Manufacturing companies are expected to prosper in an environment where very little is controllable. New markets based around informed consumers who want choice and unique personalised products are emerging. As a result of globalisation, these markets are now being categorised by consumer preferences and demographics and not by geography. These micro vertical markets are challenging for industrial scale capital-intensive manufacturers who are not geared to manufacture personalised products and services. In this environment, the Internet of Things (IoT) is both an opportunity and a threat.
So what skills within a business are necessary to embrace the IoT opportunity? A good plant control engineer will be able to explain exactly how to optimise production efficiency and increase plant throughput. The same engineer would find it much harder to explain how to track and predict customer behaviour in order to plan personalised production runs. Marketing now becomes central to the discussion. This has implications on both plant operations and organisational design, and IT is well positioned to drive some of this change.
Many technology driven initiatives (like IoT) within companies are destined to fail. This is because companies are bad at handling a fast changing environment and uncertainty. Industrial process automation and control has evolved to a high level of maturity. On the face of it, control engineers are used to working with sensors that generate vast amounts of data, which can be stored and analysed within a plant environment. The associated storage systems have matured and are well established in the form of industrial scada and so on. As a result, theoretically most plants can be optimally controlled in line with production schedules. Preventative maintenance can also be optimised using smart sensors that monitor running equipment in the field, and so on. The Industrial Internet of Things is arguably in place and now evolving from a focus on operational efficiency to exploiting opportunities outside the business.
Exploring the IoT opportunity
McKinsey describes two broad categories in which IoT enabled applications are emerging:
1. Information and analytics – refers to those applications that track behaviours, achieve real-time situational awareness and assist with human decision making by analysing both structured and unstructured data.
2. Automation and control – refers to those systems that optimise processes and resources by closing the loop between sensors and actuators that control physical parameters.
Exploiting the wider IoT opportunity will require a company to respond more effectively to things that they cannot directly control. Arguably, most of the future IoT opportunity is to be found outside of the organisational boundary. Implementing proprietary (‘industrial’) islands of information and closed systems runs counter to the way the Internet actually works. Web innovation that has the potential to disrupt industries is all about collaboration and open standards that are driven by communities who freely contribute ideas, talent and even funding. Companies now need to consider hybrid business models.
The ‘real’ IoT is a dynamic ‘network of networks’ that constantly evolves by making connections between the physical world and databases using web technologies. Analysing this data leads to new insights that in turn leads to new solutions for customers which in turn result in more data and new networks. It is believed that with enough data consumer behaviour can be modelled and more accurately predicted. This dynamic and changing environment is quite different from a controllable plant. Business leaders need to recognise that exploiting this opportunity will need a new approach. This is why in IT, for example, the shift is towards continuous deployment of rapidly evolving software, with a new combined DevOps group replacing the previously separate development and operations teams. This is why the CMO (chief marketing officer) is today often responsible for a sizeable portion of the actual IT spend in many companies.
Arguably much of the innovation around the IoT is not going to be led by system vendors but by hobbyists and inventors who push the boundaries and find new software and uses for embedded microprocessors hooked up to the web. The vendors that succeed in this space will either be large enough to own or exploit the platform, or small enough to be able to prosper in a micro niche. With IoT the investment can be small (or even crowd-funded). Intelligent connected devices in the hands of thousands of consumers will ultimately fuel demand for new specialised product or services. Think about how mobile phones are now challenging the health and fitness industry to offer highly personalised products and services, all based on the rich dataset already collected by cellphones.
McKinsey predicts that these changes in information patterns will have major implications for organisational structures as well as the way decisions are made, operations are managed and processes are conceived.
Leaders of future successful manufacturing companies will be acutely aware of these shifts. They will carefully watch developments in areas such as IoT, Big Data and analytics to find new areas for innovation. They will take a strategic approach towards developing new in-house capabilities that are used to work with uncertainty and who understand the ‘networks of networks’. They know that they have to become resilient to radical change and thrive in an environment where control is just an illusion.
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