Domain expertise is the key differentiator for OEMs and service providers in the digital age.
There’s something going on in the Internet of Things. The falling cost of sensor technology and the resulting influx of data coming from field devices and equipment on the shop floor are giving rise to a raft of new applications. If you haven’t been living in a cave for the past five years, you’ll be familiar with some of them (e.g., condition-based maintenance, process optimization). But at ABB Customer World last week in Houston, attendees got a glimpse of even more.
Fluor, for example, is using tracking devices in personnel badges not only to control access to various areas of a project site, but also to plan work flows and improve safety. They can track visitors and ensure that they stay clear of hazardous areas, and in the event of an emergency can know immediately where every person on the job site is.
That’s good news, obviously, but the commoditization of sensors, communications and even analytic tools carries implications beyond improving productivity, efficiency or safety.
There are two forces at work here. One allows companies to outsource ever more of their operations while the other puts pressure on suppliers to differentiate themselves on something other than technology. Sometimes a company might find itself on both sides of the equation at the same time.
Let me explain.
For decades, there has been a trend in business to delegate support systems (think ERP, accounting, even HR) to service providers for whom that function is their core business. The rationale is straightforward: focus on your core competencies and outsource the rest, either entirely or at least in the form of using off-the-shelf tools (e.g., SAP) rather than building your own.
Now technology is commoditizing formerly value-added elements of a product/service offering. It’s relatively easy now to gather data from industrial equipment like motors or rotating machinery. You can send it to a central repository via standardized communications, and store it is robust databases, all thanks to vendors who’ve already done the requisite development.
Importantly, you needn’t do this through the equipment OEM. Instead, there is a growing supply of retrofit solutions on offer that is democratizing the collection, analysis and application of plant data.
But even as this trend puts pressure on suppliers, it also provides them with new opportunities, specifically to monetize the deep domain expertise they have cultivated over many years working in a given industry.
ABB’s first major foray into this arena was its Asset Health Center, introduced in 2013. The company had a wide range of digital offerings, but this was different, a system that married big data analytics with ABB’s unmatched understanding of power transformers. The result was an expert system that allowed utilities to shift from time-based to condition-based maintenance and to prioritize maintenance actions based on the criticality of a given unit and its likelihood of failure. AHC has since been expanded to include circuit breakers and other high-voltage equipment.
Another example that illustrates where we’re headed is Fluor’s use of data and analytics to more accurately predict outcomes in project execution (the other side of the customer-supplier equation from its safety initiative).
Fluor is using the same principle as AHC, but applying them to project management—a human process—rather than equipment. This is important for Fluor, not only to contain costs during construction but as noted by EVP for Business Development Jose Bustamante, “to put the right measurements in place at the design phase to support the operation [of the facility] for decades after construction.”
The fact is that industrial businesses today are relying more and more on outside experts. Ricardo Rizo Patron, Chairman of Peruvian cement supplier UNACEM, noted that his company’s state-of-the-art Drake Cement plant in Arizona (capacity 660,000 short tons of clinker and 693,000 tons of cement per year) uses expert systems for a variety of processes:
- Training for new system operators
- Autonomous vehicles for safer quarries
- Connected sensors for motors (being tested now) to support condition-based maintenance
- Energy management systems to inform decisions on sourcing power from the grid vs. on-site generation
Each of these represents the core competency of a service provider or OEM somewhere, so why not focus instead on the business of making cement?
The decades-long trend toward outsourcing non-core activities is being accelerated by the advent of connected devices coupled with analytic capability. What may not be as obvious is the fact that it’s creating new opportunities not only for the users of the resulting data and service offerings, but for the vendors supplying those services, too.
IoT technology is forcing companies like ABB to compete harder, but it has also delivered the means to do so. Companies like ours must now differentiate themselves on things that cannot be easily replicated, like domain expertise and a large installed base. The result will be greater value for the end customer and a more defensible market position for the supplier, and that is most certainly a win-win.