share of organizations
that used local computers and global information networks, there was a decrease for
the entire analyzed period. This phenomenon is related to the fact that firms are begin-
ning to use servers or outsource the management of their documentation [19, 25].
The extractive industries noted the largest decrease (−3.52%—local area networks;
−10.57%—global information networks). In the manufacturing industries, the trend
is similar to the changes in the economy as a whole: the decline in the use of local area
networks was −2.26% in the manufacturing industry and −2.05% in the economy
as a whole; the decline in the use of global information networks was −10.01% in
the manufacturing industry and −9.01% in the economy as a whole. The decrease
in these indicators is largely due to the cost of using Internet resources, and the
location of enterprises and organizations of the mining and manufacturing industry
since not all of Russia has high-speed Internet. The above indicators in the manufac-
turing industries show multidirectional dynamics for organizations using personal
computers, local and global information networks, servers, and websites. In indus-
tries related to mining, the situation is somewhat different and is characterized by a
decrease in the distribution of digital technologies in organizations.
Characterizing the dynamics of the use of new technologies and technological
innovations in the industry, one can note that this process is continuous, refers to
knowledge-intensive, and its implementation requires a long time (Table 2) [27].
In industrial production, the following key objectives are necessary to effec-
tively implement technological innovation and new technologies: (1) encourage
and facilitate companies’ access to public funding for R&D, which allow industrial
complex enterprises to implement R&D initiatives based on AI solutions and their

use; (2) encourage private investment in R&D through access to various financing
alternatives.
5 Conclusions
Structural and technological changes in the Russian industry in this study are consid-
ered from the perspective of Industry 4.0 tools, creating modern business models
based on the introduction of digital tools that help improve industrial production effi-
ciency. In addition, there is a transformation of the business model, which is defined
in terms of the formation of new (digital) markets based on the value network model,
which leads to interaction between all market player suppliers and customers.
The proposed theoretical model of digital transformation of the industrial complex
involves adapting existing industrial production processes and introducing new tech-
nologies through digital design and information modeling. It is necessary to develop
and implement modern industrial technologies and technological innovations in the
business environment for the effective and competitive functioning of the industry in
the global market in an uncertain environment. The introduction dynamics of digital
technology in the Russian industrial complex were analyzed based on empirical data
using official statistics and other information from open official sources. The analysis
of structural changes in the industrial sector of the Russian economy has revealed that
it is necessary to work on the transition of the industry to the digital space, involving
the entire production chain in specific technological processes and exploiting various
innovative technologies, with which decisions can be made to develop a more effi-
cient, balanced and focused on the real needs of the market production chain. It is
shown that the introduction of digital technology elements has a positive impact on
the transformation of the industrial complex; the ongoing technological changes indi-
cate an important factor in the transformation of the organization mode of economic
activity of the industrial complex towards the servicization of the economy.
Thus, the analysis conducted allowed concluding that the development of the
industrial complex under digital transformation continues to gain momentum and
positively impacts the real sector of the Russian economy. The algorithm and method-
ology for analyzing the implementation of digital technologies presented in the article
can become an instrumental basis for assessing structural changes in the industrial
sector of Russia’s economy. Further prospective studies will focus on the analysis of
digital platforms, changes in the existing business models of the industrial complex
in the direction of network structures.
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Knowledge Analysis on the Industry 4.0
Diffusion in Italian Manufacturing:
Opportunities and Threats
Gionata Morelli , Fabio Musso , Federica Murmura ,

and Laura Bravi
Abstract The evolution of digital technologies places companies in front of an

expected paradigm shift that allows manufacturing companies to achieve greater
interconnection and cooperation between their resources and customers. The aim
of this study is to quantify the diffusion of Industry 4.0 technologies in Italy and
offering through the use of Strengths Weaknesses Opportunities Threats (SWOT)
matrix an assessment of the Italian context in the 4.0 era. This study is based on the
processing of data from a survey conducted by the Monitoring Economy Territory
(MET). The survey took place between October 2017 and February 2018, and was
aimed at quantifying the diffusion of the enabling technologies of Industry 4.0 in
Italy. The sample consists of 23,700 companies. The introduction of systems whose
implementation is the result of great technological innovations represents a huge
opportunity for companies willing to adopt them, which accept to take the risks that
being a precursor in this area entails. The costs associated with investments in new
technologies are considerable but, if they were to be integrated intelligently, they
would allow companies to obtain a huge competitive advantage over competitors
who had to introduce the innovations in their production plant at a later time.
Keywords Enabling technologies · Manufacturing Industry · Industry 4.0
1 Introduction
In an increasingly hectic world, characterized by a market dynamism never achieved

before, the adoption of technologies associated with Industry 4.0 is an essential lever
in order to remain competitive [1–3].
G. Morelli · F. Musso · F. Murmura · L. Bravi (B)

Department of Economics, Society, Politics, Carlo Bo University of Urbino, 61029 Urbino, Italy
F. Musso
F. Murmura
196 G. Morelli et al.
The innovations that have been shaping and transforming the production sector in
recent years, causing profound changes in the internal processes of companies, are
of such a magnitude that it can be spoken of a Fourth Industrial Revolution [4].
The evolution of digital technologies places companies in front of an expected
paradigm shift that allows manufacturing companies to achieve greater intercon-
nection and cooperation between their resources and customers [5]. It is a series
of changes based on the ubiquitous presence of information technology (IT) tools,
whose goal is to create a smart company, with high flexibility, low lead times, small
batch production and advanced product customization, with the ultimate aim of
offering superior value to the customer [5, 6].
The Industry 4.0 paradigm is presented by a growing number of analysts and
stakeholders as a turning point of such magnitude as to justify the term of a new
industrial revolution. This new concept has its roots in Germany, where starting
from 2006 it has begun to think about the potential of integrating Information and
Communications Technology (ICT) into manufacturing processes [7].
The expression “Industry 4.0” was used for the first time in 2011 in Germany at
the Hannover Messe, the most important trade fair on industrial technologies. Subse-
quently, in October 2012 a working group dedicated to Industry 4.0 and chaired by
Siegfried Dais of the engineering and electronics multinational Robert Bosch GmbH
and Henning Kagermann of the German Academy of Sciences and Engineering
(Acatech), presented to the federal German government a number of recommenda-
tions for its implementation. On April 8, 2013, at the annual Hannover Fair, the final
report of the working group was released [8, 9].
Industry 4.0 or Intelligent Manufacturing is defined by Kang et al. [10] as the fourth
industrial revolution that represents a new paradigm and consists of the convergence
of cutting-edge ICT and manufacturing technologies. It provides a solid founda-
tion for making effective and optimized decisions through faster and more accurate
decision-making systems.
The peculiarity of this revolution arises from the interconnection and cooperation
of workers and cyber-physical systems (CPS), in practice it involves integrating phys-
ical processes with digital technologies. The inclusion in manufacturing processes of
intelligent machines connected to the internet will result in an increase in the quantity
of goods produced, a reduction in errors and consequently in production costs and
the ability to respond immediately to changes in production schemes [11–13].
The development towards Industry 4.0 has a substantial influence on the manu-
facturing industry [2]. It is based on the establishment of smart factories, smart
products and smart services embedded in an Internet of Things and of services also
called industrial internet [14]. The effects of these technologies could be summarized
in greater efficiency and flexibility in business processes, associated with a radical
change both at the aesthetic and operational level of factories [13].
Starting from the data collected from a report developed by the Monitoring
Economy Territory (MET), the objective of this study is to quantify the diffusion
of Industry 4.0 technologies in Italy and offering through the use of Strengths Weak-
nesses Opportunities Threats (SWOT) matrix an assessment of the Italian context
Knowledge Analysis on the Industry 4.0 Diffusion … 197
in the 4.0 era, highlighting strengths and weaknesses, but also opportunities to be
seized and threats/risks to be avoided.
2 Background
2.1 Characteristics and Implications of 4.0

in Manufacturing: A Digitized Manufacturing
The Industry 4.0 revolution brings with it an agglomeration of digital technolo-

gies that have come to maturity all together: Internet of things, the Cloud, new
human–machine interfaces, collaborative robots easier to manage, the possibility of
interfacing production resources in a much simpler way than before, machines with
machines, machines with transport systems and with people. The technologies avail-
able today allow to have much more efficient and effective factories than those had
until now [2].
The paradigms characterizing the industrial system have evolved over time and
with them the role of the consumer has also changed, going from a model of crafts-
manship characterized by the ability to create customizable products, to a model
of mass manufacturing in which the customer assumes a passive role; then moving
towards a mass customization model in which customers take an active role. Finally,
the concept of “on-demand manufacturing” has been reached, where customized
products and services are followed by a strengthening of the role of the consumer, that
is no longer limited to being a simple active consumer, but is considered a prosumer,
that is a consumer more than active in the process that involves the phases of creation,
production, distribution and consumption of the product [15, 16]. The consumer now
plays a decision-making role with respect to design, planning, configuration, order,
production phases and can decide on parameter changes up to the moment of execu-
tion [17]. Figure 1 shows the evolution of the different types of manufacturing and
its customers.
Decisions, which become more precise and faster, are made on the basis of
very extensive information (big data) through the interaction between man-objects-
machines, using resources in the most intelligent way possible and drastically
reducing waste, with repercussions also in terms of energy efficiency [18].
The rigid separation, inside the factory, between the real part and the digital part
disappears. This naturally impacts on professional skills, which change and may also
require frequent updates, making use of interdisciplinary training models.
The possibility of having large amounts of information available will allow compa-
nies and consumers to communicate more intensely and easily with each other,
bringing innovations to current business models. There is an increasingly stringent
link between the simple sale of a product, assistance, predictive maintenance, and
performance monitoring [19]. The symmetrical exchange of information and the
real-time dialogue between the producer and the end user will make it possible to
Fig. 1 Evolution of the different types of manufacturing and its customers
identify the wishes and needs of the consumer and therefore the trend in demand, but
will also determine a change in the contractual relationship between the two subjects
[20]. This opens up new business scenarios such as “servitization”, ie the ability to
generate profits from continuous services rather than from one-shot sales.
A servitization-centric approach offers benefits to both the customer and the
manufacturer/distributor. First, it creates trust and increases the chances that the
customer will continue to purchase new products, spare parts and upgrades of
products already purchased from the manufacturer/distributor, creating a stream of
sustainable profits and excellent growth prospects [21]. The boundaries between
manufacturing and services will become increasingly blurred and the manufacturing
sector will also increasingly produce services and will require the service sector to
provide new services. The impact on production chains will be enormous: intercon-
nection between companies will increase, revolutionizing global value chains. All
companies, from the smallest to the largest, will be in a network according to the
parameters dictated by Industry 4.0, which will involve every phase of the supply
chain, from design to product creation, marketing and after-sales assistance. The
integration of the various phases and therefore of the companies will be destined to
increase [22].
2.2 The Different European Plans on Industry 4.0
The transition to the new paradigm has posed difficulties for European companies, as
demonstrated by a study on the adoption of digital technologies in industry, carried
out in 2016, according to which 41% of companies declare that they have not yet made
investments for Industry 4.0. However, a more recent survey shows that 75% of the
companies surveyed see digitization as an opportunity, while 64% of those that have
made technological investments report good results (http://ec.europa.eu/). The rise
in state awareness of the importance of having a state-of-the-art industry has meant
that governments across Europe have taken steps to support the implementation
of digital technologies and to strengthen their industries. Most of them are aimed
at strengthening the industrial competitiveness of their countries and modernizing
economies to make them more “fit” for the future or to ensure the sustainability of
the manufacturing sector [23].
Table 1 Projects of the digitization policy

Country Promoter Budget (euro) Financing Recipients
approach
France (2015) Government, 10 mlrd Mixed Industry, especially
ministries, and Small and
regional Medium-sized
governments Enterprises (SMEs)
and mid-caps
Germany (2011) Government 200 mln Mixed The focus on SMEs
(Ministry of is not particularly
Education and accentuated even if
Research and the state contribution
Ministry of to research is higher
Economic Affairs in % for SMEs
and Energy)
Spain (2016) Government 97.5 mln Public Strong focus on
(Ministry of SMEs and specific
Industry and measures for SMEs
General Secretariat both in economic
for Industry and terms and in terms of
SMEs) assistance and advice
UK (2012) British government 164 mln Mixed Business, industry
and research
organizations
Italy (2012) Government 45 mln Public Companies
(Ministry of regardless of size,
Economic sector or location
Development)
Although they share the same intentions, the differences in the methods and objec-
tives with which the various states have set up the digitization campaign are consid-
erable. Table 1 shows information regarding launch dates, allocated budgets and
funding approaches used in the digitization policies of the countries considered.
Germany was the first European country to adopt a strategic plan in 2011, called
“Industrie 4.0”, aimed at connecting new digital technologies and the world of the
Internet with manufacturing production. This initiative was promoted by the federal
government, through the Ministry of Education and Research and the Ministry of
Economic Affairs and Energy, inspired by the guidelines of the “High Technology
Strategy 2020” published by the German government in 2010. While the ministries
play a leadership role, the industry has taken a decisive role in the practical imple-
mentation. France is the nation that has invested the largest budget, 50 times that of
Germany [24]. Italy, as it can be seen, is among the countries that have invested the
least.
A further element of differentiation between the countries is inherent in the
methods of financing, most have opted for a mixed approach in which both the
public and the private sector contribute, while Italy and Spain are betting everything
on public funding. As far as Italy is concerned, this is due to the focus that has been
given to the search for innovative solutions, often at university level, for which a direct
economic return for companies is not easily foreseeable, thus limiting investments
by the private sector. With regard to this point, there have been significant changes
since the Industry 4.0 Plan started in 2017, with a more intensive participation of the
industrial world [25].
All these development policies focused on Industry 4.0 are part of general
frameworks or broader strategies focused on innovation, research and industry.
The action plans of the Member States show similarities, especially as regards
the objectives. Most nations aim to strengthen the country by intervening on the
growth of competitiveness, through the modernization of the industry. Among the
other objectives pursued there is the creation and propagation of new generation
technologies, the development of new products and the efficiency of production
processes [23]. From a technological point of view, the Internet of Things and Cyber
Physical Systems are the technologies of greatest interest, however, only France and
Germany have drawn up specific plans for their development.
2.3 The Macro-environment for the Development

of the Industry 4.0 Phenomenon
In order to formulate a scenario analysis on the Italian manufacturing sector, it is

useful to observe the general economic picture in a comparative key with the Euro
area. Over the past 20 years, the European Union economy has grown at an average
annual rate of around 1.4%, while Italy has recorded worse performance with 0.5%.
The most explanatory element in Table 2 is the differential between Italy and the Euro
Table 2 Average annual GDP growth rates (Eurostat data processing; in per cent)
Region 1995–2015 1995–2007 2007–2009 2009–2015 2016–2019
Euro area (19) 1.4 2.3 −2.1 0.8 1.9
Italy 0.5 1.5 −3.3 −0.3 0.8
Differential Italy–Euro area −1 −0.8 −1.3 −1.2 −1.1
Francia 1.5 2.3 −1.4 1 1.8
Germany 1.3 1.6 −2.3 1.9 1.8
Spain 2.1 3.8 −1.3 −0.1 2.6
Area. Even in a decade of substantial growth like the one that goes from 1995 to 2007,
there are 0.8 points less growth that worsen with the progress of the 2008 economic
crisis and its subsequent developments. Only in 2016 the average fell below 1%. At
the same time, it should be noted that the economies of the three main continental
countries, in addition to Italy, namely Spain, France and Germany, present values
almost always in line with the Euro-19 average and, in some cases, even higher
(https://ec.europa.eu/eurostat). The reasons linked to Italy’s low annual growth rates
are many and change depending on the angle from which the problem is tackled (see
Table 2).
Italy is the second largest economy in Europe in terms of the incidence of the
secondary sector on GDP even though in the last quarter of a century the weight
of manufacturing has almost halved in Italy. Both in relation to added value: from
29.6% in 1976 to 16.6% in 2010. Both in terms of employment: from 28.1% in 1977
to 17.5% in 2018 (measured on work units). Similar, and even more pronounced,
trends have been observed in the other major advanced nations.
These negative results are in particular due to the deindustrialization process that
has hit the European industrial sector in favor of countries where labor costs are
significantly lower, such as China, India and Brazil, which have instead recorded
high growth and productivity rates in recent years.
However, evaluating the relevance of manufacturing by taking into consideration
only the statistical data would be reductive and misleading. It is also important to
vigorously emphasize the qualitative elements of manufacturing so that its real value
is understood.
Undoubtedly, the economic and financial recession has undermined the efficiency
and growth of the European manufacturing sector, highlighting its fragility and
heterogeneity. The global economic recession has involved all the major advanced
economies, with a particularly significant impact on countries, such as Italy, with a
strong manufacturing vocation and a high propensity to export. However, the inten-
sity of the recession and the speed of recovery were very uneven across countries
[26]. Today, European industry continues to run at two different speeds: while the
German and Eastern industrial sector is gaining market share and seeing productivity
grow rapidly, other EU states are on the road to deindustrialization [27].
The trend towards deindustrialisation represents a real and constant threat that
could greatly reduce not only the high-value activities of individual national
industries, but the competitiveness of Europe as a whole [20].
If technologies are introduced that automate production processes in which man
is inserted today, it is inevitable that productivity will increase, the ratio volume of
production/labor input grows because the denominator decreases. It is evident that an
increase in labor productivity, associated with the diffusion of these technologies in
European countries, could determine a process of re-shoring by companies that bring
back to their own country the productive activity that is today found in countries with
cost of minor work [28, 29]. This is because the work will have in absolute value
a lower incidence on total costs and therefore will be a less decisive factor in the
choices related to the location of the productions. This would produce positive effects
in terms of employment, but also in relation to transport costs and environmental
impacts, since production sites and outlet markets will be closer [30].
3 Methodology
This study is based on the processing of data from a survey conducted by the Moni-
toring Economy Territory (MET), an independent research company founded in
1992, which is at national level, the only independent source that annually prepares a
study on the support interventions for businesses carried out in the 20 Italian regions
by both regional and national administrations (and also of European interventions).
The study was commissioned by the Italian Ministry of Economic Development.
The survey took place between October 2017 and February 2018, and was aimed
at quantifying the diffusion of the enabling technologies of Industry 4.0 in Italy.
The sample consists of 23,700 companies and is representative of the population of
industry and of production services, of all size classes and all Italian regions and
with registered offices throughout the country. Specifically, the universe considered
is composed of companies operating in 38 sectors, defined in the third digit of the
Italian Nace Code (see Table 3).
The questionnaire was administered at each individual company to a refer-
ence person, typically the administrator, a manager in charge or the entrepreneur,
depending on the characteristics and size of the company. The contact person was
identified by means of a first contact in the course of which the research initiative was
presented. About 75% of the interviews were carried out in Computer Assisted Web
Interviewing (CAWI) mode, by setting up appropriate links on the dedicated plat-
form, while the remaining portion was carried out in Computer Assisted Telephone
Interviewing (CATI) mode.
The survey is based on a stratified random sampling design, with the selection of
companies in the strata with equal probability and without re-entry. The strata are
defined by the aggregation of the following variables: region, registered office of the
company, size expressed in terms of class of employees, sector of economic activity
[31].
Table 3 Partition of the

Industry sector Italian Nace 2007 subsection
sector of economic activity
Food supply chain DA
Clothing supply chain DB–DC
Wood and furniture DD–D36.1
Paper, printing and DE
publishing
Rubber, plastic and DH–DG–DF
chemistry
Metals DJ
Manufacture of means of DM
transport
Mechanics DK
Electric machines and DL
electronic equipment
Other manufacturing E–C DI–DN (excluding 36.1)
industries
Transport, post and I–60–61–62–63–64
communications
Other business services K–71–72–73–74
4 Results
4.1 The Diffusion in Quantitative Terms of the 4.0

Phenomenon in Italy
The first element of importance emerged from the survey refers to the spread of “4.0
Enterprises” on the total population of industry in Italy. Based on the data collected, it
emerged that 8.4% of companies use at least one of the technologies that characterize
the new paradigm of Industry 4.0. To this percentage it is possible to add a further
4.7% of “traditional” companies that have planned 4.0 interventions.
The first evidence that emerges from the analysis is that the spread of the afore-
mentioned technologies increases with the dimensional growth of companies. Only
6% of micro enterprises and 18.4% of small enterprises are 4.0, against 47.1% of
large enterprises. According to Istat data, SME enterprises reaches 4.1 million units
and represents 95.2% of active enterprises, therefore, it is understandable why the
national data on the adoption of these technological levers ultimately stands on a
worrying 8.4%. Micro SMEs have a considerable weight within the Italian economic
system, both in terms of employment and in terms of creating added value, so it is
evident that any action aimed at increasing the productivity of the Italian production
system must be done considering these size classes of firms (Fig. 2).
Companies can therefore be divided into three categories, based on the level of
adoption of Industry 4.0 technologies:
90.1
86.9
72.2
56.3
49.9
47.1
35.5
18.4
9.4
8.4
8.2
4.7
3.9
2.9
TOTAL MICRO 6 SMALL MEDIUM LARGE
Traditional enterprises
Traditional businesses with planned 4.0 interventions
4.0 enterprises
Fig. 2 Diffusion of 4.0 technologies, detail by dimensional class (percentage values)
1. Adopters, are companies that already have initiatives in place in the Industry
4.0 field;
2. Future Adopters, in this case it can refer to “traditional” companies that have
planned 4.0 interventions;
3. Non Adopters, are companies that have no interest in implementing 4.0
initiatives.
As regards the diffusion of 4.0 technologies by geographic area, as it was desirable,
the Center-North of Italy has a greater number of 4.0 companies (9.2%) compared
to the South (6.1%). Leaving aside the total values that are systematically higher in
the Center-North regions, what is striking in Fig. 3 are the difficulties encountered
by companies of an intermediate size in the south of Italy, presenting significantly
lower values than similar companies in the rest of the country.
Going into more detail of the individual technologies used, the analysis considers
two macro-families:
• Technologies closely related to the production process, such as interconnected
robots, additive manufacturing, simulations, augmented reality and intelligent
materials;
• Technologies related to the intensive exploitation of information and data, such
as horizontal or vertical integration of information, cloud, big data, analytics.
Taking into consideration only the companies that have already embarked on a path
towards digitization, it emerges that they have invested more in technologies that
involve the intensive exploitation of data and information (48.1% have invested only
in data technologies), which means that they have well understood the value of
collecting information.
Center-North South
48.2
37.1
34.9
23
19.3
13.3
9.2
6.3
6.1
5.2
TOTAL MICRO SMALL MEDIUM LARGE
Fig. 3 Diffusion of 4.0 technologies by geographical area (percentage values)
In terms of technological orientation, it should be emphasized that cyber secu-

rity, the horizontal integration of information and the Internet of things represent
the most widespread environment for corporate investments, among medium and
large companies. The use of collaborative robots, 3D printers and virtual simulations
find a relatively appreciable diffusion only in the more structured companies, with
percentages that exceed 20% among companies with over 250 employees.
The data collected show that when companies start investing, a virtuous circle
is triggered, since, as it can be seen from Fig. 4, there is a positive correlation
between the number of technologies currently held by companies and the number
Fig. 4 Number of technologies planned for the next three years, details for the number of
technologies currently used (percentage values)
of technologies in which the company intends to invest in the next three years. In
fact, it appears that the corporate adopters intend to invest in further technologies
in the near future and the number of these technologies increases with the increase
of those already owned. The Mise-Met report said that “Traditional companies with
very little probability will carry out 4.0 interventions in the next three years. On the
contrary, companies that currently use 4.0 technologies have a high probability of
expanding the set of 4.0 technologies used in the near future” [31].
After observing the degree of diffusion of 4.0 enterprises, it is useful to investigate
some aspects related to the performance achieved by the adopting companies, both
in economic terms, understood as growth in turnover, and employment.
As regards the first indicator, it is evident that in the adopter companies the
improvement in turnover in the last three years is very marked, 42.7% of the compa-
nies reported an increase, while for those not adopters only 19.3% of this recorded
growth. In addition, 29% of traditional companies reported a decrease in turnover,
against a decrease in turnover in 18.2% of 4.0 enterprises.
With reference to the second indicator, 36.2% of 4.0 enterprises recorded an
employment growth compared to 16.4% of traditional enterprises, although it should
be emphasized that they present a slightly higher number, in the case of 4.0 enterprises
compared to the others, even those that recorded a decline in employment (17.8%).
4.2 A SWOT Analysis of Italian Manufacturing in Relation

to the 4.0 Phenomenon
After having defined the Industry 4.0 phenomenon, outlining its characteristics,
implications both in the business and social fields and having described the specifici-
ties of the Italian economic system in which the new paradigm is being developed,
assessment of the Italian manufacturing context in the 4.0 era has been defined,
underlining strengths and weaknesses, but also opportunities to be seized and risks
to avoid.
Trying to understand what are the real expected benefits and potential of Industry
4.0, taking into consideration the interpretations provided by various observers on the
impact that 4.0 may have on Italian manufacturing, at the cost of some simplification,
these interpretations can be divided into two groups.
On the one hand, those who argue that due to the peculiarities of the Italian
economic system and the pervasiveness of micro and SMEs it is not possible to
implement such a radical change. In this regard, there are several points that support
this thesis.
Italian companies, and more specifically those purely family-run, have always
shown a limited propensity for change and innovation, due both to their lack of
aptitude for managerial management and to the problem of the chronic under-
capitalization of the latter, i.e., the absence of an adequate level of risk capital for
the proper conduct of business, with respect to debt to third parties. Undercapi-
talization affects not only the fiscal structure of companies, but above all there is
another problem that characterizes Italian companies, namely the ability to find debt
capital with credit institutions and other financial institutions. In the new paradigm
there is no longer room for standardized products, but stable product differentia-
tion strategies dominate since global demand, differentiated in culture and tastes, is
willing to pay a premium price for variety, customization, reliability, design service
content incorporated in the asset, that is, all the elements that concretize a high
level of quality. Differentiation strategies require companies, to avoid obsolescence,
constant investments in research and innovation (processes, products, organization,
professionalism), but the scarce resources possessed by them affect the possibility of
investing in these activities, which are considered crucial for guarantee the growth
of skills and the possibility of gaining a competitive advantage over competitors.
Another weakness concerns the communication infrastructures whose develop-
ment appears to be limited. Although the Government has drawn up a financing plan
aimed at the construction of ultra-broadband infrastructures worth 6.3 billion euros,
Italy still appears to be lagging behind with regard to ultra-fast broadband (100 Mbps
and beyond), since this is just 22% compared to an EU average of 58% (http://ec.eur
opa.eu).
One of the main factors that determine a weakness of the Italian manufacturing
industry is the absence of large players operating globally and software vendors,
such as Siemens and Bosch for Germany, capable of creating software suitable for
mass markets or market niches.
Another slowdown in digitalization is the lack of e-competence. According to
a recent analysis carried out by Modis, a company specializing in ICT and engi-
neering consultancy, in three years in Italy approximately 135,000 positions in the
ICT sector will remain uncovered, making our country one of the most in diffi-
culty in the European scenario. The fault, in fact, is the still strong gap between the
demand (by companies) for figures with high digital and technological skills and
the supply of professionals with these skills. In the period 2013–2016, over 175
thousand job advertisements from web portals show an average annual growth of
26% in the demand for ICT professions. The comparison between estimated supply
and demand for 2017 identifies as follows: in the conservative scenario, a deficit of
4400 ICT graduates compared to an excess of approximately 8400 ICT graduates,
and in the expansive scenario a deficit of approximately 9500 ICT graduates and a
surplus of ICT high school graduates of 5200. The mismatch between supply and
demand for medium–high ICT skills is therefore of importance, a factor linked to
the growing demand for more qualified ICT professionals by companies that are
pursuing a decisive upskilling of the ICT workforce [32].
On the other hand, there are those who have emphasized the presence of a more
articulated situation: alongside the weaknesses, the Italian economy, according to
these authors, would also present aspects of dynamism and strength from which to
start again and grasp the opportunities offered by the new digital revolution. Rullani
[33] is one of the supporters of this theory: “Being different from the others … it
could be our luck, if the difference we carry is emphasized, instead of being suffered
as a sin of origin, a curse to be served”.
As for the strengths of the Italian manufacturing, there are several points that
include: flexible specialization and high technical know-how, which allow to adapt
more quickly to the needs of the markets; the presence of a university system that
provides quality resources; a high level of propensity for entrepreneurship which
guarantees vitality to the industrial system; a strong industrial manufacturing system
and great skills within the production chains; a culturally favorable and advanced
approach on the part of the business system towards integration, a distinctive feature
of industrial districts; good international reputation of Made in Italy products, which
allow to achieve a high quantity of exports.
A review of the strengths and weaknesses of our manufacturing system is neces-
sary to define an appropriate strategy for the introduction of the 4.0 paradigm and for
the identification of opportunities, in particular for micro and SMEs. A strategy that
should allow the transition to a digital economy, making it possible to recover the
competitiveness gap with respect to competing countries. The opportunities offered
by 4.0 allow companies in our industrial fabric to:
• increase productivity, this implies greater product competitiveness; companies
will be able to combine the production of small batches and the extreme ability to
respond to niche needs, thus bridging the competitiveness gap compared to other
countries;
• enhance Big Data, thus giving value to the huge amount of data available to
companies;
• adaptation of the production structure, given the opportunity to redefine the supply
chain upstream and to invest in technology to take advantage of the availability
of more efficient 4.0 inputs, thus improving the cost structure;
• revision of the market strategy, in a solution-based key through a better connection
with downstream customers, through the customization possibilities offered by
the new production paradigm, as well as the incorporation of increasing service
shares (servitization) in the product sold, therefore increasing the turnover;
• redefinition of the internal organization, to maximize efficiency in interactions
between man and machine, adapting tasks to new skills.
In a market-pull logic, the digitalization of manufacturing is creating a new produc-
tion paradigm in which competition is played out on multiple aspects. Competition
in the markets is no longer based solely on the product or the production process,
competition now plays on aspects such as craftsmanship, design, personalization,
authenticity and services [34].
To these, among the effects expected from the advent of Industry 4.0 on a global
scale, it is added that of re-shoring, or the return of production lines within national
borders. This is a phenomenon that is still limited in numbers, as shown by research
carried out by the Uni-CLUB MoRe Back-re-shoring Research Group consortium,
from 2000 to 2015 there were 120 cases of re-shoring, a number that positions Italy
as the first European country and the second in the world for the return of companies
to the national territory even if the phenomenon grew steadily until 2013 and then
suffered a reduction in 2014 (https://reshoring.eurofound.europa.eu/).
The access of Italian companies to Industry 4.0 does not depend only on invest-
ments in enabling technologies, but it is therefore necessary to invest in the training
dimension, since in this sense investments in advanced technologies require new
skills. This requires the availability on the labor market of new relational and
advanced technical skills, capable of interfacing with new technologies not only
passively but also actively thanks to research work and the domain of technology.
Technological skills and knowledge in this context appear as a prerequisite not only
for the worker but for the company itself which intends to maintain, thanks to a
constant process of innovation, a dominant position on the market.
A strengthening of the technological equipment would therefore also allow the
Made in Italy manufacturing sector to create greater value and generate more
resources in support of investments and competitiveness [3].
As with any new phenomenon that offers new opportunities, there are also new
threats and problems. Living this fourth industrial revolution unconsciously entails
serious risks for companies. First of all, that of being swept away from the market,
to be replaced by companies that have managed to adequately incorporate new tech-
nologies into their business. In addition to this, among the most dangerous effects for
the Italian industrial manufacturing sector there are the inability to “create a system”,
cyber-attacks, employment, the growth of inequality and the lack of risk management
systems.
With regard to the first, the risk of failure is due to the inability of the national
industrial structure to create a system, favoring a real cultural leap. Innovation must
concern all production sectors, regardless of the sphere in which the company oper-
ates and the geographical area; rather than sectors, there should speak about innova-
tive and non-innovative companies. The risk is high, and the lack of large national
players that act as a driving force for other companies, as regards the activity of
innovation, undermines the goal of creating a common vision based on a synergistic
work between various actors, from the industrial world.
If on the one hand Industry 4.0 represents a great opportunity, on the other it is a
sword of Damocles on the heads of entrepreneurs. For this reason, before investing in
Industry 4.0, a SME must be capable and skilled in risk management. Risk manage-
ment is the process by which the potential risk for a SME is measured or estimated
and then strategies are developed to govern it. In addition to experience and suit-
able professional figures, today entrepreneurs can also rely on powerful and precise
data analysis software, essential in helping companies make the most important
choices or changes in progress. The important thing is to create rapid and contin-
uous communication between the various players present in the new companies. A
further critical issue concerns the scope of risks that can no longer be managed in
relation to a single industrial plant or a single commercial unit. In fact, with Industry
4.0, industrial production becomes automated and interconnected, while the value
chain becomes increasingly integrated. In this context, the “attack surface” increases
and companies, supply chains and national production districts are more exposed
to cyber-attacks. Attacks with which it is possible to obtain sensitive information
Table 4 SWOT analysis of Italian manufacturing in relation to the 4.0 era

Strengths Weaknesses
• Excellent international perception of Made • Undercapitalization of companies
in Italy • Difficulty in accessing credit
• High propensity for entrepreneurship • Low investment in innovative and R&D
• Business vitalism activities
• University system that provides quality • Limited development of communication
resources infrastructures
• Existence of a strong manufacturing system • Poor propensity for managerial management
and a high technical know-how in the • Poor basic digitization
industrial sector • Absence of large industrial players on a
• Flexible micro and SMEs able to respond global level and of a software vendor
more quickly to market needs • Poor digital skills
Opportunities Threats
• Increased productivity and saving of energy • Increase in inequality
resources • Lack of a risk management system
• Improvement of the connection with • Problems related to maintaining data secrecy
downstream customers (Cyber security)
• Back re-shoring phenomenon • Increase in unemployment (for those groups
• Growth of highly skilled workers of workers with low skills)
• Possibility of modernizing the industrial • Inability to make a “system”
system, with positive effects on the • Industrial decline
competitiveness of products • Inability to implement innovative systems
• Redesign of production processes with the adequately
aim of improving efficiency
or knowledge of company know-how, with destructive effects that can involve and
damage the entire value-chain.
Among the threats deriving from Industry 4.0, the employment appears to be the
most current in fact, if not managed, change and digitalization can be disruptive for
work. Table 4 summarizes the results of the SWOT analysis presented above.
5 Conclusions
What is now called the fourth industrial revolution is the first of the revolutions to be
studied in the full development of its course, exactly for this reason this is a situation
that in some ways is unprecedented in history and consequently its effects turn out to
be still very uncertain; the only certainty is the extent of the organizational changes
to which companies are called.
The introduction of systems whose implementation is the result of great tech-
nological innovations represents a huge opportunity for companies willing to adopt
them, which accept to take the risks that being a precursor in this area entails. The
costs associated with investments in new technologies are considerable but, if they
were to be integrated intelligently, they would allow companies to obtain a huge
competitive advantage over competitors who had to introduce the innovations in

their production plant at a later time.
In face of an increasingly dynamic market and an ever-greater variability of
production, it becomes obvious how it is necessary to make company work flex-
ible, so that workers will be less tied to specific tasks and routine tasks, with the
consequent need to possess skills, through which to solve problems as they arise.
For this, education has a fundamental role and the worker training process takes on a
more continuous character, with the need to prepare training courses to prepare staff
to fill the new positions that the Industry 4.0 revolution entails. The road to Industry
4.0 should therefore be framed in a process already underway. In particular, in light
of the technology push approach that led to its birth and development, the market
pull logic must be included in the debate. That is, wondering what are the different
problems present in Italian companies that the introduction of Industry 4.0 can help
solve and, consequently, what opportunities for the country system. Industry 4.0 can
represent a great opportunity for Italian manufacturing, which more than others in
Europe could benefit from. In fact, Italy has these main features:
• it excels for customized and high value-added productions, which require
production dynamism and flexibility;
• in the long term, if open standards were established to support the interoper-
ability between systems of different companies, the Italian industrial system
characterized by the largest number of micro and small enterprises at European
level could also benefit from new interconnection tools to create networks of
extended enterprises even outside the country’s borders, resulting in an increase
in competitiveness even in the presence of small dimensions;
• Italy is the second largest manufacturer in Europe, with a recognized ability to
integrate innovative technologies into products to provide value-added solutions.
To exploit these opportunities, however, it is necessary that the diffusion of Industry
4.0 should be strategically addressed through a clear industrial policy, in order to
avoid the concrete risk of fragmentation due to the intrinsic multidisciplinarity of the
topic and the large number and different types of stakeholders who have launched
initiatives on this topic. The road to Industry 4.0 must therefore be framed in a
process in which institutions must create the enabling conditions so that companies
can work, experiment and develop through adequate industrial policies capable of
enhancing those characteristics on which the game of competitiveness, innovation,
internationalization, opening up to the capital market is being played today. This is
especially important for a nation like Italy, where little is invested in Research &
Development, where the productive fabric is fragmented and where often due to the
large presence of family businesses there are cases of path dependence, in which
companies are reluctant to change, as strongly rooted in the past and firmly certain
that the strategies that guaranteed survival in the past can guarantee it in the future
as well.
Today more than in the past, it is necessary for the Italian institutional system
to take an active part with a clear vision and a consequent coordinated action plan
between the world of research, the business world and the public apparatus, to create
and seize the opportunities of this revolution. It is relevant to change the way a
State is seen, from a passive and inert entity to an active entity and catalyst for new
investments [35]. Industry 4.0 can be seen not only as a revolution, but as a great
challenge that can only be tackled if all the players involved play their part. The main
limitation of the study derives from the national focus on the Italian manufacturing
system. For future studies it would be really important to compare different European
realities, in order to define similarities and differences among countries, that would
be very important to define a concrete European investment strategy on Industry 4.0
development among SMEs.
5.1 Managerial Implications
It is important to contextualize innovation with respect to the point at which the

research in a given discipline has arrived and to direct research and innovation efforts
to address in a focused manner the challenges still open in each technological area.
Only in this way it will be possible to go beyond the individual local applications
that characterize the adoption of 4.0 technologies today and implement real innova-
tions of business models. In order to move to an Industry 4.0 framework, extremely
important issues will have to be resolved and these challenges that involve private
subjects, the production system and the country system as a whole will have to be
addressed and overcome. It can be affirmed that although it is undoubted that today
the Italian industrial model is showing its weaknesses with respect to productivity,
scarce digital skills, the size and dynamism of advanced economies, the industrial
system is facing an epochal technological-cultural change, certainly not easy and
of immediate implementation, but which, it represents not only an opportunity to
prevent Italian companies and in particular micro and SMEs from being blocked, but
above all an opportunity to exploit the wealth of our markets and territories that are
a resource of inestimable value.
New technologies make it possible to overcome the weaknesses of a system such
as the Italian one, which is centered on small and medium-sized enterprises. In
addition, the significant productivity gains allow the lowering of labor costs per unit
of product which penalizes our production system compared to those of the other
countries with which Italy is in competition. Italy could therefore be represented
by the ability to orient Made in Italy from a 4.0 perspective, that is, the ability to
rethink new digital production methods such as to ensure cost savings combined with
craftsmanship and tradition.
5.2 Limitations and Future Research Directions
The main limitation of the study is linked to the fact that data collected is not fresh
data and the survey has been done in 2018. Therefore, for future research it would
be relevant to collect more recent data (up to 2021) of this issue and verify also the
impact that Covid-19 pandemic could have had on the Industry 4.0 investments and
diffusion, considering to make a comparison among different European realities.
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Development of the Digital Economy:
A Case Study of 5G Technology
Yuchan Wang
Abstract Digital technology is widely used in related industries of the national

economy and has become a new driving force for economic development. This paper
takes 5G as an example to discuss the integration development of the digital economy.
As a new type of communication technology, 5G is playing an increasingly impor-
tant role in modern society. At present, more and more industry fields have devel-
oped and used 5G technology. The competition of 5G is not only competition in
the communications field but also competition between industries and economies,
between countries and regions. It is also a good opportunity to open up various
industries and enter the information revolution. The 5G technology will completely
change the current operating mode of many industries and bring greater convenience
to people. Compared with traditional communication technology, 5G technology has
outstanding features in all aspects, such as new network architecture, flexible spec-
trum sharing technology, fast transmission speed, strong transmission stability, and
short delay.
Keywords Digital economy · Industrial development · 5G · Technological

revolution
1 Introduction
With the rapid development of modern society, the development of science and tech-
nology also changes with each passing day. The technological change in communi-
cation technology is one of the fastest-growing technological changes today. In order
Y. Wang (B)
Faculty of Economics, Southern Federal University, 88, M. Gorkogo St, Rostov-on-Don 344002,
Russian Federation
Henan University of Economics and Law, Jinshui Road 180, Zhengzhou 450046, Henan, China
216 Y. Wang
to cope with the larger data flow and growth rate in the future and increase the devel-
opment and use of new services, the fifth generation of mobile communication tech-
nology (referred to as 5G) came into being [21]. As the most cutting-edge communi-
cation technology, 5G mobile communication technology has received great attention
all over the world. At present, there is a lot of research on 5G technology, and most
scholars take the development status of 5G technology and 5G-related applications
as the research objects [8, 20, 25]. Little attention is paid to the development history
of 5G, and the application of 5G technology is also relatively general. It is necessary
to understand the development history of 5G, highlight the advantages of 5G, and
make better use of 5G technology to serve modern society.
5G communications and blockchain technology are both representatives of current
emerging technologies and the frontiers of strategic emerging industries. As a
communication infrastructure, 5G technology provides a guarantee for the trans-
mission of massive amounts of data and information. Blockchains can assist 5G
technology to solve the privacy, security, and trust issues [5]. Therefore, the integra-
tion of 5G and blockchains can not only improve network information security and
optimize business models but also promote each other and coordinate development.
In the 5G era, 5G and blockchain technology are in mutually empowering relation-
ships. If the information network is like a transportation network, the connected
device is the car, 5G technology is the highway, and the blockchain is the traffic
rule, which can ensure that the data transmission on the highway is safer and more
accurate. In other words, 5G can enable networked devices to transmit data faster,
and the blockchain ensures the efficiency and safety of the transmission process. The
integration and development of 5G and blockchain technology have a strong multi-
plier effect. The number of nodes in the network will increase geometrically, which
will generate huge network value [29]. With the development of 5G, the Internet of
everything is expected to be truly realized. Based on this, this paper focuses on the
development and application of 5G technology.
2 Methods
This paper uses the literature research method, qualitative analysis method, and a
combination of theoretical analysis and empirical analysis. First, based on related
literature, the author summarizes the relevant research on the digital economy and 5G
technology and constructs the research ideas and content of this article. Second, the
paper provides a qualitative description of 5G technology and its development and
application based on relevant theories of the information economy. Third, combining
the current situation in the world affected by the COVID-19 epidemic, combined with
actual cases, the study summarizes the convenience, accuracy, and efficiency of 5G
technology. The way for the future development of 6G technology and its integration
with blockchain is proposed.
Development of the Digital Economy: A Case Study of 5G Technology 217
3 The Development of 5G
5G stands for “Fifth Generation” Wireless Technology and it is the next evolution
for mobile technology after 4G LTE. 5G will bring faster speeds and improved
network capacity and efficiency. 5G enables operators to address the exponential
growth in mobile and Internet of Things (IoT) connections. The performance goals
of 5G are high data rates, reduced latency, energy savings, reduced costs, increased
system capacity, and large-scale device connectivity. 5G aims to deliver a significant
technological leap from LTE, delivering an exponential increase in peak and average
speeds and capacity [17]. A significant increase in download and upload speeds could
enhance many existing use cases including cloud-based storage, augmented reality,
and artificial intelligence. 5G will also enable cell sites to communicate with a greater
number of devices. Reduced latency could enable edge computing, making possible
remote graphic rendering for enhanced gaming. Primarily a mobile technology, 5G
will also allow mobile operators to deliver fiber-like wireless broadband service,
which also makes it possible to increase speeds.
When the 5G wireless access network and the core network are connected, the
basic network is the 5G bearer network. The bearer network is the foundation of
the 5G network. Only by ensuring the flexibility, short delay, and high transmission
of the basic network, can the 5G network be applied efficiently and quickly. The
network architecture of the bearer network is shown in Fig. 1, which is mainly divided
into four parts—network slicing, synchronous transmission, forwarding layer, and
management layer [9, 14, 15]:
• Network slicing is to cut out different functional networks under the hardware
conditions of the existing network and apply them to different scenarios, and they
are independent of each other.
• The synchronous transmission method uses data blocks as the transmission unit.
A special character or bit sequence must be appended to the head and tail of each
data block in order to perform error control on the data block.
Fig. 1 The network architecture of a 5G bearer network

218 Y. Wang
• The forwarding layer is the layer forward to the upper controller.

• The management layer is the layer that manages the feedback signal to the lower
controller.
Since 1G technology began in 1984, it has been developed for more than 30 years.
In 1979, the first-generation wireless communication technology standard (1G)
was officially released in Tokyo, Japan. By 1984, the 1G wireless standard was
promoted throughout Japan by Nippon Telegraph and Telephone. Building on analog
technology, 1G was designed for voice only.
In 1991, 2G was put into commercial operation on the Finnish Global System
for Mobile Communications (GSM) standard. The wireless standard it brought was
far superior to any standard provided by the first generation. Compared with 1G,
2G provides data services for mobile devices for the first time, including SMS
text messages and digital encrypted conversations, which not only significantly
improves wireless connections, the quality of digital voice calls, but also reduces
static noise and background noise. More importantly, text information, picture infor-
mation, and multimedia information (MMS) have become possible, creating a new
way of communication for people [12, 18].
3G technology debuted in May 2001. As with the emergence of 1G and 2G tech-
nologies, Japan took the lead in realizing 3G network services in October 2001. The
United Kingdom also followed closely. In 2003, it launched its own 3G network
service. However, because there were fewer mobile phones supporting 3G networks
in the market at that time, the large-scale application of 3G was also delayed accord-
ingly. Just as the performance of 2G technology far exceeds 1G, and the performance
of 3G technology in data connection performance far exceeds 2G, 3G was designed to
support integrated voice, as well as low-cost and low-data mobile Internet. The users
can use new services such as location services, watching mobile TV, participating in
video conferences, and watching online videos.
4G represents a major redesign of traditional technologies and aims to provide
high capacity and data for large-scale mobile services. In 2009, the UK was the first
to introduce 4G networks, and the country’s telecommunications giant, EE, even
covered 4G services in 11 major UK cities, including London and Birmingham. 4G
network speed can reach up to 12 Mbps, which is 5 times faster than 3G network
speed. However, because the 4G signal fails to cover the entire UK effectively, it has
also been criticized by many British people. According to a survey conducted by
the mobile data platform Ogury, British residents can log on to the 4G network only
53% of the time, making the UK the country with the worst 4G signal coverage in
Europe, far behind Spain and Italy [7]. However, for those users connected to the 4G
network, 4G provides a higher-speed mobile network, allowing them to play online
games, watch high-resolution videos and TV programs, and hold higher-quality video
conferences.
In 2008, some countries began to explore 5G. In 2012, 5G emerged, which was
driven by completely new services and requirements. In 2013, Samsung announced
the development of a 5G network. In 2016, Google planned to develop a 5G network,
British Telecom and Huawei established a 5G research partnership. In 2017, the Inter-
national Telecommunications Standards Organization 3GPP announced the official
logo of 5G, the Ministry of Industry and Information Technology of China issued
5G related notices. In 2018, the 3GPP5GNR standard SA was released, and China
Unicom announced the deployment of 5G. In 2019, South Korea started preparing
for commercial use of 5G. In 2020, the British government allowed the use of Huawei
equipment on 5G networks, and in 2020, Samsung launched its first 5G smartphone.
In July 2020, 3GPP announced the completion of the second version of the 5G stan-
dard R16. It has realized the three aspects of expanding new capabilities, exploiting
existing capabilities and reducing costs, and increasing efficiency from usable to easy
to use, further enhancing the ability of 5G to better serve industry applications. In
short, 5G technology has been developed on the basis of a combination of existing
technology and revolutionary technology, aiming to meet extreme capacity and user
needs. It will connect various applications with high social and economic value and
lead human beings into a full-time connected society. It is expected that there will
be billions of connected objects in 2020.
This development process is shown in Fig. 2.
5G technology is still in its infancy in the current social environment in China,
very few people use 5G technology, and many users who purchase 5G packages
are still using 4G mobile phones [5, 16, 24]. It was used in a unit or group. These
conditions indicate that 5G technology has a limited level of practical application, and
it is still in its infancy. This is mainly because 5G technology still has many unsolved
difficulties, and the cost of full use is higher. From the perspective of technology R&D
and innovation, there is a relatively high level of research and development on 5G
Fig. 2 The development path from 1G to 5G

220 Y. Wang
Table 1 The advantages of 5G compared with 4G

Technical index Peak rate Traffic density Delay Connection number density
4G 1 Gbps 0.1 Tbps/km2 10 ms 105 /km2
5G 10–20 Gbps 10 Tbps/km2 1 ms 106 /km2
Promotion 10–20 times 100 times 10 times 10 times
technology, and it is currently in a leading position in the world. In particular, Huawei

has been committed to the research of 5G technology during its years of development
and has achieved many research results. In general, the research on 5G technology
has achieved more results, and this technology has also begun to be actively used in
the current social environment. However, the development and use of 5G technology
is still in its infancy and requires active attention and in-depth exploration in the
follow-up time to ensure that 5G technology achieves better development results.
4 Advantages of 5G
4G changes life, 5G changes society. Compared with 4G, the performance goals of 5G
are high data rates, reduced latency, energy savings, reduced costs, increased system
capacity, and large-scale device connectivity. As shown in the Table 1, compared
with 4G, 5G has greatly improved in key indicators. The following table presents the
advantages of 5G compared with 4G.
Compared with 4G, the first advantage of 5G is that the data transmission rate
of 5G is 10–20 times that of 4G. The second advantage is lower network latency
(faster response time). The delay is less than 1 ms of 5G end-to-end, while that of
4G is 30–70 ms [28]. Due to faster data transmission, 5G networks will not only
provide services only for mobile phones, but will also become general home and
office network providers, competing with cable network providers. The moment
the mobile phone is connected to 5G, the network speed is directly full, and the
download rate close to 1 Gbps makes people intuitively feel the great power of 5G,
greatly saving the time required for downloading. Figure 3 shows the comparison in
the speed test of 4G and 5G.
5 Application of 5G
At present, 5G technology has entered the application stage, including high-definition

live broadcast, transportation, virtual reality, and other fields. By the end of July 2020,
99 network operators in 46 countries and regions around the world have indicated
that they have begun to provide 5G services [30]. At present, 5G applications are
continuously enriched in China, covering many fields such as industry, medical care,
Fig. 3 The download speed 12000

of 5G
10000
SPEEDTEST(MBPS)
8000
6000
4000
2000
0
4G/LTE 5G
media, and transportation. Whether it is non-destructive testing of composite mate-

rials, remote control of brain surgery, and the first-line “cloud broadcast” of news
sites, one can find the strong force of 5G.
VR technology is the crystallization of scientific interdisciplinary fields such as
computer hardware technology, sensor technology, robotics, and artificial intelli-
gence. With the rapid development of 5G, VR technology has entered a period of
vigorous development. At the 33rd China·Qinhuai Lantern Festival in Nanjing, 5G
+ VR real-time lamp appreciation was realized, and many visitors experienced the
VR lamp appreciation on the spot.
The most widely used are 5G + 4K live broadcasts. In 2019, the State Admin-
istration of Radio, Film and Television proposed to actively layout, it integrates the
broadcasting and communication methods of radio and television with 5G technology
to create conditions for the transformation of traditional radio and television networks
[10]. The broadcast smart media equipped with a 5G network will spread local brand
programs to all parts of the country. During China’s highest level conference in 2019,
5G network coverage of the Great Hall of the People has been achieved, providing
efficient news reporting services for media workers and the general audience. In
Hefei, Xinqiao International Airport has realized the first 5G airport information
construction in China [3, 4, 22]. With the support of 5G technology, it can realize
real-time tracking of baggage, optimization of parking space resource allocation,
intelligent video face recognition tracking, and early warning of security queues;
Shanghai Hongqiao Business District has created the first 5G demonstration business
district in China.
China is a country with the largest population in the world. With the improvement
of people’s quality of life, medical problems have gradually entered the public’s
field of vision. However, the two levels of medical resources are severely divided,
problems such as lack of information in hospitals impede the development of a
harmonious society. A smart hospital built with the help of 5G network technology
will greatly improve these problems, reduce doctor-patient conflicts, and improve
the quality of medical services [13]. In fact, smart science in 5G technology played
a great role at the epicenter of the epidemic disease in 2020. An online remote diag-
nosis center equipped with 5G technology came into operation. The online platform
222 Y. Wang
allows senior medical experts with different specialties who work at major hospi-
tals in cities such as Beijing, Shanghai, and Guangzhou, Guangdong province, to
diagnose and treat critically ill coronavirus patients at hospitals in other cities. The
images and other data can be transmitted between Wuhan and other major cities at
high speed, which enables high-quality online discussions. New technologies allow
minimizing patients’ mortality rate and reducing the likelihood of the doctors and
nurses contracting the virus. Robots are used in wards instead of humans to help safe-
guard medical staff members from infection. The robots are equipped with devices
such as cameras, ultra red sensors, and radars so they can move in isolation areas
while controlled remotely by doctors via mobile phones.
The application and development of 4G will eventually become a thing of the
past, and 5G networks are developing in the direction of diversification, broadband,
integration, and intelligence. With the popularization of various smart terminals,
mobile data traffic will explode in and after 2020 [6, 26]. Autonomous vehicles, also
known as self-driving automobiles, rely on artificial intelligence, visual computing,
radar, monitoring devices, and global positioning systems to work together to allow
computers to automatically and safely operate motor vehicles without any human
active operation. Now, self-driving technology has been realized in many countries,
but it has not been applied to real life on a large scale. With the development of 5G
technology, self-driving technology will not only be realized on a large scale but also
improve the safety of autonomous vehicles. The probability of automobile accidents
will be greatly reduced, which is of great significance to society.
Besides this, the huge improvement brought by 5G will cause an unimaginable
industrial revolution and cover all areas that are closely related to production and life.
5G technology will open up many new application areas, relying on massive Internet
of Things connections. All smart devices such as mobile phones, houses, cars, work
and public facilities will be connected to the 5G network at the same time and work
together without the need for gateways and routing. For example, hydrometers can
report data in real time to reflect the city’s operating conditions, traffic lights can be
intelligently adjusted according to real-time traffic flow, relying on high-reliability
and low-latency communication. Real-time information can be guaranteed in massive
data exchanges so that any remote instruction can arrive within a few centimeters.
Roadside cameras can tell the car to brake urgently when it detects the danger of
a blind spot. Even robots led by 5G technology will gradually replace humans in
firefighting, aerial work, assembly line work, garbage disposal, and even as waiters.
Online shopping will be more intelligent. The analysis of big data will suggest what
products one should buy, when one should buy them, and which platform to choose.
Big data will be automatically analyzed to avoid problems when buying something,
to guarantee the most suitable price and the required quality. The work will become
more intelligent, more flexible. It will be possible to change the work time, which used
to be from 9 o’clock am to 5 o’clock pm. The system will automatically distribute
the work according to employees’ capabilities, which will improve work efficiency
and save the company’s costs, let everyone work more freely and earn a higher
income. Environmental problems will be resolved; automatic monitoring through
the “sky eye” will show pollution and garbage accumulation, according to regional
division, and automatically send robots to clean. Even the probability of divorce
can be reduced before the marriage through big data analysis making it possible to
calculate the partners’ current indicators [2, 19, 23, 27].
In short, 5G provides the possibility to build smart communities, smart transporta-
tion, and smart cities, smart park, smart manufacturing, and so on.
6 Conclusion
5G is like a football game. There are several teams on the field at a time, there
are many nets, but there is only one goal worth scoring, to use the smallest capital
expenditure and operating expenditure to obtain the greatest practical ability. It is
expected that 5G will bring a really comfortable, convenient, intelligent, wireless
world—the Wireless World Wide Web (WWWW) to support enormous data rates
and huge numbers of user applications and services. However, there is a different
focus on 5G technology in different countries [1, 11]. China is more focused on
vertical applications and services. Japan currently favors extreme mobile broadband
but supports vertical sectors as well. Korea is mainly focused now on extreme mobile
broadband. The USA supports an approach similar to the European one, focusing
on extreme mobile broadband, as well as extreme machine-type communication,
including vehicle-to-X communication (V2X), where X stands for everything. So
governments of all countries should attach importance to the development and appli-
cation of 5G, increase the construction of 5G base stations, and achieve full coverage
in the education, medical, transportation, power, telecommunications, and finance
industries that are related to the national economy and people’s livelihood, and give
full play to the leading advantages of the digital economy.
At present, one can observe a critical period of vigorously developing 5G mobile
communication technology in China. The rapid economic and social development
and the improvement of informatization are inseparable from the 5G engine. At
the same time, it is also facing the severe situation of various external technology
blockades. In this era, it is necessary to strengthen the integration and development
of 5G-related industries and promote deep cooperation of 5G-related enterprises.
Although the 5G network is powerful, there are still many difficulties in network
deployment, which are mainly reflected in physical site selection, property coordina-
tion, equipment compatibility, etc. Government agencies, communication design and
construction units, equipment manufacturers, communication operators, and other
units should work together to integrate 5G communications, mobile terminals, and
big data technologies into a complete set of industries. Only in this way, one can
improve the upgrade speed of software and hardware in the industry, meet people’s
demand for 5G technology, realize the mature development of 5G technology, and
ensure the rapid and efficient full coverage of the 5G network. Besides, research on
what comes after 5G will be started gradually, there will be some interesting topics
in the discussion by academics and industry. A new 10-year generation of mobile
communications is coming.
224 Y. Wang
5G is a major change in mobile communication technology, and it will lead to

a new wave of disruptive innovation. As the foundation of the entire technology
industry, 5G will build the world’s IT infrastructure together with technologies such
as blockchain, artificial intelligence, cloud computing, and big data.
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Digital Transformation of a Public
Lighting Infrastructure: A Sustainable
Proposal
Alberto Cerezo-Narváez , Manuel Otero-Mateo ,

Andrés Pastor-Fernández , José Sánchez-Ramos ,
and Pablo Ballesteros-Pérez
Abstract One of the effects of the last Spanish real estate bubble is the combination
of an expansive growth of urban areas with a reduction in their density. This has left
the municipal corporations that own the public spaces, facilities and infrastructures,
mainly green areas and roads, with a legacy that influences and limits their manage-
ment capacity, due to their duty of conservation and their high operating cost. Given
the current situation of the electricity market and the increasingly demanding envi-
ronmental regulations, the tendency of public administrations is to find a solution
to the high emissions of greenhouse gases (GHG) and light pollution, which in turn
can reduce maintenance costs and electricity bills. Due to the great potential of LED
technologies and electronic equipment for their regulating capacity, telemanagement
and long lifespan, a digital transformation of the public lighting of a couple of urban
areas in a small coastal city in southern Spain is performed. First, the implemen-
tation of measures to remotely manage them for decreasing energy consumption
and pollution levels is analyzed. Then, the amortization of necessary investments is
studied. Next, compliance with current legislation is justified. Finally, the feasibility
and profitability of actions proposed is successfully assessed.
Keywords Public lighting · LED technology · Telemanagement · Sustainable city
A. Cerezo-Narváez (B) · M. Otero-Mateo · A. Pastor-Fernández

University of Cadiz, Avenue 10, 11519 Puerto Real, Spain
M. Otero-Mateo
A. Pastor-Fernández
J. Sánchez-Ramos
University of Seville, Camino de los Descubrimientos s/n, 41092 Seville, Spain
P. Ballesteros-Pérez
Universitat Politècnica de València, Camino de Vera s/n, 46022 Valencia, Spain
228 A. Cerezo-Narváez et al.
1 Introduction
The implementation of the 2030 Agenda for Sustainable Development Goals (SDGs)
raises a series of challenges that must be faced by governments, civil and scientific
society and private companies [1]. Among them, education, gender and inequality,
health, well-being and demography, energy decarbonization and sustainable industry,
sustainable food, land, water and oceans, sustainable cities and communities, and
digital revolution for sustainable development must be highlighted. In order to
be achieved, these objectives require a collaborative effort among the different
stakeholders involved, whose relationships can be quantitatively assessed through
smart indicators in terms of robustness, flexibility and efficiency [2]. In the context
of this research, well-being and demography, energy decarbonization, sustainable
cities and digital transformation issues will be considered by municipal corpora-
tions [3], regulatory agencies and legislators [4], as well as by neighbors, and local
manufacturers.
Half of the world’s population already lives in cities and the forecast is that by
2030 this will increase to 5 billion (exceeding 60%) [5]. However, to comprehen-
sively address this problem, the concept of cities must be extended to that of urban
areas. Furthermore, although these areas still represent only 3% of the planet, they
already consume between 70 and 80% of total energy. Therefore, all efforts to reduce
consumption will have a positive impact on global sustainability [6]. In the case of
Europe, urban areas have been showing a considerable increase in size for just over
20 years [7]. In addition, population distribution within these increasingly growing
urban areas is tending to become more dispersed [8]. It should be noted that, although
the dispersed model has been considered less sustainable than the compact one [9],
discrepancies in this regard continue to emerge [10], although both models must face
these energy challenges.
In Spain, urban growth during the years of the last real estate bubble (1998–2007)
produced a significant change in terms of building densities, dropping substantially
to below 35 dwellings per hectare. In particular, the region of Andalusia accounted
for almost 20% of all growth produced in Spain [11] during these years. In addition,
2 hectares per day were altered or even destroyed in the first 500 m of the Spanish
coast [12] by the development of urbanizations and constructions (infrastructures and
buildings). Among the 35 most destroyed municipalities, only 5 of the most affected
are Andalusian (but 3 of them from Cadiz). In parallel to this urban development,
energy consumption was growing too. The current trend in energy prices leads to
measures aimed at optimizing demand and promoting energy savings and efficiency
must be implemented. In this regard, municipal corporations are facing the challenge
of ensuring energy management that allows them to address economic growth and
achieve a consensual social welfare, while also contributing to the sustainability of
non-renewable resources and the preservation of the natural environment.
In the field of public lighting [13, 14], digital transformation can support public
lighting systems to help achieve the SDGs [15]. The synergy of these actions aligns
Digital Transformation of a Public Lighting Infrastructure … 229
actions aimed not only at achieving cost savings, but also at reducing GHG emis-
sions and mitigating night sky light pollution [16]. To this end, solutions focused on
automation [17] can be proposed for the transformation of the system into part of a
smart city [18]. In addition to automating public systems, this allows integration with
information systems [19], being compatible with other services aimed at achieving
smarter cities [20]. Accordingly, this digitalization and automation is a critical point
of those pursued by the 2030 Agenda [21], mainly affecting the SDGs that are related
to the use of energy resources and the design of smart cities:
• Ensure access to affordable, reliable, sustainable and modern energy for all;
• Build resilient infrastructure, promote inclusive and sustainable industrialization
and foster innovation;
• Make cities and human settlements inclusive, safe, resilient and sustainable;
• Ensure sustainable consumption and production patterns.
In summary, the reduction of energy consumption and the mitigation of light pollution
are the main challenges that public lighting must face. First, public lighting is a
source of high energy consumption for municipal corporations, which in Andalusia
can account for up to 60% of the energy consumed and 80% of their electricity
bills [22]. In addition, these networks are systems with long periods of operation, so
that improvements in their management can lead to large energy savings. Second,
the brightness of the night sky (defined as a disturbing and intrusive light that can
generate nervous disturbances), because of the current way of life [23], is increasingly
affecting the urban ecosystem. In Andalusia, this issue is addressed by the Decree
357/2010 on the protection of the quality of the night sky [24]. In addition, an
optimized public lighting provides greater confidence of circulation, takes care of
reflections, and waste to sky, as well as preserves the natural cycles of flora and fauna
and rationalizes energy consumption [25]. Therefore, this is a very attractive factor
for public administrations, both economically and environmentally.
However, the lack of a common regulatory framework is one of the major obstacles
for a wider adoption of disruptive practices related to public lighting infrastructures.
It can be noted that commercial applications for the promotion of smart cities related
to public lighting are not always providing the expected results [26]. For instance,
one of the main challenges facing this industry is to design, develop and implement a
common standard, despite competition among manufacturers. This can be done with
open system architectures, which allow integration with existing infrastructures, thus
achieving greater performance in management and maintenance. In this regard, there
are individual initiatives and proposals using the European EN-15232 standard as a
basis [27] which may mark the route to be followed. In this context, the work being
conducted by the ISO/TC 268 Committee “Sustainable cities and communities”
of the International Organization for Standardization (ISO) should be highlighted,
representing the alignment between the best practices agreed upon and the SDGs.
With the purpose of identifying energy efficiency and saving measures that
contribute to sustainable development in the municipal context, energy audits of
public lighting may be undertaken, based on a situational analysis that makes it
possible to know the mode of exploitation, operation and performance of the lighting
systems, as well as state of their components, energy consumption and operating

costs. In Spain, these audits must be based on the Protocol for Energy Audit of
Public Lighting (PAEIAPE) [28] of the Spanish Institute for the Diversification and
Saving of Energy (IDAE), which requires that the following activities should be
performed:
• Make an inventory of the main elements included in the system: meter panels,
control and protection panels and lighting points;
• Perform a technical evaluation of the operation and diagnosis of the main deficien-
cies, with observations regarding the corrective measures that should be adopted
for a perfect exploitation of the system;
• Propose the main actions to achieve the maximum reduction of the energy
consumption of the system, without affecting its quality and service parameters;
• Assess the technical feasibility and quantify the proposed actions in energy and
economic terms.
2 Objectives
This research will propose a sustainable public lighting infrastructure. The owner
requires to recover the investment by reducing energy consumption. This can be
achieved by selecting light sources with a longer lifespan, more efficient and less
polluting. First, the current state of existing public lighting in a couple of urban areas
in Chipiona (an Andalusian coastal municipality of less than 20,000 inhabitants
located in the province of Cadiz), will be audited. Then, a series of measures will
be discussed with the municipal corporation to reduce the energy consumption and,
therefore, the levels of GHG emissions and night sky pollution. Next, an economic
study will be performed to assess the feasibility of undertaking the investments
required to implement the improvements proposed and to analyze their amortiza-
tion. Additionally, the inclusion of a grant within the framework of the Sustainable
Construction Program of the Regional Government of Andalusia will be suggested.
Finally, the replacement of luminaires will be proposed to obtain:
• Lower energy consumption (including lower light pollution);
• Lower maintenance (including longer service life);
• Higher energy performance (including higher color rendering);
• Direct current operation (suitable to be powered by renewable energies);
• Customization (on/off, power regulation, choice of color temperature);
• Telemanagement (remote modification of parameters);
• Promotion of circular economy (support by local manufacturers).
3 Methodology
This research presents two case studies located in Chipiona, a small city located
in the north coast of Cadiz, between the Guadalquivir River estuary and the Rota
Naval Station, as shown in Fig. 1. Case studies are a research method widely used
by researchers [29]. They are particularly insightful when dealing with complex
research objects (sustainable public lighting) in their real scenarios (urban develop-
ments) [30], especially when object and context are hard to separate [31]. In addition,
their capability as a research method to refine theories in explanatory studies are of
particular interest in the energy performance of urban areas [32–34]. In the dynamic
scenarios in which energy sources move, case studies are also appropriate for under-
standing challenging phenomena affecting cities, including points of view of agents
involved (as the owner of the urban areas, the municipal corporation) [35].
Portugal
Andalusia
Situation
Cadiz
Africa
Guadalquivir River Chipiona
Zone 1
Location
Zone 2
Naval Station Rota
Fig. 1 Situation and location of urban developments to be audited

The purpose of this research consists of reducing the consumption of non-

renewable energy, GHG emissions, level of light pollution and consumption of mate-
rial resources. Therefore, the scope of this research includes replacing a series of
public lighting luminaires with more energy-efficient ones, as well as adding control
and measurement equipment to regulate the luminous flux of the infrastructures (by
telemanagement). These interventions will be undertaken in a couple of urban devel-
opments, as shown in Fig. 1, whose use is mainly residential. The first zone is a
suburb located in the southwest of the city and covers 60 ha. The second zone is a
tourist development (second home of non-resident neighbors) located in the south of
the city and covers 105 ha.
3.1 Regulatory Framework
With the entry into force of Royal Decree 1890/2008 [36] that approved the Energy
Efficiency Regulation in Outdoor Lighting (REEIAE) and its Complementary Tech-
nical Instructions, the lighting levels, as well as the uniformities, illuminances and
other parameters that guarantee an efficient lighting of a road were definitively regu-
lated in Spain. As a design requirement imposed by the municipal corporation,
existing columns, poles and arms are not modified (only lamps will be replaced
in luminaires). Therefore, the layout of light points, interdistances, heights and type
of roads are conserved, with the result that the only intervening variable, for compli-
ance with the REEIAE, is the power and photometry of the lamps. According to the
PAEIAPE by IDEA, reviewed in the Introduction section, the following information
must be collected:
• Location (including name of the study area, location of the lighting panels using
UTM coordinates, number of lamps and type of lamps);
• General data (including voltage, protection, ground resistance, ignition, dimming
and control system);
• Energy data (including consumption, contracted power, contracted tariff).
Additionally, a grant is requested to the Andalusian Energy Agency, which is co-
financed with the European Regional Development Fund (ERDF), called Incentive
Program for the Sustainable Development of Andalusia 2020 (a+ program). The
objective of these funds is to promote investments in energy saving and efficiency and
the use of renewable energies in buildings for private or public use and infrastructures
(located in the Region of Andalusia). This is intended to help society to improve the
conditions in which energy is used, through renovation works for the reduction of
energy demand in buildings and improvement in the efficiency of lighting systems,
among others. The incentive, which is available for municipal services in Andalusian
cities with less than 20,000 inhabitants, is 60% of the total cost of the project, provided
if a series of technical requirements are met:
• Renewal of equipment that improves the energy efficiency of the current ones,
without increasing the installed power;
• Reduction of annual consumption;
• Inclusion of energy management systems using ICTs exclusively for lighting,
including control, connectivity and zoning, allowing remote management;
• Application of RD 1890/2008 (REEIAE);
• Pre and post certification of installations.
3.2 Context Analysis
The urban developments under study are residential zones very close to the coast, so
they also include pedestrian areas. They are formed by different typologically similar
roads, whose characteristics, in order to define the types of lighting according to their
regulatory framework, are summarized in Table 1.
Based on the analysis of the current status of both public lighting infrastructures,
a series of lighting studies (in short, energy audits) are carried out, selecting lamps
that meet the lighting needs (uniformity, illuminance, color rendering index, etc.),
using LED technologies, and adding new and more efficient equipment. Therefore,
the luminous flux can be regulated, managing (controlling, scheduling, changing)
the periods of operation and their intensities.
The two public lighting infrastructures under study were installed and commis-
sioned during the Spanish real state bubble 1998–2007 (at the beginning and the end,
Table 1 Road characteristics for designing the public lighting

Parameter Zone 1 Zone 2
Typical speed (km/h) 30–60 (Medium) 5–30 (Slow)
Users (motorized traffic, slow users, All All
cyclists, pedestrians)
Vehicle density <7000/day <7000/day
Vehicle parking Yes Yes
Traffic restrictions (elements) Yes Yes
Face recognition Yes Yes
Difficulty of navigation Usual High
Cyclist and pedestrian density Medium High
Field of view and visual complexity Usual High
Conflictivity/criminality Low High
Lighting class S1 ME4b S1/S2 CE2
Mean illuminance (lux) 15 20 15 20
Minimum illuminance (lux) 5 0.4 5 0.4
Regulatory compliance RD 1890/2008, D 357/2010
respectively). The most efficient technology to meet the public lighting needs, in that
geographical, social, and economic context, was provided by lamps with High Pres-
sure Sodium Vapor Discharge lamps (HPS). They were equipped with reflectors and
diffusers to achieve uniformity in the road and distribute the luminous flux. Mercury
Vapor (MH) lamps were also used, although their consumption was very high and
could not be dimmed. High-intensity discharge (HID, both HPS and MH) lamps were
massively used until LED technology lamps were introduced in the market, offering
higher energy performance and luminous efficiency and less maintenance. This led
many cities to consider replacing their public lighting systems, since the investments
can be recovered, due to the great energy savings, long lifespan y low maintenance
that the new ones offer [19, 37].
4 Results
The main results of the energy audits performed are presented below. First, the
lighting results (including consumption and emissions) are presented. Next, the
telemanagement system employed, which is provided by its digitalization, to
remotely control the infrastructure is described. Finally, the economic results of
the interventions are presented.
4.1 Lighting Results
First, field data are collected in an orderly, clear, and concise manner to assess the
initial status of these facilities. Next, an identification of the facilities is designed,
which are divided by the control and protection panels (CPPs). Each CPP (whose
area of action is indicated by color in Fig. 2), in turn, is divided into subzones. Then,
they are analyzed as a whole, frame by frame. Finally, a global study of the lighting
in each urban development is performed.
As mentioned before, existing bodies must be preserved, so the same light points
will be installed at the same height and with the same layout. Accordingly, only lamps
will be replaced (but including the addition of new equipment for telemanaging
them). All existing lamps are HID ones. Therefore, both HPS and MH lamps are
equipped with capacitors. However, these will not be necessary if LED technology is
selected. On the other hand, although the current lamps cannot be dimmed, the new
lamps, thanks to remote management, can do it (becoming essential for mitigating
the night sky pollution). In addition, in order to improve lighting maintenance, the
photoelectric cells will be replaced by a system based on an astronomical clock.
Table 2 summarizes the main characteristics of lamps (replaced and new ones,
including ingress protection (IP), light source, lamp power and equipment consump-
tion). The interventions in both urban developments include the replacement of 515
HPS lamps (210 in Zone 1 and 305 in Zone 2) and 195 MH ones (75 in Zone 1 and
CPP CPP CPP CPP CPP CPP CPP CPP CPP

1.1 1.2 1.3 1.4 1.5 2.1 2.2 2.3 2.4
Fig. 2 Delimitation of CPPs by zone
Table 2 Lamp characteristics

Manufacturer Models IP Light source Lamp power (W) Equipment consumption
(W)
Indalux 752-OVX 55 HPS 150 21
IQD 100–250 16–27
ATP Villa MH 125 14
Socelec Ioana
BJC Delta
LEC L-T 67 LED 35–50 4
V-T 15–30
S-MV 30–150 4–8
LYD 25–80 4–8
120 in Zone 2). Furthermore, the annual operating hours that have been counted for
the Energy Audit sum up to 4481 for HPS lamps, 2085 for MH ones and 4311 for
the new LED lamps (once adjusted according to the REEIAE).
Energy Audits, which have been performed according to PAEIAPE by the IDAE
classify data by:
• location (subzones, series, units, disposal, interdistance and support heights)
• general (road width, lighting classes, mean illuminances, and uniformities)
• energy (light sources, installed power, consumption, energy performance, energy
efficiency index (EEI) GHG emissions, and EPC labels)
Table 3 compiles the main results of the intervention by CPP, establishing the previous
status, the proposal and the reduction achieved. The proposal is presented in two
steps: First, only with the replacement of lamps (LED) and second, including the
equipment for digitalization and automatization (LED + D + A). In addition, Table
4 summarizes the entire installation in each of the urban developments. As can be
checked in Tables 3 and 4, a reduction in energy consumption and GHG emissions
of slightly more than half in Zone 1 and almost two thirds in Zone 2 is achieved. If
telemanagement is implemented, then a decrease of almost three-quarters in Zone
1 and almost two-thirds in Zone 2 is obtained if the lamps are replaced as specified
above and the remote management is installed as specified below.
4.2 Telemanagement Results
The lighting industry has evolved rapidly over the last years from conventional
lighting (for example, with HID lamps) to LED technologies [38]. The benefits
of this new technology are now widely accepted globally [39]. Among the advan-
tages that its application provides, the great convergence between information and
communication technologies and lighting ones must be highlighted. Lighting appli-
cations are moving beyond light management to other data-driven services [40]. In
the public lighting segment, municipalities (as public space owners) are increasingly
demanding connected lighting, which is fast becoming an ideal platform for the use
of smart city applications [41]. Therefore, there is a real need to use an open system
[42] to integrate these applications, creating, in turn, new opportunities for welfare
and development.
Digitalization allows new luminaires to be remotely controlled by the technical
office of the municipal corporation. In addition, automatization allows enables them
to prepare the system against triggers. Among the multitude of remote management
systems on the market, the city of Chipiona has opted for the technology offered
Signify by Philips, based on the management of scenes through communication nodes
integrated in each luminaire, connected to a server via GSM on a platform known
as Interact City [43]. This scalable platform allows public lighting to be controlled
centrally, managing all lighting assets individually or as a group, and creating multiple
lighting scenes. These controls ensure that lighting levels are in the right place,
at the right time, to improve citizen safety and security. This allows the operator
to schedule different lighting calendars, as well as prepare the system for specific
anomalies, which would be triggering activated. In addition, other functionalities
can be implemented, such as environmental monitoring (pollution, noise, ice, etc.)
or incident and accident detection, among others.
In order to implement point-to-point telemanagement, the following elements are
necessary:
• Xitanium LED Xtreme driver sensor ready (luminaire power supply compatible
for communication with DALI 2.0 protocol);
Table 3 Compilation of energy audits by CPP

CPP Concepts Previous status Proposal (LED) Proposal (LED Reduction (%)
+ D + A)
1.1 Installed 8.2 2.2 2.2 73.6
power
capacity (kW)
Energy 36.8 11.5 9.3 74.6
consumption
(MWh/year)
GHG 5.6 1.7 1.4 74.7
emissions
(Tn/year)
1.2 Installed 9.8 2.7 2.7 72.4
power
capacity (kW)
Energy 43.7 14.5 11.7 73.3
consumption
(MWh/year)
GHG 6.7 3.6 2.9 55.9
emissions
(Tn/year)
1.3 Installed 13.1 3.6 3.6 73.0
power
capacity (kW)
Energy 58.8 23.0 18.6 68.4
consumption
(MWh/year)
GHG 8.9 2.8 2.3 74.0
emissions
(Tn/year)
1.4 Installed 9.2 2.5 2.5 73.1
power
capacity (kW)
Energy 41.0 13.1 10.6 74.2
consumption
(MWh/year)
GHG 6.3 2.0 1.6 74.2
emissions
(Tn/year)
1.5 Installed 10.3 2.7 2.7 73.5
power
capacity (kW)
Energy 45.4 14.5 11.7 74.3
consumption
(MWh/year)
(continued)
Table 3 (continued)
CPP Concepts Previous status Proposal (LED) Proposal (LED Reduction (%)
+ D + A)
GHG 6.9 2.2 1.8 74.4
emissions
(Tn/year)
2.1 Installed 21.9 8.8 8.8 60.1
power
capacity (kW)
Energy 98.4 46.8 37.8 61.6
consumption
(MWh/year)
GHG 70.3 32.4 26.2 62.8
emissions
(Tn/year)
2.2 Installed 28.9 11.7 11.7 59.4
power
capacity (kW)
Energy 129.6 62.6 50.6 61.0
consumption
(MWh/year)
GHG 80.3 38.8 31.4 61.0
emissions
(Tn/year)
2.3 Installed 22.1 8.2 8.2 62.7
power
capacity (kW)
Energy 99.0 38.5 31.1 68.6
consumption
(MWh/year)
GHG 61.5 25.4 20.5 66.7
emissions
(Tn/year)
2.4 Installed 19.0 6.8 6.8 64.0
power
capacity (kW)
Energy 85.1 36.7 29.7 65.1
consumption
(MWh/year)
GHG 52.7 22.8 18.4 65.1
emissions
(Tn/year)
Table 4 Summary of energy audits by zone (urban development)

Zone Concepts Previous status Proposal (LED) Proposal (LED Reduction (%)
+ D + A)
1 Installed 50.5 13.6 13.6 73.1
power
capacity (kW)
Energy 225.7 76.5 61.8 72.6
consumption
(MWh/year)
GHG 34.3 12.4 10.0 70.8
emissions
(Tn/year)
2 Installed 92.0 35.6 35.6 61.3
power
capacity (kW)
Energy 412.1 184.6 149.2 63.8
consumption
(MWh/year)
GHG 264.8 119.3 96.4 63.6
emissions
(Tn/year)
1+2 Installed 142.5 49.2 49.2 134.4
power
capacity (kW)
Energy 637.8 261.1 211 136.4
consumption
(MWh/year)
GHG 299.1 131.7 106.4 134.4
emissions
(Tn/year)
• Zhaga connector (standardized connector for interface specifications between

LED luminaires and light sources);
• Connection node LLC7270/00 CityTouch OLC COM SR DG model (secure
management platform with GSM card).
The Interact City platform allows the lighting management of the urbanization to be
centralized, allowing the operator to program lighting schedules, and ensuring the
correct lighting levels. However, regardless of the possibility of modifying scenes
on specific days or by seasonality, an appropriate regulation curve must be estab-
lished according to the needs of the urbanization to ensure a reduction in energy
consumption during low-traffic hours.
Figure 3 shows the programmed behavior curve. First, the luminaire starts at
sunset at 100% of its luminous flux until the third hour of operation, when it drops
by 30%. Then, one hour later, it decreases again to 40% of the total luminous flux,
and so on until after five night hours. At this point, the lighting again operates with
Luminous Flux
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
Sunset +2 +3 +4 +5 +6 +7 +8 +9 +10 +11 Ortho
Fig. 3 Luminous flux as a function of operating hours
100% of the luminous flux to end the cycle by cutting off the lighting at the time
marked by the astronomical clock (previously installed when replacing lamps), with
the corresponding ortho.
Equation 1 shows the energy savings produced by the basal curve, being Fi the
nominal luminous flux. It can be noted that without this behavior curve, savings
would be twenty percent lower than those obtained thanks to the automatization.
Savings = 0.3 × φi × 1(hour) × 365(days) + 0.4 × φi × 5(hours) × 365(days)

(1)
4.3 Economic Results
Finally, an economic balance of the interventions is made. The terms of costs, bene-
fits, amortizations, annual interest rate and even the grant by the a+ program (which
will be considered optional for studying the profitability without its concession in
order to be extrapolated to other cities that are not eligible for its application) will
be discussed.
In relation to the benefit, first of all, the annual energy saving is estimated, from
the analysis of the billing by CPP, from the Royal Decree 1164/2001 [44]. Next, the
terms of billing by power, of active energy (comparing the discriminatory modalities
of 2 or 3 periods and saving systems by reduction of flow), and of reactive power are
studied.
Finally, it is necessary to focus on the active energy term, and how it is achieved
by means of the flow reduction that remote management allows, as explained before.
Table 5 summarizes the annual electricity savings in both zones. The proposal is
Table 5 Savings on electricity bill by zone (urban development)

Area Current bill Proposal bill (LED) Proposal bill (LED + D Annual savings
+ A)
CPP 1.1 7,371.78e 1,390.09e 1,123.66e 6,248.12e
CPP 1.2 8,686.88e 1,676.31e 1,355.02e 7,331.86e
CPP 1.3 11,558.83e 2,239.68e 1,810.41e 9,748.42e
CPP 1.4 8,177.87e 1,547.41e 1,250.82e 6,927.05e
CPP 1.5 9,014.60e 1,678.42e 1,356.72e 7,657.88e
Zone 1 44,809.96e 8,531.91e 6,896.63e 37,913.33e
CPP 2.1 12,880.88e 5,224.28e 4,222.96e 8,657.92e
CPP 2.2 14,297.18e 5,344.32e 4,319.99e 9,977.19e
CPP 2.3 19,366.94e 5,798.80e 4,687.36e 14,679.58e
CPP 2.4 11,728.82e 4,269.66e 3,451.31e 8,277.51e
Zone 2 58,273.82e 20,637.06e 16,681.62e 41,592.20e
Zones 1+2 103,083.78e 29,168.97e 23,578.25e 79,505.53e
presented in two steps: First, the replacement of lamps (LED) and second, the
inclusion of the equipment (LED + D + A).
Another savings that can be achieved come from maintenance. The usual main-
tenance costs for HID lamps consists of replacing burned-out lamps and equipment,
whose useful life is 15,000 h of operation under proper conditions. However, as they
are exposed to surges, a corrected useful life of 6000 h is estimated (which represents
a reduction of more than fifty percent with respect to the useful life provided by the
manufacturer, under ideal conditions). Both lamps and equipment are replaced every
2 years, so the replacement of luminaires saves maintenance costs of 69.50e per
HPS lamp and 42.60e per MH one every two years, with an increase of 3% per year.
Another issue to be taken into account is the residual value of the luminaires
in their current status, previous to the intervention in which they are replaced by
other LED technology luminaires. Due to their years of use, the lamps in Zone 1 are
considered to be depreciated. On the contrary, in Zone 2, considering a depreciation
of 8% per year, it is estimated a residual value of the current installation of 20% on
the price of the luminaires. This means a residual value of 532.00e per HPS lamp
and 326.00e per MH one.
Regarding the cost, an initial investment of 240,770.80e for lamps and
40,041.32e for equipment (Zone 1), and 377,506.91e for lamps and 59,710.74e
for equipment (Zone 2), respectively, must be faced. These costs include general
expenses and industrial profit, in terms of material, machinery and labor. It is also
necessary to include the maintenance of Wellight servers to enable remote manage-
ment for each area, with an initial fee of 360.00e and an annual increase of 6%
(although the first year of service is included in the budget), and the cleaning of the
luminaires every 4 years, at a rate of 5.15e per luminaire (considering a municipal
worker performance of 3 units per hour), with an update rate of 3% per year. It can
Table 6 Summary of economic and financial indicators

CPP/Zone Zone 1 Zone 1 Zone 1 (with Zone 2 Zone 2 Zone 2 (with
(LED) (LED + D Grant) (LED) (LED + D Grant)
+ A) + A)
Net present 120,435.71e 145,096.71e 253,351.23e 93,480.23e 107,287.10e 275,836.76e
value (NPV,
7%)
Internal rate 15.93 16.13 33.50 12.11 11.96 29.54
of return
(IRR) (%)
Profitability 50.02 51.67 90.22 24.76 24.54 63.09
index (PI)
(%)
Payback 6 years 6 years 3 years 7 years 7 years 4 years
(PB) 9 months 8 months 8 months 10 months 10 months 1 month
be noted that although LED modules with stabilized voltage reach a useful life of up
to 70,000 h (at 4311 h per year of operation would reach about 16 years), a linear
amortization of 10 years is chosen, coinciding with the warranty on the luminaires
by the manufacturer, so that replacement costs could be reduced (while ensuring the
duration of the investment).
Additionally, from the regulatory bases for the granting of incentives for the
sustainable energy development of Andalusia in the period 2017–2020, the action
31 includes adaptation works for the reduction of energy demand and energy effi-
cient installations in buildings and infrastructures of the cities. The amount to be
incentivized, given that both developments belong to a municipality with less than
20,000 inhabitants (according to the census of 31/12/2020), amounts to 60% of the
total contract budget, 168,487,27e (Zone 1) and 262,330.63e (Zone 2), respectively.
Table 6 summarizes main indicators that probe the feasibility of both interventions,
including the first and second stages as well as the grant, which is considered as a
possibility (not being required for the profitability of the investment).
5 Conclusions
The case study focuses on prioritizing the mitigation of energy consumption and
removal of energy waste. This is done by the renewal of current lamps for more effi-
cient ones. This proposal undertaken in a couple of different urban developments,
replacing HID lamps with LED ones, is feasible, both from an energy and envi-
ronmental point of view. Energy consumption and GHG emissions are drastically
reduced (almost 2/3 in Zone 1 and 1/2 in Zone 2). In addition, the mean illuminance
is increased, greatly improving the lighting uniformity.
It should also be noted that, thanks to the remote control and management of
lighting schedules and flows provided by the inclusion of new digital equipment,
the quality of service to citizens is improved and the promotion of smart cities is
encouraged. This behavior curve is the basis of a point-point optimization, which
can be programmed. Telemanagement automatically optimizes the system, achieving
an additional improvement of almost one quarter in decreasing energy consumption
and GHG emissions (reaching a total reduction of almost 3/4 in Zone 1 and 2/3 in
Zone 2). In addition, light pollution is also mitigated by just over one-fifth, although
this can be increased customizing each answer.
The economic results obtained by the replacement of the lamps (NPV of
213,915.94e, IRR of 13.71%, profitability index (PI) of 34.60%) are slightly
improved if telemanagement is included (NPV of 252,383.81e, IRR of 13.73%,
profitability index (PI) of 35.15%), and greatly increased if the grant is applied
(NPV of 529,187.99e, IRR of 31.26%, profitability index (PI) of 73.70%). It should
be noted that these results can be enhanced if the total service life of 16 years of the
new lamps is considered instead of the 10 years of the commercial warranty provided
by manufacturers. In summary, these indicators support the exportation of the model
to other localities, especially those with less than 20,000 inhabitants located in the
region of Andalusia which, with a relatively low density of housing, find themselves
with urban infrastructures to maintain that considerably reduce their budgets. Finally,
thanks to the choice of the manufacturer of the new luminaires, the local economy
is promoted and the life cycle of the process is cleaned up.
Acknowledgements The authors thank the technical work done by Antonio David Cruces Caro
and Antonio Manuel Pedrosa Query in the Chipiona City Council that has provided the basis for
undertaking this research.
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Additive Manufacturing as a Digital
Design Technology
in the Wood-Furniture Sector: Benefits
and Barriers to Its Implementation
Laura Bravi , Federica Murmura , and Gilberto Santos
Abstract The research analyzes the potential sustainable benefits and barriers to the
implementation of Additive Manufacturing in the wood-furniture industry, trying to
identify the gaps in perception between “traditional” and “3D companies”, and also to
predict which are the main factors that could lead companies to its implementation. It
has been administered a questionnaire in 2017, on a sample of 2035 Italian companies
in the wood-furniture industry, using simple random sampling, obtaining 234 partic-
ipants. The Analysis of Variance and binary regression were used to evaluate data
collected. The research highlighted how Italian 3D companies are interested for new
products and product features showing a propensity to innovation and putting design
and made in Italy in the first place. The results underline that the main advantages
of using 3D printing are the reduction in time to define technical specifications of
products, in time for prototyping and production. For the successful implementation
of AM technologies, the decision to adopt them has to be accompanied by a change
in jobs and tasks, and thus a change in work practices and structure. The experimental
techniques used is the added value of this study: no previous quantitative analysis
has been realized on a large sample of furniture companies.
Keywords Additive manufacturing · Industry 4.0 · Innovation · 3D printing
L. Bravi (B) · F. Murmura

Department of Economics, Society, Politics, Carlo Bo University of Urbino, 61029 Urbino, Italy
F. Murmura
G. Santos
School of Design, Campos do IPCA, Barcelos, Portugal
248 L. Bravi et al.
1 Introduction
Currently, the world economy is going through a period of transition and change in
the manufacturing landscape and one of the most significant drivers of this change
is the emergence of advanced manufacturing technologies that are enabling more
cost- and resource-efficient small-scale production. The development of Additive
Manufacturing (AM), commonly known as 3D printing, in addition to other societal
trends such as servitization [1], personalization [2] and prosumption [3, 4], has led
companies to rethink their manufacturing processes and activities.
At the same time, the quality of products must be improved [5, 6] taking into
account environmental issues [7, 8], as well as, those related to safety at work [9] and
social responsibility [10]. All this aiming for value creation [11, 12] and excellence
in business [13, 14] with help of lean tools [15–17].
According to Mellor et al. [18], this technology evolved during the mid-1980s
when computing and control systems progressed [19]; in its early years AM was
mostly applied for the fabrication of conceptual and functional prototypes, also
known as Rapid Prototyping (RP). These prototypes were most commonly used
as communication and inspection tools, producing several physical models in short
time directly from computer solid models that helped to shorten the production
development steps [18].
Only recently 3D Printing has gained much attention, as the process has proven
to be compatible with industrial manufacturing beyond prototyping [20–23] In the
last decades, the production of end-use parts from Additive Manufacturing systems,
the so-called Rapid Manufacturing (RM) has emerged even if its economic impact
has remained modest [24].
Many of these technologies have been developed simultaneously but there are
various similarities as well as distinct differences between each one [18, 25]. There-
fore, 3D Printing can be applied to various manufacturing markets and it could affect
the quality of their productions. Mellor et al., [18] highlighted that market and product
characteristics must be the basis of the decision to invest in Additive Manufacturing
technologies. Any technological investment has to be supported by a high utilization.
The process must meet the manufacturing and business needs of other products if it
will not be highly used on one product [26]. The product characteristics are generally:
a degree of customization, an increased functionality through design optimization
and a low volume [18, 27].
Considering that, following the lines of Murmura and Bravi [28], the research
focuses on the Italian wood-furniture industry with the aim to understand if compa-
nies in this sector are investing in digital technologies and in particular in AM tech-
niques, to remain competitive in their reference markets and how investing in this
technology could affect the quality of these products. It has been decided to focus the
research on this sector because the Italian furniture industry is one of the solid pillars
of made in Italy, known and appreciated in all international markets. Its businesses
have a great tradition and also have a strong ability to innovate, from an environ-
mental and technological point of view. Wood-furniture companies have already
Additive Manufacturing as a Digital Design … 249
begun the transition of their production systems from the paradigms of the linear
economy to that one of the sustainable and circular economy, and are increasingly
opening up to new production technologies [29, 30]. The study tries to investigate
the potential sustainable benefits and barriers to the implementation of AM in this
specific sector, identifying the gaps in perception between “traditional companies”,
which use traditional prototyping and production techniques, and “3D companies”,
which have implemented these new technologies yet. Moreover, the research tries to
predict which are the main factors that could lead companies to AM implementation,
considering the fact that this technology could impact in the quality of companies’
production processes. Therefore, the research questions, which the paper investigates,
are the following:
RQ1: how much AM technologies are widespread among the Italian companies which
operate in the wood-furniture industry and how much these companies are investing
in it to remain competitive in their reference market?
RQ2: Which are the main environmental, quality and organizational changes that
AM technologies had brought to “3D companies”?
RQ3: which are the main factors that lead companies to the adoption of AM
technologies?
At our knowledge, no previous studies consider the development of AM tech-
nologies in the wood-furniture industry and the aim is to cover this gap. The added
value is the experimental techniques used, that is a quantitative analysis. There are
many qualitative case studies developed analyzing AM, but no previous quantitative
analysis has carried out on a large sample of companies focused on the furniture
industry to deepen the diffusion and use of such technologies in this sector.
Data considered have been collected before this period of pandemic, but in this
context, Additive Manufacturing (AM), has emerged as one remarkable fabrication
process because of its accessibility and flexibility to quickly produce complex and
monolithic parts or even mechanical systems [31]. Thanks to its ability to be a useful
technology for its wide range of materials and techniques, AM can be used in a myriad
of areas and applications, from rapid prototyping to medicine and aerospace end-use
parts or furniture. During this pandemic, AM was the first responder: it demonstrated
one of its strengths in this crisis due to its ability to deliver parts quickly and locally,
because it needs no tooling along with shorter lead times. Therefore, the idea behind
our study, even if data cannot be considered updated to this last period of crisis, will
remain and in the post-Covid era the main logic of adoption will be restored again
[32].
The paper is divided as follows: section two defines the theoretical framework on
Additive Manufacturing, section three presents the research design and section four
describes the main results obtained. Subsequently section five is used to discuss the
theoretical contribution of the paper, the managerial implications derived from it and
the conclusion, main limitations and future research directions.
250 L. Bravi et al.
2 Background
According to Ford and Despeisse [33], the adoption of AM and other advanced manu-
facturing technologies appears to herald a future in which value chains are shorter,
smaller, more localised, more collaborative, and offer significant sustainability
benefits [20].
Firstly, AM can cause changes in the supply chain of a company and on its
flexibility [34]. Gebler et al., [20] underline that supply chains shift from physical
goods to digital ideas/designs [27, 35]. This shift increases supply chain dynamics
by reducing the “time-to-market” [36] and by inducing furthermore a relative decline
in imports/exports [35, 37].
Furthermore, supply chains are expected to become less transport intensive. AM
makes it possible the production of multiple parts simultaneously in the same build,
getting an entire product [37]. According to Ford and Despeisse [33], while central-
ized AM has the potential to reduce inventory holding requirements because small
numbers of parts could be produced on demand economically, decentralized AM
could overcome inventory holding as well as conventional distribution problems.
Douglas and Stanley [38] highlight three different alternatives for AM, defining
a fourth one. The first one is where an important proportion of consumers purchase
AM systems or 3D printers and produce products for themselves [23]. The second
is a copy shop scenario, where individuals submit their designs to a service provider
that produces goods [39, 40]. The third scenario involves AM being adopted by the
commercial manufacturing industry, changing the technology of design and produc-
tion. They consider a fourth scenario: since AM can produce a final product in one
build, there is limited exposure to hazardous conditions, and there is little hazardous
waste [41]. For this reason, there is the potential to bring production closer to the
consumer for some products [42, 43].
In relation to the economic, quality and environmental implications this tech-
nology may significantly reduce the need for large inventory, that is a relevant cost in
manufacturing, where, in some cases, the determinants of financial reporting quality,
which is a very complex issue in the manufacturing industry and a significant contrib-
utor to a company’s finance were investigated [44]. Reducing inventory frees up
capital and reduces expenses [38, 45, 46].
As a result of life cycle assessments, the adoption of Additive Manufacturing
could lead to significant savings in the production of goods [20]. 3D printing reduces
manufacturing-related resource inputs since it requires only the material which is
needed to print the product without too many losses. Support materials can usually
be reused [20, 23, 41]. Energy consumption is an important factor of sustainability to
consider. Energy studies on 3D printing, however, tend to focus only on the energy
used in material refining and by the AM system itself [47].
According to Gebler et al. [20], 3D printing determines also shifts in labour
patterns, as the process is highly automated and only requires human workforce in
pre- and post- processing [36]. Labour related implications reveal different patterns
in developed and developing countries. The high degree of automation could be
economically beneficial for developed countries with ageing societies, but desta-
bilizes developing countries if the production and thereby the production volumes
re-shift to consumer countries [35]. Open source-based applications of 3D printing
could contribute to a sustainable development in rural areas with low economic
profiles, as 3D printing bridges the spatial gap to the next market of spare parts,
consumer products or tools [48].
What is more, an important impact is on company culture and how it has to change
to accommodate [18, 49]. According to Murmura and Bravi [28], using AM processes
as a manufacturing technology requires designers and engineers to re-think Design
for Manufacturing (DFM), in fact AM requires users to match product with process
and to understand new technology process capabilities. Therefore, the workforce
experience and skill are also proposed to be a key factor in AM implementation.
Further, Ford and Despeisse [33] stated that the freedom of design given by 3D
printing allows to redesign products and components. Using additive techniques,
several parts made of various materials can be replaced by one integrated assembly,
which will reduce or eliminate cost, time and quality problems resulting from
assembling operations.
Furthermore, with geometric freedom, AM allows products to be produced using
less material while maintaining the necessary performance. Materials used for AM
are not necessarily greener than materials used in traditional manufacturing. The one
exception may be the bio-polymer polylactic acid (PLA) [19]. As for materials, metal
and plastic are the primary used for this technology. Currently, the cost of material
for AM can be quite high when compared to traditional manufacturing but AM is
expected to become more cost effective as larger production volumes become more
economically feasible than at present [33, 50].
However, analysing organizational implications of this new manufacturing tech-
nology, to obtain a competitive advantage over competitors it would be relevant to
link the benefits obtained by the use of the technology with the business strategy
[18, 51]. Linked to size, the structure of an organization is the key factor to success-
fully implement manufacturing technology as suggested by previous studies [18, 52].
Indeed, companies that adopt without first re-designing organizational structures and
processes could face high difficulties [52, 53]. Hence, Mellor et al. [18] suggested
for the successful implementation of 3D printing that when the company decides to
adopt the technology, this decision should be linked to an organizational change in
jobs and tasks and in company structure.
However, no previous studies considered with a quantitative methodology to
analyse what are the factors of a successful implementation of AM in the wood-
furniture industry and what are the main barriers perceived. Therefore, this paper
tries to cover this gap, by quantitatively investigating the differences in perception
between “traditional companies”, which use traditional prototyping and production
techniques, and “3D companies”, which have implemented these new technologies
in the wood-furniture industry yet.
The novelty resides in the experimental technique used, investigating a large
sample of companies, to evaluate the diffusion of AM in this sector, and the main
limitations to its adoption.
252 L. Bravi et al.
3 Methodology
3.1 Sampling Design
To collect data, it has been administered a questionnaire on a sample of 2035 Italian

companies in the wood-furniture industry. Companies have been contacted using
simple random sampling and the questionnaire was administered, from January 26th,
2017 to February 28th, 2017, using the computer-assisted web interviewing (CAWI)
methodology. The questionnaire has been sent by e-mail and it has been followed a
two-step administration, that is, two weeks after the first submission, it has been sent
again asking those who did not answer to it yet, the possibility to participate. Thanks to
the double administration 234 companies participated to the survey (113 companies
during the first submission and 121 after the second submission). It has been asked
that the questionnaire would be answered by a figure in the technical/production
department, or by the figure who is more knowledgeable with respect to Additive
Manufacturing, prototyping and internal production techniques.
Data have been collected before this period of pandemic, but the improvements
in this last period considered mainly the medical sector [54, 55], while changes did
not consider the furniture sector, as can also be seen from the reference literature
that it is not updated to the time of pandemic. Therefore, the idea behind our study
remains valid since as also suggested by Arora et al. [32] in the post-Covid era the
main logic of adoption will be restored.
The questionnaire design is the following. The first part analyses the respondents’
profile, the factors of importance in developing their products, prototype production
and their knowledge and use of 3D printers. The second part of the questionnaire was
only for those companies that know and use 3D printing in their production process,
and it was asked them to evaluate benefits and barriers of this technology. The third
part was reserved to those companies which know 3D printing but have never used
it (neither internally nor externally), evaluating their motivation of non-use. Finally,
the last section considers the level of 3D printing adoption in the company supply
chain, and the relevance they give in investing in digital technologies.
3.2 Data Analysis
The aim of the research was to develop an exploratory analysis [56], in order to
analyse benefits associated with the use of 3D printings in wood-furniture companies,
and problems that impede its successful implementation.
A descriptive analysis was developed to describe the profile of the wood-furniture
companies that participated to the survey. The questionnaire items (companies’ atti-
tudes and behaviours and perceived benefits and barriers) have been evaluated using a
five-point Likert scale. The items were built following what was already found in the
available literature panorama reviewed in paragraphs 2.1 and 2.2 in this article and
also considering the research questions developed. To test the reliability of the items
Cronbach’s alpha values were computed, taking into account only values greater
than 0.60 as suggested by Nunnally and Bernstein [57]. The Analysis of Variance
(ANOVA) was performed using F-tests to statistically test the equality of means [58]
and analyse the different perception of benefits and barriers of Additive Manufac-
turing between those companies that use it and those that don’t use it. The Fisher
statistic (F-test) is a ratio of two variances, that are a measure of dispersion of the
data from the mean; larger values represent greater dispersion. F-statistics are based
on the ratio of mean squares. ANOVA uses the F-test to determine whether the vari-
ability between group means is larger than the variability of the observations within
the groups. If that ratio is sufficiently large, you can conclude that not all the means
are equal [59].
Finally, a binary regression [60] was used to assess whether companies’ attitudes
and behaviours and the perceived benefits contribute to determine the investment on
AM technologies by firms. The binary regression equation used is the following
Pr (AM = yes) = logit (β0 + β1 PRICERANGE + β2 AT_CUSTOMIZ

+ β3 AT_DESIGN + β4 AT_QUAL_MADEIN
+ β5 AT_ECOSUST + β6 AT_QUALMATERIALS
+ β7 AT_BRAND + β8 AT_IMAGINE + β9 BTIMESPEC
+ β10 BTIMEPROTOT + β11 BTIMEPROD
+ β12 BTIMETOMARKET + β13 BCOSTMATERIAL
+ β14 BCOSTMAGAZ + β15 BCOSTTRANS
+ β16 BCOSTMANODOPERA + β17 BRISPENERG
+ β18 BGEOMEQUAL + β19 BMODBUSINESS
+ β20 BINTERNAZIONALIZZ + β21 BPUNTIVENDITA
+ β22 BPERSONALIZZ + β23 BECODESIGN
+ β24 BIMPAMBIENTALE + β25 BNICCHIE + ) (1)
where:
• AM (Additive Manufacturing) is 1 if the company has used both internally or
externally AM techniques.
• PRICERANGE is the range of products realized by the company assessed by the
scale “low”, “medium–low”, “medium”, “medium–high”, “high”.
• AT_CUSTOMIZ is the attention paid to the creation of customized products
assessed by a Likert scale from 1 to 5.
• AT_DESIGN is the attention paid to the creation of modern and innovative
products with high design assessed by a Likert scale from 1 to 5.
• AT_QUAL_MADEIN is the attention paid to the creation of quality products that
meet the standards of the “Made in Italy” assessed by a Likert scale from 1 to 5.
254 L. Bravi et al.
• AT_ECOSUST is the attention paid to the creation of sustainable products

• AT_QUALMATERIALS is the attention paid to the quality of the materials used
for the creation of products assessed by a Likert scale from 1 to 5.
• AT_BRAND is the attention paid to the enhancement of the brand to be
competitive on the market assessed by a Likert scale from 1 to 5.
• AT_IMAGINE is the attention paid to the image of the company communicated
to customers assessed by a Likert scale from 1 to 5.
• BTIMESPEC is the perceived benefit of reduction in time to define technical
specifications of products assessed by a Likert scale from 1 to 5.
• BTIMEPROTOT is the perceived benefit of reduction in prototyping time assessed
by a Likert scale from 1 to 5.
• BTIMEPROD is the perceived benefit of reduction in production time assessed
• BTIMETOMARKET is the perceived benefit of reduction in time to market
• BCOSTMATERIAL is the perceived benefit of reduction in costs of materials
• BCOSTMAGAZ is the perceived benefit of reduction of inventory and unsold
costs assessed by a Likert scale from 1 to 5.
• BCOSTTRANS is the perceived benefit of reduction in transport costs assessed
• BCOSTMANODOPERA is the perceived benefit of reduction of labour costs
• BRISPENERG is the perceived benefit of energy saving assessed by a Likert scale
from 1 to 5.
• BGEOMEQUAL is the perceived benefit of the creation of new products with
complex geometries, increased performance and quality assessed by a Likert scale
from 1 to 5.
• BMODBUSINESS is the perceived benefit of the creation of a new business model
• BINTERNAZIONALIZZ is the perceived benefit of a greater chance of interna-
tionalization assessed by a Likert scale from 1 to 5.
• BPUNTIVENDITA is the perceived benefit of the shift of production to retail
outlets assessed by a Likert scale from 1 to 5.
• BPERSONALIZZ is the perceived benefit of product customization assessed by
a Likert scale from 1 to 5.
• BECODESIGN is the perceived benefit of co-design with the customer assessed
• BIMPAMBIENTALE is the perceived benefit of reduction in environmental
impact assessed by a Likert scale from 1 to 5.
• BNICCHIE is the perceived benefit of having the ability to serve niche markets
In data processing, it has been used SPSS 23.0 program, Statistical Package for Social
Science.
3.3 Non-response Bias
It has been verified that there were not significant differences among early and late
respondents to detect if there was a non-response bias [61]. To assess this, it has been
developed a set of tests that compared answers during the first and the second admin-
istration of the questionnaire. All t-test comparisons showed insignificant differences
(p <0.1 level).
4 Results
4.1 Profile of Respondent Companies
Among the 234 respondents, the study will consider the differences between “3D
companies”, that is, those which are implementing internally or externally additive
manufacturing technologies (n = 76) and those who know this digital technology
but have never used it in their activities, called “Traditional companies” (n = 158).
Considering the whole sample, 19.3% of companies declared to use AM internally,
13.2% to use it externally, while Traditional companies are 67.5% of the entire
sample.
Table 1 defines the profile of companies. 3D companies are in majority of a
medium size (43.4%) with a higher turnover (between 11 and 50 Mln Euro), while
Traditional ones are of a smaller size (49.4%) with a lower turnover. 3D and Tradi-
tional companies are mainly located in the north, but 3D companies work more with
international markets and realize mainly products of an upper-middle range.
In the whole sample of companies that participated to the survey the majority of
respondents work in the accessories sector (13.7%), followed by those producing
office furnishing (12.0%), kitchen furnishing (11.1%) and bathroom ones (9.4%).
3D printing technologies are used mainly by those realizing accessories (18.4%) and
those producing bathroom (13.2%) and office (13.2%) furnishings. This permits to
state that it is not the design of the wooden furniture, but it is mainly the design of the
components, accessories and furniture complements to be influenced by the use of
AM technologies in the wood-furniture-industry. This could define the competitive
design of firms in this sector since they know that consumers pay attention in details.
256 L. Bravi et al.
Table 1 Sample profile of respondent companies

Criterion Index 3D companies Traditional
companies
n = 76 (32.5%) n = 158 (67.5%)
N % n %
Dimension Micro 4 5.3 21 13.3
Small 23 30.3 78 49.4
Medium 33 43.4 46 29.1
Large 16 21.1 13 8.2
Turnover (e) Less than 2 Mln 4 5.3 37 23.4
2–10 Mln 21 27.6 63 39.9
11–50 Mln 34 44.7 43 27.2
More than 50 Mln 17 22.4 15 9.5
Region North 43 56.6 81 51.3
Center 31 40.8 75 47.5
South and Islands 2 2.6 2 1.3
Reference markets Italy 3 3.9 11 7.0
Italy and Europe 5 6.6 25 15.8
International markets 68 89.5 122 77.2
Price range Low 0 0.0 0 0.0
Lower-middle 1 1.3 9 5.7
Medium 9 11.8 39 24.7
Upper-middle 50 65.8 91 57.6
High 16 21.1 19 12.0
4.2 Attitudes and Behaviors of Wood-Furniture Businesses
Considering if wood-furniture companies of the sample realize prototypes, only

5.1% said not to realize them, while 80.8% said to realize them internally and 14.1%
externally.
Considering the percentage of the total production of 3D companies made using
additive manufacturing, the 72.4% of respondents declared to use it in only 10% of
their total production; the 15.8% make from 11 to 50% of their production using 3D
printing technologies and only 11.8% of them use these technologies in more than
50% of their production.
Analysing companies’ attitudes and behaviours, considering the whole sample not
reported in Table 2, they give much importance, when operating in their business,
to their image (4.62), to the brand of Made in Italy (4.61), to quality of materials
(4.60) design (4.56) and customization (4.53) of products. The analysis of variance
(ANOVA) permits to discuss the differences of perception among the two groups of
companies (traditional and 3D) for those items that have a statistically significant
Table 2 Attention paid to these factors in companies’ corporate behaviour (α = 0.748)

3D companies Traditional companies F Sig
n = 76 (32.5%) n = 158 (67.5%)
Mean SD Mean SD
Creation of customized 4.50 0.721 4.55 0.778 0.228 0.634
products
Creation of modern and 4.79 0.442 4.46 0.737 13.287 0.000
innovative products
with high design
Creation of quality 4.70 0.542 4.56 0.718 2.080 0.151
products that meet the
standards of the “Made
in Italy”
Creation of sustainable 4.18 0.725 3.81 0.945 9.270 0.003
products
The quality of the 4.61 0.518 4.60 0.541 0.003 0.957
materials used for the
creation of products
The enhancement of 4.68 0.571 4.42 0.751 7.130 0.008
the brand to be
competitive on the
market
The image of the 4.79 0.442 4.54 0.645 9.424 0.002
company
communicated to
customers
difference, while for those items that are not statistically significant, it means that
there are no differences of perception among the 2 groups.
Considering the differences between 3D and Traditional companies shown in
Table 2, companies that have begun to use AM techniques, in comparison to tradi-
tional companies, give more importance to the creation of modern and innovative
products with high design (4.79), which meet the standards of “Made in Italy”
(4.70) and pay high attention to the image they communicate to customers (4.79).
Furthermore, the enhancement of the brand as a source of competitiveness on the
market (4.68) and the creation of products that meet sustainability standards (4.18)
is considered as very important.
4.3 Different Perceptions of Advantages and Disadvantages

of AM
Subsequently the main benefits and barriers of using AM techniques have been inves-
tigated. As for the main advantages, it can be seen that the reduction in prototyping
258 L. Bravi et al.
time (3.84), and the reduction in time to define technical specifications of products
(3.50) are the most perceived ones by the whole sample. Table 3 shows differences
in perception about the two groups of companies: 3D companies seem to perceive
Table 3 Benefits from 3D printing use, considering 3D and traditional companies (α = 0.948)
3D companies Traditional companies Sig
n = 76 (32.5%) n = 158 (67.5%) F
Mean SD Mean SD
Reduction in time to 4.09 0.786 3.22 1.313 28.877 0.000
define technical
specifications of products
Reduction in prototyping 4.53 0.642 3.51 1.325 40.419 0.000
time
Reduction in production 3.42 1.074 2.70 1.255 18.731 0.000
time
Reduction in time to 3.82 0.795 3.01 1.184 28.718 0.000
market
Reduction in costs of 2.99 1.149 2.52 1.166 8.341 0.004
materials
Reduction of inventory 2.21 1.123 3.22 1.141 0.501 0.480
and unsold costs
Reduction in transport 2.16 1.132 2.11 1.092 0.106 0.745
costs
Reduction of labor costs 2.75 1.297 2.53 1.224 1.662 0.199
Energy saving 2.64 1.116 2.50 1.144 0.834 0.362
Creation of new products 4.05 1.082 3.46 1.348 11.132 0.001
with complex geometries,
increased performance
and quality
Creation of a new business 2.67 1.331 3.02 1.304 3.606 0.059
model: offer of a virtual
model
Greater chance of 2.53 1.238 2.65 1.199 0.551 0.459
internationalization
Shift of production to 1.93 1.075 2.11 1.098 1.297 0.256
retail outlets
Product customization 3.34 1.302 3.10 1.341 1.686 0.195
Ability to co-design with 2.83 1.360 3.11 1.26 2.383 0.124
the customer
Reduction in 2.74 1.300 2.69 1.117 0.081 0.776
environmental impact
Ability to serve niche 2.92 1.374 3.05 1.246 0.519 0.472
markets
Table 4 Barriers from 3D printing use, considering 3D and traditional companies (α = 0.688)
3D companies Traditional companies F Sig
n = 76 (32.5%) n = 158 (67.5%)
Mean SD Mean SD
Technology is not 2.61 1.287 3.41 1.388 18.143 0.000
suited to the
wood-furniture sector
Lack of interest in the 2.59 1.180 3.16 1.270 10.676 0.001
market
Lack of knowledge of 2.83 1.182 2.97 1.328 0.606 0.437
potential benefits and
problems
Lack of staff training 3.04 1.194 2.86 1.361 0.956 0.329
Excessively high 3.03 1.107 3.06 1.298 0.031 0.86
investment
in a more relevant way the benefits related to the reduction in time to define tech-
nical specifications of products, in time for prototyping, for production and in the
time-to-market of products. Moreover, it is relevant the possibility to create products
with complex geometries, high performance and quality, to co-design products with
the customer and in the same time to reduce the costs of materials used to realize
products, as well as, also to reduce the manufacturing costs [62].
On the contrary Traditional companies think that 3D printing technologies allow
the creation of a new business model, but this is less perceived by 3D ones. The other
items are not statistically significant and it means that there are no differences of
perception among the two groups of companies (traditional and 3D).
As for the main barriers in using 3D printings, these seem to be not relevant:
the value related to the item that considers the technology not suited to the sector
(3.15) and the investment considered excessively high slightly exceed the value of
3 (threshold of indifference) and are the two cited. Subsequently, Table 4 shows
the differences among £d and Traditional companies: the latter think in a stronger
way that there is a lack of interest for additive manufacturing in the wood-furniture
industry and that this technology is not suited for this sector, assuming that this could
be their motivation not for having approached it.
4.4 Binary Regression
The binary regression model tries to identify which are the main factors defining the
probability of a company to use additive manufacturing technologies (Table 5). The
dependent variable is a binary variable that takes the value 1 if the company is using
3D printing, otherwise zero. The logistic model allows to predict 3D printing use
with a probability equal to 79.1% considering among the factors, companies’ price
260 L. Bravi et al.
Table 5 Estimation of factors which defined the probability of 3D printing use

Observed Predicted
Y_Possession of 3D Percentage Correct
Printing
0.00 1.00
Step 1 Y_Possession of 3D 0.00 125 33 79,1
Printing 1.00 16 60 78,9
Overall percentage 79,1
a. The cut value is 0.340
range (see Table 1), their corporate behaviour (see Table 3) and the main perceived
benefits of 3D printing use (see Table 4).
Evaluating the factors that influence the use of 3D printing among the respondent
companies, price range is the most relevant, meaning that it is mainly companies
that produce more high-end products that approach the use of these new digital tech-
nologies. Considering companies’ corporate behaviour, it seems that the willingness
to create products that are modern and innovative with a high design has been an
incentive to approach to AM, while the attention paid to the creation of products that
are customized and meet the standards of made in Italy would seem not so relevant
in favouring the use of AM. Finally, among the perceived benefits, the model has
estimated the reduction in prototyping time as the main driving factor, while the
ability to serve niche markets seem to have a negative influence in the adoption of
AM technologies (Table 6).
5 Discussion
This research was aimed at understanding the diffusion of 3D printing technologies

among Italian wood-furniture companies. It has been decided to focus on this sector
since it is one of the solid columns of made in Italy, and it is known and appreciated
for its products in international markets. Data from Green Italy (2016) show that
two of the three major European furniture producing regions are Italian (Veneto and
Lombardy), and among the top 15, there are 5 (also Marche, Friuli Venezia Giulia,
Tuscany), while it is second only to China for trade surplus in a world ranking, and
it generates an added value of e4.9 billion, that is more than that of many countries
naturally rich in woody raw materials (such as France, 2.3, Spain, 1.8, Sweden, 900
million e).
The research results show that the adoption of additive manufacturing is increasing
and it is already quite widespread in Italy, with further potential of development
as also stated by Rusconi [63]. A third of wood-furniture companies have already
approached internally or externally 3D printing technologies and they are mainly
the most structured companies with a higher turnover to have started investing in
Table 6 Factors influencing the adoption of 3D printing (Step 1a)

B S.E Wald df Sig Exp (B)
Price range 0.887 0.333 7.091 1 0.008 2.428
Creation of customized products −0.704 0.308 5.209 1 0.022 0.495
Creation of modern and innovative products 1.095 0.476 5.302 1 0.021 2.990
with high design
Creation of quality products that meet the −0.785 0.383 4.205 1 0.040 0.456
standards of the “made in Italy”
Creation of sustainable products 0.414 0.289 2.047 1 0.153 1.512
The quality of the materials used for the −0.608 0.457 1.769 1 0.183 0.544
creation of products
The enhancement of the brand to be −0.474 0.417 1.295 1 0.255 0.622
competitive on the market
The image of the company communicated to 0.908 0.502 3.274 1 0.070 2.478
customers
Reduction in time to define technical 0.022 0.280 0.006 1 0.936 1.023
specifications of products
Reduction in prototyping time 0.858 0.338 6.441 1 0.011 2.360
Reduction in production time 0.407 0.249 2.682 1 0.101 1.503
Reduction in time to market 0.198 0.292 0.457 1 0.499 1.219
Reduction in costs of materials 0.041 0.253 0.026 1 0.872 1.042
Reduction of inventory and unsold costs −0.425 0.303 1.965 1 0.161 0.654
Reduction in transport costs 0.167 0.308 0.293 1 0.588 1.181
Reduction of labor costs −0.095 0.238 0.160 1 0.689 0.909
Energy saving 0.169 0.295 0.327 1 0.567 1.184
Creation of new products with complex 0.397 0.237 2.816 1 0.093 1.487
geometries. increased performance and quality
Creation of a new business model: offer of a −0.452 0.280 2.618 1 0.106 0.636
virtual model
Greater chance of internationalization −0.010 0.315 0.001 1 0.975 0.990
Shift of production to retail outlets 0.088 0.290 0.092 1 0.762 1.092
Product customization 0.185 0.263 0.494 1 0.482 1.203
Ability to co-design with the customer −0.248 0.226 1.200 1 0.273 0.780
Reduction in environmental impact 0.248 0.260 0.909 1 0.340 1.282
Ability to serve niche markets −0.560 0.289 3.769 1 0.052 0.571
Constant −7.803 2.556 9.319 1 0.002 0.000
Model summary: −2 Log Likelihood 188.307; Cox & Snell R Square 0.366; Nagelkerke R Square
0.511; Hosmer and Lemeshow Test: Chi-square = 6.452; Sig. 0.597
262 L. Bravi et al.
these new technologies. This is in line with the literature that found the size of an
organization as a critical factor to the understanding of the process of implementation
of new manufacturing technologies [64].
Linked to size, Mellor et al. [18] and Calabrese et al. [53] suggest that the structure
of an organization is a key factor for the good implementation of a manufacturing
technology, and that high difficulties can be encountered if the implementation is
done without first re-designing organizational structures and processes [52].
Defining the profile of the companies which have started to use 3D printing, these
give a relevant importance to aesthetic aspects of products they sell related to design
and innovation and also to communicate a good image of themselves.
Among the benefits of using 3D printing, 3D companies perceive as relevant the
reduction in time to define technical specifications of products, in time for prototyping
and for production as also found in the research of Petrovic et al. [36] and Ford
and Despeisse [33]. The adoption of AM mostly for reducing prototyping time is
usual also in the automotive industry, where these technologies are used as a design
and engineering validation tool [27]. 3D printers are used to make small parts and
sub-assemblies for both visual analysis and quality control [65].
Other two important factors are the reduction in time to market and in production
time; infact, as stated by Petrovic et al. [36], the use of 3D printing technologies
will increase supply chain dynamics, creating a decline in imports/exports [60]. The
work of Kotman and Faber [66] found that the reduction in logistical and production
efforts thanks to the use of AM technologies is found as an important perceived
benefit also in the construction industry.
As for the main barriers, these do not seem to be relevant and the main motivation
of traditional companies for non-implementing 3D printing is the belief that this
technology is not suited for this sector.
The study shows that the approach to the implementation of Additive Manufac-
turing techniques for a Small Medium Enterprise (SME) is likely to be different to
that in a large multinational company as stated by Mellor et al. [18], and that to
have success in implementing 3D printing technologies, their adoption should be
accompanied by an organizational and structural change [52, 53]. However, made
the necessary organizational changes, it has been shown that the technology can be
implemented with success as demonstrated by the study. Baumers et al. [50] say that
speculation that AM processes may intrinsically be at a disadvantage in high-volume
industries appears premature. It is also imaginable that the elimination of tooling
resulting from the adoption of AM removes significant front-end fixed costs associ-
ated with the introduction of new products, thereby promoting product innovation.
Additive manufacturing provides opportunities for organizations to create product
innovation, beating competitors on time, thanks to less time spent in defining tech-
nical specifications of products and in prototyping, dramatically reducing the time to
market of the same [67]. 3D companies, which use AM techniques mostly for proto-
typing, can achieve to have these benefits and therefore reduce the final production
time thanks to the use of a Computer Aided Design (CAD) software which gives a
virtual representation of the object that has to be transmitted from a computer to the
3D printer [68]. In this way 3D companies can beat on time traditional ones, which
do not use these techniques for prototyping, with the only limitation of material
used, since 3D printers primarily use plastics, resins of metals. As stated by Mishra
and Shah [69], new product development is a key source of competitive advantage
for individual firms, and this is particularly true also for the furniture industry [70].
Moreover, the use of additive manufacturing could help developing strategies of
sustainable production to be competitive in their own markets.
6 Conclusion
To implement a sustainable manufacturing strategy, an organization needs to focus

on developing innovative products, create reconfigurable manufacturing systems,
develop lean production system in order to have agile manufacturing, monitoring
performance, and be a flexible organization. This study confirms that additive manu-
facturing can help to reach such sustainability objectives, thanks to product perfor-
mance improvements, reduced materials use, and reduced logistics and transporta-
tion. The supply chain of businesses adopting 3D printing could become shorter,
smaller, more localised and more collaborative.
The present study has its own limitations. Firstly, it has been taken into consider-
ation only the wood-furniture industry, but it would be important to understand how
companies of other Italian relevant industrial sectors, such as the textile, food and
automotive are managing the investment on these technologies, to verify if the advan-
tages and difficulties in implementing such technologies are similar to those encoun-
tered in the wood-furniture industry. Furthermore, the study specifically focused on
the Italian reality of businesses, therefore, for future research it could be interesting
to compare these realities with the other European ones.
Furthermore, the data is gathered using a structured questionnaire. For future
research it could be interesting to develop an in-depth analysis using a Struc-
tural Equation Modelling for better understanding the relations among variables
and therefore the factors which affects the adoption and non-adoption of Additive
Manufacturing technologies in businesses.
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Strategy for Digital Transformation
of Financial-Industrial Groups
Wang Can
Abstract In the era of Industry 4.0, the digital economy is reshaping at an unprece-
dented rate. Facing the historical opportunities and major challenges brought about
by digitizing, industrial enterprises should actively adjust their strategic planning and
prepare for corresponding management changes. The article uses the general scien-
tific research methods, such as literature survey, analysis, and synthesis. Through the
study of a large number of literature and the analysis of the existing typical cases,
the components of the company’s digital strategy are extracted, and the company’s
marketing and production are adjusted. Organization, R&D and other management
models put forward a digital innovation strategy for the enterprise. Finally, based
on the international environment of the world economy’s digital transformation, the
countermeasures of industrial enterprises are proposed in order to provide refer-
ences for enterprises to realize technological transformation, management integra-
tion, business model reconstruction, and carry out digital strategic management
innovation.
Keywords Digital strategy · Management model innovation · Constituent elements
1 Introduction
In the era of Industry 4.0, digital technology has been integrated into all aspects
of people’s lives, whether it is daily necessities, food, housing, transportation or
enterprise management and production, all are affected by digitizing and change. The
digital economy is reshaping at an unprecedented rate. It has become a new source of
growth momentum for China’s economy. According to statistics, the digital economy
in China in 2002 totaled 1.2 trillion yuan, and by 2018, it grew to 1.3 trillion yuan at
an average annual growth rate of 22.6%. The added value of China’s digital economy
industry in 2018 reached 14.5 trillion yuan. Figure 1 illustrates the development of
China’s digital economy in recent years.
W. Can (B)
Southern Federal University, 105/42, Bolshaya Sadovaya Str., Rostov-on-Don 344006, Russian
Federation
270 W. Can
35 40%
30 35%
25 30%
25%
20
20%
15
15%
10 10%
5 5%
0 0%
2008 2011 2014 2015 2016 2017 2018
Scale (trillion) GDP%
Fig. 1 The development of China’s digital economy in recent years [1]
Driven by data, the digital value of industrial enterprises will be highlighted,

realizing the reconstruction of the original business logic, and playing a certain role
in promoting the digital transformation strategy of industrial enterprises.
Starting from the concept of digital transformation, this article summarizes the
constituent elements of the digital transformation strategy of industrial enterprises
by studying the literature and typical cases in the digital context, and adjusts the
management modes of marketing, production, organization, and R&D to maintain
the foundation of the enterprise. From the perspective of the management model, the
innovation strategy for the digital transformation of industrial enterprises is proposed.
1.1 Problem Statement
Digital transformation is a dramatic (significant) and complete redefinition of an

enterprise’s business, not just IT, but also a redefinition of all aspects of organiza-
tional activities, processes, business models, and employee capabilities. According
to the “2019 Chinese Enterprises Digital Transformation Index”, the average score
of Chinese enterprises’ digital transformation is only 45 points, and only 9% of
enterprises have achieved significant results. China is not the only country on the
tortuous road of digital transformation. Some scholars pointed out that the practice of
global enterprise digital transformation needs to be guided by a systematic theoretical
framework with realistic insight and strategic orientation as a guide [2].
With the application of ABCD (Artificial Intelligence, Block chain, Cloud
Computing, Big Data) and other underlying digital technologies, users have real-
ized in-depth participation in the production. With the advent of the digital revolu-
tion, the competitive environment faced by companies has become more and more
complicated. Under the current situation, how to adjust the management model of the
company’s marketing, production, organization, R&D to maintain the “eternal foun-
dation” of the company? This paper combines the evidence of company management
innovation and the characteristics of the times, explores the direction of management
Strategy for Digital Transformation of Financial-Industrial Groups 271
model innovation and change, plays a certain role in promoting companies to adapt
to the operating rules of the digital economy, and helps companies to promote digital
transformation strategies.
1.2 Research Questions
Research Questions:
1. How digitization affects industrial enterprise management reform and innova-
tion?
2. Under the digital transformation strategy, how can industrial enterprises adjust
their management models such as marketing, production, organization, and
R&D to maintain their “eternal foundation”?
3. How to work out an innovation strategy for the digital transformation of
industrial enterprises from the perspective of management models?
1.3 Research Significance
Conversion: Industrial companies have transformed from the numbers carried by

traditional information technology to the numbers of new generation IT technology,
realizing the upgrade of technology application.
Integration: Industrial companies transform from the process of physical state to
the number in the information system, from the number in the physical form to the
number in the virtual form, and open up the real-time flow and sharing of data in
all directions, the whole process and the whole field, and realize the information
technology and business management true integration.
Reconstruction: To adapt to the needs of the Internet age, and to accelerate the
transformation and reconstruction of design, production, operation, and manage-
ment under traditional business models based on the realization of accurate digital
operations.
2 Literature Review
Digital transformation is a transformation and subversion of the way of thinking. In

the past business model, consumers could only make choices within the range of
products manufactured by industrial enterprises, but in the future it will become an
industrial enterprise that produces and sells according to the needs of consumers,
which imposes some requirements for industrial enterprises change.
Infor, the world’s third-largest enterprise-level application software and service
provider, proposed that the digital transformation of manufacturing companies
272 W. Can
mainly includes two aspects: achieving automated management and differentiating

competition. This requires companies to restructure their businesses, create new
data-driven models, as well as deliver better experiences, services and products, and
further promote the realization of the goals of digital transformation—improving
operational efficiency and increasing customer and employee engagement. The key
digital methods include big data analysis, cloud computing, the Internet of Things,
mobility and social network [3]. In its 2011 survey on digital transformation, IBM
proposed that there are three main strategic ways for companies to achieve digi-
tizing: (i) to reshape the customer experience and focus on value positioning; (ii) to
reshape the operating model and focus on value delivery; (iii) to combine the first
two approaches, while transforming customer value propositions and organizational
delivery operations [4].
When studying the development of the digital economy, some scholars believe
that the key is to implement a platform strategy that is suitable for the actual digital
transformation of industrial enterprises, and rely on digital public service platforms to
solve the difficulties, pain points and bottlenecks in the transformation and upgrading
of industrial enterprises. Other Chinese scholars have put forward suggestions on
the digital transformation strategy of industrial enterprises in terms of conceptual
transformation, organizational structure adjustment, operating officer transforma-
tion, and external cooperation transformation. Schnand et al. [5] thought about how
to realize the strategic transformation of industrial enterprises from five points:
customer preference determines production trend, strategic adjustment flexibility,
and operational transformation to improve efficiency, adjust organizational structure,
and strengthen external cooperation. Hao et al. [6] provide directions for enterprises’
strategic choices from the three levels of competition, operation, and organization.
They use digital technology to create new capabilities and new businesses for indus-
trial enterprises, and to achieve internal management of enterprises. Optimization
enables enterprises to continuously improve their organizational efficiency, thereby
providing customers with better products and services, and improving customer
satisfaction and loyalty. Yongsheng and Yuanjie [7] emphasized the importance
of top-level design when developing digital transformation paths for enterprises,
and then innovating organizational models to improve corporate management; inno-
vating business models to enhance corporate service capabilities; strengthening core
capacity building. In addition, to support the sustainable operation of digital business
models, companies also need to establish a digital culture. Digital enterprises need to
form a digital corporate culture that adapts to changes faster, demonstrates a higher
level of collaboration and cooperation, and has a stronger willingness to accept risks
[8].
At present, there are still some shortcomings in the research on the digital trans-
formation strategy of industrial enterprise. For example, there is no research on the
management model. This article takes the management model of digital strategy
as an entry point, and proposes an innovative model for the digital transformation
strategy of industrial enterprises from the four aspects, such as marketing, production,
organization, and R&D.
3.1 Realization Path (Literature Analysis)
This paper uses general scientific research methods: literature survey, analysis and
synthesis.
Under the current situation, most industrial enterprises are driven by “uncertainty”
and try to innovate digital products and services in order to adapt to the changing
environment. Driven by social motivations, digital capabilities on the consumer side
are gradually being transmitted to the supply side. Cichosz [9] take companies as
an example to study the changes in corporate business models in digital transforma-
tion and upgrading. It was found that many industrial companies used big data to
build online platforms, electronic exchanges, and shared service platforms to connect
partner resources and provide comprehensive service in order to accurately grasp
the market and customer needs. Many Chinese and foreign companies are actively
making digital transformation attempts. However, in the latest “2018 Chinese Enter-
prise Digital Transformation Index” report, the internationally renowned consulting
company Accenture pointed out that although China has become the world’s second
largest digital economy, its total digital economy accounted for more than 30% of
GDP, but only 7% of Chinese companies had significant digital transformation effects
and could be called “transformation leaders”. Even more companies still lack digital
and intelligent transformation awareness and digital technology application methods
[10].
3.2 Influence Elements (Case Analysis)
The digital economy is sweeping the world, and industrial companies are facing
subversion by new competitors. Technology companies, start-ups, etc. are rapidly
occupying business territory. JPMorgan Chase has achieved good results in dealing
with the above-mentioned problems in digital transformation, and its successful
experience is worthy of Chinese companies’ reference.
In terms of technology promotion and team talent building: talent and technology
are the key to corporate development and success of digital transformation. In recent
years, JPMorgan Chase has invested heavily in this area. According to statistics,
JPMorgan Chase invested 9 billion US dollars in digital technology in 2015, and
has an innovative R&D team of 40,000 people around the world. In these digital
technology budgets, 1/3 of the funds were applied to the development of new projects.
In terms of service model innovation: JP Morgan Chase introduced block chain
technology and conducted its pilot promotion to improve the security of bank
accounts. The project was carried out in parallel with the existing cross-border
transfer system by the end of 2016, and finally completed the relevant tests. And
Through the EEA, it aimed to extend cooperation with Intel, BP, Microsoft and other
274 W. Can
companies and jointly carry out technical research and development, so that more
enterprises could benefit from the cooperation.
JPMorgan Chase’s digital construction has achieved good results. According to
the data in the customer satisfaction survey conducted by JPMorgan Chase in 2012–
2017, the company’s website became one of the most popular banking portals in the
United States.
3.3 Elements of Digital Strategy
While summarizing the digital strategy of JPMorgan Chase, its constituent elements
can be embodied in the following three aspects:
1. Information processing system. The level of information processing capability
is critical to the development of enterprises, and has been regarded by many
scholars and practitioners as an important indicator for judging the success of
modern enterprises. The core elements of the digital strategy are the informa-
tion processing systems and capabilities that represent the success of modern
enterprises.
2. Digital strategic partners. Cooperation and common development are still the
central topic for companies. In the new era, the development of industrial enter-
prises requires professional digital technical support and close cooperation with
digital technical departments.
3. Professional think tank. The current digital transformation has become an
inevitable requirement of the development of the times, and digital professional
and technical personnel is expected to serve as an important resource in market
competition. Companies can cooperate with universities, research institutes and
other organizations. The relationship between the three elements is shown in
Fig. 2.
With the information processing system as the foundation, companies can interact
with digital strategic partners and establish a variety of cooperation frameworks and
models. In the process of interaction between the company and the external envi-
ronment, the former will share the intellectual advantages, brought by professional
think tanks, with its digital strategic partners.
4 Results
The integration of ABCD and the real economy, based on the perspective of indus-
trial upgrading, can make traditional industries more high-quality and more efficient.
From the perspective of internationalization, the integration of ABCD and other tech-
nologies with the real economy can also help enterprises get on track. In a situation
where enterprises fully use ABCD and other technologies, they will inevitably adjust
Digital strategic
partner
Digital strategic Professional Digital strategic

partner think tank partner
Enterprises
Information
processing system
Fig. 2 Digital strategy elements and their connections [11]
their internal functional activities, and then, through the continuous improvement of
value, enhance their efficient supply.
4.1 Marketing Model Innovation
The application of the ABCD technology has made the product supply more diver-
sified and digital, but the increase in product types will lead to a rise in customer
search costs. This method may not necessarily bring a good consumer experience
[12]. With the continuous increase in information, users lack attention to specific
products, and information overload makes the value that users obtain from prod-
ucts decline [13]. Focusing on the target market for precision marketing has become
the foundation of the corporate marketing model in the context of the current era.
The ABCD technology can help companies deeply understand the changes in user
needs and create a unique and convenient user experience. Since there are certain
differences between users and value-related user experience, companies should not
ignore the diverse needs of users when designing experience scenarios [12]. It is the
people-oriented operational thinking that enables companies to continue to tap new
market opportunities from the perspective of demand.
Mastering users’ consumption habits and intentions through big data is the basis
for precision marketing. Therefore, it is particularly important to enhance the source
of data. Analyzing the historical behavior of users can provide the company with
276 W. Can
effective market information and become the core basis for its marketing decisions.
Omni-channel marketing is comprehensive digital marketing, which is the collection
and sharing of various materials, people, finances, and information flows driven by
data.
4.2 Production Model Innovation
The outstanding feature of digital technology such as ABCD is that it is better at

capturing the ubiquitous power brought about by the popularization of digital infor-
mation technology. The intelligent production line can switch varieties and batches at
will, which can help companies control information replication, search and certifica-
tion costs. Compared with traditional enterprise production, it improves production
flexibility, production risk management, and control capabilities [14]. Based on real-
time market information, enterprises can scientifically allocate production factors,
make scientific arrangements for production plans, and flexibly release production
capacity to enable rapid inventory turnover. In the situation of extensive online trans-
actions, the computer can set up the best plan for the company through the analysis
of user orders. The transportation cost of some products will increase, and product
transportation will become more efficient.
The mode of production under digitalization has changed from traditional mass
production to flexible production. The ABCD technology has further strengthened the
control of the production stage, played a significant role in the continuous improve-
ment of product quality, and opened the door for the company to participate in
production activities. Among the factors affecting users’ purchase intentions, product
types have a profound impact, while price exerts a small impact [15]. Personalized
products can bring higher value to users and better meet their needs. Compared with
standardized products, users no longer passively accept products. They are eager to
make choices among a large number of product attributes and follow their personal
needs. Users are individuals (groups) who have the ability to develop, design, and
innovate products with the company [16]. When users have a deep understanding of
their own preferences and can better express them, they will be deeply involved in
the product, thereby enhancing the value they obtain.
4.3 Organizational Model Innovation
The organizational structure of enterprises against the background of the industri-

alization era is hierarchical and pyramid-shaped, unable to adapt to changes in the
external environment. With the rapid development of the digital economy, enterprises
need to adjust the standards and content of their strategies. It also requires companies
to innovate their organizational structure, re-coordination, evaluation and planning
of the combination of people, finances and materials. In the context of the digital
economy, the company’s strategy should focus on “doing the right thing” and gain
the greatest value by increasing cooperation with other companies.
The coordination between the different functional departments of the company is
manifested in the vertical integration and horizontal entry of the business, and then the
corresponding organizational structure is constructed. Among them, enterprises and
users are independent nodes, and data transmission is the basic connection between
them. The network organization with decentralized characteristics is based on nodes.
In the distribution of resources, the position of physical space–time is gradually being
replaced by the ever-expanding economic space–time. The circulation efficiency
and effectiveness of elements should be further improved to create greater value.
The dynamic ecosystem has such characteristics as a certain scale; participants can
interact with each other at high frequency, trust each other, and can attract new
participants [17]. Companies should continue to try to expand the scale of connections
in order to efficiently propose value, and provide users with more additional value
through cross-border business entry.
4.4 R&D Model Innovation
In the case of relatively limited information and consistent market demand, the orig-
inal closed R&D model has significant competitiveness, but also it has certain defects
in adapting to individual needs and controlling risks. It is difficult for any company to
maintain a leading position in various fields in the era of digital economy. To achieve
sustainable development and growth, new ideas should be continuously concentrated
and presented. Therefore, innovation should not be limited to closed-door operations
within the enterprise, but also require the cooperation of the entire ecosystem. In a
constantly changing and risky market environment, the diversification of ecosystem
participants provides more options for information exchange and problem solving,
and makes the system more stable and able to better respond to risks [18]. Companies
can also use the expertise provided by partners to reduce innovation costs, innovate
quickly, improve the quality of innovation, and better keep pace with user needs [19].
5 Conclusion
Amid the digital revolution, the popularization and application of technologies such
as ABCD has caused tremendous changes in the industrial structure and organiza-
tion. Market competition has become increasingly fierce and complicated, and new
challenges have continued to emerge. In the face of unprecedented changes in the
global economy, digital transformation has become the only choice for industrial
companies in the strategic direction.
278 W. Can
Industrial enterprises should pay attention to the following aspects.

1. Form a sense of digital transformation. In the industrial age, enterprise produc-
tion often only needs to focus on quantity and price. In the context of the current
era, the company will closely follow the user management, and the product and
service methods will focus on the creation and supply of value. Digitization
not only improves efficiency through the application of technologies such as
ABCD, but also enables corresponding changes in the nature of competition
and innovates management thinking and paradigms. Only by keeping pace with
the diverse needs of users and continuously increasing cooperation with ecolog-
ical partners can companies seize digital opportunities and achieve their own
development goals.
2. Formulate and implement a digital transformation strategy. Facing the current
digital transformation trend, industrial companies urgently need to formulate a
set of practical digital transformation strategies. Therefore, enterprises should
establish the concept of system management, and their organizational design
should fully consider digital transformation. At the same time, enterprises
should make up for shortcomings in a timely manner based on the charac-
teristics of “leading development and driving the whole”. For the manufac-
turing industry, digital transformation should build a mature digital management
control and decision-making system, and form a networked and flat organiza-
tional form. We need to pay attention to the operation of big data to provide
guarantee for the precise implementation of marketing. We should use the digital
main line and other technologies to manage the production process and play a
certain role in promoting the flexibility of production activities. We also need
to integrate customer relations, product design tools, and use methodologies to
carry out lean entrepreneurship. It is necessary to choose open innovation plat-
forms. Various open-source software encourages all kinds of “interest groups”
to actively discover problems and provide solutions for achieving open and
open-source R&D and innovation, as well as to grasp the economic develop-
ment trend, rely on online platforms, change the original single employment
mode, make it more flexible and change the value through effective focus on
“fragments”.
3. Strengthen the attraction and cultivation of digital talents. In the digital age,
digital talent is a scarce resource for enterprises. In the process of digital trans-
formation, the role of digital talent is particularly important. Cultivating and
actively absorbing digital talents is the basic guarantee for the transformation
and upgrading of enterprises. In order to cope with the current challenges of
digital transformation and upgrading, some companies have also set up a Chief
Digital Officer to coordinate platform construction and talent team management
at the organizational level. At the same time, we should give full play to the
advantages of external channels and recruit talents that meet our own needs
from all over the world.
4. Strengthen external cooperation. In the era of Industry 4.0, the main activities
of the industrial chain do not necessarily have to stay within the company.
Take the software industry as an example: both Google and Apple support
the developer community to continuously improve the quantity and quality of
applications on their respective platforms. The travel portal site brings together
airlines, hotels, car rentals, insurance companies, etc. in the industry chain, and
users can easily develop a complete itinerary. Similarly, industrial enterprises
also need to consider upstream suppliers as well as downstream suppliers and
consumers, and pay attention to how each link of the industrial chain integrates
into the new platform.
With the increase in enterprise digitization, the global economy is about to usher
in a large-scale transformation. This transformation will promote economic growth
and productivity, thereby promoting the improvement of people’s living standards.
The digital transformation of industrial enterprises may bring about disruptive
changes, and those innovative enterprises that win in fierce competition will create
immeasurable value.
Acknowledgements I would like to offer my special thanks to my supervisor Prof. Anastasia

Nikitaeva and my classmates for their great guidance and help in completing this research. I also
thank the organizing committee sincerely for the meticulous management and hard work on this
conference, which can provide such a high-level exchange opportunities and research platform to
experts, scholars and students from various countries. Wish this conference a complete success.
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Theoretical Framework of Business
Model Innovation Exploration
for Sustainable Development
Yan Zhaoqiang
Abstract In modern times, increasingly prominent economic, social, and environ-

mental issues threaten the sustainable development of human society while sustain-
able development has become the common vision and expectation of all humankind.
If a company or enterprise wants to maintain its strong core competitiveness and
achieve high-quality development, it should embed the mindset of sustainable devel-
opment into all aspects of management and operation. Through summarizing and
combining existing research results, this paper constructs a circular business model
framework used to describe the sustainability of a company’s existing business model.
The proposed model is based on the integration of the principle of the sustainability
triple bottom line and business model innovation so as to evaluate the sustainable
development potential and level of the entire industry.
Keywords Sustainability · Business model innovation · Circular economy
1 Introduction
Although scientific technology is developing and changing rapidly with each passing
day, the accompanying global economic slowdown, intensified social conflicts,
excessive energy consumption, and serious ecological damage become more and
more prominent. The sustainable development of human society is facing unprece-
dented threatens and challenges. As the main body of market and social activi-
ties, industrial companies take on great responsibility for these problems [11]. The
strategy, direction, and trajectory of their development are crucial and the key issue
is how to realize and maintain them.
Various sectors of society have conducted much active and meaningful research
and exploration. In particular, the cross-study of sustainability and business models
expanded on the basis of traditional business model research has become the latest
hot spot in the current academic community. A series of preliminary research has
Y. Zhaoqiang (B)
Southern Federal University, 105/42 Bolshaya Sadovaya St., Rostov-on-Don 344006, Russian
Federation
282 Y. Zhaoqiang
been produced while a certain consensus has been reached that the economic value
is no longer the unique, dominant, and decisive evaluation index for a successful
business model. Regarding a company as a system architecture for the enterprise’s
value proposition, value creation and delivery, and value acquisition, it is not only
necessary to integrate the strategic direction, the operating structure, and the profit
logic, but also incorporate the environmental value and social value into the system
for overall consideration.
At present, the research results on business models are very rich and mature, but
there is not much research on the combination of sustainability and business models.
It is still in the conceptual stage and has not yet reached a unified consensus. The
formation mechanism, evaluation system, and realization path of sustainable business
models are rarely involved and lack comprehensive analysis, in-depth exploration,
and systematic construction.
2 Literature Review
2.1 General Overview of Sustainable Development

and Business Models
The concept of “sustainable development” was first proposed in the report “Our
Common Future” issued by the World Commission on Environment and Develop-
ment (WCED) in 1987. Ten years later, Elkington [6] first defined the “triple bottom
line” principle in the context of the micro-business environment. It is the minimum
standard for enterprises to achieve sustainable development and requires enterprises
to shift from a single pursuit of profit maximization to the maximization of overall
economic, social, and environmental benefits, and strive to achieve a triple bottom line
dynamic balance and coordinated development. This is a relatively widely recognized
and applied theoretical model.
The research results on the definition, elements, and development tools of the
business model have been relatively rich. Different scholars have drawn different
conclusions from different perspectives. There is no widely recognized theory that
is used for large-scale application. However, existing research generally agrees that
the concept of “business model” is mainly supported by the concept of “value”.
For example, Teece and Richardson [14, 16] believe that the structure of the busi-
ness model consists of value proposition, value creation and delivery, and value
acquisition.
Theoretical Framework of Business Model Innovation … 283
2.2 Research Status of Sustainable Business Models
In recent years, scholars and companies have tried to extend the concept of sustainable
development to social and ecological aspects and realize the organic integration of
sustainability and business models, which is currently a very new research field. Some
scholars refer to the history and experience of traditional business model research
to study the concepts, elements, development tools, and innovation mechanisms of
sustainable business models, and have achieved preliminary results.
The current definitions of sustainable business models are based on the “inte-
grated” solution on the traditional business model concept. The commonly used
theories mainly include sustainable development theory [15], the triple bottom line
principle [3, 4], value chain stakeholders [7], cultural strategy and organizational
management perspectives [12, 14], etc. At present, the conclusions based on the
triple bottom line are highly recognized, and a basic theoretical framework has
been formed. It is believed that the sustainable business model establishes an ideal
model that balances economic value, environmental value, and social value among
stakeholders through a series of sustainable business behaviors or activities.
Along with studying business models, scholars have also conducted research on
the development tools of sustainable business models, aiming at guiding the industry
in the design and implementation of sustainable business models. At present, there
are mainly the following six kinds of development tools that are more meaningful
for reference: “Flourishing Business Canvas” [9]; “Value Mapping Tool” [2]; “Sus-
tainability Innovation Pack” [5]; “Sustainable Business Canvas” [17]; “Triple Layer
Business Model Canvas” [10]; “Business Model Canvas Extended for Infrastructure”
[8].
Some scholars have also summarized specific types or paradigms of sustainable
business models through case studies, literature analysis, and qualitative research.
For example, Bocken established a classification of “sustainable business model
prototypes” based on a large amount of existing literature and business practices,
and finally sorted out eight sustainable business model prototypes [3]. Industrial
companies can choose one or more combinations of these prototypes to reshape their
own, which can help companies find new ways to create and deliver sustainable
value and assist in the development of business model frameworks by discovering
new business opportunities.
In addition, it should be pointed out that the sustainable business model is a
dynamic operation model, which is in constant and sustainable change while it is
not a fixed specific paradigm or a fixed logical operation. It needs to have a certain
degree of flexibility, plasticity, and compatibility and presents a combination of a
series of viable business models in many cases to cope with changes or challenges.
Until now, several typical sustainable business models are concluded as follows:
natural capitalism; product service system; new economic concepts (blue economy,
green economy, sustainable economy, low-carbon economy, ecological economy);
closed-loop business model; social business models; green business models and
frugal business models, etc.
284 Y. Zhaoqiang
Fig. 1 Research method diagram
3.1 Research Method
Through sorting out relevant literature dedicated to business models, sustainability,

and their cross-study, a “circular business model framework” can be constructed and
applied to specific industries and enterprises. This theoretical framework integrates
relevant theories of sustainable development and business models while covering the
mainstream research results in these two fields. The specific research method and
route are shown in the figure below (Fig. 1).
3.2 Realization Path
In order to meet the standards and requirements of a circular business model, the
traditional business model should undergo all-round and disruptive changes in its
innovation concepts and realization paths.
Boons and Lüdeke-Freund [4] proposed three paths for sustainable business model
innovation, including the in-depth development and wide application of new tech-
nologies, the implementation of a brand-new organizational paradigm, and creating
new products and services. Based on this theory, this article believes that a circular
business model can be realized in the following ways:
1. Revolutionary entrepreneurship, that is, the construction of a completely
different organization or system, is often accompanied by business model inno-
vation, which helps to achieve the sustainability of the business model. Specifi-
cally, high-level entrepreneurship can not only create, deliver, and obtain circular
value for stakeholders but also pay more attention to the embedding of circular
development concepts and the application of environmentally friendly technolo-
gies. This approach can also give birth to disruptive business models, makes it
possible to discover and seize unknown and potential business opportunities,
change the existing industry structure and business rules, create new types of
occupations and jobs, effectively solve prominent social problems, as well as
obtain outstanding social benefits.
2. In the industry 4.0 era, the wide application of various advanced technolo-
gies represented by digital technology has forced many industrial companies to
explore new business models to adapt to these technologies. These new business
models have more or less demonstrated certain sustainability characteristics or
functions and also provide empirical analysis materials for the successful inte-
gration of sustainability and business models. A typical case is the “sharing
economy” model based on mobile Internet technology. Without changing the
ownership of products, the “sharing economy” model greatly improves the allo-
cation efficiency of social idle resources through the transfer of use rights, fully
embodies the circular consumption concept of coordination and cooperation,
and contributes to resource conservation and environmental protection, which
causes positive value creation effect for the economy and society.
3. The improvement of cognitive ability and the convergence of values can promote
circular business model innovation from the root. Whether it is government poli-
cymakers or leaders of companies, and other social organizations, they all agree
that the status of circular development is becoming more and more prominent,
and the relevant attention, support, and investment are continuously increased.
These factors give the organization a brand-new mission drive and operation
logic, thereby reshaping the culture, structure, and practice, changing the busi-
ness decision-making and practice methods, getting rid of the single economic
benefit maximization orientation, and pursuing coordinated development of
economic, social, and environmental benefits.
3.3 Theoretical Framework
In order to objectively and accurately analyze the business model that is in the
process of transforming into a circular business model, this article tries to build a
286 Y. Zhaoqiang
“theoretical framework of a circular business model”, integrating relatively mature

research theory of business models and the principle of the triple bottom line of
sustainability.
The horizontal axis of this theoretical framework represents the sustainability
orientation of the business model, namely economic value, environmental value, and
social value. The vertical axis represents the key value links of the business model
that consists of three parts: value proposition, value creation and delivery, and value
acquisition, drawing upon the research by Teece [16] and Richardson [14]. Each
sustainability includes a series of influence elements. Each cross-module contains
several influencing factors.
4 Results
In terms of economic value, this article adopts the business model canvas theory
proposed by Osterwalder [13], which is currently highly recognized and applied.
This theory embeds the nine elements into the theoretical framework of a circular
business model proposed in Sect. 3.3 according to their types and characteristics.
The results obtained are shown in Table 1.
With reference to the ideas and methods of constructing elements of economic
value, the following three questions need to be clarified in the aspect of the value
proposition for social and environmental values: (1) Do the companies have the will
and ability to realize social and environmental values? (2) What kind of social and
environmental values can the company achieve? (3) For whom, with whom, and in
what kind of relationship does the company realize social and environmental values?
In the value creation and delivery link, each business model element in this link
also needs to reflect sustainability-oriented environmental and social values. The
main topics include the following aspects: (1) How do the organizational structure and
operating model create value to provide conditions for delivery? (2) Do the products
or services produced by the company fully reflect the company’s environmental and
social values? (3) Which stakeholders at the environmental and social level are the
Table 1 Influence elements

Economic value
of economic value dimensions
Value proposition 1. Value proposition
2. Key partners
3. Customer segments
Value creation and delivery 1. Key activities
2. Customer relations
3. Key resources
4. Channels
Value acquisition 1. Revenue streams
2. Cost structure

Social value
of social value dimensions
Value proposition 1. Type and scale
2. Target positioning
3. Stakeholder orientation
Value creation and delivery 1. Organizational structure
2. Production method
3. Operation model
4. Cooperation forms
5. Conduct code
6. Market structure
Value acquisition 1. Subjective experience
2. Objective comment
partners of the enterprise involved and what value they have created? (4) Could
market rules and policy environment provide help and support to the enterprise?
In terms of value acquisition, subjective experience and objective indicators are
used to evaluate the sustainability of environmental and social values. Subjective
experience biases qualitative analysis, including resource integration, industry recti-
fication, improvement of people’s livelihood, environmental protection, etc. Objec-
tive indicators belong to quantitative analysis, composed of a scientific evaluation
system containing a set of quantitative indicators that can determine the sustainability
of a company’s business model. At present, no unified standards have been adopted.
According to the description mentioned above, influence elements of social value
(Table 2) and environmental value (Table 3) are preliminarily determined.
It can be seen from the results that the circular business model framework covers
the main aspects and key links of the business model. At the same time, it better
reflects the sustainability orientation of the economic, social, and environmental
requirements, and also has certain theoretical and practical guiding significance.

Environmental value
of environmental value
dimensions Value proposition 1. Type of industry
2. Cultural strategy
3. Policy guidance
Value creation and delivery 1. Brand project
2. Production link
3. Ecological network
4. Recyclable mechanism
Value acquisition 1. Subjective experience
2. Objective comment
288 Y. Zhaoqiang
5 Conclusion
Within the context of economic globalization and global integration, the company’s
production and operation are gradually transforming towards decentralization,
transnationalization, and modularization. Industry integration is necessary and
inevitable, and a sustainable product or service cannot be produced from the noncir-
cular industry [1]. Therefore, a sustainable business model can no longer only seek
the innovation of the company’s internal business elements or the change of tech-
nology portfolio, nor is limited to the upgrade within the industry. Such a model
should rely on the strong support of the entire sustainable industry or sustainable
business ecosystem to fully exploit the sustainable value and characteristics of its
own products or services [18].
5.1 Research Implications
The circular business model is a dynamic operation model, which is in constant and
circular change and is not a fixed specific paradigm or a fixed logical operation.
Therefore, the definition of a circular business model given in this article is the
following: it can satisfy stakeholders’ demands for circular creation, transmission,
and acquisition of value, and achieve an organic combination and dynamic balance
of economic benefits, social benefits, and environmental benefits.
The theoretical framework of the circular business model constructed in this paper
is an effective integration of sustainability and business models, covering the results
of existing research with reference significance, and enriching the research perspec-
tives and research levels of business model theory. Companies can use this theoretical
model to describe and analyze the sustainability of existing business models, deter-
mine strategic goals and operational strategies for sustainable development. Govern-
ment and managers can evaluate the current status of sustainable development of the
entire industry by comparing the differences between horizontal companies in order
to promote the entire sustainable development of the industry.
5.2 Research Limitations
A sustainable business model is crucial for the long-term development of economic

society and human beings. There are still many problems or difficulties that need to
be resolved in terms of basic definitions, innovation factors, influence mechanisms,
and performance evaluation. Many of the views and theories put forward in this
article are not yet mature and comprehensive. Some are based on previous research
results, and some are innovative results. In particular, the theoretical framework of a
circular business model proposed in this article still needs to be further refined and
improved. Its validity, applicability, and scientificity need to be further verified by

empirical research.
Next, the author will try to apply the circular business model to different companies
and industries, use questionnaire surveys and analytic hierarchy process to explore the
relationship between the components of the sustainability-oriented business model,
and try to establish a sustainability-oriented and quantitative evaluation system.
5.3 Managerial Implications
The sustainable business model has become an inevitable requirement and inevitable
trend for companies to maintain their core competitiveness and long-term sustain-
able development. The theoretical framework designed in this paper can help compa-
nies better understand and evaluate the sustainability of their business models. To
successfully realize the sustainable innovation of the business model, the following
management suggestions are put forward:
First of all, companies must conform to the development trend. Against the back-
ground of sustainable development, companies must not deviate from the direction
of sustainable development in the process of developing any products and promoting
any cooperation.
Second, the realization of sustainable development is a long-term program and
project, which cannot be achieved overnight or hastily. It is a process from quantitative
change to qualitative change, which requires continuous attention, investment, and
persistence.
Finally, companies need to strengthen cross-industry and cross-regional coopera-
tion and exchange with an open, inclusive, and shared mindset. It is strongly recom-
mended to learn from other companies and promote the sustainable development of
the entire industry.
Combined with current research results and practical conditions, this article
also suggests that in the current new economic and social development context,
more profound sustainable business model innovation can be achieved through the
following four paths: revolutionary entrepreneurship, technological upgrading, value
recognition, and industry integration.
However, with the in-depth development of related research and practice, the
comprehensive advantages and powerful effects of sustainable-oriented business
models will become more and more prominent. At the same time, circular business
models will surely become the focus and mainstream of future business model inno-
vation and contribute to high-quality economic development, the overall progress of
human society, and continuous improvement of the ecological environment.
290 Y. Zhaoqiang
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Open Innovation in Industry 4.0—A Risk
Assessment Framework for SMEs
Vitor Anes , António Abreu , Ana Dias , Pedro Carmona ,

and Teresa Morgado
Abstract Small and medium-sized enterprises (SMEs) play a fundamental role in

the economy of a society. About 90% of the world’s economy is made up of small
and medium enterprises, which employ about 60–70% of the workforce and generate
55% of the world’s Gross Domestic Product (GDP). Despite the important role they
play in society, they have been slow to adapt to new technologies and innovation
strategies, and in some cases these strategies are even non-existent. This fact has had
a negative impact on both economic growth and the performance of these companies.
Currently, digitalization and open innovation are two essential strategies for the
growth of companies. On the one hand, digitalization aims to increase productivity
and efficiency, and on the other hand, open innovation aims to meet the needs of
customers more efficiently. Despite the many benefits, these strategies have not been
adopted at the desired pace and doubts remain about how they should be applied in
SMEs. In this sense, this work aims to investigate the impact of digitalization and open
innovation on SMEs’ objectives and develop a model to evaluate the impact of their
implementation and support decision making. To this end, a literature review was
conducted to identify the strengths, weaknesses, opportunities and threats (SWOT)
related to SMEs, digitalization and open innovation. A correlation was then made
between SWOTs to identify risk factors that undermine the fundamental objectives of
V. Anes (B) · A. Abreu · A. Dias · P. Carmona · T. Morgado

Instituto Superior de Engenharia de Lisboa, R. Conselheiro Emídio Navarro 1, 1959-007 Lisboa,
Portugal
A. Abreu
A. Dias
P. Carmona
T. Morgado
292 V. Anes et al.
SMEs. This correlation was modeled to define a risk assessment and risk management
framework that promotes the implementation of digitization and open innovation in
SMEs.
Keywords SMEs · Industry 4.0 · Open innovation · Corporate risk
1 Introduction
SMEs are the backbone of the European economy and offer great potential for
employment and economic growth. They have made a significant contribution to
the European Union’s GDP and are the main driving force behind the development
of national economies and a common thread for entrepreneurship and economic
development [1].
In this sense, supporting SMEs through incentives has been a priority for the
European Union in recent years. Through this initiative, the EU aims to promote
economic growth, job creation and economic and social cohesion, taking into account
smart growth (based on digitalization), sustainability and inclusive policies.
According to the European Commission Recommendation 2003/361/EC of 6 May
2003, Article 2 defines SMEs as small and medium-sized enterprises. Accordingly,
the definition of SMEs corresponds to enterprises “employing fewer than 250 persons
and whose annual turnover does not exceed e50 million or whose annual balance
sheet total does not exceed e43 million.” This concept is applied in all countries
of the European Union on the basis of three criteria: (1) number of employees, (2)
annual turnover and (3) annual balance sheet.
SMEs are distinguished from large enterprises mainly by three characteristics: (1)
uncertainty, (2) innovation, and (3) adaptability.
SMEs tend to be very vulnerable to fluctuations in the global economy, which leads
to great uncertainty about their survival. Nowadays, although market penetration is
easier and faster, it is also more volatile and vulnerable. SMEs not only contribute
positively to economic growth and employment, but also are active in research and
innovation. Although the economic crisis can affect SMEs all over the world, their
adaptability/flexibility has served as a lever to combat adverse scenarios with the
aim of surviving while generating economic growth and employment. SMEs help
to improve competition, innovation, and overall productivity as they are the main
vehicle for new entrepreneurs who provide the economy with continuous ideas for
innovation and skills [2, 3].
SMEs have many positive attributes, such as: their growth strategy is customer-
oriented and customer-focused; they are responsive to market needs; their organiza-
tional structure provides for highly visible top management; because of their size,
they have low bureaucratic overhead; the work environment is usually informal,
which promotes productivity and encourages innovation; they seize opportunities
quickly and have high flexibility and adaptability [4].
Open Innovation in Industry 4.0 … 293
Despite the socio-economic importance of SMEs, many of them have failed in

important factors such as customer satisfaction, planning, monitoring, control and
resource management.
This fact results from a number of weaknesses, some of which derive from some
of the positive characteristics mentioned above. The best-known weaknesses of
SMEs are lack of capital and/or poorer access to finance, inadequate or non-existent
Research & Development (R&D), resource and market constraints, lack of skilled
labor, lack of management skills, inadequate infrastructure (size, capacity, obsolete),
lower job security, less strategic thinking, less standardization, limited application
of new technologies, obsolete technologies, lack of integration of network systems
and poor consumer/customer service.
In addition to these internal weaknesses, external threats include global competi-
tion, a flawed growth strategy, economic and political uncertainty, a challenging regu-
latory environment, environmental factors, consumer confidence (reliability, quality,
brand image), internal staffing (information leaks), other new technologies, social
security contributions, tax rates, and faulty communication [4, 5].
Despite these struggling challenges, SMEs also experience a set of opportunities
such as partnerships and alliances; promotion of SMEs by governments and EU; test
bed for new products and new markets, and test bed for new technologies.
1.1 Statement of Problem
In recent years, industry has adopted several strategies to meet the increasing diffi-
culties posed by technological and social development. Indeed, societies are increas-
ingly demanding and accustomed to being confronted with new technologies and
new services at a very fast pace. Companies that cannot keep up with this pace fall
behind, and those that do not adopt up-to-date growth strategies eventually have to
admit defeat. In this context, two inevitable growth strategies are open innovation
and digitalization. Innovation is one of the main arguments for the success of SMEs,
but the current innovation models are not up to the current challenges. The most used
innovation models in SMEs are the closed innovation models; an outdated innovation
strategy that limits the potential of innovation initiatives.
The reason for this fact stems from the great uncertainty surrounding the intentions
and actions of competing companies which may have access to sensitive information
through open innovation activities and jeopardize the company’s survival. Due to
this uncertainty, open innovation has not been adopted leading to lost growth oppor-
tunities as well as increasing SMEs’ exposure to negative impacts resulting from the
global economy.
As aforementioned, digitization is also an unavoidable strategy for SMEs. In fact,
the competitiveness of companies goes through digitization in its most varied forms.
Real-time access to information and the use of artificial intelligence expands the
horizons of opportunities. However, also in this strategy, SMEs encounter a set of
uncertainties whose impacts can put the company at risk.
294 V. Anes et al.
Therefore, it appears necessary to promote open innovation and digitization in

SMEs through the modeling of inherent uncertainties.
According to the authors’ knowledge, there are no frameworks in the literature
that model this issue, taking into account the aggregate effect on SMEs resulting
from uncertainties in open innovation together with digitalization.
1.2 Objectives
In this paper, we intend to model the aggregate uncertainties arising from the
implementation of open innovation together with digitalization in SMEs.
The aim is to investigate how the implementation of these two strategies may
affect goals, opportunities or even reinforce threats. It will also identify sources of
negative impacts and develop a risk model to quantify them.
This framework will support decision-making in the areas of open innovation and
digitalization and promote the implementation of these two strategies, in terms of
economic growth and increasing the welfare of society.
2 Literature Review
2.1 Digitalization
Industry 4.0, also known as the fourth industrial revolution, is based on the tech-
nological development that has taken place in recent years. Advances in storage
capacity, the increase in internet speed through 5G technology and the increase in
computing capacity have encouraged the development of new areas of research and
development with particular application in industry. Areas such as Big Data, Internet
of Things, cloud computing, artificial intelligence and others are examples of the
contribution of these advances, which have completely changed the paradigm of
industrial management [6, 7].
The rapid storage of large amounts of digital information and its analysis in real
time provides decision-support information that would otherwise be impossible to
obtain. The level of precision and confidence is high, and the practical applications
of this information are numerous.
For example, based on the stored information and its analysis, it is possible to
analyze the past, the present and the future. The development of statistical and fore-
casting techniques makes it possible to predict future events and behaviors based
on historical information. This type of information is very valuable as it allows
estimating future scenarios, improving risk analysis and management, optimizing
processes and making decision-making more precise. This information is stored in
the cloud, i.e., on computer servers for data storage that can be accessed remotely
over the Internet. The evaluation of the data is also done remotely and in real time.
The increase in Internet speed in recent years, as well as the increase in the
reliability of Internet services, have been fundamental to the paradigm shift in the
industry towards the adoption of so-called digitalization [8].
This has enabled the introduction of the concept of the Internet of Things, where
devices interact with each other through sensors and the exchange of information,
resulting in an integrated and intelligent dynamic network. Advances in artificial
intelligence have played a key role in broadening the horizon of digitization develop-
ment. Neural networks, fuzzy logic methods, data mining, Bayesian networks, among
others, are examples of these advances that are currently being used in industry, and
there are great expectations regarding the practical results that can be achieved with
these methods in the near future. The digitalization of industry enables the optimiza-
tion and consequent reduction of energy consumption in line with the sustainability
strategy promoted in recent years, it also enables the minimization of waste and
offers highly customizable products [9, 10].
Indeed, industrial digitalization brings innumerable benefits, such as: increased
productivity, efficiency, competitiveness, improved turnovers; increase in highly
skilled and well-paid jobs; improved customer satisfaction; increased product
customization and variety; flexibility and control of production; effective monitoring
and rapid response systems (safety of equipment and employees, higher quality
control).
In addition to these benefits, a number of opportunities can be identified, namely:
development of new lead markets for products and services; lower barriers to entry
for participation in new markets; development of test environments for pilot projects
and close relationships between companies and universities [11, 12].
On the other hand, the implementation of industrial digitalization is not without
weaknesses, namely: development and implementation costs; possible loss of control
over the company; dependence on the supply of workers with appropriate skills (lack
of qualified personnel in general); high dependence on the resilience of technology
and networks; dependence on investment and R&D; and lack of time to implement
projects.
In addition, several threats can be identified, namely: high investment costs; tech-
nological immaturity; insufficient skills; cyber-attacks; unemployment; violation of
privacy; cyber security (intellectual property, data protection); lack of knowledge
about digital transformation at the top management level; lack of skills and resources
for digitalization; brain drain and the risk of hybrid wars [13].
2.2 Open Innovation
In recent years, there has been a significant increase in corporate awareness of the
need for modern innovation strategies in order to remain competitive and penetrate
the market [14].
296 V. Anes et al.
This paradigm shift is partly due to the increasing complexity of the innovation
process, which has made companies’ internal knowledge base scarce and insufficient.
As a result, innovation activities have evolved into a global collaboration between
numerous teams distributed across different geographical points and/or different
companies [15].
The main objective is to enable the sharing of skills and knowledge provided by
different companies and institutions, leading to the concept of open innovation. This
concept has been extensively discussed and studied in the literature on innovation,
being of particular importance in the field of innovation management [16].
Generally, open innovation is divided into three types, namely “outside-in”, “in-
side-out” and “coupled”. In the “coupled” form, two or more actors manage the flow
of knowledge between their organizations to gain additional knowledge and bring
ideas to market more effectively. Although the “coupled” form of open innovation
is the most promising, it is also the one where uncertainty is greatest and where the
negative effects of unsuccessful partnerships can threaten the survival of the partner
firms [17].
This problem becomes even more critical for SMEs, which have withdrawn
open innovation initiatives due to their small size and high vulnerability to nega-
tive impacts. On the other hand, larger companies, which are less exposed, have
successfully tested this new way of innovation, proving that it is the right way to go
[16, 18].
Based on successful examples, the same result can be expected for SMEs if
exposure to negative impacts is done in a reduced and controlled way.
In this context, it is necessary to develop decision support tools that are appropriate
to the paradigm of these partnerships and the respective ecosystems, in order to
manage the interests of the partner companies in a “win–win” approach. However,
the body of knowledge in this area is sparse in the literature. In particular, the available
tools for the analysis and management of risks in open innovation between competing
firms are very limited or non-existent.
Open innovation has several strengths that promote industrial growth, e.g.,
networking with competitors is a source of valuable information; co-creation with
customers; enables the exchange of knowledge, ideas and technologies between
firms; diversification of R&D investment and sharing; easier market entry; advan-
tages in resource acquisition; increased speed of development; broader idea base;
technological synergies; increased learning; use of intellectual non-property as a
strategic tool.
These strengths promote various opportunities, such as, partnering directly with
end customers (case of open innovation with customers); collaborating with external
partners; using subcontractors to increase profits without hiring employees; experi-
menting to find new revenue streams; collaborating with universities and schools as
a source of new employees.
On the other hand, this innovation approach has a number of weaknesses, namely
more mistakes in routine processes; lack of legacy knowledge for additional tasks;
heavy dependence on external knowledge; loss of overall control over the innovation
process and intellectual property; loss of control over important knowledge; loss of
flexibility; creativity and strategic power; use of consulting brokers leads to lower
profit margins (costs may exceed benefits); power imbalance due to asymmetric
partnerships and lack of partnership with end customers.
There are also a number of threats: the risk of disclosure of confidential informa-
tion; loss of staff; unbalanced partnerships with advisory brokers; knowledge leakage
to competitors and differences in technical standards and technologies [19, 20].
2.3 Risk Management in SMEs
Qualitative risk analysis and management models are most commonly used by SMEs
because they allow characterization of risk scenarios in the absence of statistical data.
Open innovation partnerships are unique with unique scenarios, and it is not
possible to obtain systematic and correlative information between scenarios. In this
sense, quantitative models (with a statistical basis) are not directly applicable to this
type of problem, which makes the challenge even greater.
The alternative solution is to use qualitative models. However, these models have
a number of well-known limitations that are regularly discussed in the literature,
such as the limitations of Failure Mode and Effects Analysis (FMEA).
FMEA is a risk assessment and risk management tool that aims to mitigate poten-
tial failures in systems, processes, projects, or services; it is used in a variety of
industries and research centers.
Despite existing limitations, these models are still widely used due to their appli-
cability and ease of interpretation. However, the results are sometimes ambiguous
and require alternative measures with little scientific rigor.
The main criticisms are the fact that it is not possible to consider the relative
importance between risk variables [21], to obtain the same risk index for scenarios
with different risks, the difficulty to evaluate the risk variables by experts, the func-
tions of non-injective and non-surjective risk prioritization with duplicate values and
values that never appear in risk assessment, Scoring scales for risk variables with
different paradigms that make it difficult to standardize the contribution of different
risk variables, the impossibility of effectively measuring risk reduction after correc-
tive actions, the impossibility of considering the interdependence between failure
modes, and the impossibility of modeling the risk of complex scenarios because
only three risk variables are considered in these models (severity, occurrence, and
detectability), which is insufficient in these cases [22].
The models proposed in the literature to overcome these limitations are very
complex and require a high level of prior knowledge, which questions their applica-
bility to real cases in industry leads to a significant improvement in the results [23].
The limitations of qualitative models based on FMEA have a negative impact on
their performance. However, when these limitations are overcome, these models are
an asset, especially in the characterization of scenarios related to the analysis and
risk management of innovations [24, 25].
298 V. Anes et al.
However, the approach that is best suited to the analysis and management of risk
in the context of open innovation is the hybrid approach, where qualitative models
are used together with quantitative models.
3 Research Method
3.1 Proposed Approach
The research approach focuses on three dimensions, namely SMEs, open innova-
tion, and digitalization. As a first step, the strengths, weaknesses, opportunities, and
threats of each of these dimensions are identified in order to identify the main influ-
encing factors. Based on the obtained results, a correlation between the influencing
factors will be established to identify negative and positive impacts between the three
dimensions, Fig. 1, and then evaluate the aggregate risk associated.
Next, the aggregated effect of the identified impacts in each dimension is
evaluated, considering the four impact chains represented in Fig. 2.
These four scenarios describe the potential impact chains that SMEs may be
exposed, if they decide to implement digitalization and open innovation.
3.2 Models’ Design
Based on the concept described in the previous section, the total risk is calcu-
lated considering the four chains of effects (four risk scenarios) connected in series,
because only one failure in one chain of effects is needed to experience the impact.
In this sense, the overall risk can be calculated using Eq. (1),
Fig. 1 Correlation between

the three dimensions, SMEs,
open innovation and
digitalization
Fig. 2 Impact scenarios (IS) considered to evaluate aggregated risk

4
Riskaggr egated = 1 − P f _ici · IR (1)
i=1
where P f _ici represents the probability of the ith impact chain, and I R represents
the impact rating, i.e., a measure of the impact damage in the company’s goals and
expectations; this rating can be defined quantitatively or qualitatively depending on
the company reality. At this point, it is necessary to evaluate the probability of failure
of each chain of effects to determine the overall risk. According to Fig. 2, there are
two different types of impact chains, namely those that have only one type of risk
source (impact chain 1 and 2) and those that have two types of risk sources (impact
chain 3 and 4), so the risk assessment in each type of impact chain will be different
depending on the number of risk sources.
3.2.1 Risk Assessment of Impact Chains with One Risk Source
To properly evaluate a risk, one usually needs to consider the barriers to risk avoidance
and the barriers to mitigation/recovery. The former aim to prevent the event from
occurring, while the latter aim to avoid the impact if the event does occur. Figure 3
shows these barriers and how they are interconnected.
This graph can be updated for the risk scenarios considered for impact chain 1
and 2, as shown in Fig. 4.
The threats and weaknesses found for digitalization and open innovation are
considered here as risk events. Therefore, the prevention barriers (left side) aim
300 V. Anes et al.
Fig. 3 Bow-Tie conceptual idea for a given event
Fig. 4 Bow-Tie conceptual idea for impact chains 1 and 2
at avoiding the occurrence of a threat or a weakness that is promoted by a source

or a set of sources. Then, if the threat or weakness does occur, the recovery barriers
(right side) can minimize or even eliminate the potential impact.
To evaluate the overall risk of a bowtie it is necessary to evaluate the probability
of failure of each barrier. For this purpose, the fault tree method is used for the barrier
on the left and the event tree method for the barrier on the right.
Being P_ f t the probability of failure of prevention barriers and P_et the prob-
ability of failure of recovery barriers, the aggregated risk can be calculated using
reliability blocks theory, as shown in Eq. (2).

n

Risk_ic_1, 2 = 1 − 1 − P_ f t j · 1 − P_et j (2)
j=1
where j is the event number and n is the total number of threats along with the number
of weaknesses.
3.2.2 Risk Assessment of Impact Chains with Two Risk Sources
Figures 5 and 6 show the conceptual idea for impact chain number 3 and number 4.
Figures 5 and 6 differ in the order in which the impact chains are considered.
Impact chain 3 considers the consequences of digitalization as a source of threats
and weaknesses to open innovation and impact chain 4 considers the opposite, i.e.,
the consequences of open innovation as a source of threats and weaknesses to digi-
talization. The risk of impact chain 3 and 4 can be assessed with Eq. (3), where D
stands for digitalization and OI for open innovation.
⎛ ⎞

n

Risk_ic_3, 4 = 1 − ⎝ 1 − 1 − P_ f t j · 1 − P_et j ⎠
j=1
⎛ ⎞ D

n

·⎝ 1 − 1 − P_ f t j · 1 − P_et j ⎠ (3)
j=1
OI
Fig. 5 Bow-Tie conceptual idea for impact chain number 3
Fig. 6 Bow-Tie conceptual idea for impact chain number 4

302 V. Anes et al.
4 Case Study
To illustrate the application of the proposed approach, consider the case study
of a logistics company that intends to introduce Open Innovation together with
digitalization.
According to the current status of the company, i.e., human resources, technology
and services, a number of weaknesses and threats resulting from the implementation
of digitalization and open innovation were identified, from which the impact chains
shown in Fig. 7 were selected for analysis.
It is believed that there is a high probability that these weaknesses and threats
will occur and that the resulting impact could negatively affect or even bankrupt
the company, despite the many acknowledged benefits of open innovation and
digitization.
For each impact chain (IC 1–4), the respective probability of occurrence is
calculated according to the assumptions presented in the previous section.
First, according to the ability of the company to implement prevention and
recovery barriers, and according to the configuration of the chain of effects, the
probability of failure of the barriers is calculated using the methods of fault trees
and event trees. Table 1 shows the results for the probability that the barriers fail to
perform their function.
With the results shown in Table 1, the impact chain probability can be calculated
depending on the configuration. Table 2 shows the results obtained with Eq. 2 (results
Fig. 7 Bow-Tie conceptual idea for impact chain number 4 applied to the case study
Table 1 Barriers ‘probability of failure according to the impact chain configuration

IC P_ f t_D P_et_D P_ f t_O I P_et_O I
1 0.4 0.2 – –
2 – – 0.5 0.4
3 0.4 0.3 0.2 0.2
4 0.1 0.2 0.3 0.2
Table 2 Impact chain

IC Impact chain probability
probabilities
Risk_ic1 0.52
Risk_ic2 0.70
Risk_ic3 0.73
Risk_ic4 0.59
shown in rows 1 and 2) and 3 (results shown in rows 3 and 4) as a function of the
type of impact chain.
At this point, Eq. 1 can be used to assess the aggregate risk of impact on global
SME competition. Therefore, the aggregate probability can be calculated as follows,
Pagr egated = 1 − 0.52 × 0.7 × 0.73 × 0.59 = 0.84
and the aggregated risk for this scenario is:
Riskaggr egated = 0.89 · I R
As can be seen in this case study, the probability of failure of the barriers is too
high, i.e., it is very likely that the company will feel the undesirable effects. It can
also be concluded that the company is not ready to adopt digitalization and open
innovation at this stage. This means that barriers need to be set or improved before
the adoption of digitization and open innovation, which usually require investment.
In this sense, a trade-off study is advisable to determine whether the returns justify
the investments or not.
5 Conclusion
Digitalization and open innovation are two inevitable strategies of today’s industry,
but their implementation may have a negative impact on SMEs.
In this context, it is important to examine the extent to which a given company is
able to avoid these negative effects through the resources available, be they material,
technological or human. This knowledge can be important when deciding on the
304 V. Anes et al.
implementation of these strategies, as well as when assessing the investment required

for their implementation.
In this work, a new methodology has been developed to support decision-making
related to the implementation of digitalization together with open innovation in small
and medium enterprises. The methodology establishes an aggregate risk analysis and
management model that uses the assessment of strengths, weaknesses, opportunities
and threats as a way to identify sources of risk.
To assess aggregate risk, the model considers the Bow-Tie approach and uses
reliability theory to calculate the aggregate failure probability of the preventive and
recovery barriers.
In the proposed model, and in addition to the aggregate probability, it is necessary
to evaluate the impact of a particular event associated with the calculated aggregate
probability, and the aggregate risk is then evaluated by multiplying the aggregate
probability by the respective impact. The developed model was successfully applied
to an illustrative case study and produced a result that met expectations.
The risk assessment and management model proposed in this work still lacks
further validation studies as well as further developments to include impact chains
originating from SMEs and targeting digitalization and open innovation. Adding this
functionality to the model will close the impact cycle and improve the overall risk
assessment and management capabilities.
Acknowledgements This work was supported by the Polytechnic Institute of Lisbon through
the Projects for Research, Development, Innovation and Artistic Creation (IDI&CA), within
the framework of the project ReEdIA—Risk Assessment and Management in Open Innovation,
IPL/2021/ReEdIA/ISEL.
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Digital Transformation of Russian
Industry: The Specifics of Large,
Medium and Small Enterprises
Elena Mezentseva
Abstract The digital transformation of industry is an objective trend in recent years

and a necessary condition for the economic growth of the Russian economy in modern
global conditions. However, enterprises of different industries and different sizes
have their own characteristics that affect the speed of implementation of digital
technologies. Also, this speed is influenced by measures of state policy to support
digitalization, which should take into account these features. The aim of the work is to
identify the features of digitalization processes at large, medium and small industrial
enterprises and to analyze measures of state support for the digital transformation of
industrial enterprises in Russia. The article highlights the features of digitalization of
enterprises of various sizes, and the predominant types of digital technologies used in
the practice of large, medium and small industrial enterprises in Russia and developed
countries. We systematize state policy measures aimed at digitalizing the Russian
industry, and highlight measures of small and medium-sized enterprises support.
The study identifies the external and internal barriers to the digital transformation
of industrial enterprises, and offers recommendations for improving measures to
support the digital transformation of industry.
Keywords Digital transformation · Industry · Small and medium enterprises ·

Government support
1 Introduction
Digitalization has been the most striking global trend since 2010. The global
pandemic has shown the importance of digitalization of production and business
processes [33].
Empirical evidence suggests that digitalization has a direct positive impact
on company performance [1]. According to the ISSEK of the Higher School
E. Mezentseva (B)
Institute of Economics of the Ural Branch of the Russian Academy of Sciences, 29, Moskovskaya
St, Ekaterinburg 620014, Russian Federation
308 E. Mezentseva
of Economics, digital transformation will provide additional growth in labor

productivity in the manufacturing industry by 20.2% until 2030 (cumulative) [11].
However, there is a large gap in the use of digital technologies between sectors of
economy. The intensity of their implementation can be influenced by both trans-
mission channels and government policy. Digitalization covers many industries,
at the same time, not all of them are ready for digital transformation. The speed
of implementation of digital technologies in industrial enterprises is influenced by
both internal capabilities of the organization (human resources, technological level
of production, etc.) and external one the level of competition in the industry, the
availability of technologies and capital, as well as the development of legislation.
In this regard, it is relevant to study the issues of assessing the level of digitalization
of industries and the effectiveness of government support measures aimed at its
digitalization.
The aim of the work is to identify the features of digitalization processes at large,
medium and small industrial enterprises and to analyze measures of state support for
the digital transformation of industrial enterprises in Russia. To achieve this goal,
we solve the following tasks: 1. to conduct a bibliographic analysis on the topic
of industrial digitalization and the specifics for large and small and medium-sized
enterprises; 2. to analyze the current situation in the Russian industry in terms of
digital transformation, to study the existing indicators of industry digitalization, to
determine the level of digital maturity of Russian industrial enterprises; 3. to identify
the factors affecting the level of digitalization of enterprises of different industries
and different sizes; barriers hindering the digitalization of small, medium and large
enterprises; 4. to study the legal framework for the digitalization of industry and
conduct an audit of government measures to support digital transformation, high-
lighting measures addressed to small industrial enterprises; 5. to make recommen-
dations for improving the state policy of supporting the digitalization of the industry
of the Russian Federation, taking into account the factors of differentiating the level
of digital maturity of enterprises of different sizes.
2 Literature Review
In recent years, the economic analysis of industrial development has been carried out
within the framework of the Industry 4.0 concept. The Industry 4.0 concept is based
on the integration of information and communication technologies and advanced
industrial technologies into the so-called cyber-physical systems aimed at creating a
digital, intelligent and sustainable enterprise [13]. The main value of Industry 4.0 is
in the connection of products, machines and people with the external environment
and the integration of production, information technology and the Internet [12].
Industry 4.0 aims, on the one hand, to introduce highly efficient and automated
production processes typical for mass production, and on the other hand, to create an
industrial environment where individual and customer-specific products are produced
in accordance with mass customization strategies [27].
Digital Transformation of Russian Industry … 309
Among the scientific works devoted to the digital economy and Industry 4.0, one
can find studies concerning certain aspects of the digitalization of industry, such as
innovative strategies for industrial modernization in the context of digitalization of
the economy, the specifics of introducing the fourth industrial revolution principles
[14], modeling of efficiency factors of production and technological processes [17],
the role of production management in the conditions of Industry 4.0 [9, 10]. There
are a number of studies which investigate more specific technologies associated
with the digitalization of industrial enterprises: big data technologies [18], additive
manufacturing [19], integrated data structures in enterprise resource planning (ERP)
[34], digital competencies [29] and etc.
Successful implementation of Industry 4.0 is possible not only at large enterprises,
but also at small and medium-sized enterprises [21]. A rather limited number of
scientific works are devoted to the topic of digitalization of small enterprises in
industry; they mainly consider general issues of how small enterprises can adapt the
principles of Industry 4.0l [20, 32]. However, in recent years in European countries,
more and more authors are turning to the topic of the impact of digital technologies
on small and medium-sized enterprises. Matt et al. [21] make the earliest attempt to
substantiate a methodological approach to how small and medium-sized enterprises
can implement the principles of Industry 4.0. In Russia, there are practically no studies
devoted to the digitalization of small industrial business. In our previous works [23],
we identified the need for special studies for the implementation of Industry 4.0
technologies in small industrial enterprises, which will transform them into smart
factories, and also highlighted the advantages and limitations for the implementation
of Industry 4.0 technologies.
The digital transformation of industry is based on the concepts of the Fourth Industrial
Revolution, Industry 4.0, and smart factories. The theoretical and methodological
basis of the study is the scientific results set forth in publications in the field of the
fourth industrial revolution, digitalization of industry, digital transformation of small
and medium-sized enterprises.
The research methodology is based on network and institutional approaches. We
applied methods of theoretical generalization, systemic, logical, structural, compar-
ative analysis, and statistical methods. To solve the research problems related to
identifying the specifics of digitalization of large, medium and small enterprises
of Russian industry, the following research methods are used: analysis of scientific
publications, a descriptive method for analyzing the dynamics of changes in the
indicators of digitalization of Russian industrial enterprises.
Thus, to solve the set tasks, we use a complex of complementary research
methods: methods of theoretical analysis of the literature on the problem under study;
methods of study, generalization and analysis of experience and existing results of
310 E. Mezentseva
management practice; quantitative and qualitative methods for collecting empirical

information.
For the purpose of the study, a literature review on digitalization of industry,
in particular on small and medium enterprises, in Russia, was done, where arti-
cles and conference papers published before November 2021 were analyzed. Three
databases were used for literature analysis: Web of Science Core Collection, Scopus,
and ELibrary (Russian electronic library of scientific publications integrated with
Russian Science Citation Index). We used key words “Digitalization of Industry”,
“Digitalization in Small Manufacturing Business”, “Small and Medium Enterprises
and Industry 4.0”.
As a result of the bibliographic analysis, we found that a rather limited number of
scientific works are devoted to the digitalization of industrial SMEs. Among publi-
cations in English, we found several articles in journals, several book chapters; most
of the publications are articles in conference proceedings that are more of empirical
character. We should notice that the topic “Industry 4.0 for SMEs” is gaining more
and more importance for scientists engaged in engineering and industrial research.
Among the publications in Russian, there are practically no scientific works on the
topic of industrial small business in the context of Industry 4.0 and digitalization.
The same applies to statistical data on the level of digitalization of manufacturing
SMEs in Russia. There is no such data. Statistical studies of the level of digitalization
in the Russian Federation concern only large and medium-sized businesses.
The paper analyzes the digital maturity of industrial enterprises of different sizes,
the intensity of the use of digital technologies, the level of distribution of a number
of digital technologies in enterprises of different industries and of different sizes. For
this purpose, we analyze indicators that allow measuring the level of digitalization
of individual sectors of the economy; we use international and Russian indices for
assessing the development of the digital economy, in particular, the Digitalization
Index for the main sectors of the Russian economy. The information base of the study
was also made up of data from state statistics of Russia, regulatory information on
government support for digitalization of industry, data from statistical bulletins of the
Institute for Statistical Studies and Economics of Knowledge of the Higher School
of Economics, expert opinions of heads of industrial enterprises and leaders of the
IT-market.
4 Current Situation in the Digitalization of Industry

in Russia
Industry plays a significant role in the Russian economy. The share of manufacturing
industries in the gross value added in Russia was 15% in 2020 (14.2 trillion rubles)
[5].
The availability of indicators that could measure the level of digitalization of
certain sectors of the economy, in particular, industry, is an urgent issue. The work of
Koch explores the question of measuring methods of digital economy [15], as well
as the possibilities and attempts to measure certain types of activities of the digital-
ized economy. Currently, the following indices for assessing the development of the
digital economy are being calculated: the ICT Development Index, the Huawei Global
Networking Index, the E-government Development Index, the Digital Economy and
Society Index, the International Digital Economy and Society Index, the Boston
Consulting Group’s Economy Digitalization Index, the Global Digital Competitive-
ness Index, the Digital Evolution Index, Ivanov digital index. All these indices are
global in nature, that is, they assess the position of the country as a whole in terms of
the level of development of the digital economy. In 2019, the Institute for Statistical
Studies and Economics of Knowledge of the Higher School of Economics calcu-
lated the Digitalization Index for the main sectors of the economy of Russia and
a number of other countries, which characterizes the level of dissemination of key
digital technologies. The value of the index (integral indicator) is calculated for each
industry as the arithmetic mean of the share of organizations using each of the digital
technologies [11].
Recent studies show that while digitalization is one of the main determinants of
labor productivity in Russia, and that the most digitalized firms demonstrate higher
growth, there is a large gap between and within sectors [35]. To a greater extent,
digital technologies are used in services (finance and media), manufacturing is less
digitalized [22].
The digital transformation of industries is currently uneven. The so-called “digital
divide” in the level of digital technology assimilation exists both between industries
and within each of them [4]. Among the main factors of differentiation of the rates
and models of digital transformation of various industries, we note the following. 1.
Development agenda, problems and challenges in the industry. 2. Business models
and the place in the value chain. 3. Technological level and digital maturity. 4. The
readiness of organizations to change. 5. Features of the formation and use of data. 6.
Industry structure and economic situation. 7. Development of regulation.
Digital transformation requires the development of new technologies and the
corresponding restructuring of business processes. Comparatively mature digital
technologies, such as broadband Internet access, are quite widespread in Russia.
So, in Russia 90.4% of industrial enterprises have it [11]. At the same time, the latest
technologies are spreading in industries much more slowly. 27.6% of enterprises use
cloud services, 29.6% use ERP systems, 19.6% use electronic sales and only 12% use
RFID technologies. These indicators are included in the Digitalization Index, devel-
oped by the ISSEK of the Higher School of Economics, which just characterizes the
level of distribution of these digital technologies in the sectors of the economy. The
index of digitalization of industry is 36 points out of 100. According to the value of
the index, the industry of Russia takes only 21st place among 27 countries for which
the corresponding data are formed.
At the end of 2019, the cost of an introduction and using digital technologies in
the manufacturing industry in Russia amounted to 158.2 billion rubles. The share of
these costs in the industry’s Gross Value Added is 1.2%. The leaders in investments in
312 E. Mezentseva
digitalization were enterprises of the machine-building and metallurgical complexes

with costs of 82.2 and 49.1 billion rubles, respectively.
A few words about the technological basis for the digital transformation of
industry. The digital transformation of industry takes place on the principles of the
Industry 4.0 concept, including the transition to smart factories. At the same time,
there is a digitalization of the entire life cycle of products (from concept ideas, design,
production, operation, service and up to disposal), the use of digital models (twins)
of both new designed products and production processes, as well as the proliferation
of digital platforms [30]. This transition is based on the following main advanced
technologies: artificial intelligence, big data, cloud computing, virtual modeling, the
Internet of things, additive manufacturing, robotics, predictive analytics, etc.
The digital transformation of the industry is leading to the creation of a flexible
and highly efficient distributed network production based on digital platforms that
unite all participants in the value chain into a single ecosystem.
The digital transformation of the industry not only leads to a reduction in costs and
an increase in labor productivity, product quality, but also allows reducing the time
to market for products, provide mass customization and flexible (quickly adaptable
to external changes) production.
Compared to traditional approaches involving the manufacture of a physical proto-
type and carrying out field tests, the development of products based on the digital
twin technology helps to reduce the number of design errors and can reduce the time,
financial and other resource costs up to 10 times or more [36]. Digital modeling and
digital twins also make it possible to incorporate the characteristics of global compet-
itiveness and high consumer requirements into products, and to increase the level of
customization.
In after-sales service, thanks to digital technologies, there is a transition to a
service business model (“goods as a service”) and predictive maintenance (from
“repair according to regulations” to “on-condition repair”).
5 Features of Digitalization of Enterprises of Different Sizes
As noted above, there is a differentiation in the pace of digital transformation of

enterprises in different industries. These differentiation factors also affect enterprises
of different sizes and determine the level of their digitalization.
In Russia, as well as in the leading developed countries, large companies are
the leaders in digitalization [11]. Small and medium-sized enterprises are lagging
behind in terms of the pace of new digital solutions adoption. In general, highly
concentrated industries dominated by large businesses with access to significant
investment resources are showing greater progress in digitalization.
In various industries, the introduction of digital technologies requires different
investments, e.g. in terms of the volume and timing of implementation. In those
industries where, along with large enterprises, a large number of small and medium-
sized companies operate, the creation of various electronic services and platforms
often doesn’t require large investments, which opens up opportunities for a wide range
of enterprises to introduce new business models of interaction with consumers. At
the same time, in highly concentrated sectors of the economy, digital transformation
is associated with quite high costs. All this speaks of the different possibilities of
large and small companies.
Researchers from the Higher School of Economics [6] showed that there is a
statistically significant relationship between firm size, age, export orientation, and
adoption of digitalization and automation, namely, that larger, younger, and heavily
exporting firms tend to use digital technologies. In addition, while older large firms
maintain links with Russian research institutions, and such links work intensively
as transmission channels for the introduction of digital technologies, small and
medium-sized enterprises mainly benefit from increased intra-industry competition
with foreign firms and are watching the changes in the demand models of their
customers.
Researchers from France and Canada [28] believe that the actual problem of
applying Industry 4.0 technologies in small and medium-sized enterprises is their
typical management style and short-term strategy, which differ from larger firms.
Despite a growing number of new tools and technologies, most of them are under-
utilized or completely ignored by small businesses. Their research shows “that the
least expensive and least revolutionary technologies (simulation, cloud computing)
are most widely used in small and medium enterprises, while those that enable
deep business transformation (CPS, Machine-to-Machine, Big data, robots) are still
neglected by small and medium enterprises” [28].
According to Russian practitioners in the implementation of digital technologies
[2], digitalization of the manufacturing industry is currently proceeding extremely
unevenly. For example, in high-tech processing areas, the level of maturity of “end-
to-end automation” and “sales of industrial goods over the Internet” is extremely
high, and technologies of robotization and the Internet of things are just beginning to
be actively used. In the oil, gas and chemical industries, digitalization has embraced
most of the major players. However, it is too early to talk about a full-fledged digi-
talization of the industry. Even driver companies are still focused on improving the
efficiency of basic production processes, and only a few are using the achievements
of digitalization to create new business models. All this concerns large enterprises, to
a greater extent. That is, small businesses are in the lower stages of digital adoption.
The main barriers to the introduction of Industry 4.0 technologies and digital
transformation are the lack of financial resources of enterprises and the high cost of
projects in this area. In addition, among the constraining factors: insufficient digital
maturity of current processes, low level of automation, lack of competencies and
low level of IT literacy of employees; insufficient level of development of automated
control systems for technological processes; low level of development of practices for
working with data. These circumstances put small industrial enterprises in unequal
conditions on the way to digitalization, in comparison with large ones.
314 E. Mezentseva
6 Measures of State Support for Digital Transformation

of Industry
State regulation of industrial digitalization processes and priorities in this area are
spelled out in a number of documents at both federal and regional levels. The main
documents are: the National Program “Digital Economy of the Russian Federation”,
the federal projects “Normative regulation of the digital environment” and “Digital
technologies”, the departmental project of the Ministry of Industry and Trade “Dig-
ital Industry”, the Action Plan (“road map”) “Technet 4.0” (advanced production
technologies) of the National Technology Initiative, he Strategy for the Digital Trans-
formation of Manufacturing Industries until 2030, recently adopted by the Ministry
of Industry and Trade of the Russian Federation [26].
Currently, Russia has a system of measures to support the digitalization of the
industry. These measures are provided by the Ministry of Industry and Trade of
Russian Federation. The elements of this system are as follows:
• the project “Digital Industry” provides for the development of the regulatory
environment, the capabilities of the GISP (State Industry Information System)
platform [25];
• in accordance with the program of the Industrial Development Fund “Digitaliza-
tion of Industry”, loan financing of specific projects is provided in the amount of
20–500 million rubles at a preferential rate of 1–3% [7];
• subsidizing the reimbursement of part of the cost of developing digital platforms
and software products for manufacturing enterprises [8], for which it is planned
to allocate 2 billion rubles per year.
Taking into account non-budgetary sources, the aggregate financing of the imple-
mented and currently being implemented specialized projects for the digitalization
of industry is about 430 billion rubles (of which: about 57 billion rubles—funds from
budgets of various levels, about 374 billion rubles—funds of enterprises and about
11 billion rubles—borrowed funds) [25].
The Russian government plans to increase funding for the most effective industrial
support measures. They are aimed, in particular, at increasing the competitiveness
of the products of Russian enterprises through the transition to digital. As a result of
the Industry Digitalization Strategy, the costs of developing and launching high-tech
products are expected to be halved. For the next 3 years, the budget, in particular,
includes 25 billion rubles to compensate businesses the part of the costs of scientific
research, 5.5 billion rubles—for subsidies for the development of digital platforms
and software products, 5 billion rubles—to reimburse up to 50% of costs for creation
of pilot batches of production means [16].
In addition, the Ministry of Economic Development of the Russian Feder-
ation creates a digital ecosystem within the framework of the national project
“Labor Productivity” [5]. It provides access to digital services that are aimed at
increasing the level of digital maturity and the maturity of business processes through
remote diagnostics, providing analytical data about markets, training, and stimulating
cooperation.
The National Technology Initiative plays an important role in the digital trans-
formation of Russian industry and the creation of factories of the future [31]. As
part of the Technet roadmap, work is underway to form test beds (TestBeds), experi-
mental digital certification centers, information systems for planning and dispatching
production, an open cloud software design platform, a predictive analytics platform
for the industrial Internet of Things, etc.
A few words about the Strategy for Digital Transformation of Manufacturing
Industries until 2030. It includes five areas of transformation, or projects. Thus, the
“Smart Manufacturing” project involves the formation of an effective infrastruc-
ture and support system for the implementation of domestic software and hardware
and software systems. The “Digital Engineering” project implies the creation of a
national standardization and certification system based on virtual testing technolo-
gies. It means the development of universal marketplaces with resources for creating
and selling products, as well as the formation of common data formats (libraries).
The “Products of the Future” project speaks of the transition to customized industrial
products and condition-based repairs. Namely, about the transition to a model of flex-
ible conveyor production, the introduction of predictive analytics technology for the
transition from “repair according to the regulations” to “on-condition repair”. The
“New Employment Model” project involves the creation of a competence exchange
and services which increase labor productivity.
Also, the Strategy proposes a transition to digital public administration. That is,
to the provision of state support services using the infrastructure of digital platforms,
as well as the creation of cross-industry data models (data sets for enterprises and IT
companies) [2]. As one of the results of the implementation of the strategy measures,
by January 1, 2022, the Ministry of Industry and Trade will have generated at least
550 digital passports of backbone industrial enterprises, by the end of 2024—at least
9 thousand.
It should be noted that the Strategy is not limited to financial instruments only.
Their application in isolation from institutional conditions will not bring positive
results. Successful implementation of the Strategy’s activities requires interaction
between authorities and market participants, as well as improvements in some basic
economic institutions (tax and arbitration systems, the investment climate in general,
as well as the export situation).
Most of the measures to support the digitalization of industry are focused on
large (medium) enterprises. Currently, a number of measures take into account the
interests of small enterprises, although most of them are not aimed specifically at
industrial small enterprises. In 2021, the Ministry of Digital Development, Commu-
nications and Mass Media of the Russian Federation launched a new mechanism to
support small businesses, which allows them to purchase software at half the price
by compensating manufacturers for 50% of the license cost. The support measure
is implemented by Russian Fund for the Development of Information Technologies
within the framework of the federal project “Digital Technologies” of the national
program “Digital Economy of the Russian Federation” [3].
316 E. Mezentseva
Also, we should mention the Federal project “Creation of a Digital Platform

with a mechanism for targeted selection and the possibility of remote receipt of
support measures and special services for small and medium-sized businesses and
self-employed citizens” [24]. It implies the creation of a unified digital ecosystem
containing comprehensive up-to-date information on all measures and institutions
for supporting SMEs and allowing an entrepreneur to choose and receive support
measures that he needs remotely.
As noted above, there is a differentiation in the rates and patterns of digital
transformation of industrial enterprises of various industries and sizes. Accord-
ingly, this requires differentiated approaches to government support for the digital
transformation of various industries, as well as large, medium and small enterprises.
When forming a support policy, it is necessary to take into account a number
of important circumstances: the digital transformation of enterprises and industries
occurs through the sequential passage of the necessary stages of the introduction of
digital technologies on the way to their full-fledged “digital maturity”; many inter-
connected digital technologies must be implemented simultaneously; to embed a
complex of new technologies in the industry, it is necessary to create adapted infras-
tructure conditions. Thus, it is necessary to develop “local” digitalization (imple-
mentation and practical optimization of digital technologies in all basic production
processes of each specific enterprise); elimination of the problems of acyclic digital-
ization (project assistance to enterprises in eliminating the gaps in the introduction
of digital technologies in their production and supporting cycles).
7 Conclusion
The speed of implementation of digital technologies in industrial enterprises is influ-

enced by both internal factors (human resources, technological level of production,
etc.) and external factors—the level of competition in the industry, the availability
of technologies and capital, and the development of legislation. These factors deter-
mine the level of differentiation in the pace of digital transformation of enterprises
of different sizes. It was revealed that small businesses, due to existing barriers and
restrictions, are at a lower level of digitalization of their activities. Small businesses
are adopting the least expensive and least disruptive digital technologies.
We substantiated the need for further research in order to develop specific strate-
gies, methods and tools for the effective digitalization of SMEs in industry. The
limitation of this study was the fact that in Russia there are practically no scientific
works devoted to the digitalization of small industrial business. Data on the real digi-
talization of industrial enterprises is very limited, often it is the results of surveys or
case studies. Moreover, there are no statistics on the level of digitalization of small
enterprises, especially for small manufacturing enterprises.
Currently, Russian legislative authorities have developed an extensive regulatory
framework that determines the policy in the field of supporting the digitalization
of industry. However, most of the support measures are targeted at large industrial
enterprises. The existing measures do not take into account the specifics of industrial
small enterprises.
It is necessary to practice a differentiated approach to enterprises of various sizes
and formulate a state policy to support the digitalization of industry, taking into
account the specifics of the industry, the size and digital maturity of enterprises,
based on reliable statistics. We recommend the following measures to the state author-
ities: training digital personnel for industry, promoting the development of digital
service companies; building an infrastructure for digital interaction of all subjects
of industrial production at the intra- and inter-sectoral level, including small and
medium-sized enterprises. An urgent direction for further research is the assessment
of the effectiveness of the measures taken by the state support for the digitalization
of the industry.
Manufacturing enterprises have significant potential for digitalization, however,
its implementation requires systemic measures that will combine the efforts of both
enterprises and the state, and take into account the specifics of large, medium and
small enterprises.
Acknowledgements The article is supported by the Russian Foundation for Basic Research, project
no. 20-010-00719 “Modeling of cross-industrial networking processes in the industrial complex
based on hybrid technologies”.
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Business Model Innovation
for the Internet of Things
Carsten Deckert , Jannik Kalefeld, and Martin Kutz
Abstract The increasing networking of machines and systems in the course of the
Internet of Things is changing products, companies, and competitive boundaries. The
commoditization of hardware is forcing traditionally product-driven companies to
develop digital services and software solutions in order to continue to secure unique
selling propositions and competitive advantages. Although many companies have
successfully advanced the digitalization of their product portfolios, very few market
players also manage to integrate the new solutions profitably and competitively into
their business models. New types of performance and services can no longer be forced
into the classic business model of pure product sales but require dedicated business
models. To help companies break out of their comfort zone, this article deals with the
development of a structured procedure for working out business model innovations.
For this purpose, business model patterns, which account for 90% of all business
model innovations, are taken as a basis and methodically selected. In so doing, a
structural approach to business model innovation is developed.
Keywords Business model innovation · Business model patterns · Internet of

things
1 Introduction
In the industrial sector, digital transformation is typically described by the term

“industry 4.0”—the fourth industrial revolution. The Internet of Things (IoT) is one
key technology of industry 4.0 [7]. Specifically, the Industrial Internet of Things
C. Deckert (B)
Düsseldorf University of Applied Sciences, Münsterstraße 156, 40476 Düsseldorf, Germany
J. Kalefeld · M. Kutz
Atlas Copco Tools Central Europe GmbH, Langemarckstr. 35, 45141 Essen, Germany
M. Kutz
322 C. Deckert et al.
(IIoT) is seen as one of the key technological innovation drivers of industry 4.0 by
the German Federal Ministry for Economic Affairs and Energy (“Bundesministerium
für Wirtschaft und Energie”) [4].
The Internet of Things makes it possible for any person or object, at any place, at
any time, to network with other objects that have a virtual personality. This creates
smart products that monitor their own state, generate product-related data and share
this data with other smart products [8]. In terms of the manufacturing industry, the
Internet of Things has a two-sided effect. On the one hand, it enables manufacturing
companies to offer digital services and software solutions that create increased plant
availability and thus the basis for a more efficient production process [20]. On the
other hand, however, dangers arise for the business models of traditionally product-
driven companies, which have sometimes focused primarily on the development of
product hardware and neglected to update their business model correspondingly,
e.g. data-driven services. Customer requirements are also evolving with the Internet
of Things and can therefore no longer be met by purely product-driven companies
[16]. Instead of continuing to stick to tried-and-true business models, product-driven
companies need to break out of their comfort zone to capture emerging business
potential and remain competitive [13].
In general, a business model describes the basic principle by which an organization
creates, communicates and captures value [18]. While most companies focus on the
development of new products and services when redesigning their business model,
only a few companies also manage to successfully innovate the business model
as such [10]. A study by the Boston Consulting Group found that business model
innovators are five times more profitable than pure product innovators three years
after implementation [17].
Although not every company consciously engages in actively shaping its busi-
ness model, every organization has a business model [5]. Within entrepreneurial
practice, it has been shown that actively shaping one’s own business model is a
successful approach to responding to changes in the environment in times of high
market volatility [23]. Therefore, it is important for product-driven companies to
adapt their business model to the Internet of Things, as a “better business model will
often beat a better idea or technology” [5].
In the next section, the term “business model” is defined and business model
patterns are described, especially business model patterns promoted by the IoT. After
that, the methodology for the selection of suitable business models is described
followed by a demonstration of the method at the company Atlas Copco. In the final
section, the findings are discussed and further research possibilities are elaborated.
2 Business Model Patterns
Digital Transformation requires a company to develop and implement a digital

strategy which in turn requires the digital transformation of the company’s busi-
ness models [22]. In a comparison of 13 definitions of the term “business model”,
Business Model Innovation for the Internet of Things 323
Schallmo [21] finds that most definitions include the combination of different core
business components to create a value in the form of products or services. In conclu-
sion, he defines a business model as “the core logic of a company that describes
which value is created for customers and partners in which way” [21], own transla-
tion]. In a similar fashion, one of the main business books of business model design
by Osterwalder and Pigneur [18] describes a business model as “the rationale of how
an organization creates, delivers, and captures value”.
To gain inspiration and a starting point for redesigning their own business model,
companies can draw on so-called business model patterns, regardless of size and
industry [10]. These patterns define the generic operating principle of business
models that have already been successfully applied in practice. One of the best-known
business model patterns is referred to as Razor and Blade and aims to distribute a
heavily discounted entry-level product to as many customers as possible in order to
facilitate the subsequent sale of high-priced consumables. According to Gassmann
et al. [10], 90% of all business model innovations can be traced back to recombi-
nations of 55 existing patterns. In order to build a successful business model them-
selves, companies can creatively imitate these proven patterns in order to apply them
in their own industry [10]. Fleisch et al. [9] examined the 55 business model patterns
of Gassmann et al. [10] for their suitability for the Internet of Things and identified
20 of the 55 patterns that have a positive relationship to the expected developments
in the industrial environment (see Table 1).
However, the authors leave the question unanswered how companies can eval-
uate and select the patterns most suitable for them. The implementation of different
patterns requires different technological prerequisites and resources. Companies are
usually not able to implement or even check all possible recombinations of the 55 or
20 business model patterns in practice. Furthermore, companies must evaluate which
patterns promise the supposedly highest competitiveness and profitability.
In principle, each business model pattern describes a unique operating principle
that is clearly distinct from other patterns. Nevertheless, there are commonalities
between certain business model patterns which, under certain circumstances, make a
combination of business model patterns appear reasonable. The “Razor and Blade”
pattern is aimed at selling high-priced consumables after an entry-level product has
been heavily discounted and distributed to as many customers as possible. To prevent
outside companies from offering the same consumables at lower prices, compatibility
between the entry-level product and the consumables is often granted only to the orig-
inal manufacturer through specially developed interfaces. This operating principle
in turn represents a separate business model pattern known as Lock-In, which is for
instance applied by the LEGO company [11].
Table 1 Business model patterns promoted by the IoT [9]

BM pattern Possible manifestation in the IoT
Add-on Remote sale of additional options and features for products
during the usage period
Affiliation Sales commissions for internet transactions are connected to
the sales area locations in the real world
Crowdsourcing Crowds of sensors generate data with refinement potential
for data processing services
Customer loyalty Incentive-based programs for repetitive purchasing can
reward customers. Also, measuring the products’ condition
through sensors enables rewarding customers for using a
product in a certain way
Direct selling Objects purchase required spare parts for maintenance
autonomously without intermediaries
Flat rate Genuine usage and consumption can be measured to reduce
the risks of traditional flat rate models
Fractionalized ownership Monitoring capabilities allow to keep track of the genuine
product usage when occasionally required products are
shared amongst different owners
Freemium Providing minor digital services or a basic product for free
and offering premium services or full product performance
for a surcharge
From push to pull IoT technology fosters the implementation of decentralized
organizational entities to enhance flexibility to customer
needs
Guaranteed availability Increasingly more equipped sensors and communication
technology facilitate monitoring the actual availability of a
product or service
Hidden revenue Third parties generate the actual revenue by paying for
making advertisements. IoT technology fosters
location-specific advertising
Leverage customer data Product-related data is constantly transmitted to the
manufacturer and can be utilized for product updates and
developing improved successor products
Lock-in Digital handshakes and authentication mechanism are
established to prevent compatibility with competitor systems
Pay per use Only the genuine usage of a product is charged. Due to
higher availability of IoT technology, this pattern becomes
applicable for lower-priced products, too
Performance-based contracting Instead of selling or renting a product, customers only pay
for its genuine output. Reliable measuring technology
supports realizing this pattern
Razor and blade Instead of using patent protection to ensure seclusion,
consumables for the “razor” can be authenticated via digital
mechanisms
(continued)
Table 1 (continued)
BM pattern Possible manifestation in the IoT
Self-service Objects schedule maintenance intervals autonomously by
scheduling appointments with service technicians
Solution provider Refinement potential of product generated data can be
utilized to broaden the portfolio by introducing data
processing services
Subscription Subscription periods could not only refer to accessing a
service, but as well to using specific product functions for a
limited time
Two-sided market Platforms and clouds bring together data generators and
data analysts
3 Methodology for the Selection of Business Model Patterns
A methodology for the selection of business model patterns was developed on the
basis of a literature research on product capabilities with regard to the IoT as well
as business model visualization and evaluation. Additionally methods from multi-
variate statistics have been analyzed with regard to their capability to show simi-
larities between business models. The four-stage methodology developed evaluates
the technical feasibility and economic attractiveness of business model patterns for
companies from the manufacturing industry (see Fig. 1). The business model patterns
for the Internet of Things shown in Table 1 serve as the input variable for this method.
With each step, the number of patterns in question is narrowed down further. At the
same time, the methodology provides a guideline for business model development
so that, after its execution, an elaborated business model remains in the company for
implementation.
The investigation of the technical feasibility of a business model pattern for a
company under consideration is based on two classification mechanisms. In order to
create a transparent classification for the capabilities of products in the Internet of
Fig. 1 Four-step Compilation of

methodology for selecting BM patterns
and elaborating business
model patterns Determination of
1 feasible BM patterns
Aggregation of
2 conceivable patterns
Pattern Elaboration
3 & Visualization
Evaluation of BM
4
alternatives
Feasible BM
for the IoT
4 Autonomy
3 Optimization
2 Control
1 Monitoring
Sensors and external Software embedded Algorithms optimize Combinging stages 1, 2
data sources enable in the product or product operation and and 3 enables e.g.
monitoring. product cloud use. autonomous product
enables control. operation.
Fig. 2 Product capability stages in the internet of things, adapted from [20]
Things, Porter and Heppelmann [20] determine the four successive levels of moni-
toring, control, optimization and autonomy. Depending on its characteristics and
capabilities, a product can be classified into one of four levels (see Fig. 2). The model
was chosen specifically for its simplicity making it easy to understand and use, as
companies would have to apply it in their business model innovation procedures.
In addition to connected products, the Internet of Things enables new digital
services based on product-generated data [16]. For example, predictive diagnostics
are services that index maintenance actions in a timely manner based on real product
usage before damage occurs in the product. If companies offer these services for
their products, the service share in their portfolio increases. In order to categorize
companies on the basis of this service share, Tukker [23] distinguishes between
three archetypes of product service systems. The service spectrum of a company can
therefore be either product-oriented, use-oriented, or result-oriented. While services
play only a secondary role in product-oriented companies and are offered primarily
to promote sales of the actual product, functional performance plays the essential role
in results-oriented companies. Between these two orientations is the use orientation,
which gives equal weighting to products and services.
For each use case, the business model patterns and the product portfolio are both
classified with the help of the two models described. The task here is to assess from
a representative target group which product capability level or archetype would be
required to implement the business model pattern under consideration. Similarly,
the classification is carried out for the use case and thus determines which levels
and archetypes can be achieved with the resources and product portfolio currently
available in the company.
The second step is to combine similar patterns in order to narrow down the number
of cases. As described above, there are business model patterns that draw on common
principles and therefore have a high degree of similarity to each other, which is why
they are often applied in combination. In order to methodically investigate factual
connections, multivariate analysis methods can be used, which allow a quantitative
description and simultaneous consideration of a large number of variables [1]. To
investigate the similarity of n objects, multidimensional scaling according to Kruskal
[14] is suitable. Using this methodology, objects are geographically arranged in a
two-dimensional representation according to perceived similarity. The closer two
Key Customer
Activities Relationships
Key Value Customer
Partners Proposition Segments
Key
Channels
Resources
Cost Structure Revenue Streams
Fig. 3 Business model canvas [18]
objects are to each other, the higher their similarity. For the practical implementation
of multidimensional scaling, the approach of Backhaus et al. [2] is followed. Users of
the methodology build a similarity matrix for pairs of values of the feasible business
model patterns. With the help of multidimensional scaling, the perceived similarities
can be represented graphically and thus form clusters that group similar patterns
together.
The next step is the development and visualization of the business model. For the
visualization of a business model, the scientific literature offers a wide variety of
approaches. The most widely used approach according to [16] is the Business Model
Canvas by Osterwalder and Pigneur [18]. This divides a business model into nine
building blocks and visualizes it clearly (see Fig. 3). At the center of the Business
Model Canvas is the value proposition, which reflects the package of products and
services that creates value for a particular customer segment [18]. The building
blocks to the right of the value proposition form the central element of the customer
including the customer segments (different types of core customer groups), customer
relationships (relation to each core customer segment) and channels (communication
with and distribution to each core customer segment). The building blocks to the left
of the value proposition represent the infrastructure for value creation, which contain
the key partnerships, activities and resources meaning the most important suppliers
and partners, processes and assets to make the business model work [18]. All of
the aforementioned building blocks are supported by the cost structure and revenue
streams, which in combination represent the financial viability of a business model.
Thus, dependencies of the building blocks among each other can be identified from
the canvas. This results in business model alternatives which are evaluated in the
following step.
The final step is the evaluation of the business model alternatives visualized in
the previous step. The potential success of a business model can be evaluated on the
basis of various criteria. Proven evaluation criteria are strategy conformity, the devel-
opment of unique selling propositions, market attractiveness and profitability [6].
Furthermore, a business model must be robust to future changes in the market [15].
Koester [12] has investigated the suitability of assessment dimensions for business
models and recommends strategy conformity, competitiveness, and future robustness
as three generically applicable assessment criteria that can be adapted to specific
companies. Strategy conformity refers to the ability of a company’s internal envi-

ronment to implement the considered business model. Competitiveness, on the other
hand, describes the sustainable ability to capture and profitably expand a market
share. Future robustness, as the third criterion, describes the suitability of a business
model in view of potential developments in the corporate environment. The results
of the evaluation can be presented in a business model evaluation matrix.
4 Demonstration of the Methodology Using the Example

of Atlas Copco
In order to evaluate the practical suitability of the developed methodology, it is

applied in a concrete use case. For this purpose, a company is to be considered to
which the effects of the Internet of Things described at the beginning apply and for
which a redesign of the existing business model is therefore conceivable.
Atlas Copco is a globally active Swedish industrial group divided into the
Compressor Technology, Vacuum Technology, Power Engineering and Industrial
Technology divisions, with a total of 34,000 employees. The Industrial Technology
division’s portfolio primarily comprises electric screwdriving tools used in industrial
assembly. While the customer focus was originally on the torque-accurate assembly
of joints using pneumatic tools, today’s electric tightening tools feature a wide range
of sensors. This makes it possible to monitor a wide variety of parameters in a
screwdriving process and evaluate the data obtained for the purpose of increasing
productivity. Along with higher customer demand for power tools, parameterization
and analytics software and the associated consulting intensity have also become more
important. Due to the Internet of Things, there are also new opportunities and busi-
ness potential for evaluating the generated production data in real time for predictive
maintenance purposes. Wireless control through more powerful network technolo-
gies also offers new potential in the area of monitoring and locating tools as well as
a reduction in interfaces when integrating them into the production system.
Looking at this transformation at Atlas Copco, the company represents a typical
example of an originally product-driven company that has electrified its products
over the years and discovered new business potentials by adding software to its
portfolio. By transforming the service division into an independent business unit
in 2005, a dedicated focus was placed on product-related services according to the
model of Tukker [23]. At the same time, the first attempts were already being made
to redesign the company’s own business model by testing use-oriented pricing for
certain focus customers, but these were not pursued in the long term. However, since
the value propositions for the customer are now increasingly derived from the areas of
software and services, Atlas Copco can seize further market potential by redesigning
its own business model and avoid the increasing devaluation of hardware, referred
to as commoditization.
Table 2 Assessment of the feasibility of business model patterns for Atlas Copco
Pattern Product capability level PSS archetypes Realizable
Required Reached Required Reached
Add-on (2) Control (3) Monitoring (2) Use-oriented (2) Use-oriented Yes
Razor and Blade (1) Monitoring (3) Monitoring (1) Product-oriented (2) Use-oriented Yes
Self-Service (4) Autonomy (3) Monitoring (2) Use-oriented (2) Use-oriented No
… … … … … …
As specified in the developed methodology, the technical feasibility of the 20

business model patterns for the Internet of Things is first investigated by means of
the product capability levels as well as the product-service-system archetypes for the
Atlas Copco use case (see Table 2). The sensing and computing power integrated
into the assembly tool enables customization of the user experience in terms of
function. In addition, analytics software enables predictive maintenance intervals,
increasing product performance and availability. Since autonomous tool coordination
with adjacent systems and functions such as autonomous spare parts procurement
are currently still in the development stage at Atlas Copco, but not fully ready for
the market, product capability level (3), optimization, is achieved according to [20].
With increasing possibilities of analysis methods for product optimization, the
benefit value in the portfolio shifts from a pure product orientation to a benefit
orientation. Nevertheless, the mechanical process of the actual bolting remains in the
foreground of all optimization initiatives, which is why the tool as such continues to
represent the core benefit for the customer. Therefore, archetype (2), use-orientation
is achieved. After checking the technical feasibility, the number of possible business
model patterns for the Atlas Copco use case is thus decimated from 20 to twelve.
The remaining patterns are arranged geographically in a two-dimensional space
according to their perceived similarity using multidimensional scaling. For this
purpose, the patterns are compared with each other by the project team using pairwise
comparison. The similarity matrix generated in this way serves as the input variable
for the multidimensional scaling algorithm [2]. The result of this evaluation is shown
in Fig. 4.
The geographical proximity of different patterns to each other makes it possible to
form five clusters that summarize similar business model patterns. How the individual
clusters would manifest themselves in the form of a business model in practical
implementation for Atlas Copco is elaborated and visualized by the users of the
methodology using the Business Model Canvas [18]. Five business model alternatives
thus emerge.
The developed business model alternatives are examined by a representative target
group from the internal and external corporate environment for competitiveness,
strategy conformity and future robustness. According to the evaluation carried out,
the attractiveness of the business model alternatives is illustrated in Fig. 5 in a business
model evaluation matrix according to Koester [12].
#4 Subscription
#1
Lock-in Flat rate
Pay per Use
Razor & Blade Solution Provider #5
Freemium
Leverage Customer Data
Customer loyalty
Add-on
#3 Affiliation
Fractionalized #2
Ownership
Fig. 4 Multidimensional scaling (Atlas Copco application)
Fig. 5 Business model evaluation matrix (Atlas Copco application)
The evaluation matrix illustrates that Alternatives #3 and #4 show the highest
attractiveness. Looking at the evaluation criteria of strategy conformity and compet-
itiveness in isolation, Alternative #4 achieves the highest attractiveness. Alternative
#3, on the other hand, scores slightly lower on these evaluation criteria, but has better
future robustness. Consequently, the evaluation matrix does not provide a clear result
recommending a business model alternative for practical implementation for Atlas
Copco. Moving forward, users of the methodology will need to re-evaluate Alter-
natives #3 and #4 for their potential success. Additionally, Fig. 4 illustrates that
there is some proximity in content between Alternatives #3 and #4. Thus, a potential
combination of the two alternatives can also be explored to combine the benefits of
the two alternatives into one business model. Since this evaluation is highly depen-
dent on the use case, it should be customized and implemented individually for the
considered company. Thus, the output of the developed methodology is a recommen-
dation of business model alternatives, but not a clearly defined selection for prac-
tical implementation. Based on technical feasibility, content similarity of different
patterns, recombination and evaluation of potential business success, two business
model alternatives for Atlas Copco are recommended for further implementation.
The developed selection methodology is therefore considered valid for the prac-
tical use case as it enables companies to select only individually feasible business
model patterns, combine them, elaborate on them and provide a recommendation for
implementation.
5 Conclusion and Outlook
In the context of this article, a methodology was described that enables tradi-
tionally product-driven companies to break out of their comfort zone and elabo-
rate business model alternatives by means of a structured approach. By exploring
a general compilation of business model patterns using appropriate classification
mechanisms for a considered use case, a business model innovation can also be gener-
ated with a company’s existing resources. Similarities in content between business
model patterns are revealed by means of multidimensional scaling. This enables the
methodical recombination of business model patterns, which according to Gassmann,
Frankenberger and Csik [10] accounts for 90% of all business model innovations. The
visualization and elaboration by means of the Business Model Canvas ensures the
transparency and comprehensibility of the business model. Finally, the classification
of different business model alternatives in an evaluation matrix allows to circum-
vent rigid decision patterns and to make case-based adjustments for recommended
alternatives.
The practical application of the selection methodology was demonstrated using
Atlas Copco as an example. With regards to the implementation of the recommended
business model alternatives, further reviews and preparatory activities for the rollout
are currently taking place. As Atlas Copco serves an extremely heterogeneous range
of customers, segment-specific business models for the respective requirements of the
different target groups are being implemented as a first step towards the elaborated
patterns. By doing so, a rather gradual transition towards the elaborated business
model alternatives is ensured, which comes along with a risk reduction and the
possibility of gaining more insights for streamlining the business model before the
official rollout [22].
Although the applicability of the selection methodology could be demonstrated
using the example of Atlas Copco, it is subject to some limitations. In the context of
investigating the technical feasibility of business model patterns, it is assumed that a
company does not fulfill both classification mechanisms [20, 23] to the fullest extent.
Thus, the number of eligible patterns can be reduced and the further procedure of
the methodology can be facilitated. However, if a company with correspondingly

high product capability levels according to [20] and service share in the portfolio
according to [23] is considered, the number of patterns cannot be limited, resulting
in an increased evaluation effort for subsequent steps. Furthermore, only the actual
state of a company is evaluated in this step. This ensures that only technically feasible
patterns are recommended for implementation. However, this leaves open the ques-
tion of whether a pattern that is not yet currently feasible would promise greater
business success. Building on this insight, a company could thus make more targeted
investment decisions to enable the feasibility of potentially more successful business
model patterns.
The combination of business model patterns with similar content is based
on the thesis that 90% of all business model innovation results from recom-
binations of existing patterns [10]. However, it remains unanswered where the
remaining 10% result from. Inevitably, the developed selection methodology can
only produce recombined business model innovations. In order to also accommo-
date the remaining 10% in a methodical approach, creative approaches, such as
creativity techniques, must be integrated into the methodical structure for further
business model innovations.
Finally, constant change within the industry must be taken into account [3] which
will require a constant adaptation of business models [19]. The Internet of Things
will continue to change products and companies in the future. Thus, the methods and
classification mechanisms used in the selection methodology also require constant
adaptation to changing market and technology conditions in order to remain suitable
for practical application.
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org/10.1002/bse.414
Analysis of Visual Modeling Tools
Development for Complex Production
Systems
Andrey Vlasov and Alexander Naumenko
Abstract The paper reviews the software tools for visual system analysis of complex
production systems in the context of digital industry transformation. The main
trends in the visual modeling development of complex systems and the problems
of their implementation are outlined. The groups of tools for visual system analysis
of complex systems are heterogeneous. There are diagrammatic, iconic, and para-
metric visual models. The analyzed tools differ in the depth of coverage of the studied
processes, their detailing, and the integration of blocks of different levels of expertise
into one model. Based on the results of a comparative analysis of individual classes of
visual modeling tools, recommendations for their use are given. The market analysis
of visual instruments is based on the Interest Index. According to the data, in Russia,
there is a growing interest in solutions that focus on the modeling of active systems
and opportunities to integrate the modeling of business processes with the modeling
of information system components. One of the major trends in the development and
implementation of modern visual business process modeling solutions is the use of
simulation modeling as an integral component. Based on this, it is concluded that
the visual model of the business process in digital transformation should be consid-
ered a digital twin. The analysis of the dynamics of the Interest Index allows stating
the prevalence of ARIS-based tool solutions in the market. UML-based solutions in
demand increased their share, but not significantly, indicating the conservatism and
a certain constancy of the potential group of its users.
Keywords Visual modeling tools · Production systems · Business process ·

Industry 4.0
A. Vlasov (B) · A. Naumenko

Bauman Moscow State Technical University, 5, Vtoraya Baumanskaya St., Moscow 105005,
Russian Federation
336 A. Vlasov and A. Naumenko
1 Introduction
The Fourth Industrial Revolution (“Industry 4.0”) affects all areas of life through
digital integration and intelligent engineering. This transformation forms a new level
of socio-productive relations based on the Internet of Things (IoT) elements, where
machines adapt to perform certain functions [1, 18]. Industry 4.0 components, by
their nature, are complex systems, i.e., systems whose model does not contain enough
information for its effective management [2]. It can be stated that a sign of simplicity
of a system is the sufficiency of information for its control; if the result of control,
obtained with the help of a model, will be unexpected, then such a system is referred to
as complex [15]. The formal representation of complex systems is a sophisticated task
requiring the methods used to be broadly functional, conceptual, and interpretable
[22]. Recently, various visual modeling methods have been increasingly used as such
methods [4, 8, 10, 18–21, 24].
Visual methods of systems analysis, such as IDEF, RUP (UML), BPMN, EPC,
are already known and widely used in various applications [10, 24]. They are
referred to as the Big Four visual tools. Recently, new, promising paradigms of
visual analysis have been emerging. Some of the previously known get new features.
For example, the BABOK professional guide to business analysis determines that
multiple modeling notations should be used for a comprehensive system represen-
tation since no single viewpoint can autonomously define the entire architecture of
a complex object. Therefore, the work aims to systematize the tools for visual anal-
ysis of complex systems and assess trends in their development in the context of the
digital transformation of industry.
2 Analysis of Trends in the Development of Visual

Modeling Tools
Visual tools for modeling complex systems can be divided into three large classes:
diagrammatic (focus on different levels of diagrams (graphic notation), almost
without textual notation with a characteristic description of the model and impos-
sibility of its further automated analysis by integral and differential criteria), iconic
(verbal and pictorial components are linked at the substantive, content-compositional,
and content-language level in the form of a single graphic metaphor—a conven-
tional graphic notation) and parametric (attributive, combining the capabilities of
graphic and textual notations with the capabilities of optimization and/or simulation
modeling).
With the development of graphic computing capabilities, visual modeling tools
have become increasingly common in various fields. The 1997 Gartner Group ranking
[9], shown in Fig. 1, reflected the position of individual visual analysis tools in terms
of their completeness and functionality. The market for computer tools for visual
analysis was just emerging at the time.
Analysis of Visual Modeling Tools Development … 337
Fig. 1 Gartner Group visual modeling tools rating 1997 [9]
Let us trace the development dynamics of visual modeling tools. One can note
the predominance of diagrammatic over parametric solutions (the lower quarters of
the matrix are most filled). Among the diagrammatic tools presented in Fig. 1 are
Microsoft Visio, Micrografx FlowCharter, Mosaix, etc.
Iconic solutions have their specifics. The dynamics of their development are
largely determined by the movement of trends in interface design, which is largely
associated with logo design. Iconic models include Flat Design, Skeuomorphism,
Realism, Material Design, 3DDesign, etc. The analysis of trends in iconic graphics
is the subject of a separate study.
Parametric (attributive) models combine elements of graphical and textual nota-
tion. Solutions implementing parametric models include Logic Works, Rational, IDS,
L-SIM Server, ANS Technologies, Aonix, IntelliCorp, Bizagi Modeler, Holosofx,
Megaint, etc.
The tools of each class have their pros and cons. The choice of a particular tool
depends on the nature of the task at hand. In this case, the complexity of the tool
should not take precedence over the complexity of the model being created. Let us
analyze the individual tools of each of the classes presented in Fig. 1.
Figure 1 is dominated by the solution (IDS, ARIS) [3, 17], which represents
a class of parametric (attribute-based) visual modeling systems. It is based on an
extensive methodology that incorporates features of different modeling methods,
reflecting different views of the studied system. The same model can be developed
using several methods, which allow users with different training and customize it to
work with specific systems. A wide range of software modules included in the ARIS
family allows it to be used as a powerful analytical tool.
One of the common solutions supporting IDEF techniques was the BpWin/ErWin
package [13]. The first version of BpWin was released in 1995 along with another
CASE tool, ERwin (1993), designed for data modeling. Parallax Capital Partners
acquired and consolidated the Erwin package as a separate solution from 2016
(Erwin, Inc.). In 2017, Erwin released Data ModelerNoSQL.
The most common of the diagramming tools is Microsoft Visio [11]. According
to Gartner experts, Microsoft Visio is one of the best tools for companies just starting
to model and analyze their business processes and focus primarily on their visual-
ization. However, during the implementation of the business processes analysis, this
solution is usually replaced by a more functional tool that contains graphics and
extensive textual notation, allowing generating the resulting full-text documents and
even elements of the program code future information system.
Another representative of the class of diagrammatic solutions is the Micrografx
FlowCharter package [23]. It is possible to build a hierarchical decomposition
of diagrams, the use of tools for statistical analysis, graphing, especially service
elements. The package allows creating process maps/Swimlane diagrams/block
charts, BPMN diagrams, schematics, cause and effect diagrams, Ishikawa diagrams,
FMEA tables, SIPOC diagrams, etc.
IntelliCorp marketed a Knowledge Engineering Environment (KEE) for devel-
oping and deploying knowledge systems in Lisp. The company offered a LiveModel
object-oriented technology solution for commercial development environments.
Holosofx worked in business process management. The first Holosofx software
product was a modeling tool originally called BPR, later renamed WF-BPR and
finally BPMWorkbench [7]. In 1997, Holosofx expanded its portfolio with its BPM
Monitor product. In 2002, the company was acquired by IBM.
Another example of parametric solutions is the L-SIM Server solution [25]. This
solution is compatible with BPMN 2.0 for use in third-party business process solu-
tions (LannerGroup, L-Sim 2.0). The first version of the BPMN 1.0 notation was
released in 2004. The current 2021 version is a development of Lanner’s original
L-SIM embedded modeling product. It makes it possible to easily create BPMN
models and get fast and accurate statistical results without extensive integration.
The BizagiModeler solution also implements BPMN technology [5]. A business
simulation model can describe several aspects of a company and consider both phys-
ical and social (active) factors; analyze a variety of “what-if” scenarios and obtain
a better vision of the company’s future. Implementable models allow simulating
different strategies before they are applied and seeing problems before they occur.
The Powersim Studio solution [14] makes it possible to develop and explore future
scenarios.
Among the solutions included in the review, it is worth noting the tools from
Rational. The company has developed the Rational Unified Process (RUP) soft-
ware development methodology. This methodology covers all stages of the life cycle
of software systems. The creation of software systems was constantly becoming
more and more complex. In 1994, a group of Rational Software employees (Grady
Butch, James Rambo) began to create a special language of object-oriented modeling
(UML). The project was based on Object-ModelingTechnique (OMT) and Booch
modeling methods. In 1995, a preliminary version of the 0.8 Unified Method

was released. Object-Oriented Software Engineering (OOSE) was integrated into
the unified method, which provided excellent capabilities for business process
specification and requirements analysis using application cases [6].
Briefly reviewing the solutions presented in Fig. 1, it should be noted that at the
turn of the twenty-first century, many different companies in the market tried to offer
their methods of visual modeling. Consortiums were formed to promote the most
successful solutions. The problem of standardizing visual techniques became urgent.
Let us analyze the trends of the modern market of visual modeling tools.
3 Comparative Analysis of Diagrammatic and Parametric

Visual Tools
The structure of the visual modeling tools market has undergone significant changes
since the early 2000s. Currently, many large companies prefer to use more complex
parametric models than sets of individual static diagrams from diagrammatic models.
However, diagrammatic solutions are still used when it is necessary to provide a given
graphical functionality of the model while minimizing time costs (Table 1). However,
such tools have almost no syntax control capabilities, depending on the developer
Table 1 Comparative characteristics of individual diagrammatic visual tools

Name Advantages Disadvantages
Visio • Included in the extended MS • Static graphics, no possibility
Office package to form semantically related
• Allows building business text content of the model
process diagrams in different • Lack of hierarchical
notations decomposition of the model
• Allows prototyping interfaces (single-screen model);
• Ease of making changes • Inability to generate a
• Ease of interpretation summary report (text +
• A large database of built-in graphics) on the model
templates, stencils, macros,
etc.
• Ability to create BPMN
schemes and their export for
later use
Micrografx (Micrografx • Advanced tools for technical • Static graphics, no possibility
Graphics Suite) illustrations; to form semantically related
• Easy to learn; text content of the model;
• A wide range of different • Lack of hierarchical
raster filters decomposition of the model
(single-screen model);
• Editing multi-layer models is
difficult
qualifications, do not have a clear attribute component, and their interpretation can
be difficult.
Let us consider the diagrammatic solutions. The Visio visual model includes one or
more diagrams on one screen. Each model includes a set of symbols (corresponding to
model objects) and interfaces (corresponding to relationships). An important feature
is the adaptability of the element language to the tasks of the developer; it is possible
to add the author’s symbols to the library model. There are no system restrictions
on the rules and possibilities to create interfaces between objects. The advantages
of the environment should include a comprehensive library of diagram templates
for various applications. The template library, like the tool library, can be expanded
by the user. The main disadvantages of the environment include the difficulties in
creating large system models in conditions of constantly changing processes; the
lack of integration tools requires a considerable cost to support a large set of models.
Micrografx solution makes many typical graphics jobs easy to handle with its
simple interface. The environment includes a library of templates that allow users
to create different types of diagrams. Among the main differences of the environ-
ment is the LivingFlowCharts technology [23]. It allows developers to implement
“executable” flowcharts. Such blocks are dynamic elements; they can be used interac-
tively. Another advantage is the ability to expand dynamic capabilities by developing
own software plug-ins in Microsoft Visual Basic.
However, for a comprehensive solution to the problems of visual modeling, it is
necessary to have an effective graphical editor and an integrated parametric anal-
ysis environment that implements a comprehensive design methodology and visual
representation with parametric attribution of model elements.
Modern comprehensive visual modeling tools combine graphical, textual notation
with system analysis, simulation, and optimization tools. In some cases, there is a
tendency to integrate elements of diagrammatic models in the artifacts of parametric
visual models. In the general case (although this violates the restrictions imposed by
specific notations), it helps to simplify the interpretation of the model, as long as it
does not overload it.
Parametric models are characterized by strict restrictions on the topology of
models, their syntax and are built according to certain rules (Table 2). They have
effective means of analyzing the correctness of model diagram syntax, which makes
them less dependent on developer error. For parametric models, a significant problem
is a semantic control associated with the analysis of textual attributes and the problem
of semantic discontinuity—when it is necessary to combine different models into a
single whole (“load mismatch” in systems analysis).
The L-Sim environment (Lannergroup) implements predictive modeling of
processes under BPMN 2.0 [25]. It provides support for the BPSIM standard for
modeling data exchange for BPMN. It is designed to be deployed directly in BPM
packages or as a cloud service.
The tools supporting BPMN are now actively developing. This is mainly deter-
mined by the fact that the model emphasizes the process description of the specific
role in the production process (considering the activities of the active system
Table 2 Comparative characteristics of individual parametric visual tools

Name Advantages Disadvantages
LannerGroup • Supports BPMN 2.0 notation • Weak link to the reflection of the
(L-Sim) • Built-in simulation tools datasets being processed
• Process modeling procedures on • Weak focus on further code
real data generation
• Integration with Java and • Initial conceptual diagram usually
Microsoft-based solutions requires many iterations
• BPSIM standard support for data • Relatively complex semantics of the
exchange BPMN specification
• Complex interprocess
communication in terms of
information flows
• Not all BPMN semantics are
supported in simulation modeling
• Representation of the various roles
is not straightforward
• Not effective for schematization of
decision flows
Holosofx (IBM) • Allows modeling software systems • Relatively complex semantics of the
in UML BPMN specification
• Allows mapping UML models to • Trained personnel required
BPM process models; • Focus on large companies, large
• Allows transforming common projects, and integration with other
elements between UML models and IBM solutions
business process models
• Provides error minimization
elements). Using BPMN to solve design problems in complex systems with deep hier-
archical decomposition is less appropriate. A list of some companies implementing
BPMN solutions is shown in Fig. 2.
Several tools should be noted. The models in ARIS are graphical diagrams that
display the relevant aspects of the system. This also determines which of the four
Fig. 2 Major companies implementing BPMN solutions

Fig. 3 The main companies that implement visual modeling tools with support for UML
aspects of the ARIS architecture (organizational structure, functional component,

information component, and process component) will be reflected in the final model
set. For a comprehensive description of the system, it is necessary to build models
that reflect all of these aspects, but for some projects, a complete set may be redundant
and require a study of one or two aspects. For example, organizational and process
[3].
The wide range of ARIS features is also its main drawback. Its use is quite compli-
cated, requires skilled personnel, and is usually used in large projects. With the help
of this software, product models of the object are built, reflecting its vital activity
from different sides.
Figure 3 shows some companies implementing visual modeling tools based on
UML.
UML is positioned as a general-purpose modeling environment; it is more appli-
cable in object-oriented programming. Due to the high standardization and efforts
of the OMG consortium, UML has become widespread and is being dynamically
developed as an open standard.
4 Discussion
At the initial stage of development, solutions developed and promoted by indi-

vidual companies dominated, where the author’s methods and diagrammatic solu-
tions were implemented. Most parametric modeling systems were closed systems,
often promoted as part of individual corporate projects. The most successful solu-
tions on the market were absorbed by major vendors and subsequently promoted as
part of their closed corporate systems.
Another class of solutions went the way of international standardization and
openness. This approach has created a large pool of qualified users, which has
predetermined the widespread use of standardized methods in the market.
A review of software tools for visual system analysis of complex systems has
indicated a trend toward integrating solutions that analyze the business process and
design information systems. The most successful modern solutions face the need to
solve one of the system analysis problems—load mismatch. This problem illustrates
the inability of the input of one system to perceive the output of another, which is
evident in the integration of conceptual-abstract, structural, and object models within
a single design environment. The problem of the “semantic gap” of visual models
formed in this way can be solved by using knowledge-based approaches to form a
unified presentation format of visual parametric models [8, 21].
Diagrammatic tools remain in demand in the market of static business process
analysis projects. Although they do not allow creating full-dimensional visual models
with the possibility of further analysis and optimization, they allow solving the
problem of operational illustration. Trends toward minimalism and reduced time
for non-production costs within the extreme design and similar methods make
diagrammatic methods quite in demand.
Analyzing the market for visual tools, it should be noted about specific methods
rather than proprietary solutions. In this regard, value indicators (the number of
licenses sold and contracts signed) are not an objective measure of the success of a
particular visual method. One can offer the “Interest Index” as one of the possible
indicators for evaluation. It reflects the percentage of publications during the period
under review in the periodical press and scientific and technical literature devoted to
a particular instrumental solution.
By the example of the Russian market (according to the analysis of publication
activity on the site of the Russian Scientific Electronic Library Elibrary, the total
volume of a sample of 37,500 thousand records), recently there has been an increase
in interest in solutions focused on active system modeling, and integration of business
process modeling with modeling of information system components.
Figure 4 shows the dynamics of the Interest Index for ARIS, IDEF, UML, BPMN
methods in the Russian publication segment.
The analysis of the dynamics of the Interest Index allows stating the prevalence
of ARIS-based tool solutions in the market. Despite the relatively high complexity
of the methodology, due to the extensive functionality, well-developed tools, and
a) b)
Fig. 4 “Interest index” in visual analysis methods in the Russian market a at the end of 2000, b
for 2001–2021
integration of the solution into enterprise systems (e.g., companies such as SAP,
Oracle, etc.), it causes the greatest interest in the market. At the same time, there is a
tendency to simplify the models. There is an emphasis on the active model component
(taking into account the human factor). This explains the growing interest in IDEF
and BPMN structural methods. UML-based solutions in demand increased their
share, but not significantly, indicating the conservatism and a certain constancy of
the potential group of its users.
5 Conclusion
The study examined software tools for visual system analysis of complex systems.
The main task of visual models is to provide transparency and manageability of
the business process. The transition to the use of complex, parametric models must
be justified in advance. Different technologies should be used at different stages of
company maturity. The business process model must respond flexibly and quickly
to change. For large companies, it becomes economically feasible to implement
visual models of business processes in the concept of digital twins [12, 16]. At this
level, the company is ready to manage end-to-end business processes; it vitally needs
flexibility and scalability. One can state that the visual model of a business process
in the conditions of digital transformation should be considered as its digital twin.
Parametric environments of visual modeling should apply various optimization
methods and dynamic, flexible modification in real-time. One of the main trends in
the development and implementation of modern solutions for visual modeling of
business processes is the use of simulation modeling as an integral component. It is
generally accepted that simulation modeling should accompany business processes
from the initial stage of their formation, development, and implementation [18].
Modern visual modeling systems must meet high quality and efficiency require-
ments. They should provide the ability to formally represent the studied busi-
ness process at all levels of expertise: conceptual-abstract, structural–functional,
and object-oriented. They must have a uniform model description format. Imple-
mented visual models and software tools must provide repeatability, predictability,
multi-functionality, and completeness of models.
Acknowledgements Some project results were obtained with the financial support of the Ministry
of Science and Higher Education for project No. 0705-2020-0041, “Fundamental research of
methods of digital transformation of the component base of micro-and nanosystems”.
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Impact of Digital Technology on Supply
Chain Efficiency in Manufacturing
Industry
Xuan Wang , Vikas Kumar , Archana Kumari , and Evgeny Kuzmin
Abstract With the advancement of digital technologies, supply chain management

is changing dramatically. However, the practice and application of digital supply
chains are complex and challenging. Some studies claim that technology is the core
element, while others believe that efficient configuration and collaboration of tech-
nical functions assure successful applications. To address this gap, this research
conducts a systematic literature review to analyze how digital technologies partic-
ularly the Internet of Things (IoT) and Artificial Intelligence (AI) impact supply
chain efficiency in Manufacturing Industry. The study also identifies some chal-
lenges of digital supply chain (DSC) implementation. Analysis of this study is based
on a systematic literature review of 59 studies that were selected using a combina-
tion of relevant keywords and specified inclusion and exclusion criteria. The results
show that both IoT and AI are the closest technologies related to the autonomy and
predictive power of future supply chain expectations. The convergence of the two
tech-nologies optimizes all aspects of manufacturing and opens up more possibili-ties
for smart factories. This research also explored DSC challenges and problems that
take into consideration to expand the approaches to DSC success factors derived from
existing literature. Many papers have discussed DSC technology from the perspective
of the ap-plication. They demonstrate the positive impact of those digital technologies
X. Wang
School of Management, University of Bristol, Bristol BS8 1QU, UK
V. Kumar (B)
Bristol Business School, University of the West of England, Bristol BS16 1QY, UK
A. Kumari
Gloucestershire Business School, University of Gloucestershire, Oxstalls Campus, Gloucester
GL2 9HW, UK
E. Kuzmin
Institute of Economics of the Ural Branch Russian Academy of Sciences, 29, Moskovskaya St.,
620014 Ekaterinburg, Russia
348 X. Wang et al.
to successfully achieve digital and intelligent supply chains on firm perfor-mance by

improving the efficiency of SCM.
Keywords Digital technology · Supply chain efficiency · Manufacturing
1 Introduction
With the continuous expansion and development of the manufacturing industry,

an increasing number of enterprises begin to devote themselves to supply chain
efficiency [1]. It depends on a smooth network chain structure formed by the
upstream and downstream organisations in the process of production and transporta-
tion through organizational control of capital flow, information flow and logistics [2].
Specifically, it is aimed at optimizing the process, improving production quality and
reducing unnecessary costs to satisfy customs and achieving the maximum economic
benefit [1]. Mangan and Lalwani [3] claimed that effective supply chain management
in the manufacturing industry is especially important to deliver the right product to
consumers at the right time, in the right quantity, in the right quality, and at the
right state. However, the rapidly changing market and diverse customer needs have
brought unprecedented challenges to manufacturing supply chains, because it relies
heavily on timely and accurate data analysis in a complex business environment [4].
Meanwhile, a dynamic and uncertain competitive environment, unpredictable social
factors and other random environmental changes aggravate the complexity of supply
chain management, leading to high production costs [2]. For example, COVID-19
has seriously affected the manufacturing supply chain on a global scale, such as
labour shortage, material shortage, delivery delays and logistics stagnation and so
on. The COVID-19 pandemic however has spawned the widespread use of digital
technologies to improve the ability of the economy and society to respond to the
impact of the pandemic.
Digital supply chain (DSC) is an intelligent, data-driven technology network that
is based on massive real-time data processing, excellent collaboration, and communi-
cation capabilities to achieve information transparency, advanced planning, demand
patterns prediction as well as maximizing the availability of assets [5]. Many studies
have acknowledged the positive effects of digital technologies on the efficiency of
supply chains. Chase [6] pointed out that DSC has become an inevitable choice for
enterprises to improve the ability to anticipate demand and risk through the applica-
tion of digital technology, which improves not only the market response speed and
operational efficiency but also the service level and economic benefits of enterprises.
Similarly, Preindl et al. [6] claimed that the DSC enhances the information-sharing
capability, which plays a vital role in this cooperation aimed at processing large
amounts of information to coordinate related operations to improve efficiency. In
addition, Banerjee and Mishra [7] argued that digital technologies improve supply
chain collaboration, which requires internal and external coordination and unification
amongst suppliers, manufacturers, retailers and customers. However, the practice and
Impact of Digital Technology on Supply Chain … 349
application of the digital supply chain are complex and challenging, which requires
cross-industry, cross-sector and cross-field cooperation. Although the application
of digital technology in the supply chain would effectively improve its flexibility
and adaptability theoretically, there are still many obstacles in the practical process.
According to the data, 80% of practices related to digital transformation failed [8].
Reyes et al. [9] argued that enterprises should identify whether these technologies
could achieve their strategic and operational aims rather than blindly following tech-
nology for technology’s sake. Tjahjono et al. [10] believed that improvement of
organizational ability assures successful applications through efficient configuration
and collaboration of technical functions. However, there is little theoretical research
in this field. Therefore, it is imperative to explore challenges and the key factors that
affect the successful application of digital technologies as well as potential risks to
better adapt to enterprises’ strategic goals to achieve the desired results after weighing
those digital technologies’ pros and cons [2].
This study, therefore, discusses and analyses the impact of digital technologies
focusing on AI and IoT on the supply chain efficiency in the manufacturing context.
AI and IoT are considered to have significant potential amongst the eight most influ-
ential digital technologies. IoT currently has a high utilization rate in the manufac-
turing industry, and its application is becoming mature and has achieved good results
in terms of information communication, and AI is the most promising technology
based on the Internet of Things. This research will use the systematic literature review
(SLR) method to collect existing literature to answer the two research questions. The
first one is ‘How Do AI and IoT Improve Supply Chain Efficiency?’, aimed at identi-
fying the principles working on SCM performance. The second one is ‘What Factors
Influence the Successful Implementation of the Digital Supply Chain?’, aimed at
exploring the challenges and obstacles of the digital supply chain. The next section
briefly introduces the three theoretical bases (IoT, AI and SCM) related to the topic.
Section 3 describes the details of the SLR methodology for looking for publications
that explicitly study IoT, AI, and the manufacturing supply chain. Section 4 presents
the analysis of research results and findings and makes a comprehensive and crit-
ical analysis of the two research questions. Finally, Sect. 5 concludes this study by
recommending some future research directions.
2 Background
2.1 Internet of Things (IoT)
Ashton [11] came up with the term Internet of Things (IoT) firstly, which refers to
identify an object uniquely by connecting physical things through technology and its
virtual network [12]. Three elements are required to achieve the function of IoT, and
they are data acquisition technology, data transfer technology and data analysis tech-
niques [13]. Thus, different layers of sensors, storage and data transmission with the
350 X. Wang et al.
function of recognition, processing, communication and connection are imperative

to achieve connections amongst things [14]. Gnimpieba et al. [15] argued that the
connections and communication between physical and virtual ‘things’ enable trans-
parency and collaboration between them by clear information network. Each sensing
device is uniquely addressable by IoT Internet infrastructure, which has dynamic self-
configuration capabilities with standard and interoperable communication protocols,
standardized communication protocols [16], because each physical and virtual object
is given a unique identity, physical attributes and virtual personalities [13]. Simi-
larly, Reaidy et al. [17] argued that IoT is an intelligent internet-based network,
which enables devices to collect, process, and transfer data within an interconnected
physical global infrastructure. Meanwhile, it could identify, track, and manage prod-
ucts by transmitting real-time information through advanced technologies. Based
on collected information by devices, it can not only trace, manage and control the
internal and external state of an object but also continuously observe its surroundings
[18]. Furthermore, it is expected to anticipate and perceive dynamic changes in the
supply chain management to facilitate supply chain management effectiveness and
sustainability with its information transparency, tracking and agility [2]. In the same
way, this type of control and monitor reduce risks by timely response, control and
adaption of the supply chain activities in an uncertain environment [19]. Neverthe-
less, a large amount of information obtained may hinder supply chain management
efficiency due to the amount of useless information [20]. Therefore, information
management and effective control are vital for making reasonable predictions for the
future and reacting to achieve sustainable development and competitive advantages.
Yet, the existing researches are limited and need to be expanded.
2.2 Artificial Intelligence (AI)
Artificial intelligence (Al) can think like humans and mimic human behaviour by
simulating human intelligence characteristics in machines such as learning and self-
thinking and problem-solving. By absorbing large amounts of unstructured data,
such as text, images or video, the ideal characteristic of AI is that it can rationalize
and take actions automatically without the help of humans to have the best chance
of achieving specific goals. Calatayud [21] pointed out that AI is not a monolithic
technology, which depends on the cooperation of various advanced technologies
with hardware and software. For example, AI is effectively coupled with the large
numbers of data collected by other digital technologies, especially the Internet of
Things, to predict the future trends with advanced algorithms and take measures to
avoid any deviations from expected performance with minimum error [22]. On the
other hand, it focuses on developing computer programs that can learn, understand,
reason, plan and act on their own to make decisions automatedly in SCM through the
use of simulation models and powerful analytics [23]. Meanwhile, software algo-
rithms automate complex decision-making tasks by analysing real-time data, antic-
ipating and identifying risks as well as automatically taking action to continuously
control supply chain performance and prevent risks before they occur. Robots are an
excellent product of this combination. For example, in automated warehouses, robots
help supply chain material handling automation through planned algorithms to pick,
stack and unload after learning. The highly mechanized environment can change the
supply chain and create a faster, safer and more efficient logistics supply chain [22].
Meanwhile, they are installed with planning programmes to monitor inventory status
and order progress with high accuracy. These robots are safe and agile in predicting
the relationship between demand and inventory in the warehouse to achieve higher
productivity and lower costs, avoiding the risk of goods disruption with faster service
and higher quality [1].
AI is primarily a smarter algorithm that learns more and more by itself through
mimicking human thought processes and feelings. Its applications in supply chain
management are in transportation, predictive maintenance and demand forecasting
facilities autonomous prediction and decision-making of supply chain [24]. AI tech-
nology has huge potential in the manufacturing supply chain. Koot et al. [2] argued
that AI applications would enable automated production systems and automated
logistics systems to change decisions flexibly like the selection of suppliers when they
receive real-time information about supply shortages or disruptions. However, there
are some sceptical voices about AI like ethical questions. Tazhiyeva [25] claimed that
the question of whether intelligent systems such as robots should be given the same
rights as humans is controversial. In addition, the extraction of sensitive information
may violate privacy security and even break politics [26].
2.3 Supply Chain Management (SCM)
A supply chain is a functional network structure that connects suppliers, manufac-

turers, distributors and consumers, starting from parts production, making interme-
diate products and final products, and finally sending the products to users through
the sales network [1]. Alternatively, a supply chain is an interface formed between
supply chain members through activities so that organizations can meet the internal
and external requirements. As for Supply chain management (SCM), it includes
a series of activities and processes that plan, control, coordinate and optimizes the
whole supply chain system, so that enterprises can integrate and cooperate to address
the volatile and complex situation of the external market [10]. SCM is an integrated
and coordinated management mode, which requires the members of the supply chain
system to cooperate to achieve corporate goals. The practice of SCM was widely
used in the manufacturing industry firstly, focusing on logistics management tasks to
reduce transportation costs, and over time it extends to all aspects of the supply chain
[4]. The data shows that a company spends a lot on its supply chain, accounting for
nearly 25% of its operating costs [9]. Thus, effective supply chain management is crit-
ical in reducing unnecessary costs to achieve better performance. Many researchers
have been working on the efficiency of SCM. Singh et al. [27] agreed that effective
supply chain management can help firms to improve their competitive advantages,
352 X. Wang et al.
which promote their performance and lead their competitors. In particular, it can help
achieve four goals: shorten cash flow times, reduce the risks faced by organizations,
achieve earnings growth and provide predictable revenue [28].
However, it is not easy to achieve efficient supply chain management in the chal-
lenging and complex market environment in the era of economic globalization. A
large amount of information appears in the market all the time, which provides
rich opportunities but also foreshadows risks. For instance, enterprises are unable
to timely identify the changes and collect useful information in the supply chain
accurately, leading to difficulty in making the right choice and failure of decision-
making. Alternatively, in a traditional supply chain is hard to carry out sufficient
information sharing to eliminate the communication barriers within the member
enterprises. Thus, information development of the supply chain is appearing, which
is a grand solution to this problem contribute to the digital supply chain (DSC).
Nowicka [29] believes that the digital supply chain can effectively improve informa-
tion transparency among supply chain members, which greatly promotes information
communication efficiency by reducing the time cost, shortening the flow cycle, and
reducing unnecessary costs. Effective and accurate communication ensures collab-
oration and trust among suppliers, manufacturers, and distributors, especially in
the application of inventory and logistics, which greatly reduces unnecessary costs,
which are not value-added activities [9]. On the other hand, the access of information
and the speed of information feedback are also important to the efficiency of SCM
due to a large amount of data available in and out of the market [30]. The digital
supply chain can improve the traceability, reliability and response speed of the supply
chain through real-time monitoring capabilities [31]. At the same time, this ability
can predict the risk of the supply chain and make decisions through the high-speed
collection, analysis and processing of relevant information organizations and supply
chains can realize higher levels of efficiency by responding more quickly to observed
internal and external disruptions [19].
3 Methodology
3.1 Systematic Literature Review (SLR)
This study aims to analyse the impact of digital technology on supply chain manage-
ment efficiency in the manufacturing industry. Practitioners have long been enthusi-
astic about the impact of digital technology on the efficiency of supply chain manage-
ment. Thus, a Systematic Literature Review (SLR) is used in this study focusing on
the IoT, AI and SCM to show an overview of current related research studies by
using search strings, keywords and statistics within the specified database and give
an objective assessment by conducting qualitative and quantitative reviews of the
existing literature to answer the research questions.
Table 1 The initial number

Databases Entries Initial number
of papers in each elected
database Springer 44,500 207,800
Wiley 32,600
Scopus 21,000
Web of Science 63,700
ScienceDirect 21,000
Taylor & Francis 25,000
This study identified keywords and they are AI, IoT, efficiency, challenge and
SCM. According to those keywords in different categories, combining the most
common grouping of keywords carefully to identify the search string to screening in
a search engine is vital, which ensures proper select coverage. After filtering, four
types of search strings are selected and they are “Artificial Intelligence or Internet of
Things AND supply chain”, “Artificial Intelligence or Internet of Things AND supply
chain AND efficiency”, “Artificial Intelligence AND Internet of Things AND supply
chain AND efficiency”, “Artificial Intelligence or Internet of Things AND supply
chain AND challenge”. For the source selection, this research selected Springer,
Wiley, Scopus, Web of Science, ScienceDirect, and Taylor & Francis, which are
trustworthy and authoritative. Table 1 displays the initial number of papers in each
elected database.
3.2 Selection Criteria
To accurately locate the useful literature in the rough search of the specified databases
based on different combinations of search strings, this research needs to further
develop selection criteria to refine the “sample poor” by evaluating and discovering
the relevance degree and potential contribution of each publication to the research
problem. There are three layers of inclusion and exclusion criteria. First, the initial
research results should meet the following three inclusion criteria.
(1) The articles should be fully published and written in English.
(2) The articles’ subject topics should be consistent with the academic area
of study being considered such as Supply Chain Management, Computer
Sciences, Decision Sciences, Business Management, Technology Science, and
Engineering.
(3) The articles are academic document types such as Doctoral Dissertation, Books
(Chapters), Academic Journal/Articles/Papers, Review Articles and so on.
Further selection and screening are carried out for the articles that have met
the above three requirements to evaluate the usefulness of the content itself.
Articles that do not conform to the following three additional exclusion criteria
are screened by title, abstract, keywords, and introduction screening.
354 X. Wang et al.
(4) Focus on specific actions or applications or challenges of AI or IoT that affect

supply chain efficiency. Specifically, remove all improved performance in SCM
that is unrelated to the implementation of AI or IoT technology. Two reasons
are provided. Firstly, the improvement in supply chain performance reflected in
the article may be the result of iterative improvements of the covered technolo-
gies themselves. Secondly, the application of digital technologies may not be
independent. So, it may be necessary to judge whether the application of these
comprehensive technologies is causally related to those two technologies.
(5) The initial data should be processed to show a critical analysis of the impact
on the efficiency of SCM.
(6) Besides theoretical support, the factors affecting the implementation of the
digital supply chain should provide clear points or specific cases.
The third level is only consistent with exclusion criteria. The following
criteria are defined to improve the articles’ sample accuracy.
(7) Remove all duplicated articles from different databases and choose the latest
version for further reading only.
(8) Remove all case study articles that are not in the manufacturing industry.
(9) The article should be available online (either open access or through a
subscription).
3.3 Sample Selection
Following the selection criteria outlined in the previous section, 59 articles were
selected from seven databases for the final bibliographic study. They are grouped
and classified according to the two research questions posed and divided into two
broad areas. The first category is to explore the specific application of the IoT and
AI in supply chain management and there are 42 papers. It includes specific imple-
mentation cases of IoT and AI in manufacturing supply chains and performance
evaluation related to the first research question. The focus of the study is on digital
technology with specific enterprise implementation activities and impact on results.
The second category is 18 papers (because some articles cover both areas) to iden-
tify causes of failure implementation and explore the reasons. This part concentrate
on the challenges of implementing digital technology with analyses different angles
of causation. This study conducted simple statistics based on the different keywords
involved in each article to show the specific research areas and research issues, which
provides convenience for the following research.
The scrutiny of the sample illustrates that most of the articles are from engineering
and management. IoT is widely used in management accounting for 39% and most
of them come from supply chain logistics management A small portion is computer
science, focusing on the development and integration of technologies. it shows that
most of the current researches on digital technology focus on technology development
and innovation rather than application and practice realization. This provides a guide
for research to fill in the gaps in the application of digital technology at present.
4 Findings and Discussions
A large number of academic literature has acknowledged that the application of

digital technology in SCM has made great breakthroughs in supply chain manage-
ment efficiency. The network is an imperative element of competition ability and the
efficiency of SCM depends on the network connections and coordinated operation,
which are based on information sharing and information technology applications
between each member [29]. Paul [32] reported that nearly half of surveyed supply
chain leaders have significantly accelerated their investments in digital technology
to make their businesses more responsive and forward-looking during the pandemic.
IoT and AI are the two most promising digital technologies in the manufacturing
supply chain of the future [33]. IoT now accounts for 27% and tends to grow to 73%
in the next 3 to 5 years. Similarly, AI is promising to increase dramatically from 17 to
62% [34]. Thus, the following sub-sections will focus on IoT and AI’s applications
using the selected 59 papers in response to the two research questions raised earlier.
4.1 How Do AI and IoT Improve Supply Chain Efficiency
Calatayud et al. [35] argued that the development of AI and IoT has greatly promoted
the emergence of industry 4.0 and intelligent factories. Those two technologies
complement each other and are closely linked. AI is equivalent to application soft-
ware, which needs IoT as the foundation. IoT is like hardware that needs AI to drive
it [26]. Specifically, the Internet of Things produces a large amount of data collection
with perception devices. Subsequently, Artificial Intelligence provides the suitable
optimum proposal for the Internet of Things by using data and analysing data with
its powerful data analysis capabilities. Tjahjono et al. [10] agreed with the argument
and claimed that technologies are closely related, without boundaries or priorities, so
it is important to work together to promote supply chain development, especially in
supply chain management. Attaran [1] pointed out that the realization of DSC needs
to integrate multiple technological advantages to obtain competitive advantages. In
addition to improving the efficiency of SCM and reducing organization operating
costs, DSC also provides a full-fledged decision foundation for enterprises to formu-
late the overall industrial development strategy. Similarly, Preindl et al. [6] agreed
that the digital supply chain has broken the communication barriers of previous
supply chain links, and improved the information transparency and reliability of
the supply chain. Furthermore, the application of digital technologies has greatly
changed the process of supply chain management, which collects and analyses large
amounts of real-time data intelligently and then uses that information to make deci-
sions and implement them [36]. This transformation improves the connectivity and
collaboration of all parts of the supply chain members by sharing information more
accurately and in real-time, improving the efficiency of supply chain management
by making accurate decisions and optimizing operations [37]. At the same time, the
356 X. Wang et al.
prediction of potential risk and simulation of the feasible adoption of risk mitigation
measures ensure sustainable and stable performance improvement in an increasingly
changeable supply chain management surroundings [21]. This ability to monitor and
predict not only improves flexibility and agility on risk management in the supply
chain efficiency but also gain sustainable competitive advantages [38].
Nevertheless, Cui et al. [39] pointed out that digital technologies are not the only
key elements contributing to the improvement of the efficiency of SCM. Instead,
the improvements of collaboration between the supply chain members, the ability
to collect and process information and the integration of management information
systems are the basic reasons due to the application of those digital technologies.
Thus, technology provides only one possible way for improvement. The important
thing is how to obtain key capabilities to realise these expected benefits through inte-
grating digital technologies with the realities of enterprises. Similarly, [40] believes
that the essence of the Internet of things is to provide information and integrate
information.
However, what really improves operational performance is data transmission
speed and data transparency level, which promote cooperation between supply chain
members and optimize the supply chain information flow, logistics, capital to gain
competitive advantages of enterprise’s key abilities [41]. The Internet of Things
effectively provides a large amount of data, but the transformation of data into infor-
mation still requires judgment, data processing, and autonomous decision making.
Although IoT currently allows decisions to be made by machines without human
participation [42], there are still few studies on autonomous supply chain decision-
making and smart factories, which combine the Internet of things with autonomous
decision-making, are novel and nascent in the field. Meanwhile, [43] argued that an
intelligent supply chain needs the combination of different technologies to realize
informatization and automation, which is the foundation for achieving a high degree
of network-physical interconnectivity. In this case, Artificial intelligence plays a vital
role to realize a smart supply chain and push the flexibility and agility of the supply
chain to the undiscovered limit [21]. It makes decisions and takes actions to adapt to a
rapidly changing environment by analysing information in real-time and monitoring
operations on a global scale with predicting the future with a minimum error rate
[35]. While artificial intelligence (AI) is on the rise, it also needs to consider how
other technologies are coming together in valuable new ways [34].
4.2 IoT Application in SCM and the Impact
IoT technologies are widely used in the manufacturing industry like radio frequency
identification, wireless communication technology, laser scanning, etc. Those infor-
mation and communication technologies (ICTs) could improve supply chain connec-
tivity due to the integration and visibility of information [44]. Supply chain connec-
tivity reflects the impact of digital connections between stakeholders on and off
the supply chain, which relies on the extraction of information around all related
aspects [35]. Bhaveshkumar and Santosh [45] claimed that IoT achieves collabora-
tion to optimise accuracy, integration and transparency of the information with its
four aspects of characteristics and there are extracting data, transferring data, storing
data and processing data. Cui et al. [39] identified 16 factors that have impacts on the
supply chain and quantified them. Consistent with other researchers, IoT has made
outstanding contributions to the supply chain in information processing capacity,
information transparency, management system integration, industry standards.
The application in the automotive manufacturing industry provides automobile
manufacturers with opportunities to optimize. A large amount of money has been
invested in the digitization of various manufacturing processes from design to vehicle
production, including design, manufacturing, quality inspection, logistics and inven-
tory management [12]. According to [46], 60% of manufacturers worldwide used
data generated by connected devices to analyse processes and make decisions in
2017. General Motors is a good example. In terms of manufacturing, it uses sensor
data to determine the humidity of a car’s paint environment. The sensor first detects
humidity data by sensing the external environment and then transmits the detected
data to an algorithmic device that has been set up in advance to determine if it is
within the reasonable range. If the system decides the environment is inappropriate,
it sends the car to another area in the manufacturing process, thereby minimizing
repainting and maximizing plant uptime. This innovation alone saved GM millions
of dollars per year [47].
In terms of logistics, [10] pointed out that information transparency and connec-
tivity effectively enable timely and accurate information sharing, which eliminates
communication and technical barriers across departments and areas by enhancing
the transparency of the operation between suppliers, manufacturers and customers.
There are many examples of this in logistics and inventory management. The cost
of inventory management accounts for a large proportion of the cost of automobile
manufacturers, which directly influences organizations’ normal operations [40]. The
poor communication among various departments of the enterprise will lead to the
waste of resource deployment and other phenomena caused by the lack of real-time
coordination and control of resources of all members in the supply chain of the
automobile manufacturing enterprise, which will affect the benefits. IoT improves
the inventory management level of automobile manufacturing enterprises from two
perspectives. Firstly, establishing the inventory circulation network based on the
Internet of Things technology facilitates the circulation of idle inventory among
enterprises. The other one is to use IoT to monitor the whole process of materials in
automobile manufacturing enterprises to improve the inventory management level.
For example, providing available real-time data in SC by monitoring the movement
of materials, equipment, and products through the supply chain efficiently allocates
resources between inventories [15]. In addition, with Enterprise Resource Planning
(ERP), Product Lifecycle Management (PLM) and other systems that effectively
collect and deliver information to connect factories and suppliers,
All empowered departments in the SC can track inventory, product flow, and
product cycles times. That information will help manufacturers reduce inventories
and capital requirements by anticipating problems. According to data, smart factory
358 X. Wang et al.
penetration is expected to grow by 35% by 2025 through investments in real-time

analytics and dynamic supply chain tracking [10].
On the other hand, IoT is used in the production process to upgrade manufacturing
processes through monitoring and tracking. It will not only reduce unnecessary waste,
contributing to the sustainable development of the factory but also improve the profit
space in the long term. Moreover, information is important to improving supply chain
operations [33]. A two-way flow of information not only improves the supply chain
collaboration but also achieve the operational excellence of sustainable supply chain
management by rapid feedback, interruption reduction, process optimization [39].
For instance, in terms of quality testing and monitoring, the automotive aftermarket
has always been a core part of the automotive industry, covering all the services
consumers need after buying a car [48]. The physical nature of a vehicle means
that it is subject to unpredictable wear and tear and the hardware facilities face
functional degradation, inflexibility and other potential problems. By implementing
IoT components, vehicle status can be continuously monitored, enabling anticipation
of potential damage or failure and then preventive measures. In addition, it can trace
back to the production assembly process for optimization through manufacturing
data on systems and components [49].
4.3 AI Application in SCM and the Impact
Michel [50] pointed out that with the rise of globalization and the continuous devel-
opment of science and technology, supply chain management has gradually become
a priority for all enterprises. Meanwhile, as sensor costs fall and the Internet of things
advances, Al is expected to be one of the most promising technologies in the future of
supply chain management due to the increasing access of data throughout the supply
chain and improvement in computing technology [51]. A large amount of data is
accumulated and deposited in the cloud. Thus, how to make use of big data and give
full play to the value of data to predict market demand, assist the decision-making,
optimize the operation process, and predict the risk points of each link in SCM are
the new challenges. Some pieces of literature have acknowledged the fact that Artifi-
cial Intelligence has helped addressed those problems, which results in the in-depth,
predictive, and credible understanding of business partners and even competitors in
a complex and sprawling supply chain. Moreover, [51] argued that AI facilitates the
sustainability of supply chain management in pursuit of improving quality, reducing
cost and increasing efficiency. Hassija [26] supported those arguments by quantifying
the benefits of AI for organizational in ten aspects of supply chain management.
So far, a lot of AI technology has been applied to supply chain management
[52] including Artificial Neural Networks (ANN), Artificial Immune Systems (AIS),
Virtual Reality (VR), Genetic Algorithms (GA) and so forth [53]. In supply chain
management, these applications are significant for supply chain activities in terms
of demand prediction, marketing decision support systems, pricing, product manu-
facturing and supplier selection. The most common and influential is ANNs, which
is a data analysis technique mainly relying on a large amount of experimental data

[28]. Li [54] believes that artificial neural networks are becoming more and more
important in a changeable competitive environment because they can solve data-
intensive problems in the era of big data to discover knowledge, rules or models
[55]. Compared with human beings, AI is the computational intelligence related to
the input and output streams of processing units, which can effectively solve the
problems with complex and difficult algorithms that human beings are incomparable
[56].
Amirkolaii et al. [57] claimed that AI effectively helps managers to make predic-
tions and adjust the plan in SCM, which avoids the waste of resources and business
risks like the “Bullwhip Effect”. Specifically, when the information is transferred
from the upstream and downstream of the supply chain without information-sharing
in real-time, the information will be gradually distorted and amplified, which results
in the increasing fluctuation of demand and supply information and the formation
of false bubble space. However, AI can help companies accurately determine supply
and demand relationships ahead of time and develop dynamic operational strategies
by using historical data analysis, real-time data analysis, prediction model program-
ming and other analysis measures [58]. At the same time, AI makes the optimal
distribution of limited resources in the supply chain to achieve the maximum benefit
and formulates mitigation strategies for changes [59]. In addition, Smart supply
chains harness the power of AI and other emerging technologies to help companies
make predictions and risk analyses to maintain business continuity in chaotic and
volatile situations. This efficient supply chain control tower system based on arti-
ficial intelligence can respond quickly, smooth through or even completely avoid
risk with minimal loss or minimize disruption damage when a disaster occurs [60].
Similarly, AI can also be used in daily operations through real-time Omni-directional
monitor risks to promote the agility of SCM to respond quickly and mitigate risks by
predicting supply chain disruptions risks and recommending solutions. For example,
more than 30 counties in Thailand were hit by the worst flooding in 40 years overnight
in August 2017. IBM’s Singapore factory’s supply chain division was immediately
clear that the floods would have a huge impact on Thailand’s hard drive makers from
the purchase orders being executed and pending approval. Based on the potential
risks in short supply, the Singapore factory quickly select the Singapore hard disk
from the repository suppliers to place orders, lock and prepare goods and coordinate
and deploy available transportation ensuring dedicated hard disk supply is in place
and the production line is not interrupted [61].
However, correct forecasting is a complex process that depends on many internal
and external aspects, such as an accurate database, highly integrated algorithms,
market stability and so on [26]. And the wrong prediction will be a significant finan-
cial loss to the organization [62]. For example, Nike introduced a demand prediction
programme but failed to implement it in 2001, which leads to insufficient inven-
tory in Air Jordans and an excess of less popular types. This failure experience
took an unimaginable financial hit to Nike, costing it around $100 million in lost
sales [63]. In the process of production and transportation, AI improves the effec-
tiveness and accuracy of logistics decisions by tracking the flow patterns of goods
360 X. Wang et al.
and services, simplifying activities to achieve efficient and transparent partnerships

[24]. For example, in terms of inventory siting, planning and cost minimization, and
supplier selection issues, Artificial intelligence can eliminate human conditions and
personal feelings to build models by analysing historical stock data. The warehouse
is the foundation of the development of modern logistics and warehousing loca-
tion determines the efficiency of logistics. According to simulations and the filter
criteria, Artificial intelligence systems forecast future data to select the most appro-
priate choices and make a decision [64]. In addition, the stand or fall of transport line
planning can directly affect the operation of the modern material filling system of the
whole with the introduction of AI, which greatly improves the efficiency of delivery
batch business and expresses sorting business. There are many application scenarios
of AI in the field of logistics, such as packaging material box algorithm recommenda-
tion, cargo space planning, vehicle and cargo matching, AGV scheduling, automatic
intelligent storage and so on. Klumpp [24] believed that AI and algorithms occupy an
increasingly crucial status in logistics. For example, intelligent logistics technology
represented by digital and intelligent heavily rely on the core elements of intelli-
gent storage including unmanned distribution, AGV (Automated guided Vehicle)
and logistics robots [65].
Furthermore, AI can assist with cruise control, lane-keeping and collision avoid-
ance to achieve high safety of unmanned driving to the destination of goods. It also
offers machine learning, sensor fusion, computer vision technology, motion planning
and control to autonomously select and improve road safety [47]. On the other hand,
AI effectively liberates part of human activity. Specifically, AI can maintain efficient
operation for a long time for some simple programmed tasks [28]. For difficult and
complex tasks, AI can objectively and intelligently perform fast calculations. Take
Audi’ parts logistics as an example, which is the key to ensure the efficient production
of the whole factory. The Tungsten Network [66] reported that they waste an average
of one hundred and twenty-five hours per week on trivial businesses like repeat and
simple routines, dealing with supplier inquiries, accounting audits and so on. There
are about 6500 h a year wasted on ineffectual work. Thus, some organizations have
begun to adopt advanced AI applications like robots to complete repetitive activities
automatically. Those AI applications also reinforce each other to optimise the real-
time strategies and automatically adjust them according to the surroundings, which
enables robots smarter and faster. Audi’s intelligent factory is a typical example.
The logistics and transportation of parts are all completed by the unmanned driving
system. The forklift truck that transfers material also realizes automatic driving,
realize true automatic factory [23]. Not only will unmanned vehicles be involved
in material transportation, but drones will also play an important role [4]. In Audi’s
smart factory, miniaturized and lightweight robots replace manual labour to install
and fix trivial parts. Flexible assembly cars will replace manual screw tightening.
Many mechanical arms are arranged in the assembly trolley. These mechanical arms
can be identified and screwed according to the established procedures. The assembly
assistance system can inform workers where to assemble and can check the final
assembly result. In some wiring harness assembly work also need manual partici-
pation. The assembly auxiliary system can prompt workers which positions need a
manual assembly, and display whether the final assembly is qualified on the display
screen to prevent defective products [67]. The flexible grasping robot invented by
Audi Intelligent Factory is different from the current grasping robot. The biggest
feature of this robot is the flexible tentacles, which are similar to the tongue of a
chameleon and have more flexible grasping parts. In addition to grabbing ordinary
parts, the flexible grasping robot can also grab nuts, gaskets and other fine parts.
4.4 Factors Influencing the Successful Implementation

of the Digital Supply Chain
A digital supply chain is expected to strengthen competitive advantages through

improved product quality, lower operational costs, faster market response and higher
collaboration between supply chain members [68]. However, the introduction of
digital technologies recently is exposed to various difficulties and obstacles that arise
from internal and external factors such as increasing internationalization and inter-
connection of companies, uncertain demand changes and faster production cycles
time [35]. Definitely, digital technologies can greatly improve supply chain manage-
ment efficiency by avoiding the problems of errors, losses, and costs associated with
manual management to achieve better business performance. According to [69], orga-
nizations with a digital supply chain and highly digital operations are expected to
improve efficiency by 4.1% per year and increase revenue by 2.9% per year. Based on
these obvious motivations, manufacturing supply chains are investing more in digital
technologies and obtain great results. Around three-quarters of manufacturing, enter-
prises tend to speed up their digitalization process and will achieve comprehensive
and basic digital advances by 2020 around the world [70]. Taking China as a specific
example, The Ministry of Industry and Information Technology proposed that digi-
tized manufacturing enterprises above the scale will be popular, and intelligent trans-
formation will be preliminarily realized in key industries by 2025 (more than 2000
smart scenarios for the application of new technologies, more than 1000 smart work-
shops, and more than 100 benchmark smart factories leading the development of
the industry). By 2035, digitisation will be universal in all manufacturing sectors
above scale [71]. In terms of performance returns, the results are remarkable. The
income of the intelligent manufacturing business gradually increased from 73.467
million yuan in 2017, 147.12 million yuan in 2018, and 264.348 million yuan in 2018
to 413.252 million yuan in 2020. Smart manufacturing in 2020 operating revenue
growth of 56% and revenue rose to 29.83% from 24.58% a year earlier [72].
However, in practical application, many enterprises, which spend high cost and
are equipped with the most advanced automation technology such as Manufac-
turing Execution System (MES), Web Mapping Service (WMS), Transport Monitor
System (TMS) and other information systems are still not satisfied with the output
results in SCM. Furthermore, there are obviously greater difficulties and obstacles
362 X. Wang et al.
to further digitization and intelligent process. Although many enterprises have real-
ized the importance of DSC, only 5% were satisfied with their digital transformation
approaches. Thus, it is important to explore how smart supply chains can be success-
fully applied and what reasons influence their implementation [34]. Ageron et al.
[73] believed that technological, organisational and strategic challenges remain to
overcome to achieve the success of the DSC implementation. Agrawal et al. [74]
identified 12 barriers to the implementation of DSC including the fear of loss of
confidential information, lack of budget, lack of digital skills and talents, lack of
strategic guidance and so on. From a quantitative perspective, [26] analysed and
presented different 13 possible obstacles. The next section explores some of the
potential obstacles.
4.4.1 Lack of Budget and Management Support
The lack of sufficient financial support will greatly hinder the digitalization process
of DSC such as the improvement of infrastructure, the cultivation of corresponding
talents, the integration of introduced digital technologies and so on. According to
the data, the information technology (IT) system is critical to DSC, so improving
infrastructure is an effective way to promote the digital supply chain. However, since
enterprise on large-scale information technology and equipment needs a large number
of investments to support, improvement of the infrastructure is a huge barrier to the
implementation of the digital supply network [75]. In addition, new digital technolo-
gies and resources need to be constantly updated and integrated to drive connectivity
of various technologies with appropriate organizational structure [25], which requires
financial support setting the threshold for the productization of digital technologies.
Those changes also face huge risks such as structure, culture, capabilities, policies
and so forth. Specifically, DSC requires organizational structure transformation to
provide effective means of communication between organizational members and
between the organization and its environment through creating and sharing knowl-
edge. With greater data transparency and synchronization, machines are empowered
to make operational decisions to allocate resources for optimal utilization as well as
capturing the highest utilization value of investment [76]. Although those activities
are designed to improve the efficiency and accuracy of information communication,
they may cause disruptions due to the need to redesign the supply chain opera-
tion process [1]. In addition, they do not directly present the most direct revenue
return, because their return on investment is difficult to calculate [67]. So, they are
often underfunded by trade-offs between implementation and running costs and their
Return on Investment.
Another important barrier is the lack of relative talents. [73] argued that the talent
gap is huge and the scarcity of talent and human consumption may lead to the failure
of digital transformation. Large sums of money have been paid to find potential
talents since digital transformation requires the training of new talents related to
digital technology including data analytics, cloud computing, data security, mobile
technology and so forth. Similarly, [74] claimed that new talents such as advanced
engineers, data scientists and software programmers in information and communica-

tion technology need to be trained in the latest programming languages. At the same
time, it is vital to attract experienced software developers, product managers and
other technical specialists from Apple, Google, or Facebook to ensure the speed and
quality of reform. In addition, behavioural competencies related to personality traits
such as business process management, responsibility, social acceptability, innovation,
and negotiation are also important, which adapt to the characteristics of the digital
supply chain such as agility and flexibility. All of those activities require sustainable
purchasing ability and are fundamental to the success of the digital supply chain.
4.4.2 Lack of Guidelines, Strategic Orientation and Knowledge
Although many enterprises are equipped perfect in terms of infrastructure (MES,

WMS, TMS, OMS information systems), there are greater difficulties and obstacles
to further digitization and intelligent process in DSC due to the lack of industry-
specific guidelines, strategic orientation and relevant knowledge. Agrawal et al. [74]
pointed out that there’s not just one way to digitize a supply chain and companies
at different stages have different digital goals. specifically, each enterprise should
be based on their specific needs, according to the existing infrastructure and talent
reserves, corporate culture and technical requirements for formulation and imple-
mentation of the corresponding digital supply network planning [8]. From selected
researches, we found that there are many studies on how digital supply chains achieve
specific advantages (collaboration, information transparency and so on) from a broad
perspective. However, few papers have explicitly focused on the specific activities and
implementation steps of the digital supply chain in the industry through case studies
[74]. Therefore, the lack of specific route guidance has influenced the successful
implementation of DSC. Many organizations recognized the purpose and significance
of digital supply chain transformation, but do not have a specific map explaining the
approach and sequence in terms of ways of cooperation, internal and external oper-
ations and so on. Organizations must thoroughly consider existing procedures and
processes to identify areas of improvement to address digital transformation, then
define their digital strategy and develop appropriate actions [77]. In this case, the
digital strategic plan provides a clear roadmap for DSC adoption and helps managers
identify the stages and locations of DSC deployment in the supply chain to avoid
inconsistent, fragmented and ineffective activities. organisations could make the cost
of input to get the greatest economic benefit [78].
In addition, the lack of professional knowledge and digital vision among leaders
and employees about digital means is part of the reason for the slow adoption of
the digital supply chain [75]. DSC is a way of managing core operations in the
supply chain rather than owning digital products and services. In other words, the
decision point that determines the efficiency of SCM is not the application of digital
technology, but the matching degree of operation mode and information technology
[5]. Several well-known research institutions, such as Accenture, IDC, Deloitte, etc.,
pointed out that the transformation of business model is the foundation of the success
364 X. Wang et al.
of digital enterprises. A successful digital transformation should leverage emerging

technologies to increase stickiness and strengthen connectivity as well as creating an
integration platform for digital and non-digital technologies. Therefore, technology
is not the end, but the capabilities of real-time visibility, continuous collaboration,
organizational flexibility, enhanced responsiveness and prevention. For example,
most manufacturing enterprises tend to choose to invest in advanced technology,
which is the most popular but may not be the most appropriate choice [79]. When
they embrace shiny new technologies such as Robots, machine learning tools, etc.,
these technologies act as separate parts rather than putting them together to deliver
value, which puts companies in an integration dilemma [80]. These technologies
become fragmented and fail to build the enterprise into a cohesive platform to obtain
the advantages of DSC. Furthermore, a deficient view on the integration of digital
technologies may even damage their adaptive strategies [75].
4.4.3 Social Human Rights and Environment
The MIT Sloan Management Review [74] conducted a survey aimed at answering
the question of why most companies are failing to reap business benefits from digi-
tization. They found that people play a key role in digital transformation. On the
one hand, some business leaders like to be in their comfort zone and resist change,
in which case change can be challenging. Hudnurkar [81] claimed that it’s hard for
people to change because they develop vision and power with familiar things. In fact,
43% of 4500 CIOs in the Harvard Nash/KPMG CIO survey identified resistance to
change as the biggest obstacle to a successful digital strategy.
On the other hand, people are unwilling to share information due to safety, security
privacy, interests and other restrictions. Digital supply chains rely on information
transparency and cross-departmental collaboration. To achieve the smooth operation
of the supply chain, a data-sharing system is needed. However, for some sensitive
data, such as inventory, life cycle, etc., it damages the privacy of the supply chain
and even makes it vulnerable to malicious attacks. Therefore, network security risks
become one of the obstacles to the promotion of the digital supply chain [82]. Due to
business interests or narrow thinking, departments and companies are not willing to
share information, which artificially brings “department wall” and “enterprise gap”.
For example, to leave room for cost reduction, purchasing fails to share the true cost
with finance and sales, sales exaggerate the forecast, and purchasing overstates the
demand for suppliers, etc. In this case, when they passing information adding their
understanding and selfishness, the information will be distorted and the digital supply
chain would be out of shape. All of these have brought obstacles to digitization. Thus,
it is imperative to establish a holistic view, more synergy thinking to promote the
flow of information.
Munirathinam [83] claims that more than 25% of cyber-attacks come from IoT
devices. Although AI has greatly increased the capability of processing data and
increased the reliability of decision making, the available way of collecting data can
be a security risk. In addition to ensuring the quantity and quality of data, Ethics and
a sound sense of responsibility are important for digital development. For example,
some applications and devices have been empowered to make decisions automatically
through algorithm settings, model parameters, data permissions, etc., which have
become “black boxes” [26]. In this case, transparency and accountability are very low.
Security loopholes are existing and connections between devices are still immature,
which will give many criminals many opportunities to commit crimes. Therefore,
there is still a lack of relevant laws and regulations to ensure security issues and
increase trust.
In summary, there are three levels of obstacles to the implementation of the digital
supply chain. Financial support is the key factor from the first beginning to the whole
process, which is the premise and basic guarantee to ensure continuous follow-up.
The lack of clear guidance and management knowledge is the root cause why the
implementation effect is not achieved in the process of transformation. The lack of
acceptance from human beings and the imperfection of legal protection aftermath
would hinder the sustainable development of DSC.
5 Conclusions
Many papers have discussed DSC technology from the perspective of the application.
They demonstrate the positive impact of those digital technologies to successfully
achieve digital and intelligent supply chains on firm performance by improving the
efficiency of SCM. However, few studies have explored the causes and mechanisms
that promote this effect. This study found that information transparency, accuracy
information and decision-making, and collaboration amongst supply chain members
directly affect the efficiency of SCM. The realization of these functions depends on
the innovative advantages brought by digital technology. The study shows that digital
technology is key to the improvement of management efficiency through bringing
about the change of supply chain mode, functional advantages, ability improvement
and so on. This research selected two key technologies (IoT and AI) to discuss their
specific contributions to supply chain management efficiency in the manufacturing
industry. The results show that both IoT and AI are the closest technologies related to
the autonomy and predictive power of future supply chain expectations. IoT promotes
supply chain collaborative management by improving real-time information trans-
parency, information systems integration, and big data processing capabilities. In
addition, the ability to track, predict and independent decisions provide suggestions
and guidance for enterprises to make decisions. Al accompanied with its analysis,
learning capabilities enhance the accuracy of autonomous prediction, classification,
decision-making and risk aversion. It enables IoT to generate index values, while
IoT will provide AI with an information base and a basis for autonomous decision-
making, among other things. The convergence of the two technologies optimizes all
aspects of manufacturing and opens up more possibilities for smart factories.
366 X. Wang et al.
This research also explored DSC challenges and problems that take into consid-
eration to expand the approaches to DSC success factors derived from existing liter-
ature. One is the capital barrier, which includes the improvement of infrastructure,
the introduction of new technology and the training of talents. These are important
foundations of the digital supply chain and require substantial ongoing financial
support. The second is the management implementation barriers such as the lack
of knowledge of relevant personnel, no clear guidelines, no strategic plan and so
on. These are the most common difficulties in the process of digital transition as
well as key reasons why companies have invested so much money while it doesn’t
work. In this case, organizations recognize the necessity of change, but lack specific
implementation methods and steps, resulting in the waste of a large number of finan-
cial, material and human resources in worthless activities. In addition, they may be
eager to achieve financial returns without objectively combining their circumstances
and strategic planning. The last one is personal barriers including fear of changing
from the comfort zone, inadaptability to changes in working style and reluctance to
divulge privacy due to security concerns. Privacy security remains a huge challenge
due to technological uncertainty, lack of trust, unwillingness to give up power.
However, our study has certain limitations. In terms of the type of research itself,
a systematic literature review is a research method that provides an overview and
critical discussion of previous studies and may not cover the details of every research
question. Therefore, such analysis from a relatively macro perspective lacks in-depth
survey and research. Although it identified the importance of digital technology
efforts to improve performance and how they improve supply chain capabilities,
there is no specific quantitative analysis to delve into the impact of digital technology
on management efficiency into quantitative relationships. All discussions are based
on secondary data from cited samples, without collection and analysis of primary
data. This study noted the importance of having clear guidelines and roadmaps for
the supply chain during the implementation phase. But these need to be developed
in the context of a large number of specific enterprises to guide DSC adoption.
By understanding the strategic purpose, the different stages and locations of DSC
implementation to deploy and develop a clear roadmap. The study also does not
examine the status quo of the current supply chain to identify the gaps of practices
as well as predicting potential risks.
Based on these research limitations, the following suggestions are proposed for
future study. Firstly, design and calibrate specific digital supply chain transforma-
tion strategies and routes according to different environments, different industries and
different enterprises’ specific digital stages; In addition to researching the creation
and development of models, frameworks, methods, solutions, etc., attention should
also be paid to researching and testing their usability, application or generalization,
and possible risks as well as corresponding solutions and optimizations. Secondly,
any progress could not be achieved by a single technology, but by their coopera-
tion to improve the level of information system integration. Alternatively, it is the
unavailability of a single technology. Thus, a quantitative evaluation framework is
needed, which enables us to monitor, control and reflect the performance of digital
supply chain implementation in the different applications by combining technolo-

gies together in valuable new ways. Thirdly, Strengthen the research on how to solve
the supply chain information security. At present, the integration of many technolo-
gies has been developed to a certain extent, such as the contribution of blockchain
technology to information security compared with AI and IoT [27]. Fourthly, it is
necessary to anticipate future developments. For example, the transparency of infor-
mation between supply chain partners is not only for commercial interests but also
provides supervision for the social responsibility of enterprises, which reflects the
social responsibility of enterprises. This transparency encourages supply chain part-
ners to develop and share best practices for green operations and logistics. Supply
chain partners can demonstrate compliance with industry best standards for worker
safety, environmental protection and business ethics [84]. In addition, anticipate
potential risks and threats in advance is imperative. Those issues, for example, how
to strengthen the improvement of policies and relevant laws in the context of gradu-
ally transparent information to prevent criminals from speculating in crimes and how
to guarantee people’s basic employment, technical authorization and other sensitive
issues regarding human rights are expected to be noticed.
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Options, Structure, and Digitalization
of Value Chain Management Objects
Alexey Tyapukhin and Zhanna Ermakova
Abstract Although the essence and content of chain management concepts by

values, demands, and supplies are worked out sufficiently, the problem of their
hierarchy and relationships is not solved yet. The article aims to substantiate the
options, clarify the structure, and develop the methodology for digitalizing value
chain management objects. System analysis, grouping, and classification methods
are used as research methods. The article substantiates the value chain management
options based on the choice, adaptation, and creation of products and/or services.
The management structure of this type is developed, including chain management
of formalization, demands, supplies, and consumption. The classification of values
is clarified, including the desired value, value prototype, value carrier, and perceived
value. The main value types of chain management objects are proposed. The cipher
structure of chain management objects is developed, which contains information
about the management stage, objects types, stages and options of creating value,
forms, and options for solving problems in value chains. The obtained results make
it possible to more fully take into account the demands of end consumers; reduce the
loss of lost profits when making management decisions; more effectively distribute
resources, powers, and responsibilities in chain links.
Keywords Value chain management · Structure · Digitalization
1 Introduction
A well-chosen management concept makes it possible for an enterprise or group of

enterprises forming chains to fulfill the demands of the end consumers of products
and/or services in the best way, rationally combining and using material and non-
material resources, as well as the knowledge and skills of personnel. At the same
time, the choice of an effective management concept is rather difficult. On the one
A. Tyapukhin (B) · Z. Ermakova

Orenburg Branch of the Economics Institute of the Ural Branch of Russian Academy of Sciences,
11, Pionerskaya St, Orenburg 460000, Russian Federation
374 A. Tyapukhin and Z. Ermakova
hand, “the search for a comprehensive definition of ‘management’ that is not over-
generalized still proceeds” [9]. This means that based on several vague definitions of
the term “management”, management concepts and their options have been created,
the copying of which does not guarantee the achievement of the enterprise’s goal. On
the other hand, even if there is a universal definition of the term “management”, the
enterprise needs to coordinate the concept content formed on its basis with concepts
of suppliers and consumers pursuing different goals in different types of chains, such
as supply chains [23], value chains [24], and demand chains [20].
The recognition by the majority of specialists of the effectiveness and prospects
of implementing chain management concepts has led to the creation of its three
basic concepts, respectively: supply chain management; value chain management;
and demand chain management, the definitions of which are also far from perfect. In
addition, the turbulence of the world economy [6]; orientation not only to meet the
needs of the market but also to create and deliver values to end consumers [19]; need to
ensure the sustainability and sustainable development of chains [12]; globalization of
their economic activity [27]; development of information technologies and the digital
economy [8], etc. influenced the content and development of these concepts largely.
Therefore, it is premature to assert the stability of chain management concepts of
various types. As a result, the choice of a particular concept involves the study of its
content and relationships with other concepts, as well as the hierarchy substantiation
of these concepts with their subsequent structuring up to the management concepts
of enterprise divisions. The important aspects of solving this problem are:
(a) the orientation of chain management towards the creation of value for the end
user of products and/or services;
(b) the study of basic types of value, which include “desired value”, “value proto-
type”, “value carrier”, and “perceived value”, as well as objects of value based
on them. So, for example, in order to create the desired value, the researcher
needs to give it a tangible form, from a complete misunderstanding of it to an
idea, or better yet, a sketch of a future product and/or service, which are the
objects of the desired value; and
(c) creation of prerequisites for the development of a clearer structure and algo-
rithms of software and computer support, making it possible to improve the
quality of management decisions in the links of circuits of various types. The
development of this software is, on the one hand, a consequence of changes
in the content and interrelationships of the above concepts of chain manage-
ment, and, on the other hand, involves the introduction of adequate to these
changes machine coding of the actual components of value chain management
that ensure the determination of rational combinations of intellectual, organi-
zational, and technical capabilities of chain links, as well as the involvement of
necessary material, information, financial, and human resources and effective
management by their flows.
The study intends to identify options and phases of the integrated concept of value
chain management, requirements, and supplies; to develop a two-level classification
of values, including types and objects of value; as well as to offer a methodology for
Options, Structure, and Digitalization of Value … 375
creating ciphers of phases, objects, and components of value chain management for
use in software and computer support for managerial activities. As such components,
it is proposed to use the stages and options of value creation, forms, and results of
solving the problems of chain management.
2 Literature Review
The results of this research are determined by the content of the term “value” largely.
It is possible to agree with the opinion that “the value literature emanating from
within the marketing discipline consistently refers to value as a complex construct,
not well understood” [21]. Nevertheless, in the general case, value is understood to
be “the relative worth, utility or importance of something” [7].
Porter defined value as “the amount that buyers are willing to pay for what a
firm provides” [24]. This point of view is very popular among specialists, since it is
based on the traditional understanding of the profit of the enterprise (in this case, not
supplier, but consumer) and measured by monetary equivalent as the main value or
goal of this enterprise.
The term “value” has undergone a number of fundamental changes over time. For
example, Woodruff argues that the value is a perception that becomes the reference
and evaluation in seeing the attributes of products, product performance, and results
arising from the use [33]. Considering that “the term ‘perception’ can be defined as a
process of interpreting the environmental factors such as smell, touch, vision, sound
within the customer’s frame of reference” [29], the value concerns the consumer’s
sensations, and “value is highly individual to each consumer” [21]. The fact that the
value is unique is confirmed by the opinion of Feller et al. that, among other things,
“value is an experience and it flows from the customer” [11].
Next, it is necessary to discuss the value determined by sensations, impressions,
and experience of end consumers of products and/or services, or about such value
types as “functional value” and “hedonic value” [14], as well as “personal value”
[11], taking into account the development trends of “experimental marketing” [4].
This understanding of value allowed Potra and Izvercian to offer “a classification of
four customer value perspectives” [25], including desired value, creation of value,
value appropriation, and perceived value or different value types in the course of their
life cycle. Depending on the research task, each of these perspectives or value types
can be divided into components, which allows transferring the authority to manage
value chains to the lower levels of enterprise management.
Porter defined the value chain as a set of interrelated activities that create value for
the consumer [24]. It follows from this definition that the links of the chain are activi-
ties, not enterprises. At the same time, the chain of activities is impersonal and mostly
unambiguous, and either the consumer him/herself or the set of linearly ordered enter-
prises, including the possible participation of this consumer, can create the necessary
value in a competitive environment. An important aspect of the value chain is that it
“describes the full range of activities which are required to bring a product or service
from conception, through the different phases of production (involving a combina-

tion of physical transformation and the input of various producers services), delivery
to final consumers, and final disposal after use” [18]. This point of view is possible to
combine with the version of Potra and Izvercian [25], thereby obtaining not only the
life cycle of product or service but also the value determined by sensations, impres-
sions, and experience of the end consumer. At the same time, the value of this type
can be provided by a separate product and/or service or its set; it can be distributed
or unallocated in time once or repeatedly created by both the consumer him/herself
and the value chain with the possible participation of this consumer [5]. Based on the
terms “value” and “value chain”, the authors propose different definitions of the term
“value chain management”. It is noteworthy that the dictionaries of such well-known
organizations as the Council of Supply Chain Management Professionals [10] and
the Association for Operations Management [3] ignore this term.
Aimin and Shunxi believe that value chain management is the coordinating
management process focused on maximum customer satisfaction based on the coor-
dination of goals of chain links within the business process “consumer relationship
management” [1]. Teich uses the term “extended value chain management (EVCM)”,
which focuses on “the holistic consideration of the value chain” and generating orders
“under consideration of previous production steps” [30]. Jörns describes value chain
management as “a superset of the management concepts SCM, supplier relationship
management, customer relationship management, and enterprise management” [15].
The study of the above and other points of view allowed Kannegiesser to assert that
“value chain management is the integration of demand, supply and value decisions
from sales to procurement using strategy, planning and operational processes” [17].
Jüttner et al. [16]; Singh and Power [28]; Thublier et al. [31] support this point of
view.
To prove this point of view, it is necessary to distinguish between different types
of chain management objects. The value chain management concept is focused on
the value assessed by the end consumer through sensations and impressions that
are transformed into experience. The demand chain management concept operates
with information that reflects how future products and/or services will provide the
end consumer with the necessary sensations and impressions. The supply chain
management concept answers the question of how to create products and/or services
ordered by the end consumer and deliver them to the place specified by him/her to
get the desired sensations, impressions, and experience. In addition, it is advisable
to distinguish between the concepts of value chain management and supply chain
management that focused on the same object “the life cycle of products and/or
services” currently.
The assumption that the value of the end consumer is determined by his/her
sensations, impressions, and experience, which can also be presented in form of a
life cycle, allows substantiating the scientific novelty of the results of this research
and creating the necessary groundwork for future ideas on the article topic.
The achievement of the research purpose is based on the use of qualitative methods,
the basis of which is the classification method. The feature of this method is the iden-
tification of actual classification attributes, each of which corresponds to dichotomies
[12, etc.]. The joint use of these attributes and dichotomies makes it possible to form
and study binary matrices [2, etc.], on the basis of which the logic of this research is
built.
The terms “code” and “cipher” are used separately in the research of binary
matrices. Codes or symbols “0” and “1” denote dichotomies of the classification
attribute. Combinations of codes at the level of one or more classification attributes
used both in parallel and sequentially are designated by ciphers and are formed on the
basis of several codes (symbols) “0” and “1” depending on the number of attributes
of Management object.
Each sector of the created binary matrix is marked with the ciphers “00”, “01”,
“10” and “11”, which allows assigning them to one or another control object, as well
as their combinations, forming the ciphers of more complex combinations of these
objects. As a result, the necessary and sufficient prerequisites for describing specific
management situations and adequate solutions to achieve the goals of various types of
circuits are created with the help of computers and software. For example, to describe
the following situation: the product with the cipher “10” at the workplace with the
cipher “00” is rejected (cipher “11”) by the feature “surface roughness” (cipher “01”),
one should use the machine cipher 10.00.11.01. This cipher is received and processed
by the computer, which gives a typical solution: the product with the cipher “10”
from the workplace with the cipher “00” should be placed in the container for rejects
(cipher “01”) and moved by an electric vehicle with the cipher “11” to the warehouse
of rejected products (cipher “10”). The machine cipher 10.00.01.11.10 is used for
this solution.
4 Background
4.1 Value Chain Management Options
The introduction of the term “value” expands the scope of the term “need”, which is
traditionally used in the phrase “satisfaction of needs”. The hypothesis put forward
in this article takes into account the customer’s need for not only products and/or
services but also values, which allows developing an algorithm of value chain
management and substantiating its main options and phases (Fig. 1).
The value in the form of sensations, impressions, and experiences of the end
consumer can be obtained by consuming already created products and/or services, or
these products and/or services need to be created or mastered. Moreover, in the second
case, new products and/or services are either refined based on previously created
Need for sensations, impressions, and experiences (values/value flows)

(cipher “00”)
Study of the existing set of products and/or services (choice) (cipher “01”)
Assessment of the possibility of satisfying the need for sensations, impressions, and experiences with
the existing set of products and/or services
Yes
Is the need met?
No
Identification of existing types of products and/or services, the refinement of which is able to satisfy
the need for sensations, impressions, and experiences
No
Is it possible to refine it?
Yes
Specification of parameters and characteristics of existing types of products and/or services that can
meet the need for sensations, impressions, and experiences (adaptation) (cipher“10”)
Value chain management (creation) (cipher “11”)
Innovation chain management (research phase) or management of (desired) value formalization

(cipher“1100”)
Demand chain management (information phase) or

management of value prototype structuring (cipher“1101”)
Supply chain management (technological phase) or

management of value carrier (cipher“1110”)
Consumption chain management (marketing phase) or

management of perceived value (cipher“1111”)
Satisfaction of need for sensations, impressions, and experiences

(values/value flows)
Fig. 1 Value chain management algorithm
prototypes or developed again. Thus, it is possible to distinguish three main value

chain management options, based on choice, adaptation, and creation, respectively. If
the selected set of products and/or services is not able to create value or satisfy the end
consumer’s need for sensations, impressions, and experiences, then it is possible to
solve this problem with help of their partial refinement (adaptation to demands of this
consumer). If the refinement (adaptation) of products and/or services is impossible
or impractical, it is necessary to use the value chain management option focused on

creation.
As follows from information in Fig. 1, the orientation of chain management to
creation includes four main phases, which can be identified based on the synthesis
of the above concepts of chain management and “the classification of four customer
value perspectives” [25]. It is possible to assume that the value chain manage-
ment concept operates with the term “desired value”, the supply chain management
concept is associated with the term “creation of value”, the term “value appropriation”
partially concerns the demand chain management concept and, finally, “perceived
value” and comparing its results with expectations associated with “desired value”
is the prerogative of marketing. In order to combine “customer value perspectives”
and chain management concepts logically, it is necessary to clarify the relationships
between their components as follows:
(1) “Innovation chain management”, implemented by the consumer together with
the supplier, or “novelty chain management” [30], implemented by the supplier
based on the study of consumer values → “desired value” (research phase);
(2) “Demand chain management” → “value prototype” (information phase);
(3) “Supply chain management” → “value carrier” or products and/or services, as
well as related resources (technological phase); and
(4) “Consumption chain management” → “perceived value” (marketing phase).
It is easy to notice that the first and fourth phases are interconnected, therefore, the
chain management concepts presented in Fig. 1 form the management cycle or the
integrated chain management concept focused on choice, adaptation, and creation
of value. Although demand and supply chain management concepts are the parts of
this concept, they can be used also without focusing on the creation and delivery of
values, for example, to meet the needs of customers in products and/or services.
The special feature of Fig. 1, among other things, is the use of ciphers that allow
characterizing a particular option of the chain management concept. The cipher
is based on the binary codes “0” and “1”. For example, the need for sensations,
impressions, and experiences (values/value flows) has a two-digit cipher “00”.In turn,
the ciphers of the “creation” option are more complex. For example, the four-digit
cipher “1101” means that the demand chain management concept or the information
phase of the chain management concept is implemented in value chains.
4.2 Value Chain Management Structure
The options or phases of the value chain management concept provide for impacts
on various value objects, which can be classified using the following qualitative
attributes: “priority of the value object” (dichotomies: major and subsidiary); and
“function performed by the value object” (dichotomies: creating and attendant of
value).The joint use of these attributes and dichotomies makes it possible to distin-
guish the main, accompanying, auxiliary, and supporting objects in value chains
(Fig. 2).
The information in Fig. 2 assumes the management of four basic objects for each
value type: desired value, value prototype, value carrier, and perceived value. As a
result, it is possible to clarify the structure of the value chain management concept,
implemented in its main phases by specifying objects of value types (Table 1).
The information in Table 1 allows making the following conclusions:
(1) the main value types objects, as well as the results of chain management
phases, are: images of products and/or services that create prerequisites for
determining the method of creating value (sensations, impressions, and expe-
riences); samples of products and/or services that guarantee the possibility of
their preparation or development and contribute to the placement of demands
for potential suppliers; products and/or services obtained as the result of the
Priority of the value object

Major Subsidiary
Creating value Main Auxiliary

Function performed object object
by the value object Accompanying Supporting
Attendant of value object object
Fig. 2 Classification of objects in the value chain
Table 1 Classification of value types objects

Value object Value type of end consumer
Desired value Value prototype Value carrier (10) Perceived value
(00) (01) (11)
Main Image (0000) Sample (0100) Product Sensations
(1000) (1100)
Auxiliary Idea (0001) Layout (0101) Component Impressions
(1001) (1101)
Accompanying Sketch (0010) Project (0110) Energy carrier Want
(1010) (1110)
Supporting Thought (0011) Model Tare Experience
(0111) (1011) (1111)
Result Method of Demand for Ordering Satisfaction with
creating value products and/or products and/or the value
services services
Phases of value Research phase Information Technological Marketing phase
chain phase phase
management
fulfillment of consumer’s order and delivered to a specified place; sensations

of the end consumer of products and/or services that contribute to satisfaction
of perceived value. When creating value, not only the product itself can be
used but also its components, for example, the drill for a puncher or the comb
for cutting hair;
(2) according to information in Fig. 1, the technological and marketing phases
of value chain management are aimed at the consumer’s choice of products
and/or services from their existing assortment. The information, technological,
and marketing phases of management are implemented within the adaption of
existing products and/or services to the value of this consumer. Creation, as an
option of the chain management concept, provides for the passage of not only
the phases listed above but also the innovative phase additionally;
(3) each type and object of value presented in Table 1 has the corresponding cipher
(two-digit for a type and four-digit for a value object), which allows them to
be recognized using software in the chain management process; and
(4) value objects presented in Table 1 form the typical sequence of their
transformation or life cycle (Fig. 3).
The analysis of information in Fig. 3 allows making the following conclusions:

(1) if there is the need for sensations, impressions, and experiences (values/value
flows) (Fig. 1), the flow of thoughts is formed at the innovation phase, both
of consumer and of suppliers specializing in the development of new types of
products and/or services. This flow leads to the appearance of ideas that are
formed as images and fixed in form of sketches. The sketches are discussed
Need for sensations, impressions, and experiences (values/value flows)
Thought Idea Image Sketch
Project Model Layout Sample
Product Component Tare Energy carrier
Want Sensations Impression Experience
Fig. 3 Typical sequence of transformation of objects in chain management

by participants in the innovation phase, and if approved, the final sketch is

transferred to the next phase of chain management;
(2) on the basis of the approved sketch, the project of products and/or services is
developed, which is the basis for their modeling. The most successful model
allows creating a layout that is tested in real conditions of consumption or oper-
ation. Successful tests of layout contribute to the manufacturing of a prototype
product or installation batch for their subsequent testing and certification;
(3) during the technological phase, the necessary products and their components
are manufactured, related resources are prepared, their packaging, packaging,
and delivery to the place specified by end consumer are carried out;
(4) the product, components, and energy carrier (autonomous or non-autonomous),
if desired, must provide the end consumer with the necessary sensations and
impressions, as well as form the experiences that later influence his/her new
values; and
(5) the sequence shown in Fig. 3 may have different options due to the particular
chain management concept, the need to correct mistakes made and sometimes
unavoidable, the existence of alternatives when making managerial decisions,
the experience of those making these decisions, etc.
4.3 Digitalization of Value Chain Management Objects
Earlier, in Fig. 1 and in Table 1, management objects were represented, indicated by

binary codes and ciphers. In order to use software for making appropriate manage-
ment decisions in value chains, it is advisable to develop a complex machine cipher
that includes simpler ciphers:
(1) stages of value chain management;
(2) the type of object of value;
(3) the stage of creating an object of value;
(4) options for its creation;
(5) forms of solving the problem of value chain management; and
(6) variants of the result of solving this problem.
The stages of creating value objects reflect the sequences of formation of “inputs”
(some value objects) into “outputs” (other value objects), for example, thoughts into
the sketches or ideas into the products and its components (Table 1). These stages
should be unified, i.e. their application involves taking into account the generalized
characteristics of specific value objects and using it at any stage of managing the
chains of its creation.
To solve this problem, it is necessary to identify the preceding “k” and the subse-
quent “k + 1” value objects (Fig. 4); determine their actual classification attributes
and dichotomies; identify the desired stages of creating these objects, as well as form
the sequence of performing the selected stages.
Value object “k” Value object “k+1”
Decision-making stage
Decision Making
method (0) the decision (1)
Options, Structure, and Digitalization of Value …
Getting and Preparation and

Yes (0) studying (00) transfer (01)
Interaction with adjacent
linksof the value chain Divergence Convergence
No (1) (10) (11)
Fig. 4 Classification of stages of object creation

383
If to use such classification attributes as “decision-making stage” (dichotomies:

method, code “0”, and making, code “1”, decision) and “interaction with adjacent
links of the value chain” (dichotomies: yes, code “0”, and no, code “1”), then the
following stages of value creation can be substantiated: obtaining information about
the created object from the previous link and studying it, cipher “00”; divergence,
cipher “10”; convergence, cipher “11”; as well as processing information about the
created object and its transfer to next link of the chain, cipher “01”.
As it was shown earlier, either the consumer, or the supplier, or together the
consumer and the supplier can create value. The value creation option can be substan-
tiated using the following classification attributes and dichotomies: “consumer partic-
ipation in value creation” (dichotomies: does not participate, code “0” and partic-
ipates, code “1”) and “supplier participation in value creation” (dichotomies: does
not participate, code “0” and participates, code “1”) (Fig. 5).
The joint use of these attributes and dichotomies makes it possible to identify the
following options of creating values: waiting, cipher “00”, self-service, cipher “10”,
service, cipher “01”, and joint service, cipher “11”.
Using the information in Fig. 5, it is possible to track options for managing the
flows of consistently created values, taking into account their main types (Table 2).
For example, the creation of the desired value “2” is carried out by the consumer
and supplier together, the prototype of this value by the consumer, value carrier by
the supplier, and the perceived value by the consumer and supplier (in this case, the
supplier creates necessary conditions for the consumer to receive desired sensations,
impressions, and experiences). The need for value “3” has not yet arisen, which
corresponds to the waiting stage.
The consumer plays a key role in creating value. If he/she attracts suppliers to
cooperate, then the relationship between consumers and suppliers is formed to solve
Consumer participation in value creation

Does not participate (0) Participates (1)
Does not participate(0) Waiting(Wt) Self-service (Ss)

Supplier participation in (00) (10)
value creation Service (Sr) Joint service (Js)
Participates(1) (01) (11)
Fig. 5 Options of creating values for the end consumer of products and/or services
Table 2 Options for creating types of values

Options of creating values Values types
desired prototype carrier perceived
Value 1 Ss Js Js Ss
Value 2 Js Ss Sr Js
Value 3 Wt … … …
Number of problems facing the consumer

One (0) Several(1)
One (0) Task Long-term

Number of suppliers (00) relationships(10)
involved in solving problems Competition or Economically feasible
Several(1) cooperation(01) relationships(11)
Fig. 6 Variants of forms of solving value chain management problems
certain problems. The main forms of solving these problems can be established
using such classification attributes as “number of problems facing the consumer”
(dichotomies: one, code “0”, and several, code “1”) and “number of suppliers
involved in solving problems” (dichotomies: one, code “0”, and several, code “1”)
(Fig. 6).
The joint use of these attributes and dichotomies makes it possible to identify the
following options for solving value chain management problems: task, cipher “00”,
competition or cooperation, cipher “01”, long-term relationships, cipher “10”, and
economically feasible relationships, cipher “11”.
The results of solving the problem by the consumer or suppliers may be different.
It is possible to establish options for solving a specific problem in value chains on
the basis of such classification attributes as “effectiveness of solving the problem”
(dichotomies: not effective, code “0”, and effective, code “1”) and “planned deadline
for implementing the result of solving the problem” (dichotomies: came, code “0”,
and did not come, code “1”) (Fig. 7).
The joint use of these attributes and dichotomies leads to the following types of
results of solving problems in value chains: operational optimization, cipher “00”,
analysis of reasons for the inefficiency of solving the problem, cipher “01”, imple-
mentation of the result of solving the problem, cipher “10”, and waiting for the
implementation of the result of solving the problem, cipher “11”.
The information presented in Figs. 1, 4, 5, 6 and 7 and in Table 1 allows proposing
the approach to the digitalization of value chain management objects. The logic and
example of the formation of these object ciphers that ensure the use of software for
making appropriate management decisions are presented in Table 3.
Effectiveness of solving the problem

Not effective (0) Effective(1)
Came (0) Operational optimization Implementing

Planned deadline for (00) the result (10)
implementing the result Analysis of reasons for the Waiting for
of solving the problem inefficiency of the solution implementation (11)
Did not come(1) (01)
Fig. 7 Variants of the results of solving the problem in value chains

Table 3 Logic and example of the formation of ciphers of value chain management objects
Classification attribute Source Ciphers
Value chain management option Fig. 1 10
Types of value objects Table 1 0101
Stages of value creation Fig. 4 11
Options for creating values Fig. 5 11
Form of solving problems of value chain management Fig. 6 01
Variants of results of solving the problem in value chains Fig. 7 01
The cipher of the result of value chain management 10.0101.11.11.01.01
Table 3 shows the example describing a specific situation in value chain manage-
ment. The concept in the form of adaptation (Fig. 1) is characterized by the fact that
at a given time, the analysis of causes of inefficiency (Fig. 7) of value layout (Table
1) created as the result of convergence (Fig. 4) is carried out jointly with the supplier
(Fig. 5) selected on the basis of competition (Fig. 6), while the management situation
has the cipher “10.0101.11.11.01.01”. This cipher can be entered into the computer,
after which it can propose the following management decision: return to the stage
of divergence (cipher “10”) value model (cipher “0111”), abandoning the services
of the supplier (cipher “10”), issuing a task (cipher “00”) to the consumer enterprise
division in the conditions of operational optimization (cipher “00”). The cipher of
this management decision: 10.0111.10.10.00.00.
Thus, digitalization makes it possible to characterize any options and situations of
value chain management, which allows chain links to receive up-to-date information
about its effectiveness. Based on the received information, management objects can
make and implement management decisions in conditions of competition in a timely
manner aimed at obtaining desired sensations, impressions, and experiences by the
end consumer of products and/or services with the maximum degree of reliability
and quality.
5 Discussion
The results presented in this article are initially debatable. In order to reach mutual
understanding on theoretical and methodological aspects of research, it is necessary to
consider the end consumer of products and/or services as an organism that depends on
vital resources for it, and as a person who has the right to choose a particular resource
in one or another of its execution and combinations with other resources. Therefore,
in some cases, the value should be perceived as an opportunity to eliminate the lack of
something: products and/or services or monetary resources to obtain them. In other
cases, the value comes in the form of feelings, impressions, and experiences of the end
user of these products and/or services. This aspect of the study involves the use of a
set of “value” terms, ordered, for example, according to Maslow’s hierarchy of needs
[22], beginning with the term “value”, meaning human survival in the environment,
and ending with the term “value” reflecting the degree of pleasure or enjoyment from
its objects and processes.
According to the authors of the article, the discussion on the problem of value
chain management can be productive in developing a classification of the lack of
something felt by the end consumer and how suppliers can eliminate it, depending
on the state of the environment.
6 Conclusion
The following results with signs of scientific novelty were obtained in the research:
an algorithm for value chain management containing the main options and phases
of management (Fig. 1); classification of management objects by types of values of
the end consumer of products and/or services (Table 1); methodology for forming
ciphers of value chain management objects (Table 3) for the purpose of their use in
software support of management activities. The important result of the research is
the creation of an integrated chain management concept based on the concepts of
value (or novelty) chain management, demand chain management, and supply chain
management.
Taking into account different objects of chain management (values, demands,
resources), in the course of further research, it is planned to clarify the content of
the integrated value chain management system by such components as goals, tasks,
principles, functions, methods, and approaches and to establish the structure of this
system depending on trends of the external environment. Based on the obtained
results, it is advisable to work out theoretical and methodological aspects of sustain-
ability and sustainable development of various chains, while maintaining the orien-
tation of their development to create the sensations, impressions, and experiences
necessary for end consumers. In addition, the process of transformation of value
chains into networks is of considerable interest [26], which requires more complex
software support for research and management activities, discussed in this article.
Acknowledgements This article was prepared in accordance with the state task of the Ministry of
Science and Higher Education of the Russian Federation to the Institute of Economics, Ural Branch
of the Russian Academy of Sciences for the year 2022.
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3006
Artificial Intelligence Disclosures
in Sustainability Reports: Towards
an Artificial Intelligence Reporting
Framework
Enrique Bonsón and Michaela Bednárová
Abstract With the rapid proliferation of the use of artificial intelligence (AI) in
organizations over the last decade, certain concerns arise regarding human rights,
data security, privacy or other ethical issues that could be at stake due to the uncon-
trolled use of AI. However, concerns regarding transparency in the use of AI are
not yet reflected in any standards for the disclosure of non-financial information,
nor in current regulations. Voluntary disclosure of AI, being a novelty, is scarce,
implies a lack of standardization and is limited above all to the financial, technology
and telecommunications sectors. Therefore, the main objective of this paper is to
seek consensus and to propose a set of relevant elements to structure the informa-
tion on the use of AI by companies, to improve transparency, mitigate risks and
demonstrate a real responsibility in its use. For the purposes of this study, a set of
disclosure elements had been proposed based on multi stakeholder approach with
the collaboration between the New Technologies Commission of AECA and the
BIDA Observatory. The final proposal has been validated by online questionnaires
and includes a guide to the general information elements (AI governance model;
Ethics and responsibility; Strategy) as well as more specific disclosure requirements
for each medium–high risk automated decision making (ADM) systems. Thus, this
research attempts to contextualize the development of artificial intelligence reporting
standards.
Keywords Artificial intelligence · Disclosure · Standardization
E. Bonsón
University of Huelva, Plaza de La Merced 11, 21002 Huelva, Spain
M. Bednárová (B)
Pablo de Olavide University, Ctra. de Utrera, 1, 41013 Seville, Spain
392 E. Bonsón and M. Bednárová
1 Introduction
The rapid evolution of the new technologies over the last decade has brought signifi-
cant benefits to companies in terms of higher efficiency, cost savings, revenue genera-
tion, higher quality work, or increase employee satisfaction. Rapid technology adop-
tion will only continue to accelerate as its increased efficiency becomes more evident.
Indeed, intelligent automation is recently a key investment for businesses all around
the globe. The major investments flow to business process management software,
machine learning, deep learning, and robotic process automation [7].
Nevertheless, at the same time certain concerns are being raised regarding the
human rights, data security, privacy or other ethical issues, which might be at stake
when the AI is incorporated into decision making processes. In particular, disruptive
artificial intelligence tools with a high level of automation, massive data collection
and manipulation, and possible inherit biases are reasons for a wider society to worry.
Thus, proliferation of these new applications increases both stakeholders’ scrutiny
and regulatory interest. Yet, despite its significant potential risks, recently there is
no legislation put in place to mitigate the risks of AI usage by requiring companies
to be fully transparent about it. Nevertheless, some companies have already started
to respond to this request by voluntarily disclosing such information in their non-
financial report. Inspired, in part, by European Commission initiatives such as the
Ethical Guidelines for Trusted AI, published in 2019 [23], or the White Paper on AI:
A European Approach to Excellence and Trust [24] that have laid the foundations for
the European regulation of AI, Artificial Intelligence Act, published in April 2021
[25].
Over the last two decades we could have witnessed how organisations all around
the world initiated and evolved the non-financial disclosure to complete their finan-
cial statements [8]. Initially, there was the same stakeholder pressure, which required
companies to be transparent about their environmental, social and governance perfor-
mance due to possible negative impacts on the environment and society as a whole.
This further led to the development of generally accepted reporting standards such
as Global Reporting Initiative (GRI), EMAS, ISO 26000, SA 80,000, etc., which
developed guidelines and key performance indicators (KPIs) of the non-financial
disclosure. Soon after, in some countries, the legislation was put in place and non-
financial disclosure became obligatory, in particular, for large companies. The Euro-
pean Council, as one of the earliest promotors of non-financial reporting, on October
22, 2014, adopted a new Directive 2014/95/EU on the disclosure of Corporate Social
Responsibility (CSR) by large companies and groups, which modifies the previously
adopted Directive 2013/34/EU on annual financial statements, consolidated financial
statements and related reports of certain types of companies [26]. This was followed
by the publication of Commission Communication 2017/C 215/01 (Guidelines for
the presentation of non-financial reports) [22].
In June 2020, the European Financial Reporting Advisory Group (EFRAG) have
initiated work for the elaboration of possible EU non-financial reporting standards
[27]. In line with the European Commission mandate, the project Task Force on
Artificial Intelligence Disclosures in Sustainability Reports … 393
preparatory work for the elaboration of non-financial reporting standards has been
carried out based on the multistakeholder approach within the European Corporate
Reporting Lab. The main aim was to propose a roadmap for the development of
a comprehensive set of EU sustainability reporting standards. The final report was
published in February 2021 and provides 54 proposals for the elaboration of EU
non-financial reporting standards. Their objective was mainly to describe the scope
and structure of possible future sustainability reporting standards, not to set- out
specific disclosure requirements, indicators or metrics. Built upon the proposed target
standards architecture which would cover three layers of reporting (sector-agnostic,
sector-specific and entity-specific), the ESG classification (the Planet, the People,
and the Business) was recommended.
Regarding the social sub-topics, in the proposal #37, they point out that those might
range from the Human Resources management perspective, to the broader Human
Rights perspective. Thus, this disclosure should be aligned with international and EU
reference frameworks and standards, including the UNGP on Business and Human
Rights, the OECD Guidelines—and the other international declarations and princi-
ples—as well as with the Charter of Fundamental Rights of the EU. Nevertheless, a
clear articulation of what should be reported in this category remains to be further
explored and challenged. Similarly, despite that there are no specific instructions on
how to report on data privacy, this issue has been raised within the proposal #38,
related to Governance sub-topics, in particular, related to business ethics. Although
there is no specific mention regarding the AI disclosure, due to its strong relation with
the human rights and possible infringements of them, this area is worth exploring as
a possible future component of the sustainability disclosure.
On 21st of April 2021, the European Commission proposed a legal framework,
which serves as a proposal for a regulation on a European approach for AI, together
with a coordinated plan with Member States on AI [25]. The main aim is to define
rules and actions for excellence and trust in AI within the scope of a Europe fit for
the Digital Age and to guarantee the safety and fundamental rights of people and
businesses. The framework follows a risk-based approach and distinguishes four
categories of AI systems: (1) unacceptable risk; (2) high-risk; (3) limited risk; and
(4) minimal risk. Depending on the level of risk, the company would be obliged
(or not) to a certain level of disclosure. E.g., the AI systems classified in a cate-
gory of unacceptable-risk (applications and AI systems that could cause phys-
ical/psychological harm, manipulate human behaviour or exploit human vulner-
abilities, or any application that would allow social scoring or real time remote
biometric identification in public places) will automatically be banned. High-risk AI
systems would require a comprehensive risk management and to guarantee quality
of data, accuracy, robustness, traceability of results and cybersecurity. Limited-risk
AI systems will be subject to lower transparency requirements (e.g., users should be
at least aware that they are interacting with an algorithm). On the other hand, for
minimal-risk AI systems no disclosure will be required (e.g., video games or spam
filters).
Reporting on AI, being quite a novelty, implies a lack of standardisation in such
a disclosure. To standardise it, first, a consensus has to be reached on what and
how to report; what would be the key elements and what information should be
disclosed to satisfy the information needs of different stakeholders. Therefore, the
main objective of this paper is to propose and validate a set of general elements
that should be disclosed to structure the information about AI (an important part of
corporate digital responsibility—CDR); improve the transparency; mitigate the risks
and prove a real responsibility in the usage of AI.
The paper can be considered one of the first attempts to structure and standardize
the information related to AI in the non-financial disclosure context. Thus, a proposal
and an external validation of the AI reporting framework can contribute to both liter-
ature and practice. Practical implications of this paper lays in helping companies to
organize the information related to AI in a structured way focusing on relevancy.
This research can be used as a springboard for further discussion, analysis and
standardization.
2 Background
2.1 AI Disclosure Practices in European Companies
Nowadays, only few companies report on AI in their sustainability or annual reports.

The early adopters of this new form of non-financial disclosure are mostly companies
operating in financial, technological and telecommunication sector.
Recent study on AI ethical disclosures in corporate reports from 2018 and 2019
analysing IBEX 35 and DAX 30 companies shows that this type of disclosure is
in its early stage and the companies providing such a disclosure are mostly from
technological and telecommunication sector [9]. Similarly, a study regarding the
AI disclosure in the annual reports of IBEX-35 companies show that this kind of
disclosure is in a very early stage [10]. Nevertheless, the recent initiatives such as
Ethics Guidelines for Trustworthy AI issued by the European Comission (2019)
as well as the White paper on AI [24] are expected to increase the interest in AI
transparency in the upcoming years.
Another recent study on ADM disclosure on the sample consisted of 962
annual/sustainability reports of the listed companies on the Western Europe countries
(13 countries) stock markets published in 2018 and 2019 shows that ADM disclo-
sure has still a long way to go and the first adopters are mostly companies operating
in financial sector. Only 20 Western Europe companies disclosed the information
related to ADMs in their annual/sustainability reports. Main categories of ADM
disclosure that were identified in our study were: ADM for credit risk assessment
(CRA); ADM responsibility; medical algorithms and diagnostic; and other. The latter
being related to electronic sector disclosing the AI technology used in devices such
as smartphones, smartwatches or home robots. The most frequent disclosure was
related to CRA by companies operating in banking and financial services and ADM
responsibility.
Nevertheless, despite the fact that the ADM for CRA was the most frequent
reporting category, disclosure itself was rather general and there was a lack of details
on which processes are fully automated and which are just assisted by the AI.
The second most frequently reported category was ADM responsibility. However,
the way how this category was reported on shows weaknesses as well. We might
have observed different approaches in this type of disclosure. Some companies were
simply expressing general concerns regarding unacceptable effects of the decisions
made by AI or regarding future scenario when the decisions will be taken only on the
basis of some algorithm. Other companies were more specific regarding the ADM
responsibility toward the issues such as avoidance of bias and discrimination; digital
rights; or transparency that ADM is being used for personal data processing and
clients’ profiling.
However, extensive research is needed to properly explore what are the current
practices in AI reporting of large European companies, and what are the determinant
factors and incentives for such a disclosure.
2.2 Previous Studies
The studies of Mason [44] and Moor [45] were one of the first studies dealing with
the information technologies’ responsibility followed by studies focusing on ethics
in emerging IT [13, 14, 17, 29, 51].
When the AI has become an integral part of business processes, concerns related
to AI ethics started to be a topic for investigation [4, 9, 16, 28, 29, 33, 34, 36, 37, 50,
58] as well as data protection and privacy [3, 5, 12, 19, 41].
The term corporate digital responsibility is relatively new but there already are
some studies focusing on this topic [39, 42, 43]. Nevertheless, the scope of those
studies is rather narrow and there is a lack of conceptualization. On the other hand,
there is an increased attention paid to this area by professionals.
2.3 Corporate Digital Responsibility
The Institute of Consumer Policy provides the following definition of CDR:

“companies’ responsibility for the consequences of their business processes, prod-
ucts and services for employees, suppliers, customers, society as a whole and the
environment encompassing: (1) data and algorithmic decision making, (2) partici-
pation and reduction of inequality, (3) digital education, (4) future of work, and (5)
digitalization in service of an ecologic transformation” [18].
According to Lobschat et al. [43] who developed a framework of CDR culture,
organizations should be transparent about their responsibility in the digital age. Thus,
CDR should focus on the ethical aspects that are inherent to the digital context.
2.4 Corporate Digital Responsibility as a New Layer

of Corporate Social Responsibility
Although CDR has its own particularities due to the digital context [43, 54], some
authors see a clear connection between the CDR and CSR as they share the same
basic principles related to environmental and social concerns [55]. Early adopters
organizations consider CDR a complementary aspect of CSR [21, 31, 48]. Indeed,
professionals [21, 48] point out the importance of CDR to increase stakeholders’
trust in the digital world and call for extending the scope of CSR by CDR arguing
that companies have embraced the environmental and social responsibility idea but
the digital revolution has brought new responsibilities. Gärtner et al. [31] point out
the importance to adjust the way in which companies approach their responsibility
as the digitalization affects almost all aspects of our lives.
2.5 Theoretical Background (Legitimacy Theory)
As CDR can be considered a new layer of CSR [21, 31, 48], the question arises, how
the motivation of organizations to voluntarily disclose information about AI systems
could be explained.
CDR approach can increase stakeholders’ trust in digitalization [48]. As several
studies suggest that legitimacy theory may provide a satisfactory explanation of
voluntary non-financial reporting in general [6, 15, 20, 32, 35, 46, 53]; considering the
parallel between the two, legitimacy theory seems to offer a reasonable explanation
for voluntary AI or ADM disclosure [10].
Corporate legitimacy is a general assumption that the actions of a company meet
the norms, values and expectations of a society [56]. Companies need to legitimate
their practices and gain the acceptance from stakeholders in order to conduct their
business successfully [20]. Higher transparency helps to increase the trust to the
company and therefore improves its legitimacy. To gain the legitimacy, companies
should continuously adjust their disclosure practices by focusing on the most relevant
issues. By other words, they should focus on topics that raise certain concerns of a
wider society in a particular moment of time. Nowadays, such concerns are related
to the increased use of disruptive AI systems, in particular those that represents high
risks and might raise some ethical issues such as facial recognition or black box
ADMs [47, 57].
2.6 Technology Overview
Before opening a discussion about which information elements should be included

into AI reporting framework, a brief technology overview is provided.
Intelligent automation refers to the use of technology to conduct work task, those
are i.e.: Robotic desktop automation (RDA); Robotic process automation (RPA);
Visual recognition technology; Artificial Intelligence (AI). AI helps automation
evolve by combining Machine Learning (ML), predictive and adaptive models,
natural language processing (NLP) and Deep Learning (DL) as a subset of ML.
2.6.1 AI Versus Automation
While automation focuses on streaming repetitive tasks, saves time and cost on
monotonous and voluminous tasks, AI mimics human intelligence decisions and
actions. Therefore, AI technologies and processes mimic how human beings react,
speak, hear (even understand), and make decision. Machine Learning (ML) as a
subset of AI, learns from data, identifies patterns and recommend decisions without
human involvement. Deep Learning (DL) as a subset of ML, is based on artificial
neural networks which continuously learns and even adjusts itself automatically to
improve accuracy.
There is an immense variety of AI tools. Therefore, it is important to distinguish
AI that is autonomous in making decisions and learns from data on its own, but the
purpose and scope of its usage does not imply any harm or ethical issues and those,
which are highly autonomous, learn and train themselves and might imply more
harm to individuals by area where they are applied.
The first group would be AI applications such as textio, AI tool using predictive
technology to write job listings to make them sound lucrative to potential candidates.
Companies such as Twitter, Microsoft, Starbucks are using it. Another example of
so called “low risk” AI app would be conversica, which is used to manage gross
sales needs. It is an AI app that connects with the leads through automated two-way
email conversation. X.ai is a smart assistant for handling meetings; Digital Genius
is based on NLP and is able to maintain human like conversations with customers.
Intraspexion is an AI tool to prevent and warn companies against litigation risks by
regularly scanning company’s internal emails and flagging potential litigation risks
for future review. Similarly, a facial recognition app which is used for tagging photos
on the social network such as FB, does not imply any harm.
A set of indicators was proposed based on the European Commission’s White Paper
on AI—A European approach to excellence and trust (2020), Artificial Intelli-
gence Act (2021) and Digital Rights Charter—XXIII Digital rights related to AI
[52], and discussions with the BIDA Observatory and the New Technologies and
Accounting Commission of AECA. The collaboration between BIDA Observatory
and New Technologies and Accounting Commission of AECA represents a combi-
nation of business world, public organizations, regulatory bodies and academics.
Fig. 1 Respondents based

on professional profile
Management-
14% Administration
29% Consultancy-Auditing
18%
Academia
39% Other
Hence, following a multistakeholder approach. Such a proposal was later validated

by international respondents through online questionnaire.
The objective of the questionnaire (Appendix 1) was to know the opinion about
the relevance of each of the elements proposed as a guide to disclosure of information
related to the use of AI in the non-financial information statement. The respondents
were asked to rate each item on the scale 1 (least relevant) to 5 (most relevant) based
on how important they think the information might be in the non-financial reporting
context. They were also asked to add any other item they would consider relevant.
The final proposal of the elements was approved by the members of the New Tech-
nologies and Accounting Commission of AECA and the BIDA Observatory through
followed-up discussions. The questionnaires were sent in the period of January-
March 2021. In total, 44 questionnaires were responded (response rate 58.6%).
Professional profile of the respondents is depicted in Fig. 1.
4 Results
Based on the scale 1 (least relevant) to 5 (most relevant), the average evaluation
of proposed reporting items is depicted in the Table 1. As can be seen, every item
received at least 4 points on average, which implies a high relevance of a proposed
particular item in the context of non-financial reporting.
After the validation of the proposed reporting elements (all of the items are consid-
ered validated as they had obtained equal or more than 4 points on the scale 1–5) a
framework which consists of two main parts: general elements and specific ADM
disclosure was developed.
Table 1 Average evaluation

Category Reported item Evaluation
of proposed reporting item
AI governance model GM1 4.3
GM2 4.4
GM3 4.2
Ethics and responsibility ER1 4.4
ER2 4.3
ER3 4.0
Strategy S1 4.4
S2 4.1
S3 4.1
S4 4.1
ADM disclosure ADM1 4.4
ADM2 4.2
ADM3 4.3
4.1 General Elements Disclosure
When disclosing the information about AI, it is important that each organisation
first describes the context in which the AI technology is used, why and how. As AI
disclosure is rather a new trend, there is a lack of guidelines on what and how to
report. Therefore, below we provide a brief guidance on narratives related to general
elements, which we consider relevant to be reported on.
Nevertheless, there is an urgent need for internationally recognized and generally
accepted AI reporting Standards, which would represent global consensus and best
practice for reporting publicly the impacts of organisation’s AI usage. AI reporting
based on the Standards would also aim to guarantee an organization’s commitment to
fundamental rights such as freedoms, privacy, data protection and non-discrimination
while incorporating AI technology, by other words it would demonstrate its corporate
digital responsibility (Table 2).
I. Governance Model and System Control
Organisations should be transparent about how the AI is governed within the organi-
sation. Hence, the following information should be provided: what is the governance
structure; who is being held for responsible; existence of departments or commit-
tees such as data protection officer or monitoring committee; information about
continuous monitoring as well as external verification systems and processes.
II. Ethics and Integrity
Some companies might rely on international principles regarding the ethical use of
AI such as IEEE, EU, OECD, etc., while others might design their own principles or
code of ethics related to the AI usage. In this point, the organisation should provide
some information about the main ethical issues as well as mechanism for advice and
Table 2 Information about AI in the non-financial report

General elements
I. AI governance model (GM1) Governance structure, roles, responsibilities, departments
and committees
(GM2) Continuous monitoring, control and internal verification
(GM3) External verification systems or processes (of black box
ADM and high sensitive applications)
II. Ethics and responsibility (ER1) AI principles followed by the company (own, EU, IEEE,
OECD, etc.)
(ER2) Relevant ethical issues, especially in relation to sensitive
applications such as facial recognition, black box ADMs and
recommendation systems
(ER3) Mechanisms for users to receive meaningful explanations
III. Strategy (S1) AI risk and impact analysis
(S2) Relations with stakeholders, participation in organizations
and forums related to the responsible development of AI
(S3) Training activities (internal and external) on responsible use
of AI
(S4) Projects focused on meeting the Sustainable Development
Goals (SDG)
concerns about ethics regarding the responsible use of AI. Thus, the scope of AI
disclosure should be outlined starting with the list of material topics such as privacy
matters; the usage of highly sensitive apps such as facial recognition; and ADM.
In addition, there should be a contact point where individuals can direct their
queries regarding AI report as well as information about the fundamental rights of
individuals who were treated by the AI of the company.
III. Strategy
Perhaps the most relevant part in this section would be how the AI related risks
are identified and managed. Company can also report on ongoing training activities
related to responsible usage of AI and any projects focused on SDG, where the AI
plays a crucial role. Relations with stakeholders, participation in organizations and
forums related to the responsible development of AI can also be disclosed here.
Nevertheless, the most attention should be paid to the risk assessment. Some
applications such as the facial recognition might be more sensitive for a societal
approval due to various practical or ethical implications. To identify which applica-
tions implies higher risks than other, a proper risk assessment has to be conducted
and described.
Company should be transparent about in which areas of the company the AI
is being involved. Some applications might involve more ethical issues due to the
purpose they are used for, e.g., AI used in the HR, which involves decision about
humans in comparison to AI in the manufacturing. Other applications become riskier
when they are left autonomous with low or no human supervision. Thus, the purpose
of AI usage and the level of automation and independence should be considered as

relevant factors in the risk assessment.
4.2 ADM Transparency
4.2.1 Risk Assessment Following the EC Approach
After performing the risk assessment, AI applications should be categorized based

on their risk level. This way, applications with higher risk level would require more
detailed disclosure on how the data are collected, stored, and managed; how the
algorithm works; potential risks, biases and mitigation plans; strategy to ensure
transparency, auditability, explicability, accessibility, usability, trust; and verification
internal/external.
More transparency, for example, would be required for black box ADM in the
critical areas as they imply the highest potential risk.
The aim of distinguishing 4 level AI risk categories, such as the approach of EC,
is twofold, to protect individuals against negative impacts of highly sensitive AI
applications, and not cause unnecessary burden for companies which are not using
invasive AI technology.
4.2.2 ADM Disclosure
As described above, a special attention should be paid to highly autonomous AI

tools—algorithmic decision systems (ADS) also known as Algorithmic decision
making (ADM) which are based on the analysis of large amount of data to infer
correlations or to derive information to make decision. Such applications imply, per
se, potential practical and ethical concerns as the decision making is left on the
machines. Humans are error-prone and biased, but systems can be biased too. That is
why, it is important to know who built them, how they are developed and how they are
ultimately used. To avoid bias in the algorithm, it should be fed with a representative
dataset, the right model should be chosen, and the algorithm should be continuously
reviewed and monitored. Therefore, the transparency on these aspects might not only
increase the trust to the ADM but also serve as a proof of a company’s commitment
to corporate digital responsibility (CDR).
Regarding the ADM, we should distinguish between those which are rather
predictable, so with certain input we obtain an expected and repetitive output (such as
ADM in automating quality control) and those which are based on Machine Learning
(so the decision is made within a “black box”), in particular, when they might have
an impact on individual’s life. ADM processes are fed with data, which might be
biased. If there is a bias in the data the ADM is trained with, this bias would be
reinforced and amplified which ultimately leads to unfair or discriminatory decision.
Table 3 ADM disclosure framework

ADM disclosure
Automatic decision-making system (ADM) (ADM1) System description: type, input data,
transparency (of systems that may imply algorithm design, human supervision, etc
a potential risk for the subject on whom it is (ADM2) Statement that the system complies
decided) with the digital rights regulation related to AI
or, if applicable, that algorithmic
non-discrimination, transparency, auditability
and explicability of the algorithm are ensured,
as well as its accessibility, usability and
reliability
(ADM3) Verification of compliance by
independent agents
Thus, the results yield by the ADM can be discriminatory without decision-makers
to be motivated to discriminate. E.g., there might be some variables, such as gender
or race, which normally can not be taken for consideration while making a decision
but are often statistically associated with seemingly inoffensive characteristics, such
as height or postal code. As ADM works with huge datasets of correlated data, it can
lead to indirect discrimination. Therefore, individuals should have two basic rights
when the decision has been made based on the “black box” ADM, (1) right to a
meaningful explanation and (2) right to contest. Hence, companies should ensure
individual awareness of the processes where “black box” ADM has taken place, as
well as of their associated rights.
Thus, the disclosure in this section should cover basic system descriptions such as:
type of algorithm, input data, algorithm design, information if there is human supervi-
sion or not, etc. Together with the statement that the system complies with the digital
rights regulation related to AI or, if applicable, that algorithmic non-discrimination,
transparency, auditability and explicability of the algorithm are ensured, as well as
its accessibility, usability and reliability. The company can increase the credibility
of such a disclosure by having it verified by independent agents (Table 3).
5 Discussion
As CDR seems to be a new layer of CSR, we might expect certain changes in corporate
disclosure in the upcoming years [31]. Following the pattern of CSR disclosure
evolution, first we might expect early adopters, normally large corporations, which
will voluntarily disclose CDR aspects in order to legitimate their digital practices.
This will likely continue with seeking a global consensus on what and how to disclose
which would be later followed by legislation [7]. Nevertheless, while CSR disclosure
took more than two decades until the legislation was put in place, with CDR we face
higher urgency to address the risks associated due to the exponential advancements
of technology where the damage might take decades to repair, in particular, when
we are talking about the ADM.
The aim of this paper is to draw attention to an emerging trend, AI usage and
reporting, discuss the need of a global Standard for such a disclosure and contribute
to its creation by proposing the draft of general elements, which should be reported
on.
The main aim of the new Standards for AI disclosure should not be to cause more
burden on the companies to prepare their non-financial reports or to demonize the
usage of AI which can be indeed highly beneficial, but there are certain fundamental
rights of individuals that should be guaranteed. Hence, it is important to act quickly
as the negative impacts of irresponsible AI usage might take decades to correct.
The main concerns are human rights, data security, privacy or other ethical issues
that could be at stake due to the uncontrolled use of AI. Therefore, on one hand to
require from companies to be more transparent about the use of AI and on the other
hand, to provide them with a clear guidance on what and how to report might help
society as a whole to prevent undesirable events to happen. For better illustration, we
can focus on e.g., privacy, a fundamental human right, some AI are based on personal
information which has consequences for their privacy. Initiatives such as Personal
Information Protection and Electronic Documents Act (PIPEDA) in Canada but also
institutions such as EU point out the importance of privacy as a fundamental human
right, therefore, when organizations want to feed their AI tools with personal data,
they should complete so called privacy impact assessment (required in Canada) form
and perform balancing test in which they compare the necessity and proportionality
of the measure with interests, fundamental rights and freedoms of individuals. Such
transparency and accountability should help to avoid collecting data for data sake (or
even doing business with data) and to use disproportional measures (e.g. the usage
of facial recognition if other less invasive method could be applied based on less
sensitive data). Hence, the main aim of this paper is to contribute to a creation of
such an accountability tool, which would deal with this and other ethical issues that
might arise.
6 Conclusions
Given that the AI technology in a modern and interconnected world is a global

problem, global consensus based on multistakeholder approach should be pursuit.
Only this way, we as a society can guarantee the respect of fundamental rights such as
freedoms, privacy, data protection and non-discrimination while using AI technology
and benefiting from it.
This study is one of the first attempts to standardize AI disclosure by proposing
and validating the most relevant elements of AI reporting and developing an initial
AI reporting framework. Nevertheless, before closing, limitations of the study should
be acknowledged and future research outlined. Still, extensive research is needed to
properly explore what are the current practices in AI reporting of companies, and
what are the determinant factors and incentives for such a disclosure.
The proposal of the elements was validated through multistakeholder approach
by the members of the New Technologies and Accounting Commission of AECA
and the BIDA Observatory and may represent a first attempt toward the AI disclosure
standardization. Nevertheless, due to a fast evolution of AI technology, a continuous
assessment of disclosure elements should be performed.
Appendix 1
QUESTIONNAIRE: Information About AI in the Non-financial Report

The objective of this questionnaire is to know your opinion about the relevance of
each of the elements that are proposed as a guide to disclosure of information related
to the use of Artificial Intelligence (AI) in the non-financial information statement.
Please rate each item based on how important you think it might be in the non-
financial reporting context. Use the scale 1 (least relevant) to 5 (most relevant).
Your professional profile*
• Consultancy-Auditing
• Management-Administration
• Academia
• Other:
Company or institution*
Your answer
AI governance model
Governance structure, roles, responsibilities, departments and committees.
Continuous monitoring, control and internal verification systems.
External verification systems or processes.
Ethics and responsibility
AI principles followed by the company (Own, EU, IEEE, OECD, etc.).
Relevant ethical issues, especially in relation to sensitive applications such as
facial recognition, black box ADMs and recommendation systems.
Mechanisms for users to receive meaningful explanations.
Strategy
AI risk and impact analysis.
Relations with stakeholders, participation in organizations and forums related to
the responsible development of AI.
Training activities (internal and external) on responsible use of AI.
Projects focused on meeting the sustainable development goals.

For each automatic decision-making system (ADM) that may imply a potential risk
for the subject on whom it is decided:
System description: type, input data, algorithm design, human supervision, etc.
Statement that the system complies with the digital rights regulation related to AI
or, if applicable, that algorithmic non-discrimination, transparency, auditability and
explicability of the algorithm are ensured, as well as its accessibility, usability and
reliability.
Verification of compliance by independent agents.
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Economic Indicators of the Algorithm
for Introducing Artificial Intelligence
into the Automated Process Control
System
Maksim Vlasov and Anna Lapteva
Abstract The relevance of the paper is due to the digitalization of the economy and
the introduction of artificial intelligence in production processes. This paper attempts
to assess the effectiveness of artificial intelligence for the automation of production.
Thus, the purpose of the work is to evaluate the effect of the introduction of artificial
intelligence into automated process control systems. For this, an algorithm for imple-
menting artificial intelligence was developed, i.e., procedures and their sequence were
identified when implementing artificial intelligence in automated process control
systems. The following procedures were considered: selection of implemented arti-
ficial intelligence functions, selection of an artificial intelligence system, selection
of hardware implementation and acquisition of artificial intelligence, formation of
tests for artificial intelligence training, implementation of artificial intelligence, and
evaluation of results of implementing artificial intelligence. When implementing arti-
ficial intelligence, one should choose artificial intelligence based on neural networks
with deep learning. The ambiguity of the cost estimate existed when selecting hard-
ware due to the lack of data from developed artificial intelligence versions. This
complicates the definition of capital expenditures. A formula for calculating costs
of implementing artificial intelligence costs in automated process control systems
is proposed. The introduction of artificial intelligence into an automated process
control system will not provide significant savings. Such conclusions are drawn on
the basis of the calculation method.
Keywords Artificial intelligence · Automated process control system · Economic

efficiency
M. Vlasov
29, Moskovskay St., Ekaterinburg 620014, Russian Federation
M. Vlasov · A. Lapteva (B)
Ural Federal University, 19, Mira St., Ekaterinburg 620002, Russian Federation
410 M. Vlasov and A. Lapteva
1 Introduction
The fourth industrial revolution (Industry 4.0) is characterized by “the transition

to fully automated digital production, controlled by intelligent systems in real time
in constant interaction with the external environment, going beyond the boundaries
of one enterprise, with the prospect of combining things and services into a global
industrial network. Broadly speaking, Industry 4.0 characterizes the current trend in
automation and data sharing, which includes cyberphysics, the Internet of Things,
and cloud computing. It represents a new level of manufacturing and value chain
management throughout the product lifecycle” [1].
The development of technological processes at this stage is unthinkable without
the use of artificial intelligence (AI) [2]. In his study, Viskhan [3] noted the impor-
tance of AI in building a business model. Human intelligence is a property of the
psyche, which consists of the ability to understand the new environment situation,
learn and memorize based on experience, understand and apply abstract concepts,
use knowledge to manage the human environment. AI has more modest capabilities.
There are different points of view on AI. Non-experts believe that AI has human intel-
ligence, self-consciousness and can work independently. However, in practice, the
abilities of AI are due to predetermined rules and norms, i.e. AI is not an autonomous
technology that can think independently, and does not have imagination and creative
abilities. There are also many other definitions of AI. AI is a property of intelligent
systems to perform creative functions, which are traditionally considered human
prerogative. AI is the science and technology of creating intelligent machines, espe-
cially intelligent computer programs [4, 5]. Table 1 shows the general (conceptual)
definitions of AI.
The definitions given are essentially identical but differ in the terms used. Line 2 of
the table deals with software and hardware, and line 4 with hardware and software.
The difference between these points of view is insignificant. Row 3 of the table
uses the concept of intelligent agents, which implies a combination of AI and its
connections with the external environment. The external environment does not affect
AI functions. The principles of its development, training, and implementation do not
depend on the external environment. For this reason, the AI definition in line 3
appears redundant.
As a result of the analysis, the authors proposed a definition from a practical point
of view. AI is hardware and software that partially models elements or functions of
the human psyche such as: perception; memory; understanding of the subject area;
attention.
Economic Indicators of the Algorithm … 411
Table 1 Comparison of views of various authors on artificial intelligence (AI)

Author Concept Advantages of the Disadvantages of the
definition definition
Raikov [6] AI is computer Conceptual definition It is not clear from this
philosophy, computer definition how to
psychology, and implement AI
advanced computer
science
Voronovich et al. AI is the concept of Main AI capability It is not clear how this
[6] creating software and specified ability can be realized
hardware that can carry
out intellectual activities
comparable to the
intellectual functioning
of a person
Russell and AI is the design and Introduced the concept It is not clear how to
Norvig [6] construction of of intelligent implement agents
intelligent agents that agents—AI with links
perceive environmental to the environment
objects and take actions
that affect the
environment
Batyrkanov and AI is the field of More specific definition Turning to computer
Saitov [6] informatics, the purpose science complicates the
of which is to develop definition
hardware and software
tools that allow a
non-professional person
to set and solve
intellectual problems
2 Background
Today’s intelligent systems have very narrow applications. For example, programs
that can beat a person in chess cannot answer questions, etc. AI is defined as a set of
technologies for implementing cognitive tasks carried out by a person using informa-
tion processing means. These include technologies such as: computer vision; natural
language; virtual assistants; software robots, robotic process automation; neural
networks; machine learning; deep learning, and a number of other technologies.
The introduction of AI in a number of areas of human activity will allow achieving
a significant increase in GDP. The article “How artificial intelligence is used in busi-
ness: overview and cases” [7] states that the introduction of AI by 2030 will increase
global GDP by 14%, that is, approximately $15.7 trillion. According to Pricewater-
houseCoopers (PwC), an international network of companies offering consulting and
auditing services, this is more than the current total industrial production of China
and India. According to the Terata research, the vast majority of large companies
(80%) invest in AI technologies, and according to Gartner forecasts, by 2020 they

will be present in almost all new software products and services.
The sources have a lot of data on the use of AI in the financial sector and business.
The use of AI in business and in banks gives a great effect.
The main properties of AI (machine translation, speech recognition, text
processing in natural languages, computer vision, automatization of driving cars,
and much more) are due to deep learning. This is a subset of machine learning, char-
acterized by the use of models of neural networks, which can be said to mimic the
work of the brain. Any neural network model is trained on large data sets, thus it
gains some “skills”.
AI technologies are in demand in the digital economy. It is known that AI is used
in banks, for example, in Sberbank of Russia. AI can perform the following functions
[8]:
• issue all loans at Sberbank by the end of 2020; for this, AI will compare the
client’s biometric data, credit history, income, costs, and will independently make
a decision (savings on the operator’s salary and reliable loan repayment);
• Sberbank’s Online Preferences application will analyze 50 million users according
to 1000 parameters and form a package of services and information individually
for each user—frequent transfers and payments, spending statistics, etc.;
• preliminary interviews with candidates for mass vacancies are already conducted
by a robot, which asks questions depending on the situation and, if the candidate
meets the requirements, switches the conversation to a person—an HR service
employee (savings on the operator’s salary and high-quality personnel selection).
AI can also be successfully used in the fight against fraud, as chatbots and voice
assistants, in biometrics, when assessing credit ratings, for risk management. AI is
widely used in trade [9].
AI strategies should be used in business to completely transform it, and not only
in pilot projects. The use of AI for sales growth is more profitable than for reducing
costs, and the development of AI brings more benefits than the use of other people’s
technologies. It is profitable to use AI to recognize customers and transfer specialized
offers to them. For example, engineers of the Facebook laboratory for the study of
AI presented in June 2017 the results of work on a bot that can lie and bargain
with people. According to Quartz, during the training, the system used more than
5.8 thousand real human dialogues during negotiations collected using the Amazon
Mechanical Turk crowdsourcing online platform.
The introduction of AI affects the physical, socio-emotional, and intellectual
aspects of human activity, the retraining of personnel [10–12]. From these positions,
it is relevant to introduce AI into production, for example, in automated process
control systems (APCSs). AI will improve the accuracy of the processed informa-
tion and improve interaction with operational personnel. AI is used for the following
purposes: analysis of programs [13], monitoring of tool condition [14], results of
operation [15], simulation of robot systems [16], metering of devices [17].
3 Results
3.1 Purpose of the Work
The problem was identified—insufficient research in the field of assessing economic

indicators when introducing AI into technological and production processes, insuf-
ficient elaboration of the methodological apparatus for supporting each stage of the
introduction of AI into APCSs.
The purpose of the work is to identify the components of economic indicators when
introducing AI into production—into an APCS. The relevance is due to the signif-
icant spread and gradual introduction of AI into enterprises’ production processes.
In addition, the growth of digitalization, in turn, determines the relevance of the
introduction of AI as a tool that increases productivity and product quality.
3.2 Implementation Object—APCS
The study hypothesis—the introduction of AI leads to an increase in industrial

productivity.
APCSs have a hierarchical computer system. At the upper level of an APCS,
there are powerful servers that contain a mathematical model of the technological
process and all the necessary knowledge bases and databases for the operation of
expert systems. When implementing AI, these servers cannot be used. So powerful
AI-based PCs will have to be purchased separately.
At the other level, there are automated workplaces (AWSs). Using AWSs, process
operators monitor the state of the process and, if necessary, issue control commands.
Thus, a person is included in the control loop. A number of problems arise here.
First, correct and timely perception of input information by the operator. Second, a
correct decision to correct the process. Such problems can lead to disruption of the
optimal process flow until the process stops in emergency situations.
Microcontrollers and programmable logic controllers (PLCs) interact directly
with process objects. Programs in the PLC are performed cyclically with a certain
frequency. They are developed under the assumption of stable dynamic models of an
adjustable object. In modern APCSs, adaptive control systems are used, operating
according to a special algorithm.
At the lower level, there are actuators.
All layers are connected by different types of computing networks.
The implementation of APCSs allows increasing the productivity of technolog-
ical processes due to improving the quality of their management under the following
conditions: increasing production; increasing the unit capacity of equipment; use of
forced critical modes of equipment operation; complication of production processes;
increasing requirements for the quantity and quality of products produced; lack of
manpower. Implementation of process control automation has the following func-

tions: automating the receipt, collection, processing, and presentation of informa-
tion; remote control of the object; introduction of automatic regulators; coordinated
control of regulators; higher reliability of automatics operation; automating decision-
making. The listed functions in the current APCS are performed by the existing
computing means in it. These functions can be performed with high efficiency by
AI. In automation systems, the process operator has other functions: control of auto-
matics operation; monitoring of the operation of non-automated equipment and tech-
nological processes; assessment of equipment operability and quality of technolog-
ical process within the limits of regulations; process control in emergency situations,
including failures of individual automation systems. Each operator analyzes a specific
set of information for making decisions within the framework of one’s functionality.
However, in any case, all these decisions are a priori influenced by the “human
factor”, which means that they may be erroneous. The price of such mistakes can
have huge economic, environmental, and social consequences. To eliminate these
errors, it is advisable to use AI in APCSs in order to reduce the influence of the
“human factor”.
3.3 Algorithm of AI Implementation in APCSs
Stages of AI implementation in APCSs are presented in the form of an algorithm

diagram in Fig. 1. Most blocks of the algorithm are identical to the stages of devel-
opment and implementation of automation systems. The difference is the need to
form tests and teach AI.
3.4 Evaluation of AI Implementation Stages
This choice is made at the design stage of the AI-based modernization of APCSs.
It is not advisable to assign all functions to AI in the current APCS, since many
functions in such systems are already performed by conventional computing tools.
The following statement is based on the assumption that AI implements part of the
APCS functions.
In the known APCSs, the traditional approach to modeling was implemented,
assuming the completeness and accuracy of knowledge about the process. This
approach is practically not applicable in the consideration of complex multifac-
torial processes, which in general are difficult to formalize. The complexity of real
processes leads to the search for unconventional methods for building their math-
ematical models and optimizing their management. At the same time, not only the
aspect of optimal control is very important but also the aspect of analyzing the current
state of the process, since it is the conclusion about the current state of the process
that allows choosing the optimal control in a given situation. Such analysis can be
Beginning
Selection of implemented AI functions
Selection of AI system
Hardware implementation selection and AI

acquisition
Building tests for AI training
Machine learning Refine tests
Has the training been

successful?
Yes
AI implementation or AI commissioning
Ways to improve AI
Evaluation of results from AI implementation
implementation results
Has the implementation

been successful?
End
Fig. 1 Diagram of the algorithm for introducing artificial intelligence in an APCS
performed by AI on the basis of a system of structure-flow-multilevel recognition of

the technical state of the process in real time [18].
For the initial processing of incoming information, it makes no sense to use
AI, since the known processing algorithms cope with this task. Verification of data
may involve more complex analysis. APCSs use very simple algorithms such as
permissible range control. However, the operator includes multifactor solutions for
data verification. In this case, the operator takes into account not only the values but
also the dynamics of the indicators. In such situations, a person relies on a complex
model, including knowledge not only about the measurement process but also about
the object and its model, and if the task is to replace a person with AI, it is necessary
to teach it that way.
The next function is signaling, that is, estimating the deviation of the parameter
from the set range, both by values and by their rate of change. To replace a person here,
AI must take into account the causal communications in the process and operation
of the equipment and, on their basis, conclude the root cause of the alarm, and then
make an appropriate decision.
The next function is emergency protection. In an APCS, it is performed automat-
ically without human participation, using rigid algorithms that fully reflect techno-
logical regulations and regulatory document installations. Here, possible uncertainty
through the use of AI is an unacceptable risk. However, if one teaches AI to verify
the data and replace it with reliable ones, then at this stage there will be a significant
reduction in the number of false shutdowns, and, therefore, losses from downtime and
restart. The use of even the simplest AI algorithms for data verification demonstrates
the effect of reducing the number of false stops by 5–10 times.
The function of automatic regulation is the most difficult for AI, because, despite
repeated attempts to use smart algorithms, including neuroregulators, regulators with
fuzzy logic, etc., so far “smart” algorithms have not found wide application. At the
same time, the request for the implementation of this function is increasing, since
there is a shortage of highly qualified regulators in the market.
A classic PID controller is good when regulating stationary objects, however, if
the properties of the object change, the problem arises of calculating new optimal
values of adjustment coefficients. Here, a specialist in the maintenance of automatic
control systems is required. This competence requires a lot of practical experience
and an accumulated knowledge base, as well as time. It is known that there are a
number of attempts by both foreign and Russian companies to create software for
automatic adjustment of regulators, where coefficients are read by classical mathe-
matical methods. After implementation, such regulators are turned off due to a lack
of qualified specialists with knowledge of the theory of automatic regulation. Such
professionals are in manufacturing companies, but customers do not have them.
Thus, there is a problem that AI completely replaces a person—a specialist in
setting up automatic control systems. To do this, one may need to adequately model
the behavior of a very experienced regulator tuner. However, the emergence of
systems of “smart” adjustment of regulators based on other logic is likely.
The next function is remote control. In today’s reality, it is carried out in some
cases by a person who independently makes appropriate decisions to turn on or off the
equipment, to change the position of the actuators, and so on. There is a huge influ-
ence of the so-called “human factor”, which leads to tens and hundreds of thousands
of erroneous decisions, the result of which is damage, in some cases catastrophic.
Such situations are eliminated by the use of a digital advisor or digital assistant.
Its functions are: intelligent monitoring and analysis of process and equipment flow;
creation of appropriate messages for users (in natural language); monitoring and anal-
ysis of personnel actions; warning about possible adverse situations caused by failed
operator decisions; development of tips on correct sequential operations, including
with non-automated equipment and in emergency situations (for example, in case of
emergency situation elimination); recognition of the operator’s speech and execution
of his/her commands.
The digital advisor should be self-taught and constantly develop its skills in control
and interaction with the operator, which can implement AI. In the case of fast-
flowing technological processes, automation of decision-making is necessary, since
the operator will not be able to provide control of such processes.
The cost of this phase corresponds to the cost of the project work. The duration
of the stage is several months.
It is advisable to choose an AI system in the form of a neural network. Algorithms
of neural networks operation are formed during training [19, 20]. Neural networks
are used to solve complex problems, for example, recognition of geometric shapes
or clustering of objects. The genetic approach is based on the idea that a certain
algorithm can become more effective if it borrows better characteristics from other
algorithms (“parents”). A relatively new approach, where the task is to create an
autonomous program—an agent that interacts with the external environment, is called
an agent approach. There are several main, basic directions in the development of AI,
but at the moment, the most effective algorithms are based on CNNs (convolutional
neural networks) and RNNs (recurved neural networks). A CNN is a unidirectional
(non-backward) multi-layer network that is excellent for working with data such as
images and videos, where the data is placed in the form of a grid of pixels. In turn,
an RNN handles sequential data such as text and audio well. A CNN is called a
“forward network”, and an RNN is called a “feedback network”.
AI properties: hearing, speaking ability, vision, and predictive intuition are based
on the use of both networks (CNN and RNN), as well as natural language processing
technologies that complement each other. For example, Intel processors imple-
ment computer vision [21–24]. Intel technology allows creating solutions based
on computer vision. The Intel vPro® platform provides performance, built-in secu-
rity, and remote management capabilities to keep major computing devices running
smoothly. Scalable Intel® and Xeon® processors deliver high-performance machine
learning and deep learning in the cloud and have built-in features to accelerate AI.
Similar technologies are used in Alexa, Siri, Google Now, Cortana, and other
intelligent voice assistants.
The cost of this phase is included in the cost of the project work.
The main component of AI is a powerful personal computer (PC)—a worksta-
tion—with means of connecting to computer networks. However, the computing
equipment existing in the APCS is loaded with the solution of its problems and is
not suitable for the implementation of AI on it.
The difference between neural networks of three or more levels is not known,
which excludes conscious choice. In APCSs, the number of information sources is
thousands. These sources are divided into clusters.
The hardware implementation should be chosen by the number of output neurons,

assuming that ten outputs form the address of the device and ten outputs form the
command. The exit price is determined by
Pe = Chi /Nout , (1)
where Pe is the exit price; C hi is the hardware implementation cost; N out is the number
of output neurons in this hardware implementation.
Input neurons receive signals from sensors.
The cost of this stage is determined by the price of the workstation and special
programs. The duration of the stage is insignificant.
It is a sufficiently voluminous and expensive procedure. It is used to train neural
networks. It is necessary to draw up tests with AI reactions based on the results of
the analysis of possible situations.
The cost of this phase corresponds to the cost of the project work. The duration
of the stage is significant.
Machine learning according to the generated tests by the method of reverse error
propagation occurs according to the following algorithm: after processing the data,
the network compares its result with the desired one and transmits information about
the deviation from it back to all layers of neurons. Now it is used in many types
of neural networks, and it was practically not recognized before Hinton. Given the
speed of computing, this procedure does not take much time.
The cost of this stage and the duration of the stage are insignificant. The check
is performed on tasks other than test ones. If more than 95% of the tasks are solved
correctly, then the training was successful. Otherwise, one should refine the tests and
repeat the machine learning process.
To implement AI, it is necessary to carry out installation work by connecting the
output ports of AI to the necessary devices. This work is long enough and painstaking.
After such works, it is necessary to check the operation of AI. The cost of this step
is significant. The duration of the stage is several months.
It is impossible to assess the effectiveness of AI implementation in intelligent
APCSs in a general form. Let us try a pretentious assessment. Suppose that the
introduction of intelligent regulators increases control accuracy by 3% in all circuits.
This leads to a decrease in resource costs in the i loop Resi. Assume that the APCS
has N control loops. Resource savings will be

N
N
Pec = 0.03 · Peci = 0.03 · Peci = 0.03 · Pec , (2)
i=1 i=1
where is Pec total resource consumption. In practice, all N regulators will have
different values for improving control accuracy. As a result, the savings will not look
so impressive.
Table 2 Costs of
Item of expenditure Designation
implementation of an
intelligent APCS Design works of the system Dw
Purchase of equipment Pe
Purchase of the software product Ps
Installation works Iw
Adjustment A
Machine learning Ml
Consider another aspect of implementing intelligent APCSs. More accurate main-

tenance of the technological process management mode leads to an increase in the
quality of the product and a decrease in its cost. It is impossible to predict how an
increase in its quality will affect the price of products. This is determined by the
market. Reducing costs will increase the income of the enterprise until the rest of the
enterprises reduce their costs.
The digital advisor will be able to ensure that the process is conducted in an
optimal manner. This will lead to saving resources, improving the quality of the
product, reducing its cost. However, assessing these effects is difficult.
Implementation of intelligent APCSs is associated with high financial costs, which
are listed in Table 2. These costs are compensated for the payback period during the
operation of the system by raising the price of the output product.
The introduction of an intelligent APCS allows reducing the staff of process oper-
ators but will require the recruitment of specialists in AI operation. The introduction
of an intelligent APCS, at the same time, leads to a reduction of emergency outages.
Improving the quality of products leads to an increase in the price of products. Opti-
mization of technological progress allows producing products with less energy and
resources.
As a result, the introduction of AI in APCSs will lead to the following savings
per year:
S = Ro · Spo + Ed · Cd + Sr · Cs + Api · −Ns · Sas

− (DW + Ps + I w + a + Pe)/Pp. (3)
where Ro is the number of reduced process operators; Spo is the annual salary of
reduced process operators; Ed is emergency downtime per year; Cd is the cost per
unit downtime; Sr is savings on material and energy resources; Cs is the cost of
saved resources per year; Ns is the number of AI specialists accepted; Sas is the
annual salary of accepted AI specialists; Api is the added price from product quality
improvement; Pp is the payback period.
The component calculated by the formula:
Ro · Spo − Ns · Sas, (4)

at a certain ratio of its members is zero. The main economic effect of AI imple-
mentation is mainly determined by the member Ed·Cd. However, the use of modern
SCADA systems reduces operators’ input of unacceptable data and commands, which
reduces the time of emergency downtime. Thus, it follows from Formula (3) that the
introduction of AI in APCSs will not provide significant savings.
The effect of improving the quality of products is not included here, since the
degree of increase in the price of such high-quality products is not known and how
much such a product will be in demand by consumers. Also, the following factors
are not taken into account:
• losses due to the presence of uncompensated harm from aggressive man-made
formations and a decrease in the benefit of benign man-made objects caused by
the imperfection of the management system;
• losses related to possible loss of an APCS as a result of aggressive action of the
external environment of man-made formations;
• losses related to possible loss of an APCS as a result of the aggressive influence
of the external environment of man-made formations;
• losses due to increased fuel or electricity consumption due to a suboptimally
selected control strategy.
Resource savings affect the indicator of cost-effectiveness of investment implemen-
tation, since, in addition to positive changes in the activity of the facility, the costs
of creating APCSs are reduced.
By the APCS cost-effectiveness R is meant the ratio of the financial assessment P
of the expected changes in the activity of the facility to the assessment of the expected
costs C for the creation of an APCS:
R = P/C. (5)
4 Conclusion
A practical definition of AI has been proposed. The main emphasis in this definition
is on functions implemented by AI.
An algorithm for introducing AI into APCSs has been developed. Such a scheme
is applicable when introducing AI in various industries. Stages of its implementation
have been identified, making it possible to evaluate the implementation in terms of
financial (it is possible to calculate the work of each stage) and time costs.
It is difficult to assess the effect of improving product quality and reducing losses
from downtime and accidents when implementing AI without specific data on the
cost of equipment, software product, test development work, AI training, installation,
and adjustment of the system. The introduction of AI in the current APCSs will not
provide significant savings in the short term. In the long term, the economic effect
can be expected from improving product quality and reducing downtime in case of
accidents due to the exclusion of the human factor from the control loop.
Identification of the sequence of procedures in the algorithm of AI implementation
into the current APCSs made it possible to carry out an estimated calculation of the
cost and efficiency of such an implementation process. Unfortunately, known AI
publications indicate numbers about the effectiveness of implementing AI without
deciphering how to achieve such values.
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Integrating a Project Risk Model
into a BI Architecture
Marco Nunes , António Abreu , Jelena Bagnjuk, Célia Saraiva,

and Helena Viana
Abstract In today’s unpredictable and disruptive business landscape organizations

face challenges that severely threatens their existence. To efficiently respond such
challenges organizations must craft strategies to become more data-informed, agile,
adaptative, and flexible. Integrating dynamic data analytical models in organizational
structures to collect, analyze and interpret business data, is critical to organizations
because it enables them to make more data-informed decisions and reduce bias in
decision-making. In this work is illustrated the integration of a heuristic project
risk-model used to identify project critical success factors into a typical organiza-
tional business intelligence architecture. The proposed integration enables organi-
zations to efficiently and in a timely manner identify project collaborative risks by
addressing people, environment, and tools, and generate actionable project-related
knowledge that helps organizations to efficiently respond business challenges and
achieve sustainable competitive advantages.
Keywords Industry 4.0 · BI architecture · Digital transformation · Project risk

management · Artificial intelligence · Machine learning
M. Nunes (B)
Project Management Department, Tetra Pak, Wilhelm-Bergner-Straße 9c, 21509 Glinde, Germany
A. Abreu
Polytechnic Institute of Lisbon, and CTS Uninova, 2829-516 Caparica, Portugal
J. Bagnjuk
Project Management Department, UKE (University Medical Center-Eppendorf), Martinistraße,
20251 Hamburg, Germany
C. Saraiva
Department of Informatic Engineering, UTAD-IST, Quinta de Prados, 5000-801 Vila Real,
Portugal
H. Viana
Commodity & Services Buyer at Supply Chain Department - BorgWarner,Lugar de Salvaterra,
Lote 1, 4925-432 Lanheses, Portugal
424 M. Nunes et al.
1 Introduction
To efficiently respond today’s challenges organizations should become more data-

informed, adaptative, and flexible. To do this, organizations can act in three different
interrelated dimensions—(1) people, (2) environment, and (3) tools. In the people
dimension organizations should implement effective working cultures that increase
productivity and reduce costs, by addressing behavior and leadership [1, 2]. Effec-
tive leadership develops empowerment and commitment leading to a more customer
centric and a better customer experience across an organization’s mission, vision,
and values [1, 2]. In the tools dimension organizations should develop and imple-
ment processes, frameworks, and procedures to increase productivity, quality, safety,
and customer satisfaction while keeping a sustainable way of working [1, 2]. Tools
such Agile methodologies, Six Sigma, Lean Management, Design thinking, Brain-
storming, WCM (world class manufacturing), Total Quality Management, Balanced
Score Card, Flow Tree Diagrams, Cost Benefit Analysis—just to name a few—, have
been helping organizations to become more efficient and sustainable.
Today, computers, internet of things, artificial intelligent, machine leaning
(industry 4.0) are redefining human experience at an incredible pace, providing new
solutions and unlocking secrets of the universe [3–5]. From self-driving cars to diag-
nosing diseases, from sorting photographs to flying planes, from optimizing crop
yields to predicting climate patterns, today’s computing platforms are advancing the
human experience in a positive and unpredictable way [3–5].
The advances in the data science field provides organizations analytical tools to
run their business more efficiently [3, 4]. Analysing data such as Big Data (which
defined as a huge amount of diverse data being generated at a high speed [3]) with
artificial intelligence (AI) and machine learning (ML) tools and techniques such as
data reduction, clustering, classification, association, regression, and mining [5], is
becoming more critical in the decision-making processes [3]. By analysing data using
methodologies such as CRISP-DM or SEMMA frameworks [4, 5], organizations
can identify hidden patterns, trends and relationships that reveal unique knowledge
regarding business in several dimensions [3–5].
Nevertheless, if not properly managed, analysing data can be challenging and
ultimately lead to misleading decisions [3–5]. To efficiency collect and analyze busi-
ness data, organizations need a networked structure that interconnects the different
organizational departments. This can be achieved through the implementation of a
Business Intelligence architecture (BI) [3, 4]. For example, research shows that BI
architectures are responsible for predicting over 70% accuracy in online marketing
campaigns [6]. In the environment dimension—which it refers not only to the nature
of mother earth but also where organizations exist and operate -, are of critical
importance to organizations [7, 8]. These include how organizations position them-
selves in the market, analyze and understand the different customer’s needs, develop
local and global strategic business plans, integrate different working cultures, predict
how disruptive changes may affect well-established business models, organizational
structures, sustainability, circular economy, just to name a few.
Integrating a Project Risk Model into a BI Architecture 425
Focusing on the tools dimension, is proposed in this work the integration of a

heuristic project risk-model used to identify project critical success factors (the POL
model [9]) developed based on three key pillars ((1) project management, (2) risk
management, and (3) social network analyses) into an organizational BI architec-
ture. The proposed integration creates a dynamic learning system that generates
actionable knowledge to improve decision-making processes and helps organiza-
tions to successful drive their digitalization process as suggested by several research
[3, 4, 7].
2 Literature Review
2.1 Project Risk Management in Organizations
Project risk management can be defined as the application of knowledge, skills, tools,
and techniques to project activities, to meet project requirements across project life-
cycle [9]. Some authors define project management as risk management in projects
[8, 10]. However, regardless of how well an organization is equipped with tools and
techniques, delivering projects always comprise risks (threats and opportunities). In
projects, risk is an uncertain event that, should occur, will have an effect (positive
or negative) on the achievement of one or more project objectives impacting scope,
quality, schedule, costs, and resources [30]. Project risks may include event risks
(an event that has not yet happened, but if it does it will impact on project objec-
tives), variability risks (number of known possible outcomes but one knows exactly
which occur), ambiguity risks (uncertainties that emerge from a lack of knowledge
or understanding which may include new technology, market conditions, competitor
capability or intentions, etc.), emergent risks (known as “Black Swans” cannot be
seen or predicted because they are outside a person’s mindset which usually arise
from disruptive inventions or products), collaborative risks (arise from the different
behavioral patterns of project stakeholders across a project lifecycle) [8, 10].
Project management is important because it helps to see project risks as potential
critical success factors [8–10]. A popular standard that helps to manage risk in organi-
zations and interprets risk as critical success factors is the ISO 31000:2018 [11]. This
standard comprises a set of eight well-defined steps ((1) establishing scope, context,
and criteria, (2) risk identification, (3) risk analysis, (4) risk evaluation, (5) risk treat-
ment, (6) record and reporting, (7) communication and consultation and finally (8)
monitoring and review) that aim the creation of value by effectively identifying and
managing project risks.
426 M. Nunes et al.
2.2 Social Network Analysis in Organizations
Social network analysis (SNA) can be defined as the application of graph theory to
study entities dynamic interactions within a network [8, 10]. The application of SNA
is critical to identify hidden problem-solving, advice, and trust networks—just to
name a few—, which are responsible for how the work gets done in organizations [8,
10]. In Fig. 1 are illustrated the eight key steps ((1) identify an important group, (2)
assess actionable relationships, (3) map relationships, (4) visually analyses results,
(5) quantitatively analyze results, (6) follow up, (7) implement actions, and (8) assess
progress and effectiveness [8]).
In step 3 is illustrated a typical organizational network where entities are repre-
sented by colored dots representing different departments and the respective links
between them that represent choices or preferences with different intensities (levels
L). By mapping such interactions that may arise from the assessment of SNA strategic
surveys it can be identified critical actors as for example E8 in Fig. 1, where it has
a very central role within the organizational social network. The key location of E8
can be either visually identified or by the application of SNA centrality metrics based
in graph theory.
Graph theory is a mathematical structure that is used to model pairwise rela-
tionships between entities such as persons, organizations, departments and so on,
that contribute to quantitatively explain how social structures evolve across time,
and how they impact the environment where they do exist [12]. Centrality quantita-
tively describes how centralized or de-centralized a network structure is regarding the
structural location of the several entities that exist within the network [36]. Centrality
metrics include in-, out-, and total-degree, betweenness, closeness, density, just to
name a few [10], and are a measure of importance, influence, prestige, control, and
Fig. 1 Typical SNA assessment

prominence that will influence coordination and decision-making in an organiza-

tion [8, 10, 12]. Business intelligence (BI) can be defined as a set of strategies and
technologies used by organizations to analyze business data [13].
2.3 Business Intelligence in Organizations
A BI architecture comprises systematic processes and technologies, that acquire,

transform, and analyze business data from both internal and external environments,
into valuable, actionable, and meaningful business insights that organizations can
use to understand past, actual, and future business trends such as consumer behavior,
collaborative initiatives outcomes—just to name a few—, and improve decision-
making processes [13]. BI comprises many interrelated dynamic components such
as data science, data mining, machine learning, big data, data analytics, business
analysis, systems engineers, risk management, programming, just to name a few
[10, 13]. Although several literatures show the countless benefits of a BI architec-
ture, research argues that such benefits are not always clear, essentially due to the
application of non-efficient metrics [13].
A typical organizational BI architecture as has four major stages and requires an
organizational interconnected network of communication where data from diverse
organizational areas is easily accessed [10]. In stage 1 data from diverse organi-
zational areas such as sales, finance, HR, engineering, marketing, and so on, is
collected and stored into dedicated data bases. In stage 2 collected data undergoes
a ETL process which consists in extracting, transforming, and loading data into a
major data warehouse. In this process data is cleaned and prepared to be analyzed.
In stage 3 data loaded in the warehouse will be analyzed by the application of busi-
ness analytics tools and techniques based on statistics and mathematics. Finally in
stage four, results will be analyzed and correlated with business outcomes too help
in organizational decision-making processes.
One of the most important components of a BI system is the business analytics
(BA). BA can be defined as a continuous and iterative exploration of past business
performance [11]. BA is the component of BI that analyses collected data in the
search for patterns and unique insights. One popular technique used in BA is the
data mining, which is a circular process that continues to improve data analysis
across time, finding problems and testing solutions [10, 11]. Data mining techniques
include CRISP-DM or SEMMA [4]. Data mining can have six different analysis
types where three are related with the analysis of the past and three related with
the analysis of the future. They are: (1) descriptive (explains what happened), (2)
exploratory (explains what is going on), (3) explanatory (explains why it happened),
(4) predictive (predicts what will happen), (5) perspective (explains what to do) and
(6) experimental (explains how well it will work) [10, 11].
428 M. Nunes et al.
3 Integration Process of a Process of a Project Risk-Model

into a BI Architecture
The heuristic project risk-model to be integrated into a BI architecture is named as

POL model and is divided in two parts as illustrated in Fig. 2 [9].
In part 1 the model will analyze delivered successful and unsuccessful projects
searching for repeatable dynamic behaviors that are associated with success and
failure outcomes. The model quantitatively measures dynamic behaviors comprised
in five relational data dimensions ((1) communication and insight, (2) internal and
cross collaboration, (3) know-how and power sharing, (4) clustering, and (5) team-
work efficiency) by applying SNA centrality metrics developed based on graph theory
[9]. In part two the model uses identified repeatable behavioral patterns to guide
ongoing/upcoming projects and estimates an ongoing project outcome likelihood by
calculating the deviation between an ongoing status and a desired status. In Fig. 3 are
illustrated in grey color the typical components of a BI architecture (data sources,
master data management, data warehouse, analytics, and reporting) and in blue color
the integration process of the heuristic risk-model—the POL model into the typical
organizational BI architecture.
The BI architecture illustrated in Fig. 3 provides the heuristic risk-model the
structure for the flow of project related information across the different stages of the
analysis for both, part 1 and part 2 of the model. In part 1 of the model the objective
is to identify project critical success factors. For this it is necessary to either have
Fig. 2 The POL model functioning principle, adapted from [9]

Fig. 3 Integration of the heuristic project risk-model into a typical BI architecture
delivered project data from successful and unsuccessful delivered projects available
or initiate the collection process as projects are being delivered.
The process goes as follows.
First (1), relational data from a substantial number of delivered projects is collected
through surveys, observational, or logs (emails, chats, and others).
Second (2), collected data is loaded in a dedicated database for the POL model.
Third (3), loaded data undergoes a ETL (extract load and transform) process
which consists in cleaning and treating relational data. Here a first validation is done
regarding the suitability of the data go to the next stage.
Fourth (4), treated relational data will allocated in a matrixial form and loaded
into a data-warehouse where it will be the source for the next stage.
Fifth (5), data in the warehouse will be analyzed through the application of BA
tools and techniques. In this step, several SNA centrality metrics such as degree,
in-degree, out-degree, betweenness, closeness, among others, are applied to the rela-
tional data to quantitatively measure the dynamic interactions of project people across
the different phases of a project lifecycle captured in project meetings, mails, and
surveys.
430 M. Nunes et al.
Sixth (6), once the calculations have been executed, the results may be displayed
in bar, circular, spider or other chart types, and in network diagrams (graphs). Results
illustrated in charts are quantitatively characterize the structure of the different project
social networks. The results illustrated in a network form (graphs), show the mapping
of organizational relationships that are the mirror of the mix of formal and informal
dynamic relationships between project stakeholders across the different phases of a
project lifecycle. Both, charts, and networked results, are vital to the next step where
decisions are to be taken. This concluded part 1 of the POL model. In part 2 of the
POL model, once project critical success factors have been identified, these will be
used to guide ongoing/upcoming projects.
Here (7), it starts the decision-making process. Function of the results obtained in
the ongoing projects managers take decisions to align ongoing dynamic behavioral
patterns with the critical success factors, if needed.
Eighth (8), once decisions have been agreed it is vital to implement them in the
most efficient way possible. In this step, it will be measured and monitored to which
direction a project (ongoing project) is heading to (success or failure).
Ninth (9), once ongoing projects are delivered all the produced project relational
data will be collected and associated to the respective project outcome—successful
or unsuccessful. This data then goes to the POL database (2) as new input data which
will refine the whole process comprised by parts 1 and 2 of the model.
4 Conclusions, Implications and Further Developments
The proposed integration in this work illustrates how organizations can efficiently
automatize their processes connecting different departmental areas in the search for
critical success factors. This in turn enables organizations to save time, resources
and increase accuracy as they apply the heuristic risk-model [9].
4.1 Academic Implications of the Integration
The proposed integration contributes to the development of the three pillars that
support the POL model. In the project risk management dimension, the proposed
integration enables to gain unique insight into the project dynamic relationships
across the different phases of a project lifecycle regarding common projects risks
as proposed by [14, 15]. The application of SNA centrality metrics in an automated
way in the BA stage, contributes to a more efficient development of existing and new
social networks analysis centrality metrics as a critical tool in the identification of
project critical success factors.
4.2 Managerial Implications of the Integration
In a managerial perspective the proposed integration helps organizations to have and

efficient 360° view across the interconnection of the different organizational areas
[15–17]. It enables to identify and refine in an automated way project critical success
factor across the different phases of a project lifecycle. Consequently, organizations
can make more, better, and timely decisions more supported on data while relying
less in best guesses and gut feelings and eliminating or minimizing bias. This in turn
improves performance which contributes the achievement of sustainable competitive
advantages and is fully aligned with the industry 4.0 environment concepts.
The integration of the model into a BI architecture provides organizations an
efficient tool to develop their digitalization process. It provides organizations a set
of competitive advantages that can be translated by the optimal management of
organizational resources, becoming thus more resource-management sustainable and
promoting alignment with the 17 UN Global Goals and the three major components
of sustainability—people, planet, and profit [18]. This fact provides organizations
and their customers a higher sense of awareness regarding a sustainability mind-set,
which is translated into a more profit for organizations which according to research
can increase revenue up to 20% [17, 19]. Furthermore, the proposed integration in
this work in the long-term functions as a supervised machine learning model in the
identification of project critical success factors.
As for future works it is suggested that more research on the collecting data
methods that minimize bias to capture information that flows in other communication
channels such as phone calls or corridor meetings.
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Impact of Digital Transformation
on Labor Productivity Growth
in the Manufacturing Industry in Russia
Olga Romanova and Alena Ponomareva
Abstract Modern information and communication technologies are the essential

factors in the transformation of the industrial sector of the Russian economy. The
purpose of the article is to assess the impact of digital change on labor produc-
tivity in the industrial regions of Russia. We hypothesize that in the new reality the
digital transformation of industry is becoming an independent factor in labor produc-
tivity growth. Scientific works of Russian and foreign researchers in the field of the
digital economy, the efficiency of industrial production, factors in labor produc-
tivity growth constitute the methodological basis of the study. The authors use the
methods of structural-logical and statistical analysis, as well as linear regression
modelling. The information base included data from industrial and regional statis-
tics, indicators of government programs and sectoral strategies. The paper reviews
modern research in labor productivity and total factor productivity and determines
the differentiation of regions and federal districts of Russia in terms of labor produc-
tivity. Furthermore, the authors clarify the set of indicators characterizing the total
factor productivity, analyze indicators of industrial regions’ digital development and
digital expansion. Finally, the study establishes a statistically significant relationship
between the most critical hands of industry digitalization in the regions and the level
of labor productivity. The study shows that the high rates of digital transformation of
industry in modern conditions can solve such fundamental problems as increasing
labor productivity and improving the population’s well-being.
Keywords Digital transformation · Labor productivity · Industrial regions
O. Romanova (B) · A. Ponomareva

A. Ponomareva
434 O. Romanova and A. Ponomareva
1 Introduction
The modern world is distinguished by a variety of new technological, institutional,

socio-economic trends. A common feature of the technologies underlying them is
digitalization of all processes. Fundamental changes occurring due to the introduction
of digital technologies determine the “digital transformation” of the industry, that
is, qualitative changes on this basis of business processes, ways of carrying out
economic activities, established formats of interaction between participants in value
chains. During their implementation, such modifications allow obtaining a variety
of socio-economic effects.
In current conditions, the impact of the economy and industry’s digitalization on
the efficiency of socio-economic and production systems’ functioning is increasing.
In our opinion, digital transformation is, on the one hand, a necessary prerequisite, and
on the other, a driver for improving production efficiency due to an increase in labor
productivity. Our research hypothesis is that the digital transformation of industry
in a new reality is becoming an independent factor in labor productivity growth.
Today, however, the capital-labor ratio, human capital, and total factor productivity
are considered the key factors influencing labor productivity growth. The last factor
is identified by different authors not only as total factor productivity (TFP) [6, 16,
22] but also as total productivity of factors (TPF) [8], multifactor productivity (MFP)
[26]. Oftentimes, these indicators are viewed as synonyms and interpreted simply as
the “technology level”. In addition, TFP can be defined as an indicator reflecting the
overall efficiency of production factors or, in Acemoglu’s interpretation, the relative
technological level of a country’s development [3].
Although TFP is interpreted as a technological level, in reality, this indicator
includes, in addition to technology, a large number of different factors. Among them
are the quality of the capital used, management quality, employment organization,
and all types of infrastructure. Of particular importance is the institutional environ-
ment that determines the quality of economic life regulation, the system of legis-
lation, etc. Frequently, TFPs consider factors such as export activity, market share
and access to new markets, R&D expenditures, innovations, primarily technological
innovations, as drivers of labor productivity growth. The set of these factors is deter-
mined by the purpose of the research and the availability of reliable information. In
addition, it is essential to take into account that TFP is a very volatile and dynamic
parameter. Therefore, the significance of the indicators that form it and the set of
these indicators itself is far from being constant.
Therefore, it seems appropriate to consider the digital transformation of industry
not as one of the factors in the TFP but as an independent, key factor that determines
the growth of labor productivity, which is the purpose of this article. The article sets
the following objectives: to review research in this area; analyze labor productivity in
the industrial regions under study; and identify the impact of industrial digitalization
in these regions on labor productivity growth.
Impact of Digital Transformation on Labor Productivity … 435
2 Literature Review
Labor productivity, as well as total factor productivity, is the subject of numerous

studies. It is important to note that the Russian economy’s productivity problem is
analyzed both at the level of individual companies [7, 8, 14, 18, 22, 24] and regions
[8, 20, 22]. It is essential to analyze productivity by considering the characteristics
of resource or non-resource regions [12, 13, 17, 20].
At the international level, there is also the practice of analyzing the total factor
productivity for the resource and non-resource parts of the economy [26]. Thus, more
than a threefold excess of labor productivity in the non-resource part of the German
economy compared to Russia is explained by 38% of its higher capital-labor ratio
and by 58%—by the level of technology, that is, TFP. The higher level of human
capital in Germany accounts for only about 4% of labor productivity. Similar data
characterize the lag of Russia in terms of labor productivity from the United States.
It is 34% due to an excess of the capital-labor ratio of the American economy by
3.2 times in comparison with the Russian one and by 65%—by a higher level of
technology, that is, TFP, which exceeds the domestic indicator by 2.3 times [26].
Thus, in terms of the influence of human capital on labor productivity, Russia is
actually on an equal footing with both Germany and the United States.
Almost threefold lag of Russia in labor productivity in the non-resource part
of the economy is also noted compared to such countries as Canada, Norway and
other developed countries of the world. Such a lag is explained by a 35% lower
level of capital equipment and a 65% lag in the SPF [25]. Similar conclusions can
be drawn from cross-country comparisons of productivity levels per hour worked.
Currently, there is an almost threefold lag of Russia from the developed countries
in this indicator. Moreover, it has persisted over the past 30 years. For example,
in 1992, labor productivity per hour worked in the domestic economy was 34% of
the corresponding hand of the United States. By the end of the second decade of
the twenty-first century, it reached 36.5% (increased over this period by only two
percentage points) [18].
Some works investigate the dependence of GDP per capita on labor productivity.
For example, for high-income countries the World Bank has set the threshold value
of GDP per capita at 12,535 dollars. The corresponding indicator in Russia is about
80% of this value. But if back in 2010 Russia outstripped, for example, the PRC
in this indicator by 2.5 times, then, according to the IMF (in current prices), in
2020 in China, the GDP per capita indicator turned out to be higher than in Russia
($10,582 and $9972, respectively) [1, 13, 25]. Comparison of these indicators in the
Russian and foreign economies, identification of differences in the levels of well-
being between countries allowed us to conclude that the lower labor productivity in
Russia determines its lagging behind developed countries in terms of the population’s
standard of living and economic development [5, 23, 27].
A particular aspect in the study of productivity is associated with the possibil-
ities of lending to industrial companies in crisis conditions, particularly during a
pandemic. One of the numerous structural problems of the Russian economy is the
problem of a high proportion of low-productivity firms that are unable to catch up

with leading firms in productivity [7]. Firms’ productivity is not only a significant
factor in terms of GDP growth, but, as the situation during the pandemic has shown, it
is also a decisive factor in the availability of credit. The studies presented in [9, p. 133]
confirm that banks in a crisis prefer to issue loans to more productive companies. The
authors obtained this conclusion based on an analysis of labor productivity calcu-
lated as the ratio of proceeds to employees for more than 352 thousand enterprises.
A positive correlation between the level of productivity and the size of an enterprise
was confirmed. It was shown that more productive and large enterprises more often
use credit resources in their activities [26]. The government maintains a lending
structure aimed at supporting companies with high productivity potential. It is these
companies that are capable of acting as drivers of recovery growth. Modern research
confirms this conclusion [11]. At the same time, although there are numerous studies
into identifying and solving problems of increasing labor productivity, there are very
few works considering digital transformation as a critical factor in increasing labor
productivity.
3 Regional Labor Productivity
The above differences in labor productivity between countries were revealed when
comparing data at the aggregate level. But the average values are influenced by the
economic structure and the prevalence of a particular industry within each country.
So, Russia is characterized by the highest labor productivity in the extractive sector,
which is due to a long period of favorable conditions for its products and high natural
rent in profit. A significant differentiation of labor productivity is observed in Russia,
both between individual sectors of the economy and subjects. The main factor of
such differentiation is the differences in the regional economy structure, determined,
first, by the ratio of the extractive and processing industries [10, 15]. The country’s
manufacturing industry in the passport of the National project “Labor Productivity”
is classified as a primary non-raw material sector of the economy. The analysis of
labor productivity in this industry is of significant interest, confirmed by the literature
review above. The magnitude of this indicator, defined as the ratio of revenue to the
number of employees, is equal to 4.76 million rubles on average in Russia per person.
But labor productivity in manufacturing industries of the constituent entities of the
Russian Federation differs significantly. It ranges from less than 0.1 million rubles in
the Republic of Ingushetia up to 134.69 million rubles in the Chukotka Autonomous
Okrug.
Following the current level of labor productivity [19], we have divided all subjects
of Russia into four groups (Table 1), in each of which the top 5 regions are marked.
As seen from Table 1, 55 constituent entities of Russia, or 65.4% of their total
number, have a labor productivity of less than 4 million rubles per person, which
is lower than the national average. A significantly smaller difference in the level of
average labor productivity in the manufacturing industry compared to the constituent
Table 1 Distribution of Russian regions by labor productivity in manufacturing, 2019

Annual labor productivity, mln Russian regions
rubles/person Quantity % Top-5 regions in the group
Over 10 4 4.8 Chukotka Autonomous Okrug,
Magadan Oblast, Yamalo-Nenets
Autonomous Okrug, Khanty-Mansi
Autonomous Okrug-Yugra
From 4 to 10 25 29.8 Kamchatka Krai, Moscow City,
Kaliningrad Oblast, Leningrad Oblast,
Krasnoyarsk Krai
From 3 to 4 18 21.4 Irkutsk Oblast, Sakhalin Oblast,
Republic of Khakassia, Chelyabinsk
Oblast, Samara Oblast
Less than 3 37 44.0 Saratov Oblast, Udmurt Republic,
Smolensk Oblast, Kursk Oblast,
Primorsky Krai
entities of the Russian Federation is observed when comparing this indicator across
federal districts (Fig. 1). Here, the maximum labor productivity in the Northwestern
Federal District is 5.91 million rubles per one employed with the minimum level of
this indicator in the North Caucasian Federal District—1.18 million rubles. That is,
labor productivity in the federal districts, in contrast to the constituent entities of the
Russian Federation, differs by only five times.
The sample of objects for further research is limited to 18 regions in the GRP
structure of which the share of manufacturing industries exceeds 28%. These are the
so-called industrial regions. As noted above, the critical factors in labor productivity
growth are the capital-labor ratio, human capital, and TFP. In a very rough approxi-
mation, the quality of human capital can be assessed under the share of the employed
in the constituent entities of the Russian Federation with higher education.
Western Federal District

Central Federal District North
Ural Federal District
Siberian Federal District
Volga Federal District
Far Eastern Federal District
Southern Federal District
North Caucasus Federal District
0 1 2 3 4 5 6
Fig. 1 Average labor productivity in the manufacturing industry by federal districts, million rubles
[19]
A preliminary qualitative analysis of these data shows that labor productivity

in 9 industrial regions, which make up half of the total number of the territories
analyzed, exceeds the same indicator for Russia as a whole from 1.1 to 1.7 times.
However, the situation is different in the regions under study with the ratio of labor
productivity indicators and the share of the employed with higher education. The
percentage of specialists with higher education in none of the regions exceeds the
average Russian value of this indicator, lagging behind it in the range between 0.6
and 9.6 total percentage points. Using the method of paired regression modelling
makes it possible to more clearly establish the influence of capital-labor ratio and
the share of the employed with higher education. That is, in our case, as an indicator
characterizing the quality of human capital on labor productivity in the regions under
study.
18 regions of Russia with a predominance of the manufacturing industry in the
economy are the subject of research. The choice is related to the purpose of the
study, i.e., to assess the impact of the digital transformation of industry on labor
productivity growth in this industry sector. The method of regression analysis is
widely used to study various aspects of the socio-economic state of regions, as well
as to identify the reasons for lagging behind or advancing in development in certain
areas. In particular, the method of constructing paired linear and nonlinear equations
is applied in the regional economy to determine stable patterns of change in the
socio-economic indicators of regions and the degree of their mutual influence.
The regression analysis results (Fig. 2) indicate that the influence of the quality
of human capital on regional labor productivity is statistically insignificant. This
outcome can be explained, first of all, by the incomplete consideration of the compo-
nents of human potential that affect labor productivity in industrial regions. This
conclusion actualizes the need for a deeper review of the role of TFP in ensuring
Labor productivity,
9 million rubles/person Labor productivity,
9 million rubles/person
8
8
7
7
6 6
5 5
4 4
3 3
2 y = 1.1839x + 1.8186 2 y = 0.2083x – 1.0504
1 R² = 0.5285 1 R² = 0.0608
0 0
0 2 4 6 8 20 25 30 35
Capital equipment, Percentage of the employed with
million rubles/person higher education, %
Fig. 2 Influence of capital-to-labor ratio and the share of employees with higher education on labor
productivity in the manufacturing industry of industrial regions
the growth of labor productivity in the regions under review. For this purpose, we
analyzed some of the available components of the total factor productivity:
• Total costs of innovation;
• Investments in fixed assets of manufacturing industries;
• Used advanced production technologies;
• Issued patents for inventions and utility models.
Data on these factors are given in the statistical book [2, 19]. The construction of
paired linear regressions made it possible to assess the influence of the listed factors
on labor productivity growth. Significant positive correlations are observed when
analyzing the following dependencies: labor productivity and investment in fixed
assets (0.77), labor productivity and advanced production technologies (0.63). Thus,
the statistical insignificance of the influence of innovations costs on labor produc-
tivity growth has been established. This can be explained from the state’s position
of the Russian economy, far from the technological frontier. The latter is understood
as the maximum achievable volume of output at certain costs of production factors.
Obviously, in the Russian economy, which is characterized as far from the technolog-
ical frontier, there is no direct relationship between innovation and labor productivity
[21]. This situation is typical for not only Russia but many countries, determined by
the level of technological development and the structure of the national economy [4].
4 Digitalization of Industry in Industrial Regions
The performed literature review made it possible to establish the special significance
of the digital transformation of industry in the context of the new reality. But, as
noted, there is very little research in identifying the impact of digitalization on labor
productivity. Therefore, confirming the above hypothesis, indicators of digital devel-
opment of industrial regions were formed, and their effects on labor productivity
were determined (Table 2).
To assess the influence of the factors listed in Table 2, we used the method of
paired linear regression (the dependent variable is labor productivity). A statistically
significant relationship between the digitalization index and labor productivity has
not been established, which was the basis for constructing paired regressions for
individual indicators of the digital development of industrial regions.
Sufficiently significant positive correlations were obtained when analyzing the
following dependencies: labor productivity and special software for managing auto-
mated production (0.60), labor productivity and used CRM, ERP, SCM-systems
(0.56), labor productivity and broadband access to the Internet (0.51), labor produc-
tivity and costs of introducing and using digital technologies (0.59). Some results of
the regression analysis are shown as an example in Fig. 3. The performed calculations
confirm the relevance of digitalization of manufacturing industries from the stand-
point of the influence of this process on the growth of labor productivity. However,
it should be borne in mind that there is a significant digital gap between the studied
Table 2 Indicators of digital development of industrial regions, 2019 [2, 19]
440
Regions Business Labor productivity, Capital equipment, Organizations and enterprises using in work (%) Costs for the
digitalization million rubles per million rubles per Automated CRM, ERP, SCM Broadband implementation and
index person person production internet use of digital
management technologies,
million rubles
Russia 31 4.76 2.29 16.5 20.5 86.6 2,316,831.4
Vladimir Oblast 24 3.24 1.46 14.5 19.1 91.6 4726.3
Kaluga Oblast 26 7.48 3.68 19.4 23.7 87.7 4818.2
Lipetsk Oblast 25 6.79 4.12 15.4 18.9 91.0 5716.9
Ryazan Oblast 25 3.39 2.16 15.6 20.6 85.6 3366.2
Tula Oblast 24 4.74 3.01 18.5 23.0 85.3 6427.9
Yaroslavl Oblast 26 3.19 2.52 18.6 25.1 90.7 4390.3
Vologda Oblast 25 6.83 3.80 16.5 18.2 93.7 8674.6
Leningrad 26 8.28 6.38 18.5 23.2 89.6 6748.1
Oblast
Novgorod 25 3.46 2.49 22.5 25.6 86.6 1957.6
Oblast
Republic of 27 5.20 2.54 19.1 21.2 87 20,802.7
Bashkortostan
Mari El 28 2.73 0.98 15.2 16.5 86.9 3197.3
Republic
Perm Krai 26 5.15 2.85 26.2 28.3 89.7 19,087.0
Kirov Oblast 29 2.10 1.42 15.7 16.3 91.3 4823.0
(continued)
O. Romanova and A. Ponomareva
Table 2 (continued)
Regions Business Labor productivity, Capital equipment, Organizations and enterprises using in work (%) Costs for the
digitalization million rubles per million rubles per Automated CRM, ERP, SCM Broadband implementation and
index person person production internet use of digital
management technologies,
million rubles
Nizhny 24 4.56 2.37 17.7 23.6 92.3 24,009.3
Novgorod
Oblast
Sverdlovsk 22 5.05 2.76 18.0 22.7 89.6 33,326.7
Oblast
Chelyabinsk 28 3.77 2.30 18.8 23.5 86.8 16,536.7
Oblast
Krasnoyarsk 25 8.08 2.77 15.2 17.9 86.1 16,890.4
Krai
Omsk Oblast 25 7.57 2.11 13.4 17.3 88.6 5291.9
Impact of Digital Transformation on Labor Productivity …
441
Labor productivity in the region, Labor productivity in the region,

million rubles per person per year million rubles per person per year
6
6
5
5
4 4
3 3
2 2
y = 0.0001x + 2.6959
1 R² = 0.6015 y = 9E-05x + 2.7421
1 R² = 0.5645
0
0 5000 10000 15000 20000 25000 0
0 10000 20000 30000 40000
The number of enterprises using
software tools for automated The number of enterprises using
production management CRM, ERP, SCM systems
6 6
5 5
4 4
3 3
2 2
1 y = 3E-05x + 2.7812
1 y = 0.0002x + 2.6659
R² = 0.5112
R² = 0.6342
0 0
0 50000 100000 150000 0 5000 10000 15000
The number of enterprises using Advanced production technologies
broadband Internet access used, pcs
Fig. 3 Influence of digital development factors on labor productivity in the manufacturing industry
of the regions
industrial subjects of the Russian Federation and between them and other regions that
form the manufacturing industry as a whole. In addition, the existing lag of Russia
in the development of digital technologies, which, according to various experts, is
about 5–10 years, significantly reduces the role of digitalization as a critical factor
in increasing labor productivity.
5 Conclusion
The manufacturing industry plays a unique role in the Russian economy. It has been
established that the new digital solutions used here for managing production systems
allow solving a wide variety of tasks, the most important of which is the growth of
labor productivity.
The review of studies in the field of labor productivity at the level of individual
industrial companies and regions of Russia made it possible to systematize the
existing practice of analyzing the total factor productivity, including the resource
and non-resource part of the economy.
A cross-country comparison of labor productivity indicators revealed a significant
lag of Russia, which determined its lag in terms of GDP per capita. An essential
differentiation of the level of labor productivity across the regions of Russia has
been established. The indicators of labor productivity and its determining factors in
the industrial regions of Russia were analyzed.
The study made it possible to establish a positive correlation in analyzing the
dependence of labor productivity in industrial regions on the capital-labor ratio;
investments in fixed assets used advanced production technologies. The influence
of innovations costs and the share of the employed with higher education in indus-
trial regions turned out to be statistically insignificant. The article highlights the
indicators of digital development of industrial regions to determine their impact on
labor productivity. Significant positive correlations were obtained when analyzing the
effect on labor productivity of the number of enterprises in industrial regions using
special software for managing automated production, CRM, ERP, SCM-systems,
and broadband Internet access. According to the estimates of the Higher School of
Economics, it is digital transformation, consistent with our estimates and the stated
hypothesis of the study, that will increase labor productivity in the manufacturing
industry by 20.2% (cumulative) until 2030 [1].
The relevance of the digital transformation of industry is determined not only
by the fact that it is a driver of growth in labor productivity. Digital transforma-
tion is of particular importance for raising the status of the industrial regions under
consideration because the quality of the digital environment in modern conditions
is becoming one of the critical factors of living comfort in a particular region. Here,
the most dynamic, innovative-thinking, highly professionally motivated part of the
population flocks, capable of effectively developing the digital environment in the
region. Only high rates of digital transformation in modern conditions can solve
such fundamental problems as boosting labor productivity growth, improving the
well-being of the population, implementing decarbonization of the economy, and
increasing the country’s competitiveness in the world market.
Acknowledgements The article was prepared with the financial support of the RFBR, project No.
20-010-00719 “Modeling the processes of cross-industrial networking in the industrial complex
based on hybrid technologies”.
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Trends, Factors and Guidelines
for the Development of Human
Resources for Industry 4.0
Daria Mikhalkina and Anastasia Nikitaeva
Abstract Human resources have proven to be a determining factor in the implemen-

tation of Industry 4.0. This is because the digital transformation of society critically
depends on mental attitudes, behavioral patterns, motivational attitudes, the specifics
of different generations, and the qualification and competence of people. In light of
this, research shows the mutual influence of Industry 4.0 and human resource devel-
opment. It has been proven that demographic trends, as well as technological trends in
conjunction with trends in the transformation of the labor market under the influence
of digitalization, have a significant impact on the search for approaches and methods
of human resource development adequate for new conditions. This paper substanti-
ates the importance of taking into account the differentiation of generations to create a
new digital reality and adapt to it. Based on the identification of key factors of human
resource development, the study identifies methods and development techniques of
human resources in the context of Industry 4.0 at the organizational level.
Keywords Human resources · Industry 4.0 · Digital transformation ·

Differentiation of generations · Employee competencies
1 Introduction
Currently, the success of the Fourth Industrial Revolution and the associated achieve-
ment of the digital transformation of society depend on the connection between a
new reality and a new mentality. Industry 4.0 (as a core strategic representation of the
Fourth Industrial Revolution) is associated with technological breakthroughs, inte-
gration of the physical and digital world, and cutting-edge technologies in the digital
economy. Despite this fact, its actual implementation depends on people and not
technology. Finding appropriate human resources for Industry 4.0 is not an applied
D. Mikhalkina (B) · A. Nikitaeva

Southern Federal University, 88, M. Gorkogo St., Rostov-on-Don 344002, Russian Federation
A. Nikitaeva
448 D. Mikhalkina and A. Nikitaeva
but a fundamental research issue that determines the strategy and tactics of digital
transformation. It is the transformation of public consciousness that is the engine of
the new industrial revolution.
The transformation of public consciousness is connected to the search for answers
to numerous questions: is stability more important than change; are modern tech-
nologies hostile or an inevitable simplification of everyday life; what is the social
norm; what is acceptable and what is not; what are the ethical boundaries of arti-
ficial intelligence, etc. The answers to these questions directly affect the scale and
success of digital transformation and the transition to new industrial development.
Evidently, the exploration of trends, factors, and guidelines for the development of
human resources under the conditions of Industry 4.0 is becoming more relevant to
research.
Human resources are not a monolithic mass. Each generation has a specific attitude
towards the future, political regimes, the conjuncture of the economy, the hierarchy
of public life, etc. Based on this thesis, it is becoming more important to discuss
the global changes related to digitalization and look for solutions to the problems of
creating modern technologies and adapting to them through specific strategies and
mechanisms to the development of human resources, taking into account generational
differentiation. Jorge Luis Borges wrote: “Yesterday’s man is no longer the same as
today” [4]. This quote not only describes the problem of a person’s inner perception
of him/herself but also generally touches on the issue of generations.
It is also necessary to take into account the trends of socio-economic and tech-
nological development, which helps to further determine the opportunities for the
improvement of human resources development in Industry 4.0. Therefore, modern
research also considers demographic, technological, digitalization trends, and trans-
formation of the labor market. It is advisable to benchmark from developed countries
as a model example in this case. Developed countries can be considered as a refer-
ence point and an example of the development patterns that other countries are likely
to adopt in the future. This is also true for revolutionary technological changes. In
a particular time frame, everyone lives in the same year and in the same historical
stage. The concept of “lag” in progressive development is no longer connected with
the “isolation” concept, since digital technologies take individuals out of the system
of hierarchies and into horizontal networks of interaction. This interaction is typical
for digital generations. However, there is a question about the readiness for new
forms of social communication and interaction with people and technologies for
older generations. A related research question is—what actions should be taken to
develop human resources in Industry 4.0, taking into account the above factors.
Thus, on the one hand, the success of Industry 4.0 depends on the develop-
ment of human resources. On the other hand, Industry 4.0 itself leads to changes
in human resources, approaches, and ways of their development. With this in mind,
this paper aims to study the factors, trends, and guidelines for the development of
human resources in the conditions of Industry 4.0.
Trends, Factors and Guidelines for the Development … 449
2 Literature Review
The concept of Industry 4.0 has appeared relatively recently—there is only a decade
of research concerning the relevant issues [8]. Economics, along with other fields of
knowledge, has shifted the focus of studies towards the end-to-end digitalization of
the economy and a new technological revolution [26]. This scientific work is based
on studies devoted to economic digitalization research and Industry 4.0, reflecting
on the transition from digitalization to digital transformation, changing societies and
the structure of relations in society [3]. Research on changes in the labor market,
trends, and digitalization links with different generations are also considered [14].
An analysis of various scientific sources made it possible to draw several conclu-
sions. The development of human resources in the professional plane is directly
related to the issues of the formation of qualified workforce. In modern realities, the
need for employees who can create and apply high-tech technologies in their work
or learn this quickly is an organizational function. Accordingly, organizations face
several skill alignment problems. They need to change the trajectory of employee
training and retraining, design new workspaces, organize the high-quality imple-
mentation of work associated with employee interaction with computer technology.
The availability of the relevant human resources competence profiles is a trigger for
a company’s development, stimulating the active introduction of Industry 4.0 tech-
nologies, including industry-specific ones, robots, Big Data, the Internet of Things—
everything that modifies, transforms, and accelerates production processes [7]. The
introduction and scaling of modern technologies require adaptation for employees
[20].
Modern technologies are not only appropriate to use to improve the efficiency and
productivity of labor. They also allow the creation of new formats of human interac-
tion with machines. This helps to improve the adaptation to digital technologies by
the older generation. It can also be achieved, for example, by the organization of a
pleasant workplace, a working atmosphere, an emphasis on self-development, and
employee autonomy [12].
Thus, human resource development should be expanded to the formation of strate-
gies and methods for creating comfortable working conditions in the organization,
especially in the digital aspect [25]. This includes professional development, hiring,
training, and retention mechanisms. The practice of human resource management
is redirected to maintaining an environment of high qualifications and a high level
of knowledge [11]. Despite a large number of publications in the designated subject
matter, the research of these issues remains insufficient and requires further study. To
a large extent, this is due to the novelty of the trends and conditions accompanying
Industry 4.0 and the importance of finding ways to develop human resources that are
adequate to these trends and conditions. Existing scientific papers usually consider
either the issue of human resource development in Industry 4.0 in the context of
generations or age groups, or in the context of changes in the labor market under
the influence of digitalization, or in terms of organizations’ reactions to the changes
taking place. This paper aims to study the relationship of trends, factors, and guide-
lines for the development of human resources for Industry 4.0. The study covers
external and internal factors of human resource development in a new organizational
context, which is also its significant distinguishing characteristic.
3 Methods
In order to uncover the problem of human resource development in the context

of digital transformation in the economy, a literature review was conducted using
databases such as Web of Science (WoS), Elton B. Stephens Company (EBSCO),
Scopus, and Google Scholar.
The research selection process is shown in Fig. 1.
The systematic analysis consisted of reviewing publications mainly no older than
2018 (earlier sources were considered in terms of studying the impact of digitalization
on different generations and age groups).
Articles in English and German were analyzed as the term Industry 4.0 originated
in Germany where strategies of the new industrialization are being successfully
implemented [13].
Initially, research was conducted for combinations of keywords from selected
subject areas. When formulating keywords for the search, the issues of human
resource development in Industry 4.0 in the context of generations, demographic
and technological trends in their connection with the transformation of the labor
market, digitalization of labor in organizations were taken into account.
Keyword search on
SCOPUS, Web of Science, EBSCO, and Google Scholar
907 articles
Elimination of duplication of publications
First screening: Title and abstract
153 articles
Second screening: Full-text

33 articles
Final Sample
Fig. 1 Research selection process

Based on this logic, content analysis, categorical analysis, comparative, and evolu-
tionary analysis were further carried out, making it possible to identify particular
trends, factors, and guidelines for the development of human resources in the context
of Industry 4.0.
4 Results
Digitalization is associated with the transformation of society and directly related to

the transition from the “Old” world to the “New” one. That is, from a hierarchical
system (SPOD—Steady, Predictable, Ordinary, Definite) to a decentralized (network,
chaos) system VUCA (Volatility, Uncertainty, Complexity, Ambiguity) [28].
Technological trends in the context of digitalization are [28]:
• digitalization of all life spheres,
• Internet of Things and Internet of everything,
• Big data, machine learning and artificial intelligence,
• transition to the digitalization of personal space,
• development of bio- and neurointerfaces,
• automation and robotization.
The aforementioned trends lead to the automation of cognitive work, changes in
the structure of professions, quantitative and qualitative characteristics of human
resources.
Digital reality gives birth to “a new person”. This new kind of person is faced
with complex and dynamic changes in their surrounding world. It is much more
difficult for them to make decisions. This is made lucid by the example that earlier,
the most important decision for a person was the choice of a profession. This decision
was made once and forever. In the realities of the modern information society, it is
necessary to constantly study, develop one’s skills and competencies, retrain, that is,
to deal with the problem of choice again and again [6]. Now a person is constantly
in the flow and must be able to navigate permanently changing situations. Digital
consciousness destroys the usual, traditional guidelines and values, but at the same
time, no obvious new ones have been formed. The problem of digitalization is the
development of personnel, human capital, what to teach, and how to teach. In modern
realities, where everything changes so quickly, it is hard to achieve an understandable
goal, and the team, human resources are the most relevant tools for achieving long-
term goals.
At the same time, the formation and development of human resources are
influenced by more general demographic trends [19]. These include [32]:
• population decline—especially in Russia, according to experts, it will continue
until 2024–2025. To the greatest extent, this is felt in the field of recruiting, since
the number of applicants is not excessive;
• aging of the population—the median age is 45 years, and 69% of the population
have secondary special and higher education;
• an increase in life expectancy from 65 years in 2000 to 73 in 2019. This leads to
an increase in the age at the workplace;
• by 2025, generation Z (born in 1997 and younger) will make up about 25% of the
total workforce;
• reducing the importance and relevance of the experience of older generations.
These trends lead to the fact that in addition to the aging of the population, the number
of young, digital people in the workplace is also increasing, and the mechanism for
managing this category of human resource is still questionable. In this regard, a
difficult management situation occurs, as it is impossible to find a unified model
of human resource development. It is necessary to link the trends of digitalization
and their impact on human resources with the general concept of the transformation
of society. Society is inexorably changing, and this does not only refer to constant
progress, but each stage of change is associated with a transition factor closely related
to and implemented by a specific generation.
The theory of generations was developed by Strauss and Howe in 1991 and was
first mentioned in their joint publication “Generations: The History of America’s
Future, 1584–2069” [10]. It describes generational cycles by the example of the
United States of America and is also actively interpreted for various countries and
social groups. By itself, this theory is ambiguous. Critics, for example, David Brooks
[5], Diana Gomez [9], and Jonathan Alter [2], mostly note that this is not a scientific
justification of the patterns of changes in society, but rather a generalized horoscope
prediction filled with stereotypes. Nevertheless, the concept of allocating generations
to analyze the effects of digitalization on human resources is relevant and acceptable.
The concept of “a generation” implies a group of people born in a certain period
and possessing a specific, similar set of values that have developed during the process
of socialization, so the conditions, external externalities are the same [10]. The term
“generation echo” is also defined. It is the group of the population formed at the junc-
tion of the transition from one generation to another. The conflict between generations
is not only related to age characteristics but is based on differences in values. There
are a lot of interpretations of the names of generations, as well as time intervals to
which certain generations belong.
It is already becoming clear that if strategies for adapting to the digital environment
of older generations are not developed, this will lead to an increase in digital inequality
and several negative effects. Moreover, research shows that there is a digital divide
not only between generations but also between different socio-economic groups of
older adults [22]. Furthermore, the digital generation perceives the new reality in
a completely different way, constructing it rather than adapting to it. At the same
time, even children who are prone to interact with smart devices may not trust the
information they receive [31].
In addition to demographic trends, it is important to note new trends in the labor
market caused by Industry 4.0 [32]:
• the norm of life has become remote employment of the population and freelancing;
many IT companies prefer to transfer employees to remote employment, which
allows companies to reduce costs, and employees receive additional preferences
in the form of convenience. However, there are also limitations: without the skills
of self-organization and time management for employees, this mechanism will be
a failure. Freelancing as a form of employment is also growing;
• due to the increase in information and its accessibility, education is being trans-
formed, this is due to the technologies of remote interaction. This changes
self-education, technologies, approaches, and focuses in education;
• platform solutions (Uber, YouDo, etc.) connecting service providers and
consumers without intermediaries. This allows people to switch to self-employed
mode;
• the disappearance of traditional professions, and the formation of new ones under
the category of “Knowledge”, that is, those professions that are not supported by
algorithms, but are based on skills;
• globalization of demand for a number of the most popular professions (basically
it concerns the IT sphere);
• polarization of qualifications—demand for human resources categories of
“Knowledge”, decrease in demand for the category of “Skills”;
• high rate of productivity changes, their complexity, and novelty;
• general complication of all professions and branches of knowledge.
Thus, it is important to note changes in competencies, but also the complexity of the
profession as a whole. For example, just 10 years ago, such a profession as a Web
designer was a single one in this segment, and by 2021 it had transformed into about
20 new professions (Fig. 2).
Fig. 2 The tendency to complicate professions by the example of the profession of a Web designer
[32]
This indicates that the labor market is shifting, and the problem of human resource
development is expanding.
Based on the trends described above, the definition of the problems of Industry 4.0,
and the connection of the theory of generations with the transformation of society,
it is advisable to note that the complexity of political, social, and business structures
in modern realities tends to reach the limit, the point of bifurcation.
The system is in a near-critical state, and at any moment, the “phase transition”
can occur—an irreversible change. Nassim Nicholas Taleb, who analyzes the impact
of random events on the global economy, in his book Skin in the Game: The Hidden
Asymmetries in Daily Life [27] notes that in the digital world, it is possible for a
person to adequately assess the situation and perceive the growing difficulties only
by risking everything and “putting his skin on the line”. All the risk and responsibility
must be assumed, not to be afraid to act. The transformation of a human resource
is a risk and efficiency; they are inextricably linked, since only by venturing to
master new technology, change a profession, one can talk about a human resource
transformation, of its consciousness and view of the digital world.
Therefore, to form new strategies for the development of human resources, it
is important to assess the factors of effectiveness. These include the influence of
expertise and the influence of personality.
The first aspect includes knowledge in a specific professional field, the ability
to apply it to solve professional problems, i.e., hard skills. The second aspect is
the influence of personality—ways of actions, behaviors that ensure effectiveness
outside the professional context—soft skills. The modification of the competence
of human resources is primary since knowledge and information that was relevant
5 years ago may be considered outdated today. The general knowledge system has
remained relevant, but the specifics of implementation have changed—long-term
goals are not set, effectiveness is needed for a particular task only at present. Narrowly
focused specializations are emerging and manual labor is transformed into automated
labor. It follows from this that basic competence is the willingness to learn, master
new knowledge, digital skills are key competencies, and specialization has been
transformed into a narrower one that requires in-depth expertise. It is also important
to “raise” ready-made experts, but it is much easier to do this than to retrain. In turn,
to form an effective human resource management mechanism, it is necessary to focus
on “new” expertise, which will include such new management principles as: trust,
engagement, teamwork, culture of space for experiments and mistakes.
At the same time, different strategies and tools are required for the formation of
digital competencies [15].
This analysis shows that professional competencies are becoming less important.
The focus shifts to the modification of people, a systematic understanding of the
professional field on the part of the employee—the basic laws, relationships, and
solutions. It is all connected exclusively with people and working with them without
formal guidance.
The following basic competencies of the digital economy were formulated in the
SHL 2019 research [24, 28]:
• Continuous learning and innovation—the ability to adapt, learn quickly and

innovate.
• Insights—when creating ideas, analytical and logical skills, critical thinking are
required.
• Networking is the ability to build productive relationships, collaborate, and
influence others.
• Perfection of execution—determination and consistency of actions when working
on a task.
Within the framework of the World Economic Forum, the following Industry
4.0 skills were highlighted: complex problem solving, critical thinking, creativity,
people management, coordination with others, emotional intelligence, judgment and
decision making, service orientation, negotiation, cognitive flexibility [32].
It is necessary to create a culture of innovation that will involve all categories of
generations in the process of digitalization of human resources. Two problems need
to be solved: how to overcome the reluctance to develop; how to form a willingness
to put into practice all that one has learned.
It is important to understand that people do not want to change. The transformation
of competencies is possible only through the process of self-awareness on the spot.
Attitudes hinder transformation and adaptation to new realities, especially for older
generations of the population. Figure 3 shows a schematic structure of stereotypical
human behavior in this sense.
Habitual behavior
reinforces existing
attitudes about oneself
CHANGES
Personal experience
Attitudes support the
creates attitudes towards
existing behavior
self-image
Fig. 3 The structure of stereotypical behavior

The implementation methods of this manipulation include the evaluation of human

resource activities, receiving critical feedback, introspection on the part of the indi-
vidual of his/her weaknesses and strengths, areas for development. As a solution at
the organizational level, a number of measures can be taken and such tools can be
used [30]:
• Conducting introductory courses, lectures for employees—determining the prob-
lematization of what one has to work with during the management process of
multi-generational human resources.
• Evaluation of participants in the process of digitalization and modernization of
the organization and workflow. This includes dynamic aptitude tests, professional
and personal questionnaires, and motivational questionnaires.
• Analysis of the results of this assessment, the formation of quantitative and qualita-
tive reports. These are reports such as “aptitude test profile”, “potential assessment
report”, “recommendations on development tactics”.
These solutions can be used both for the main human resources and for reserves.
This is due to the fact that it is necessary to raise and develop personnel inde-
pendently, and by forming a reserve base, one can be confident in the long-term
effectiveness of the organization. So, the use of such tools will allow one to identify
and assess:
• the level of “striving to achieve goals”—an assessment of the desire for
professional development, career growth, achievement of ambitious goals;
• competencies—assessment of readiness to effectively solve work tasks in
conditions of great responsibility, complexity, and uncertainty;
• potential level: moderate level of potential—formation of a development recom-
mendation for the current position; high level—development both in the current
role and in the future; very high level—complex developmental tasks are needed.
The determination of the level of one’s potential consists of an assessment of the
indicators of “striving for achievements” and “average level of abilities”. Based
on the evaluation results obtained, it is more possible to conduct group feedback
with a team, plan for an individual course of human resource development, form a
group training track for participants with high and very high potential (the result at
the moment). This includes project activities and forming a personnel development
system (the result is aimed at the future).
5 Discussion
The study showed several results. It is necessary to pay attention to new needs in
professions, competencies, and the working environment to determine priorities for
the human resources development for Industry 4.0. With this in mind, the paper
suggests recommendations for human resources development at the organizational
level. At the same time, there are also restrictions on using the proposed guidelines.
The situation is different, for example, for large industrial, medium-sized and small
enterprises. Small businesses have a gap in the development of employees’ soft skills
and hard skills for Industry 4.0 [16]. In addition, it is necessary to consider the shift in
the allocation of human resources between different sectors of the economy in various
countries [33]. This will allow establishing strategies for personnel development in
specific conditions.
The processes of digital transformation are implemented unevenly and with
specifics in different regions of the world (including developed and developing
economies). The balance of priorities in the development of human resources can
change in numerous economic conditions. For instance, it is necessary to provide
job security and continuous training opportunities for employees in developing
economies such as India under Industry 4.0 disruptions [1]. In turn, for compa-
nies in Brazil, the development of methods for evaluating employees in the context
of Industry 4.0 and evaluating resources for the transformation of organizations
is of particular relevance [21]. For European countries, it is reasonable to involve
employees during the implementation of Industry 4.0 [29].
Also, the novelty of the issue of human resource development in the context
of Industry 4.0 requires further research. The authors will focus future efforts
on studying the differentiation of the directions of human resource development
strategies in different conditions of implementing Industry 4.0.
6 Conclusion
Therefore, in the context of Industry 4.0, the development of human resources needs
to be considered from several positions.
First, it is necessary to consider human resources development in correspondence
with the impact of new trends in digitalization and technologization on the labor
market. Transformation on both the demand side and the supply side of the labor
market needs to be considered. In this sense, Industry 4.0 sets the conditions for
the development of human resources and is at the same time dependent on such
development. It covers changes in professions, competencies, working environment,
governance approaches, and other issues.
Second, the choice of guidelines and methods for the development of human
resources requires taking into account demographic trends and the differentiation
of generations. It is necessary to take into account that, first, the general demo-
graphic situation is changing, which affects the development opportunities of human
resources with different characteristics. Second, different generations demonstrate
different mental attitudes and behavioral patterns in the context of Industry 4.0.
Third, the development of human resources receives a concrete embodiment in the
plane of the labor market at the level of specific organizations. This determines the
importance of developing holistic strategies for personnel development, including
the creation of a new digital environment and culture, as well as the adaptation of
management models to new demands using specialized methods and tools.
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Digital Transformation and Its Staffing
in the Russian Economy
Michael Djanelidze and Nataliia Shestakova
Abstract The purpose of the article is to study the transformation of the personnel
system in the context of Industry 4.0. The economic and social consequences of
Industry 4.0 determined the research methods—historical, critical and comparative
analysis. The authors concluded that there is a discrepancy between the training
system of IT personnel and the requirements of “digital” workplaces. The study
revealed that during the transition to Industry 4.0, the requirements for employee
competencies are changing revolutionarily, as well as new forms of connections
between demand from new industries and supply from educational and personnel
institutions are emerging. The authors proposed a classification of these forms of
connections.
Keywords Industry 4.0 · Staffing of digital economy · Additional vocational

education · Digital skills
1 Introduction
We live in the era of the fourth industrial revolution, described by the concept of
Industry 4.0. The term “Industry 4.0” was coined in 2011, when an initiative group
of German politicians, industrialists and scientists began to develop new approaches
to improving the competitiveness of the German manufacturing industry. In the same
year, the Industry 4.0 concept was announced by the President of the World Economic
Forum in Davos Klaus Schwab. The essence of “Industry 4.0” is the accelerated
integration of cyber-physical systems into factory processes, as a result of which a
significant part of production takes place without human participation.
The implementation of the Industry 4.0 program was preceded by three major
industrial revolutions earlier:
The First Industrial Revolution—Industry 1.0 (the end of the eighteenth century—
the introduction of machine production on a steam engine);
M. Djanelidze (B) · N. Shestakova

Institute for Regional Economy Studies Russian Academy of Science, Serpuchovskaya st.,
36, St. Petersburg 199013, Russia
462 M. Djanelidze and N. Shestakova
The Second Industrial Revolution—Industry 2.0 (the beginning of the twentieth

century—the introduction of mass production, the use of an electric motor and an
internal combustion engine);
The Third Industrial Revolution—Industry 3.0 (the early 70 s of the twentieth
century—the introduction of electronics and information technology achieve-
ments, further automation of production).
Originally, Germany initiated the development of the Industry 4.0 program. Subse-
quently, similar programs were launched in the Netherlands, France, Great Britain,
Italy, Belgium and other countries. In the USA, since 2012, there has been a non-profit
“Coalition of Smart Manufacturing Leaders” that unites businesses, universities and
government agencies in the development of Industry 4.0.
2 Background
The development of the Internet, information technologies (IT), stable communica-

tion channels, cloud technologies and digital platforms, as well as the significantly
increased volume of information generated from various sources, ensured the emer-
gence of open information systems and global industrial networks. This, in turn, had
a transformative impact on all sectors of the modern economy and business outside
of the IT sector itself, leading to the Fourth Industrial Revolution. The concept and
program of Industry 4.0 became a reflection of such developments.
McKinsey experts define Industry 4.0 as the digitalization of the manufacturing
sector, combined with sensors that will be embedded in almost all components and
equipment, the widespread introduction of cyber-physical systems and analysis of all
available data. McKinsey experts divided all technologies driving the new revolution
into four clusters: (1) related to data, computing power and information transfer (big
data, Internet of Things and machine-2-machine technologies, cloud technologies);
(2) related to analytics (digitalization and automation of scientific work, advanced
analytics); (3) related to the interaction of man and machine (new interfaces, virtual,
augmented and mixed reality technologies); (4) related to the transition from the
digital world to the physical (additive manufacturing technologies, for example,
industrial 3D printing, robotics, new ways of generating and storing energy). All
these technologies are now experiencing a tipping point: manufacturing companies
must decide how to respond to them [3].
Despite the society’s controversial opinions on Industry 4.0, the world economy
is on the verge of the Fourth Industrial Revolution, which will lead to the complete
automation of most production processes, and, as a result, an increase in labor produc-
tivity which will ensure economic growth and competitiveness of leading coun-
tries. Industry 4.0. is characterized by unprecedented speed and volume of receiving,
collecting, aggregating, processing and transmitting data, which makes it possible to
move to a fundamentally higher level of production process management.
Digital Transformation and Its Staffing in the Russian Economy 463
An important point for Russia is that the development of Industry 4.0 provides
a chance for a radical increase in the competitiveness of the country’s industry. In
the Russian Federation, the analogue of the German program “Industry 4.0” is the
National Technology Initiative (NTI), which was designed to ensure the expected
industrial revolution in 2025–2035.
At the beginning of 2017, the industrial digitalization program in Russia was
launched and the first roadmap of the National Technological Initiative (NTI),
Technet, was approved [7]. According to it, the most promising areas for devel-
opment should be digital design and modeling, new materials, additive technologies,
industrial Internet and robotics.
The implementation of the concept and principles of Industry 4.0 in a sepa-
rate company implies digitalization (automation) and integration of technological,
production and business processes vertically and horizontally throughout the enter-
prise, from product development and procurement to production, logistics and main-
tenance during operation. Simultaneously, the horizontal integration of a digital enter-
prise goes beyond internal operations and covers suppliers, consumers and all key
partners in the value chain. All this taken together must be supported by an appro-
priate integrated digital platform (which means an automated information system that
uses all the necessary set of data, models, algorithms, methods and tools), which,
combined with the entire chain, makes up the ecosystem of a digital enterprise.
The relevance of the research topic is due to two circumstances. Firstly, an analysis
of literary sources and scientific studies on the disparity between changes in the
requirements for workers during the formation of Industry 4.0 (as a consequence of
the digitalization of production and workplaces) and the transformation of the staff
system showed the inconsistency and insufficient knowledge of the interrelationship
of these areas from the perspective of economic theory. The present research is
aimed at filling these gaps. The results obtained in the course of the study outline
the promising directions for solving practical problems of forming the mechanisms
of interaction between the production spheres and staffing during the transition to
Industry 4.0.
The research purpose is to study the problems of transformation of the staff system
associated with the formation of Industry 4.0 and propose relevant solutions.
The methods were chosen in accordance with the examined subject, namely,
the economic and social conditions and consequences of the formation of Industry
4.0 and their impact on the education system. Therefore, the methodological basis
of the study is the scientific approaches of institutional and evolutionary economics,
comparative and sociological analysis, historical and systemic approaches. The theo-
retical and practice-oriented aspects of the stated problem were investigated using
general scientific analytical and synthetic methods, the study of domestic and foreign
scientific publications, as well as the analysis of statistical and Internet sources. Scien-
tific, regulatory, documentary and statistical materials were examined to ensure the
reliability of the research results.
4 Results
Industry 4.0 is based on the industrial Internet of Things (IoT) and cyber-physical
systems (CPS). Modern manufacturing heavily relies on the Internet of Things. It is
a network in which most of the production equipment is supplied with sensors and
controllers connected to the Internet. IoT allows combining mechanisms, sensors
and computers in a single production process with a new level of production support
and quality assurance.
If IoT is used for monitoring and controlling the equipment on the network, then
CPS is a way of automating production processes that combines human labor and
machines connected to the Internet into a single digital enterprise system.
The principles of Industry 4.0 permeate all production processes, including design,
creation of a sample and prototype, technological preparation of production, adjust-
ment and maintenance of production processes, production control, and collection of
information from consumers. Industry 4.0 is a radical systemic innovation that trans-
forms the processes of production, improvement, distribution and sale of products.
Its tools enable the integration of advanced manufacturing technologies, including
the Internet of Things, cloud computing and analytics, AI and machine learning into
a single production process on a new basis.
The main approaches of Industry 4.0 are based on: Big Data (big data machine
processing); Smart Factory or “smart production”; Product Lifecycle Manage-
ment (PLM) (management and electronic control of the entire product lifecycle);
Interoperability of equipment, systems and communications of the enterprise.
The most important technologies of Industry 4.0 include: Internet of things; Addi-
tive manufacturing; Artificial intelligence, machine learning and robotics; Big data,
blockchain and cloud computing; Virtual and augmented reality.
In general, Industry 4.0 is a digital strategy for the development of high-tech
industry. Enterprises that have moved to Industry 4.0 use “smart” sensors, embedded
software and robotic systems that provide real-time data collection and analysis. The
analysis of large volumes of data collected from sensors at the production facility
ensures transparency of production processes and a new level of their control. The
use of IoT devices in enterprises contributes to an increased productivity and quality.
At the same time, Industry 4.0 technologies can be applied in industrial companies
of any sectors, including discrete and continuous production, as well as companies
in the oil and gas and mining industries, etc.
The predicted consequences of the development of Industry 4.0 will be following:
Industry 4.0 is expected to become a driver of the global economy. Thus, it is predicted
that artificial intelligence technologies will provide about 14% of global GDP growth
in the amount of about $15.7 trillion; Transformation of the sectoral structure of the
economy; Reduction of the share of physical labor due to mechanization and robo-
tization; Automation of routine intellectual operations through the use of artificial
intelligence; Increase in the share of intellectual and creative work, a decrease in the
role of routine work, the loss of the importance of some working specialties.
The development of Industry 4.0 revealed that the expansion of the post-industrial
service sector did not lead to a reduction in industrial sectors. The introduction of
digital technologies into production processes, economic relations and everyday life
transformed the relationships between companies (and, equally importantly, their
relationships with consumers), and increased labor productivity and modernization
of social practices.
The digitalization of industry has its advantages and disadvantages. The advan-
tages include the following: labor productivity growth; effective promotion of goods
and services; transparency of production and financial transactions; monitoring and
controlling of the production process; acceleration of production processes; speed
of adaptation to market changes; cost reduction; exclusion of intermediaries.
As for the disadvantages, they are related to two aspects. The first is an increase
in the information vulnerability of production know-how and personal data of
employees. The second is the changes in the labor market associated with the replace-
ment of human labor with machine labor and the disappearance of a number of
professions.
According to the results of the 2020 study [11] conducted by Deloitte CIS and SAP
(“From strategy to implementation—how to increase the value of digital transfor-
mation”), digitalization leaders in Russia are banks, retail and telecommunications
companies. Among the laggards are the branches of mechanical engineering and
pharmaceuticals.
The banking sector is more digitalized than other industries due to the high propor-
tion of online services. The Covid-19 pandemic also pushed companies from the trade
sector to move online. According to Deloitte researchers, the fuel and energy sector,
metallurgy, healthcare and mechanical engineering industries face the problems of
digitalization to a greater extent.
At the same time, the results of an expert survey conducted by the Higher School
of Economics (HSE, Moscow) in 2020 show the uneven demand for advanced digital
technologies across the sectors of the Russian economy and social sphere [15, 27].
According to Russian experts, today the industries with the greatest need for digital
solutions are housing and communal services, energy, culture, tourism, state and
municipal services, sports, education, ecology. Simultaneously, there are industries
with the greatest number of barriers hindering the introduction of digital technologies,
including construction, agriculture, transport and logistics, new generation networks.
According to the results of this study, they are most in demand in the fuel and energy
sector, healthcare and the financial sector. The high demand in healthcare is largely
due to the need to solve the urgent tasks of combating the pandemic. The rapid
growth of digital maturity of financial sector companies is facilitated by the active
introduction of digital technologies by large Russian banks.
The task of providing personnel for the digital economy is set and disclosed in the
federal project of the same name “Personnel for the Digital Economy” (2018–2021)
[16] of the national program “Digital Economy of the Russian Federation” [19]. The
main goal of the project is stated to be “ensuring the training of highly qualified
personnel for the digital economy”.
The achievement of this goal is assumed by solving the following tasks (an
abbreviated version is presented on the official website of the Ministry of Digital
Development) [16]:
• Ensuring accessibility of additional education programs for the population to
obtain new digital competencies in demand on the labor market.
• Ensuring the needs of the labor market for specialists in the field of IT and infor-
mation security, as well as for specialists with digital competencies who have been
trained in the relevant programs of higher and secondary vocational education.
• Providing online services to educational organizations implementing programs
of primary, basic general, secondary general and vocational education.
The project includes three components: (1) The Digital Professions project, which
offers Russians to get additional IT education in 24 areas of educational programs
from popular IT organizations and educational institutions for half the cost4 (2)
The project “Ready for Digital”, which is an aggregator of services for testing the
level of digital literacy, allows visitors to the corresponding site to assess their level
of digital literacy, learn about the possibilities of online environment and form the
necessary IT skills to teach safe and effective work with digital technologies.; (3)
The CLICK project, which is an educational program that allows representatives of
federal and regional authorities responsible for the implementation of the national
Digital Economy program, managers of Russian companies, representatives of higher
educational institutions, industry and scientific organizations interested in digital
development to gain new digital competencies.
“Today, the state is making a serious bet on digital personnel, and programmers are
highly sought-after specialists. Therefore, the Russian government is implementing a
number of major educational projects that affect students, schoolchildren and profes-
sionals from other fields who are ready to retrain to work in the IT sphere,”—said
Deputy Prime Minister Dmitry Chernyshenko in this regard [28].
Thus, the federal project is fundamentally focused on training personnel not for the
digital economy as a national economic complex, but for the IT sphere: personnel with
digital competencies and/or supporting them, as well as providing online services to
educational organizations of various levels.
However, in our opinion, these positions do not exhaust the full breadth of the
problem. In addition to those stated in the profile federal program, the problem of
staffing the so-called Industry 4.0 or the digital economy opens up a number of direc-
tions for theoretical research and practical implementation, including: providing the
digital economy with personnel in terms of their sufficient quantity, quality and struc-
ture; developing employee competencies for those involved in the digital economy;
maintaining and/or updating the initially received education.
Note that the above list is not exhaustive: other research vectors are also possible.
4.1 Providing the Digital Economy with Human Resources
Only quantitative guidelines of preparation can be found in the profile materials,

and only in the most general terms and fragments. Thus, according to the results
of a joint study of Information and Computer Technologies Industry Association
(APKIT) and ANO “Digital Economy” [27], the total need for highly qualified ICT
personnel is estimated at 220 thousand people, and 80 thousand people per year for
medium-qualified personnel. By 2024, the need for highly qualified personnel will
increase to 300 thousand per year. At the same time, the national system of higher
education does not have sufficient material and human resources to train specialists
in the digital economy in the required volumes. Moreover, we are not talking about
engineers, doctors or teachers, but about the training of IT specialists. As for training
in other areas, the number of graduates of the vocational education system with key
competencies of the digital economy is expected to increase to 800 thousand people
by 2024. In addition, the number of people accepted for higher education programs
in the field of IT should increase up to 120 thousand people a year. This will allow
getting closer to the necessary level of personnel reproduction for the outstripping
growth of the IT industry.
However, the problem of providing the digital economy with human resources
is not limited only to quantitative parameters, as the high quality of training of
specialists in the field of IT should also be noted. Thus, the head of the working
group on the direction “Personnel for the digital economy” at the ANO “Digital
Economy” and the head of the APKIT Committee on Education B. G. Nuraliev
states: “Russian education in the field of IT has a high level of development: our
specialists are in demand all over the world, and Russian companies mainly cope at
the expense of personnel trained in Russia” [27].
The issue of personnel training for the digital economy is not limited to quantitative
and qualitative parameters. It is much broader and is associated with a number of
aspects.
First, it is necessary to talk about drawing up the promising professional and
qualification structure of labor resources in the sectoral (or by type of economic
activity) context.
Secondly, it is necessary to take into account the pace of bringing the national
system of personnel training into compliance with the requirements of the digital
economy: the list of professions taught in higher and secondary (which currently
includes primary) vocational schools, educational documentation (including Federal
State Educational Standards, curricula and programs, etc.). According to the Ministry
of Digital Development, Communications and Mass Media of the Russian Federa-
tion, as of September 2021, 340 Russian universities and institutions of secondary
vocational education have adapted educational programs to the requirements of the
digital economy. This corresponds to the share of 8.5% of their total number (For
reference: a total of 3983 educational organizations carry out educational activities in
the Russian Federation at the beginning of the 2020/2021 academic year, including
3273 educational programs of secondary vocational education, and 710 programs of
undergraduate, specialty, master’s degrees [13, 13, 13]. In addition, another 25 univer-
sities in the framework of the pilot project began testing 30 educational programs
that were developed at the request of commercial companies representing 11 priority
sectors of the economy. At the moment, the approval of the working programs of the
disciplines is being completed [2].
Thirdly, it is necessary to consider such a parameter as bringing the national system
of additional education into compliance with the requirements of the digital economy.
It is important to ensure the up–to–date maintenance of previously acquired/primary
knowledge, skills and competencies from the point of view of their compliance
not only with the current, but also with the promising requirements of the digital
economy.
4.2 Development of Employee Competencies Involved

in the Digital Economy
Both individual researchers and research teams are engaged in the development of
employee competencies as part of the study of human capital. Here are examples
from foreign and national practice.
The first example. According to opinion of McKinsey analysts, in the context of
the growing digital transformation of the economy, “all employees must adapt …
to activities that require social and emotional skills, creativity, high-level cognitive
abilities and other skills that are relatively difficult to automate” [17]. Accordingly,
employees should have the following set of qualities: social and emotional skills;
creativity; high-level cognitive abilities.
Similar development results were obtained by Deloitte researchers: they came to
the conclusion that when a person’s labor is “divided” with a machine, the employee
will have these actual human properties and qualities that cannot be replaced by a
machine [10]. These included: empathy; ability to communicate; ability to convince;
skill/proficiency in personal service; ability to solve problems and make strategic
decisions.
As a result, Deloitte analysts recommend: to invest in critical human skills for the
future of the workforce, such as “problem solving, creativity, project management,
listening, making moral and ethical decisions—all these are, in fact, human skills
that every organization needs—both now and in the future. When planning for the
future of the workforce, consider these long-term human skills needs”. This was the
second example.
The third example. The most complete version of the set of competencies that will
be in demand (listed in descending order of importance) was proposed by the analysts
of the World Economic Forum [1] with reference to [12]: complex problem solving;
critical thinking (one of the key competencies in the forecasts for 10–15 years.)—the
skill to select, analyze and comprehend information due to the huge volume of data
and its accessibility; creativity—the ability to overcome stereotypes and make non-
standard decisions in various situations; people management—the skill for working
with people in a complex environment (a symbiosis of human and artificial intelli-
gence) (according to the authors’ curve, either the cheapest employees (whose labor
is cheaper than robots) or highly professional ones will be in demand); coordina-
tion and interaction skills (coordination with others)—the ability to communicate,
work in a team and perform various roles in it; emotional intelligence—the ability to
react sensitively to the emotions, feelings, intentions and state of another person, as
well as the ability to manage them [32]; judgment and decision-making—the speed
and quality of decision-making; customer orientation (service orientation, service
orientation)—the competence closely related to the development of emotional intel-
ligence; ability to negotiate (negotiations);cognitive flexibility—the ability to switch
from one thought to another, as well as to think about several things at the same time.
Possession of it contributes to the realization of the properties of creativity and the
ability to solve complex problems.
Today, in 2021, we can already appreciate the high degree of foresight of WEF
experts.
The fourth example. At the national level, the matrix of the target competence
model (2025) was compiled by Sberbank specialists (Table 1). It includes three blocks
of competencies: cognitive, socio-behavioral and digital skills. Let’s pay attention to
the substitution of the concepts of “competence” in the process of their disclosure
for “skills”.
The fifth example. The website of the Ministry of Digital Development, Commu-
nications and Mass Media of the Russian Federation offers a “list of rigid, flexible
and special digital competencies”. Here is an appropriate excerpt [18].
“The implementation of breakthrough technological projects in the digital
economy creates a demand for specialists who possess the complex of rigid, flexible
and special digital competencies, including: deep understanding of their field, as well
as knowledge and experience in related fields (“T-shaped specialist”); understanding
the opportunities and risks associated with the use of new technologies; knowledge
of project management methods; “digital dexterity”; knowledge of big data tools
and visualization tools; understanding the basics of cybersecurity; database skills;
systems thinking; emotional intelligence; teamwork; ability of continuous learning;
ability to solve turnkey tasks; adaptability and work in conditions of uncertainty.
At the same time, no official documents are presented on the site. However,
the following thesis is given: “Big data analytics becomes the key competence
determining the competitive advantages of companies of the future.”
The sixth example. The official website of the Competence Center, created on the
basis of the NTI 2035 University [14], also provides a list of officially approved key
competencies required in the conditions of global digitalization of public and business
processes specific to human activity in the context of widespread and use of digital
technologies and related products and services. These are the competencies of digital
literacy in everyday and professional contexts, as well as the professional compe-
tencies of the digital economy; the key competencies of the digital economy can be
470
Table 1 Target model of competencies 2025 [8]

Cognitive skills Socio-behavioral skills
Self-development Organization Management skills Communication Interpersonal skills Cross-cultural interaction
• Self-awareness • Organization of their • Prioritization • Presentation • Teamwork • Awareness
activities
• Learnability • Resource Management • Task Setting • Written • Ethics • Social responsibility
• Perception of criticism • Formation of teams • Negotiation • Empathy • Cross-functional and
and feedback cross-disciplinary
interaction
• Curiosity • Development of others • Openness • Customer orientation • Foreign languages and
cultures
• Motivating others • Stress management
• Delegation • Adequate perception of
criticism
Achieving results Solving non-standard Adaptability Digital skills
tasks Creation of systems Information management
• Responsibility, • Creativity, including the • Work in conditions of • Programming • Data processing and
risk-taking ability to see uncertainty analysis
opportunities
• Perseverance in • Critical thinking • Application development
achieving goals
• Initiative • Design of production systems
M. Djanelidze and N. Shestakova
distinguished separately. While it is stated that the list is not final, five main competen-
cies are identified [9]: communication and cooperation in the digital environment;
self-development in conditions of uncertainty; creative thinking; information and
data management; critical thinking in the digital environment.
5 Discussion
Comparison of the above models reveals a difference in approaches: if in foreign

versions of digital competencies are not distinguished separately (they are implied to
be present “by default”), then in Russian models, digital competencies are not only
spelled out in the separate block, but also divided into two groups (as in the example
with Sberbank) or are strangely disclosed (for example, the item “digital dexterity”
as presented on the website of the Ministry of Digital Development).
The activity of “promoted” digital competencies continues in Russia to this day.
As it was shown above, the federal project “Personnel for the Digital Economy” is
largely focused on the formation of such competencies. An echo of this approach was
the proposal to classify IT professions as those that “in the list of general professional
competencies include the ability to develop algorithms and programs suitable for
practical application” [27].
In this regard, it is interesting to cite some of the results of the first of the three
parts of the Global Skills Report, prepared by the Coursera educational platform
[22]. The data obtained were classified in the fields of business, technology and data
analytics (Table 2). The cross-cutting index of countries has been compiled for each
sphere, and the overall rating was calculated on the basis of these indices.
Russia ranks ninth in the overall world ranking, and eighth in the European
ranking.
The other side of the coin is a set of the least developed digital competencies
by Russians. According to a study by the Russian Public Opinion Research Center
(VCIOM) and Social Business Group LLC (SBG) [31], it includes: software instal-
lation and configuration, photo and image editing, presentation preparation, video
editing on the phone or computer.
Meanwhile, an objectively universal, standard or basic model of the competencies
of employees involved in the digital economy has not yet been presented. Such a
model is declared as developed, but the actual model could not be found.
Table 2 Top 3 competencies that interest students from Russia [22]

Business Technology Data analytics
Operational strategy Theoretical foundations of Computer Python programming
Engineering
Microsoft excel Programming in C Statistical theory of learning
Project management Programming principles Probability and statistics
At the same time, one of the profile publications presents an up-to-date private
model of the competencies of the digital transformation team in the public
administration system. Structurally, it consists of four interconnected blocks [23]:
• competencies, understood as the minimum necessary level of knowledge and
skills of using information and communication technologies (ICT) in everyday
and professional activities;
• personal competencies (soft skills) in the field of digital development: a group of
competencies reflecting individual personality traits that allow people to success-
fully participate in the implementation of digital transformation strategies and
digital development projects (the block includes the following positions: focus
on results; client-centricity; communication; emotional intelligence; creativity;
criticality);
• professional competencies (hard skills) in the field of digital development: a group
of competencies related to the functional use of methods and tools for managing
processes, projects, products of digital transformation and the regular solution
of complex professional tasks in the digital environment (the block includes the
following positions: Digital development management; Development of organi-
zational culture; Management tools; Data management and use; Application of
digital technologies; Development of IT infrastructure);
• digital culture, understood as a system of values, attitudes, norms and rules of
behavior that is accepted, supported and broadcast by the digital transformation
team.
There may be several comments on the above model, as well as other national models.
Firstly, the presented model is largely based on the experience shown above in the
development of a set of competencies of the World Bank. Secondly, national models
and/or lists of digital competencies contained in various more or less official sources
differ significantly among themselves. Thirdly, the last of the above models (the
team of authors of the RANEPA) is the most complete: it seems that, with some
adjustment, it can be extended to other areas of activity.
In this context, one of the Deloitte reports [30] showed the emergence—along
with standard types of work (Standard jobs), based on the use of the given and
narrow set of skills to perform repeatable work tasks and standard processes—of new
types of work (the most in demand and providing the highest wage growth rates):
“hybrid works” (hybrid jobs), which require the combination of technical skills,
including technological, data analysis and interpretation skills, with “soft” skills in
terms of communication, service and the ability to work in the team (cooperation);
“super types of work” (super jobs), which combine, on the one hand, the types and
responsibilities of several traditional types of work, and, on the other hand, the use of
IT technologies to increase and expand the volume of work performed, accordingly
implying the complex set of subject, technical and human skills.
Super jobs require the breadth of technical and soft skills, as they combine parts of
various traditional types of work into integrated activities and work in conditions of
human interaction with smart machines, data and algorithms in order to significantly
increase productivity and labor efficiency.
Regarding the formation of promising skills of employees in the context of the

digital transformation of the economy, Global Technology Leadership Study states
that in the next three years, analytics and cognitive functions will have the second
most important impact on organizations. AI is projected to add $13 billion over the
next decade into the world economy. 60% of the more than 1300 IT directors and
senior technology leaders surveyed by Deloitte said that their organization uses AI to
provide assistance, not to replace employees. In addition, the majority of respondents
believe that the number of jobs in companies will either remain at the same level or
increase because of the use of artificial intelligence [29].
5.1 The Issues of Maintaining and/or Updating the Initially

Received Education
It is obvious that a direct consequence of the dynamic renewal of digital technologies

is the accelerated obsolescence of the knowledge and skills of workers.
10 years ago, the Russian researcher A. L. Safonov pointed out that, for example,
“in metallurgy, knowledge becomes obsolete every 3.9 years; in mechanical engi-
neering—5.2 years; in the chemical industry—4.8 years; in advertising—5 years;
in business—2 years, etc. The half-life of knowledge in the most knowledge-
intensive industries is less than 2.5 years. And for a graduate of the XXI century, the
obsolescence of knowledge occurs in 2–3 years” [24].
Thus, the question arises about the need to maintain and/or update the knowledge
originally acquired by an employee. This fully corresponds to the concept of long-life
education and occurs through participation in additional education.
The continuous progress of digital technologies means that today software engi-
neers must update their skills every 12–18 months according to Deloitte experts.
Specialists in the field of marketing, sales, production, law, accounting and finance
work in similar conditions [10].
Updating of knowledge and skills can occur through advanced training or
professional retraining.
In foreign countries, intra-company professional development is recognized as a
promising form of additional education. This, in particular, is indicated in the reports
of Deloitte 2014, 2015, 2016, 2017 [5, 6, 10, 25].
The topic of staff training as a way of forming promising skills in demand is
disclosed in detail in the Deloitte 2017 report [10]. In particular, the training func-
tion is considered by corporate units responsible for training and staff development as
a strategically important business area focusing on innovation and leadership devel-
opment, promoting lifelong learning in order to prolong careers, as well as uniting
multifunctional teams for integration and collaboration.
The introduction of new employee training systems is currently the fastest growing
segment in the expenditure of human resources services. In this regard, heads of
company departments responsible for the personnel training in the new condi-
tions should, on the one hand, create the learning environment that prepares the
ground for increasing the mobility of employees, and, on the other hand, develop
interdisciplinary skills.
In Russian practice, the Institute of Additional Education (Additional Vocational
Education, AVE) is responsible for the organization and implementation of the idea
of continuing education.
In Russia, some categories of workers (based on the need to update knowledge)
are objectively recognized as requiring mandatory regular professional development.
These are such specialists as: medical professionals; public procurement officials;
officers of the Investigative Committee and the police; prosecutors; notaries; auditors;
specialists whose work affects the safety of capital construction facilities; employees
of organizations for the extraction (processing) of coal (oil shale), managing mining
and blasting operations; heads of private security organizations, etc.
Many large companies, in particular, Sberbank, Rosatom, Russian Railways,
Gazprom and other holding structures have followed the path of organizing their own
corporate universities and training centers in Russia. According to the researchers of
the Analytical Department of Scientific and Technological Development of Skoltech,
“In the structure of the offer, the main trend is an increase of more than two times in
the number of specialized AVE organizations (including corporate universities) with
the drop in the share of universities in the total number of organizations providing
AVE services. Corporate universities are both partners and competitors for universi-
ties” [26]. According to financial indicators, companies occupy leading positions in
the market of AVE (Table 3).
According to RBC rating [20], companies spend from 0.11 to 3% of the payroll on
corporate training. Table 4 shows an estimate of the expenses of the largest companies
in Russia for staff training.
Thus, the total investment in personnel training and development of the 23 compa-
nies listed in the table in 2018 amounted to 29.6 billion rubles [26], which, according
to Skoltech experts, was equal to 80% of the total expenses of Russian companies
for personnel training. The largest investors in additional education are Gazprom,
Sberbank, Russian Railways, Rosneft and Rosatom. With the exception of Rosneft,
all of these companies have corporate universities.
Table 3 Assessment of the

Market volume
volume of the AVE market in
2018 [26] Billion rubles %
Total 82.0 100.0
Including
Companies 37.0 45.2
State 33.0 40.2
Population 12.0 14.6
Table 4 Assessment of personnel training costs of the largest companies in Russia and the
availability of corporate universities, 2018 [26]
Company Assessment of training costs, Availability of a corporate
billion rubles university
Gazprom 5.8a Yes
LUKOIL 0.8 No (internal system)b
Rosneft 2.5 No (internal system)
Sberbank of Russia 4.6 Yes
Russian Railways 3.4 Yes
Rostec 1.6 Yes
Surgutneftegaz 0.7 No (internal system)
X5 Retail Group 0.2 No (internal system and
external contractors)
VTB 1.1 No
Magnet 0.7 No
Rosatom 2.3 Yes
Russian networks 1.3 No
Inter RAO 0.4 No
Transneft 1.1 No
Tatneft 0.3 Yes (division of the main
legal entity)
NOVATEK 0.1 No
Evraz 0.6 No (internal system)
Sistema Public Joint Stock 0.4 No
Financial Corporation
En + 0.5 Yes
NLMK 0.3 Yes
Norilsk Nickel 1.0 Yes
Megapolis Group of 0.0 No
Companies
Rusal 0.1 Yes
TOTAL 29.6
a Gazprom Neft (the subsidiary of Gazprom) spent 1.1 billion rubles on employee training in 2018
b Internal corporate training/knowledge management system is a systematic implementation of staff
training either in the form of special formalized programs or on the basis of portal technologies,
without allocating these programs and corporate portals to the structure of a corporate university
The undoubted advantages of corporate universities, including in the aspect of

digitalization of the economy, are [26]:
• implementation of programs for the development of competencies in the field of
digitalization (among the largest companies, this area of AVE is being developed,
in particular, by Lukoil, Rosseti, Rosatom);
• adaptation of infrastructure to support the implementation of corporate changes,

including those related to digitalization;
• building a full cycle of competence management at the enterprise at the level of
the corporate university;
• real interaction with universities, business schools, colleges and other educational
institutions with the resulting mutual benefits;
• expansion of the corporate training segment in the digital space due to greater flex-
ibility and speed of decision-making, as well as greater availability of resources
relative to traditional players in the educational market.
Regarding the last thesis, in the practice of corporate education, 70% of companies
use both online and offline training.
However, according to the Ministry of Science and Higher Education of Russian
Federation for 2020, out of all organizations that carried out educational activities
under additional vocational education programs, organizations of the real sector of
the economy—corporate universities, training centers of enterprises and others—
accounted for only 11.5% [4].
According to analysts of the BusinesStat agency, the total number of additional
vocational education programs in Russia in 2021–2025 will increase annually by
4.0–4.9% [4]. This growth will be associated with the transition of some programs
to an online format. In addition, it is assumed that [21]:
• the population’s attitudes will be redistributed from the goals of obtaining higher
education to the format of shorter additional education programs that allow people
to master new professional skills at lower cost;
• the number of programs for business and management will increase;
• the list of demanded specialties will change;
• new programs for working professions, as well as programs related to the
digitalization of various processes will emerge.
6 Conclusion
It is obvious that the processes of digitalization and the development of Industry

4.0 will lead to numerous and unpredicted consequences in the economic and social
spheres. However, the outlines of scenarios for future events are already being viewed.
On the one hand, the multiple increase in productivity and liberation from heavy
routine work, deforming the personality of employees, an increase in free time
for their creativity and leisure are possible. On the other hand, there are obvious
prospects for the narrowing of the labor market and employment opportunities,
loss of livelihood of a significant part of workers and their families. In addition,
digital technologies provide unlimited opportunities for social control, the thought-
less implementation of which will lead to an unprecedented violation of fundamental
freedoms and human rights, depriving people of any privacy. The implementation of
scenarios depends not directly on the requirements of Industry 4.0, but on the direc-
tion of socio-economic development, its humanistic orientation, aimed at the values
of human development and justice, or increasing social polarization and strength-
ening social control. As human history demonstrated, new technologies turn out to be
ethically neutral and the risks of their application will depend on the social structure
of human society and progress (or regression) in this direction.
The revolutionary changes in the requirements for skills and training of workers
during the transition to Industry 4.0 lead to an increasing mismatch, the gap between
the constant changes (with ever-accelerating dynamics) of the needs of industry in
the professional composition, qualities and characteristics of the workforce, on the
one hand, and the inertial educational system, on the other. At the same time, new
types of interaction are developing, innovative communications are being formed,
connecting the demand from Industry 4.0 sectors and supply from the educational
system. The present study examined their formation, identified existing trends and
determined prospects for further development.
Thus, it can be stated that the processes of digital transformation of the economy
dictate to companies the need to review the totality of skills demanded from
employees, as well as the content and infrastructure of training and staff development.
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Priorities of Human Resources Policy
in the Context of Digitalization
and the COVID-19 Pandemic
Yulia Otmakhova and Dmitry Devyatkin
Abstract Digitalization has a global trend and has become a driver of competitive-
ness in the enterprise sector. The pandemic has forced governments and businesses
around the globe to accelerate the transition to digital technologies. Due to those grand
challenges, the labor market landscape and human resources policy priorities have
undergone significant changes. New jobs, methods, and innovative practices have
appeared under the influence of digitalization. In this research, we test how to apply
large datasets of full-text documents (more than 1 million patents and Ph.D. theses)
to find possible directions for transformation of working conditions and job-related
changes. We have identified promising directions in terms of research and devel-
opment and economy, which grew in 2020: agriculture machinery, pharmacology,
diagnostic tools, logistics, and wireless technologies. Moreover, under those direc-
tions we have found some research and production centers, which we can consider
potential producers and labour consumers. Russian federal and regional authorities
might use results of our research to form personnel policies of regions and federal
districts.
Keywords HR policy · Labor market · Digitalization · Big data analysis · Patent

landscape · Text mining · COVID-19 pandemic
1 Introduction
Digitalization has a global trend and has become a driver of competitiveness in

the enterprise sector. Pandemic has forced governments and businesses around the
globe to accelerate the transition to digital technologies. Due to grand challenges,
the labor market landscape and human resources policy priorities have undergone
Y. Otmakhova (B)
Central Institute of Economics and Mathematics RAS, 47, Nakhimov Ave., Moscow 117418,
Russian Federation
Y. Otmakhova · D. Devyatkin
Federal Research Center “Computer Science and Control” RAS, 9, 60 Let Oktybrya Ave.,
Moscow 117312, Russian Federation
482 Y. Otmakhova and D. Devyatkin
significant changes. Human resource management (HRM) is at the heart of these

transformations, helping organizations navigate the vague present and unforeseeable
future [4, 7]. New professions are being formed under the influence of digitalization.
The COVID-19 pandemic has caused accelerating digitalization and led to the global
health crisis and large-scale transformations in the economic situation of the popula-
tion and business. The recent reports by international economic expert organizations
show that the COVID-19 pandemic has led to a complex crisis in labor markets
worldwide [22]. The OECD reports that unemployment peaks at 12.6% by 2020 and
could still stand at 8.9% by the end of 2021 [13]. The Europe Commission concludes
that the pandemic has already destroyed 6 million jobs in the European Union and hit
young people the hardest [17]. Thus, the COVID-19 pandemic-induced lockdowns
and related global recession of 2020 have created a highly uncertain outlook for the
labor market and accelerated the arrival of the future of work. Companies have to
restructure requirements and skills to workers in response to new technologies and
new challenges.
The significant economic impacts of the crisis are particularly noticeable on global
and local labor markets, including massive job losses, reduced working hours for
employees, and measures taken by governments to financially support companies
in a range of industries. Against the backdrop of a shrinking job market and rising
unemployment, major structural shifts and innovative changes are expected, some
of which will increase the efficiency of the labor market through the emergence of
new professions, new methods, and work practices. However, in several business
areas, many new vacancies are being formed, which will require additional training,
deepening of specialization, and IT solutions.
In this paper, we set the following research question. Could the signs of the
pandemic-driven transformations of the labor market be revealed from research and
development (R&D) documents, such as patents and research papers? Besides, we
study the applicability of text-mining methods and tools to assess the transformation
and restructure of the workforce in response to new technologies due to COVID-
19. We also test how large datasets of full-text R&D documents, popular scientific
publications, and media news reports can be used to reveal possible directions of
working conditions transformation and changes in professions.
2 Related Work
The consequences of the economic digitalization for the employment of the popu-
lation in the context of the COVID-19 pandemic are considerable and have been
directly affecting stock markets worldwide and authors of the paper evaluate the
short-term impact of the coronavirus outbreak on 21 leading stock market indices
in major affected countries including Japan, Korea, Singapore, the USA, Germany,
Italy, and UK etc. [12]. The rapid spread of coronavirus (COVID-19) has dramatic
impacts on global financial markets and lead to an unprecedented level of risk [2, 25].
Priorities of Human Resources Policy in the Context … 483
These new challenges have become the object of new research, and the natural way
to analyze that research is patent and research landscaping [3, 10, 11, 14, 21]. Recent
studies in patent and research landscaping are devoted to the methods, which identify
emergent topics with various types of features: lexis (keywords), citations, metadata
(authorship, patent owners, etc.). Paper [9] validates the idea that influential authors
suggest essential terms within a field and vice versa. The researchers combine both
authors and terms in a graph-like structure and rank them jointly. They represent that
output with phrasal embeddings and process them with a recurrent neural network to
reveal research trends. The experiments show that the approach successfully detects
past trends from the field, outperforming baselines based on text centrality or citation.
Förster with colleagues [6] used the number of cited references per year of a current
research topic to solve the emerging research topic detection problem with a time
series analysis method. The time series were analyzed stochastically. Namely, they
proposed an approach to forecasting the emergence of a research topic using ARMA
models. In [16], researchers identify keywords of a technological topic from patents.
They layer the keywords, depending on the level of information. First, the features
and types of technical information are analyzed by reviewing the patent law and
investigating the description of patent documents. Second, the patents are structured
using the information types, and the keywords in each type are layered through
natural language processing. Consequently, the structured and layered keywords do
not omit valuable terms.
The pandemic generates plenty of studies related to the patent and research
landscaping of the virology-related fields and studies related to the impact of
the pandemic on the markets. For example, in the papers [5, 24] the researchers
analyze research papers and investigate collaboration relationships, research topics,
and research trends on COVID-19. They retrieved COVID-related papers from the
PubMed database and applied proprietary software tools to summarize bibliometric
features. The results show that United States was the most productive and active
country for COVID-19 research, with the largest number of publications and collab-
oration relationships. They also detected four key research topics, of which the topic
of epidemiology and public health interventions has gathered the most significant
attention. The topic of virus infection and immunity has been more focused during
the early stage of the COVID-19 outbreak compared with the later stage. The topic
popularity of clinical symptoms and diagnosis has been steady.
Regarding the patent landscaping research, it also primarily focuses on anti-virus
treatment and vaccines. Paper [15] studies challenges in vaccine development for the
pandemic, discussing issues related to pandemic preparedness and their implications
for circular bioeconomy and sustainability. Paper [1] provides an extensive biblio-
metric analysis of COVID-19 research across the science and social science research
landscape, using several ready-to-use bibliometric and text mining tools like VOS
viewer and the Scopus database. The obtained results indicate the domination of
health sciences in terms of relevant publications and total citations, while physical
sciences, social sciences, and humanities are behind significantly. Nevertheless, there
is evidence of research collaboration between different research areas, increasing the
importance of non-health scientific disciplines. The researchers also revealed a need
for an approach that considers various scientific disciplines to benefit evidence-based

policymaking as part of efforts to respond to the pandemic.
However, those studies hardly consider how the COVID has affected all the tech-
nologies and how those technologies would change the working conditions and labor
market. The supply and demand in the labor market are related to the different R&D
databases. Namely, the demand is mostly reflected in the patents, whereas the supply
should be presented in the databases of Ph.D. theses. Therefore, the documents from
those databases related to the same technologies should be accurately linked together.
The researchers usually utilize standard scientometric and patent databases, which do
not support topical similarity searches for patents and research papers. Therefore, the
accuracy of that research often depends on the granularity of the used classification
system (IPC, CPC, etc.). In this paper, we tackle this problem with state-of-the-art
text-mining methods to reveal exact topics and documents that emerged in the COVID
era. Thus, the COVID-19 pandemic-induced lockdowns and related global recession
of 2020 have created a highly uncertain outlook for the labor market and accelerated
the arrival of the future of work, and companies have to restructure requirements and
skills to workers in response to new technologies and new challenges.
In this study, we propose a text mining pipeline to reveal the growing topics in
patenting, and; therefore, to identify employers and employees that can be positively
affected by the pandemic. The pipeline has the following primary steps (Fig. 1).
Fig. 1 Text mining pipeline to detect the impact of pandemic on the labor markets
1. Collect data corpora. The corpora contain Russian and US patents from 2019 to
2020 and Russian Ph.D. theses from 2005 to 2020 (More than 1 million full-text
documents) [8, 23].
2. Detect the skyrocketing lexis and IPC codes.
3. Use the codes and lexis to extract R&D topics that have been transformed
positively.
4. Reveal relevant Academia, R&D, and production centers. R&D and produc-
tion centers can be considered as the primary potential employers, whereas
universities are the primary sources of qualified labor.
We use the Priorities search and analytical system to perform the basic operations like
collecting and indexing text databases, extracting the document metadata (authors,
affiliations, etc.), extracting keywords of documents and collections [19]. The Prior-
ities supports the topical similarity operation that helps to automatically link patents
and other types of R&D documents [20].
We also utilize the approach from [18] to detect the lexis from growing patenting
topics. Namely, we evaluate the idf score of each token t in the corpus. Also, we
evaluated the idf score for each part of the corpus related to particular year y. Finally,
we calculate the difference between those scores and rank the tokens regarding that
difference multiplied on their frequency (tf ) (Expression 1):
id f (t, y) = id f (t) − id f (t, y) (1)
We generate the top-ranked lexis (keywords and phrases) for 2019 and 2020
related to the different high-level directions of patenting (A–H), and then we detect
the difference between them. Therefore, we detect the emerging technologies. The
reason for that emerging can be different from the pandemic; therefore, the extracted
topics should be validated manually.
Finally, we use the topical similarity operation to collect the patents, similar to
the obtained keywords for each emerged topic [20]. The owners of those patents
can be considered potential employers. Then we apply the same method to find the
Ph.D. theses, which are similar to those patents [20]. We consider affiliations of those
theses as the potential education centers, which can provide qualified personnel to
those employers.
4 Skyrocketing Topics
Acceleration of digitalization in the context of the COVID-19 pandemic led to oppor-

tunities for innovation and patenting new technology to help prevent the next one
and respond to changes in consumer behavior and business practices due to travel
restrictions and social distancing. In current circumstances, patents could create
opportunities for exclusive rights and licenses in which investors and business part-
ners participate. The COVID-19 pandemic has increased the need for and interest in
Fig. 2 Growing patenting topics, associated with the pandemic
innovations across a wide range of essential technologies, particularly in the fields

of human health, retail trade, construction, agriculture, and digital technologies. The
pandemic also increases demand for improvements in technology for work remotely,
safer commerce, and social activities. Pandemic is coming up with ideas to meet new
needs and improvements in a wide range of other technologies (Fig. 2).
The pandemic creates immediate needs for technology to prevent, diagnose and
immunize against infection, and treat patients with COVID-19. According to our
research, the most growing patenting topics of gene therapy and anti-infective became
recombinant DNA technology and heterocyclic compounds construction. In the infor-
mation and communication sphere, the most popular technologies were wireless
resource allocation, wireless channel access, circuit arrangements for providing a
remote indication for network condition.
5 Potential Employers and Educational Centers
The most significant number of patents on technologies related to human necessities

is concentrated in four huge organizations: Rostselmash LLC, “National medical
research center of radiology” Ministery of Health of Russian Federation, “MES”
LLC, CJSC “Production Association “Specavtomatika” (Table 1a). Rostselmash is
one of the largest developers and manufacturers of agricultural machinery and its
innovation center, experimental base, modern production of a complete technological
Table 1 Primary potential employers and educational centers in human necessities, chemistry and
metallurgy
Potential employers Patents Educational centers Ph.D. theses
(a) Human necessities
“ROSTSELMASH” LLC 18 South-Ural State Agro 9
University
“NATIONAL MEDICAL 16 Far-East State Agro 4
RESEARCH CENTER OF University
RADIOLOGY”
“MES” LLC 15 Penza State Agro University 4
CJSC “PRODUCTION 13 Polzunov Altai State 4
ASSOCIATION Technical University
“SPECAVTOMATIKA”
“CHKZ” LLC 8 Nizhny Novgorod State 3
Pedagogical University
“FARMINTERPRISES” LLC 5 Ural State Pedagogical 3
University
“IQ VITAMINNAYA STUDIYA” 5 Central Research Institute of 3
LLC Epidemiology
“ALTONIKA” LLC 4 Voronezh State University of 2
Forestry and Technologies
“KHIMFARMTECH” LLC 4 Astrakhan State University 2
“VALENTA INTELLECT” LLC 4 Russian State Agrarian 2
University
“FBK” LLC 3 Moscow State University for 2
The Humanities
“GORODSKYE TEPLITSY” LLC 2 Herzen University 2
Saint Petersburg State 2
University
(b) Chemistry and metallurgy
NATIONAL RESEARCH CENTER 16 National Research Center of 20
OF EPIDEMIOLOGY AND Epidemiology and
MICROBIOLOGY Microbiology
STATE RESEARCH CENTER OF 10 Moscow State University 6
VIRUSOLOGY AND
BIOTECHNOLOGY “VECTOR”
FARMINTERPRIZES LLC 4 Research Institute of 3
Virusology named aft. D.
Ivanovsky
INSTITUTE OF BIOORGANIC 2 Russian Research institute of 3
CHEMISTRY RAS agrobiology
GENETIC DIAGNOSTICS AND 2 Moscow State Academy of 2
TERAPY 21 LD Precise Chemical
Technologies
(continued)
Table 1 (continued)
REKOMBITECH LLC 2 Moscow State Academy of 2
Veterinary Medicine and
Biotechnology named aft K.
Skryabin
CJSC “BIOCARD” 1 Russian Research Institute of 2
Veterinary Virusology and
Microbiology
“GENNAYA I KLETOCHNAYA 1 Research Institute of Vaccines 2
TERAPIYA” LLC and Serums them. I.I.
Mechnikov
VIRIDANCE LLC 1 Moscow State University of 2
Applied Biotechnology
State Research Center for 2
Applied Microbiology and
Biotechnology
cycle. Among the educational centers, we could single out the undisputed leader in
the number of theses—South-Ural State Agro University (Chelyabinsk).
The analysis results showed that the two largest scientific centers of Russia in
the field of chemistry and metallurgy are leading by a large margin in the number of
patents. Those centers are the National Research Center of Epidemiology and Micro-
biology named aft N. Gamaleya (Moscow) and State Research Center of Virology and
Biotechnology “Vector” (Novosibirsk). The absolute leader in the number of disserta-
tions in this field is the National Research Center of Epidemiology and Microbiology
(Table 1b).
The largest number of patents in the Physics belongs to YANDEX (Table 2a).
Theses on this topic are most actively defended at two well-known Moscow univer-
sities—State University of Management and Bauman Moscow State Technical
University.
The analysis showed that “Sozvezdie” has the highest patent activity in the Elec-
tricity area (Table 2b). Concern “Sozvezdie” is engaged in the development and
production of high-tech intelligent control and communication systems, electronic
warfare, and special equipment. All those products meet the needs of the Armed
Forces and other special formations, modern systems, and tools, as well as civil and
telecommunications products based on the latest scientific and technological achieve-
ments and innovative technologies. Three organizations demonstrate high patent
activity: the company “National radiotechnical bureau”, the 16th Central Research
Institute of Communications, the company MTS. The company “National radiotech-
nical bureau” is actively involved in the modernization and creation of new air naviga-
tion systems, the development of automated control systems, technical and software
tools for testing complex systems. The 16th Central Research Institute of Commu-
nications conducts applied scientific research in building systems, complexes, and
military communication of strategic, operational, and tactical management units.
Table 2 Primary potential employers and educational centers in physics and in electricity
(a) Physics
YANDEX, LLC 7 Bauman Moscow State 2
Technical University
FRESH MARKET, LLC 2 Moscow State University of 2
Service
OBOZ, LLC 2 State University of Management 1
33rd Central Research Test 1 Izhevsk State technical 1
Institute of Ministry of Defence University
IOFFELED, LLC 1 Moscow Technological 1
University
NANO VISION, LLC 1 Vladimir State University 1
All-Russian Research Institute for 1 Moscow State University of 1
Optical and Physical Measurements Applied Biotechnology
SKHOLKOVO INSTITUTE 1 Saint Petersburg State Technical 1
University
VENDING TRADE, LLC 1 Peter the Great St. Petersburg 1
Polytechnic University
GRAND GEKTOR, LLC 1 National Research University of 1
GCC ENGINEERING SERVICE, 1 Electronic Technology
LLC
INNOVATIKA + , LLC 1
LINKOR, LLC 1
PLATFORMA, LLC 1
YANDEXMARKET, LLC 1
MONITORING, LLC 1
(b) Electricity
JSC CONCERN SOZVEZDIE 23 Moscow Technical University of 17
Communications and
Informatics
JSC NATIONAL 7 Nizhny Novgorod State 6
RADIOTECHNIC BUREAU University
JSC MTS 6 Moscow Power Engineering 3
Institute
16th Central Research Institute of 6 Izhevsk State Technical 3
Communications University
JSC POLYUS Research Institute 5 Voronezh State University 3
JSC Television Scientific Research 5 Novosibirsk State Technical 2
Institute University
RUSSIAN FEDERAL NUCLEAR 4 Vladimir State University 2
CENTER
(continued)
Table 2 (continued)
ROSATOM 4 Ryazan State Radio Engineering 2
University
QANTUM A RUS, LLC 4 Bonch-Bruevich St. Petersburg 2
State University of
Telecommunications
JSC Omsk Scientific-Research 4 Kazan State Technical 1
Institute of Instrument Engineering University
INTERCONNECT, LLC 3 MIREA—Russian 1
Technological University
QANTTELECOM, LLC 2 Peter the Great St. Petersburg 1
CIT, LLC 2 Polytechnic University
MTS is the largest mobile network operator in Russia, operating on GSM, UMTS,
and LTE standards. The strong leader on a number of theses is the Moscow technical
university of communications and informatics.
6 Conclusion
Accelerating digitalization under the impact of the pandemic of COVID-19 is consid-

erable. It has been directly affecting nationals and global markets and has led to large-
scale socio-economic and technological transformations in different business areas
worldwide. Large datasets of full-text R&D documents, popular scientific publica-
tions, and media news reports can be used to reveal possible directions of working
conditions transformation and changes in professions.
Innovations spurred by the COVID-19 pandemic will advance public health,
improve health care delivery, save lives, and improve industrial, medical, and
consumer technology in general. Patent protection can help ensure that these tech-
nological improvements can be developed and refined to have their most significant
impact.
The paper presents the results of a study of possible directions of transformation of
working conditions and changes in the most popular professions based on the analysis
of large arrays of full-text scientific and technical documents (scientific publications,
dissertation abstracts, USPTO, and FIPS patents), popular scientific publications
and media news reports, carried out with the search and analytical system “IAS
Priorities”. We have detected promising R&D directions and economic activities,
which grew in 2020: agriculture machinery, pharmacology, diagnostic tools, logistics,
wireless technologies. We have detected some Academia and production centers
within those directions, considered potential producers and labor consumers. In future
research, we will conduct this analysis, mainly based on Russian theses and patents
to new stages, emphasizing the role of human resources in digital transformation and
meeting the enlarged and new needs showed the pandemic.
These results can be used by federal and regional authorities to assess various
restrictive measures in Russian regions and formulate priorities for supporting the
population and business in the pandemic of COVID-19. The COVID-19 pandemic is
forcing governments of all countries to turn toward digital technologies to respond
to the crisis in the short term. Navigating through these challenging times requires
governments and businesses to reinvent existing policies and tools of human resource
management in the long term. Therefore, understanding the current state of science
and technology using the scientific and patent landscape methods is essential for
setting priorities in determining government tasks and topics of grant programs for
research organizations and higher educational institutions.
Acknowledgements The reported study was funded by RFBR, project number 20-04-60188.
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Lecture Notes in Information Systems and Organisation 54

More information about this series at https://link.springer.com/bookseries/11237

ISSN 2195-4968 ISSN 2195-4976 (electronic)

Drivers and Effects of Digital Transformation in Industry

The rapid development of information technology has led to limitless possibilities

Bristol, UK Vikas Kumar

• Gives insights into the latest research in the digital economy

Digital Twins in the Industry: Maturity, Functions, Effects . . . . . . . . . . . . 1

Towards Digital Twins for the Development of Territories . . . . . . . . . . . . . 121

Digital Transformation of Russian Industry: The Specifics

Dr. Victoria Akberdina is Deputy Director of the Institute of Economics of the

Evgeny Kuzmin is Researcher (Academic) of the Department of Regional Economic

Keywords Digital twin · Industry transformation · Digital twin maturity

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 1

3.1 Definition of the Digital Twin Concept

3.2 Key Features of a Digital Twin

Table 1 Approaches to the digital twin definition

• A model that represents the most accurate virtual representation of a physical

Physical characteristics and processes

Data on the object

Object visualization, decision-making assistance, simulation, and

Fig. 1 Digital twin structure

3.3 Classification of Digital Twins by Maturity Level

The variety of approaches to the understanding of digital twins leads to various

3.4 Technological Base of the Digital Twin

• accurate modeling of geometry, physical properties, and behavior of a physical

Big Data VR/AR

Multidisciplinary modeling Software for technical analysis

Industrial robots, CNC, additive technologies, drives MES, APS, ERP

Sensors, scanners, Object status tracking

Fig. 2 Providing technologies on the digital twin maturity scale

3.5 Application of Digital Twins in Industry

Table 3 Economic effects of using a digital twin

Carolina Bandeira , João Barata , and Nuno Roque

Keywords Digital twin · Enterprise architecture · ArchiMate · Refrigeration · Air

C. Bandeira (B) · J. Barata

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 13

The remainder of this paper is structured as follows. Section 2 presents background

2.1 Digital Twins

Fig. 1 Bibliometric analysis of digital twin literature in Web of Science

2.2 The Role of Enterprise Architecture in Digital Twin

The EA can be referred to as “a coherent whole of principles, methods, and models

Many EA frameworks have been developed. For example, TOGAF, DoDAF,

analysis confirmed the necessity to create EA modeling approaches to align busi-

Design science research (DSR) is a popular research approach in studying infor-

Problem Research Process Solution

Input Knowledge Concepts Output Knowledge

and regulatory environment and contribute to the development of the refrigera-

an architectural approach to digital twin development can be valuable to industrial

4 Architecting Digital Twins in the Refrigeration and Air

4.1 Digital Twin-Driven Sectoral Architecture—Strategy

4.2 Sectoral Landscape for Digital Twin Developments

4.3 Air Conditioning Digital Twin Model

The model shown in Fig. 5 provides an overview of the Technology, Application,

the different stakeholders. Making a bottom-up interpretation, the Technology layer

Enterprise architecture is an exciting approach to identify the current landscape of

work may contribute to strategic enterprise architecture modeling [31] of sector-

The suggested principles complement the well-known practices for EA development

This paper presented an architectural approach to evaluate the potential of digital

Ekaterina Sycheva and Polina Shpak