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Perspectives

IoT: The Key for Industrial Organizations in the Digital Age

2017-05-16


Most European manufacturers will make IoT investments in the next three years, with an eye toward cost-cutting and establishing new value streams.

Internet of Things (IoT) is a top driver of needed change for industrial companies throughout the world, with nearly three-quarters of European manufacturers expecting to increase their IoT spending in the foreseeable future. 

This is a key finding from recent research we conducted with Pierre Audoin Consultants (PAC), which is part of CXP Group. Based on interviews with 250 senior-level business and IT decision-makers, the study was designed to explore how European industrial companies are approaching IoT initiatives from an investment, implementation and strategy perspective. 

Meanwhile, we conducted our own study of 2,000 global executives to uncover the key changes for businesses and jobs, thanks to the influx of new digital technologies. And for manufacturers globally, IoT is one of 10 technologies — including artificial intelligence, physical robots and process automation — that’s expected to surge in terms of its business impact between now and 2025. 

Figure 1

In Europe, industrial companies — pressured by competitive and fragmented markets, ongoing economic headwinds and growing operational costs — are under the gun to find new value in the manufacturing ecosystem. Using new digital technologies and approaches, they are streamlining operations, launching new products and services, creating new customer channels and developing new business models.

Chief among these approaches is IoT. Little wonder: IoT solutions provide real-time insight into assets and machinery that can not only improve operational efficiencies but also move the company up the value chain and enable new revenues streams. Embedding IoT into the end product also creates a real-time connection with the customer, which can be used to deepen relationships and develop valuable new services.

Examples abound:

  • ESAB in Sweden cut time to market by 40% by collecting equipment performance data through IoT. 

  • Philips evolved from a light bulb manufacturer to a provider of smart lighting solutions by implementing IoT into its products.

  • Rolls Royce embedded IoT sensors in its jet engines and now streams data to monitor jet performance and run predictive analytics for customers.

  • ThyssenKrupp in Germany embedded IoT into its elevators and now offers predictive maintenance solutions and services. 

Key Findings

Here are key findings from our study with PAC:

  • 72% of industrial companies in Europe will increase their IoT spending in the next three years. Discrete manufacturers (75%) were somewhat more likely to invest in IoT than those in the process manufacturing segment (67%), which makes sense given the strong consumer-facing orientation of segments such as automotive, consumer goods and electrical appliances.

  • 60% of respondents were already at the implementation phase of their IoT initiatives, though mainly in the proof-of-concept stage.

  • Cost reduction was named as the biggest driver for IoT initiatives, according to 89% of companies. This finding does not come as a surprise as many of these companies have tight margins and expensive industrial machines and systems integrated into complex production processes. Industrial companies are looking for IoT solutions that integrate their operational technology with existing IT infrastructure, including applications such as predictive maintenance or asset monitoring.

  • Product improvement and new business models took second place, showing the potential for IoT investment to contribute to top-line growth. In this case, IoT applications have the potential to turn manufacturers into service providers. Examples include smart, connected wearables and home appliances. Such services can either be free and serve as a differentiator or can generate additional revenue streams, such as connected car services.

  • IoT investment decisions are mostly made within IT departments, although top business executives have considerable influence in certain countries (such as Germany) and when initiatives are enterprise-wide. Companies should forge closer working relationships between business and technology decision makers, as business leaders have considerable influence in shaping the direction of IT investment. They also need to scale the innovation happening at the edges of the business and build best practices into the heart of the organization. This is often achieved by establishing centralized digital units headed by chief digital officers or maybe even chief IoT officers that overlook the entire spectrum of IoT initiatives.

  • Most respondents (71%) believe they’ll realize the ROI of their IoT investments in one to three years. To realize ROI sooner than later, we believe industrial companies should have a formal IoT strategy that encapsulates three types of initiatives: Smaller scale projects that prove IoT benefits, perhaps with help from smaller, innovative third parties such as start-ups; medium-term initiatives, involving a rethink of entire processes and ensuring the business can operate more efficiently; and larger scale initiatives to develop new products or strategies to access additional revenue streams. These larger projects should only be started once a certain level of internal efficiency is achieved, and companies should pursue these with the help of third-party specialists.

  • For 70% of companies, data security and privacy concerns top the list of IoT challenges. IoT significantly increases the number of potential entry points into the network. With IoT, every connected machine or asset becomes an endpoint that could potentially be breached if not properly secured. 

  • While 30% of companies are already leveraging IoT data in their day-to-day business decision-making, many more (54%) plan to do so in the next three years. One of the most important pieces of the IoT strategy puzzle is data.  Whether with the help of third parties or on their own, industrial companies need to have a strategy in place, as well as the supporting infrastructure in terms of cloud-based tools and applications that can accommodate the analysis of vast amounts of data coming from IoT devices.

  • More than 50% of companies are heavily involved with IT services companies and consulting firms to get assistance with IoT. Despite showing a certain level of confidence in their internal ability to deploy IoT, industrial companies are working very closely with the third-party providers. 

IoT solutions can open the gates for innovation and enable industrial organizations to renew their value proposition by offering new services around connected products, as well as gather customer data for insights and monetization. Among the many digital solutions available today, IoT will be vital for manufacturers everywhere to compete in the digital age.

For more information, see our co-authored report with PAC, “Digital Industrial Transformation with the Internet of Things,” and our The Work Ahead research series. 

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IoT: The Key for Industrial Organizations in the Digital Age