Markets: How Will The Industrial Behemoths Fare In The Era Of Smart Systems? … Its About More Than Aftermarket

Smart Systems reposition the whole relationship of people and devices [the real world] to business systems. They must be built upon across-the-board digital automation, accomplished by enabling intelligent devices to communicate with and control each other, along with a whole new generation of information tools for managing rich, vast streams of meaningful data. The goal is to network smart devices into systems that are self-sensing, self-controlling, and self-optimizing—automatically, without human intervention.


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Such systems will open an entirely new portfolio of “killer apps” that will transform the way business is done around the world, and profoundly improve customer satisfaction and vendor profitability. This represents an entirely new life for suppliers of IT infrastructure, software, Telecom operators, and for manufacturers of equipment, systems and solutions.

In the complex world of business-to-business solutions, there is no vendor that has established a clear leadership position. The “Internet of Things” represents a market of vast potential for technology suppliers (players providing silicon, network connectivity/services, IT back-ends, etc.), but what about the community of diversified manufacturers and solutions providers such as the Siemens, GE’s, Honeywell’s, Emerson’s, United Technologies and the like? How will the diversified manufacturers of assets and equipment align themselves with the Smart Systems opportunity as it develops?

Today, companies and governments have growing awareness and analysis of their financial assets and liabilities. This is what drove the growth of IT and network infrastructure over the last fifteen years. In contrast, in the era of Smart Systems, awareness and analysis will focus on physical assets and liabilities, such as cars, trucks, airplanes, buildings, hospitals, pipelines, equipment, and machinery. Physical assets tend to be very industry-specific and the means to optimize them will vary greatly from industry to industry.

Players like Bosch, ABB, Samsung, Hitachi and Alstom are using their strengths in key verticals to expand into Smart Systems. They already have equipment and systems in our buildings, vehicles, factories, offices, and homes. They have also created software and services that run and automate these complex environments. Ultimately they could be the community best positioned to break ahead of the pack, if they don’t become their own worst enemies that is.

Most people don’t think of these players as “ICT” vendors that compete in the same space as IBM, Oracle, or HP.  However, the competitive relationship is changing. In key verticals like healthcare, smart grid, and related infrastructure, GE, Siemens and a broad range of manufacturers are already providing core software products, as well as the core assets and equipment that form the basis of systems and solutions for end customers such as hospitals, electric utilities, and water/waste treatment providers. These companies are the equipment solution leaders in verticals where they are moving to aggressively add sensors and analytical software for tracking the performance and condition of these assets. These players have close, ongoing intimacy with major vertical industry segments and they are much more grounded in the real world than the general IT and communications technology community. Additionally, they are much more application and vertical-market fluent. These suppliers are positioned to be involved on both the physical and virtual side of the Smart Systems opportunity and will, in our opinion, evolve to positions of significance as the Smart Systems opportunity continues to develop.

Equipment manufacturers and industry solution providers have much to gain, and just as much (or more) to lose if they don’t position themselves properly.

The killer apps of the Smart Systems era such as equipment monitoring, predictive maintenance, asset management, and other “Smart Services” will be intensely dependent on developing alliances and value-added relationships. If you look at the amount of money that businesses spend on these problems, or could save with better solutions, you see that there are far more dollars available in Smart Services than in the merely product-based activities of yesterday. This opportunity is far more significant than just capturing more of the [or protecting] installed equipment services and aftermarket parts revenues. Incalculable value will flow from integrating many real-world assets and facilitating monitoring, control, and systems intelligence. The architects of Smart Systems alliances will drive that value and command it.

The equipment and systems these players provide will increasingly leverage embedded computing and networking technology to deliver smart, remotely “monitorable” assets that will support entirely new modes of customer-asset interaction and service delivery. Inside such systems, reliable and blindingly fast microprocessors do what they are very good at doing (and what people are very bad at doing): digesting billions of data-points, talking to each other about the data, and controlling each other based upon the state of the data — all in a matter of nanoseconds.  This incessant stream of ongoing business information will be “invisible” to people but will meaningfully impact end customer balance sheets. All this invisible machine activity will make the state of (i.e., the information about) a business’s assets, costs, and liabilities vastly more visible to managers and to the decision-making process, especially when decision-makers need or want to know.  New tools will provide businesses and governments with far better real-time awareness of the status of their assets and liabilities, as well as vastly improved analysis of how to maximize the returns from the assets and the costs and risks from their liability.

A company that “sensors up the world” will control the world, and have a huge competitive advantage in vastly profitable ancillary activities such as the trading of energy.  Players like GE and Siemens may well typify this more than most. Their focus on leveraging installed equipment services to support expansion into a broader scope of customer systems and process management, as well as their ability to bundle life-cycle services, capital financing, and equipment, provides a stage upon which the real long-term gains driven by Smart Systems can be seen.

We recently visited with a global capital equipment leasing arm of a major diversified manufacturer, where a senior executive characterized the advantages of remote enablement and monitoring. “Remote management,” he said, “will turn our equipment, services, and financing competencies into ‘actuarial science.”

It’s clear that there are certain players who get this more than others.  We believe the organizations that get this story the most have evolved from a particular mix of businesses and competencies that tended to inform their view of the opportunity earlier. Typically these are businesses that have:

  • An inter-related mix of components, sub-systems and complete equipment systems focused on multiple, parallel verticals such as energy, healthcare, transportation, infrastructure, etc.;
  • Core competencies and line-of-business participation in digital power, control and automation;
  • Early and aggressive development of “connected” services opportunities in the aftermarket;
  • Solution delivery systems that have over the last ten or so years forced the development of skills to address complex systems – particularly involving software and IT infrastructure.

Many people inside these companies get this; but many more haven’t yet assimilated the entire picture. These companies are large bureaucracies founded on focused products addressing focused markets. The era of Smart Systems will cut across traditional product P&L and market boundaries like a machete. If the major diversified, industrial behemoths don’t see the implications of this soon, a new category of player may emerge to fill the crucial role.


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