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The role of governments in the IIoT race

August 15, 2017

Governments, especially in mature economies, are waking up to the possibilities of the industrial internet. But are they creating the right conditions to capitalize on what is being called the next industrial revolution?

Although perhaps the consumer side of the Internet of Things – from smart homes and self-driving cars to wearable devices – generated greater media hype, the focus has recently shifted to its implications on industry. Heralded as the new frontier of digital disruption, the Industrial Internet of Things – or IIoT – is expected to be a game changer. It is set to shake up the way businesses – even entire economies – work, transforming such pivotal industries as manufacturing, agriculture, mining, transportation and healthcare.

Accenture estimates that the Industrial Internet could add more than 14 trillion dollars to the global economy by 2030. “Winning the Industrial Internet of Things,” the consulting group’s report from 2015, suggests that early adopters – be they companies or nations – stand to make considerable gains in terms of productivity and competitiveness. In other words, the IIoT could deliver huge economic rewards, but only to countries prepared to capitalize on its growth.

It’s no wonder then that governments around the world are aspiring to lay the foundations for a successful IIoT strategy. But what exactly does it mean when industry goes digital? And what role do these governments play in the transition to the next era of industrialization?

Shifting industrial logic

The IIoT involves combining industrial hardware with digital software. Machines and devices are fitted with data-collecting sensors and linked to clever programs able to analyze big sets of data. Equipped with sensors and connected to a network, industrial production lines, factories and supply chains can be managed and inventoried by computers in real time, and more transparently and efficiently than before. For instance, equipment breakdowns and maintenance needs can be detected preventively, increasing productivity and improving worker safety. And these are only the first steps.

Beyond efficiency gains and cost savings, the creation of intelligent networks that govern industrial production enables the emergence of new business models and revenue streams.

“What the industrial internet allows is a shift from linear value chains to network-based value creation,” says Professor Martti Mäntylä from the Industrial Internet campus at Aalto University. “Instead of manufacturing concrete products, industrial companies can start to deliver abilities or outcomes.”

Greater cooperation is key 

However, moving to new, data-driven business models is not something individual businesses can do alone. It requires a more collaborative approach than the traditional industrial model.

“The IIoT is moving industry toward a platform economy, where different businesses and players – industrial companies, their clients, technology providers and possibly financers from the banking or insurance sectors – come together on a shared platform to create value. Viable business models are, however, only starting to emerge,” Mäntylä says.

It seems that the industrial internet is now at a threshold. While the raw technological conditions for its wide adoption are in place (according to an estimate by Huawei, the number of sensors and smart devices worldwide is expected to reach 100 billion as early as 2025), and efficiency gains are already being made, the truly transformative IIoT revolution is only starting and will require more fundamental changes in the way companies operate.

Moving to new, data-driven business models is not something individual businesses can do alone. It requires a more collaborative approach than the traditional industrial model.

As value creation through the use of data requires a supporting ecosystem, businesses can’t do it alone. Greater interoperability of different intelligent systems, new security frameworks, and open, global standards as well real world implementation of new solutions to test their viability are all needed to drive innovation forward.

All this calls for cooperation between industry players and stakeholders such as software developers, academia and governments. Policymakers, for instance, need to create a legislative framework that motivates businesses to develop the IIoT while also protecting data security.

Industrial internet in the US, Industrie 4.0 in Germany

To spur on the next phase of development and greater cooperation in IIoT, several international development projects and initiatives are afoot around the world.

In the US, the effort has been mostly business-led with the Industrial Internet Consortium, founded in 2014 by AT&T, Cisco, General Electric, IBM, and Intel, bringing industry players together to accelerate the development and adoption of industrial internet technologies.

In Europe, the European Commission has been active in supporting regional cooperation and the digitalization of industries, and is pushing for regulatory walls to be torn down to bring about an EU-wide digital single market. Concrete measures proposed include speeding up the development of common standards in areas like 5G communication networks and cybersecurity, and modernizing public services.

In terms of individual governments in Europe, Germany has been in the vanguard with Industrie 4.0. The strategic initiative brings the public and private sectors and research institutions together to advance Germany’s competitiveness in the so-called fourth industrial revolution. Its premise is that, much like steam power and mechanized production did in the late 18th century, electric power and mass production in the early 1900s, and information technology and automation have since the 1960s, IIoT will revolutionize industrial production and societies.

Germany’s Industrie 4.0 approach focuses on building smart factories, in which intelligent machines make decentralized decisions about production and maintenance. It seeks to build on Germany’s strengths, such as its highly advanced automotive industry, but enhancing them with new IIoT possibilities such as strong customization of products through flexible production.

To spur on the next phase of development and greater cooperation in IIoT, several international development projects and initiatives are afoot around the world.

“In a traditional factory, there is a rigid control hierarchy: Information flows only up and down, and the breakdown of one link in the chain can interrupt the whole production line. In an Industry 4.0 model, machines are autonomous and communicate horizontally to each other, so production is less vulnerable to malfunctions and more adaptive to changes,” explains Mäntylä.

Smaller, smarter factories could also make manufacturing more affordable in high-wage countries. This is a motivator for mature economies who have lost much of their manufacturing sector to cheap labor markets in Asia.

Japan’s Robot Revolution and Made in China 2025

But if Germany is pushing to be the leader in IIoT, Asian economic powers are also setting up their own development agendas. China, Japan and South Korea, are making advances to develop smarter factories and revamp industries to suit the needs of the 21st century. 

In South Korea, government has introduced legislation to promote IT integration for key sectors, such as automotive and shipbuilding, and set up innovation centers to accelerate development. Japan’s initiative, called Robot Revolution, builds on the country’s already strong leadership in robotics, while hoping to address larger societal issues like a rapidly aging population and declining workforce.

China, the world’s largest manufacturing economy, is also planning a high-tech revolution with Made in China 2025. The initiative aims to advance the country’s smart manufacturing and interconnected production abilities. Seen as China’s answer to Germany’s and the US’s schemes, the program seeks to break China out of its role as the world’s cheap production factory and enhance its global competitiveness.

Wider collaboration

While it may seem like countries are trying to outrun each other in the race towards the next industrial revolution, there is also significant cooperation across these different national and regional development initiatives. The German Industrie 4.0, for instance, has entered into collaborative agreements with the US-based Industrial Internet Consortium, Japan’s Robot Revolution and Made in China 2025, and is involved in an EU-wide program called “Digitizing European Industry."

A joint approach only makes sense. Successfully reaping the benefits of IIoT is not a zero-sum game but a collective effort across global value chains. Much of it requires that products and programs created and owned by different companies in different parts of the world are able to connect to each other and share data. This, in turn, calls for the creation of global standards and legal frameworks agreed upon together.

Successfully reaping the benefits of IIoT is not a zero-sum game but a collective effort across global value chains.

As Mäntylä puts it, “Making the industrial internet work is not rocket science. All the building blocks exist. Now it’s really more about creating interfaces so the different parts fit together.” 

Where do people fit in?

As companies and governments develop ways to adapt to and benefit from the IIoT, there is also concern about how the fourth industrial revolution will affect the labor force. With autonomous machines run by smart software, will Industry 4.0 need people at all?

Indeed, some claim that as greater automation and artificial intelligence are applied to industry, many jobs, especially the lower-skilled ones, are likely to become redundant. And the remaining ones will probably require learning new skills to enable working alongside smart machines, and adapting to advancing technology. A Deloitte research report entitled “Essential Skills for Working in the Machine Age” outlines the situation:

“There’s never been a better time to be a worker with special skills or the right education, because these people can use technology to create and capture value. However, there’s never been a worse time to be a worker with only ‘ordinary’ skills and abilities to offer, because computers, robots and other digital technologies are acquiring these skills and abilities at an extraordinary rate.”

Others insist that though jobs will change, there will still be plenty of work – and that it will actually be increasingly engaging and productive. Accenture’s research, for instance, suggests that the next generation of digital technology could also benefit workforces of the future by augmenting their abilities: technology can help less skilled workers perform more demanding tasks.

One thing is clear: whether you’re at the helm of a company, a country, or just your own career, preparing for the fourth industrial revolution by ensuring digital literacy and being adaptable to quickly-changing conditions will likely pay off.

Industrie 4.0 – the German approach

The underlying goal of the German IIoT platform Industrie 4.0 is to enhance the country’s status as one of the most advanced industrial nations. It seeks to do this through four areas of work:

1)   Content recommendations

Industrie 4.0 gathers and spreads the latest research as well as practical experience to all the major players involved. The platform’s working groups make recommendations on how to develop Industrie 4.0, making it easier for businesses to start putting new approaches and technologies into practice. For instance, they have published a paper describing seven scenarios in which digitalization will transform industrial production by 2020. 

2)   Single-source support  

The initiative also collects and presents information from numerous German programs and projects related to IIoT. giving interested parties easier access to information, such as relevant funding programs, through a single source.

3)   Mobilizing businesses

According to the platform’s progress report from 2016, a third of German businesses are already involved with Industrie 4.0. The platform provides an online map of existing cases and specialist events. The cases are meant to encourage more businesses to get involved and start trying out solutions. 

4)   International networking

The German platform is also collaborating closely with initiatives in Japan, the US, France, and China, and seeks to strengthen international cooperation to develop IIoT.

3 facts

1)   IoT sensors and devices are expected to surpass mobile phones as the largest category of connected devices in 2018.

2)   Machine-to-machine (M2M) connections are expected to grow to 27 billion by 2024.

3)   Of the companies involved in IIoT, two-thirds name interoperability and security as their greatest challenges.

Text: Mari Suonto