The Industrial Internet of Things (IIoT) has the ring of some disturbingly dystopian vision of the future. It feels daunting, sub-human. Put such thoughts to one side and it presents a myriad of opportunities.
First, let us try to understand the concept and the potential. In its report, “Driving Unconventional Growth through the Industrial Internet of Things,” Accenture describes IIoT: “combining sensor-driven computing, industrial analytics and intelligent machine applications into a single universe of connected intelligent industrial products, processes and services, the Industrial Internet of Things generates data essential for developing corporate operational efficiency strategies”.
Borders between mechanical engineering and software are getting blurred as the IIoT is impacting manufacturing. Industrial automation, which has been around for years, enriched by sensors, advanced robotics, artificial intelligence and big data technologies will radically transform manufacturing efficiency and innovation. We are moving from the Iron organization of the modern industrial era to the new “SoftwarIron” organisation of the IIoT era.
The trend is spreading across traditional industries. It has often been accelerated by the support of governments – for example, Industrie 4.0 in Germany. The future size of IIoT is huge according to research firms, which forecast about $320 billion of value creation by 2020. Others predict global IIoT investment will reach $500 billion by 2020, amounting to a 2,400 percent increase from 2012.
One side effect of the IIoT is that technology and software giants are emerging as new competitors in traditional industries. For example, Google and Apple plan to enter the automotive industry with self-driving vehicles and e-mobility solutions. They are also investing in “smart home” platforms which collect data from appliances, heating systems and other devices to optimise energy consumption. Google’s acquisition of Nest, the intelligent thermostat company, has been a wake-up call for the incumbent utilities and their centralised power production model.
The reality is that most incumbents have no choice: they need to transform themselves into SoftwarIron companies. And need to do it rapidly if they don’t want to be disrupted and dismissed by Google or the next digital upstart.
So, how should Industry 1.0 companies best respond? There are two challenges to address. First, how software capabilities can be acquired and developed. Second, how to integrate these software capabilities and people within a traditional industrial culture and environment.
Acquiring and developing software capabilities
A company can decide to develop the software capabilities it needs in-house. The most striking example of this is the archetypal Industry 1.0 organisation, General Electric. Embracing Industry 4.0 with gusto, since November 2011 it has developed a GE Software Center of Excellence based in San Ramon, California. This has involved investing more than $1 billion, recruiting hundreds of employees, and working on a new common platform for the businesses in the GE group worldwide. Through these efforts GE has launched GE Digital – a new independent business unit – and several solutions, mainly in the maintenance field, through the Predix. The technology revolution is spreading across GE businesses and is reshaping the company business model with an increased use of pay-for-performance schemes
While the GE case is clearly successful, developing software capabilities from scratch is time and capital intensive. For other players this might be a complex option and they need to think at alternative paths.
Integrating software capabilities and talents
Even if a company is successful in acquiring talents and capabilities, the next challenge is even bigger. The business mindset of a manufacturing organisation is dramatically different from a software organisation. Engineers aim at building highly reliable processes and products and are generally risk-adverse. Meanwhile, in the world of software and data, solutions are quickly changing. Speed, risk-taking and experimentation are critical capabilities. The two worlds have different norms and cultures. Industrial companies struggle to manage something outside their comfort zone.
The challenges ahead could be perceived to be so daunting that industrial companies might decide to postpone any investment and decision. This would be the worst thing they could possibly do. The future is now and IIoT is going to disrupt most of the traditional industries. There are no simple solutions and only very few companies are addressing these challenges seriously across the globe. And even fewer have been successful so far.
But there is no time to wait for management practices to consolidate. Disruption works faster than the normal management research cycle. Every business leader in an industrial company needs to act now. Ask yourself: what is your IIoT strategy?
- This post gives the views of its authors, not the position of LSE Business Review or the London School of Economics.
- Featured image credit: KIT TECO CC-BY-2.0
Alessandro Di Fiore is Founder and CEO of the European Centre for Strategic Innovation (ECSI) and ECSI Consulting London. He is a consultant, author and media commentator on strategy and innovation. He has recently been listed in the Thinkers50 Radar of 30 global thinkers to watch in 2016.
Paolo Cervini is a Director at ECSI Consulting. He has 20 years in management consulting for multinational and national companies across Europe and the US on strategy and business transformation. His expertise is in innovation, profitable growth, commercial excellence and organisational change.