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Industrial IoT: Creating value, transforming business models

There are a few important differences between the consumer internet of things and the industrial internet of things. To begin with, there’s the value: the industrial internet will generate twice the returns we’ve seen from the consumer internet within the next decade. Then there’s the scale: if you think the mobile internet is big, consider there will be seven billion connected devices in the electricity industry alone by 2020. Then there’s the data. How often do you post to Twitter? A few times a day? Wind farms generate data every 10 seconds. Power plants generate terabytes of data per day. The same goes for jet engines, trains, oil rigs and many more of the machines that move, power and heal the world.

And the stakes are higher with the industrial internet, too. You will probably tolerate your Fitbit missing a few steps, or the occasional Uber driver ditching your fare, but how would you feel if your app and your MRI scanner had a communications problem during a brain scan?

So yes, the stakes are high in the industrial internet, but so are the potential rewards. Take the $4 trillion global electricity industry for example. The World Economic Forum estimates that $1.3 trillion in economic value could be created within the next 10 years by digitalizing the processes of electricity generation, distribution and commercial consumption.

And there is plenty of impetus for change in this industry. The rapid rise of renewable energy, the growth of distributed power generation (e.g., rooftop solar), the advent of energy storage and electric vehicles, and flat consumer demand — these trends are turning traditional utility business models on their heads. Utilities desperately need insights from data that will help improve the reliability, productivity and profitability of operations in the face of such dramatic disruptions.

Outside of the energy industry, businesses likely face a host of different challenges. However, there are good parallels between the energy industry and most other asset-intensive industries. No matter the machines or systems made or managed in a business, reliability matters. And it should! Improving reliability is one of the most significant value creators of the Industrial Internet. Remember that electricity example? Almost one in every three dollars of that $1.3 trillion in value creation potential — $387 billion to be precise — will be derived from eliminating the unplanned downtime of machines.

Digitizing the asset

Chances are most critical business assets are already connected in some way. Many of our own machines have been generating data for more than a decade. However, the vast majority of the data generated by machines goes unused today; our average electricity industry customers use about 2% of the data generated.

Harnessing the value of machine and asset data means utilizing advanced analytics to monitor, optimize and ultimately predict the types of events that can causes outages and cost you money. The category of software that delivers this type of value is called asset performance management. Its efficacy is largely contingent on associated analytics catalogs, but in the energy industry, for example, companies have already been able to predict and prevent 75% of machine breakdowns before they happen. This is the power of applying advanced analytics to time-series data from industrial machines.

However, the industrial internet is about much more than asset reliability. Imagine if your in-car computer alerted you to a need for maintenance, but didn’t tell you when you were running low on fuel, or that your driving habits were dragging your fuel efficiency down to 5 MPG. Or to put it another way: connecting the whole system delivers more value than connecting one part of it, or simply monitoring one attribute of its performance.

Effectively monetizing industrial IoT means thinking about the larger setting in which machines sit and using data to optimize the variables that impact the overall performance of the setting.

Monetizing industrial IoT

Fuel costs are of very high significance for most power producers. Eighty-five percent of U.S. electricity still comes from non-renewable sources, and the cost of fuel can be as high as 80% of total plant operating costs. Leveraging analytics to understand which variables impact fuel consumption — and how they impact consumption — is tremendously valuable in this industry. And likely it will be true in your industry, too. Many industrial processes feature significant raw material costs, and how well you optimize consumption and output based on those materials will be a source of competitive advantage. In the energy industry, effective use of fuel impacts not only costs, but also emissions and — by linking real-time output data to energy markets — overall business profitability.

The digital worker

True digitalization goes beyond connecting assets and the settings in which they operate. It embraces the human costs of managing those assets. Let me go back to outages for a moment. Each year, about 8% of electricity fails to reach a customer because of transmission and distribution issues. Thirty to 40% of outages are due to trees falling on power lines. So why does it take so long to get the power back on? Well, first your power provider has to find the right tree! Imagine the value of using sensor data to get the right worker to the right place at the right time to prevent or mitigate power outages to millions of people. This is what we call the “digital industrial worker” value proposition.

Scheduling is just part of the picture of course. When we think of the digital worker, we mean connecting them with data and the tools they need to stay safe, work more efficiently and bring more value to their organizations, as well as connecting drones and other devices that will enable remote inspections to prevent unnecessarily dangerous working conditions. This is really the cutting edge of industrial digitalization today.

What’s next?

There is a huge amount of value to be created by digitizing assets, their settings, and the people and processes critical to their operation. However, nirvana in the industrial internet may well be found in entirely new business models made possible by more connected operations.

For example, the greatest value to be derived from a digitalized electricity industry may well be how it enables a new generation of smart cities and communities to emerge. Electrifying transportation and commercial building energy management systems — as New York State is working to do — will not be possible without a dynamic, responsive electricity system that is capable of coping with a massive influx of electric vehicles and a simultaneous decline of commercial energy consumption. Only software can introduce such flexibility to a century-old industry.

Perhaps the same is true for your industry. If you fully digitalized your operations, which of your customers’ problems could you start to solve?

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