LONG-TERM PROSPECTS FOR THE INDUSTRIAL INTERNET OF THINGS REMAIN AMBITIOUS, EVEN AS CUSTOMERS STRUGGLE TO IMPLEMENT SOME EARLY SOLUTIONS

29 May 2019 – Long-term prospects for the industrial Internet of Things (IoT) remain ambitious, even as industrial companies have found integrating IoT use cases into their existing operational technology and IT systems more challenging than expected.  As a result, customers’ expectations for implementation have cooled over the last two years.

Dr. Houssem Jemili, Partner in digital practice at Bain & Company Middle East, shared, “The future looks bright in terms of prospects and opportunities surrounding industrial IoT in the Middle East—however, the strong outlook seems to remain untapped as majority of today’s users are still trying to figure out how to fully maximize the use of current solutions.”

Results of a Bain & Company survey of IoT customers, detailed in a new report, Beyond Proofs of Concept: Scaling the Industrial IoT, reveal that in 2016, 60 percent of respondents expected to be at the implementation stage by 2020. In the 2018 survey, expectations for IoT implementation dampened slightly, hovering closer to 50 percent, and survey respondents now believe it will take longer to reach scale than they originally anticipated.

“While short-term challenges abound in the industrial Internet of Things, we believe long-term progress remains on track,” said Michael Schallehn, a partner in Bain & Company’s Technology practice.  “Given the progress in sensor technology, 5G connectivity, edge computing and edge analytics, and an estimated 20 billion devices that need to be connected by 2020, there’s little doubt of the potential for IoT and analytics technologies to deliver vast improvements in efficiency.”

But first, industrial customers need to overcome several barriers to adoption.

According to Bain & Company’s 2016 survey, customers were most concerned about security, returns on investment, and the difficulty of integrating IoT solutions with existing IT and operational technology. In 2018, security and integration were still top concerns, indicating that tech vendors have not made much progress in addressing these. Additionally, recent research found that as an organization becomes more technologically mature, concerns about security actually increase – so the challenge continues to grow.

In the 2018 survey, the issues that weighed heavily on industrial customers were those that arose during implementation – in particular, technical expertise, difficulties in porting data across different formats, and the transition risks.

“IoT vendors can help customers overcome these adoption barriers by gaining deeper experience in industry-specific uses of the technology and offering end-to-end solutions,” said Christopher Schorling, a partner in Bain & Company’s European Technology practice.  “To do that, they will need to align more closely with the use cases that customers are expecting.”

Bain & Company asked industrial IoT customers and vendors where they were in deployment on a wide range of applications to identify the most anticipated and promising use cases.  Across five verticals, several use cases ranked high for customers and vendors both – specifically, quality control, remote monitoring of equipment, and tracking of assets or equipment on productions sites.

Despite existing barriers and misalignments, however, the industrial IoT remains a promising opportunity. Recent Bain research indicates that the industrial portion of the Internet of Things, including software, hardware and system solutions in the manufacturing, infrastructure, building and utilities sectors, continues to grow rapidly, and could double in size to more than $200 billion by 2021.

Capturing that opportunity requires device makers and other vendors of industrial and operational technology to dramatically improve their software capabilities – not a historical strength for most of them.

Additionally, to achieve scale, operational technology vendors and manufacturers will need to mobilize over the next year, to ensure they gain the necessary capabilities and position themselves for long-term success. Four groups of actions can help guide the way.

  1. Concentrate your bets. Focus on select use cases and tackle barriers to adoption such as security, ROI, and IT and operational technology integration. Learn from proofs of concept and develop repeatable playbooks. Package IoT solutions into scalable products that can then be rolled out to customers.
  2. Don’t try this alone. Acknowledge existing capability gaps, and find ways to address them through partnerships. Work closely with CSPs, analytics vendors, or enterprise IT vendors based on the use case type. At the same time, avoid broad and unwieldy alliances with too many players. Partnerships tend to be more effective with a selective approach based on the use case.
  3. Tell the CFO that break-even may take a while. Building capabilities and forging strong partnerships takes time, so commit to long investment periods. Approach the effort with a realistic view of the necessary funding, timeline and staffing changes necessary to deliver results.
  4. Scan broadly for new talent. A company’s best employees excel at their jobs, but new operating models may require different skills. Learn to identify, hire and retain the entrepreneurial talent necessary to thrive in your evolving business model.

“Many companies struggle to scale their successful proofs of concept amid fears of cannibalizing existing products and revenue, or out of concerns that the nascent enterprise will not meet P&L requirements,” said Mr. Schorling. “It’s critical to redesign the operating model around IoT initiatives in ways that allow internal entrepreneurs to pursue these opportunities without alienating the rest of the organization.”

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