Industrial transformation faces rocky road in 2020

Over the past several months, the industrial sector has faced renewed scrutiny as consumer habits, supply chains and operational challenges mount. The pressure is exceptionally high in hard-hit industry verticals such as oil and gas, commercial aerospace and clothing manufacturing. Meanwhile, vendors serving the industry have also been forced to adjust to the shifting landscape.

“You are not going to make money the same way,” said Farid Bichareh, co-chair, smart factory at the Industrial Internet Consortium at IoT World. The changes in consumer demand and workplace safety practices will likely last at least “a couple of years,” he predicted.

All these changes come at a cost, compelling industrial organizations to revisit business models. In 2020, industrial transformation seems more like a short-term necessity than a means to provide an eventual competitive advantage.

Industrial transformation frameworks such as IIoT and Industry 4.0 promise to increase revenue by boosting industrial organizations’ operational efficiency and providing new offerings. Given the financial turmoil from COVID-19, the promise of new business models and revenue streams is hard for industrial organizations to ignore.

“When it comes to IoT providers or even manufacturers, now you are looking at different options,” Bichareh said. “If you are providing hardware, you may look at equipment as a service.” Manufacturing organizations are also considering licensing and subscription schemes.

For many industrial organizations, just reducing operating costs will not be sufficient, Bichareh said. “They have to come back to new business models you can provide electronically or digitally,” he said. “A lot of rethinking needs to happen.”

Change Is Hard at First

In a cash-strained economy, the idea of selling services or even outcomes rather than a product has clear appeal, according to Alex West, senior principal analyst, industrial technology at Omdia. Being able to shift from a potentially large upfront CapEx cost to spreading payment as an OpEx could be beneficial, especially in the current climate. An automation vendor could, for instance, offer “automation as a service.” Ideally, industrial organizations wouldn’t pay up front for automation equipment, West said. “They would just outsource [automation equipment] from a vendor, and the vendor would keep it up and running.” Such a scenario would leave industrial organizations to focus on their core competency — whether that is oil production, mining, manufacturing or something else.

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