How to make the digital transformation of manufacturing happen ?

[Originally appeared as guest post on the Industrial IoT/Industrie 4.0 Viewpoints blog]

The Digital Transformation is there: devices, technologies and suppliers are ready to bring manufacturing enterprises to a new level with increased productivity and more added value.

But if you go for a walk in production now, you’ll probably not see smart sensors, edge analytics-packed machinery, forklift drivers with smart-glasses and foremen yelling orders to their assistive bots.

The macro-level reasons why it is not happening or it is just slowly happening are covered in many posts in the Industrial IoT/Industrie 4.0 Viewpoints blog: there are cultural issues:

a standards mess:

and more:

From a strategic point of view it’s really a war between the incumbent-technology ecosystem and the new ecosystem, rather than between the technologies themselves (see Ron Adner and Rahul Kapoor “Right Tech, Wrong Time” Harvard Business Review November 2016).

Besides those reasons, there are also micro-level reasons that come up along the business decision process when a specific digital transformation project is proposed within a manufacturing company.

In the end it’s just like any other project: you spend upfront a given amount of money and hope to get a return of investment (ROI).

The trouble is that an innovative Industrial IoT project will be complex and high-risk, and there are several ways it could fail:

At least a third of all Information Technology (IT) projects fail (see Lessons From a Decade of IT Failures from IEEE Spectrum), and probably even more of those of the high-risk type. These rates of failure are unacceptably high for manufacturing, where the average project failure rate is probably less than 10%.

So if the proposed project has a good ROI on paper, how to keep these risks under control and make it a success ?

One approach we know from IT is outsourcing most of the trouble to a reliable supplier, and get the solution you need with a software-as-a-service (SaaS) arrangement. Off-the-shelf SaaS is currently booming in IT: see what Adobe, Autodesk, Microsoft, Salesforce and Trello are doing.

With SaaS, there is no upfront cost, and pay-per-use scales linearly with the number of users; typical figures for consumer-oriented services are 5-10 €/per user/per month and for business-oriented services 10-200 €/per user/per month.

So SaaS is a perfect fit for a small enterprise without an IT infrastructure, or for a larger organization that prefers to keep the internal infrastructure slim. It is also suitable for an innovative project, where user acceptance progresses slowly and the numbers may be initially low.

But all of the SaaS vendors above offer off-the-shelf, standard tools – nobody is offering your-own-IIoT-as-a-service yet ! For that you need tailor-made SaaS.

Giovanni Battista Moroni “Il Tagliapanni”, circa 1570

Giovanni Battista Moroni “Il Tagliapanni”, circa 1570

With tailor-made SaaS, a solution provider will build the IIoT solution based on the requirements of the manufacturing company, with the agreement that:

  1. the provider will not apply their full margin on the upfront costs;
  2. the provider will keep the intellectual property of the solution;
  3. the manufacturing company will perpetually pay for the use of the solution in a SaaS fashion.

With the pay-per-use model the gain for the solution provider will come later if the project is successful, while the OPEX for the manufacturing company will grow gradually as the solution is deployed and gets traction. This setup can slash the CAPEX for the upfront costs due to the initial effort of adapting, integrating and customizing the chosen platforms / technologies by a factor of 2, while creating a strong commitment for the provider to make the project a success.

Of course it’s a generic framework that can be adapted with any option and variant your legal and financial advisors can imagine. For example the pay-per-use business models we know from IT SaaS can be creatively adapted to the OT environment by stipulating per-installation/per-hour fees.
The bottom line is that if you find an agreement with a trusted supplier, with tailor-made SaaS you can share the road towards digital transformation with them, and make it happen for real.