Small-to-midsize manufacturers face digital transformation constraints

IT and OT software and platform convergence moves forward

By Joe Brooker February 24, 2020

A successful digital transformation involves increasing integration among the enterprise systems that govern enterprise transactions and the systems that manage factory operations. Potential returns from industrial internet of things (IIoT) investments won’t be realized unless the information technology (IT) and operations technologies (OT) are more closely aligned. Yet fewer than 10% of companies have combined OT and IT departments, with the IT function more frequently representing corporate interests and the OT function representing plant or unit priorities.

Given these challenges, it is no surprise almost 75% of companies having IIoT initiatives say they do not consider it a complete success. Despite this low success rate, managements see digital transformation as key to long-term success — nine out of 10 industrial companies are investing in digital factories. If manufacturers successfully digitalize production, it can pave the way for flexible, just-in-time production, with the goal to reduce inventories even while increasing revenue.

While the IT and OT disconnect is a hurdle impacting digital transformation success, it is not the only reason. More than 90% of U.S. manufacturing companies are small businesses, and the majority have fewer than 20 employees. These small companies probably don’t have dedicated IT departments, so they face a more basic question: Can we dedicate capital to an experimental project that may fail? The answer: probably not.

Connected applications

Transforming operations in a small to mid-sized company is no small feat and will likely encounter pushback from various business and supply chain functions, including the back office, suppliers, customers and the plant floor. The many challenges associated with digital transformation mean few companies will complete the transition alone. Strategic partnerships with IT and OT providers are important.

As IIoT platforms are integrated and implemented, connected applications have emerged. The value of investing in IIoT platforms will come from applications that take advantage of connectivity to address business needs. The platform is, or will become, a commodity. If every business has one, there’s no competitive advantage. If the focus is on improving operational efficiency, this doesn’t necessarily require major business transformation.

Connected applications may not necessarily be branded as IIoT. Cloud-based solutions allows smaller companies without dedicated IT departments and operating under capital and labor constraints to implement connected solutions that deliver business value.

Finding IIoT that works

Companies that can dedicate capital and labor to an IIoT initiative will be able to exploit the benefits of digital transformation. This transformation will require IT (enterprise) and OT (factory/operational) changes. Having available resources doesn’t guarantee success, however. Operating at scale is often accompanied (particularly in larger, well-established companies) by siloed, disconnected operations.

While IT departments always seek to exploit emergent technologies for competitive advantage, for OT, it is very different. Reliability is critically important. Operations executives are more concerned about what works than what’s new. If technology does need replacing or upgrading, they want something that can be implemented with minimal disruption.

Neither is this disconnect confined to the factory. IT and OT departments will each have preferred suppliers they are accustomed to engaging with. That separation adds to the complications of digital transformation projects.

Operations technology providers, such as Siemens, Bosch Rexroth and Honeywell, among others, have invested heavily in IIoT and connected applications. IIoT offerings that once spanned several industry verticals are gathered in one business unit. GE spun off its IoT unit, GE Digital, into a separate entity. These entities work at the plant level rather than enterprise level for security and technological reasons.

Despite restructuring, it has not been plain sailing for global giants GE and Siemens. GE’s software business has struggled to achieve profitability since being spun off into a separate subsidiary. For Siemens, despite a third-quarter decline in digital industries revenue, software revenues increased. Siemens says partner-network applications for its IIoT platform, MindSphere, are growing more than 25% per quarter.

A brief review of the online marketplace for MindSphere applications include offerings to explore IoT data, develop dashboards, and automate analytics to create actionable intelligence. Operations-rooted applications emphasize machine connectivity, control and efficiency. It seems inevitable that operations technology providers will increasingly incorporate IT standards and protocols in their solutions. Blurred IT/OT distinctions, however, present challenges to IT providers as well. It will be harder for IT providers to offer OT software because of the machine-level domain knowledge needed for OT software.

Help from IT providers

Enterprise software providers offer IIoT solutions that allow users to incrementally adopt IIoT. These include IBM, Software AG and PTC, which offer cloud networks, IoT platforms and connected applications. Microsoft (with Azure) and Amazon (with AWS) offer open, cloud-based capabilities and support a partner ecosystem. Focusing on a digital transformation initiative can seem overwhelming to even the largest corporations. Enterprise providers increasingly offer industry-focused, packaged software solutions.

Operations technology providers often undertake the challenge of retrofitting connectivity onto an installed base of equipment, while IT providers may be limited in this area. Smaller companies can pick and choose those applications they most need. The demonstration of benefits can reinforce the efficacy of digital transformations.

Revenue growth of OT/industrial and IT/enterprise providers can be compared for 2017 and 2018, the most recent years with available figures. The data shows IT/enterprise providers grew by 65%, compared to 29% by OT/Industrial players. While OT providers started from a higher base value, it still holds true that IT providers are making advances in their connected application offerings. This is consistent with statistics showing IT/enterprise providers are outperforming OT counterparts in year-over-year growth. OT and IT providers are increasing their focus on the Asia-Pacific region.

More blended IoT offerings

Analysis of the IIoT market shows a changing distinction between the IT- and OT-rooted approaches. OT suppliers increasingly are offering IT solutions, while both IT and OT providers are forming strategic partnerships.

In one example, PTC and Rockwell Automation have entered into a strategic partnership to expand coverage from design operations to plant floors through creation of a joint product factory software suite.

The software combines Rockwell Automation’s automation technology and domain expertise and PTC’s product design and product lifecycle management knowledge. These hybrid solutions are in place in Ford Motor Co.’s advanced manufacturing systems for automobile and truck manufacturing.

Volkswagen announced it will jointly develop the Volkswagen Industrial Cloud using Amazon AWS technology and Siemens as the integration partner. Siemens will be responsible for ensuring the equipment and machinery at Volkswagen’s 122 plants are efficiently networked in the cloud. Siemens also will make connected applications from its own IIoT platform, MindSphere, available in the Volkswagen Industrial Cloud. This will enable greater data transparency and analysis, which will lay the technological foundations for VW productivity improvement. The agreements with AWS and Siemens pave the way for VW to digitalize production and logistics across a global supply chain.

Connected market areas vary in growth. In 2017, for example, connected asset and connected production were prevalent, with many diverse companies appearing in the market to offer applications. Connected asset and production are still big players, but over time, other market areas are emerging. These include connected transportation and connected product initiatives.

Actionable IoT insights

While the growth of connectivity is indicative of market direction, research is turning toward an industry and regional focus, to provide more immediate value for sales and marketing business planning.

IIoT provides a bridge that merges IT with OT. This allows real-world data gathered from OT machines on the factory floor to be digested and analyzed in the virtual world of IT. These actionable insights are fed back to the machines with the overall goal of increasing revenue through improved performance and up-time. IT/OT convergence allows enterprise and factory organizations to work together more easily. That integration shows why the digital factory, once a thing of the future, is now in the present.

This article appears in the IIoT for Engineers supplement for Control Engineering and Plant Engineering. See other articles from the supplement below.

Author Bio: Joe Brooker is industrial IoT analyst with Cambashi.