Digital transformation is becoming a table stakes step-process change that’s necessary to effectively compete in the global marketplace. However, this transformative change has led some non-digitally native companies to over-extend themselves and opt to travel the digital journey by building, instead of buying.
Research has shown this path is not as effective for industrial companies. Instead, partnering with digital companies accelerates business value capture, while still leveraging the native expertise industrial companies have of their products, processes, and people.
During his keynote at the National Association of Manufacturers annual Board of Directors Meeting, PTC’s President and CEO Jim Heppelmann summed it up: “The goal for industrial companies is not to become a digital company. Instead, for industrial companies to capitalize on digital technologies to defend and advance their competitive advantage.”
The Internet of Things is a crucial part of digital transformation and 45% of McKinsey survey respondents would agree, citing successful transformations through adopting IoT.
One of Beneteau's biggest challenges came from design, to production, to the customer delivery, and to follow-up of their products; in essence, they did not have an uninterrupted digital flow. And this caused manufacturing delays and errors.
However, that’s not always the case. Research is finding that some approaches to IoT solutions are not as successful. Three out of four self-initiated or ‘do-it-yourself’ (DIY) IoT projects – where the development of an IoT solution is done in-house – are reported failures, many of which cause rippling effects throughout an organization. The challenges that cause these failures span from rapid culture change to total cost of ownership and present significant organizational hurdles.
In today’s competitive environments business executives demand project investments that generate quick, short-term wins, measurable ROI, and scalable use cases that will sustain long-term growth and benefit the bottom line. In many instances, homegrown IoT deployments have spiraled into massive cost centers with no clear reward or future benefits in sight. There are three distinct downsides to DIY IoT solution from a budget perspective:
Total Cost of Ownership
While the investment in an IIoT platform or solution may seem higher in comparison, DIY project’s total cost of ownership can be almost 4x greater in a factory setting when compared to adopting a third-party IIoT platform. Similarly connected products come with hidden and ongoing costs for developing, testing, and maintenance. A company must be financially capable and willing to commit to this massive expenditure if it’ll ever come close to matching the functionality IoT platform providers are able to offer having committed billions of dollars to product development.
Costs for sustaining the DIY initiative can spiral with required continuous investments in the IoT system’s security, resiliency, scalability, and development of new features. Locking in to this on-going expenditure can quickly run into the millions, resulting in bloated annual expenses and recurring negative annual outcomes. An IIoT platform provider with knowledge of agile software development processes is better suited to quickly roll-out innovative applications on its roadmap than an industrial company.
Time-to-Value
‘Time is money’ for any organization and developing a software solution is a time-intensive and therefore costly endeavor. The process lengthens exponentially for non-digitally native companies who may be experts in engineering heavy-industrial equipment, and lesser so in agile software development and programming.
Developing an IIoT solution internally can take approximately 2.5 years when adding up the time it takes to build and orchestrate a team, develop the application, and move it into production. Whereas partnering with a software provider who offers a leading IoT platform is estimated to take half of that time to boost proof of concepts (PoCs) into production and even quicker than that in some instances -- 89% of PTC’s IIoT survey respondents expect to transition use cases to production within a year of purchase.
Competitive Pressures
With competitive pressures mounting, the time-crunch to adopt IoT grows two-fold where industrial adopters of third-party IoT solutions are outpacing the market. Industrial companies without IoT in production are quickly becoming the minority; IDC predicts by the end of 2019, 75% of manufacturers will have integrated IoT into their operations. With the current speed of change and innovation in the marketplace, that means ultimately falling behind the competition.
Corporate cultures are changing out of necessity in industrial companies, as operational technology (OT) and informational technology (IT) groups increasingly work together to make digital transformation initiatives, including IoT, a reality. Gartner supports that this culture change will require a hybrid of traditional IT and OT skills.
However, these skills are hard to come by. Industrial companies are faced with hiring challenges for OT staff or front-line workers; 99% of manufactures have a hard time finding new hires, and 84% believe these is a talent shortage in U.S. manufacturing. There is also a forthcoming one million worker shortage in software developers and engineers facing the United States. Silicon Valley and innovation hot spots have traditionally been the desired area of employment for IT-oriented talent, creating an additional recruiting challenge for industrial firms.
In order to develop and manage a scalable IoT solution internally, an industrial company will need traditionally walled-off IT and OT in-house staff to converge, as well as the ability to lure in digitally-native talent in increasingly competitive labor markets. Acquiring, orchestrating, and optimizing the required skills to enable all of this is a massive organizational overhaul, a timely and costly endeavor.
The inability to escape pilot purgatory and scale an IoT solution across the enterprise has plagued many industrial digital transformation initiatives. Only 30% of pilots in Industry 4.0 programs scale out of PoCs and IoT initiatives generate similar results: 30% of IoT projects fail in the PoC stage with lack of resources to scale and the high cost of scaling cited as major reasons why.
When it comes to build instead of buy, or DIY IoT, research shows there has been more failure than success.
That should not be interpreted to mean that digital transformation initiatives that leverage IoT technology are not worth investing in, but instead that a robust partner ecosystem is critical to capturing value quickly. In today’s rapidly changing global ecosystem, industrial companies need these digital allies to overcome pressing challenges and prioritize resources toward their own core competencies.
Partnering with a technology ecosystem that can provide cloud and security infrastructure, solution development technology, and experienced systems integrators, is a cost-effective way for industrial companies to develop IoT use cases that expand out of incubation zones and into the real world. An ecosystem provides the development on-ramps and role-based applications for both OT and IT personnel to generate and recognize value. When compared to ‘DIY’, IoT solutions significantly expedite time-to-value while providing the foundation for scaling IoT across operations.
Joseph (Joe) Biron is the Chief Technology Officer and General Manager, Internet of Things (IoT) technology at PTC. In this role he oversees product strategy and technical architecture of the core ThingWorx IoT platform, analytics, connectivity, and application development tools for the Industrial IoT. Biron brings years of IoT experience and deep understanding of the broader technology market to focus PTC’s activities towards breakthrough technology development and collaboration with the ecosystem through partners and industry consortiums.
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