Disruption endures in industrial IoT
What do a bulldozer and a hospital MRI scanner have in common? Both are high-value assets and both are utilized to a fraction of their potential. But that is about to change. The rise of the industrial Internet of Things (IoT) — technology that allows objects to send and receive data — promises to increase hugely the shareability of such assets, triggering a surge in utilization rates.
The idea of connecting industrial assets to digital networks is not new, but according to Paul Brody, EY Technology Sector Strategy Leader, ”We’re now shifting from older, proprietary models of interconnection that tend to be limited to a factory or occasionally an enterprise toward more of a standardized, internet-accessible mode of connectivity and collaboration.”
The GE Foundation predicts that the collision of machines, data and analytics will become a US$200b global industry from 2015—17. And Research firm Gartner predicts that 6.4 billion connected things will be in use worldwide in 2016, up 30% from 2015.
This explosion of all-pervasive connectivity is set to boost shareability, making it easier to generate new revenue streams from industrial assets that have traditionally lain idle between jobs. This paves the way for industrial-sharing apps built along similar lines to consumer offerings such as those of transport network company Uber and accommodation-sharing site Airbnb. It allows companies to provide access to assets without needing to own them.
“Our research shows that a lot of industrial assets are very lightly used,” says Brody. “For example, a lot of high-value enterprise assets such CT scanners, MRI machines and office space, have fairly low utilization rates. Industries that depend on assets of this sort are likely to face the biggest levels of disruption.”
Taking up the slack
So how will the rise of the industrial IoT transform asset utilization rates? “The first step is instrumentation,” says Brody. “Very quickly, we’re going to see that many industrial assets are not very busy. So we move to the second stage: optimization.” Not knowing what assets you have got or who is using them is a widespread problem. A study of US hospitals by GE Healthcare found that the average utilization rate of hospital medical devices was just 42%.
One of the reasons for Uber’s swift and disruptive success is its ability to leverage two vast and lightly used assets: private motor vehicles and people prepared to drive them. Utilization is staggeringly low: cars are the second-most valuable possession most people own, yet are only used 4% of the time.
Few industrial assets are as lightly used as this, however, the rise of the industrial sharing economy is still expected to have profound consequences. “Asset-intensive industries where assets are not highly utilized will experience supply shocks,” predicts Brody.
For established businesses, getting an early foothold in the sharing economy is not only a chance to tap into new markets, but also insurance against the threat of future disruption. This is fuelling an uptick in dealmaking. “Right now, we’re seeing people preparing for this wave,” says Brody. “You see companies with assets buying companies with technology capability and market-maker experience.”
Construction and mining equipment manufacturer Caterpillar’s investment in US start-up Yard Club, a company that has developed an online peer-to-peer equipment rental platform, hints at the kind of partnerships that are likely to become widespread. Yard Club allows contractors to rent machinery to each other between jobs, converting slack periods into cash. “Idle time is hard to swallow,” Yard Club’s founder and CEO, Colin Evran, told CNBC.
Business-to-business sharing platforms work by creating a user-friendly marketplace for resources that were previously only accessible through ownership or via long leases. And it is not just idle construction equipment that is finding new outlets. US logistics startup Cargomatic connects shippers with licensed carriers through the web and mobile apps. Cargomatic’s backers include Volvo Group Venture Capital AB, the corporate investment arm of the Swedish vehicle manufacturer.
New value creation
Sharing underused assets is the most common way that value is being created at the intersection of technology and assets. But it is just the start. “I think we’re going to see more and more cross-enterprise digital integration,” says Brody. Digital integration is not only about making better use of existing capacity, but also about building entirely new capabilities.
Application programming interfaces (APIs) hold the key. These are digital bridgeheads for accessing software applications and tools. APIs make it possible to build hybrid business models easily, using information and services provided by others to create new value.
“Logistics is an example,” says Brody. “With a company like Uber, you can access its services via an API, so I can arrange a pickup from other apps communicating directly through Uber. Imagine a mash-up of two different companies — a short-distance transport company and a long-distance transport firm — all through APIs. You can assemble a national point-to-point delivery network that’s digitally integrated, without having to build a national delivery network.”
Mash-ups are likely to be one of the main drivers in the next wave of innovation. “We coined the term ‘industrial mash-ups’ to describe this new form of dynamic and often automated partnering,” says Jeff Liu, EY Global Technology Industry Leader, Transaction Advisory Services. “Mash-ups will enable important benefits within the digital economy.”
Industrial mash-ups accelerate innovation by reducing dealmaking friction, so collaborative participants can build scale and capabilities quickly. “The result is that organizations are able to migrate more rapidly to comprehensive, end-to-end solutions,” says Liu. “It’s tempting to see these emerging types of deals merely as alliances or JVs, but this is too narrow. Over time, we expect these relationships to become increasingly automated. Driving business friction down should in turn, drive innovation up.”
Examples of industrial mash-ups are already appearing. IBM has partnered with fellow US tech giant Apple, multinational medical devices and pharmaceutical manufacturer Johnson & Johnson and medical devices company Medtronic to optimize consumer and medical devices for data collection, analysis and feedback. “Industrial mash-ups are very flexible,” says Liu. “Partners can bring specific portions of their broader value propositions to the deal, and then narrowly define deal parameters in a way that insulates other areas of the business.”
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