An Executive’s Guide to Industry 4.0, Smart Factories and Beyond

The adoption of IIoT technology is steadily maturing, but many organizations feel they are still at the starting gate. This sense of falling behind is magnified by the findings from the recent scholar exchange paper by HCL Technologies and MIT Sloan Management Review. The paper revealed that 43 percent of industrial IT and business decision-makers believe that their failure to “fully harness IoT capabilities” has had an adverse impact on customer satisfaction. Research from BPI Network last year found that 30 percent of executives rank their organizations as being weak in terms of “IIoT readiness.” Only 9 percent of respondents said their industry had begun widespread adoption.

One reason it is hard for organizations to launch truly transformative IIoT initiatives is the difficulty in understanding its true power to transform their business. While buzzwords like “digital transformation” often tend to pop up when describing IIoT initiatives, they tend to be at a high level and not tailored to the specific needs of a given industry. While it may be straightforward to launch a single IIoT project, scaling adoption across the organization remains a challenge.

This article maps out the benefits that industrial companies can expect to achieve using IIoT technology and smart factories, starting with straightforward improvements in efficiency, customer experience and safety and touching on fundamental business transformation as the end goal.

Process efficiency. This is one of the most common uses of IoT technology in smart factories today. According to research from HCL Technologies and MIT, this stage is the “low-hanging fruit of IoT” involving “gathering information from connected devices to improve operations.” In the logistics sector, trucking companies use connected sensors to detect a mechanical problem before it turns into a breakdown. If the vehicle needs maintenance work, connected trucks can automatically suggest the nearest repair shop. PwC estimates that remote diagnostics can curb maintenance costs by as much as 5%. Examples of this basic principle are commonplace throughout the industrial sector. A 2016 PwC survey reported that at least one-third of industrial companies expect to achieve efficiency gains and cost savings of more than 20% by deploying Industrial IoT technology.

Ultimately, many industrial firms hope to be able to predict mechanical problems before they occur. “But preventative maintenance is not a standard practice yet,” says Steve Brumer, partner at 151 Advisors. Brumer recommends that companies pondering such projects start by building network operations centers (NOC) to help them manage customer service. Once these NOCs are in place, these companies can add sensors and cameras to transmit real-time machine operation data to help managers keep tabs on operations—with the goal of pursuing full-fledged preventative maintenance in the future, he says.

Customer experience. Whether it was the explosion of the PC market in the 1990s or the quick growth of the Internet, mobile technology and apps that followed, many technologies that succeed in changing the world do so by transforming user experience. The Internet of Things can accomplish this objective in a plethora of ways. “Hotels are a great example of this,” says Andy Rhodes, vice president and general manager of IoT Commercial Solutions at Dell. Let’s say you are checking into a hotel in Asia after traveling for 24 hours. “The last thing you want to do is to go wait in line to get your key,” Rhodes says. “And then let’s say you get up to your room and it’s 100 degrees, and you have to put [the] key card in a slot to be able to turn on the electricity and then wait another half an hour for the room to cool down.”

An IoT solution to this problem would be to use technology to anticipate when guests arrive at the hotel. “They can track my phone if I give them permission,” Rhodes explains. “When I arrive, they can send me a text with my room number, transforming my phone into my room key, and cool the room down to the temperature set in my profile before I walk in the door.”

Safety. Internet of Things has the potential to help protect workers in hard-hat jobs in smart factories, oil rigs, mines and so forth. Consider that, as recently as three decades ago, British miners would carry caged canaries with them to detect the presence of carbon monoxide and other toxic gasses. The idea behind the practice is that the gases would kill the birds before the miners, thus giving the workers a warning to evacuate before carbon monoxide asphyxia takes place. A more modern approach is to use connected gas sensors to detect such gases. IoT sensors can also detect weakening shafts within mines to identify a mine collapse before it happens. As of 2014, the mining and energy sector was the top vertical investing in sensors, according to PwC.

New incremental revenue streams. Organizations deploying Internet of Things technologies have the potential to drive efficiency gains and create new revenue streams and ultimately transform their entire business. The last objective, however, often requires a reinvention of the organization as a whole.

Consider the case of elevator and escalator manufacturer Schindler Holdings AG. The company noted that the majority of its operating profits came from maintenance of its products, observes Stephanie L. Woerner, a research scientist at the MIT Sloan Center for Information Systems Research. Deploying IoT technology enabled the company to base its maintenance on data generated by elevators, but the data has also enabled the company to begin offering building management services.

For an elevator company, deploying IoT technology offers a range of possibilities for new revenue, says Dell’s Rhodes. An elevator company could launch a new advertising service, putting digital signage in elevators connected to 3-D cameras that can categorize people based on demographics. “The cameras can help determine the demographic makeup in the elevators,” Rhodes says. “Is it mainly middle-aged dudes? Teenage girls? You can then tailor advertising to the people in the elevator.”

Business transformation. This level is the hardest to conceptualize and the toughest to pull off because it requires organizations to rethink basic operations. Returning to our elevator example, a company seeking to reinvent its business with IoT could shift its entire business model. Instead of selling rectangular steel cages that transport people up and down buildings, the company could begin selling rides per floor per person. “This is a significant mental leap: You are now leasing the elevator to a business manager as a service,” Rhodes says.

This shift to providing services requires a manufacturer to develop expertise in services to understand how its products interact with larger systems. This transition is evident with the hypothetical elevator company. Another example would be a company that sells pumps and valves for buildings that is looking to transition to a service-based business. “Now they are going into building management solutions,” Rhodes says. “You can play that one step further: What if I am managing 50,000 buildings and I start to look across the buildings and notice patterns between similarly sized buildings? I notice, for instance, that one building is using 30% more electricity because the HVAC is 25 years old and inefficient. I can take that data and sell it to a local Houston HVAC reseller. In this example, I went from selling pumps to selling data in a very short space of time.”

But achieving such a transition is not easy. In the elevator example, just installing digital signage capabilities into elevators is a pronounced shift. “Think about the new people that elevator company has to hire, above all marketers. An elevator company with digital signs might now be competing against companies like Facebook, Instagram and Google for advertising skills. It’s a complete shift,” he adds.

But the change doesn’t stop there. The elevator manufacturer’s sales department has to change fundamentally. “You have to rewire your whole sales organization,” Rhodes says. “Maybe you have to change your order entry systems to modify how you accept recurring payments from customers.”

“Forget IoT,” Rhodes says. “Technology is the easy part. Real digital transformation requires a new type of leadership, carefully thinking about which processes need to change and which skill sets you’ll need. I think a lot of companies figure that this out during the proof-of-concept phase. They don’t architect their business processes for these changes up front.”

According to Bill Roberts, global IoT practice director at SAS, an organization that can effectively sell a long-term service contract is well poised to make the leap from offering services that support the operation of the product, to offering the product capability as a service. “Understanding data and making data-based decisions are critical components of this transformation,” Roberts says.

“As they move through the IoT continuum, we’ve observed our customers become progressively better experts in the data surrounding their business,” he adds. “As their data awareness increases, so does their analytic competence.” That competence can spark dramatic change. Roberts concludes: “Who knows: The opportunity for organizations to capitalize on data may even go beyond offering their product as a service.”