IoT capabilities offered by system integrators in the manufacturing sector

Business Strategy IoT capabilities offered by system integrators in the manufacturing sector S Ramachandran IDC MANUFACTURING INSIGHTS OPINION The Internet of Things (IoT) is at a stage today where it can offer (if designed and implemented effectively) noticeable impact to manufacturing organizations in terms of top line, bottom line, customer engagement and new business models. Enterprises across the globe, including Asia/Pacific, are at different stages of evaluation and implementation of IoT. For organizations that are at early stages of IoT adoption or scaling up beyond pilots, one important point of consideration is to decide partners (technology providers or implementers) for collaboration at different stages of adoption and for specific components. System integrators with their growing investments in the IoT space will be key stake holders who manage end-to-end implementation bringing together multiple players. This IDC Manufacturing Insights report provides a summary of unique capabilities of system integrators in manufacturing domain in terms of use cases, basket of offerings and some example implementations. The following are specific aspects of IoT which makes the selection of an implementation partner as important as other technical choices: Core areas in IoT that need to be kept in-house is a critical decision. Given the strategic nature of IoT, what elements need to be kept in-house against what needs to be outsourced is a crucial decision point. For example, effective consumption of the data generated by IoT to produce meaningful insights using analytics should be kept within the enterprise to protect the intellectual property associated with it. External partners can play a role in non-core areas such as initial piloting, larger roll outs, ongoing support and infrastructure readiness. IoT is unlike traditional enterprise IT applications. IoT is not a monolith application that can be installed once and made to work. There are several components of hardware, software, systems and processes that need to be put together for an effective implementation. No one player in the IoT ecosystem can own and implement all of the modules. Each implementation can be unique in its own way. System integrators will coordinate an implementation end-toend playing the role of the single point of contact. Impactful use cases are important and the starting point for IoT. IoT is not a technology implementation in isolation. It is important in deciding what use cases to implement, the platform and hardware systems to use and traditional IT applications that need to be integrated with for a coherent solution. Knowledge of IoT system integrators, their capabilities in IoT plus associated areas and domain expertise will by itself become a valuable market insight for implementing meaningful use cases such as predictive maintenance, connected products, asset management and smart supply chains. Each domain has its unique characteristics for IoT application. This report is focused on manufacturing as a domain. October 2015, IDC Manufacturing Insights #AP40534615 1

IN THIS STUDY This IDC Manufacturing Insights report is a compilation of the capabilities and use cases, business models, partners, challenges faced and overcome by system integrators (SIs) in the IoT ecosystem, specifically for manufacturing applications such as connected furnaces, automobiles, factories, mines, vending machines and tools. SITUATION OVERVIEW In Asia Pacific excluding Japan (APeJ) region, among what IDC calls the "Innovation Accelerators", IoT has generated the most interest in the manufacturing sector. The complete list of Innovation Accelerators includes IoT, robotics, 3D Printing, natural interfaces, cognitive computing and security technologies as shown in Figure 1. FIGURE 1 The 3rd Platform and Innovation Accelerators Source: IDC Manufacturing Insights, 2015 Although technologies such as robotics and 3D Printing have been in the industry for decades, they are seeing early stages of renewed interest and more importantly in accelerating innovation among enterprises because of their affordability, ease of use, awareness and scaled down models today. IoT is definitely one of the accelerators seeing wide adoption when bundled with existing products and services to implement enhanced functionalities, new business models and revenue streams. In the 2015 IDC Manufacturing Insights #AP40534615 2

most recent study conducted by IDC Manufacturing Insights in APeJ region, 56% of the study participants are at various stages of IoT adoption from early evaluation to piloting and implementation. We are expecting an additional 10% of companies to start the IoT journey in the next 2 years. IDC Manufacturing Insights classifies the use of IoT into three broad categories i) Connected assets or Smart manufacturing, ii) Smart supply chain and iii) Connected products. For companies that have already invested on basic sensors to measure critical operational parameters in the shop floor, Smart manufacturing is the starting point in the IoT journey. Most adopted use cases during early stages are for remote monitoring of critical assets, hazardous environments and security monitoring. IoT takes these passive sensors to the next generation of active sensors backed by analytics and business logic to take autonomous action. Within 'smart manufacturing', sensors send critical parameters to the operator for taking necessary action manually. In the next stage, the data feed is sent to an IoT gateway which consolidates data from multiple connected devices, does noise reduction and communicates with the remote IoT platform. The IoT platform sends instructions to the device and/or the operator based on preset rules and inbuilt mathematical models. It also interacts with other enterprise IT applications where required for intelligence such as market demand or inventory levels. In the next stage, the IoT gateway autonomously takes decision under some specific circumstances such as safety where time lag can prove to be costly. This leads to 'Edge computing' where the decision is taken as close to the last mile as possible. Employees are empowered with devices such as hand helds with data feed from the IoT platform and other IT applications to take decisions when required or overruling the IoT instruction. 'Smart supply chain' and 'connected products' are the next two phases where IoT is deployed outside the enterprise, with a telecom service provider as the partner for remote closed loop data feed. 'Connected products' that are distributed across a broad geographical area are seeing the least IoT adoption. According to IDC, this is the most critical and impactful area where IoT can create the biggest differentiation for organizations. The possibility of creating new revenue streams and business models using these IoT architectures will continue to be one of the primary reasons why companies should and will welcome IoT into their boardroom discussions. It is also the most challenging since it is outside the enterprise, sometimes with mobile products and needing more specialized partners like sensor providers, telecom service providers etc., Figure 3 shows the broad areas of usage of IoT in manufacturing organizations in APeJ today and in the next 2 years. The most popular use case category continues to be safety and security monitoring. 2015 IDC Manufacturing Insights #AP40534615 3

FIGURE 3 Usage of IoT today and in the next 2 years Q: Where do you use most of the IoT technologies for now and plans for future usage? n = 440, Source: IDC Manufacturing Insights, 2015 The ROI for this category can be justified due to the criticality on business operation. Remote monitoring and diagnostics primarily for fixed assets within an enterprise will be the most used category in the near future. Enterprises have already made some investments such as sensors and control systems for critical assets. It is relatively easy to retrofit such critical assets with more sensors, get them connected and to start making meaningful insights and action items out of the data generated. THE PROFILES IT decision makers in manufacturing organizations who are starting their journey can benefit from understanding which service provider matches their requirements the closest. This matching of demand and supply at early stages can reduce the risks associated with implementation. IoT being a relatively new technology, awareness of its components and services in the market can be a valuable insight before starting the journey. Tech Mahindra Tech Mahindra (TechM) is a consulting, digital transformation, integrated engineering, business services and solutions company that is part of its parent Mahindra Group. Headquartered in Pune, India, Tech Mahindra had a revenue of US$3.8 billion in 2014. Manufacturing is the second-largest business segment of Tech Mahindra with ~20% revenue share. It caters to the automotive, discrete, aerospace-defense, and process manufacturing industries. Link: http://www.techmahindra.com TechM's IoT projects are different from traditional IT projects in several ways business-driven and not entirely CIO-driven, a frugal approach with no detailed upfront design and architecture like other IT 2015 IDC Manufacturing Insights #AP40534615 4

projects, starting with a pilot and more measurable ROI in the short term, collaboration, and co-innovation with customers. Like a typical matrix form of an organization, industry vertical teams in TechM bring in domain expertise while the technical competence comes from horizontal competency teams such as "Digital Enterprise Services (DES)" and "Integrated Engineering Services." TechM's approach for IoT is to leverage already available sensors, provide a retrofit, or use off-the shelf sensors. New designs are created and manufactured by partners only for niche applications where sensors are not readily available. TechM is supported by an ecosystem of partners across geographies into telecom, portal platforms, mobility, data exchange and security, middleware, sensors, and so forth. TechM has implemented edge computing where a thick client based rule engine is deployed on the network router for local decision making, sending only specific events to the central storage. TechM's use cases for IoT implementation within manufacturing range from connected cars, telematics solutions, vehicle diagnostics, remote asset management, RFID-based asset tracking, tool room management, fleet management for supply chains, and energy management. TechM is co-developing IoT solutions with their strategic partners such as IBM, Covisint, Bosch SI, and Microsoft. TechM implements and operates IoT projects using a strategic end-to-end managed services model. Outcome-based models are also being demanded by customers. Examples include improvement in revenue from aftermarket sales and services for automobile companies by managing their warranty processes bundled with IoT. TechM s Manufacturing Global Innovation Center (MaGIC) offers innovation as a service to its global manufacturing customers for incubating customized next generation Digital Business Solutions. Challenges faced TechM's primary challenge as well as key strength is in integrating diverse IoT components from multiple vendors with disparate technologies and platforms. Optimizing the costs of IoT projects is another challenge because the total costs depend on device volumes and the scale of operations. With opex models primarily based on a per device, per month subscription charge, manufacturing companies can provide affordable IoT solutions. TechM provides a breakup of the costs that include setup cost, device operating cost with slabs, and expects volume commitment from their customers. Other challenges are technical in nature related to the power source, deciding the location of assets, local regulation, and so forth. Implementations TechM's co-innovation with Bosch SI for the ''Track and Trace'' IoT implementation for handheld tightening power tools was covered in an earlier IDC report (Innovative Use Cases for the Adoption of Internet of Things in India Manufacturing, IDC #IN250976). TechM is working with a global discrete manufacturing conglomerate for improving turbine life and predicting failure for aero-engines and optimizing maintenance costs for power equipment. TechM is closely working in building and deploying solutions on the customer's IoT platform as well. TechM has deployed IoT projects such as remote monitoring for power generation equipment, asset utilization/optimization, and predictive maintenance for solar plants and inverters across the globe. A cloud-based platform is used for data storage, dashboards, mobile alerts and notifications and integrated with the enterprise resource management (ERP) system with role-based access. It is integrated with dealer management systems for service and payment gateways for subscription renewals. TechM is currently building an Aircraft Health Monitoring System (AHMS) for a North American aerospace major, which does real-time health and performance monitoring, usage analytics, and fleet operations planning services to operators. 2015 IDC Manufacturing Insights #AP40534615 5

FUTURE OUTLOOK IDC Manufacturing Insights classifies IoT implementation into the following three broad categories of use cases. Connected assets for Smart Manufacturing Connected supply chain Connected products Connected assets has seen most adoption of IoT since it has already seen some investments using sensors for remote management of critical equipment. For organizations to take IoT implementation outside the enterprise to its supply chain and its installed base, external partners become critical. IoT implementations need well planned road maps starting from use case identification to choice of the technology platform, developing business models and securing investment for pilots and full scale implementation with sound ROI models. IoT is becoming a core technology area embedded in products and enabling new business models. Given such a scenario, manufacturing organizations should focus on the business enablement of IoT while identifying strategic partners for technology aspects such as implementation, ongoing management, improvement and ensuring the performance of the IoT system. Choice of implementation partners will be a critical choice in the IoT journey. ESSENTIAL GUIDANCE Actions to Consider IoT is still an emerging technology with varying degrees of maturity and adoption across regions, among industries and use cases. It is not a monolith application like traditional enterprise IT systems. IoT needs to integrate multiple diverse systems from hardware to software, systems and processes for an impactful solution. This naturally brings in specialized players who bring specific strengths that are either vertical, process or technology (sensors, connectivity and analytics) focused. System integrators should strive to be the point of contact for IoT implementation bringing together the multiple players and ensuring a successful implementation. According to IDC, below are some points they need to keep in mind as IoT evolves. Technology buyers also need to be aware of such developments in the market as IoT becomes a necessary technology to stay competitive and they decide how to implement a connected enterprise. SI engagement models Moving beyond traditional time & material or fixed price implementation models will be beneficial for the ecosystem with a sharing of risks and rewards. Investment in IoT will face challenges like other technologies. It will be relatively easy to get approval and funding from CXOs, line of business and functional leaders if the benefits of an IoT implementation are defined in business terms such as revenue, profitability and customer satisfaction instead of just cost or cycle time reduction. System integrators will play a critical role leveraging their domain expertise to start defining innovative engagement models that define the benefits of IoT in terms of business impact when coming up with the contract. Edge computing The growth of IoT will lead to an increase in the use cases, frequency of data acquisition and the number of parameters measured. This will ultimately lead to an 2015 IDC Manufacturing Insights #AP40534615 6

increase in the variety and more importantly the volume and velocity of data measured in a two-way fashion from and to the equipment. The falling cost of hardware, the criticality of some decisions such as safety and bandwidth constraints will force some decisions to be taken locally as close to the equipment as possible for bigger impact. All information need not be passed to the remote control center for decision making. What decisions to take at the edge with the necessary logic will become an important part of the IoT design where system integrators will play a key role. This would also need investments and development of competency on the hardware and software aspects. According to IDC, by 2018, 40% of IoT created data will be stored, processed, analyzed, and acted upon close to, or at the edge of, the network. Domain knowledge and stake holder involvement IoT is not just a technology implementation. Early involvement of senior management beyond the IT department to functional and line of business leaders will be important for the success of IoT initiatives. IoT service providers should focus on developing deep domain knowledge for active participation with the business leadership in their language from initial stages starting with use case identification and detailing to implementation and ongoing management. Choice of partners for SIs For system integrators to offer end-to-end IoT implementation, it is important to identify partners across the entire spectrum. IoT service providers should identify partners for design and manufacture of sensors and other hardware devices, telemetry players for remote transmission of data and infrastructure partners in areas such as a data center for deployment of cloud based platforms. But the SIs will continue to be the single point of contact at all stages of the project. Business models IoT implementations can result in business models not seen before. Examples include product-as-a-service for construction/farm type of equipment where users need to pay only for the hours of usage of the equipment and usage based insurance for automobile drivers based on their actual usage patterns in a 'connected car'. Manufacturing enterprises should have costing and pricing models for the upfront investment required for getting 'connected' and for ongoing expenses, how to bake them into the price of the product and/or service and make the implementation profitable. System integrators managing IoT should have sound financial models for implementation and ongoing operations with incentives to go beyond just meeting the SLAs and exceeding the business metrics. Engagement with industry consortiums IoT being not limited to just one enterprise but more than one, interoperatbility standards become important given the diverse set of equipments that need to communicate with each other. Industry level consortiums are being formed and participation in such bodies will be key for IoT service providers to provide their expertise and develop the overall ecosystem with standards and procedures. Ethical IoT Incidents where original equipment manufacturers have intentionally used IoT or the onboard intelligence for wrong behavior have been noticed in the market. It will become important for neutral bodies to certify the ongoing performance of a connected product. System Integrators can play a key role in the way IoT applications are designed and for their ongoing operations. Transparency for factors such as environmental regulation will become an important market expectation. Ways of making IoT data publicly available without sharing any sensitive data will become a requirement to ensure transparency. 2015 IDC Manufacturing Insights #AP40534615 7

LEARN MORE Related Research Innovative Use Cases for the Adoption of Internet of Things in India Manufacturing, May 2015, IDC #IN250976 IDC PlanScape: The IoT Foundation for Connected Products, Assets, and Supply Chains in Manufacturing, July 2015, IDC #257113 IDC FutureScape: Worldwide Internet of Things 2015 Predictions, December 2014, IDC #252872 Synopsis IoT as a technology is at a stage today where companies have started implementing innovative use cases that generate significant business impact beyond just support of existing business processes. Multiple stake holders in the ecosystem from original equipment manufacturers of products, software vendors, telecom and networking service providers and system integrators have made significant investments in this area. The complexity of IoT implementations is much more complex compared to traditional IT applications. "Awareness and choice of the appropriate partner based on well-defined evaluation parameters for end-to-end management of the different components of IoT and for specific components will be as important as other steps such as definition of use cases, business model and the choice of technologies." says Ramachandran S, principal research manager, IDC Manufacturing Insights. This will help manufacturing enterprises to focus on the core areas of IoT in bundling them with the product and services portfolio they have and in implementing profitable business models. 2015 IDC Manufacturing Insights #AP40534615 8

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