A rising number of old economy organizations are taking the help of technologies for example internet-of-things (IoT) and artificial intelligence (AI) to expand their digital presence, embracing IT majors and globally diversified companies. These are also forcefully muscling into this space.
Top domestic industrial and engineering companies like Larsen & Toubro, Reliance Industries and the Tata group, and multinational firms such as General Electric, Siemens and ABB are all trying to acquire a share of the pie and the timing looks exactly right.
A large number of companies are not making huge investments in increasing capability, although they see an advantage in investing money in digital platforms, as this help improve effectiveness and deliver more profit to the existing capacity.
“This is a hardware-plus-service business; the value-added services have high margins that will reflect on the bottom line,” JD Patil, senior executive vice-president (defense business) and member of the board at Larsen & Toubro, told ET. “Companies like us have an edge because analytics can be done only when you understand the domain very well.”
Patil heads the L&T-Nxt project, which makes use of new technologies, digitalization, and analytics for industrial resolutions because companies shift towards ‘Industry 4.0’. For example, L&T has built a digital platform in-house, which perfectly connects various operations, advances efficiencies and reduces decision time.
“New age technology has to be built into new assets, but it is also necessary that old assets adopt it if they have to be competitive and relevant,” Patil said. “Three-four years ago, when we were looking at this, we could not find an implementation partner. We innovated and did it on our own. Having done that, we know what has to be done and we can now offer it to others commercially.” MNCs such as Siemens and General Electric (GE) also have improved digital offerings, with India in the spotlight. GE tied up with the Mukesh Ambani-led Reliance Industries as he decided to do better in this business.
Siemens is associating companies to offer digital platforms which will solve their problems. For the automotive industry, it provides a digital enterprise suite that facilitates companies to digitalize and integrate the entire manufacturing value chain.
“The boundaries between business, engineering, and technology are being dismantled. There is a great opportunity for organizations in this, and if you are not doing it then there is a risk you will get left behind,” said DD Mishra, senior director at technology research firm Gartner. “That is why we are seeing some of these companies getting into these areas and creating ecosystems through partnerships and alliances and incubating companies.”
Technology advancement flowing from the corporate to the consumer-side is outdated. Consumer technology is more and more driving enterprise technology. Not like in the past, while investments in technology were just a cost-factor, the transfer to the newer model is serving companies adjoin revenue.
This is a new technique of doing business which is known as Industry 4.0 — the fourth industrial revolution. It comprises introducing internet-connected sensors on large machines and using analytics, cloud computing, and machine learning to forecast and stop issues.
An early success of Industry 4.0 has been the conception of digital twins, using sensors at several points to collect data on how a large machine, for example, an aircraft engine works and by means of computer simulations or analytics calculate the best time for maintenance.
Industrial houses are using digital services, which are vital for maintaining or growing their services business. Repeatedly, digital services providers are adding technology to products which they trade or separately offering services for current assets. These services may bear a lower ticket size but are high-profit businesses that improve customer stickiness.
Identifying this requirement, planning body NITI Aayog and ABB India arranged a workshop on manufacturing in the period of AI. The workshop, held last month, found participation from entrepreneurs, policymakers, state government functionaries, and technology experts.
“Just as we have embraced AI in different formats for our regular lives — from maps to voice search and its integration with other applications — we believe, with the right enablement and innovative business models, it could add significant value to the MSME manufacturing sector and help them navigate a continuously evolving landscape of regulatory frameworks, quality imperatives, climate change, global commodity, and business uncertainties,” said ABB India’s MD Sanjeev Sharma at the workshop.
Companies are using these technologies for internal use initially before making them commercially accessible.
The Tata Group’s power utility has built up its own digital platform; assisting customers better manage expenditure with real-time information and advancing efficiency at its own plants. Currently, it is providing this service to other utilities.
“We understood the flow of electrons but needed expertise in digitization. We started developing our own IT capabilities using new-age AI technology,” said Praveer Sinha, CEO, Tata Power Company. “Today, we have more than 150 IT engineers who understand both aspects well and can come up with unique solutions.”
Reliance, also, is not far behind.
“Reliance recognizes opportunities in AI, machine learning, big data analytics, IIoT, blockchain, 3D printing, AI, virtual reality among others and has been hard at work setting the stage to build institutional competencies in these areas,” the company said in its FY18 annual report. Interestingly, the term ‘blockchain’ appeared seven times in its FY18 report, only once in its FY17 annual report and never before that.
Even fast movers in automation and AI technology require continuing with the new or they will finish up lagging peers, a challenge with an opportunity for these companies.
“These investments come as customers are changing. These services are being demanded by them as their awareness grows,” Girish Juneja, the chief digital officer of industrial product manufacturer Dover Corp, told ET in a recent interview. The company having around 500 employees in its IT and technology operations in Bangalore, recommends services such as checking of underground petrol tanks to identify leakage to customers, in addition to other products.
Dover’s Juneja said, “We are trying to reduce the number of vendors we use and collapse service offerings to just a few vendors. In newer areas, we will work with specialized companies.”
L&T’s Patil said, “Getting data is tough, sometimes there is old equipment which doesn’t have systems to capture data. Even if you have data, analytics is not simple. That’s where companies with domain knowledge would be a better implementation partner.”
The opportunities have amplified, for technology companies, however so has the need to stay ahead of the curve.
Many large Indian IT companies with technology giants have given training to thousands of employees on industrial internet-of-things platforms such as GE’s Predix or creating their own. But, they are more and more competing for talent with industrial companies.
LinkedIn shows that Wipro, ABB, and Siemens have all unlocked job searches for specialists in Digital Twin Technology in Bangalore.
“There is an arms race for these skills, which are still not widely available. IT companies have put in training programs but you need actual experience to architect a system,” said a consultant who works with conglomerates on their Industry 4.0 strategy, who declined to be identified. “Getting talent is tougher because all the companies have their arms in Bangalore.”
Though the opportunities are huge, they are not easy to capitalize on, as GE’s example proves.
According to GE’s estimation, its digital business revenue would reach $15 billion by 2020. But GE Digital’s revenue was down 2% at $3.9 billion as of 2018, as per a filing with the US Securities and Exchange Commission. There are main challenges like problems in its core power business and difficulties in developing the software side.
“GE was the most bullish company and certainly far ahead of the others when it came to this, but even their results have shown that it isn’t easy,” the consultant quoted above said. “They used to say every company is a software company, but you have a large industrial business to retool. It’s like turning the Titanic.”