The Industrial Internet of Things and the Servitization of Manufacturing – A CEO Roundtable Discussion

In our information age, virtually every company generates huge amounts of data on a daily basis. In theory, we know that data can be collected, analyzed and crunched in real-time to deliver intelligence that companies can use to boost productivity, gain a competitive edge and expand their businesses. Many companies use smart, connected devices to do just that—increasing efficiency, boosting revenue and creating new business models. However, many more are not, Colin Masson, global industry director, manufacturing at Microsoft Business Solutions told CEOs gathered for a Chief Executive roundtable discussion held in partnership with Microsoft.

“We don’t think that small manufacturers have realized how easy it is for them to get into this,” he noted. “These questions come up consistently over and over again: ‘How do I add service to what has traditionally been a product-centric marketplace? How do I drive high-margin, high-value services by using the Internet of Things?’”

“We don’t think that small manufacturers have realized how easy it is for them to get into this.”

Happily, in some cases, the answer increasingly involves leveraging data that is already being collected. “Often, customers have invested in those assets already, but they haven’t fully utilized them,” asserted Frank Kulaszewicz, senior vice president, architecture and software at Rockwell Automation, who cites the high-ticket office building elevators produced by ThyssenKrupp as an example.

“They’ve always had factory automation controls that enable technicians to diagnose service issues,” he noted. Now the company is using those sensors to boost the safety and availability of elevators, enabling it to realize a new revenue stream (See sidebar, p. 52). “This is a good example of building a business model around safety and availability, so that beyond the initial purchase price you have an ongoing annuity of providing services afterward,” explained Kulaszewicz. This “servitization of products” has become a growth opportunity for the company, which now provides maintenance for both its own elevators and those of competitors. “They have about 500,000 other company’s elevators on service contracts—those competitors are pretty sad about that,” noted Masson.

In other cases, companies use connected devices to change user experiences and communicate with customers more effectively. Network connectivity, for example, enables Coca-Cola’s smart vending machines to conduct real-time test marketing, track trends and drinking preference and adjust a machine’s selections accordingly. The resulting data helps Coca-Cola understand
customer-buying patterns, deliver more relevant advertising and change the customer’s experience.

For Hydro Electronic Devices, the ability to monitor and analyze 15 variables simultaneously is what customers want. “It’s the algorithm,” said CEO Paul Ludwig, whose company manufactures and markets electronic controls for mobile equipment applications, including software that is used to implement vehicle-control strategies. “Show me a dashboard that tells me where my vehicle is and that tells me what I need to know before I need to know it—the two or three variables that tell when this hydraulic cylinder is starting to fall off. The end decision is where you see the value.”

Being able to pre-empt the downtime machinery failure can involve is a huge plus for his customers. What’s more, over time, patterns and correlations in that kind of data give companies a better understanding of why a piece of equipment fails and what design modifications could be done to prevent that failure.

All of these examples involve “machine learning,” or taking the data insights of the IoT to the next level by mining historical data with computer systems to make predictions about future activity. That activity can be anything from trends and behaviors to performance patterns. “It begins with cause and effect—or predictive maintenance, which is normal math,” said John Dyck, global director, software at Rockwell Automation. “Then you move into machine learning, which is these models that you teach about the machine; and then it takes off from there and gets
smarter by itself and begins making non-causal predictions over time.”

The Next Level
Initially, IoT capabilities and machine learning involved a huge investment in complex software and deep expertise. However, as with most new technologies, implementation has become more cost effective as cloud technology and streaming analytics have evolved and become more widely adopted. “As soon as you say Big Data, everyone thinks that means big money,” Masson noted. “I think that’s changed. You don’t have to have massive investments in server farms and specialists in big data to build that infrastructure. We’ve driven cost down to the point where even the smallest manufacturer can hook up equipment and start to experiment.”

Beyond cost, manufacturers worry that more connectivity will open a door to cyber threats. “People want to connect everything to the Internet, but it’s just like connecting your PC to the Internet,” says Bryan Tantzen, senior director of Cisco’s manufacturing IoT business. “You better have a firewall, anti-virus software and security plan. We hear about baby monitors being hacked, televisions being hacked. When connecting a plant to the Internet, security is something you really have to think about.” From theft of intellectual property or sabotage to cyber mischief that could interrupt operations, CEOs pointed to a number of potential security risks raised by the IoT. “There are several levels,” said William Brindley, technology manager at Pratt & Whitney. “There’s a tragedy level—shutting off two engines on a two-engine aircraft. Another is an interruption in our manufacturing capability that shuts down a line or shuts us down entirely.

And then there’s classified information because we’re a defense contractor and we’ve experienced incidents of our vendors being hacked. So we are very connected inside of our four walls, in our intranet, but we don’t connect our manufacturing capability outside those walls.”

Strong security protocols, however, can overcome such resistance, noted Dyck. “When we were working with an automotive supplier, initially he said, ‘Heck no, you will never put my data into the cloud,’” Dyck recounted. “But when we dug deeper into his $18 million maintenance budget and showed him we could prevent downtime on big hydroforming presses, all of a sudden the story changed to, ‘If you can convince my IT people this data will be secure, we’ll have that conversation. And we did, and we are.”


ThyssenKrupp: Lifting Productivity

Over the course of a lifetime, the average urban office worker spends literally years waiting for or stuck in elevators, according to a recent building-efficiency study. Clearly, keeping elevators running smoothly can have a significant impact on worker productivity—and, in turn, offer a competitive edge to the elevator company able to deliver what matters most to its customers in buildings all over the world: reliable service.

That’s why ThyssenKrupp Elevator decided to look for ways to move from preventative maintenance to pre-emptive maintenance by harnessing the Internet of Things. The company worked with Microsoft and CGI to collect data from sensors and systems and draw it into a central, cloud-based dashboard for a real-time view of key performance indicators. By feeding data about things like motor temperature, shaft alignment, cab speed and door functioning into dynamic, predictive models, the company was able to anticipate repairs—to know which cabs would need repairs before they even went down. Its technicians can access information about the 1.1 million elevators ThyssenKrupp maintains worldwide in real-time from PC dashboards or mobile device.

The result? “We have the ability to use live data to bring elevator reliability to new heights, reducing costs for ourselves and for our customers,” says Executive Chairman Andreas Schierenbeck.

Jennifer Pellet :As editor-at-large at Chief Executive magazine, Jennifer Pellet writes feature stories and CEO roundtable coverage and also edits various sections of the publication.