We spoke with Howard Heppelmann, Divisional Vice President and General Manager for Connected Manufacturing at PTC, on the current state of the Internet of Things (IoT) as well as the direction he thinks IoT will take in the future.

Howard Heppelmann PTC

PTC works with more than 28,000 businesses worldwide to help them create, operate, and service products in rapidly-evolving, globally distributed manufacturing industries.

In this two-part discussion, Howard discussed the difference between connected products and connected factory operations, how smaller companies and multinational conglomerates and take advantage of the Internet of Things, and how the IoT will likely transform how business is done in the next ten years like the Internet did in the 1990s.

This is Part 2 of our conversation. You can read Part 1 here.

Do you think opportunities are greater for existing companies to update their operations with the Internet of Things or for new businesses to move fast and disrupt established manufacturers?

For companies like yours and ours, the opportunity is to innovate.

For the hardcore, traditional manufacturing companies, there are a couple of options. One, they have an opportunity to go out and retrofit old products that exist in the field. Two, they certainly have an opportunity to get smart about how they would design their next generation of products. However, these companies are also confronted with a pretty strategic question in this new world: Where do they define the scope of their business?

Here’s a simple example: farm tractors. Today there are many producers of farm tractors: John Deere, Case, New Holland, AGCO, and the like. In the past, all these firms worried about was tractors. However, now these firms are connecting those farm tractors together. They are connecting them with all the implements of their system, and sometimes with the systems of others.

However, now you have new companies like OnFarm in California. They are a PTC customer that is not in the farm tractor business at all but the crop yield and productivity business. They are coming to market with a solution for farmers that integrates all this data together from their equipment providers – from the irrigation systems, fertilizing companies, and from sensors that they might deploy into the ground.

It is an Uber-like model, where maybe they do not own any physical equipment, but they are tying it all together and stepping in front of what has traditionally been a relationship between the tractor manufacturer and the farmer.

You see the farm companies now saying, “Well, are we in the farm-tractor business or are we actually in the farm-acreage-yield-productivity business?” They are starting to talk about offering their customer a service for the equipment that is just a means to the end.

That takes them to a whole new area where they are changing their business model and how they sell their products. So a company like John Deere will now compete with a company like OnFarm. The customers, the farmers, want to spend money for the promise of an increasing yield on their return.

So it is not disrupting the established company. It is about who’s going to win the new business model?

Yes. It is disrupting those established companies, but some of them have, at least for the time being, decided to stay in the farm tractor business.

Others, like John Deere, have something called FarmSight, which is focused on integrating a system. The messaging is not about how many horsepower and how much ground you can till with a tractor, but how all this stuff is going to drive overall improvement to yields and productivity, and that is totally disrupting that space.

Now, whether or not John Deere’s strategy will succeed with this new type of business model is to be determined.

What do you think the window of opportunity is for manufacturers to adopt these new technologies before they are considered necessary to remain competitive? Will these opportunities only be for the big guys like Boeing and John Deere? Or do you see small, mid-size manufacturers making moves as well?

Well, when we say “manufacture” we are talking about two things: First, the smart, connected products the manufacturer makes. Second, the factories that are making those products. So we call them smart, connected products and smart, connected operations.

I think it is hard today to find a case where there isn’t value in designing connectivity into a product. Consider a simple, single-serving coffee maker, like a Keurig. You, of course, could get data when something breaks. However, you are not going to send a service technician out to fix a Keurig.

For a product like this, the data that is vital is the data the sales and marketing team would love to have. How is the customer using the product? What flavors do they like?

We see most companies looking at how they can build connectivity into their next generation of products and how they can use it. Companies that don’t do this will be at an incredible disadvantage regarding understanding their customer and their customer’s usage patterns.

If you are talking about jet engines, which has been connected for a long time, it is, of course, hypercritical. You could not survive in that business if you made an engine that wasn’t connected.

IoT Jet Engine

The more complex and expensive a product is – particularly when you consider servicing it and downtime – you have to be connected to be competitive. Those products generally are. However, now even toy manufacturers and coffee machine makers are connecting their products.

On the operations side, in the factory I think it is a little bit slower. Industry 4.0. Europe calls it the Fourth Industrial Revolution. GE calls it the Industrial Internet of Things. In the U.S., it is referred to as Smart Manufacturing. It is a little more fragmented still.

However, if you are competing with GE and they have a brilliant, top-down strategy from Jeff Immelt https://twitter.com/JeffImmelt to connect every single factory, you are going to be at a cost disadvantage if you are not doing the same.

Only 20% of the product’s functionality is delivered when the product rolls off the manufacturing line. The rest will be deployed down onto the product in a continuous innovation cycle for years and years to come.

To summarize, I think the reasons and rationale for connecting smart, connected products are becoming well understood, but we will not see those products for another 12 or 18 months, or in some cases, 24 months, depending upon the kind of product. I think anyone who is going to compete in the future will have to connect their products.

In the case of manufacturing, there’s tremendous cost savings and efficiencies to be had, but I think it is a couple of years behind. The big companies will have to be connected more quickly. If you are a $10 million company with one plant, maybe you have less incentive to get it connected than if you are GE, and you have 530 plants around the world that spend $30 billion a year. The economics are slightly different.

What are the challenges to overcome? Moreover, how is it becoming easier for manufacturers to adopt IoT?

In the future, you have your product hardware and product software that now needs to be integrated into a product cloud. A lot of the functionality that will be available to these products is not going to be on the products themselves. It is going to be in the cloud. There’s going to be a continual DevOps role where new functionality is introduced to the product.

That is one of the huge differences here. It used to be we would build the product, we would test the product, we would ship the product. So, let’s say 90% of that product’s functionality was determined when it rolled off the production line.

What many companies are now doing is building evergreen product platforms where maybe only 20% of the product’s functionality is delivered when the product rolls off the manufacturing line. The rest of it has not even been conceived of yet.

The software will be introduced up into the cloud to be deployed down onto the product in a continuous innovation cycle. That will bring an endless stream of new product capabilities and functions that can be adopted and utilized for years and years to come. Tesla is a great example of this.

The same exists in the factory. Today, there’s a common five-stack layer, the ANSI/ISA-95 model, where you start with equipment, then PLCs, then the automation systems, then the business systems on top of that, then the enterprise planning and scheduling, and the reporting systems that are on top of that.

 

ISA 95 Control Hierarchy Levels

The problem is those data sources are all distinct, and none of them integrate well, so likewise, in the factory, you need the same kind of architecture where those things are communicating up into a cloud, and you are unifying these disparate sources of information and applying analytics.

One of the big challenges is that companies need to get the architecture right to support smart, connected products or smart, connected operations. You cannot get to the promised land of IoT in either of those realms if you are trying to do it with the same tools that you have today.

Regarding how it is becoming easier, the standards bodies – the Industrial Internet Consortium, the Industry 4.0 stuff that’s happening in Europe – are driving a lot of cross-company collaboration on standards and approaches. I think it is becoming easier for customers to understand it, and it is becoming easier to adopt.

At PTC, this is where we are making our bet. We have gone out and acquired what we think are the critical components of an IoT platform for manufacturers.

That includes connectivity at the edge; the ability to have an application enablement platform to build applications; a rapid application development environment to be able to create applications out of this type of data; and connectivity solutions in the industrial world through our acquisitions.

Take our Kepware acquisition, for example. We can basically walk into any plant and, in a very short time, connect to most of the industrial assets and bring that information up to this platform.

Another example: We acquired ColdLight for machine learning to begin to do predictive analytics, particularly at the edge of the assets, but also up in the cloud.

The most recent acquisition that you guys at Treeline probably know of – I think they are in your neighbor in San Diego – is Vuforia, which allows us to truly blend the physical and digital worlds together. We can deliver entirely different experiences out of all of this unified data where the digital world can be imposed on actual physical devices in very interesting ways for service, maintenance, and other useful ways.

Companies like PTC are integrating this technology and then turning to the customer and saying that you do not have to try to build a complete stack, a cloud security, all this stuff from top to bottom. You do not have to integrate all these components. They come pre-integrated with templates that can get you started on the path of value realization in very short order – days, maybe weeks or months, but certainly not the traditional approach of months and years.

The big companies that are playing in this space like GE will do a lot around the Predix Industrial Cloud, and in fact, all indications are that our technology will run on that Predix Industrial Cloud. So aerospace companies that want to manage their plane in a smart, connected manner, but don’t want to invest in building all that infrastructure, can turn to GE and use their cloud to do it.

Companies like PTC, which have integrated a lot of this technology with existing technology for designing, manufacturing, and servicing products, allow the customer to stay out of the application construction business and move into the value realization and software utilization business.

You have spent a good portion of your professional career in manufacturing and industrial space. Have you witnessed any trends or events that are comparable to the things you have seen before – any history-repeating-itself type of things?

Yeah, I think the one that jumps out at me right away is the whole Internet craze of the 1990s, which ended in a big bubble and now with the reemergence of companies like Amazon, Google, and Uber, who have figured out how to take advantage of it. I feel like that is a little bit synonymous with where we are today.

In fact, it is even more than that. We do a lot of work with Professor Michael Porter from Harvard who is maybe the world expert on business strategy. He talks about this in a way that I think is synonymous with the Internet. First, he says, we had information systems, which made it easy to share information amongst people. Then, we had the Internet, which broke down the barriers and allowed customers and vendors to talk amongst themselves. Now, products have become an active participant in this value chain.

[The IoT market]… is very analogous to the whole Internet craze of the ‘90s, which today no one would argue has transformed companies and businesses.

I think that is a very transformative idea, but it also changes the concept in a way that I think is similar to the Internet. There’s all this new potential. There’s a lot of hype. Do you need to have a connected toaster? Who knows? I think if you are selling bread, you want a connected toaster.

However, there’s a lot of hype right now, and I believe that we are going to see that the hype is deserving, but we have not figured out exactly yet who the key players are and what the precise sources of value creation are going to be.

I think we have a pretty good handle on that at PTC, but it is just an early market, and I see it as very analogous to the whole Internet craze of the ‘90s, which today no one would argue has transformed companies and businesses. I think we are talking about the same kind of thing here with IoT. There’s both a lot of promise and a lot of hype right now. However, I think we will look back ten years from now, and it will have completely transformed how business is done, perhaps in ways that you and I cannot fully see today.

 

The Internet of Things series is brought to you by Treeline Interactive and is authored by Tim Homuth and Joe Austin. Our objective is to provide you with information about the rapidly evolving field of the Internet of Things by bringing you interviews and insight from industry leaders. If you have any questions, insight, or suggestions for articles please email us at IoT@treelineinteractive.com.

Photo credit: Philippe Put via VisualHunt.com / CC BY