Sell quality hardware. This was once the undisputed business model of traditional industrial equipment and machinery companies. As a growing number of components become commoditized, however, companies are finding that the formula for success has to change. Commoditization, along with intensifying global competition and a shift in technology stack value pools, is compelling industrial equipment and machinery companies to allocate resources that have been solely dedicated to hardware toward digital (Exhibit 1).
Seeing the limits of hardware-driven growth, industrial equipment and machinery companies are looking to the Industrial Internet of Things (IIoT) to develop new customer-oriented, revenue-boosting business models. On the operations side, IIoT could increase production efficiency. Whether the focus is on revenue from new business models, savings from more efficient production, or both, digital-enabled advances in manufacturing require IIoT transformation.
The global market for IIoT-enabled business models in the industrial equipment and machinery space is expected to grow substantially, and linking industrial automation and IIoT platforms is considered the industry's new frontier. The monetization potential of IIoT platforms and IIoT platform-enabled applications is massive, but implementation is still in its early stages.
Due to the importance of IIoT platforms to the industrial equipment and machinery sector, industry players should sooner rather than later develop a clear perspective for their organizations. This perspective needs to identify several essential topics, including the related value at stake for revenue and profit, the expected time frame of the development of the market, technical enablers that should be put in place, the optimal level of investment in technologies and services, and the capabilities and partnerships to be built to support success.
Preparing for and implementing IIoT is not without its hurdles, namely one of architecture complexity that makes integrating machinery operations especially challenging. Industry architecture standard ISA-95 addressed the complexity rising out of global production and distributed supply chains but does not address the myriad data and security issues brought on by countless connected devices. Creating solutions here will be no small feat, but successfully addressing these challenges will open the door to use cases that facilitate a massive business opportunity:
Industrial equipment and machinery players will want to make honest assessments of their current capabilities and challenges. They should also carefully assess their use-case and platform options before embarking on an IIoT transformation:
There is certainly no single, standardized approach to getting started and enabling an organization to implement and monetize IIoT platforms. Our findings concerning IIoT platform implementation and monetization, as well as our observations of the most successful players in adjacent industries with similar digitization challenges, however, reveal effective approaches and perspectives that aspiring players in the digital industrial equipment and machinery space might adopt to achieve impact at scale:
Among industries, the industrial equipment and machinery sector—with its highly automatable tasks and increasingly connected devices—has especially great potential to benefit from IIoT platforms. Testing the first prospective applications of IIoT platforms in your company does not require long preparation or a large up-front investment. Jumping in provides the benefit of producing early results and helping your company make quick progress on its journey to becoming an organization that almost immediately embraces the full potential of intelligently linking IIoT platforms, enterprise applications, and shop-floor systems toward a seamlessly integrated industrial software stack.
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Lea Bolz is a consultant in McKinsey’s Frankfurt office, Heike Freund is an associate partner in the Munich office, and Tarek Kasah is a consultant in the Düsseldorf office, where Bodo Koerber is a partner.