Big Data and IoT The Economic Benefits

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1 ROBERT B. COHEN, PHD SENIOR FELLOW, ECONOMIC STRATEGY Expo at Cloud Expo New York 2017 June 8, Javits Convention Center THE AUTHOR THANKS THE BERGGRUEN FOUNDATION, THE EWING MARION KAUFFMAN FOUNDATION, BROCADE COMMUNICATIONS AND THE ORGANIZATION FOR ECONOMIC COOPERATION AND DEVELOPMENT FOR THEIR FINANCIAL SUPPORT. Big Data and IoT The Economic Benefits

2 Expo at Cloud Expo New York

3 Economic Impacts of Big Data and Internet of Things THE ANALYSIS OF HUGE AMOUNTS OF DATA PROVIDES: BETTER UNDERSTANDING OF HOW FIRMS OPERATE; THE PROCESSES INVOLVED IN PROVIDING SERVICES THE PROCESSES AND COSTS OF PRODUCING GOODS, PARTICULARLY WHERE MANY DIFFERENT PARTS OR COMPONENTS ARE INTEGRATED INTO A GOOD OR WHERE EXTENSIVE TESTING AND ANALYSIS OF PRODUCT PERFORMANCE IS REQUIRED PRODUCING AN AUTO OR A LARGE JET THAT INCLUDES PARTS FROM MANY DIFFERENT SUPPLIERS AND PRODUCTOIN PROCESSES THAT NEED TO BE MONITORED AND CHECKED AT EACH STAGE. A COMPLEX LOGISTICS FIRM THAT NEEDS TO RELY UPON PREDICTIVE ANALYTICS TO REDUCE COSTS AND OPTIMIZE THE WAY PARCELS ARE DELIVERED. BIG DATA CAN HELP OPTIMIZE PRODUCTION BY RESTRUCTURING PROCESSES, FACILITATING USE OF NEW ANALYTIC TECHNIQUES MANY FIRMS CONSOLIDATED DATA CENTERS TO BE ABLE TO APPLY ANALYTICS THESE FIRMS HAVE ALSO BUILT ANALYTIC TEAMS BIG DATA CAN CHANGE BUSINESS MODELS ROLLS ROYCE SELLS ENGINES BY KILOMETERS PER HOUR, MICHELIN SELLS TIRES BY KMS PER HOUR SERVICIFICATION OF CERTAIN INDUSTRIES ENGINES, TIRES, AUTOS? Expo at Cloud Expo New York

4 ECONOMIC IMPACTS OF IOT IoT TRANSFORMS ELECTRICAL, MECHANICAL AND SERVICE INDUSTRIES THIS IS A DRAMATIC CHANGE IN HOW INDUSTRY OPERATES. IT SPANS MANY INDUSTRIES. AS IOT IS MORE WIDELY ADOPTED, IT SHOULD REDUCE COSTS, INCREASE OUTPUT AND CREATE GREATER DEMAND FOR NEW TYPES OF JOBS DR. JOHN FULTON OF OHIO STATE: IF YOU RE GOING TO DO FARMING IN THE FUTURE, THIS IS WHAT YOU ARE GOING TO USE, PRECISION AGRICULTURE WHICH IS MOVING TO DIGITAL DATA; THIS INCLUDES: PRECISION AGRICULTURE, PRESCRIPTIVE AGRICULTURE AND BIG DATA. (IoT) IoT INTRODUCES GREATER CONTROL OVER PRODUCTION REDUCES COSTS MAKES IT EASIER TO EXPAND PRODUCTION, RAISE REVENUES PRECISION AG CONTRIBUTES $12.4 BN TO US ECONOMY ANNUALLY, 7% OF TOTAL AGRICULTURAL PRODUCTION RESULTS IN GREATER PRODUCTIVITY THIS IS NOT SHOWING UP IN THE DATA FACILITATES LINKING MANUFACTURED PRODUCTS TO SERVICES MONITORS ENGINES IN REAL TIME, REDUCING UNEXPECTED MAINTENANCE EXTENDS LIFETIME OF PRODUCTS, LIKE ENGINES SUPPORTS ZERO DEFECT OR ZERO DOWNTIME GUARANTEES SPEEDS UP PRODUCTION OR SERVICE DEVELOPMENT ACTIVELY IDENTIFIES ISSUES IN PRODUCTS WHILE THEY ARE PRODUCED REDUCES ERRORS AND POORLY PRODUCED PRODUCTS, ELIMINATING TIME LOST SHOULD ADD TO PRODUCTIVITY Expo at Cloud Expo New York

5 HOW IoT CHANGES PRODUCTION AT BOEING BOEING ANALYTICS ON THE FACTORY FLOOR COMBINED WITH ROBOTS IMPROVE EFFICIENCIES. JUST IN TIME MATERIALS TIMING PROGRESS ON THE LINE EXPANDING PRODUCTION BY USING A MOVING ASSEMBLY LINE COST SAVINGS PLUS EXPANDING THE SCALE OF PRODUCTION Expo at Cloud Expo New York

6 WITH IOT, BOEING REDEFINES PRODUCTION Boeing installs Ford or Toyota like production lines Initially, s per month in s per month in 2018 Boeing builds EPS % change to nearly 20% per year (See charts) Economic Impact: If we assume 5-10% increase in revenues Boeing gains $4 Bn to $8 Bn/yr Suppliers gain $2 Bn to $5 Bn/yr Jobs: Boeing gains 8000 to jobs/yr Suppliers gain 6300 to 12,600 jobs/yr Expo at Cloud Expo New York

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9 IoT LETS BOEING TRACK PRODUCTION, FLIGHT AND MAINTENANCE PROCESSES Expo at Cloud Expo New York

10 BOEING: IOT AND MAINTENANCE AND SAFETY Knowing that an aircraft has been maintained according to the required schedule is difficult today Many interested and dependent parties with contrasting/conflicting goals Use IoT and blockchain as a shared ledger of aircraft history, for usage, maintenance, warranty work, replacement parts Benefits: Greater transparency of true history: proof of good parts, completed maintenance and certifications, clean documents. Greater confidence and safety because replacement part provenance, and all service is indelibly recorded Safety certifications and auditability Greater trust since no single authority "owns the whole story New business opportunities for insurers, lenders, warranty services Expo at Cloud Expo New York

11 Blockchain, IoT, and Boeing Expo at Cloud Expo New York

12 IoT in an Economic and Innovation Context Firms produce on the productivity frontier and make trade-offs; greater efficiencies move a firm from point 1 to point 2. With innovations, the productivity frontier expands, i.e., innovation is defined by the trade-offs you break or surpass. Expo at Cloud Expo New York

13 IoT CHANGES COMPETITIVENESS AT UPS UPS INTERNATIONALLY USED A SYSTEM BASED ON: Visual Basic 6 and Microsoft SQL Server, monolithic, hosted on a single server, unable to scale easily or to cope with peaks in demand, and prone to downtime. UPS PURCHASED i-parcel AN INTERNATIONAL CROSS-BORDER e-com- MERCE ENABLER It built a logistics platform with a MongoDB solution that could grow. The solution supported dynamic queries and flexible schemas. THE NEW UPS SOLUTION: Changed process 1.0 that required 30 to 60 seconds to process a parcel with Operations 2.0 that required less than 2 seconds This was a huge performance increase. UPS BUILT A DEVOPS OPERATION TO SUPPORT OPERATIONS 2.O. i-parcel became an innovation driver in UPS. Expo at Cloud Expo New York

14 IoT CHANGES COMPETITIVENESS AT FORD FORD EMPLOYS BIG DATA SAVINGS OF $2 BN OVER 4-5 YEARS IN SUPPLY CHAIN/DEALER DELIVERIES BIG DATA ANALYSIS IDENTIFIED TRUCK DESIGN CHANGES THAT COULD IMPROVE FUEL EFFICIENCY AND LOWER PRODUCTION COSTS ALUMINUM CHASSIS REDUCES COST, INCREASES PROFITABILITY 50% PROFIT ON NEW F-150 FORD CREATED FORD SMART MOBILITY AND FORD PASS, A PIVOTAL PLATFORM FROM CLOUD FOUNDRY. THIS MOBILITY SOLUTION LOOKS FORWARD TO THE DAY WHEN CAR-USE-AS-A- SERVICE IS MORE POPULAR THAN AUTO OWNERSHIP. IT IS BASED ON DEVOPS. FORD S DEVELOPERS WANTED TO DEPLOY SOFTWARE IN MINUTES INSTEAD OF MONTHS. THIS DROVE THE USE OF AGILE PROCESSES AND DEVOPS. Expo at Cloud Expo New York

15 IoT CHANGES COMPETITIVENESS AT ROLLS- ROYCE ON THE SERVICE SIDE, ROLLS-ROYCE OFFERS POWER BY THE HOUR (LIKE MICHELIN S KILOMETERS BY THE HOUR AND FANUC ROBOTIC SYSTEMS ZERO DOWNTIME) ROLLS SERVICES IS MOVING TO GUARANTEE CUSTOMERS ZERO-BASED DISRUPTION LIKE FANUC S ZERO DOWNTIME 5,000 ROBOTS IN 26 GM FACTORIES THROUGHOUT THE WORLD UNPLANNED DOWNTIME IN AN AUTO PLANT CAN COST $15,000 $50,000 A MINUTE, $3 MILLION AN HOUR ROLLS ROYCE S BETA-PROJECT USE OF DEVOPS ACHIEVED: CLOSE TO A 20X INCREASE IN THE SPEED OF CODE-CREATION, REMOVED COST FROM THE DEVELOPMENT PROCESS, AND PAVED A WAY TO AZURE PAAS THANKS TO THE DEVOPS WORK WE VE UNDERTAKEN WITH THEIR SOFTWARE DEVELOPMENT TEAM QUOTE FROM BLACK MARBLE. DEVOPS IS KEY TO A SERIES OF NEW TECHNOLOGIES THAT ROLLS-ROYCE IS DEVELOPING WITH SUPPORT FROM THE RESEARCH COUNCIL UK AND INNOVATE UK. THESE DEAL WITH NEW ADVANCED REPAIR TECHNOLOGIES AND INTEGRATED CORE TECHNOLOGIES. THIS PUSHES THE TECHNOLOGY FRONTIER. Expo at Cloud Expo New York

16 IOT REQUIRES NEW JOB SKILLS WE SEE SKILLS CHANGES IN ANALYTICS, SOFTWARE DEVELOPMENT AND INFRASTRUCTURE MANAGEMENT IN ANALYTICS FORD IS HIRING DATA ANALYSTS/SCIENTISTS UPS DEVELOPED PREDICTIVE ANALYTICS MOST ANALYTICS EMPLOYEES NEED COMPUTER SCIENCE PLUS ANALYTIC TOOLS SKILLS (HADOOP) IN SOFTWARE DEVELOPMENT PROGRAMMERS WORK ON DIGITAL SYSTEMS: BOEING APPLIED SIMULATION AND ANALYTICS RAPID DEVELOPMENT OF NEW SERVICES IN CLOUD ECOSYSTEMS; TESTING AND DEVELOPMENT OF NEW SOFTWARE FOR APPLICATIONS. IN INFRASTRUCTURE MANAGEMENT BIG DATA LAKES REQUIRE FAMILIARITY WITH VIRTUALIZED ENVIRONMENTS. WE SEE THIS AT FORD, BOEING, AND UPS. Expo at Cloud Expo New York

17 IoT CHANGES THE LABOR MARKET TIGHT LABOR MARKET FOR DEVOPS JOBS MEANS EMPLOYERS CAN SEEK SPECIFIC SKILLS AND STRATIFY THE WAY THEY HIRE PEOPLE FOR DIFFERENT OCCUPATIONS. THIS OPENS MORE DOORS FOR NEWCOMERS WITH DESIRED SKILLS, SUCH AS RUBY, PYTHON, CHEF OR PUPPET. Expo at Cloud Expo New York

18 ECONOMIC IMPACTS OF IOT IoT IS PUSHING THE INNOVATION FRONTIER AND RESULTING IN HIGHER EARNINGS PER SHARE. BIG DATA IS CRUCIAL TO THIS NEW INNOVATION COMPANIES NEED DATA ANALYSTS AND DATA SCIENTISTS TO GAIN BETTER INSIGHTS INTO THE DATA. CONTINUOUS DELIVERY OF SOFTWARE WRITTEN ON CLOUD INFRASTRUCTURE PERMITS RAPID CHANGES TO PROGRAMS. USERS MANAGE AND ANALYZE BIG DATA MORE EASILY IMPROVED PROGRAMS ADDRESS PROBLEMS OR MALFUNCTIONS BEFORE THEY DISRUPT A PRODUCTION LINE. PRESCRIPTIVE OR FAULT TOLERANT PRODUCTION/PERFORMANCE IS POSSIBLE. Expo at Cloud Expo New York