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“It's never going to sell for the sake of being some kind of sexy technology in itself, because that's not going to make a business difference.”
TANYA OTT: I’m Tanya Ott, and we’re talking Industry 4.0 today in the Press Room—what it is, and how do you sell it?
You’ve probably heard a lot about the Internet of Things, or IoT. You may know that those helpful sensors in your car are IoT devices. So’s your fitness tracker and your smart home device. IoT contributes to a larger group of technologies that are collectively referred to as Industry 4.0, and sometimes I4. Let’s break it down.
PETER BROOKE: So broadly speaking, Industry 4.0 relates to the fourth industrial revolution.
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TANYA OTT: That’s Peter Brooke. He’s a director of the Deloitte Supply Chain and Operations Transformation practice in the UK.
PETER BROOKE: I spend all of my time working with large industrial manufacturers, looking at manufacturing operations and understanding how I4 and other digital technologies can be used to optimize them.
TANYA OTT: I know you’re probably saying to yourself, I remember the industrial revolution from school: steam engines, something about looms, factories.
PETER BROOKE: It all broadly started out in the late 1800s, early 1900s. That was the first time that we were able to use machinery in an industrial context.
TANYA OTT: That was Industry 1.0.
PETER BROOKE: In the 1920s and 30s, the advent of electricity moved us on from steam and allowed us to use motors and the like in an industrial context.
TANYA OTT: Industry 2.0.
PETER BROOKE: Sometime after that—late 1960s, early 1970s—we moved to computing power, to early automation, to enterprise resource planning–type systems. So the computerization of industry.
TANYA OTT: 3.0.
PETER BROOKE: Now we moved to Industrial Revolution No. 4. So this is where the Industry 4.0 name comes from, and this is where we begin to connect up systems, to use advanced technologies such as 3D printing, analytics, artificial intelligence, and robotics. That takes us from having computerized industry to having a connected system based upon the Internet and the use of cloud computing.
TANYA OTT: All of that connectedness and data of Industry 4.0 is not only changing manufacturing and supply chains; it’s changing how salespeople sell the technology. Two of Peter’s colleagues joined us for our conversation.
JUSTINE BORNSTEIN: My name is Justine Bornstein, and I am the insight lead and program manager for the UK's Future of Mobility program.
JOHN VAN WYK: I’m John van Wyk, and I'm a director in the Analytics practice in the UK. My focus areas are consumer industrial products and services, and I help navigate around building capability to work with data in order to be able to reduce risk or find value in their operations.
TANYA OTT: So we have the introductions. I want to start broadly. You're really looking at what the challenges are and the opportunities are for selling these really complex products. Why look at this issue?
JOHN VAN WYK: Just as industry has evolved over the last 200 years, so, too, has the commercial relationship between the vendor and supplier. In a previous model, you would gone to buy one of those steam engines from a particular manufacturer who would have built it to order, commissioned and placed [it] on your site, and then would have provided the range of support services. He may, in fact, have even trained your own people to undertake any of the maintenance. But as these ecosystems have grown in Industry 4.0, they have become significantly more complex and are multifaceted because they are [potentially] provided by a number of vendors.
Also, some of the roles have changed in that ecosystem. In the past, perhaps you would have gone to one organization that would have given you a sales interface, design interface, and production and commissioning interface. Some of those roles have now become separated from a single business and are provided by a much larger ecosystem. And that's probably the biggest driver for why we wanted to look at this. For an organization to be successful in a networked world, in a multinational multimarket operation that could be designed in Germany, manufactured under German specification in China, and commissioned in the United States by a multicultural team of engineers, it takes a different way of pulling those deals together.
TANYA OTT: What are some of the pushbacks that you hear from folks who are trying to sell these kinds of products or from people who were trying to buy it, and are perhaps confronting challenges on that front?
JOHN VAN WYK: Accountability is definitely one that we will hear a lot about, in terms of who is the person or which organization is the one for us to track for this particular solution. Is it the designer? Is it the original equipment manufacturer? Is it the service provider who comes in afterwards to maintain uptime on a network like this? How does accountability get spread across that ecosystem successfully? Peter, I think after-sales service is another big dynamic?
PETER BROOKE: Yeah, absolutely. I think the ongoing use of the product is far more integrated [into] the business in an I4 scenario. So just buying the product is really not good enough anymore. We need to express to our clients when we sell these products what kind of transformation, what kind of efficiencies and cost gains, etc. can you make through using these products.
JOHN VAN WYK: Yeah, so a big business case attached to every deal. The other thing that comes to mind is ownership of data. We are in an interesting time in the world where data is proliferating at a rate unseen in recent times. Consumers are particularly focused on our right to our personal data, but organizations have become increasingly more sensitive about who has access to data coming out of their operations. Even in an ecosystem or a networked solution provided by an integrator or a one-stop shop that brings it all together and manages for a client, there are signs now coming through in some conversations with some seriously big players who, for example, might be operating an offshore platform taking oil from the North Sea: Who has access to that data? How do they secure that data? [There’s a] strategic advantage that's hidden within the data coming through. So these are the kinds of considerations that clients are having when they try to operate in a highly networked, highly collaborative, solution-oriented type of sale.
TANYA OTT: I wonder if you encounter the issue of people that you're trying to sell to not fully understanding this modern landscape? Especially at the highest levels, maybe in the C-suite of a company? Is that a hard pitch because perhaps they don't come from technology or they're not really able to grasp the value proposition?
PETER BROOKE: I think actually it's incumbent on the seller to be able to identify how that product is going to work in their client. Many people don't understand. Many people don't have the infrastructure in order to use these things either. So there's much more than just selling the product; there's selling the way [it] fits into the architecture of the business.
TANYA OTT: When you say the architecture of the business, do you mean the way the resources and personnel are situated within the business?
PETER BROOKE: I'm talking about both the business process and the business methods that are used, and the resources to operate that. It also actually borders into the technical landscape of somebody's business. Most of these I4-based products will generate data of one description or another, which brings you back to who owns the data. But in a lot of cases, when you sell a client an I4 product, it produces data that needs to be connected to some form of infrastructure, and you need a business process in order to use it.
JOHN VAN WYK: I'd second that. I think that the transformational components of any big piece of this are often underestimated. So there's a little bit of a paradox in play here, because the increased awareness of the role of the easy data transfer that we experience today is much more broadly understood than it was even 10 or 15 years ago. The Internet became so much more mainstream, so many more things became possible, and optimization and advance planning became quite commonplace in a reasonably short space of time. So I think the C-suite is increasingly aware of the opportunities but are perhaps struggling a little bit about how to make it land successfully in their organizations.
To Peter's point about the architecture, it's both the technical architecture but also the ability for that organization to wrap itself around potentially a new way of working, especially if you're looking at a long-established production line that doesn't really need to change much but [that has] now come up for a renewal after 20 or 30 years. And the opportunity to bring a whole new Internet industry forward, that's a big transformation.
PETER BROOKE: I absolutely agree. How the product that they're buying fits into that architecture is really where they get maximum value for their purchase.
TANYA OTT: We've been talking a lot about some of the broad themes. Justine, you've got some case studies.
JUSTINE BORNSTEIN: I think, broadly, the case is that companies shouldn't really be expected to get the selling of an Industry 4.0-enabled product right when they first started out trying to sell it. And I think for manufacturers of heavy equipment, or even not-so-heavy equipment, it's a different mind-set—selling a thing versus selling a service. That's one of the bigger cultural issues. And then how to price, how to identify what the value is, how to communicate that value to a much wider range of stakeholders within the client organization. These are things that need to be looked at. It usually has to be presented as a much more joined-up service, where the finance and engineering and customer support teams are all talking and liaising very closely with the sales teams to present a unified front. But the fact is that [for] this kind of transformation, companies really can turn it around and master this kind of selling. It probably is better if you start small, offer pilots, things like that. And I think that was sort of the lesson: It's a challenging shift, but it can be done. Certainly, the company maybe needs to relax its fear of failure a little bit when it's testing and learning it at the beginning.
TANYA OTT: Relaxing that fear of failure is an issue in many industries.
PETER BROOKE: I would say the challenge with that fear of failure is you won't be able to implement the complete solution all in one go. So you may, at some point, find out further down the road that you need to change direction. I think that's another piece of that fear, that you're not buying only one box and off you go. You're buying pieces of an architecture and planning them together as you go along, so it will morph and change direction as you move forward.
JOHN VAN WYK: To the comment around reducing or dealing with the fear of failure, I think, certainly in the data landscape that we're working in, there's "innovation" and "fast fail"—these concepts are thrown around quite quickly. It's quite hard to translate that into an industrial environment where typically at a plant and equipment level, you're making decisions that you'll live with for decades.
TANYA OTT: One of the examples that you write about is Philips Lighting. Tell us a little bit about what Philips did.
JUSTINE BORNSTEIN: Philips is a global firm, and its lighting solutions are sold in a variety of different use cases all over the world. So what we saw in terms of the data was that, in the case of Washington DC, it sold a lighting solution to the Metropolitan Transport Authority where the Washington transport authority didn't need to pay any money down. The introduction of LED lights meant a certain amount of energy savings over time, and the cost saved was sort of how Philips took its payment.
So I think one of the interesting aspects of Industry 4.0 sales is it permits a slightly different business model from the seller's point of view in terms of how they recoup their cost. Often, instead of it being the old-fashioned way where you'd sell the product, and that was the big chunk of change, and then the aftercare came, now it's almost like the product is easier to get you in the door, and it's the aftercare contract that really is your long-term revenue generator.
In the other case of Philips in the city center in Canary Wharf, they started small. They did two floors. They let the client see the results of the lighting solution, and then, on the basis of that, they were able to get a contract to do more and build out the rest of the floors. I think that's another approach to sales that is going to be a slight change from the way it's been done, which is these small pilots to get you in the door and demonstrate the value, and then expand from there.
JOHN VAN WYK: That's exactly the dynamic here. We're dealing with data, and you can confuse a lot of things in the absence of data, but if the data is being presented from an installed solution, and you're starting to receive this data, your data model is not going to lie to you. It's going tell you exactly what your performance is. So you go back to that business case and to the earlier question about the fear of failure, and how do you derisk something of the scale, certainly what Industry 4.0 represents is the ability to let the data prove the case.
[In] the example of, let's test it on two floors, let's see what the data tells us about how well or how poorly that solution's performing, learning that and understanding what is working well will tell us how to scale across the remaining 22 floors. And we will be able to build a pricing model that's based on hard real-world data, and that then opens up a whole bunch of risk-sharing potential because, who is to put the cash up for the deal for the first two floors? Who then puts the cash up for the remaining 22 floors? Does that flow through to the specifier who was doing the ordering specifications for all the equipment in that building, or does that fall to the developer who was taking a long-term view on cost reduction in order to increase its yield? These are the dimensions that start to come out around how you might shape a deal differently if you're taking a long-term [view]: [If] you are able to offer them back real-world data, it makes a clear case.
PETER BROOKE: Yeah, it is a very big subject, and it's a very big area for Industry 4.0 and the products that live within that ecosystem: Going forward, who owns the data? Who do you want to share it with? You can talk about modern smartphones, for example. You own your phone. Do you own the data? Does your phone provider own the data? It's a very big question now.
TANYA OTT: Thank you so much for your time. It's been great talking with you. Complicated subject, but an important one, and you've helped us understand it better. Thank you.
JOHN VAN WYK, JUSTINE BORNSTEIN, and PETER BROOKE: Okay, bye.
BRENNA SNIDERMAN: You know, it is happening very, very quickly, and I think that’s part of the reason that many people are afraid of it.
TANYA OTT: We’ve got a deeper dive into the world of Industry 4.0 in our podcast archives. You’ll find it at deloitte.com/insights. You can find us on Twitter at @DeloitteInsight, and I’m on Twitter @TanyaOtt1. I am Tanya Ott. Thanks for listening, and see you again in two weeks.
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