Manufacturing firms - the rock stars of the IoT?

Profile picture for user slauchlan By Stuart Lauchlan April 4, 2016
What's the impact of the Internet of Things on the manufacturing sector? Enormous, according to some of the biggest manufacturers in the world.

dave yarold servicemax
Dave Yarnold

Manufacturing companies are going to be the rock stars of the Internet of Things!

A confident prediction from Jim Heppelmann, President and CEO of manufacturing giant PTC, as he lays out his view of the impact of the IoT on his sector. This is, he argues, a win-win world for manufacturers, not for the techies of Silicon Valley. He says:

This isn’t really about Silicon Valley. This is why companies like John Deere and GE can really do such amazing things in this third digital revolution. This is digital coming out of the computers and into the type of equipment that GE and Deere make.

Heppelmann adds:

When I hear Internet of Things, the things are products. The things you can connect to the internet came from a factory. Maybe we can connect people or cows to the internet, but not really. We’re connecting products that are attached to people or cows to the internet. It’s still the Internet of Products. Why would you want to connect a product to the internet. Number one answer - service it better. Number two answer - operate it better. Number three answer - make it better.

There are lessons to be learned from Silicon Valley however and how the disruptive wave of cloud computing took its toll on the established order of the software industry in particular, says Heppelmann:

The IoT will have less impact in the short term than you expect, more impact in the mid-to-long term. That’s what happened in the software industry. At first [cloud] didn’t matter much, then suddenly the big mighty software companies have fallen and there’s a new generation replacing them.

Speaking as a self-identified “one of those Silicon Valley guys”, Dave Yarnold, CEO of service managment firm ServiceMax, picks up the point:

I have been in the software industry for 30 years now. I’ve seen this happen to the software industry. Back in 2000, there were very few, if any, Software as a Service companies. Most software providers would ship you a disc and they wouldn’t worry much about what happened after that. Very similar to the manufacturing world that we see today - ship the product, then don’t worry about anything beyond that.

Sixteen years later, the software industry has been completely transformed. We have customer success operations, we have DevOps, we have a product that is delivered as a service with a long term revenue stream that is ultimately more profitable. All of the up-and-comers are disrupting all of the established vendors in software. I understand that manufacturing products is a whole lot more challenging, but this evolution is going to happen quickly. It’s going to change more quickly than we expect, especially with that software blueprint out there to learn from.

Ten, fifteen years ago cloud started. [It was said] nobody will use a public cloud solution, no-one will entrust their data to these start-up software companies. But all those start-ups did such a good job at providing value and being responsive to customer needs and continually enhancing their products, everyone got on board because the product was better, the value was better. The companies that provided Software as a Service actually partnered with their customers. They had to, because that customer could turn off the revenue spigot every year or every quarter.

If manufacturers do a great job of providing an integrated system of products that deliver value, we’re going to go through the same kind of evolution.

East v West

Michael Porter, Bishop William Lawrence University Professor at Harvard Business School, can also see the analogies with the software industry:

Software is one of those areas where we have a purely digital product. The software industry had to cope with and deal with some of the opportunities that we see here now in the product space. So when we look at organizational models for how to handle this, the software industry is quite an interesting place to look.

We saw a lot of manufacturing companies flailing around, but in the software industry there were some solutions that had grown up. The ideas of customer success and DevOps, those are getting well-established across the software industry. If you want to talk to someone who’s had to do this and live through this transformation, I think software is a great example.

That said, Porter cautions that the IoT’s impact on the manufacturing sector will be a long journey:

If you study how gigantic innovations have worked their way through the economy, what you learn is that there is quite a latency period which exists because there is just a lot to learn. You need new people and you need new skills. If you have a really big discontinuity, you may need a lot of the current management generation to retire before you can begin to capitalise on that big discontinuity.

We also have the problem in this field that you can’t stop your business and make a big changeover. You’re going to have products, they’re going to be in the field forever and you’ve got to support them, you’ve got to pay attention and keep that model going. But in the meantime, you’ve got to get a different model going, so you’ve got to have two models going in the same business.

He goes further and argues there is also a tension between East and West Coast in the US around the IoT in manufacturing, centering on competition between Boston and Silicon Valley:

Boston is deeply connected to industry. A lot of the industrial revolution started in New England. Because of the legacy of Boston in B2B software, technologies that are more about how businesses use IT to enhance their operations, Boston has a very good foundation here. Silicon Valley is very strong on the consumer side, but the real value is not in your smart, connected watch, it’s the locomotive engine that can have improvements in its performance or the aircraft engine.

In the second in this series of articles, manufacturers take on the data science skills shortage that will slow down the IoT.