The view of the industrial Internet of Things (IoT) as billions of sensors connected into intelligent systems distracts from its true role: digital transformation. The gargantuan task and investment of making all these connections, reliably and securely, is pointless unless there is a solid business reason — and there are two very good ones.
2 reasons manufacturers invest in IoT
The first reason big companies invest in IoT is they are worried about being digitally disrupted by a Tesla, Uber, or the next AirBnb in their industries — disrupt or be disrupted.
The second reason: a company’s slowing growth and the need for increased productivity. BCG’s Olivier Scalabre explained that driver during a 2016 TED Talk.
Manufacturing revolutions — the steam engine, mass production and the first automation wave beginning in the 1970s — created huge economic growth in 50- to 60-year cycles, and this last cycle is losing steam. Only a new manufacturing revolution will create a new high-growth cycle.
Over the past 40 years, SAP has been the beneficiary of the last wave of manufacturing automation productivity, putting the company’s 87,000 employees and 350,000 customers right smack in the middle of the evolution to industrial IoT.
According to Panorama Consulting Solutions, SAP has the largest share of the enterprise resource planning (ERP) market, with one-third of discrete and process manufacturers using their software to plan and operate production. SAP directly, or indirectly through its implementation partners, touches every industry, giving the Walldorf, Germany-based company a ringside seat to the early adoption of IoT and the insights to guide its invests in development to capture early product opportunities.
Last year, SAP announced a €2 billion IoT fund for investment and acquisitions. The money will be invested over five years to accelerate IoT. Given SAP’s many touch points from manufacturing customer relationships, the company could to beat the usual investment odds.
SAP’s vision for IoT in manufacturing
I sat down with Dr. Tanja Rueckert, president of SAP’s Global IoT & Digital Supply Chain, to talk about this. When she explained her vision for IoT, one comment drew a very clear image of industrial IoT. She said:
“Collaboration and networks will blur industry borders — companies will work closer together. That means more data sharing and the end of siloed information; optimization will cross company boundaries. Companies will know where things are (parts, materials, assets) all the time — remote inspection and virtual testing will be possible.”
Dr. Rueckert’s statement of the end game explains why enterprises are interested in IoT. The holy grail that drives line of business management to IoT is new business models that enable mass customization, personalization, products as a service and autonomous systems. The next manufacturing revolution — the next growth cycle, according to Scalabre — Manufacturing 4.0 represents a new and a potentially distuptive path with high returns. It is a vision of smart enterprise and partner factories in tightly connected and agile supply chains with near-zero sensor latency continuously updating statuses, monitoring operations and optimizing autonomously.
New technologies give us new business models
During the last growth cycle, ERP and industrial automation increased the efficiency of individual manufacturing plant by manufacturing plant — processes, inventory, equipment and people. The new business models enabled by new technologies, including IoT, blockchain and machine learning, are targeted to optimize plants vertically within a company and horizontally from suppliers through to customers. The following are IoT applications repeated by Dr. Ruekert, SAP customers and Cisco’s Maciej Kranz.
Mass customization: This new type of manufacturing combines the flexibility and personalization of custom-made products with the low unit costs associated with mass production. For example, consumers can order customized Nike shoes and Motorola smartphones. Increasingly, components are 3D-printed, and software configurations express customer preferences. Marketing advantage appealing to consumers’ personal preference combined with manufacturing flexibility lets companies retain the low cost and short cycle time of mass production.
Service-oriented business models: In service-oriented business models, the machine is sold as a service with recurring revenue. It also matches the customer’s cost with use, moving the expenditure from the capital budget to the expense budget, which frees capital for other investment. Rolls Royce jet engines are delivered as a service and paid for based on use and uptime rather than paid for in advance and maintained under a separate contract. The continuous stream of data from the sensors is used to identify root causes of failures and improve future designs.
Digital twins: A virtual copy of the supply chain, processes and equipment combine with sensor data, creating new capabilities, such as predictive maintenance. Rolls Royce jet engines are an example of digital twins used for predictive maintenance. Simulations of the operation of the virtual model of the engine in combination with sensor data improve designs.
IoT does not resemble the analysts’ forecasts. Businesses are not plugging in IoT technology like consumers are plugging in Amazon Alexas and Nest thermostats. It’s not that simple. And, quite frankly, none of people I met at the recent Leonardo Live conference were the least bit concerned about meeting analysts’ forecasts by deploying sensors everywhere. They want to identify the critical points where adding sensors provide actionable information. But before installing sensors, they will first check if the data can be inferred from existing datasets.
SAP’s IoT transformation: professional services, partners and product investments
SAP has thousands of customer and partner contact points to abstract the features of new IoT products and best implementation practices from a firehose of diverse customer prototypes. SAP’s go-to-market plan centers around IoT design thinking, the Leonardo IoT platform and product investments.
IoT design thinking: SAP has applied its design thinking methodology to IoT. Its professional services team offers design thinking services, leading customers in multidisciplinary teams to identify, choose and implement first projects. According to Dr. Rueckert, SAP customers are progressing from proof-of-concept projects and prototypes to pilot projects, and some are scaling what they learned into operations.
Leonardo IoT platform combining business and operational data: SAP’s partners and customers are using the Leonardo IoT platform to build applications for industry-specific solutions, combining business and operational data to enable new business models. The enormous complexity of serving SAP’s hundreds of thousands of customers in diverse industries, which must be included in its IoT initiative, can be measured by the ERP platform’s 300,000 web pages and screens.
When talking about the Leonardo IoT Bridge, SAP customers and SAP’s ecosystem of partners, I asked Dr. Rueckert about the Leonardo IoT platform. She replied:
“Leonardo is not one technology – it is a combination of the latest technologies that bring innovation. This all needs to be in an open architecture. The platform is open with many open APIs because no one player can do it on their own.”
Product investments to remove IoT obstacles
SAP Leonardo IoT Bridge points out how the firehose of customer prototypes captured by SAP is a competitive advantage for deciding how to make the shift from ERP to IoT-enabled Manufacturing 4.0. One of the many obstacles IoT innovators face is connecting sensors. It is complicated and differs between sensor vendors, often requiring low-level native software development. Interfacing with each sensor is a project unto itself.
The Plat.One IoT platform, which SAP acquired in 2016, alleviates the challenges of interfacing and managing sensors that feed operational data into business systems and analyzing the data, said Elvira Wallis, senior vice president of IoT Smart Connected Business at SAP Labs.
The platform’s high-level JSON interface accelerates prototyping. This JSON interface enables front-end web designers and developers to quickly prototype systems that combine business and IoT data, greatly increasing the number of prototypes and rate of iteration. The more prototypes, the more pilots. The more pilots, the more scaled IoT projects.
For the time being, the industrial IoT does not have many one-size-fits-all products. Early adopters and innovators in different industries will prototype and pilot until methods and best practices are exposed and multifunctional teams in IT, operations technology, security, plant engineering, finance and management gain experience. Then there will be industry-specific one-size-first-all products, methods and best practices to implement them. SAP is well positioned to pivot right into the middle of the next growth phase enabled by IoT.