ARC Advisory Group

Industrial IoT Strategy for SME Suppliers

Blog Post created by ARC Advisory Group on Apr 11, 2017

Last week I had a great discussion about IIoT strategy with a group of executives from a mid-sized “industrial conglomerate”. The businesses managed by these folks had some very strong and established products and some very loyal long-term customers.  They operate as a set of small-to-medium-sized enterprises (SMEs) and operate quite independently.  That’s their corporate culture and judging by their business results, it’s working very well. The issue they are dealing with is how to leverage their combined size to develop solutions (or even an approach) to the IIoT.  

Big Firm Strategy vs. SME Strategy

GE LogoContrast their situation with the firm that perhaps catalyzed the IIoT — General Electric.  After the 2009 financial crisis, GE decided to dispose of most of its financial businesses and return to its industrial roots. Looking at their intangible assets, internally GE had huge amounts of expertise in their own industrial products and systems, which they felt was not effectively utilized.  GE also had a long-standing corporate culture that provided a high degree of decision autonomy to P&L business units, and to the leaders of these units. Finally, GE believed that they needed to develop a software capability on a corporate scale — a scale larger than even their largest business units could afford to invest in.

GE then looked at the technical landscape and the scale of its installed base and in late 2012 came up with the corporate level strategy to define and build the Industrial Internet. In order to create the software capability and business, GE had to break with their internal tradition, so they created a corporate-wide software unit out of an existing R&D arm, and that unit developed software infrastructure and industry solutions in collaboration with high tech strategic partners and the relevant GE business units.  This unit has become today’s GE Digital.

A conglomerateHow does this compare with the options for much smaller companies like the industrial conglomerate I met with? First, they do not need to get out of any financial businesses or make any such corporate transformation.  They have deep internal domain expertise, albeit on a commensurately smaller scale.  They also have a tradition of decision autonomy.  Also they can’t afford to implement a software business, or even to partner with multiple software businesses in order to serve different market segments. SMEs are averse to making a big investment in one platform when the solution space is new and there are several alternatives. Finally, their various businesses occupy different places in the IIoT stack.  These range from difficult yet strategic measurements to manufactured product and material analytics.

Clearly if there was an easy answer to their question about how to collaborate for the IIoT, they would have already found it and be well on their way. But they will be working on this question for some time to come, looking for a strategy that is nimbler and less expensive to deploy than those chosen by firms that are 50-100 times their size.

 

“Reprinted with permission, original blog was posted here”. You may also visit here for more such insights on the digital transformation of industry.

 About ARC Advisory Group (www.arcweb.com): Founded in 1986, ARC Advisory Group is a Boston based leading technology research and advisory firm for industry and infrastructure.

For further information or to provide feedback on this article, please contact lkanickaraj@arcweb.com

 About the Author:

Harry Forbes
Research Director, Automation
Harry leads ARC research in topics of industrial networks and electric power.  He also covers the emerging "Open Process Automation" initiative led by ExxonMobil and The Open Group. Harry also contributes to ARC research in DCS and the Industrial Internet of Things. 

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