Challenges in Scaling Industrial IoT: The Role of Hardware Providers

Author Information

Cheng Xin

Global Partner at Bain & Company

Chairman of High-Tech Business in Greater China

Zhu Yonglei

Global Partner at Bain & Company

Chairman of Strategic Business in Greater China

Introduction

In the last issue, we explored how technology companies can win in the new AI era across three major areas. Beyond the next-generation AI technologies, the development of the Industrial Internet of Things (IoT) has been booming in recent years. Bain’s latest research shows that more and more companies are conducting technology pilots to reduce costs, increase efficiency, and improve revenue, yet they struggle to achieve large-scale applications. In this issue, we will share the current status, challenges, and solutions for the large-scale application of corporate industrial IoT.

Currently, the application of industrial IoT is significantly rising globally: according to Bain’s latest research, among 500 surveyed IoT decision-makers in Europe and the United States, the number of organizations conducting proof of concepts (POC) increased by nearly 20% from 2018 to 2022, and is expected to rise another 20% by 2026. Almost all respondents indicated that their deployment progress was in line with or exceeded expectations, with cost reductions and revenue increases of up to 30%-40%.

However, industrial IoT has yet to achieve rapid large-scale application within enterprises. This is primarily due to the difficulty of transitioning from early proof of concepts to large-scale applications. According to Bain’s research, in 4 out of 5 surveyed companies, less than 60% of proof of concept projects progressed to large-scale applications (Figure 1).

Figure 1: In 4 out of 5 surveyed companies, less than 60% of

proof of concept (pilot) projects progressed to large-scale applications

Bain found that companies face three main challenges when achieving large-scale application of industrial IoT:

Challenge 1: High Integration Complexity, is the most widespread challenge faced by the surveyed companies (Figure 2);

Challenge 2: Difficulty of suppliers to support large-scale applications;

Challenge 3: Insufficient lifecycle support for IoT solutions.

Challenges in Scaling Industrial IoT: The Role of Hardware Providers

Figure 2: The complexity of industrial IoT integration is a greater application barrier than pilot failures

Because, during the proof of concept phase, companies can address these challenges by deploying engineers and programmers in the projects, but once companies are ready for large-scale applications across the organization, this approach clearly becomes unsustainable. Specifically, industrial IoT initially relies on software, achieving good results quickly by equipping on-site devices, personnel, and materials with sensors, which is the easiest stage to implement. The next stage involves developing and implementing integrated IoT application scenarios, which is more complex. Companies need to have a higher level of intelligence, integrating expertise in information technology (IT) and operational technology (OT), artificial intelligence (AI) algorithms, and data science, as well as the ability to handle more complex compatibility under machine automation. These are also the most commonly cited application barriers by respondents (Figure 3).

It is noteworthy that as more and more companies have completed the proof of concept phase, security is no longer the main barrier to large-scale applications. Driven by regulatory agencies, IoT companies, security solution providers, and equipment manufacturers have developed significant security solutions. Therefore, although security remains a widely concerned issue, it is no longer a general concern in the IoT field as it once was.

Figure 3: Customers of IoT solutions are increasingly focused on implementation: In 2022, 39% of surveyed companies chose

IT (Information Technology)/OT (Operational Technology) integration

as the primary application barrier, surpassing security concerns

The Three Advantages of Hardware Providers

To help clients overcome the leap from pilot to true large-scale applications, Bain believes that the role of hardware suppliers and original equipment manufacturers (OEMs) should not be underestimated, primarily due to three advantages.

Advantage 1: Rich industry knowledge, talent pool, and implementation experience

In addition to manufacturing equipment, hardware suppliers have many other advantages, including industry expertise, on-site talent pools, and implementation experience. Their field application engineers (FAEs) are rare talents in industrial IoT, capable of addressing challenges faced by clients on-site during implementation. For instance, they can leverage system capabilities to help develop AI inference edge computing systems or enhance network stability through the deployment of dedicated 5G networks or other modern connectivity technologies.

Currently, leading hardware companies have begun to take action, leveraging their expertise and building relevant capabilities to address the implementation and integration issues of IoT solutions.

Case Study 1

Krones is a company that provides packaging and bottling production lines for the food and beverage industry. The company has been laying out its strategy for the past decade, focusing on maintaining food safety and quality, enhancing production line operations, and performance by developing digital solutions based on industrial IoT: through internal development and external acquisitions, expanding from its core hardware business to provide software and system integration solutions. In 2021, Krones achieved a gross profit margin of approximately 51%, exceeding competitors by 15 percentage points, largely due to its IoT-focused Syskron division.

Advantage 2: Strong customer channels and market entry capabilities

In addition to the advantages mentioned above, hardware suppliers and industrial equipment manufacturers maintain close relationships with IoT customers, enabling them to provide customer channels for other IoT solution providers, such as software, cloud applications, and IoT platform suppliers. Many industrial equipment manufacturers and hardware suppliers, after years of planning, have established market entry, service, and support capabilities tailored to specific industries. They can achieve higher customer lifetime value and better unit economics, indicating that they find it easier to realize returns on building these capabilities than software companies.

Case Study 2

Hilti is a manufacturer of high-performance tools, fastening, and protective equipment, which, through its direct sales model, over 20,000 field engineers, strong brand recognition, and customer loyalty, has stimulated customer interest in its industrial IoT solutions, including the ON!TRACK management system, one of the more important solutions in construction technology. In recent years, Hilti has also added solution consultants and system integration engineers to further enhance its market entry and system integration capabilities.

Advantage 3: Important complementary advantages with cloud services, software, and analytics tool suppliers

Almost all IoT platform users require cloud services, for which Amazon Web Services (AWS) and Microsoft Azure have vigorously developed programming frameworks and development platforms for predefined IoT applications, attracting developers eager to collaborate with software and analytics tool suppliers. In the research, cloud service providers, software, and analytics tool suppliers all mentioned that the advanced nature of devices or hardware is their first or second major shortcoming. This presents opportunities for industrial equipment manufacturers like Siemens, Schneider, and Hitachi, as well as companies like Intel and Cisco, to help these suppliers solve the most challenging industrial IoT issues while attracting skilled developers familiar with specific industries.

Industrial IoT solutions are becoming increasingly complex, requiring a combination of hardware, software, and services to achieve the desired outcomes, thus collaboration will only become more important. Generally speaking, industrial IoT must be integrated into existing infrastructure and environments, making domain knowledge and industry expertise crucial for successful integration.

As integrating the assets and capabilities of software companies is critical, hardware suppliers and industrial equipment manufacturers developing IoT businesses need to consider how to collaborate with top software suppliers, adjust market entry strategies, and incorporate software into their business portfolios. Similarly, software suppliers need to think about which hardware suppliers can better bridge their gaps.

Case Study 3

In the construction industry, Hilti’s experience demonstrates that traditional mature enterprises can also develop IoT-focused businesses. In the packaging industry, Tetra Pak has improved production line performance stability by 30% and halved product defects and waste by deploying connected devices, mobile apps, and remote support to predict maintenance needs and identify performance deviations. Hardware companies and industrial equipment manufacturers possess industry expertise, integration experience, and partnerships, which can provide relevant services and support, driving industrial IoT from a series of successful pilot projects to large-scale applications, achieving true transformation and upgrading.

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