Maybe not ignoring....but not embracing
In a recent BCG Perspectives piece, Boston Consulting Groups advanced manufacturing team took a look at statistics around relative adoption of Industry 4.0 or IoT (Internet of Things) technology.
The numbers were startling. While US manufacturers trail their German counterparts by a small margin at the high end of the market with early, robust adopters, the story is dramatically different at lower levels. US companies dramatically trail German manufacturers.
Highlights (or "low-lights" as the case may be) included:
- 50% fewer American companies "have applied, or plan to apply (within the next 1-2 years), digital factory logistics or predictive maintenance"
- 14% more German companies associate IoT with increased productivity and cost reduction
- 7% more German companies associate it with revenue growth
- 225% more US companies are "not yet prepared"
- 162% more German companies have "developed first concepts"
In case you're wondering if this is comparing the Siemens vs. GE technology behemoths...the answer is no. This is companies like yours. BCG surveyed 312 German and 315 US manufacturers with revenues of more than USD $50 million. This is the heart of the Middle Market manufacturing sector that, according to D&B and American Express research, represent less than 1% of US firms yet contribute nearly 1/3 of all employment and more than 25% of revenues.
In other words this sector is vital to US economic vitality.
Data vs. machinery
Before diving into the consequences, let's take a quick diversion. Mindset around IoT may be key factor.
Companies tend to think of IoT in one of two different ways. It's either
machinery.....that has sensors that collect and send data
vehicles for data collection and optimization....which also perform industrial manufacturing functions.
That's a critical difference. One can easily see how the perspective that's embraced by a company's senior management team will influence R&D and product roadmap.
It also mirrors the evolution of Industry 4.0. Originally machinery began to capture more information and interact with central controls and nearby machines. Increasingly however, the power is recognized to lie in the data. For some companies that means work cells, factories or even across locations. For some manufacturers that means incredible insight accumulated through the aggregation of anonymous data from thousands of installations.
Companies that make that mind shift - even mid size ones - will ride the IoT opportunity. They needn't develop the OS for instance (players like @GE_Digital already have that underway) but they will understand how they add value and proactively create it.
In contrast, companies that don't make the mind shift - even large ones - will decay as the inherent value of machinery declines relative to the entire Industry 4.0 ecosystem.
Development vs. decay - a dangerous cycle
But let's say an American capital equipment manufacturer is a bit skeptical - not resistant, but not sure how much R&D emphasis they should put on IoT. After all, their American manufacturing customers aren't clamoring for these solutions yet.
The problem is that when they suddenly do...when IoT becomes a boardroom buzzword and suddenly VPs of manufacturing & operations get the memo that 12 months hence they need gleaming Industry 4.0 facilities...then the US manufacturers will lose to import competition.
And that loss will be significant because it means more than a lost machine - it impacts lifetime value from future machine sales (one brand loyalty & operational/maintenance familiarity are developed), lost replacement parts business, and lost references.
And it's not just US business. As multinationals harmonize their systems globally, potentially even establishing common protocols for suppliers, the implications expand significantly.
Once a company has relegated itself to the role of bending and welding steel vs. building value creating machinery, the decay will likely be irreversible.
Vulnerable giants overtaken by nimble players
This will offer some great case studies in creative destruction as staid industry stalwarts will fail to see and embrace the magnitude of the IoT challenge. That failure, however, will present an enormous opportunity to agile challengers.
There's probably been no better time in the past 50 years for a capital equipment manufacturer to position itself for an enormous market share grab.
Those relying on brand and tradition will falter.
However, those that build their roadmap around data will quickly leapfrog the others.
Which will you be?
In the meantime maybe you wish you had predictable, scalable growth to confidently finance IoT R&D. If so, check out our guide on the difference between complicated and complex markets to help frame your revenue growth planning.