IIoT as an enabler for digital transformation & disruptive business models in industrial organizations

Using technology to improve business processes isn’t new, but digital transformation takes that to a different level by enabling the creation of new products, changing operating dynamics and delivering greater value to customers, employees, and shareholders.

Consider new financial services entrants who have transformed the personal loans process. Traditional banks can take despairingly long – often weeks – while FinTech firms are helping to process loan requests within minutes. Or tech companies who have moved to software-as-a-service (SaaS) for product delivery and dispensed with the annual re-purchase cycle. In fact, so pervasive is the new model, investors shun companies that don’t operate a SaaS model. And it's not just software that's gone subscription either: news, music, gaming, even tires can be bought the same way.

For industrial organizations that think it won't happen to them, or they’ll get around to it later: beware. There’s a growing imperative to act now as customers and competitors — established players and new entrants — embrace the benefits to shape a new and different future.

To be successful, digital transformation requires far-reaching change inside the organization: people, process, culture, partnerships and, of course, technology. All are equally important, but in this article, I’ll focus on The Industrial Internet of Things (IIoT), which is a particular enabler for transformational change in industrial organizations.

IIOT IS BECOMING UBIQUITOUS

We're all familiar with consumer-facing IoT devices — the voice-activated virtual assistant, smartwatches, home control or security devices — but the biggest benefit will be to industrial organizations. IDC forecasts global spend on IIoT to reach $745 billion in 2019, with discrete and process manufacturing leading the way, closely followed by transportation and utilities.

IIoT refers to interconnected smart sensors and other devices networked together to allow data collection which can improve business performance and growth.

For IIoT to be effective it needs to be paired with supporting technology: connectivity, secure cloud computing and data management. (This is a broad subject and one I’ll return to later in this series but, for the moment, let’s stay focused on IIoT).  

Sensors have been included in some products for decades, especially on manufacturing lines where they interrupt production if there’s a problem. The difference now is rapid technology change has meant devices are smaller and can be placed almost anywhere, while high-bandwidth wireless (Wi-Fi, 4G and the imminent arrival of 5G) mean data can be gathered in real-time, moved quickly to cloud storage and analyzed using AI or other advanced analytic tools.

Over 80% of respondents to a recent survey of industrial firms have implemented, are running a pilot or considering the adoption of IIoT. Predictive maintenance was the most common reason for use, with 37% of respondents already using IIoT and 42% planning to do so. Other use cases that got a mention were quality control, metering, inventory management, safety, energy usage, and product life-cycle management.

Even a medium-sized business could have hundreds of IIoT devices capturing and sending data to operations, marketing, and accounting teams: IIoT can turn almost any activity or event into useful information.

IIOT IS A DISRUPTIVE FORCE

There are broadly two ways in which IIoT can disrupt an industrial organization: improving business performance by lowering cost and managing risk; and driving business growth through the development of new products and services, and improved customer experience.  

BUSINESS PERFORMANCE IMPROVEMENT

Lower costs through increased efficiency

Data from IIoT devices, such as yield monitors or flow control, allows a better understanding of business processes and operating dynamics, paving the way for better, quicker decision making and highlighting areas for improvement. For example, operations downtime is a major concern and IIoT devices assist preventative maintenance programs by gathering data on usage patterns and operating characteristics, such as machine vibration or temperature, that might indicate an imminent problem. Since some estimates suggest preventative maintenance can increase uptime by 9%, and extend asset lifetime by 20%, it’s easy to see the value IIoT can add.

They can also help transform traditional slow-moving supply chains into interconnected, intelligent and scalable digital supply networks, increasing speed and reducing inventory costs. Moreover, it will also improve delivery scheduling and speed and allow better SLAs to be written into customer contracts.

Improved risk management

Managing risk is one of the main worries for senior managers: get it wrong and the resultant business interruption could cost millions of dollars, attract attention from shareholders and regulators, and cause irreparable reputational damage.

Effective risk management depends on timely, comprehensive information, something that a distributed network of IIoT devices is well-placed to provide. Employee and plant activity monitoring can be used for health and safety evaluation, while product traceability and recall (PTR) is made easier by using devices to create a digital trail of the entire product journey, meaning only those products that are affected are recalled and the impact on end-users reduced.

Regulatory compliance is another important aspect of risk management, but meeting the requirements is expensive, in part because critical information is missing or spread across the organization and difficult to collect. Connected devices make sure the right data is available to create the required reports and to provide ad hoc information to inspectors during any unexpected site visits.

BUSINESS GROWTH

Create new products

Perhaps the most attractive opportunity for industrial organizations is the use of IIoT to enable a move away from a simple product to an 'as-a-service' model. This means the core product is enhanced with value-added services and offered as a new, innovative OPEX-based service that better meets customer needs while protecting their CAPEX budget. (it also gives the supplier a steady income stream, much-beloved by shareholders). Creating an 'as-a-service' offer by bundling products and a range of services isn't new — Rolls Royce launched their Power-by-the-Hour approach in 1962 — but what is new is the array of data that can be collected to improve the fit of the offering to specific customer requirements.

Providers of IIoT products have also grasped the opportunity offered by as-a-service. In response to client concern about the challenges of digital transformation projects — capital cost, technical complexity and lengthy project times — IIoT solutions provider, relayr, have added innovative financing options to their product range. Working with Munich Re, they've developed financial products for project funding, and a range of warranties — delivery completion within an agreed timeline and the achievement of well-defined business outcomes such as uptime, and cost savings — that de-risk client investment.

Another benefit of IIoT is channel disintermediation. For a long time, many industrial organizations have been one step removed from the end-user, and dependent on a distributor for sales, delivery and ongoing relationship management.  However, by incorporating IIoT devices in end-user products, suppliers can gather real-time information on product usage that can help them build a direct relationship with the end-user, creating a platform for future, independent, growth and changing the revenue makeup of the business.

Gathering data offers other benefits. Information on the performance of equipment subcomponents can be sold to or shared with suppliers, and data traffic volumes will interest tech vendors who can use it to support a business case to encourage the end-user to buy more product. Enterprising organizations could even use remotely located IIoT devices to monitor environmental data and sell the feed to weather forecasters.

Enhance customer experience

Far from being an optional extra, improving customer experience will also drive business growth, and IIoT can also make a difference here.

The days of sending a maintenance engineer on a three-day round trip to investigate an intermittent problem and return a week later to attend to the same issue, may not disappear completely but are on the way out, replaced by remote maintenance delivered over a network. Faults are attended to quicker; more expertise can be used if needed; and, ultimately, the customer gets an answer faster.

Additionally, those same remote devices can detect performance issues on the customer’s estate, allowing them to take remedial action and avoid potential failure and resultant business interruption.

MARKET CHANGES ARE ENCOURAGING IIOT UPTAKE

Having considered some general use cases and benefits, let’s briefly look at IIoT in three industries. 

MANUFACTURING

The time available for designing and manufacturing new products is reducing all the time. Most manufacturers have been through Lean Six Sigma several times and have squeezed as much as they can out of it. IIoT is the next big performance improvement opportunity, a fact underlined by the emphasis placed on it and related technology enablers by Industry 4.0.

IIoT devices help improve OEE (Overall Equipment Effectiveness, the gold standard for measuring manufacturing productivity) and make factories more efficient, effective and safer.

TRANSPORTATION AND LOGISTICS

IIoT is already making an operational difference to logistics processes.

In vehicles, monitoring systems capture driver activity such as aggressive acceleration or braking, record when doors are opened (unscheduled opening could indicate theft), pinpoint geolocation (to provide a real-time ETA to customers) and continually test tire pressure, coolant levels and many other operating parameters. While, in the warehouse, autonomous forklifts communicate with robot arms which keep stock-levels up to date.

UTILITIES

IIoT growth in utilities is forecast to grow to $15 billion by 2024, driven in part by 'smart grid' modernization schemes. These use IIoT to detect and react to local changes in usage, and allow the supplier to meet more challenging reliability, availability and efficiency objectives.

Government legislation that enforces energy or water conservation is also tightening and throws the responsibility onto suppliers to manage their network better otherwise face fines. In response, utilities are increasing the number and type of sensors deployed across their supply network to spot water leaks or broken circuits faster. 

INDUSTRIAL ORGANIZATIONS MUST HAVE A PLAN FOR IIOT EXPLOITATION

Industrial organizations are perhaps guilty of dismissing or at least ignoring, technology developments and wary of radical change, but it’s important to realize IIoT is here to stay and its effects are already being felt.

If in doubt, consider some practical examples:

In the manufacturing sector, data storage firm Seagate uses IIoT to make real-time decisions; vehicle transmission manufacturer AWNC partnered with Cisco to overhaul their shop floor, increasing quality and lowering costs; and UK home heating manufacturer Worcester Bosch is trialing 5G to run its network of factory sensors.

In transportation and logistics, an industry short of over 60,000 drivers, Mercedes Benz are readying a self-driving truck; Zeppelin Rental uses RFID to track and trace over 62,000 products across 120 stores, and The Bradfords Group uses IIoT to populate a driver behavior scorecard for their fleet of 700 vehicles.

And in utilities, Schneider Electric use data collected by IIoT devices to reduce corporate energy bills by up to 30%; Siemens use an IIoT network to manage hundreds of wind turbines and provide more consistent power generation as wind conditions change; and Nova Veolia is installing over 3 million intelligent water meters to help their corporate, government and retail customers manage water consumption. 

And Grohe, a world-leading provider of sanitary fittings, uses IIoT to alert homeowners of a water leak meaning they can respond fast and limit the damage. More than half of all households have suffered from water damage at least once, with homeowners having to cope with disruption and share some of the repair costs with insurers.

Recognizing the benefits of IIoT is only the start. For IIoT to be truly disruptive, organizations must change new technology, new ways of working, new skills.  And that’s the subject of my next article.

ABOUT THE AUTHOR

Lou Leuzzi is an accomplished Global Technology Executive with years’ of experience in the use of innovative solutions to improve top and bottom-line growth. For the past 20 years, he has focused on driving the adoption of business transformation and digitalization initiatives to increase business value for customers and drive business outcomes across all industry segments. He is passionate about where technology meets strategy by exploiting the transformative potential of the Industrial Internet of Things.