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50% products will be smart & connected by 2020: Report
01 Jul '18
5 min read
Manufacturers have estimated that close to 50 per cent of their products will be smart and connected by 2020, a 32 percentage point increase from 2014, according to a recent report. Over 18 per cent of the manufacturers said that they plan to stop manufacturing products altogether and move to a pure service-based business model, as per the report.
A new report by Capgemini’s Digital Transformation Institute called ‘Digital Engineering: The new growth engine for discrete manufacturers’, reveals that the global manufacturing industry could expect to see between $519-$685 billion in value-added revenue by 2020 through the development and sale of smart, connected devices. It highlights that while the potential returns are significant, manufacturers need to invest in digital continuity and digital capabilities to benefit.
Manufacturers have responded enthusiastically to new technologies and are already rebalancing their IT investments accordingly. Around 50 per cent of manufacturers aim to spend more than 100 million euros in Product Lifecycle Management (PLM) platforms and digital solutions in the next two years, while the proportion of IT budget earmarked for maintaining legacy systems has dropped significantly, from 76 per cent in 2014 to 55 per cent in 2017.
While digital investment has increased substantially since 2014, few manufacturers have been able to scale their efforts. Two thirds (66 per cent) acknowledged that they constantly face two competing priorities: accelerating time-to-market by maintaining continuous product innovation and development of legacy products versus investing in smart, connected products.
As a result of this tension, the use of model-based system engineering, data continuity, and virtual simulation within the industry is low; only 16 per cent of organisations are fully implementing Digital Twins while 45 per cent are not beyond the pilot stage, adds the report. Similarly, despite being responsible for 58 per cent of global research and development spend in 2017, less than one-in-five (19 per cent) of discrete manufacturers featured in the Forbes’ list of the most innovative companies 2018, highlighting the ‘anchor’ effect of legacy products and the need to rethink current approaches to product and services innovation and engineering.
If manufacturers are to capitalise on the smart, connected product opportunities, they will also need to improve on their IT and software skills competencies. According to the report, 86 per cent of ‘novices’ do not have the sufficient availability, within their current capabilities, for data management; 95 per cent have insufficient skills for app design, and 94 per cent for artificial intelligence. Outside hires will not fill the digital talent gap completely, states the report, which means that organisations will need to invest in digital training, tools and new collaborative ways of working for their existing employees. In parallel, developing an extended digital ecosystem will be key to design and will provide new end-to-end services.
Manufacturers will also need to capitalise on the data generated by connected products in their transition to selling services. Usage of data from connected products, as well as customer feedback from social channels, is increasingly replacing traditional market surveys to fuel product and service innovation. Despite the growing importance of data and the technology through which it is garnered, the report finds that only a quarter of manufacturers are using data to deliver actionable insights for product innovation.
In terms of new product development, only two in five manufacturers indicated they are using AI technologies to analyse customer data. These findings suggest that a significant proportion of manufacturers are missing an opportunity to leverage data in their design and development processes. Manufacturers are also facing multiple challenges when it comes to leveraging product data and partner ecosystems to drive product innovation. The research shows that 54 per cent of organisations have established programmes to foster collaboration with start-ups, third parties and suppliers. However, less than a third have leveraged such programmes to co-develop products with their partner ecosystem.
As products shift increasingly towards connectivity, manufacturers will also need to integrate software capabilities into their product design processes. Product cycles will need to be adapted to meet the demands of frequent upgrades — a common phenomenon in the software world. The research shows that manufacturers consider the role of software and IT in products as one of the top three factors affecting their businesses, along with maintaining digital continuity and shifting from product to service-based business models.
Jean-Pierre Petit, head of digital manufacturing at Capgemini said, “With the significant potential gains of smart, connected products and digital continuity predicted in the next two years, the requirement to invest in new technologies is too large for manufacturers to ignore. However, the road to getting there is a challenging one. Manufacturers must balance the priorities between sustaining their core businesses while investing in digital acceleration. They must make investments in digital skills, ecosystems, tools, roadmaps and new ways of working. It will be a lot of work, but for those that get it right there is a sustainable leadership to gain.”
The research surveyed 1,000 senior executives from global manufacturing organisations across nine countries: Italy, India, China, Sweden, Netherlands, Germany, France, UK and the US. These executives were drawn from director-level or above, from a diverse set of functions, and were closely associated with their organisation’s digital engineering initiatives. Of the organisations in the survey, 62 per cent had global revenues of $2 billion or more. (KD)
A new report by Capgemini’s Digital Transformation Institute called ‘Digital Engineering: The new growth engine for discrete manufacturers’, reveals that the global manufacturing industry could expect to see between $519-$685 billion in value-added revenue by 2020 through the development and sale of smart, connected devices. It highlights that while the potential returns are significant, manufacturers need to invest in digital continuity and digital capabilities to benefit.
Manufacturers have responded enthusiastically to new technologies and are already rebalancing their IT investments accordingly. Around 50 per cent of manufacturers aim to spend more than 100 million euros in Product Lifecycle Management (PLM) platforms and digital solutions in the next two years, while the proportion of IT budget earmarked for maintaining legacy systems has dropped significantly, from 76 per cent in 2014 to 55 per cent in 2017.
While digital investment has increased substantially since 2014, few manufacturers have been able to scale their efforts. Two thirds (66 per cent) acknowledged that they constantly face two competing priorities: accelerating time-to-market by maintaining continuous product innovation and development of legacy products versus investing in smart, connected products.
As a result of this tension, the use of model-based system engineering, data continuity, and virtual simulation within the industry is low; only 16 per cent of organisations are fully implementing Digital Twins while 45 per cent are not beyond the pilot stage, adds the report. Similarly, despite being responsible for 58 per cent of global research and development spend in 2017, less than one-in-five (19 per cent) of discrete manufacturers featured in the Forbes’ list of the most innovative companies 2018, highlighting the ‘anchor’ effect of legacy products and the need to rethink current approaches to product and services innovation and engineering.
If manufacturers are to capitalise on the smart, connected product opportunities, they will also need to improve on their IT and software skills competencies. According to the report, 86 per cent of ‘novices’ do not have the sufficient availability, within their current capabilities, for data management; 95 per cent have insufficient skills for app design, and 94 per cent for artificial intelligence. Outside hires will not fill the digital talent gap completely, states the report, which means that organisations will need to invest in digital training, tools and new collaborative ways of working for their existing employees. In parallel, developing an extended digital ecosystem will be key to design and will provide new end-to-end services.
Manufacturers will also need to capitalise on the data generated by connected products in their transition to selling services. Usage of data from connected products, as well as customer feedback from social channels, is increasingly replacing traditional market surveys to fuel product and service innovation. Despite the growing importance of data and the technology through which it is garnered, the report finds that only a quarter of manufacturers are using data to deliver actionable insights for product innovation.
In terms of new product development, only two in five manufacturers indicated they are using AI technologies to analyse customer data. These findings suggest that a significant proportion of manufacturers are missing an opportunity to leverage data in their design and development processes. Manufacturers are also facing multiple challenges when it comes to leveraging product data and partner ecosystems to drive product innovation. The research shows that 54 per cent of organisations have established programmes to foster collaboration with start-ups, third parties and suppliers. However, less than a third have leveraged such programmes to co-develop products with their partner ecosystem.
As products shift increasingly towards connectivity, manufacturers will also need to integrate software capabilities into their product design processes. Product cycles will need to be adapted to meet the demands of frequent upgrades — a common phenomenon in the software world. The research shows that manufacturers consider the role of software and IT in products as one of the top three factors affecting their businesses, along with maintaining digital continuity and shifting from product to service-based business models.
Jean-Pierre Petit, head of digital manufacturing at Capgemini said, “With the significant potential gains of smart, connected products and digital continuity predicted in the next two years, the requirement to invest in new technologies is too large for manufacturers to ignore. However, the road to getting there is a challenging one. Manufacturers must balance the priorities between sustaining their core businesses while investing in digital acceleration. They must make investments in digital skills, ecosystems, tools, roadmaps and new ways of working. It will be a lot of work, but for those that get it right there is a sustainable leadership to gain.”
The research surveyed 1,000 senior executives from global manufacturing organisations across nine countries: Italy, India, China, Sweden, Netherlands, Germany, France, UK and the US. These executives were drawn from director-level or above, from a diverse set of functions, and were closely associated with their organisation’s digital engineering initiatives. Of the organisations in the survey, 62 per cent had global revenues of $2 billion or more. (KD)
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