InsightaaS: Does anyone still remember when we talked about the ‘old economy’ – the one based on manufacturing products – and the ‘new economy’ that delivered technology-enabled services? This used to be a compelling divide, but the services sector continued to grow, and technology-enabled manufacturing processes (and a general shift towards offshore manufacturing) reduced the jobs associated with traditional industries and industrial activities.
Fast forward to today, and the distinction itself has begun to collapse. With the ‘Industrial Internet’ – the phrase that (as we’ve noted in the past) is often applied to the ‘blue collar’ aspects of IoT – traditional manufacturers are positioned as key participants in the next ‘new economy’ wave. The industrial branch of IoT is hungry for the massive amounts of operational data that smart machines can throw off. But what steps to the makers of industrial products need to take, to capitalize on the new opportunities presented by the Industrial Internet? A recent piece by Boston Consulting Group (BCG), which describes itself as “a global management consulting firm and the world’s leading advisor on business strategy,” highlights six questions that are critical to the development of equipment manufacturers’ strategy. BCG urges these firms to ask, “How is data creating new value?” to understand how customers will benefit from data from the equipment. The firms next need to understand how fast new business models will emerge, so that they are able to align investments with opportunity, and to explore how industry structures will change, so that they are able to identify the key points at which they do or might create value, and the relationships needed to capitalize on this value. The final three questions look at how to operationalize these understandings: “How do we play in this space? What capabilities do we require to win? And how do we get started?” Inevitably, some of these answers will indicate a need for connections with ‘new economy firms’ – software developers, cloud service suppliers, analytics firms, and experts from management consulting companies like BCG. In the Industrial Internet, there is no ‘old’ and ‘new’, just a large and data-hungry economy.
The Industrial Internet is here: smart, connected machines generating prodigious amounts of data that can be analyzed to improve operations. Inexpensive sensors, ubiquitous connectivity, the ever-declining cost of microprocessors and storage, and the emergence of cloud-based storage and software have made this shift possible. Traditional capital-equipment suppliers–which have historically focused on mechanical- and electrical-engineering disciplines–will need to rethink their business models and respond with new data- and software-enabled services. Implemented correctly, these new business models will allow suppliers to strengthen their ties to the customer and create new revenue sources.
There is tremendous value at stake. For downtime-sensitive applications–including, manufacturing and process industries–such technology can provide predictive-maintenance services that increase equipment reliability. For example, Trane, a wholly owned subsidiary of Ingersoll Rand, makes HVAC systems embedded with digital sensors that allow the company to resolve nearly a third of customer problems remotely. Similarly, equipment providers can analyze customers’ equipment data and provide services to improve performance: the potential increase in productivity through optimized, data-driven operations for customers can drive productivity increases of up to 30 percent.
Yet while the promise of the Industrial Internet is significant, incumbent suppliers will need to take specific measures in order to capture that promise. Intermediaries such as system integrators and software companies are marketing “smart” everything and positioning themselves to capture the data and software layers within existing processes. New start-ups are also forming to provide data-hosting and analytics services to equipment customers. For example, there are hundreds of start-ups providing fleet management software for truck operators, potentially disrupting truck OEM and fleet operator relationships.
Given these shifts, equipment suppliers need to rapidly define their strategy to capture the potential of the Industrial Internet…
