Digital Industrial Transformation with the Internet of Things · The Internet of Things (IoT) is...
Transcript of Digital Industrial Transformation with the Internet of Things · The Internet of Things (IoT) is...
Trend study
Digital Industrial Transformation with the Internet of Things How can European companies benefit from IoT?
Dr Milos Milojevic Industry Analyst April 2017
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Digital Industr ial Transformation with the Internet of Things – Copyr ight CXP Group, 2017 2
TABLE OF CONTENTS
Digital Industrial Transformation with the Internet of Things .................................................... 3 introduction ............................................................................................................................ 3 Key Findings ........................................................................................................................... 4 Key Trends .............................................................................................................................. 5 Digital Readiness and Appetite for IoT ................................................................................... 6 IoT Opportunities vs Challenges ........................................................................................... 13 Moving Forward with IoT ....................................................................................................... 18 Conclusions .......................................................................................................................... 25 Methodology ........................................................................................................................ 26 About Accenture ................................................................................................................................. 27 About Hitachi ....................................................................................................................................... 28 About Intel ........................................................................................................................................... 29 About Reply ......................................................................................................................................... 30 About Cognizant .................................................................................................................................. 31 About Stratus ....................................................................................................................................... 32 About GE Digital .................................................................................................................................. 33 About Logicalis .................................................................................................................................... 34 About Salesforce .................................................................................................................................. 35 About T-Systems ................................................................................................................................... 36 About PAC ........................................................................................................................................... 37 Disclaimer, usage rights, independence and data protection ............................................................. 38
TABLE OF FIGURES
Fig. 1: Will your IoT investment increase, stay the same or decrease in the next 3 years? .................... 8 Fig. 2: Which of the following options best describes the current status of your IoT
initiatives? .................................................................................................................................. 9 Fig. 3: How much of the total digital transformation spend is dedicated to IoT? ............................... 10 Fig. 4: In which of the following departments of your organization are the budget
decisions made for IoT initiatives? ............................................................................................ 11 Fig. 5: Which of the following are the key measures of success for your IoT investments? .................. 12 Fig. 6: In which of the following timeframes do you expect to see benefits or return on
investment from IoT solutions? .................................................................................................. 12 Fig. 7: With respect to internal capabil it ies, wil l the following aspects be a major, minor
or not a driver (goal) of your IoT initiatives in the next 3 years? ............................................... 14 Fig. 8: With respect to external capabil it ies, wil l the following aspects be a major, minor
or not a driver (goal) of your IoT initiatives in the next 3 years? ............................................... 15 Fig. 9: Do you perceive the following aspects as a major, minor or not a challenge in
your IoT initiatives and strategy? .............................................................................................. 16 Fig. 10: Are the following third parties strongly, somewhat or not involved in developing
your IoT strategy and initiatives? .............................................................................................. 19 Fig. 11: Which of the following areas of collaboration with third parties would you
consider? ................................................................................................................................. 20 Fig. 12: Have you already deployed a central enterprise-wide IoT platform to manage
devices, assets, and process data; Is it planned in the next 3 years or at least discussed, or it is not relevant? ................................................................................................ 21
Fig. 13: Have you integrated an IoT platform or IoT solutions with your existing enterprise IT applications such as ERP? Is it planned within the next 3 years or at least discussed, or is it not relevant? ................................................................................................ 22
Fig. 14: Are you currently analyzing and using your IoT data in business decision-making? Is it planned within the next three years, or at least discussed, or is it not relevant? .................................................................................................................................. 23
Fig. 15: Based on your IoT strategy, is data analytics performed in the cloud, in your own data center (on-premise) and/or on edge devices (such as gateways)? ................................ 23
Digital Industr ial Transformation with the Internet of Things – Copyr ight CXP Group, 2017 3
Digital Industrial Transformation with the Internet of Things
INTRODUCTION
Europe’s industrial companies, pressured by the competitive and
fragmented European markets, ongoing economic headwinds and
growing operational costs, need to streamline operations and boost
their product and service offering should they wish to build
momentum and increase their competitive advantage.
Due to the asset-intensive nature of their business, players have
traditionally invested more in their operational technology (OT) than
in information technology (IT), many of them being hamstrung by
decades-old legacy systems and processes. But as new digital
technology developments take place, solutions that could integrate
the OT and IT worlds are beginning to emerge. This integration could
mean unlocking opportunities to make processes more efficient and
products more valuable. The Internet of Things (IoT) is one such
concept that brings the paradigm of connectivity into the business,
and enables the integration of people, assets and processes into a
single point of view, paving the way for obtaining valuable business
insights for industrial players.
But how serious are industrial companies about moving forward with
IoT and what do their IoT roadmaps look l ike? This study sets out to
explore how European industrial companies are approaching IoT
initiatives from an investment, implementation and strategy
perspective. Based on interviews with 250 senior CXO-level, business
and technology decision-makers, this report explores the strategies
and approaches that process manufacturers and discrete
manufacturers are taking in order to embed IoT solutions into the core
of their business and enable digital transformation.
The study also outlines specific IoT use cases from industry that
companies have recently undertaken, and looks at what they are
trying to achieve through this investment.
The study makes vital and interesting reading for senior decision
makers at European industrial companies that are looking to better
understand the progress their peers are making on the increasingly
important topic of IoT.
72% of industrial companies in Europe will increase their IoT spending, but what is the most important priority on their IoT agenda?
Digital Industr ial Transformation with the Internet of Things – Copyr ight CXP Group, 2017 4
KEY FINDINGS
• 72% of the companies will increase their IoT spending in the
next three years.
A solid amount of companies plan to keep this increase
between 10% and 30%, while some of them are wil l ing to raise
spending by more than 30%.
• 60% of the companies are already involved in IoT initiatives.
More than half of these, however, are sti l l in the early stages
of deployment and have some ongoing IoT projects.
• Cost reduction is seen as the biggest driver of moving IoT
initiatives forward for 69% of the companies.
However, the fact that product improvement and
development of new business models took second place on
the l ist of drivers shows how IoT investment can be channeled
towards driving top line growth rather than just reducing
costs.
• Investment decisions for IoT solutions are mostly made within
IT departments but line of business executives also have
considerable influence.
This, however, largely depends on the country in question and
the scale of the projects under consideration.
Data security and privacy concerns top the list of challenges
that are slowing down IoT adoption for 70% of the companies.
Apart from fears of cyber attacks, there are also mounting
regulatory burdens, especially ahead of the General Data
Protection Regulation (GDPR).
• Companies cannot bear the fruit of the IoT on their own, and
will require assistance along the way.
More than 50% of them are strongly involved with IT services
companies and consulting firms, which is reasonable bearing
in mind that successful IoT requires significant expertise both
from a solution delivery and business advice perspective.
Digital Industr ial Transformation with the Internet of Things – Copyr ight CXP Group, 2017 5
KEY TRENDS
Key trends by industry
Automotive and
discrete
63% have ongoing IoT projects and, apart from being driven by cost
reduction, companies think significantly about creating connected
products as well as improving customer experience and product quality,
with more than 50% of them seeing these as major drivers of IoT initiatives.
51% of companies are strongly involved in working with IT services
companies on IoT developments.
Process
56% have started their IoT initiatives, which are mostly driven by IT
departments (45%), but at some companies (22%), digital business units
have a prevail ing influence. 67% plan to increase their investment in IoT
whilst 92% expect to measure the success of these initiatives in terms of
cost reductions. The majority of the companies (56%) are strongly involved
in collaboration with consulting companies, and the majority of the
companies surveyed (81%) need the largest amount of assistance in terms
of solution design and prototyping.
Key trends by region
France
Apart from cost reduction, French companies see process automation and
improvement of product quality as equally strong drivers of IoT adoption.
80% say they plan to increase IoT spending.
Germany
52% of German companies do not see the development of connected
products as a driver for IoT. They are more reluctant to use IoT for
connected product applications, as people in Germany are more sensitive
to data protection and privacy issues.
Nordics
The Nordic countries are the most advanced region in terms of IoT
adoption where 83% of companies are already running IoT initiatives. Cost
reduction is seen as equally important as developing new connected
products.
Italy
Companies show that their biggest drivers – apart from cost reduction –
are improving asset servitization and the improvement of supply chain
management.
UK
88% need assistance in terms of solution design and prototyping but are
less involved in collaboration with third parties than peers in other
countries.
Benelux Companies show the least amount of wil l ingness to increase their
investments in IoT compared to other regions.
Austria & Switzerland 77% are strongly involved in collaboration with IT services companies and
mostly need solution design and prototyping services.
Digital Industr ial Transformation with the Internet of Things – Copyr ight CXP Group, 2017 6
DIGITAL READINESS AND APPETITE FOR IOT
At the heart of the digital transformation of asset-intensive industries,
such as manufacturing, is the leveraging of emerging technology to
streamline decade-old processes and operations, improve existing
products and launch new ones, create new channels to the
customers and develop new business models. As a result of this
transformation, industrial companies should be able to increase their
value in the value chain by becoming organizations that are more
agile and lean and that know more about their customers’ needs and
can tailor their products accordingly.
Bearing in mind the asset-intensive operations of their heavy
machinery, industrial companies need to find a way to reduce
operating costs and release pressure. A good example of what
happens when pressure rises too high can be found in the food-
manufacturing sector. Here companies often turn to product
“shrinkification”, which basically involves reducing the pack size of
the product while keeping the price constant. This obviously isn’t the
best practice for keeping customers happy and loyal, and to release
the cost pressure companies should look elsewhere, l ike for example
at the shop floor.
72% of industrial companies in Europe plan to increase their IoT spending in the next three years
Digital Industr ial Transformation with the Internet of Things – Copyr ight CXP Group, 2017 7
Implementing IoT-based digital solutions at any part of the enterprise,
from the shop floor to the back office, brings an opportunity to trim
costs and increase revenues and, as such, IoT should be at the top of
their digital agenda.
There are many examples of companies which, by incorporating a
digital mindset and adopting IoT solutions, are one way or another
bearing the fruits of their investments, either by boosting their
products or cutting operational costs. One such company is ESAB, a
Swedish manufacturer of welding equipment, which managed to cut
the time to market of its products by 40% . Philips, on the other hand,
used to be a l ight bulb manufacturer but, by implementing IoT into its
products, evolved into a provider of smart l ighting solutions and
services. Carmakers l ike BMW , Renault or Mercedes are also good
examples of early IoT adopters, which enabled them to enter the
transport market by offering mobility services through car-sharing or
ride-sharing initiatives. With these offerings, they can now address the
needs of a wider audience, targeting customers that don’t want to
own a car and that were previously out of their reach.
The bottom line of what IoT brings to a company is maybe best
encapsulated by the EVP of crane manufacturer Konecranes, Juha
Pankakoski: “The industrial Internet brings machinery alive”. This
means that the IoT provides real-time insight into any machine or
asset that makes its data available for processing, after which
different actions can be taken. But more importantly, embedding IoT
into the product also creates a real-time connection with the
customer and opens up a valuable channel that can be used to build
upon the customer relationship and experience, enabling services to
be provided in a more personalized way.
But are these examples indicative of wider progress and success, and
to what extent are European industrial companies responding to IoT?
This study sets out to understand the existing appetite of European
industrial companies for IoT solutions going beyond Industry 4.0
concepts that focus on the internal "production & logistics" si los to
more holistic and externally oriented IoT applications within an
enterprise, such as the development of connected products and new
services. We also evaluate the major concerns standing in the way of
faster IoT adoption.
These findings are based on interviews with 250 senior business and IT
decision makers at large and medium-sized manufacturing
companies in both process and discrete manufacturing – a more
detailed breakdown of the sample is available at the end of this
document.
One of the first key questions to set the scene for the rest of the
analysis is do European industrial companies plan to increase their
investments in IoT in the next three years?
IoT in action : ESAB
This Swedish manufacturer of welding and cutting equipment deployed IoT solutions to transform its global operations. Its machines and equipment were not connected and their data was collected manually and no central overview of the equipment’s performance existed. As part of the transformation process, the company implemented various connectivi ty technologies and integrated data col lected into its cloud platform. This init iative resulted in improved operations and productivity, and time to market was reduced by 40%. On top of cutting the time to market, the init iative wi ll also bring a signi ficant competit ive advantage to ESAB.
Digital Industr ial Transformation with the Internet of Things – Copyr ight CXP Group, 2017 8
Fig. 1: Will your IoT investment increase, stay the same or decrease in the next 3 years?
The answer consolidating the responses from all European regions
reveals the trend that the majority of the companies have a
wil l ingness to invest in IoT solutions in the short term, regardless of the
particular local market, the type of manufacturing company and its
size. Nevertheless, some companies in some regions such as
Germany, France and Italy are more eager to invest than companies
in other regions.
When looking at this from a company size perspective, it seems that
larger manufacturers with 2500+ employees show more eagerness to
invest in IoT than smaller players. PAC sees that bigger, established
players have a much stronger imperative to change in order to keep
pace with smaller, more agile competitors as well as to
accommodate market difficulties such as volati le economies and
cost pressure.
From a type of manufacturing company perspective, it seems that
discrete manufacturers (75%) are more l ikely to invest in IoT in the
coming years than those in the process manufacturing segment
(67%). This is in l ine with what PAC sees in the market, as discrete
manufacturers have a strong B2C orientation, especially in industries
l ike automotive, FMCG or electrical appliances, unlike those in
process industries (for example chemicals). IoT can have many
applications in customer-facing roles and it is therefore
understandable why their appetite for and investment in IoT solutions
is bigger.
But are these claims backed up in terms of current IoT activities and
at what stages are existing IoT developments of industrial companies?
2%
26%
72%
Decrease
Stay the same
Increase
© PAC - a CXP Group Company 2017 n = 253
60% of industrial companies are already running IoT initiatives and have live IoT projects, 45% of which are generating business impacts.
Digital Industr ial Transformation with the Internet of Things – Copyr ight CXP Group, 2017 9
Fig. 2: Which of the following options best describes the current status of your IoT initiatives?
The results show that IoT adoption is considerable, with 60% of the
companies being beyond the planning and evaluation stage,
indicating that manufacturers are well aware of IoT, and the majority
of them having l ive IoT projects of different scales. It is also clear that
large-scale projects are sti l l l imited as less than 10% of the companies
have reached an advanced stage of IoT adoption, with the majority
being at the PoC (proof-of-concept) stage. This is completely aligned
with what PAC sees in the market on the vendor side: a large number
of vendors have many IoT PoC projects but the number of those
large-scale IoT projects addressing more than one problem is sti l l very
l imited.
A deeper look into the results reveals that the Nordic region is at the
forefront in terms of advanced phases of IoT initiatives with 20% of
companies at this phase, whereas companies in the Benelux region
seem to have the slowest adoption, with 60% at the planning stage.
One would expect Germany to have a much larger overall adoption
than 44% . German companies have been increasingly adopting IoT
solutions over the years, but these are mostly focused on shop floor
related applications such as automation, predictive maintenance
and connected factory, and fall under Industry 4.0. However,
industrial companies could use IoT in many other applications such as
for empowering their products to make them smarter and develop
new services. According to the Head of Digital CX & IoT at PAC, Klaus
Holzhauser: “German companies could fall short in the IoT adoption
survey results as the development of smart and connected products is
not as widespread as Industry 4.0 applications of IoT. This is mainly
impacted by data privacy concerns and regulations in the German
market”.
17%
23%
30%
42%
44%
56%
60%
34%
53%
30%
31%
40%
22%
20%
29%
20%
27%
16%
9%
18%
10%
20%
3%
13%
11%
7%
4%
10%
0% 20% 40% 60% 80% 100%
Nordics
Austria & Switzerland
Italy
France
UK
Germany
Benelux
Planning Early phase Medium phase Advanced phase
n = 253 © PAC - a CXP Group Company 2017
IoT in action :
Pernod Ricard
The French beverage producer invested in IoT technologies to enable the digital customer experience and boost engagement with customers. It equipped the bottles of its beverages with NFC sensors and developed mobile applications that are activated by the embedded sensors. The application provides an opportunity for customers to win pr izes such as vacations or gadgets. The company also launched connected cups that are equipped with sensors that enable the user to order a new drink just by twisting the bottom of the cup. These are front -end IoT applications that can play a major role in providing a better customer experience and ult imately in creating a competitive advantage. In addition, they can provide an interactive channel for marketing campaigns and advertis ing.
Digital Industr ial Transformation with the Internet of Things – Copyr ight CXP Group, 2017 10
As companies are unlocking the doors of digital transformation,
decisions need to be made regarding how to split the digital budget
cake and which initiatives are at the top of the l ist of priorit ies. This l ist
is quite extensive, including aspects aimed at boosting the IT
infrastructure, enterprise mobil ity, digital customer experience or
automation among others, but also IoT.
Fig. 3: How much of the total digital transformation spend is dedicated to IoT?
IoT gets a solid piece of the companies’ planned digital investment
budget. More than half of the companies wil l spend up to 20% in IoT,
which reflects a sound awareness of the technology and shows
readiness to transform.
PAC sees two important factors that wil l s ignificantly impact the
amount of investment companies are wil l ing to pour into IoT solutions.
The first one is the IoT strategy of the company – whether they are
planning to experiment with IoT on a small scale or they already have
an enterprise-wide IoT strategy that assumes the integration of the
entire enterprise from the front-end to the back-end with the help of
IoT. The former would probably opt in for the more cautious approach
and invest up to 10% of their digital budget. The latter, on the other
hand, would require probably more than 30% of their digital spend to
be channeled into IoT.
Another aspect impacting the decision on the size of the IoT budget
sl ice is the position within the organization where IoT decision makers
sit, this place being most commonly positioned within the boardroom,
l ine of business, digital business unit or IT department.
The results of the study show that IoT decision-making mostly takes
place within IT departments. However, this is just an overall view. As
the European market is highly fragmented, this trend does not stand
in all the countries examined. For example, in the Nordic region,
which comes out as the most mature in terms of IoT deployments, the
IoT decision makers are mostly found within the l ines of business (LoB).
On the other hand, in countries l ike Italy and the UK, for example,
more than 50% of the companies make their IoT-related decisions
within the IT departments, while in Germany, in a solid number of
companies, decisions are being made straight from the boardroom.
PAC believes that going forward with enterprise-wide digital
transformation initiatives, companies need to forge closer working
29%
55%
12% 4%
Up to 10%
Between 10% and 20%
Between 20% and 30%
By more than 30%
© PAC - a CXP Group Company 2017 n = 253
In the UK and Italy, more than 50% of the companies make their IoT-related decisions within the IT departments, while in Germany, for a solid number of companies, these decisions come from the boardroom.
Digital Industr ial Transformation with the Internet of Things – Copyr ight CXP Group, 2017 11
relationships between business and technology decision makers, as
l ines of business leaders have considerable influence in shaping the
direction of IT investment. They also need to scale the innovation
happening at the edges of the business such as LoB and build best
practices into the heart of the organization. This is often achieved by
establishing centralized digital units headed by Chief Digital Officers
or maybe even Chief IoT Officers that overlook the entire spectrum of
IoT initiatives.
Fig. 4: In which of the following departments of your organization are the budget decisions made for IoT initiatives?
How do companies measure the success of their IoT initiatives and
within what timeframe do they expect to see real benefits?
Companies expect IoT to bring them benefits in various segments of
their business, from reducing costs to making their customers happier,
which can result in increasing sales or maybe even developing
completely new revenue streams. However, the study reveals that the
top priority for companies is to reduce operating costs, as indicated
by 89% of them.
0%
10%
20%
30%
40%
50%
60% UK
Germany
Austria & Switzerland
France
Nordics
Italy
Benelux
Total
IT department Line of business
Digital business unit CxO management office
© PAC - a CXP Group Company 2017
Digital Industr ial Transformation with the Internet of Things – Copyr ight CXP Group, 2017 12
Fig. 5: Which of the following are the key measures of success for your IoT investments?
Finally, when working on their IoT strategies, industrial companies,
apart from defining their measures of success, need to set their
expectations in terms of the timeframes within which they hope to
feel the benefits of IoT solutions and get their return on investment.
For this question, there is a clear consensus and the majority (71%)
expects it in between one and three years. Therefore, industrial
companies should search for solutions with these facts in mind and
examine what is the best way to get there: is it by investing in internal
capabil it ies in order to develop and implement IoT solutions in-house
or by engaging with third parties to speed up the entire process. PAC
believes that industrial companies should have a formal IoT strategy
that encapsulates three types of initiatives. The first one is about
proving that IoT can work. This can be done by betting on several
smaller-scale projects, which could be developed and implemented
either internally, or with smaller, innovative third parties such as start-
ups. The second one refers to the medium-term initiatives, in which
companies need to think about how to redevelop entire processes
and ensure that the business can operate more efficiently. The third
one should start once a certain level of internal efficiency is
achieved. Companies can engage with third-party specialists to
develop new products or strategies to access additional revenue
streams.
Fig. 6: In which of the following timeframes do you expect to see benefits or return on investment from IoT solutions?
72%
73%
77%
78%
89%
Increased customer retention
Increased new customer acquisition
New revenue streams from new business models
Competitive advantage
Reduced operating costs
© PAC - a CXP Group Company 2017 n = 253
Multiple answers possible
Digital Industr ial Transformation with the Internet of Things – Copyr ight CXP Group, 2017 13
IOT OPPORTUNITIES VS CHALLENGES
IoT solutions can come in various shapes and sizes and can be
applied across an entire enterprise, helping companies to reach their
digital momentum. These include using IoT to improve internal
performance such as on the shop floor, empowering the workforce
and improving their performance, as well as transforming back-office
operations with IoT-enabled enterprise mobil ity solutions. On the other
hand, it can be used on the more customer-facing side of the
business, such as embedding the IoT in products that can provide
better service to customers and collect valuable customer data.
But which of these IoT applications have raised interest from
companies in Europe, in which direction are their IoT investments
channeled, and what benefits are they looking to achieve with IoT?
IoT applications can be roughly divided into two categories: the first
one aims at improving a company’s internal capabil it ies while the
second one aims at making their external customer-facing
capabil it ies better.
Almost 70% of companies see cost reduction as a main driver while the second place goes to product improvement
Digital Industr ial Transformation with the Internet of Things – Copyr ight CXP Group, 2017 14
Fig. 7: With respect to internal capabilities, will the following aspects be a major, minor or not a driver (goal) of your IoT initiatives in the next 3 years?
In the former category, the majority of European companies (almost
70% of them) see the IoT as a tool for driving their operational costs
down, which could enable them to unlock cost savings and improve
operational efficiency. This f inding does not come as a surprise as
these companies mostly have tight margins and operate expensive
industrial machines and systems integrated into complex production
processes and production l ines. To get there, industrial companies
look for IoT solutions that integrate their operational technology with
existing IT infrastructure and include applications such as predictive
maintenance or asset monitoring. A good example here is Rolls
Royce, the Brit ish jet engine manufacturer that embedded IoT sensors
in its engines and streams data to run predictive analytics on top of
it. This enables Rolls Royce to improve the jet servicing it offers to
customers as it can monitor the jet performance during its l ifetime.
ThyssenKrupp, a German elevator manufacturer, is another good
example of an industrial company that found a great use for IoT. It
embedded the technology into its elevators but it also offers its own
predictive maintenance solution and services to the market. This is
another great example of how a company moved up the value chain
by adopting IoT and enabling new revenue streams.
Another important driver for IoT initiatives, especially in France and
Italy, is improving the automation of business and production
processes. For example, there are initiatives to implement robotic
solutions that could co-exist with humans in factories and support
them in their work activities. This is particularly useful on assembly
l ines where, for example, a robot could assist people by providing
them with the parts and tools they need throughout the assembly
process. Some experimental work is being done in this area at Audi.
40%
42%
47%
48%
48%
69%
41%
48%
40%
43%
45%
28%
Improving health, safety or environmental monitoring
Improving schedule optimization
Enabling digital workforce and improving mobility
Achieving process automation
Improving asset servitization with predictive maintenance and reducing
unplanned downtime
Driving cost savings and operational efficiency
Major driver Minor driver
© PAC - a CXP Group Company 2017 n = 253 "Not a driver" not shown
Innovation in action : Krone
More than a century old, this German manufacturer of farming machinery and equipment adopted IoT technologies to transform its machinery. Its machinery is now equipped with sensors that col lect real-t ime data during the farming process. With additional sensors placed at the farms, all the data col lected is sent to the cloud where it is processed and made available to the farmers. They can get an insight into the qual ity of their crops, adjust the nutr it ive values of the food given to dairy cows, as wel l as adjust and plan the usage of ferti l izers. This is a best practice example that shows how the adoption of IoT increases the value of the product.
Digital Industr ial Transformation with the Internet of Things – Copyr ight CXP Group, 2017 15
Other IoT drivers such as improving schedule optimization as well as
health, safety and environmental monitoring didn’t come up as
important as the aforementioned drivers. This is probably because
industrial companies already have systems in place to support these
processes and there is not enough room for improvement.
Fig. 8: With respect to external capabilities, will the following aspects be a major, minor or not a driver (goal) of your IoT initiatives in the next 3 years?
On the other side, a glance at the IoT drivers that could improve the
external capabilit ies of an industrial company shows that they are
mostly geared to boosting their products, which could enable the
development of new services and business models. Such IoT
applications have the potential to shift the paradigm of
manufacturers and turn them into service providers – these
applications are especially appealing to companies that directly
interact with consumers. Examples of IoT applications in consumer-
oriented products are numerous and vary from wearables to home
appliances. These products usually have their digital side as well, in
the form of mobile applications that customers use to manage the
device and get useful data. These services can either be free and
serve as a competitive advantage and differentiation or can
generate additional revenue streams such as the case with
connected car services in the automotive sector. In terms of areas,
manufacturers in the Nordic region are very keen on investing in IoT
solutions that can enable connected products, new services and
business models. This is the most advanced of all the regions as it has
the same level of priority and represents a major driver to 70% of the
companies.
Improvement of the supply chain as a driver for IoT adoption has
divided the companies and approximately the same amount of them
see it as major and a minor driver. The reason for this might be that
manufacturers in Europe have quite mature IT departments with
supply chain management (SCM) software in place for decades.
However, there is always room for improvement by integrating real-
time data about the condition of assets into it. For example, by
integrating predictive maintenance applications into the SCM
software, spare parts for the asset or its replacement could be
46%
49%
51%
51%
46%
37%
37%
38%
Improving supply chain management
Improving customer engagement
Improving product quality
Creating new connected products, services or business models
Major driver Minor driver
© PAC - a CXP Group Company 2017 n = 253 "Not a driver" not shown
Data security and privacy concerns are seen as the most challenging issues in IoT initiatives and strategies
Digital Industr ial Transformation with the Internet of Things – Copyr ight CXP Group, 2017 16
automatically ordered in the SCM system before an outage occurs.
Such solutions would contribute further towards reducing unplanned
downtime and enabling more optimized servitization, which in this
case would not have to be periodically but instead could be done
based on the actual condition of an asset.
What are the main challenges making companies hesitate with their
IoT investments?
Fig. 9: Do you perceive the following aspects as a major, minor or not a challenge in your IoT initiatives and strategy?
Understandably, data security and privacy is perceived as the major
challenge by more than 70% of companies. This fear is certainly
justif ied due to a general growing number of cyber attacks but also
the fact that IoT significantly increases the number of potential entry
points into the network. With IoT, every connected machine or asset
becomes an endpoint that could potentially be breached if not
properly secured. On top of cyber attacks, mounting compliance and
regulatory burdens in some of countries l ike Germany or the
upcoming General Data Protection Regulation (GDPR) can also raise
concerns and slow down the pace of adoption.
Other evaluated concerns were not flagged as major ones by the
majority of companies, at least when the results of the analysis are
consolidated on a European level. Cost-related challenges are not
considered as a major concern, which indicates the certain amount
of readiness to invest in the IoT. Concerns related to internal
capabil it ies are also more considered as minor than major ones,
which outlines the certain level of confidence companies have when
it comes to IoT initiatives and strategy.
32%
33%
36%
39%
41%
43%
43%
43%
70%
49%
49%
49%
44%
45%
47%
51%
43%
27%
Slow internet connections
Internal organization challenges
Lack of technical development employees
Lack of data scientists and analytics employees
Building the business case for IoT investment
Cost of implementation and management of IoT solutions
Cost of purchase of IoT solutions
Cultural change in the plants caused by implementing IoT solutions and
smart machines
Data security and privacy concerns
Major challenge Minor challenge
© PAC - a CXP Group Company 2017 n = 253 "Not a challenge" not shown
Digital Industr ial Transformation with the Internet of Things – Copyr ight CXP Group, 2017 17
A deeper dive into individual country data shows that:
• Italian manufacturers are put off by the cost related to IoT
solutions. 67% percent see the cost of purchase as a major
challenge whereas 73% see the cost of management and
implementation as the major challenge.
• The French companies see business-oriented challenges as
bigger concerns than their peers from other European
countries. More than 50% of them see the lack of data
scientists and building the business case for IoT investment as
major challenges.
• 55% of Belgian manufacturers are concerned over insufficient
infrastructure and slow Internet connections that cannot
support IoT applications.
• Similarly to France, companies in the Nordics region also see
making the business case for IoT investment as the major
challenge.
• The study reveals that German companies are fairly confident
when it comes to the challenges of IoT adoption, especially
ones related to internal capabil it ies such as lack of data
scientists, lack of developers, as well as internal organization
challenges.
The results relating to these challenges show that almost half of the
manufacturing companies feel fairly confident about their internal
capabil it ies, such as technical development, analytics and business,
and one senses a certain level of confidence that they can transform
their internal organization to support the deployment of IoT solutions.
Digital Industr ial Transformation with the Internet of Things – Copyr ight CXP Group, 2017 18
MOVING FORWARD WITH IOT
Despite showing a certain level of confidence in internal capabil it ies
with regards to deployment of IoT and the required transformation,
industrial companies are working very closely with the third-party
providers. These include the l ikes of technology players in the
software and IT services space, as well as other emerging players
entering the IoT market such as digital agencies, hardware
companies and industrial companies that have reinvented
themselves to offer various IoT value propositions.
The question remains which of these players are the most involved in
helping industrial companies transform themselves with IoT and what
types of engagement are industrial companies after?
Digital Industr ial Transformation with the Internet of Things – Copyr ight CXP Group, 2017 19
Fig. 10: Are the following third parties strongly, somewhat or not involved in developing your IoT strategy and initiatives?
The overall European results show that industrial players are mostly
taking the hand of IT services providers and consulting companies.
This doesn’t come as a surprise as the former are those with already
built PoC’s and have already deployed these solutions for their
clients. They also take care of end-to-end solution design, delivery
and management, which is favorable for those industrial players
wanting to stay focused on their products and be more agile in
operations. The latter, on the other hand, comes from the need to
justify an IoT solution with a business case and make the most use of
the gathered IoT data, which is where consulting firms take the lead.
A bit less involvement can be seen from software companies,
platforms providers, hardware companies and telcos. This is probably
because these types of players grow mostly through the channels
and partnerships network, hence their smaller involvement in IoT
initiatives. Other players such as digital agencies and some of the
industrial companies are mostly new entrants in the IoT market and
sti l l have to develop their capabil it ies to win new deals. Finally, the
least heavy involvement in IoT initiatives comes from academia and
research institutions, but sti l l it cannot be neglected, especially for
the prototyping stages of new solutions and technologies. However,
these collaboration trends heavily depend on the country and local
IT market.
For example, only 33% of the companies in the Nordics region stated
they are strongly involved in working with any of the third parties,
which is another sign of advanced development and internal
capabil it ies of industrial companies there.
26%
30%
33%
40%
44%
47%
51%
51%
37%
44%
42%
44%
40%
41%
35%
36%
36%
26%
25%
16%
16%
11%
13%
13%
0% 20% 40% 60% 80% 100%
Universities or research institutions
Industrial companies
Digital agencies
Telecom companies
Hardware companies
Software companies / platform providers
Consulting firms
IT services companies
Strongly involved Somewhat involved Not involved at all
© PAC - a CXP Group Company, 2017 n = 253
Innovation in action : Piaggio
The Ital ian motorbike manufacturer i s using IoT and other digital technologies such as predictive analytics to drive sales of its vehicles by improving the customer experience and enabl ing personalization. Users wi ll benefi t from the mobile application via which they can remotely locate and mange their vehicles as wel l as enjoy a personalized customer experience. The entire solution is integrated into Piaggio’s existing IT systems, which allows the performance of advanced analytics on gathered customer and vehicle data. This use case outlines the application of IoT for improvement of customer experience and personalization, as wel l as a good practice of integration, which provides an opportunity to derive maximum value from the data.
Digital Industr ial Transformation with the Internet of Things – Copyr ight CXP Group, 2017 20
In Italy, on the other hand, the stakeholders which most Italian
companies (87%) collaborate with are consulting firms, whereas in
the Benelux region the majority of companies (67%) work with
software and platforms providers. Meanwhile in Austria and
Switzerland, it seems that industrial companies are taking the hand of
both consulting firms and IT services companies with 63% and 77%
respectively. In the industrial sector in Germany, 54% of the
companies are working with hardware players on deployment of IoT
solutions whereas collaboration with other third parties is much lower.
This is because German companies are confident in their internal
capabil it ies and have an engineering mindset, which makes them
more l ikely to keep the work in-house.
It should be highlighted that the swing towards some of these
categories also largely depends on which sector the industrial
company operates in and what is its f inal product. For example,
manufacturers of home appliances are more l ikely to collaborate
with hardware companies that provide embedded technologies that
can gather and process device data. Whereas manufacturers in the
mining industry are more l ikely to work with IT services providers, as
they require a partner with strong delivery capabil it ies on a global
scale. Additionally, PAC acknowledges the importance of industrial
companies for the IoT ecosystem because some of them have
recently entered the IoT market as vendors, offering IoT solutions and
platforms to other industrial companies. As such, they have optimized
their own operations and developed IoT platforms, solutions and
services along the way, and PAC expects their influence on IoT
adoption to increase.
When it comes to the types of engagements that industrial players
are working on with third parties, overall development and
prototyping of solutions is the area where the largest amount of
companies (78%) need assistance, whereas solution management,
implementation and analytics take a sl ightly lower priority. The least
amount of assistance is needed with using the IoT data and making
the right business decisions based on IT.
Fig. 11: Which of the following areas of collaboration with third parties would you consider?
54%
64%
66%
67%
78%
Management consulting based on IoT data
Analytics of IoT data
Solution implementation
Solution management
Solution design, prototyping and development
© PAC - a CXP Group Company 2017 n = 253 Multiple answers possible
IoT solution design and prototyping is the most common engagement between industrial companies and third parties
Italian companies mostly collaborate with consulting firms, German companies mostly collaborate with hardware companies while French companies collaborate with IT services players the most.
Digital Industr ial Transformation with the Internet of Things – Copyr ight CXP Group, 2017 21
In the UK and the Benelux region, more than 80% of the companies
opted in for working with third parties on solution design, prototyping
and development engagements, which indicates that they probably
lack development capabil it ies. In Germany, on the other hand, 64%
of the companies would require additional help around management
consulting, which is in l ine with the result relating to IoT adoption
challenges, which indicates that most German companies see
making a business case for IoT investment as a major challenge. In
the Nordic countries, as well as Austria and Switzerland, 77% of the
companies would consider working with third parties on the solution
implementation part of deployments. On the other hand, 83% of
Italian companies would pick third parties to help them with solution
management.
In order to gain the maximum value from IoT solutions, companies
need to strive to integrate and standardize the huge and escalating
volumes of IoT data in order to provide a “single view of the truth”.
Ideally, this data should be analyzed and, in order to do that,
deployment of enterprise-wide IoT platforms that can manage the
devices and assets, as well as collect and process the data is crit ical.
Fig. 12: Have you already deployed a central enterprise-wide IoT platform to manage devices, assets, and process data; Is it planned in the next 3 years or at least discussed, or it is not relevant?
The results of the study show that a solid 30% of the companies have
already implemented this type of platform, but the remaining 70% are
sti l l not taking concrete actions to implement it. Italy and the Nordics
stand out here with almost 50% of companies having already
implemented IoT platforms, whereas other countries show significantly
lower levels of adoption. This is related to current adoption rates and
investment plans for IoT, and it is l ikely that in countries where IoT
adoption is lower, investments are smaller and projects are in the PoC
stage and not based on enterprise-wide IoT platforms. On the
contrary, those with a clearly set IoT strategy and projects in an
advanced phase are more l ikely to have enterprise-wide IoT
platforms already in place.
However, to get a “single view of the truth” across the entire
enterprise, companies need to integrate their IoT data together with
the data that sits across the organization in existing business
applications such as ERP (enterprise resource planning systems).
1%
19%
50%
30%
Not relevant
Discussed
Planned within the next 3 years
Already deployed
© PAC - a CXP Group Company 2017 n = 253
Digital Industr ial Transformation with the Internet of Things – Copyr ight CXP Group, 2017 22
Integrating these two together is quite a challenging task and, apart
from investment and internal capabil it ies, requires an organizational
strategy that accommodates the requirements of the task. As
expected, the results show that the majority of companies are sti l l not
at this stage and 59% plan to get there within the next three years.
Again, companies in the Nordics region show the most advanced
level of adoption with 31% of them having already achieved this
integration.
Fig. 13: Have you integrated an IoT platform or IoT solutions with your existing enterprise IT applications such as ERP? Is it planned within the next 3 years or at least discussed, or is it not relevant?
One of the most important pieces of the IoT strategy puzzle is data. It
is not enough to simply collect and process it; it’s essential to gain
valuable business insights out of it and use it in business decision-
making. Be it with the help of third parties or on their own, industrial
companies need to have a strategy in place as well as supporting
infrastructure in terms of cloud-based tools and applications that can
accommodate the analysis of vast amounts of data coming from IoT
devices.
Are companies already using the power of data in their day-to-day
business decision-making and where is the analytics currently
performed?
A high-level view shows that the majority of companies (54%) plan to
do so in the next three years whereas a solid 30% are already doing
so now. Diving deeper into the results reveals Italy as the champion in
this category with 67% already using IoT data for business decisions,
which reflects the fact that 60% of Italian companies consider data
analytics only as a minor challenge.
0.4%
22%
59%
19%
No, not relevant
Yes, discussed
Yes, planned within the next 3 years
Yes, already integrated
© PAC - a CXP Group Company 2017 n = 253
More than 50% of companies do not use IoT data in their business decision-making
Digital Industr ial Transformation with the Internet of Things – Copyr ight CXP Group, 2017 23
Fig. 14: Are you currently analyzing and using your IoT data in business decision-making? Is it planned within the next three years, or at least discussed, or is it not relevant?
Another important question that needs to be addressed when setting
out an IoT strategy is where wil l the data be analyzed – in the cloud,
on-premise, or on edge devices such as gateways?
Fig. 15: Based on your IoT strategy, is data analytics performed in the cloud, in your own data center (on-premise) and/or on edge devices (such as gateways)?
All of these options have pros and cons. For example, cloud analytics
allows for more complex data analysis with availabil ity of a wide set
of pre-made analytics tools and modules, which could be used on a
PaaS basis. However, this choice means that all the asset data needs
to be sent to the cloud, which could be a pricey option depending
on the types of connectivity the solutions are based on, and also
means that data is usually not processed in real time. On the
contrary, edge analytics provides near real-time analysis but with
l imited resources. On-premise options can provide an extra layer of
security but might not be the most cost-effective option. These are
16%
54%
30%
Not yet done or planned, but discussed
Not yet, but we plan to do it in the next 3 years
Yes, we are analyzing and using IoT data
© PAC - a CXP Group Company 2017 n = 253
0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
100% UK
Germany
Austria & Switzerland
France
Nordics
Italy
Benelux
Total
In the cloud In own data center (on-premise) On edge devices (such as gateways)
n = 253
Multiple answers possible
© PAC - a CXP Group Company 2017
Digital Industr ial Transformation with the Internet of Things – Copyr ight CXP Group, 2017 24
the reasons why many companies decide to use multiple places for
the IoT data analytics. Cloud is the most popular option followed by
on-premise and edge analytics, which is sti l l in early development
phases but looks promising for the future.
Digital Industr ial Transformation with the Internet of Things – Copyr ight CXP Group, 2017 25
CONCLUSIONS
Innovation has become an imperative for European industrial
companies. Dealing with cost pressure tops the priority l ist for
companies and technologies under the IoT umbrella can be
powerful tools for addressing the major challenges in their
internal operational performance. Companies are aware of
this and the vast majority are planning to increase spending
in this area.
Apart from improving operational efficiency, IoT solutions
open the gates for innovation and put companies in a
position to move up their value chains by offering better and
connected products, and new services based on them, as
well as to gather valuable customer data that can be
monetized.
The majority of companies are already running IoT initiatives
in different phases of deployment, maturity and scale, which
confirms that the IoT is perceived as a potential solution of
multiple issues and as the key to unlocking the doors of wider
digital transformation of both operational technology and
information technology systems. This is why IoT gets a
significant amount of the overall digital transformation
budget.
On the road to innovation, IoT companies are usually guided
by third parties and are engaged with a range of
stakeholders, the most prominent of which are IT services
companies and consulting firms.
The pace of IoT adoption wil l depend on the internal
organizations and decision-making rights in terms of IoT
investments. Despite the fact that most companies make
these decisions within the IT department, there is a significant
amount of diversity as some companies lead initiatives from
the l ines of business or the boardroom. Integrating these
departments and fostering collaboration wil l improve the
chances of deployment of enterprise-wide solutions that
could maximize the benefits to the business.
A major concern of most companies comes from a data
security and privacy perspective which, due to growing
cyber threats and burdening regulations, could slow down
the overall adoption of IoT solutions.
Supporting IoT initiatives requires investment not only in IoT
solutions but also in the underlying infrastructure such as IoT
and analytics platforms, which need to be integrated into
companies’ IT systems. Results show that there is a solid
number of companies making steps in this direction.
Digital Industr ial Transformation with the Internet of Things – Copyr ight CXP Group, 2017 26
METHODOLOGY
This study is based on interviews with senior business and IT decision-makers with responsibil ity for
driving innovation strategies at 250 large European manufacturing companies. The study was
completed during the first quarter of 2017. Here is a more detailed breakdown of the participants in
the study:
17%
20%
12% 18%
14%
12%
8%
Respondents by region
UK
Germany
Austria & Switzerland
France
Nordics
Italy
Benelux
8%
61%
8%
5%
6% 7%
4%
1%
Respondents by position
CEO
CIO / Head of IT
Head of Digital
Head of Data
Head of IoT
Head of Production
Head of Product Development
Other IoT decision-maker
59%
41%
Respondents by industry
Automotive and discrete industries
Process industries 60%
40%
Respondents by size of workforce
500-2,500
More than 2,500
n = 253 © PAC - a CXP Group Company 2017
Digital Industr ial Transformation with the Internet of Things – Copyr ight CXP Group, 2017 27
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operations of legacy systems and traditional ICT services, the
transformation to cloud-based services (including tailored
infrastructure, platforms and software) as well as new business models
and innovation projects for the business fields of the future, such as
data analytics, the Internet of Things, machine-to-machine (M2M)
communications and Industrie 4.0. These offerings are based on the
provider’s global reach in fixed-network and mobile communications,
its highly secure data centers, a comprehensive cloud ecosystem
built around standardized platforms and global partnerships, and the
abil ity to ensure highest levels of security.
IoT and cloud are strategic growth topics of Deutsche Telekom and
since January 2015, they have been bundled in T-Systems’ Digital
Division. A team of around 1,200 experts supports companies to help
them implement their digitization strategies and develops highly
scalable, platform-based and standardized IoT/M2M and Industrie 4.0
products and data analytics solutions. This unit also provides industry-
specific connected-car and e-health solutions.
For more information, visit www.t-systems.com.
About Deutsche Telekom
Deutsche Telekom is one of the world's leading integrated
telecommunications companies. The group provides fixed-
network/broadband, mobile communications, Internet, and IPTV
products and services for consumers, and information and
communication technology (ICT) solutions for business and corporate
customers. Deutsche Telekom is present in more than 50 countries and
has about 218,300 employees worldwide. In business year 2016, the
company generated revenues of 73.1 bil l ion EUR, about 66,3 percent
of it outside Germany. For Deutsche Telekom, the business customer
segment in Europe is a strategic area of growth. Together with T-
Systems, Deutsche Telekom’s daughter company for the large
accounts segment, Deutsche Telekom provides small and medium
businesses as well as multinational corporations ICT solutions for an
increasingly complex digital world. The core offering comprises cloud-
based services, M2M and security solutions, complementary mobile
and fixed-line communications products, solutions for virtual
collaboration and IT platforms, which serve as basis for customers’
digital business models.
Contact email : [email protected]
Digital Industr ial Transformation with the Internet of Things – Copyr ight CXP Group, 2017 37
ABOUT PAC
Founded in 1976, Pierre Audoin Consultants (PAC) is part of CXP
Group, the leading independent European research and consulting
firm for the software, IT services and digital transformation industry.
CXP Group offers its customers comprehensive support services for
the evaluation, selection and optimization of their software solutions
and for the evaluation and selection of IT services providers, and
accompanies them in optimizing their sourcing and investment
strategies. As such, CXP Group supports ICT decision makers in their
digital transformation journey.
Further, CXP Group assists software and IT services providers in
optimizing their strategies and go-to-market approaches with
quantitative and qualitative analyses as well as consulting services.
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expertise every year to more than 1,500 ICT decision makers and the
operational divisions of large enterprises as well as mid-market
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Audoin Consultants (PAC).
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Digital Industr ial Transformation with the Internet of Things – Copyr ight CXP Group, 2017 38
DISCLAIMER, USAGE RIGHTS, INDEPEN-DENCE AND DATA PROTECTION
The creation and distribution of this study was supported by premium
sponsors Accenture, Hitachi, Intel and Reply, gold sponsors Cognizant
and Stratus, and si lver sponsors GE Digital, Logicalis, Salesforce and
T-Systems.
For more information, please visit www.pac-online.com.
Disclaimer
The contents of this study were compiled with the greatest possible
care. However, no l iabil ity for their accuracy can be assumed.
Analyses and evaluations reflect the state of our knowledge in April
2017 and may change at any time. This applies in particular, but not
exclusively, to statements made about the future. Names and
designations that appear in this study may be registered trademarks.
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This study is protected by copyright. Any reproduction or
dissemination to third parties, including in part, requires the prior
explicit authorization of the sponsors. The publication or dissemination
of tables, graphics etc. in other publications also requires prior
authorization.
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This study was produced by Pierre Audoin Consultants (PAC). The
sponsors had no influence over the analysis of the data and the
production of the study.
The participants in the study were assured that the information they
provided would be treated confidentially. No statement enables
conclusions to be drawn about individual companies, and no
individual survey data was passed to the sponsors or other third
parties. All participants in the study were selected at random. There is
no connection between the production of the study and any
commercial relationship between the respondents and the sponsors
of this study.