Leading domestic industrial and engineering companies such as Larsen & Toubro, Reliance Industries and the Tata group, as well as multinational firms including General Electric, Siemens and ABB, are all trying to capture a share of the pie and the timing seems just right.
Most companies are not making huge investments in expanding capacity, although they see merit in putting money into digital platforms, which help improve efficiency and render more profitable the extant capacity.
Industrial firms traditionally entered the services business to offer operations and maintenance support, which gave them additional revenue streams and helped build customer loyalty. Now, they are taking it a notch higher — by adding sensors to products to provide steady data, and analytics, which predict breakdowns and improve efficiency.
“This is a hardware-plus-service business; the value-added services have high margins that will reflect on the bottomline,” JD Patil, senior executive vice-president (defence 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 initiative, which uses new technologies, digitalisation and analytics for industrial solutions, as companies move towards ‘Industry 4.0’.
For instance, L&T has built a digital platform in-house, which seamlessly connects diverse operations, improves efficiencies and cuts decision time. In its Mumbai office, CEO SN Subrahmanyan just walks across to a “control room” for real-time data from 400 company sites operating miles away. The smallest of data, such as the amount of electricity consumed by machines or the weight hauled by a crane at a construction site, are put together and analysed, helping L&T take big decisions to improve performance.
“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.”
Multinational companies such as Siemens and General Electric (GE) too have beefed up digital offerings, with India in focus. GE tied up with the Mukesh Ambani-led Reliance Industries when the latter decided to diversify into this business.
Siemens is partnering companies to provide digital platforms that will solve their problems. For the automotive industry, it offers a digital enterprise suite that enables companies to digitalize and integrate the entire manufacturing value chain, including suppliers. The company worked with Mahindra & Mahindra to set up a digitalized platform that quickly translates market requirements into a viable vehicle platform, including reducing the time taken for new product launches.
“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 innovation flowing from the corporate to the consumer-side is passé. Consumer technology is increasingly driving enterprise technology. Unlike in the past, when investments in technology were merely a cost-factor, the shift to the newer model is helping companies add revenue.
This is new way of doing business and is known as Industry 4.0 — the fourth industrial revolution. It includes placing internet-connected sensors on large machines and using analytics, cloud computing and machine learning to predict and prevent issues.
One early success of Industry 4.0 has been the creation of digital twins, using sensors at multiple points to collect data on how a large machine such as an aircraft engine performs and using computer simulations or analytics to predict the optimum time for maintenance.
This market alone is expected to be worth more than $25 billion by 2025, according to business consulting firm Grand View Research.
Industrial houses are ramping up digital services, which are crucial to maintaining or increasing their services business. Digital services providers, in turn, are adding technology to products that they sell or separately offering services for existing assets. These services may carry a lower ticket size, but are high margin businesses that enhance customer stickiness.
Recognising this need, planning body NITI Aayog and ABB India organised a workshop on manufacturing in the age of AI. The workshop, held last month, saw participation from entrepreneurs, policy makers, 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 putting these technologies to internal use first before making them commercially available.
The Tata Group’s power utility has developed its own digital platform, helping customers better manage consumption with real-time information and improving efficiency at its own plants. It is now offering this service to other utilities.
“We understood the flow of electrons but needed expertise in digitisation. We started developing our own IT capabilities using new-age 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.”
Tata Power has applied for a dozen patents and is working with universities like the MIT, he said, adding “there is a lot of co-innovation work happening in this space.”
Reliance, too, is not far behind.
“Reliance recognises opportunities in artificial intelligence, machine learning, big data analytics, IIoT, blockchain, 3D printing, artificial intelligence, 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 early movers in automation and technology need to keep up with the new or they will end up lagging peers, a challenge as well as 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, chief digital officer of industrial product manufacturer Dover Corp, told ET in a recent interview. The company, which has about 500 employees in its IT and technology operations in Bangalore, offers services such as monitoring of underground petrol tanks to detect leakage to customers, in addition to other products.
Industrial giants are increasingly developing the capabilities in-house or working with select providers with niche skills, asking for price cuts in the commoditized IT services space.
“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,” Dover’s Juneja said.
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.”
For technology companies, the opportunities have increased, but so has the need to stay ahead of the curve.
Technology giants, including the large Indian IT services providers, have trained thousands of employees on industrial internet-of-things platforms such as GE’s Predix or building their own. They are, however, increasingly competing for talent with industrial companies.
Wipro, ABB and Siemens have all opened up job searches for specialists in Digital Twin Technology in Bangalore, a cursory search of professional networking site LinkedIn shows.
“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.”
Although the opportunities are immense, they are not easy to capitalize on, as GE’s example proves.
GE forecast that its digital business revenue would touch $15 billion by 2020. However, as of 2018, GE Digital’s revenue was down 2% at $3.9 billion, according to a filing with the US Securities and Exchange Commission. Issues in its core power business and difficulties in growing the software side remain key challenges.
“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.”