Ignore the hype: there really is a revolution
In the articles I contributed for the 2016 and 2017 editions of the Global System Integrator Report by CFE Media, I chose to focus on the important changes taking place in our industry. I believe we are undergoing a period of dramatic change. In my role as CEO of CSIA, I participate in many industry events and interact with automation equipment suppliers, machine builders, system integrators, and end users.
While there is great excitement about the opportunities provided through technology, it is not uncommon to find those who think it to be "pure hype." I believe, however, a real revolution is taking place beyond all the hype.
Crafting the vision of the future
To ease comprehension, it is always powerful to show the "before" and "after," highlighting the stark differences. The futuristic view of manufacturing with all its "bells and whistles," is presented using terms like "Industrie 4.0," Smart Manufacturing, or vendor proprietary names. The upside of this is that it creates excitement and a vision for which to aim. The downside is that the projected future state may become too distant from the current reality, and all the important transformation steps are neither recognized nor appreciated.
To complicate things further, the futuristic vision that sci-fi entertainment provides tends to focus on concepts that are easy to understand and make good entertainment. We end up with images of flying saucers (e.g., "The Jetsons" TV series in the ’60s) and other gadgets (e.g., the "communicator," a fictional device used for voice communication in "Star Trek," resembling today’s smart phone) that we expect to see in the future. When these visions become reality, we think we have reached the "future."
Early in 2017, the city of Dubai in the United Arab Emirates announced it was testing an autonomous aerial taxi service with a manufacturer of drones that would fly passengers on predetermined routes throughout the city. This is an exciting example of how reality (at least as a prototype) gets close to the vision of "The Jetsons."
We would nevertheless be hard-pressed to find sci-fi entertainment visions that included the Internet, probably the most dramatic futuristic concept and one that enables our present technology revolution. It is hard to explain a concept like "Internet" without all the uses we have incorporated into our lives and that we refuse to give up. We take it now, no longer thinking of it as "futuristic."
When revolutions don’t feel like revolutions, we need to take a step back and reflect. When we equate Uber or Lyft to a conventional taxi company because they both transport you from point A to point B, we fail to understand the dramatic differences between them. Technology enabled a much more customer-friendly approach and a new business model that harnessed armies of part-time drivers.
In the process, immense value has been created. Uber was founded in 2009 and today it’s a company valued at $70 billion, operating in more than 600 cities around the world. One can make a similar case when it comes to comparing conventional hotel chains with what is offered by Airbnb, an online marketplace that enables people to lease or rent short-term lodging.
Innovation for industrial markets
Industrial markets historically have been driven by capital investments. Manufacturers have made important investments in capital goods (e.g., infrastructure, machinery, etc.) that allow them to create their products and deliver their services. These investments have created competitive advantages for some and entry barriers (due to lack of capital) for others. At the same time, these investments were in fixed assets with limited flexibility for alternative redeployment.
Providing alternatives to upfront capital investment, new business models were introduced over time. Leasing of capital goods is an early example. This approach allows the user of the leased product to free up capital for other uses and, in the process, improve financial key performance indicators (KPIs) as these are not included as assets in the company’s balance sheet. Industrial companies can lease their fleet of delivery trucks, for example, or large capital machinery like power generation turbines or backup generators. Long-term lease arrangements also can be crafted for buildings, even those specifically erected for tenants.
In an effort to deliver broader solutions, providers have increased the depth and breadth of their services and the way that these solutions are financially offered, i.e., their business model.
Examples where specific functions are handled by outside, specialized firms:
- Air fractionation: Air Liquide and Praxair deploy on site plants and charge based on consumption.
- Industrial water management: Ecolab ensures water in the plant (e.g., water on cooling towers) meets specifications by monitoring it remotely and taking action (e.g., deployment of chemicals) when needed.
- Food and beverage packaging: Tetra Pak provides packaging machinery and charges its clients for the actual consumed aseptic packaging material.
And those supplying machines can differentiate their offerings through a higher service level guarantee:
- Elevators: ThyssenKrupp remotely connects its installed base of elevators (1.1 million elevators around the world) to provide predictive and proactive maintenance and perform analytics. When a technician is sent to a site, the visit will be scheduled before a breakdown, and during a time when elevator traffic is low. The technician will know the most likely causes for the technical issues and bring the necessary equipment to repair the problem right away.
- Fleet asset management: Navistar and Caterpillar (last one in partnership with Uptake) provide fleet management platforms that can integrate vehicles of brands beyond those they provide.
If your production requires machined parts, you always have had the option to make or buy. "Make" requires a significant investment in machines and inventory. "Buy" requires the development of a vetted supply network and an internal team to manage the bidding and procurement process.
MakeTime, based in Lexington, Ky., offers a third approach. Their business model consists of pairing up buyers of machined parts with a vetted network of computer numerical control (CNC) machined parts suppliers. For this they leverage their platform where suppliers upload the technical drawings to a cloud-based master library and suppliers bid for the jobs, driving them toward full utilization of their machines.
The buyers benefit from the ability to get their parts produced from a wide network of vetted suppliers and likely receive a competitive price as they are leveraging spare capacity. The entire process, including quote generation, approval, and production tracking from start to delivery, reduces the required internal procurement requirements.
Impact on system integrators
The broad deployment of interconnected technology simply represents more things to integrate—the very basis of what system integration is all about. Overall, this is good news for system integrators. On one hand, technology is moving toward more open and standard approaches, easing the technical challenges of system integration.
On the other hand, the scope of the integrated system will continue to grow, expanding beyond the traditional industrial boundaries. Those system integrators that gain deep industry vertical expertise and develop the ability to manage complex projects with a broad ecosystem of suppliers (some of them outside of the traditional industrial space) will create differentiation. They will take a larger role in the architectural design of the solutions and management of the solutions delivery. At this level, the system integrator becomes a high value solutions partner to the end user or machine builder—a great place to be. It is very likely that the system integrator business model, traditionally very project-centric, will gain an ongoing service component.
Jose Rivera is CEO of the Control System Integrators Association (CSIA), a global, nonprofit, professional association with a mission to advance the practice of control system integration to benefit members and their clients. CSIA has more than 400 system integration company members, and 100 vendor partners in 27 countries.