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GE Industial Internet Vision PaperDocument Transcript
Industrial Internet:Pushing the Boundariesof Minds and MachinesPeter C. Evans and Marco AnnunziataNovember 26, 2012
Table of ContentsI. Executive Summary 3-4II. Innovation and Productivity: What’s Next? 5-6III. Waves of Innovation and Change 7-12The First Wave: The Industrial RevolutionThe Second Wave: The Internet RevolutionThe Third Wave: The Industrial InternetIV. How Big is the Opportunity? Three Perspectives 13-18Economic PerspectiveEnergy Consumption PerspectivePhysical Asset Perspective… Things That SpinV. The Benefits of the Industrial Internet 19-30Industrial Sector Benefits: The Power of One PercentCommercial AviationRail TransportationPower ProductionOil & Gas Development and DeliveryHealthcareEconomy-wide Gains: The Next Productivity BoomThe Great FizzlingThe Internet RevolutionReturn of the SkepticsIndustrial Internet: Here Comes the Next WaveHow Much of a Difference Would it Make?Industrial Internet and Advanced ManufacturingImpact on the Global EconomyRole of Business Practices and the Business EnvironmentVI. Enablers, Catalysts and Conditions 31-33InnovationInfrastructureCyber Security ManagementTalent DevelopmentVII. Conclusions 34VIII. Endnotes and Acknowledgements 35-37
3Revolution, and the more recent powerfuladvances in computing, information andcommunication systems brought to thefore by the Internet Revolution.Together these developments bring togetherthree elements, which embody the essenceof the Industrial Internet:Intelligent machines: New ways ofconnecting the word’s myriad of machines,facilities, fleets and networks with advancedsensors, controls and software applications.Advanced Analytics: Harnessing thepower of physics-based analytics, predictivealgorithms, automation and deep domainexpertise in material science, electricalengineering and other key disciplinesrequired to understand how machines andlarger systems operate.People at work: connecting people,whether they be at work in industrialfacilities, offices, hospitals or on the move,at any time to support more intelligentdesign, operations, maintenance as well ashigher quality service and safety.Connecting and combining these elementsoffers new opportunities across firmsand economies. For example, traditionalstatistical approaches use historical datagathering techniques where often thereis more separation between the data, theanalysis, and decision making. As systemmonitoring has advanced and the cost ofinformation technology has fallen, the abilityto work with larger and larger volumes ofreal-time data has been expanding. HighThe world is on the threshold of a new era ofinnovation and change with the rise of theIndustrial Internet. It is taking place throughthe convergence of the global industrialsystem with the power of advancedcomputing, analytics, low-cost sensingand new levels of connectivity permittedby the Internet. The deeper meshing of thedigital world with the world of machinesholds the potential to bring about profoundtransformation to global industry, and inturn to many aspects of daily life, includingthe way many of us do our jobs. Theseinnovations promise to bring greater speedand efficiency to industries as diverseas aviation, rail transportation, powergeneration, oil and gas development, andhealth care delivery. It holds the promise ofstronger economic growth, better and morejobs and rising living standards, whether inthe US or in China, in a megacity in Africa orin a rural area in Kazakhstan.With better health outcomes at lower cost,substantial savings in fuel and energy,and better performing and longer-livedphysical assets, the Industrial Internet willdeliver new efficiency gains, acceleratingproductivity growth the way that theIndustrial Revolution and the InternetRevolution did. And increased productivitymeans faster improvement in income andliving standards. In the US, if the IndustrialInternet could boost annual productivitygrowth by 1-1.5 percentage points, bringingit back to its Internet Revolution peaks,then over the next twenty years throughthe power of compounding it could raiseaverage incomes by an impressive 25-40percent of today’s level over and above thecurrent trend. And as innovation spreadsglobally, if the rest of the world couldsecure half of the US productivity gains, theIndustrial Internet could add a sizable $10-15 trillion to global GDP – the size of today’sU.S. economy – over the same horizon. Intoday’s challenging economic environment,securing even part of these productivitygains could bring great benefits at both theindividual and economy-wide level.The Next WaveHow will this be possible? The IndustrialInternet brings together the advancesof two transformative revolutions: themyriad machines, facilities, fleets andnetworks that arose from the Industrialfrequency real-time data brings a wholenew level of insight on system operations.Machine-based analytics offers yet anotherdimension to the analytic process. Thecombination of physics- based approaches,deep sector specific domain expertise,more automation of information flows, andpredictive capabilities can join with theexisting suite of “big data” tools. The resultis the Industrial Internet encompassestraditional approaches with newer hybridapproaches that can leverage the powerof both historic and real-time data withindustry specific advanced analytics.Building Blocks and “Things that Spin”The Industrial Internet starts withembedding sensors and other advancedinstrumentation in an array of machinesfrom the simple to the highly complex. Thisallows the collection and analysis of anenormous amount of data, which can beused to improve machine performance, andinevitably the efficiency of the systems andnetworks that link them. Even the data itselfcan become “intelligent,” instantly knowingwhich users it needs to reach.In the aviation industry alone, the potentialis tremendous. There are approximately20,000 commercial aircraft operating with43,000 commercial jet engines in service.Each jet engine, in turn, contains threemajor pieces of rotating equipment whichcould be instrumented and monitoredseparately. Imagine the efficiencies inengine maintenance, fuel consumption,crew allocation, and scheduling whenI. Executive SummaryFigure 1. Key Elements of the Industrial InternetIntelligentMachinesConnect theworld’s machines,facilities, fleetsand networkswith advancedsensors, controlsand softwareapplications1AdvancedAnalyticsCombines thepower of physics-based analytics,predictivealgorithms,automation anddeep domainexpertise2People atWorkConnecting people atwork or on the move,any time to supportmore intelligentdesign, operations,maintenance andhigher servicequality and safety3
4‘intelligent aircraft’ can communicate withoperators. That is just today. In the next 15years, another 30,000 jet engines will likelygo into service as the global demand for airservice continues to expand.Similar instrumentation opportunities existin locomotives, in combined-cycle powerplants, energy processing plants, industrialfacilities and other critical assets. Overall,there are over 3 million major “things thatspin” in today’s global industrial assetbase—and those are just a subset of thedevices where the Industrial Internet cantake hold.Power of just one percentThe benefits from this marriage ofmachines and analytics are multiple andsignificant. We estimate that the technicalinnovations of the Industrial Internetcould find direct application in sectorsaccounting for more than $32.3 trillion ineconomic activity. As the global economygrows, the potential application of theIndustrial Internet will expand as well. By2025 it could be applicable to $82 trillionof output or approximately one half of theglobal economy.A conservative look at the benefit to specificindustries is instructive. If the IndustrialInternet achieves just a one percentefficiency improvement then the results aresubstantial. For example, in the commercialaviation industry alone, a one percentNote: Illustrative examples based on potential one percent savings applied across specific global industry sectors.Source: GE estimatesTable 1: Industrial Internet: The Power of 1 PercentSegmentEstimated ValueOver 15 Years(Billion nominal US dollars)Type of SavingsIndustryCommercial $30B1% Fuel SavingsAviationGas-fired Generation $66B1% Fuel SavingsPowerSystem-wide $63B1% Reduction inSystem InefficiencyHealthcareFreightExploration &Development$27B$90B1% Reduction inSystem Inefficiency1% Reduction inCapital ExpendituresRailOil & GasWhat if... Potential Performance Gains in Key Sectorsimprovement in fuel savings would yield asavings of $30 billion over 15 years. Likewise,a one percent efficiency improvement in theglobal gas-fired power plant fleet could yielda $66 billion savings in fuel consumption.The global health care industry will alsobenefit from the Industrial Internet, througha reduction in process inefficiencies: a onepercent efficiency gain globally could yieldmore than $63 billion in health care savings.Freight moved across the world rail networks,if improved by one percent could yieldanother gain of $27 billion in fuel savings.Finally, a one percent improvement in capitalutilization upstream oil and gas explorationand development could total $90 billion inavoided or deferred capital expenditures.These are but a few examples of what can bepotentially achieved.Broad Global BenefitsAs an early mover and source of keyinnovation, the US is at the forefront ofthe Industrial Internet. Given increasinglydeeper global integration and evermore rapid technology transfer, thebenefits will be worldwide. In fact, withemerging markets investing heavily ininfrastructure, early and rapid adoptionof Industrial Internet technologies couldact as a powerful multiplier. There may beopportunities to avoid the same phases ofdevelopment that developed economieswent through. For example, the use ofcables and wires may be avoided by goingstraight to wireless technology. Or theavailability of private, semi-public, or publiccloud-based systems may displace theneed for isolated systems. The result couldbe a more rapid closing of the productivitygap between advanced and emergingnations. And in the process, the IndustrialInternet would ease resource and financialconstraints, making robust global growthmore sustainable.Enablers and CatalystsThe Industrial Internet will require putting inplace a set of key enablers and catalysts:• A sustained effort in technologicalinnovation is needed, along with investmentto deploy the necessary sensors,instrumentation and user interface systems.Investment will be a fundamental condition torapidly transfer new technologies into capitalstock. The pace of Industrial Internet growthwill ultimately be driven by how cost effectiveand beneficial they can be relative to currentpractice. The costs of deploying the IndustrialInternet will likely be sector and regionspecific, but the assumption is that the costsof deployment will be providing a positivereturn for technology dollars invested.• A robust cyber security system andapproaches to manage vulnerabilitiesand protect sensitive information andintellectual property.• Development of a strong talent poolincluding new cross-cutting roles thatcombine mechanical and industrialengineering into new “digital-mechanicalengineers,” data scientists to create theanalytics platforms and algorithms, andsoftware and cyber security specialists.Endowing workers with these skills willhelp ensure that, once again, innovationwill result in more jobs as well ashigher productivity.It will take resources and effort, butthe Industrial Internet can transformour industries and lives— pushing theboundaries of minds and machines.
5For much of human history, productivitygrowth was barely perceptible, and livingstandards improved extremely slowly.Then approximately 200 years ago, astep change in innovation occurred: theIndustrial Revolution, in which musclepower, from both humans and animals,was replaced by mechanical power. TheIndustrial Revolution unfolded in waves,bringing us the steam engine, the internalcombustion engine, and then the telegraph,telephone and electricity. Productivity andeconomic growth accelerated sharply. Percapita income levels in western economieshad taken eight hundred years to double bythe early 1800’s; in the following 150 yearsthey rose thirteen-fold. But in the 1970’s,productivity growth in the US, then at the“frontier” of productivity, fizzled out.The second step change in innovationfollowed more recently with the rise ofcomputing and the global internetwhich rested on breakthroughs ininformation storage, computing andcommunication technology. Its impact onproductivity was even stronger, but seemedto lose momentum after just ten years,around 2005.Some now argue that this is where the storyends. They acknowledge that businessesand economies have benefited significantlyfrom past waves of innovation but arepessimistic about the potential for futuregrowth in productivity. They argue thatthe transformations brought about bythe Industrial Revolution were of a one-off nature, and their gains have alreadybeen realized; that the Internet Revolutionhas already played out, its innovationsbeing nowhere near as disruptive andproductivity-enhancing as those of theIndustrial Revolution.We challenge this view. In this paper weexamine the potential for a new waveof productivity gains. Specifically, wepoint to how the fruits of the IndustrialRevolution and the machines, fleets andphysical networks that it brought forthare now converging with the more recentfruits of the Internet Revolution: intelligentdevices, intelligent networks and intelligentdecisioning. We call this convergence theIndustrial Internet. We highlight evidencewhich suggests that a wide range of newinnovations can yield significant benefitsto business and to the global economy. Webelieve the skeptics have been too quick todraw conclusions that close the book onproductivity gains. Much like the IndustrialRevolution, the Internet Revolution isunfolding in dynamic ways—and we are nowat a turning point.A number of forces are at work to explainwhy the Industrial Internet is happeningtoday. The capabilities of machines arenot being fully realized. The inefficienciesthat persist are now much greater at thesystem level, rather than at the individualphysical machine level. Complexity hasoutstripped the ability of human operatorsto identify and reduce these inefficiencies.While these factors are making it harder toachieve improvements through traditionalmeans, they are creating incentives toapply new solutions arising from Internet-based innovations. Computing, information,and telecommunication systems can nowsupport widespread instrumentation,monitoring, and analytics. The cost ofinstrumentation has declined dramatically,making it possible to equip and monitorindustrial machines on a widening scale.Processing gains continue unabated andhave reached the point where it is possibleto augment physical machines with digitalintelligence. Remote data storage, big datasets and more advanced analytic tools thatcan process massive amounts of informationare maturing and becoming more widelyavailable. Together these changes arecreating exciting new opportunities whenapplied to machines, fleets and networks.The rapid decline in the cost ofinstrumentation is matched by the impactof cloud computing, which allows us togather and analyze much larger amountsof data, and at lower cost, than was everpossible. This creates a cost-deflation trendII. Innovationand Productivity:What’s Next?Processing gainscontinue unabated andhave reached the pointwhere it is possibleto augment physicalmachines with digitalintelligence.
comparable to that which spurred rapidadoption of information and communicationtechnology (ICT) equipment in the secondhalf of the 1990’s—and which will thistime accelerate the development of theIndustrial Internet. The mobile revolutionwill also accelerate this deflation trend,making it more affordable to efficiently shareinformation and leading to decentralizedoptimization and personalized optimization.Remote monitoring and control of industrialfacilities, distributed power, and personalizedand portable medicine are just some of themost powerful examples.To fully appreciate the potential, it isimportant to consider how large the globalindustrial system has become. There arenow millions of machines across the world,ranging from simple electric motors tohighly advanced computed tomography(CT) scanners used in the delivery of healthcare. There are tens of thousands of fleets,ranging from power plants that produceelectricity to the aircraft which move peopleand cargo around the world. There arethousands of complex networks rangingfrom power grids to railroad systems, whichtie machines and fleets together.The Industrial Internet will help make eachof these levels of the industrial systemperform better. It will enable enhancedasset reliability by optimizing inspection,maintenance and repair processes. It willimprove operational efficiency at the level offleets as well as larger networks.The conditions are ripe and early evidencesuggests that this new wave of innovationis already upon us. In the following pageswe present a framework for thinking abouthow the Industrial Internet will unfold, andexamples of benefits it holds for businessesand more broadly for economies aroundthe world.6
7Over the last 200 years, the world hasexperienced several waves of innovation.Successful companies learned to navigatethese waves and adapt to the changingenvironment. Today we are at the cusp ofanother wave of innovation that promises tochange the way we do business and interactwith the world of industrial machines. Tofully understand what is taking place today,it is useful to review how we got here andhow past innovations have set the stage forthe next wave we are calling the “IndustrialInternet.”The First Wave: The Industrial RevolutionThe Industrial Revolution had a profoundimpact on society, the economy andculture of the world. It was a long processof innovation that spanned a period of 150years between 1750 and 1900. During thisIII. Wavesof Innovationand ChangeFigure 2. Rise of the Industrial InternetInnovationTimeWave 1IndustrialRevolutionMachines andfactories thatpower economiesof scale and scopeWave 2Computingpower and riseof distributedinformationnetworksInternetRevolutionWave 3Machine-basedanalytics: physics-based, deep domainexpertise, automated,predictiveIndustrialInternetperiod, innovations in technology appliedto manufacturing, energy production,transportation and agriculture usheredin a period of economic growth andtransformation. The first stage startedin the mid-eighteenth century with thecommercialization of the steam engine.The Industrial Revolution started inNorthern Europe, which at the time wasthe most productive economy, and spreadto the United States, where railways playeda crucial role in accelerating economicdevelopment.1The second surge camelater, in 1870, but was even more powerful,bringing us the internal combustionengine, electricity and a host of otheruseful machines.The Industrial Revolution changed theway we lived: it brought about a profoundtransformation in transportation (fromthe horse-carriage and the sailboat tothe railways, steamboats and trucks); incommunication (telephone and telegraph);in urban centers (electricity, runningwater, sanitation and medicine). Itdramatically transformed livingstandards and health conditions.2
8In the 1970’s, these closed governmentand private networks gave way to opennetworks and what we now call the WorldWide Web. In contrast to the homogenousclosed networks used during the first stageof the Internet, the open networks wereheterogeneous. A key feature was thatstandards and protocols were explicitlydesigned to permit incompatiblemachines in diverse locations ownedby different groups to connect andexchange information.Openness and flexibility of the network werekey elements that created the basis for itsexplosive growth. The speed of growth wasbreathtaking. In August 1981 there wereless than 300 computers connected to theInternet. Fifteen years later the number hadclimbed to 19 million.4Today the numberis in the billions. Speed and volume ofinformation transmitted grew dramatically.In 1985 the very best modems were onlycapable of speeds of 9.6 kilobits per second(Kbps). The first generation of iPhone, bycontrast, was 400 times faster, capable oftransmitting information at 3.6 megabitsper second (Mbps).5The combination of speed and volumecreated powerful new platforms forcommerce and social exchange by drivingdown the cost of commercial transactionsand social interactions. Companies wentfrom selling nothing over the internet tocreating large new efficient markets forexchange. In some cases this involvedexisting companies shifting to new digitalplatforms; however, the vast majority ofthe innovation and ferment centered onthe creation of brand new companies andcapabilities. When eBay began in 1995, itclosed the year with 41,000 users trading$7.2 million worth of goods. By 2006, ithad 22 million users trading $52.5 billionworth of goods. Social networking had asimilar trajectory. Facebook was launchedin February 2004 and in less than a yearreached 1 million active users. By August2008, Facebook had 100 million active users.Facebook now has over one billion users. Ineight years, Facebook enabled more than140 billion friend connections to be made,265 billion photos were uploaded, andmore than 62 million songs were played 22billion times.6The qualities of the Internet Revolutionwere very different from the IndustrialRevolution. The Internet, computing andthe ability to transmit and receive largeamounts of data, have been built on thecreation and value of networks, horizontalstructures and distributed intelligence.It changed thinking about productionsystems by permitting deeper integrationand more flexible operations. Also, ratherthan an ordered linear approach toresearch and development, the Internethas enabled concurrent innovation. Theability to exchange information rapidly anddecentralize decision-making has spawnedmore collaborative work environmentsthat are unconstrained by geography. As aconsequence, older models of centralizedinternal innovation have ceded ground tostart-ups and more open innovation modelsthat harness an environment of moreabundant knowledge. Thus, rather thanresource- intensive, the Internet Revolutionhas been information and knowledge-intensive. It has highlighted the value ofnetworks and the creation of platforms.It has opened up new avenues to reduceenvironmental footprints and support moreeco-friendly products and services.Several key features characterized thisperiod.3It was marked by the rise of thelarge industrial enterprise spanning newindustries from textiles to steel to powerproduction. It created significant economiesof scale and corresponding reduction incosts as machines and fleets got largerand production volumes increased. Itharnessed the efficiencies of hierarchicalstructures, with centralization of control. Theglobal capital stock of dedicated plant andequipment grew dramatically. Innovationbegan to be thought of in a systematic way,with the rise of central laboratories andcenters for research and development (R&D).Enterprises, both large and small, worked toharness new inventions in order to createand profit from new markets.Despite the enormous gains reaped bythe economy and society, the IndustrialRevolution also had a downside. Theglobal economic system became morehighly resource-intensive and had amore significant impact on the externalenvironment as a result of both resourceextraction and industrial waste streams.In addition, working conditions duringthis era needed vast improvement. Muchof the incremental innovation that hasoccurred since the Industrial Revolutionhas been focused on improving efficiency,reducing waste and enhancing theworking environment.The Second Wave: The Internet RevolutionAt the end of the twentieth century, theInternet Revolution changed the world yetagain. The timeframe in which it unfoldedwas much shorter, taking place overabout 50 years instead of 150; but like theIndustrial Revolution, the Internet Revolutionunfolded in stages. The first stage started inthe 1950’s with large main frame computers,software and the invention of “information-packets” which permitted computers tocommunicate with one another. The firststage consisted of experimentation withgovernment-sponsored computer networks.
The Third Wave: The Industrial InternetToday, in the twenty-first century, theIndustrial Internet promises to transformour world yet again. The melding of theglobal industrial system that was madepossible as a result of the IndustrialRevolution, with the open computing andcommunication systems developed as partof the Internet Revolution, opens up newfrontiers to accelerate productivity, reduceinefficiency and waste, and enhance thehuman work experience.Indeed, the Industrial Internet Revolution isalready underway. Companies have beenapplying Internet-based technologies toindustrial applications as they have becomeavailable over the last decade. However,we currently stand far below the possibilityfrontier: the full potential of Internet-baseddigital technology has yet to be fully realizedacross the global industry system. Intelligentdevices, intelligent systems, and intelligentdecisioning represent the primary waysin which the physical world of machines,facilities, fleets and networks can moreIntelligentdevicesIntelligentsystemsIntelligentdecisioning BENEFITSD I G I T A L W O R L DNetworksFleetsFacilitiesMachinesNetworkoptimizationINDUSTRIALWORLDFleetoptimizationFacilityoptimizationAssetoptimizationdeeply merge with the connectivity, big dataand analytics of the digital world.Intelligent DevicesProviding digital instrumentation toindustrial machines is the first step in theIndustrial Internet Revolution. Several factorshave aligned to make the widespreadinstrumentation of industrial machinesnot only possible, but economically viable.Widespread instrumentation is a necessarycondition for the rise of the IndustrialInternet. Several forces are at work tomake machines and collections ofmachines more intelligent.• Costs of deployment: Instrumentationcosts have declined dramatically, makingit possible to equip and monitor industrialmachines in a more economical mannerthan in the past.• Computing power: Continuedimprovements in microprocessor chipshave reached a point that now makes itpossible to augment physical machineswith digital intelligence.9Figure 3. Applications of the Industrial Internet• Advanced Analytics: Advances in“big data” software tools and analytictechniques provide the means to understandthe massive quantities of data that aregenerated by intelligent devices.Together, these forces are changing the costand value of collecting, analyzing and actingon data that has existed in theory but hasnot been fully harnessed in practice.Making sense of the rivers of data that canbe generated by intelligent devices is oneof the key components of the IndustrialInternet. As illustrated in Figure 3, theIndustrial Internet can be thought of interms of the flow and interaction of data,hardware, software and intelligence. Datais harvested from intelligent devices andnetworks. The data is stored, analyzed andvisualized using big data and analytics tools.The resultant “intelligent information” canthen be acted upon by decision makers, inreal-time if necessary, or as part of broaderindustrial assets optimization or strategicdecision processes across widely diverseindustrial systems.
10Intelligent information can also be sharedacross machines, networks, individuals orgroups to facilitate intelligent collaborationand better decision making. This enables abroader group of stakeholders to engagein asset maintenance, management andoptimization. It also ensures that local andremote individuals that have machine-specific expertise are brought into the foldat the right time. Intelligent informationcan also be fed back to the originatingmachine. This not only includes data thatwas produced by the originating machine,but also external data that can enhancethe operation or maintenance of machines,fleets and larger systems. This data feedbackloop enables the machine to “learn” fromits history and behave more intelligentlythrough on-board control systems.Each instrumented device will produce largequantities of data that can be transferredvia the Industrial Internet network to remotemachines and users. An important part ofthe implementation of the Industrial Internetwill involve determining which data remainsresident on devices and which data istransferred to remote locations for analysisand storage. Determining the degree of localdata residency is one of the keys to ensuringthe security of the Industrial Internet andthe many and diverse companies who willbenefit from being a part of it. The importantpoint here is that new innovations arepermitting sensitive data generated by aninstrumented machine to remain on-board,where it belongs. Other data streams willbe transferred remotely so that they can bevisualized, analyzed, augmented and actedupon, as appropriate, by people at work oron the move.Over time, these data flows provide a historyof operations and performance that enablesoperators to better understand the conditionof the critical components of the plant.Operators can understand how many hoursa particular component has been operatingand under what conditions. Analytic toolscan then compare this information to theoperating histories of similar componentsin other plants to provide reliable estimatesof the likelihood and timing of componentfailure. In this manner, operating data andpredictive analytics can be combined toavoid unplanned outages and minimizemaintenance costs.All of these benefits come from machineinstrumentation using existing informationtechnologies and doing so in ways thatenable people to do their jobs moreeffectively. This is what makes the wide-spread deployment of intelligent devicesso potentially powerful. In an era whenit is increasingly challenging to squeezemore productivity from high-performancemachines such as highly-engineeredaircraft engines, the broad deploymentof intelligent devices holds the potentialto unlock additional performance andoperational efficiencies.Figure 4. Industrial Internet Data Loop10010110100011010000110100001001101100101010010110000110100011000101001010001001100110010110100011010000110100001001101100101010010110100011010000110010010100011010000110010110000110100011000101001010001001100110 10001 11001 10010 10110 10000 11001 10010 10101 10010 10110 10000 11001 10010 10110 10000 11001 10010 10101 10010 10110010001011010001101011 101 10 10110010001011010001101001 101 10 10100011001011011010000110 101 10 10100011001011011010000100 101 10 10100011010001001011010111 101 10 10100011010001001011010110 101 10 100databig dataSQLStorage databaseprocessinginformationstoragecolumn-storeexamplecompressionanalysesDatatimebignowtoolsstoresupportTwitternewdatabasesanalysismobileterabytesqueryRemote andCentralized DataVisualizationPhysical andHuman NetworksIndustrialData SystemsSECURE, CLOUD-BASED NETWORKBig Data AnalyticsInstrumentedIndustrial MachineData sharing withthe right peopleand machinesIntelligence flowsback into machinesExtraction and storageof proprietary machinedata streamMachine-basedalgorithms anddata analysis
11Intelligent SystemsThe potential benefits of intelligent systemsare vast. Intelligent systems include avariety of traditional networked systems,but the definition is broader to encompassthe combination of widespread machineinstrumentation with software as deployedacross fleets and networks. As an increasingnumber of machines and devices join theIndustrial Internet, the synergistic effects ofwidespread machine instrumentation canbe realized across fleets and networks.Intelligent systems come in a number ofdifferent forms:Network Optimization: The operationof interconnected machines within asystem can be coordinated to achieveoperational efficiencies at the networklevel. For example, in health care, assetscan be linked to help doctors and nursesroute patients to the correct device morequickly. Information can then be seamlesslytransmitted to care providers and patientsresulting in shorter wait times, higherequipment utilization, and better qualitycare. Intelligent systems are also well suitedfor route optimization within transportationnetworks. Interconnected vehicles willknow their own location and destination,but also can be alerted to the location anddestination of other vehicles in the system—allowing optimization of routing to find themost efficient system-level solution.Maintenance Optimization: Optimal,low-cost, machine maintenance acrossfleets can also be facilitated by intelligentsystems. An aggregate view acrossmachines, components and individualparts provides a line of sight on the statusof these devices and enables the optimalnumber of parts to be delivered at theright time to the correct location. Thisminimizes parts inventory requirements andmaintenance costs, and provides higherlevels of machine reliability. Intelligentsystem maintenance optimization canbe combined with network learning andpredictive analytics to allow engineersto implement preventive maintenanceprograms that have the potential tolift machine reliability rates tounprecedented levels.System Recovery: Establishing broadsystem-wide intelligence can also assistin more rapidly and efficiently restoringsystems after major shocks. For example, inthe event of major storms, earthquakes orother natural hazards, a network of smartmeters, sensors, and other intelligent devicesand systems can be used to quickly detectand isolate the biggest problems so thatthey do not cascade and cause a blackout.Geographic and operational informationcan be combined to support utilityrecovery efforts.Learning: Network learning effects areanother benefit of machine interconnectionwith a system. The operational experiencesof each machine can be aggregated into asingle information system that accelerateslearning across the machine portfolio ina way that is not possible with a singlemachine. For example, data collected fromairplanes coupled with information aboutlocation and flight history can providea wealth of information about airplaneperformance in a variety of environments.The insights derived from this data areactionable and can be used to make theentire system smarter, thereby drivinga continuous process of knowledgeaccumulation and insight implementation.Building out intelligent systems harnessesthe benefits of widely deploying intelligentdevices. Once an increasing number ofmachines are connected within a system,the result is a continuously expanding,self-learning system that grows smarterover time.Each machine canbe aggregated intoa single informationsystem that accelerateslearning across themachine portfolio.
Intelligent DECISIONINGThe full power of the Industrial Internet willbe realized with a third element—IntelligentDecisioning. Intelligent Decisioning occurswhen enough information has beengathered from intelligent devices andsystems to facilitate data-driven learning,which in turn enables a subset of machineand network-level operational functionsto be transferred from operators to securedigital systems. This element of the IndustrialInternet is essential to grapple with theincreasing complexity of interconnectedmachines, facilities, fleets and networks.Consider fully instrumented networks offacilities or fleets across wide geographiclocations. Operators need to quickly makethousands of decisions to maintain optimalsystem performance. The challenges of thiscomplexity can be overcome by enablingthe system to perform select operationswith human consent. The burden ofcomplexity is transferred to the digitalsystem. For example, within an intelligentsystem, signals to increase the output ofa dispatchable power plant will not haveto be sent to the operators of individualplants. Instead, intelligent automation willbe used to directly co-dispatch flexibleplants in response to variable resources likewind and solar power, changes in electricitydemand, and the availability of other plants.These capabilities will facilitate the abilityof people and organizations to do their jobsmore effectively.Intelligent Decisioning is the long-termvision of the Industrial Internet. It is theculmination of the knowledge gathered asthe elements of the Industrial Internet areassembled device-by-device and system-by-system. It is a bold vision that, if realized,can unlock productivity gains and reduceoperating costs on a scale comparable tothe Industrial and Internet Revolutions.Integrating the elementsAs the intelligent pieces are broughttogether, the Industrial Internet bringsthe power of “big data” together withmachine-based analytics. Traditionalstatistical approaches use historical datagathering techniques where often thereis more separation between the data, theanalysis, and decision making. As systemmonitoring has advanced and the costof information technology has fallen, theability to work with real-time data has beenexpanding. Greater capability to manageand analyze high frequency real-time databrings a new level of insight on systemoperations. Machine-based analytics offeryet another dimension to the analyticprocess. Using a combination of physics-based methodologies, deep sector-specificdomain expertise, increased automation ofinformation flows, and predictive techniques,advanced analytics can be joined with theexisting suite of “big data” tools. The resultis the Industrial Internet encompassestraditional approaches with newer hybridapproaches that can leverage the powerof both historic and real-time data withindustry-specific advanced analytics.The full potential of the Industrial Internetwill be felt when the three primary digitalelements—intelligent devices, intelligentsystems and intelligent decision-making—fully merge with physical machines, facilities,fleets and networks. When this occurs, thebenefits of enhanced productivity, lowercosts and reduced waste will propagatethrough the entire industrial economy.12
13To appreciate the scale of the opportunityof the Industrial Internet it is useful to firstscale the global industrial system. How big isthis system? The simple answer is very big.However, there is no single simple measure.We therefore suggest three differentperspectives: economic share, energyrequirements, and physical assets in termsof machines, facilities, fleets and networks.While not exhaustive, these measures whentaken together provide a useful perspectiveon the vast potential scale and scope of theIndustrial Internet.Economic PerspectiveTraditional economic definitions of globalindustry include manufacturing, naturalresource extraction, construction, andutilities sectors.7Based on these categories,in 2011, global industry representedabout 30 percent or $21 trillion of the $70trillion dollar world economy.8Of that,manufacturing of goods represented 17percent of output, while other industriesincluding resource extraction andconstruction contributed about 13 percentof global output. At a regional level, thereis considerable variation depending onthe economic structure and resourceendowment of any particular country.Within the developed economies, industryrepresents roughly 24 percent of output,while in developing economies industrialsectors represent about 37 percent ofGDP output. Within this industrial total,manufacturing activities represent 15percent and 20 percent of advanced anddeveloping country economic output,respectively. Thus, by traditional economicaccounting measures, industrial activityrepresents roughly one-third of all economicactivity, with country-by-country variation.While one-third of the global economy isextremely large, it does not capture the fullexpanse of the Industrial Internet’s potential.The Industrial Internet will encompass abroader array of sectors than capturedby conventional economic categories. Forexample, it will also engage large swaths ofthe transport sector including:IV. How Big isthe Opportunity?Three PerspectivesFigure 5. Industrial Internet Potential GDP ShareIndustrial Internet opportunity ( $32.3 Trillion ) 46% share of global economy todayNon-IndustrialEconomy$18.1 TrillionOther$14.3 TrillionOther$23.1 TrillionIndustrialEconomy$10.8 TrillionIndustrialEconomy$9.7 TrillionNon-IndustrialEconomy$31 TrillionGlobal GDP ~$70 TrillionDevelopingEconomies$29 TrillionAdvancedEconomies$41 TrillionHealthcare$5.3 TrillionHealthcare$1.7 TrillionOther Industrial$5.3 TrillionManufacturing$5.5 TrillionManufacturing$6.1 TrillionOther Industrial$3.6 TrillionTransportation$2.6 Trillion7 Trillion 7 Trillion6 Trillion 6 Trillion5 Trillion 5 Trillion4 Trillion 4 Trillion3 Trillion 3 Trillion2 Trillion 2 Trillion1 Trillion 1 TrillionTransportation$2.2 TrillionSource: World Bank, 2011 and General Electric
14industrial transport fleets and large-scalelogistical operations such as aviation,rail, and marine transport.9In 2011, theglobal transportation services sectorincluding land, air, marine, pipelines,telecommunications and supporting logisticsservices, represented about 7 percent ofglobal economic activity. Transportationfleets are critical links in the supplyand distribution chains associated withmanufacturing and energy production. Herethe Industrial Internet helps by optimizingtiming and flow of goods within heavyindustries. In commercial transport serviceslike passenger aircraft, there are furtheropportunities for optimizing operations andassets while improving service and safety.Other commercial and governmentservices sectors will also benefit. Forexample, in health care, finding the criticalcommonalities and analogs in high-volumesecure data can literally be a matter of lifeor death. The health care industry, includingpublic and private spending, is estimated tocomprise 10 percent of the global economyor $7.1 trillion in 2011—a giant sector of theglobal economy by itself. Here the focus ofthe Industrial Internet shifts from optimizingthe flow of goods to the flow of informationand workflows of individuals—getting theright information, to the right person, at theright time.When traditional industry is combined withthe transportation and health servicessectors, about 46 percent of the globaleconomy or $32.3 trillion in global outputcan benefit from the Industrial Internet. Asthe global economy grows and industrygrows, this number will grow as well. By2025, we estimate that the share of theindustrial sector (defined here broadly) willgrow to approximately 50 percent of theglobal economy or $82 trillion of futureglobal output in nominal dollars.10The technologies of the Industrial Internetwill not be instantly applied to the entireasset base corresponding to the 50 percentof the world economy described above.Introducing them will require investment,and the pace of the investment may in turndepend on the speed at which the enablinginfrastructures are developed. To this extent,what we have described represents an upperlimit, the available envelope. On the otherhand, it also limits this envelope to thosesectors where the Industrial Internet canfind direct application. But the benefits of theIndustrial Internet will be felt beyond thosesectors. For example, the positive impacton the health sector will result in betterhealth outcomes, which in turn will resultin fewer workdays lost because of sicknessacross the rest of the economy. Similarly,improvements in transportation and logisticswill benefit all economic activities which relyon shipping of goods and on the reliabilityand efficiency of supply chains.Energy Consumption PerspectiveOne of the key benefits of the integration ofsmarter technologies and robust networksis the ability to create energy savingefficiencies and reduce costs. Constraintson the energy system are intensifying.Scarcity of resources, need for betterenvironmental sustainability, and lack ofinfrastructure are issues across the world.It might even be argued that the rise ofthe Industrial Internet is a direct responseto increasing resource constraints andscarcity. Therefore, another perspective onthe scale of the Industrial Internet comesfrom understanding the energy footprintassociated with the global industrial system.Huge volumes of energy resources arerequired to create the goods and servicesthe world needs. If energy production andconversion is considered in addition tomanufacturing and transportation sectors,the scope of the Industrial Internet benefitsencompasses more than half of the world’senergy consumption.The energy sector involves the spectrum ofactivities required to create finished energyfor consumption including:• Extracting fuels (e.g. oil, gas, coal,uranium) or harnessing water, wind and solar energies• Refining and processing primary fuelsinto finished products for delivery (e.g. gasoline, LNG)• Converting those fuels into electricityAbout 46 percent ofthe global economy or$32.3 trillion in globaloutput can benefit fromthe Industrial Internet.
15In 2011, the world produced more than13.0 billion metric tons of energy, whenconverted to an oil equivalent basis (Btoe)for comparative purposes.11To help put thisin perspective, all the cars and light vehiclesin the United States, which now total about240 million, consumed less than one half ofone Btoe. Of this 13.0 Btoe of global primaryenergy production, 4.9 Btoe was converted toelectricity at a conversion efficiency of about40 percent and the other 8.1 Btoe was refined,processed for impurities, washed (in thecase of coal) or converted in preparation fortransport and delivery to energy consumers.It’s important to recognize there are immensecosts associated with energy production.To maintain and grow energy supply, theglobal energy industry including coal, gas,oil, and power, on average, will require about$1.9 trillion dollars (about 3 percent of globalGDP) in new capital spending each year. Thelarge volume and cost creates tremendousscope for continued deployment of IndustrialInternet technologies.Shifting to the consumption side of the energybalance, the world’s primary energy sourceswere converted into 9.5 Btoe of useful energyproducts including 1.9 Btoe of electricity and7.1 Btoe of other finished fuels. Industrialend-users consumed 36 percent in the formof electricity, diesel fuel, metallurgical coal,natural gas, and chemical feedstocks. Thisroughly aligns with the manufacturing sectordescribed in the economic perspective above.Within the industrial sector, the heaviestenergy consumers are the steel and metalsindustries and the petrochemical industry.Together, these heavy industries representabout 50 percent of the industrial energyconsumed. Recent studies indicated thatif best practice technologies are deployed,heavy industry energy consumption could bereduced by 15 to 20 percent.12The continuedand expanded Industrial Internet deploymentcan support this effort through processintegration, life-cycle optimization, and moreefficient utilization and maintenance ofmotors and rotating equipment.The transportation sector is another largeconsumer of energy comprising 27 percentof global energy demand—primarily oilproducts. Within the transportation sector,approximately half (48 percent) of the fuelconsumed is in heavy fleets including trucks,buses, aircraft, marine vessels, and raillocomotives. The other half of transportsector energy (52 percent) is used in lightduty vehicles. Using information technologyand networked devices and systems tooptimize transport appears to be one ofthe most exciting opportunities from theIndustrial Internet. Assuming most ofthe large fleets and a portion of the lightduty vehicle fleets can benefit, perhaps14 percent of global transportation fueldemand can be impacted by IndustrialInternet technologies.There are clearly many dimensions andchallenges in achieving real changes inglobal energy consumption. Each systemand sub-system needs to be evaluatedEnergyProduction13 BTOEEnergyConsumption9.5 BTOEElectricityFuelInputElectricityBuildings32% Other10%Light-DutyTransport14%Heavy-DutyTransport16%Industry28%OtherConversion LossesElectricityConversion LossesRenewables 11%Gas 22%Coal 28%Oil 31%Nuclear 5%Hydro 3%Industrial Internet can impact 100%of energy productionIndustrial Internet can impact 44%of global energy consumptionFigure 6: 2011 Global Energy FlowsSource: GE, Global Strategy & Planning Estimates, 2011
16in terms of how it performs within thesystem and how it interacts with the largerenergy networks. Advances over the lasttwo decades in process management andautomation appear to have been largelysuccessful. While some parts of the energysystem are being optimized, new effortsare underway. All of the many machines,facilities, fleets, and networks involved inenergy production and conversion haveinefficiencies that can be improved throughthe growth of the Industrial Internet.Physical Asset Perspective…Things That SpinA third perspective on opportunities toexpand the Industrial Internet is to look atspecific physical assets involved in variousparts of the industrial system. The industrialsystem is comprised of huge numbers ofmachines and critical systems. There arenow millions of machines across the world,ranging from simple electric motors tohighly advanced computed cosmography(CT scanners) used in the delivery of healthcare. All of these pieces of equipment areassociated with information (temperature,pressure, vibration and other key indicators)and are valuable to understandingperformance of the unit itself and in relationto other machines and systems.One area of particular interest concernscritical rotating machinery. While it isprobably impossible to know preciselyhow many machines and devices, fleets,and networks exist within the world’s everexpanding industrial system, it is possibleto look at some specific segments to get afeel for the scale of the industrial system.Table 2. Things that Spin: Illustrative List of Rotating MachinesSources: Multiple aggregated sources including Platts UDI, IHS-CERA, Oil and Gas Journal, Clarkson Research, GE Aviation & Transportation,InMedica, industrial info, RISI, US Dept. of Energy, GE Strategy and Analytics estimates of large rotating systemsNotes: Not exhaustive. (1) includes LNG processing trains, Refineries, and Ethylene steam crackers. (2) includes Compressor and pumpingstations, LNG regasification terminals, Large Crude carriers, gas processing plants. (3) Only counting engines in large scale power generationgreater than 30 MWSectorPower Plants Rotating MachineryOil and Gas Rotating MachineryTransportation Rotating MachineryIndustrial FacilitiesMedical Machines Rotating MachineryRotating Machinery# of GlobalAssets &PlantsThermal Turbines: Steam, CCGT, etc. Turbines, Generators 17,500 74,000Other Plants: Hydro, Wind, Engines, etc. (3) Turbines, Generators, Reciprocating Engines 45,000 190,000Drilling Equipment: Drillships, Land Rigs etc. Engines, Generators, Electric Motors, Drilling Works, Propulsion Drives 4,100 29,200Midstream Systems (2) Engines, Turbines, Compressors, Turbo Expanders, Pumps, Blowers 16,300 63,000Big Energy Processing Plants (1) Compressors, Turbines, Pumps, Generators, Fans, Blowers, Motors 990 36,900Aircraft: Commercial Engines Compressors, Turbines, Turbofans 43,000 129,000Rail: Diesel Electric Engines Wheel Motors, Engine, Drives, Alternators 120,000 2,160,000Marine: Bulk Carriers Steam Turbines, Reciprocating Engines, Pumps, Generators 9,400 84,600Blast and Basic Oxygen Furnace Systems, Steam Turbines, Handling SystemsSteel Mills 1,600 47,000Cane Handling Systems, Rotary Vacuums, Centrifuges, Cystalizers, EvaporatorsSugar Plants 650 23,000Debarkers, Radial Chippers, Steam Turbines, Fourdrinier Machines, RollersPulp and Paper Mills 3,900 176,000Grain Handling Systems, Conveyors, Evaporators, Reboilers, Dryer Fans, MotorsEthanol Plants 450 16,000Rotary Kilns, Conveyors, Drive Motors, Ball MillsCement Plants 2,000 30,000Steam Turbines, Reformer and Distillation Systems, Compressors, BlowersAmmonia and Methanol Plants 1,300 45,000CT Scanners Spinning X-Ray Tube Rotors, Spinning Gantries 52,000 104,000“Big”thingsthat spinTotal 3,207,700Table 2 provides an illustrative list of majorpieces of rotating machinery in key industrycategories. Within this list, there are currentlyover 3 million types of major rotatingequipment. These numbers are based on abasic review of major system processes inthese machines and plants. The high degreeof customization within the industrial systemmakes comparisons difficult. However, ageneral assessment can be made based onthe typical sets of rotating equipment andkey devices that are targets for monitoringand control. The result is an estimate of“things that spin” in parts of the industrialsystem. All of these assets are subject totemperature, pressure, vibration and otherkey metrics, which are already being, or canbe, monitored, modeled, and manipulatedremotely to provide safety, enhancedproductivity, and operational savings.
17Commercial Jet AircraftThe number of rotating parts and thepotential for instrumentation in thecommercial jet engine fleet is significant.According to Jet Information Services, thereare approximately 21,500 commercial jetaircraft and 43,000 jet engines in servicearound the world in 2011. Commercial jetsare most commonly powered by a twin jetengine configuration. These aircraft takeapproximately 3 departures per day, for atotal of 23 million departures annually.13Each jet engine contains many moving parts;however, there are three major pieces ofrotating equipment: a turbo fan, compressor,and turbine. Each of these components willbe instrumented and monitored separately.In total, there are approximately 129,000major pieces of spinning equipmentoperating in the commercial fleettoday. Beyond the commercial jet fleets,instrumentation opportunities exist inthe military and non-commercial generalaviation fleets, which are over 10 times aslarge as the commercial jet aircraft fleet.14The bottom line is that the opportunities forinstrumentation of jet airline fleets are vastand increasing daily. GE Aviation estimatesthat to meet the growing needs of air travelanother 32,000 engines might to be addedto the global fleet over the next 15 years.This represents another 100,000 pieces ofrotating machinery in the global fleet ofcommercial engines.Combined Cycle Power PlantsThe opportunities for Industrial Internetinstrumentation are just as vast in the globalfleet of power plants. There are 62,500 powerplants operating around the world todaywith a capacity of 30 megawatts or greater.The total global capacity of power plants isapproximately 5,200 gigawatts (GW). Theseplants are displayed in Figure 7. Consideronly the large amount of instrumentablerotating parts in just one small slice of thisfleet: combined cycle power plants, whichrepresent just 2.5 percent of global powerplants, or 1,768 plants. These plants have aglobal installed capacity of 564 GW.15Combined cycle gas turbines use both gasturbines and steam turbines in tandem,converting the same source of heat—naturalgas—into mechanical and then electricenergy. By combining gas and steamturbines, combined cycle gas turbines usetwo thermodynamic cycles (gas turbineBrayton cycle and a steam turbineRankine cycle) to improve efficiency andreduce operating costs. A combined cyclegas turbine power plant typically usesmultiple sets of gas turbine-steamturbine combinations.The most common combined cycleconfiguration today is a 2x1, which usestwo gas turbines and one steam turbine.In this example, there are 6 major rotatingcomponents: 2 gas turbines, 2 gas turbinegenerators, one steam turbine and onesteam turbine generator. Beyond the bigcritical systems, we estimate that thereare another 99 rotating components in thebalance of plant—from feed water pumps toair compressors. In all, there are 105 rotatingcomponents in a 2x1 combined cycle powerplant that are instrumentable.Consider the implications for the globalcombined cycle fleet. If instrumentationwas applied to every component in all 1,768plants, this would represent about 10,600major system pieces and 175,000 smallerrotating parts available for instrumentation.Looking forward over the next 15 years,another 2,000 combined cycle plantsamounting to 638 GW of capacity arelikely to be added to the global industrialsystem.16This will add another 12,000 unitsof large rotating equipment and at leastanother 200,000 pieces of smaller rotatingequipment to complete these plants. If othertypes of power plants are considered, thescope for further expansion of IndustrialInternet technologies is clearly significant.Fuel TypeBiomassGeothermalSolarWindNatural GasOilNuclearHydroCoalOtherFigure 7. Global Power Plant Fleet by TechnologySource: Power plant data source Platts UDI Database, June 2012Note: Circle size represents installed capacity (MW).
18LocomotivesLocomotives haul vast quantities of rawmaterials and goods around the world.In 2011, there were more than 9.6 trilliontonne-kilometers of freight transportedvia the world’s 1.1 million kilometer railsystem. In that system today, there areapproximately 120,000 diesel-electricpowered rail engines worldwide. There areabout 18 major rotating components withina diesel-electric locomotive that can begrouped into six major systems: tractionmotor, radiator fan, compressor, alternator,engine, and turbo. If instrumentation wasapplied to every component of the rail fleet,this would represent more than 2.2 millionrotating parts available for instrumentation.Conservative forecasts expect about 33,000new diesel-electric locomotives to bedelivered in the next 15 years— which wouldentail significant monitoring as 396,000sensors will be deployed by 2025 in diesel-electric locomotives alone.Oil RefineriesRefineries and petrochemical plants havebeen targets for advanced monitoringand control for many years. Older facilitieswith vintage technologies are being forcedto compete with new state-of-the-artgreenfield facilities. At the same time, theboom and bust cycles of the oil business,coupled with stricter environmentalcompliance, are driving the need forcontinuous process enhancements andadjustments. Rotating machines such asreciprocating and centrifugal compressors,along with hundreds of pumps, are thecritical components of energy processingplants including refineries. Today, operatorsare monitoring and modeling thesedevices for preventative maintenance andsafety along with total plant optimization.Managing these plants for efficiency, safetyand enhanced productivity is one of theplaces where the Industrial Internet isworking today.To give a sense of scale, there are 655oil refineries in the world, representing88 million barrels per day of crude inputcapacity—approximately equal to daily worldoil consumption.17Each modern refinery hasapproximately 45 large rotating systemswithin the various critical refinery processesincluding crude and vacuum distillation,coking, hydrocracking, hydrotreating, andisomerization. Some refineries will be smaller,others more complex, as each refinery in theworld is essentially a customized industrialplant depending on the crudes it processesand the consumers it serves. Key equipmentsets in most refineries include centrifugalcharge pumps, wet and dry compressorsets, power turbines, and air coolers. If justthe major systems are considered, there areapproximately 30,000 big things that spin ina refinery. Beyond this, there are hundreds ofpumps and smaller devices that are targetsfor system monitoring. Over the next fifteenyears, the world could need more than 100new refineries, and major expansion toexisting refineries, to meet the increasingneeds of emerging markets.18This representsincremental need for process managementand automation on more than 4,500 largerotating systems in oil refineries alone.Health CareAlthough it is not commonly recognized,health care delivery also involves rotatingmachinery. One example is computedtomography (CT) scanners. These machinesare used to visualize internal structures ofthe body. CT scanners employ a rotatingx-ray device to create a 3-D cross-sectionalimage of the body. Globally there areapproximately 52,000 CT scanners. Theyare used for diagnostic and treatmentevaluation across a wide spectrum ofapplications including: cardiac, angiography,brain, chest, abdomen, and orthopedic.These examples are only a portion of themillions of machines and critical systemsthat can be monitored, modeled, andremotely controlled and automated. Therise of more robust global networks willonly improve the ability to more efficientlydeploy assets, improve servicing andsafety, and optimize the flow of resources.The gains from technology integration willrequire adoption of new equipment alongwith retrofitting and refurbishing of oldermachines. This will create new possibilities inprocess optimization, increased total factorproductivity, and decreased cost structures.These systems are expected to change thecompetitive balance in various industries,forcing rapid adoption by many businessesto survive. The next sections examine thepotential benefits and challenges facing thedeployment of the Industrial Internet.
19The Industrial Internet promises to havea range of benefits spanning machines,facilities, fleets and industrial networks,which in turn influence the broadereconomy. As discussed above, the globalindustrial system is vast. In this section,we review the potential industry-specificbenefits in more detail and conclude thateven relatively small improvements inefficiency at the sector level could havesizeable benefits when scaled up acrossthe economic system. Further, we examinehow productivity trends have impactedeconomic growth over the last few decadesand estimate what broad diffusion of theIndustrial Internet could yield in the globaleconomy over the next twenty years.The Industrial Internet opens the doorto a variety of benefits for the industrialeconomy. Intelligent instrumentationenables individual machine optimization,which leads to better performance, lowercosts and higher reliability. An optimizedmachine is one that is operating at peakperformance and enables operatingand maintenance costs to be minimized.Intelligent networks enable optimizationacross interconnected machines.Some companies have been early adopters,realizing benefits and overcomingchallenges related to capturing andmanipulating data streams. Historically,many of these efforts have centered on thedigital controls systems of industrial assetswith performance scope that is narrow andcompartmentalized relative to what is nowbecoming possible. Given the size of theasset base involved, broader integration ofsystems and sub-systems at the productlevel through intelligent devices is expectedas sensing and data handling costs fall.At the other end of the spectrum, enterprisemanagement software and solutions havebeen widely adopted to drive organizationalefficiencies at the firm level. The benefitsof these efforts include better tracking andcoordination of labor, supply chain, quality,compliance, and sales and distributionacross broad geographies and product lines.However, these efforts have sometimesfallen short because while they can passivelytrack asset operations at the product level,the ability to impact asset performance islimited. Optimizing the system to maximizeasset and enterprise performance is whatthe Industrial Internet offers.System-wide optimization allows people atwork to achieve efficiency improvementsand cost reductions beyond thoseachievable through individual machineoptimization. Intelligent Decisioning willallow smart software to lock-in machine andsystem-level benefits. Further, the benefitsof continued learning holds the key to thebetter design of new products and services—leading to a virtuous cycle of increasinglybetter products and services resulting inhigher efficiencies and lower costs.Industrial Sector Benefits:The Power of One PercentIndustrial assets and facilities are typicallyhighly customized to the needs of the sector.Benefits will vary and different aspects of theIndustrial Internet are emphasized. However,there are common themes of risk reduction,fuel efficiency, higher labor productivity,and reduced cost. To illustrate the benefitsof the Industrial Internet in greater detail,we examine a number of sector-specificexamples. Each example highlights howsmall improvements, even as small as onepercent, can yield enormous system-widesavings when scaled up across the sector.Commercial AviationThe airline industry, like other commercialtransportation systems, is ideally positionedto further benefit from deployment of theIndustrial Internet. By focusing on optimizingoperations and assets while improvingsafety at every phase of airline operations,Industrial Internet applications have thepotential to transform the airline industry.The Industrial Internet has the potentialto improve both airline operations andasset management. Operations canbe transformed through fuel reduction,improvement in crew effectiveness,reduction in delays and cancellations, moreefficient maintenance planning and partsinventory, and optimal flight scheduling.Airline assets can be better optimizedthrough improved preventive maintenancewhich will extend engine lives and limitunscheduled interruptions.V. The Benefitsof the IndustrialInternet
20One vision for how the Industrial Internetcan impact aviation comes from thearea of aircraft maintenance inventorymanagement. An intelligent aircraft willtell maintenance crews which parts arelikely to need replacement and when. Thiswill enable commercial airline operators toshift from current maintenance schedulesthat are based on the number of cycles tomaintenance schedules that are based onactual need. The combination of sensor, dataanalytics, and data sharing between peopleand machines is expected to reduce airlinecosts and improve maintenance efficiency.These systems will act like virtual proactivemaintenance teams, determining the statusof the aircraft and its subsystems to supplyreal time, actionable information to helpaircraft operators predict failures beforethey occur and provide a quick and accurate“whole plan” view of health.As the industry becomes more comfortablewith the ability of intelligently monitoredequipment to signal the need forreplacement, there is an opportunityto move away from traditional partreplacement cycles. Regulations requireairlines to service or replace parts aftera certain number of flight cycles. Theefficiency benefits from replacing partsat the right time, rather than when thepart cycles dictate, look to be substantial.Assuming all safety measures can be met orimproved, parts inventories can be reduced,aircraft utilization can be increased, andcosts can be reduced. Operators can detecta problem and see exactly where it hasoccurred in an easily accessible, accurate,and concise manner.Over the last few decades, the globalcommercial airline industry has grown2-3 times faster than the global economy,expanding generally at the same pace asworld trade.19Today, global commercialairline revenues are around $560 billionper year. However, profitability and returnon capital invested remain significantchallenges for the industry.20Thesechallenges highlight the focus on fuelcosts—which account for nearly 30 percentof industry costs, and the potential benefitsof improving asset utilization. In the US,the Federal Aviation Administration (FAA)conducted a study that showed that overan 8-year period, flight inefficienciesboosted costs by an average of 8-22percent.21The implication is there are largepotential savings if higher productivity canbe achieved.The global commercial airline business isspending about $170 billion per year on jetfuel. Estimates within the industry point toperhaps 5 percent cost reduction from betterflight planning and operational changes:a benefit of over $8.0 billion per year. IfIndustrial Internet technologies can achieveonly one percent in cost reduction, thiswould represent nearly $2 billion per year—or about $30 billion in fuel cost savings over15 years.Another potential benefit comes fromavoided capital costs. From 2002 to 2009the commercial aviation industry spentalmost $1.0 trillion dollars or $135 billion peryear.22If better utilization of existing assetsfrom the Industrial Internet results in a onepercent reduction in capital expenditures,the savings benefit could total $1.3 billiondollars per year or a cumulative benefit ofapproximately $29 billion dollars over 15Figure 8. Aviation Industrial InternetService QualityCRUISEDESCENTTAXION WINGAIRFRAME ANDENGINE OEMSAIRFRAMEMAINTENANCEOEM PARTSWAREHOUSEAIRLINEWAREHOUSEAIRLINE OPS, ITDATA CENTER...VIRTUALCOLLABORATIONARRIVALAsset and Facility Optimization Fleet and Network Optimization Asset Performance
21years. From an operations perspective, theaverage cost of maintenance per flight hourfor a two engine wide-body commercialjet is approximately $1,200.23In 2011,commercial jet airplanes were in the airfor 50 million hours. This translates into a$60 billion annual maintenance bill. Enginemaintenance alone accounts for 43 percentof the total, or $25 billion. This meansthat commercial jet engine maintenancecosts can be reduced by $250 million forevery one percent improvement in enginemaintenance efficiency due to theIndustrial Internet.Rail TransportationThe primary networks in the global groundtransportation system are the commercialmotor fleets and railway systems. Thescope for Industrial Internet applicationwithin global transportation systems istremendous. At the machine level, vehicleand locomotive instrumentation will providea foundation for insightful analytics to solvevelocity, reliability, and capacity challenges.Real-time diagnostics and predictiveanalytics will reduce maintenance costs andprevent machine breakdowns before theyoccur. At the fleet level, fleet instrumentationholds the promise of eliminating wastein fleet scheduling. Furthermore, there isflexibility in optimization targets. Fleets canbe optimized for cost minimization, speed, oroptimal supply or distribution chain timing.One example from the railway system ismovement planning software. These toolscan deliver real-time overviews of networkoperations from a single, sophisticateddisplay, giving operators the informationthey need to make optimal decisions. Withthis software, rail operators can monitortrains in both signaled and non-signaledterritories using global positioning systems,track-circuits, automatic equipmentidentification readers, and time-basedtracking. Built-in traffic managementapplications give operators the ability toeffectively manage train schedules andswiftly respond to unexpected events. Thesesoftware solutions create the basis for futureIndustrial Internet-enabled global railwaysystems. This digital architecture is a criticalcomponent to realize potential benefits inimproved rail operations.Globally, transportation logistics costs areestimated to be $4.9 trillion dollars per year,or approximately 7 percent of global GDP.24Rail transportation investment, operationsand maintenance costs account for 5 percentof this total, or $245 billion per year. Railoperations costs represent 75 percent oftotal trail transport costs, or $184 billion peryear. GE Transportation estimates that 2.5percent of rail operations costs are the resultof system inefficiencies. This amounts to $5.6billion per year in potential savings. If onlyone percent savings can be achieved, theamount saved would be about $1.8 billionper year or about $27 billion over 15 years.Similar types of efficiencies appear possiblein heavy duty trucking, transport fleetsand marine vessels, meaning much largertransportation system benefits can likelybe realized.Power ProductionEnergy production is another key sectorwhere the Industrial Internet benefits lookto be substantial. The global power systemencompasses about 5,200 GW of generationcapacity. For reference, 1 GW of capacitycan power about 750,000 US homes. Inaddition, there are millions of miles of highvoltage transmission lines, sub-stations,transformers, and even more distributionlines. Many of the concepts such asmachine preventative maintenance or fleetoptimization that apply to the transportationsector can be applied to the power sectoras well, along with the broad objectivesof reliability, enhanced safety, increasedproductivity, and fuel efficiency.Power outages are not only costly, butdisruptive and dangerous. Many timesoutages are not restored, sometimes forweeks, because the location of a brokenpower line is not known immediately, or amassive system overhaul is needed andparts may be on the other side of the world.With the Industrial Internet, everything fromthe biggest machines generating powerto transformers on power poles can beconnected to the Internet, providing statusupdates and performance data. From that,operators take preemptive action on apotential problem before it causes millions orbillions of dollars of company and customertime. Additionally, field representativeswould avoid the costly ‘go see’ approachto the problem before planning to repair,and they will be able to anticipate theissue and be prepared with the parts tofix it. This includes supporting utilities inminimizing the costs associated with treetrimming. By combining information abouttheir transmission assets, vegetation, andclimate, the probability of an outage due to
22vegetation can be determined, as well as thepotential impact of the outage. This wouldallow operators to better prioritize treetrimming operations and minimize costs.Another example highlights how power plantoperations are changing with the rise of theIndustrial Internet. New data compressiontechniques are allowing plant managersto track changes in massive data streamsinstead of tracking every piece of data allof the time. For the operator, it may onlybe the relationship between two data setsthat is monitored. Before, an operator mighthave missed the correlation between hotweather, high loads, high humidity, and poorunit performance. Now it is much easierto compare and visualize the changes inbig data sets in relation to each other. Thisenables companies to engage in constantlearning. In the future, the engineer can justask a question concerning an irregularity,and historic analogs are mined acrossthousands of units in service over time—and an answer materializes in seconds. Theexpectation is faster response can improveefficiencies and reduce costs.As these techniques and practices expandacross the world, it is interesting to thinkabout how the impact of the IndustrialInternet could scale up. This next examplerelates to fuel costs. Globally, GE estimatesthat about 1.1 Btoe of natural gas isconsumed in gas-fired power plants tocreate electricity.25The price of naturalgas varies dramatically around the world.In some countries, natural gas pricesare indexed to the price of oil. In othercountries like the US, natural gas pricesare determined in a free market based onsupply and demand fundamentals. Globally,GE estimates that the power sector spentmore than $250 billion last year on fuel gas,and by 2015 spending is expected to growto about $300 billion and may exceed morethan $440 billion by 2020.26Efficiency gainscan likely be realized from Industrial Internettechnologies tied to improved integrationof the natural gas and power grids. Usinga conservative assumption that the fuelsavings from a one percent improvementin country-level average gas generationefficiency can be realized, fuel spendingwould be reduced by more than $3 billion in2015 and $4.4 billion in 2020. Over a 15-yearperiod, the cumulative savings could bemore than $66 billion.Oil & Gas Development and DeliveryThe oil and gas industry provides some richexamples of how the Industrial Internet isgetting deployed to achieve productivitygains and optimization of industrialprocesses. The upstream side of the oil andgas industry has been increasingly forced tolook further and further to the frontiers fornew large-scale supplies of oil and gas astraditional reserves deplete. Many industryobservers note that while resource potentialremains enormous, it will take more capitaland technology to bring these to market.The age of easy oil and gas resourcedevelopment is ending; however, scrutinyof oil and gas activities is only increasing.Companies are operating in an environmentof increasing transparency, in part frominformation technology, but also becausethe risks and capital intensity of the businessare driving the need for more collaborationbetween industry, regulators, and society.This reality is driving the oil and gasindustry to achieve a number of importantgoals including:• Increased operational effectiveness and enhanced productivity• Lower life cycle costs in project development, operations, and maintenance• Constant improvement in safety, environmental, and regulatory compliance• Refurbish aging facilities and adjust to shifting workforce demographics• Develop local capabilities and support increasingly remote logisticsWhile the complexity of operations isincreasing by many measures, the potentialfor cost savings and efficiency gains fromthe Industrial Internet remains high. Clearexamples are emerging of how the IndustrialInternet can boost availability of keyequipment sets, reduce fuel consumption,enhance production rates, and reduce costs.Traditionally, the oil and gas industry hasbeen a slow adopter of new technologies.Companies prefer strong references andproof of technology before new technologiesget deployed, given the enormous sums ofcapital in play. While technology uptakehas traditionally been slow, there have beenthree distinct phases of technology adoptionthat are occurring in direct response to thekey challenges facing the industry. Eachphase of technology integration has broughtsignificant benefits to the industry and theseefforts are directly responsible for wideningthe necessary resource base.New data compressiontechniques are allowingplant operators to trackchanges in massivedata streams instead oftracking every piece ofdata all of the time.
The industry has moved over the last decadetoward adoption of selected technologiesalong the upstream value chain.Examples include:• Downhole sensors tracking events in the wells, intelligent completions optimizing product flow, and well stimulation to increase productivity• Wireless communication systems that link subsurface and above-ground information networks in local facilities with centralized company sites• Real-time data monitoring for safetyand optimization• Predictive analytics to better understand and anticipate reservoir behavior• Temporal monitoring, like 4-d seismic, to understand fluid migration and reservoir changes as a result of production efforts over timeThese efforts in many cases have loweredcosts, increased productivity, and expandedresource potential.The notion of oil resource potential offersa perspective on the value of the IndustrialInternet. The global oil resource base isvast, but recovery rates are relatively low.Globally, average recovery rates are only35 percent or 35 out of 100 barrels in theground are brought to the surface usingcurrent technology.27The idea of the digitaloil field has been popular for more than adecade.28Early estimates pointed to 125billion barrels of additional oil reservesover ten years if digital technologies wereaggressively deployed.29Since this time,the industry has been progressively movingfrom broadly scoping the concepts andovercoming reliability and connectivityconcerns, to now successfully managingdata and running operations centers— tocreate the most value for each technologydollar spent. Today, global oil productionis about 84 million barrels per day or 31billion barrels per year (4.0 Btoe).30Currentproved oil reserves are estimated at about1,600 billion barrels. The potential for gainsremains high, especially in less mature oilregions. Assuming that another wave ofIndustrial Internet technologies adoption canincrease proved reserves by one percent,this would translate to 16 billion barrels orone-half of the world’s oil requirements for ayear. While the above example is illustrative,and realistically, these new reserves wouldbe realized over a longer time period, thepoint remains—the volume potentialfrom small improvements in recoveryappear substantial.Another way to think about the benefitis from a capital expenditure efficiencyperspective. Oil and gas upstream spendingis estimated at $600 billion dollars in 2012.31Going forward, GE estimates spending ratescould increase at perhaps 8 percent peryear to fuel the world with the oil and gasit needs.32If only one percent of reductionsin capital expenditure can be achieved byIndustrial Internet technologies, in addition2323
24to what is already being deployed, this translates into more than$6 billion per year in savings or $90 billion over 15 years.Health CareThe digitization of health care holds the unique promise oftransforming our lives by providing a greater quality of life forpeople across the globe. The global health care industry is anotherprime sector for Industrial Internet adoption because of the strongimperatives to reduce costs and improve performance. Healthcare is a priority challenge for nearly every country today: mostadvanced economies need to improve efficiency and containcosts in the face of rapidly aging populations; meanwhile, manyemerging markets need to extend the reach of health care servicesto burgeoning urban centers and sprawling rural populations.The global health care industry is vast, accounting for 10 percentof global GDP in 2011. The scope for efficiency improvements isjust as large. It is estimated that more than 10 percent of thosehealth expenditures are wasted from inefficiencies in the system,meaning the global cost of health care inefficiency is at least $731billion per year.33Clinical and operations inefficiencies, which canbe most directly impacted by the Industrial Internet, account for59 percent of healthcare inefficiencies representing $429 billionper year. It is estimated that deployment of the Industrial Internetcan help to drive these costs down roughly 25 percent, or about$100 billion per year in savings.34In this case, a one percentreduction in costs translates to $4.2 billion per year—or $63 billionover 15 years.The range of Industrial Internet applications in the global healthcare industry is as large as the potential cost savings. The roleof the Industrial Internet in health care is to enable safe andefficient operations to reclaim hundreds of millions of hours in lostutilization and productivity, and the resulting patient throughput.Consider the personal benefits of enhanced MRI scanning anddiagnostics that are enabled by the Industrial Internet. Whileeffective in helping to diagnose multiple sclerosis, brain tumors,torn ligaments and strokes, today data produced by imagingmachines are not as connected to the people that need it themost—the doctors and the patients—as they could be. At theoperations level, there are many individuals working as a teamto make the scan happen. A nurse administers medicationsor contrast agents that may be needed for the exam; an MRItechnician operates the scanner; and a radiologist identifies theimaging sequences to be used and interprets the images. Thisinformation is then given to the nurse, who then passes it to theprimary doctor to review and take action accordingly. This is “BigData,” but it is not making information more intelligent.To make information intelligent, new connections need to bedeveloped so that Big Data ‘knows’ when and where it needs to go,and how to get there. If imaging data is better connected, the rightdoctor could automatically receive a patient’s rendered images– so the information is finding the doctor instead of the doctorfinding the information. Additionally, when the right doctor hasviewed the image, further connections could enable these imagesto ‘know’ they need to be filed in the patient’s digital medicalrecord. This type of proactive, secure routing of digital medicaldata may seem like a simple upgrade in workflow, but in actualityUSSWIZCANGERFRSWEUKAUSJPN$7,960$5,144$4,363$4,218$3,978$3,722$3,487$3,445$2,878Figure 9. Health spending per capita*$2,0000 $4,000 $6,000 $8,000GDP Per Capita (USD$)Out-of-PocketspendingPublicspendingPrivatespending*Health spending per capita by source of funding, adjusted forcost of living. Source: OECD Health Data 2011 (June 2011)it represents one of the promising ways that the Industrial Internetcan boost productivity and treatment outcomes.A system-level Industrial Internet application opens the possibilityof creating a “care traffic control system” for hospitals. Hospitalsare comprised of thousands of pieces of critical equipment, muchof which is mobile. The key is knowing where it all resides, andhaving a system that can alert doctors, nurses and techniciansto changes in status, and provide metrics to improve resourceutilization and patient and business outcomes. These types ofsystems are beginning to be deployed today and represent thebeginning of the Industrial Internet in health care. GE Healthcareestimates that these innovations can translate into a 15 to30 percent reduction in hospital equipment costs and permithealthcare workers to gain an additional hour of productivityon each shift. These approaches also increase asset capacityutilization, workflow and hospital bed management. This resultsin a 15 to 20 percent increase in patient throughput. Clearly, the
25way in which the Industrial Internet willoperate across various sectors is complexand diverse. Furthermore, the scope forsignificant benefits in terms of operationalefficiency, reduced expenditures, andincreased productivity are vast. Using aconservative improvement measure of justone percent, the larger picture of enormousindustrial system-wide savings starts toemerge. The measureable benefits will benot just reduced costs and more effectivecapital spending, but improved productivity.Economy-wide Gains:The Next Productivity BoomProductivity is the ultimate engine ofeconomic growth, a key driver of higherincomes and better living standards.Faster growth in labor productivity allowsa workforce to produce more and to earnincreased wages. And in an era whereconstraints are powerful and pervasive,productivity is even more important: higherproductivity delivers greater benefits tofirms and governments that need to makeevery dollar of investment count; andhigher productivity makes every gallon orton of natural resources go a longer way,a crucial contribution to sustainability aslarge emerging markets populations strive toachieve better living standards and greaterconsumption levels.The Industrial Internet can therefore be thecatalyst for a new wave of productivity, withpowerful beneficial consequences in termsof economic growth and incomes. Just howlarge could the benefits be? The first waveof the Internet Revolution boosted US laborproductivity growth to an average annualrate of 3.1 percent during 1995-2004, twicethe pace of the previous quarter-century.If that productivity growth differential canbe recaptured and maintained, by 2030 itwould translate to an average income gainof $20,000 or about 40 percent of today’s USper capita GDP. If productivity growth wereto rise to a more conservative 2.6 percent,lower than the Industrial Revolution-drivenpace of 1950-68, it would still deliver anaverage income gain equivalent to one-quarter of today’s per capita GDP.As the US and other early adopters pushthe technological frontier, this increases theneed for faster productivity and resultingincome growth in the rest of the world. Thebenefits of the Industrial Internet shouldprove immediately obvious in advancedmanufacturing; in the US, this could give animportant boost to restoring employmentto its pre-crisis levels. Emerging markets willkeep boosting infrastructure investment;if they become early adopters of the newtechnologies, they could greatly accelerateand amplify the impact of the IndustrialInternet on the global economy. During1995-2004, the surge of informationtechnology investment across the worldboosted global GDP growth by nearly onepercentage point; now that emergingmarkets account for nearly half of theglobal economy, their impact could beeven greater.Whether productivity growth slows oraccelerates will make a huge differenceto the U.S. and to the rest of the world.And yet, productivity growth is a relativelyrecent phenomenon. For much of humanhistory, until about 1750, there was virtuallyno productivity growth—and very littleeconomic growth. Then came the IndustrialRevolution—as discussed earlier in this
26paper—and economic growth took off. Theimpact of the Industrial Revolution was long-lived. While the second wave of innovationstopped in 1900, its discoveries continuedto be incorporated in new products andexploited in new ways for several moredecades. US productivity growth, whichhad been close to zero before the IndustrialRevolution started, was running at close to 3percent per year during the 1950’s and ‘60’s.The Great FizzlingStarting in the late 1960’s, however,productivity growth deceleratedprecipitously, dropping close to zero in themid-1980’s. Later productivity reboundedsomewhat, but only to hover at about 1.5-2percent, well below the heights of previousdecades. In comparison, between 1950 and1968, US productivity growth averaged 2.9percent; between 1969 and 1995 it averagedonly 1.6 percent. Why did productivitygrowth decelerate so significantly? Adversesupply shocks probably played a role, inparticular the oil shocks of the 1970’s, butthey are not enough to explain a productivityslump which lasted a quarter century,and which saw productivity in the servicesector virtually stagnate. A more plausibleexplanation is that the adoption of wavesof innovation from the Industrial Revolutionhad reached a more mature stage, runninginto diminishing marginal returns (see forexample Gordon 2012).The Internet RevolutionWhile productivity decelerated sharply,innovation had not stopped: quite thecontrary, computers had come onto thescene, and so had the internet. But the lackof a visible economic impact bred skepticism,famously encapsulated by Robert Solow’squip “You can see the computer ageeverywhere but in the productivity statistics.”Solow spoke in 1987, and nearly ten yearslater his remark still seemed appropriate.And then suddenly it happened: US laborproductivity accelerated sharply in the mid-1990’s, jumping back to the record levels ofthe mid-1960’s.The acceleration carried over into the earlypart of the following decade: between 1996and 2004, productivity growth averaged animpressive 3.1 percent, nearly double therate of the preceding quarter century-long slump.1960 1970 1980 1990 20003.5%4.0%3.0%2.5%1.0%2.0%.5%1.5%0%Figure 10. US Labor Productivity Growth, 1952 - 2004% YoY, 5-year moving averageSource: United States Department of Labor, Bureau of Labor Statistics, Labor Productivity and CostsDatabase, Annual Data, November 2012. http://www.bls.gov/lpc/How did it happen? There is extensiveacademic literature devoted to theproductivity revival of the mid-1990’s, andthe broad consensus is that the accelerationin productivity growth was driven by thecombination of expanded information andcommunication technology, integratedthrough the rise of the Internet Revolutionand computing technology that helped toenable it.A few points are worth making in this context:• First, the acceleration in productivityoccurred in a relatively late period ofeconomic expansion. Productivity growthexhibits marked cyclical fluctuations, andit tends to pick up at the beginning of aneconomic recovery; the fact that the mid-1990’s surge bucked the trend suggests amore structural driver.• The revolution was fueled by animpressive pace of innovation (Moore’slaw35), which resulted in a rapid declinein the prices of information andtelecommunication equipment.
27• The revolution then spread to the rest ofthe economy as the equipment was adoptedon an increasingly broader basis. Empiricalevidence shows that service-intensiveindustries experienced faster productivitygains than other industries, againsuggesting that the Internet Revolution wasthe driving force.36• Investment played a key role in leveragingthe hardware and software innovations, asdeclining prices spurred companies to morerapidly upgrade their capital stock.• Services also experienced a majoracceleration in productivity, confoundinganother economic misconception, knownas “Baumol’s Disease.” The prominenteconomist William Baumol had argued inthe 1960’s that (i) productivity gains wouldderive mostly from innovation embodied incapital equipment; and (ii) service industrieswere more labor intensive and less capitalintensive than manufacturing; therefore(iii) service industries were condemned tolower productivity growth. In fact, serviceindustries turned out to be some of the mostintensive adopters of ICT, and recorded someof the most impressive productivity gains.The wholesale and retail trade sector is acase in point, as ICT transformed integratedsupply chains and distribution networks.37Return of the SkepticsProductivity growth decelerated againstarting in 2005. Predictably, this sparkedanother wave of dismissive skepticism. Theway we interact and communicate has beenfurther transformed with smartphones andtablets and with the flourishing of socialmedia, which have been quickly mirrored incommercial applications.But as productivity growth declined, ithas become tempting to dismiss theseinnovations as mere entertainment and sillygames. Martin Wolf, the Financial Times’economics editor, put it most effectively:“Today’s information age is full of sound andfury signifying little.” 38The global financial crisis and ensuing GreatRecession have also affected the mood andmuddied the waters. The criticism of thelatest wave of ICT innovation echoes thatof the market economy. The refrain that allthese innovations, however superficiallyimpressive they might be, will not have animpact on living standards, meshes wellwith the doom and gloom that too oftendominates the headlines in economic andfinancial reporting. Moreover, the deep2008-09 recession and the weak recovery,as well as the dramatic reduction inemployment levels, make it impossible todraw any meaningful conclusions from theswings in productivity growth rates of thelast few years (labor productivity growthaccelerated sharply in 2009-10 and thencollapsed in 2011).Robert Solow’s premature disappointmentshould counsel caution, but it has become1950-1968 1969-1995 1996-2004 2005-2011(%) AverageLaborProductivityFigure 11. The US Productivity Decline and Rebound3.1%2.9%1.6%3.5%3.0%2.5%2.0%1.5%1.0%0.5%0%ProductivitySlowdownProductivityReboundtoo tempting to conclude that theproductivity revival of 1996-2004 was justa blip.In a recent paper, Prof. Robert Gordon ofNorthwestern University, who has publishedextensively on productivity and economicgrowth, argues that the innovations ofthe Internet Revolution are simply not astransformative as those of the IndustrialRevolution. In an explicitly provocativeargument, he posits that some of the keychanges brought about by the IndustrialRevolution are simply of a once-and-for-all kind: the speed of air travel is no higherthan in the late 1950’s, and the scope forurbanization in the US has been exhausted.Industrial Internet:Here Comes the Next WaveThe Industrial Revolution unfolded over aperiod of 150 years, with some of the mostpowerful innovations materializing at thetail end. Even if we place the dawn of theInternet Revolution in the 1950’s, it mightwell be too early to conclude that it has nodurable economic impact.In fact, we believe that the second, mostpowerful and disruptive wave of the InternetRevolution is arriving now: it is the IndustrialInternet. And the Industrial Internet isvested in productivity. Earlier in the paperwe have argued that the Industrial Internetis poised to directly impact a very largeportion of the global economy. And wehave discussed some concrete and detailedexamples of how the Industrial Internet willyield substantial efficiency gains and costsavings in a number of key sectors of theeconomy, from health care to aviation, fromtransportation to energy.Nothing like this has been seen before. TheIndustrial Internet promises to optimize thespeed of improvement of operation in a vastrange of economic activities. The speed atwhich the Industrial Internet will spread willlikely be boosted by a cost-deflation trendvery similar to that which characterizedthe adoption of ICT equipment: cloudcomputing now allows us to analyze muchlarger amounts of data, and at lower cost,than was ever possible. The price of dataprocessing is declining, helping to unlock theproductivity gains.Similarly, the mobile revolution willaccelerate this deflation trend, makingit more affordable to efficiently shareSource: United States Department of Labor, Bureau of Labor Statistics, Labor Productivity and Costs Database,Annual Data, November 2012. http://www.bls.gov/lpc/
28information, leading to decentralizedoptimization and personalized optimization.Remote monitoring and control of industrialfacilities, distributed power, personalized andportable medicine are just some of the mostpowerful examples.How Much of a Difference Would it Make?Forecasting productivity growth is achallenging exercise, subject to a widemargin of uncertainty. Nonetheless, ouranalysis of the Industrial Internet’s potentialimpact in a number of key sectors suggeststhat its productivity-boosting potentialshould be at least comparable to that of thefirst wave of the Internet Revolution.The Industrial Internet is not just “Industrial.”This is a crucial point. We have dubbedthis second wave of the Internet Revolutionthe “Industrial Internet” because itskey distinctive feature is the way thatintelligence is embodied in machines anddevices, and these are produced in theindustrial sector. But as was the case in thefirst ICT wave, many service sectors areamong the heaviest adopters of the newtechnology. Health care and transportationare just two examples of services that willbenefit heavily from the Industrial Internet,and that we have seen earlier. This is a keymultiplier: remember that services accountfor nearly 80 percent of US GDP.How much of a difference could theIndustrial Internet make to productivitygrowth? If its potential impact is at leastas strong as that of the first wave ofthe Internet Revolution, it would not beunreasonable to expect that it would boostproductivity growth to the levels prevailingduring the 1996-2004 period, when laborproductivity growth averaged 3.1 percent.And much as was the case with theIndustrial Revolution, we would expect thisimpact to be quite long-lived.To get a sense of what this could mean,consider the following simple example.Assume that the productivity boost lastsuntil 2030, which would be a bit less thantwice the duration of the first ICT boost.Assume for simplicity that the fasterproductivity growth is entirely reflected inhigher per capita income growth. Per capitaGDP in the US is currently about $50,000. Ifbetween now and 2030 per capita incomeswere to rise at 3.1 percent rather than atthe 1.6 percent annual productivity growththat prevailed in the quarter century to1995, this would translate in an incomegain of $20,000 measured in today’s dollars.In other words, the faster productivitygrowth would be worth about 40 percent oftoday’s average GDP.To take a more conservative assumption,let’s assume that productivity growth wouldaccelerate by just one percentage point,to only 2.6 percent, that is below the rateprevailing during the Industrial Revolution-driven boom of 1950-68. This would stilldeliver an average income gain of $13,000,or one-quarter of today’s per capita GDP.It is the magic of compounding at work:growing at just 1.6 percent per year, ittakes 44 years for incomes to double;$86,500$79,500$63,800$61,400$56,800$66,5002012 2020 2030Low productivity (1.6%)Medium productivity (2.6%)High productivity (3.1%)Figure 12: Potential Change in US GDP Per Capita$50,000at 3.1 percent per year, it takes just 23years. In other words, at the faster rateincomes would double in the space of onegeneration, whereas at the slower rate ittakes two generations.There is of course a large margin ofuncertainty in these estimates. For theproductivity gains to be translated one-for-one in faster GDP growth, we would needfor example to see the factors of production,labor and capital, accumulating at thesame pace as they would without theseinnovations taking place. A reduction in thelabor force, for example, would offset someof the impact of faster productivity growth.We would expect that investment wouldproceed at least at the same pace as in ano-innovation scenario: the higher returnon investment promised by new generationequipment will constitute a powerfulincentive to renew the capital stock. Indeed,investment is going to be a key conditionand enabler for innovation to take hold—as was the case for the first wave of theinternet revolution.But what about labor? Will a further waveof productivity-enhancing innovationdestroy jobs? In the current situation ofalready excessively high unemploymentin the US and other advanced economies,this is a crucial issue. There is no doubtthat further innovation will make some jobsunnecessary—for example to the extentthat some processes can be automated.But as some of the old jobs are no longernecessary, new, better jobs will be created.As we discuss below, the development ofthe Industrial Internet will require a largenumber of workers skilled in analyticsand engineering, among other things. Theeducation system will need to adapt, andits alignment with industry will need toimprove—it will be essential to ensure thatthe supply of new skills keeps pace withdemand. But if we can do that, the creationof new professional profiles together withfaster economic growth will lead to moreand better jobs.Note: Nominal US Dollars Source: IMF World Economic Outlook Database, October 2012; GE projections.
29Industrial Internet and AdvancedManufacturingThere is more. While its benefits wouldreverberate throughout the economy, theinitial impact of the Industrial Internet islikely to be felt especially strongly in the areaof advanced manufacturing.39The sharp rise in US unemployment duringthe Great Recession, and its persistenceat very high levels since then, haveintensified the debate on the importanceof manufacturing versus services. While athorough analysis lies outside the scopeof this study, it is worth highlighting afew observations:• A shift from manufacturing towardsservices is a commonly observed feature ofeconomic development; in most advancedeconomies, services account for by far thelargest share of GDP and employment. Forexample, services account for close to 80percent of the economy (measured in termsof gross value added) in the US, the UK andAustralia; 73 percent in the European Union,and 72 percent in Japan.• Whether this shift in the US may havegone too far, however, is a legitimatequestion. Professors Spence andHlatshwayo40show that all the additionaljobs created by the US economy between1990 and 2008 (about 27 million) were inthe non-tradable sector, that is largely inservices. Two-thirds of these additional jobswere created in five sectors: government,health care, retail, accommodation andfood services, and construction. Spenceand Hlatshwayo argue persuasively thatthe pace of job creation in these sectorsgoing forward is unlikely to match that ofthe past three decades. A much higherpublic debt, escalating health care costs,and a real estate sector still recoveringfrom an unprecedented bubble constitutepowerful headwinds.• Manufacturing might therefore needto play a stronger role if US employmentis to go back to the pre-crisis levels. Andto be consistent with a sustained rise inwages and living standards, a revival ofmanufacturing in an advanced economyneeds to be driven by higher productivitygrowth. The discovery of lower cost energysources like shale gas might give animportant boost to the competitiveness ofthe US as a manufacturing base, but theIndustrial Internet could prove an equally, ifnot more powerful engine of transformation.Impact on the Global EconomyThe discussion so far has focused mostlyon the US. There is a simple reason for this.Since the US is currently the mostadvanced economy, at the frontierof productivity41, it is in the US thattechnological innovation has to play the keyrole in pushing the boundary.But once the frontier has been movedoutwards, everybody—in principle—canreach it.The first wave of the Internet Revolutionagain provides a useful benchmark: after1995, ICT investment surged not just in theUS, but across the world, with advancedeconomies and emerging Asia in the lead.Jorgenson and Vu estimate that after 1995the contribution of ICT investment to growthroughly doubled in emerging Asia, LatinAmerica, Eastern Europe, Middle East andNorth Africa, and Sub-Sahara Africa.42This surge in ICT investment globally wasaccompanied by a marked acceleration inworld growth, by nearly one percentage point.How quickly the benefits of the IndustrialInternet can be leveraged across theglobal economy will depend on the speedof adoption of the new technologies. Andsince emerging markets have alreadygrown to account for about one half of theglobal economy, the speed at which theywill adopt the new technology will mattermuch more than it did during the Internet0 $10,000 $30,000 $50,000 $70,000 $90,000 $110,000Billions2005 $GDP in 2030 2030 Industrial Internet2030 BaselineAsiaPacific + $4.2TWorld + $15.3TNorthAmerica + $6.5TEurope + $2.8TAfrica andMiddle East + $0.8TLatinAmerica + $0.9TFigure 13. Benefits of Industrial Internet Diffusion to World EconomyRevolution, and incomparably more than inthe Industrial Revolution.A positive factor in this respect is thatemerging markets still have enormous needto increase infrastructure investment, apriority for generating rapidly rising levelsof production and incomes. If emergingmarkets could this time around prove tobe early adopters of the new technologies,rather than late adopters, the IndustrialInternet Revolution could have a much morepowerful and rapid impact on the entireglobal economy. Its impact in alleviating theconstraints in sustainable global growth,for example in terms of commoditiesconsumption and environmental impact,would be that much more significant.A simple simulation exercise is useful togive a sense of the potential impact on theglobal economy. Assume that the IndustrialInternet can boost US labor productivitygrowth back to the 3.1 percent whichprevailed during the Internet boom. Supposethat, via investment embodying the newtechnologies, the rest of the world is ableto generate just half the productivity gainsof the US. This would be 0.75 percentagepoint higher than in a baseline where theIndustrial Internet has no impact. If theseproductivity gains are sustained through2030, they would add about $15 trillion toglobal GDP over the period (in constant2005 dollars). In other words, the fasterproductivity growth would translate inadditional GDP creation equivalent to theSource: GE projections.
30size of today’s US economy. Per capitaincomes would benefit correspondingly,and by 2030 per capita GDP in the worldeconomy would be nearly one-fifth higherthan in a baseline without IndustrialInternet impulse.Alternatively, consider the more conservativescenario discussed above, where USproductivity growth accelerates by only onepercentage point to 2.6 percent, and assumeagain that the rest of the world can generatehalf of these productivity gains, that is a 0.5percentage point acceleration in productivitygrowth. This would still add about $10T toglobal GDP over the same horizon.Role of Business Practices and theBusiness EnvironmentThe speed at which the benefits of theIndustrial Internet can feed through theglobal economy will also depend on firms’ability to incorporate them in their businessprocesses; and this in turn will also dependon the business environment and theeconomic policies that help shape it.The benefits of the Industrial Internet derivenot just from the greater efficiency ofcapital equipment, from the ability to pushmachines and devices to their technicallimits. They derive also from the ability tooptimize operations, and to optimize thespeed of improvement of operations.This requires changes in business practicesto go hand in hand with the technicalinnovation. MIT’s Brynjolfsson hashighlighted the role of data-driven decisionmaking (DDD), and showed that firms thatadopt DDD can reap gains of 5-6 percenthigher productivity compared with firms thatdo not.43The benefits, therefore, are as substantialat the level of the individual firm as atthe level of the entire economy. But theyneed the right conditions to thrive. Wenoted above that after 1995, investmentin ICT surged across the world, withadvanced economies in the lead. Butwhile productivity growth acceleratedsignificantly in the US, it decelerated justas significantly in Europe (by almost a fullpercentage point).44This divergent trend inproductivity has been the object of intenseacademic study and debate.Management practices and business processseem to play an important role: a recentstudy by Bloom, Sadun and Van Reenen findsevidence that US multinationals operating inEurope experience higher productivity gainsthan non-US multinationals, and tend to bemore ICT-intensive.45The authors point tothe fact that US multinationals also scorebetter on “people management practices,”i.e. in a more efficient use of hiring, firingand promotions. New and disruptivetechnologies require quick and significantchanges in work and managementpractices, and these are best achievedthrough a more nimble management of afirm’s human capital.The external environment mattersenormously in this respect. Rigid labormarkets, for example, with more draconianrestrictions on hiring and firing, willinevitably hamstring a company’s humanresources management strategy. InEurope, labor market rigidities have gonehand in hand with weaker productivity andlosses in international competitiveness,contributing in no small part to thepredicament currently faced by high-debtEurozone members.Similarly, restrictions in product andservices markets can hamper thetransformational potential of newtechnologies. We have seen earlier that alarge part of the surge in US productivitycame via the services sector. Similar gainsin productivity growth in services tookplace in Canada, Australia, the UK and theNetherlands. But in much of continentalEurope, labor productivity growth during1995-2004 was less than one-third that ofthe US.46
31The realization of the Industrial Internet isnot a foregone conclusion. Key enablers,catalysts and supporting conditions will beneeded for meshing the physical world ofmachines with the digital world of dataand analytics to reach its full potential.Some of the most important elementswill clearly be continued progress acrossinnovation, and vigorous cyber securitymanagement, enabling infrastructure andnew talent development.InnovationThe Industrial Internet is the outcome ofinnovations already underway, some ofwhich are innovations of technology, andothers are innovations of systems,networks, and processes. Although thespecific innovations that will be neededare yet unknown, it is clear thatcollectively they represent a set of vitalcatalysts and enablers.Below are some high-level innovationcategories necessary for development of theIndustrial Internet:Equipment: Integration and deploymentof sensors into the design of new industrialequipment, as well as solutions forretrofitting existing equipment; hardwareneeded for efficient collection and fastertransmission of information, etc.advanced analytics: New datastandards to enable deeper integrationof data from similar assets from differentOriginal Equipment Manufacturers(OEM) or from different asset categories;technical architecture that enables fastertransformation of data into informationassets, ready for integration andanalysis, etc.System platforms: Beyond technicalstandards and protocols, new platforms thatenable firms to build specific applicationsupon a shared framework/architecture; newrelationships between suppliers, OEMs, andcustomers that support the sustainability ofthe platformBusiness processes: New businesspractices that fully integrate machineinformation into decision-making; processesfor monitoring machine data quality;advances in legal processes that enablefaster and more flexible arrangementsbetween collaborating firms, etc.VI. Enablers, Catalysts and ConditionsInnovations like these will require investmenton the part of firms, industry groups,governments, and educational institutions.Each of them has something to gain fromthe investments – industry wants sales andcustomer relationships, governments wantto capture employment and tax revenuebut are also interested in efficiency gainsfor their own operations, while educationalinstitutions will seek to attract studentsand funding by taking on some of thecomplex challenges in this evolving space.Fortunately, their investment horizonswill be somewhat different, which has thepotential to create a healthy diversificationof innovation efforts.In addition to innovations, there is existingtechnology that will need to achieve greaterlevels of penetration and deployment, suchas in sensors and monitors – technology thatalready exists today.InfrastructureThe Industrial Internet will require anadequate backbone. Data centers,broadband spectrum, and fiber networksare all components of the ICT infrastructurethat will need to be further developed toconnect the various machines, systems, andnetworks across industries and geographies.This will require a combination of inter- andintra- state infrastructure order to supportthe significant growth in data flows involvedwith the Industrial Internet.The growing demand for data centersprovides an example of the scale of thechallenge. The majority of the data centersthat will be processing data around theworld in 2025 have not yet been built. A keyreason is the demand for data processingis currently more than doubling everytwo years and will increase 20 times by2020.47If this trend continues then we canexpect a 40x increase in data processingdemand by 2025. While more modulardesigns and efficiency improvements arereducing the amount of energy requiredto run data centers, the demand for highquality electricity is expected to increasesignificantly. Today, the world’s data centersconsume approximately 130 GWh per yearof electricity. This is equivalent to 2.6 timesthe amount used by New York City, one ofthe world’s largest megacities. By 2025 theamount of power required by data centers31
32will grow to the equivalent of between 9 to14 megacities. This will require significantgrowth in the capital expendituresassociated with data centers. By 2015,global capital spending is likely to approach$100 billion and will double again to over$200 billion a year by 2025.48The future ofefficient, clean, and resilient data centersobviously has important implications for theIndustrial Internet.Cyber Security ManagementAttaining the vision set forth for theIndustrial Internet will require an effectiveinternet security regime. Cyber securityshould be considered in terms of bothnetwork security (a defense strategy specificto the cloud) and the security of cutting-edgedevices that are connected to the network.Maintaining a protected IT infrastructureis a vital requirement. Security processesand controls should be designed to havemultiple layers of defense. According toBarry Hensley, Director of Counter ThreatUnit/Research Group for Dell SecureWorks,“Security processes and controls shouldinclude vulnerability lifecycle management,endpoint protection, intrusion detection/prevention systems, firewalls, loggingvisibility, network visibility, and securitytraining.”49Defense strategies need to spanevery layer, starting from the network downto the user.Protection of sensitive and valuableinformation is at the forefront of securitymanagement. It is essential to developand maintain network trust, in both business-to-business and business-to-consumersettings. Information security and privacyare the backbone of building this trust.Measures to ensure the security of restricteddata, including intellectual property,proprietary information, and personallyidentifiable information (PII) are critical.Measures include encrypting data on devicesas well as encrypting the transmission ofsuch data to the cloud. Some of these dataprotection measures are already beingimplemented at the enterprise level, thusfacilitating its expansion/deployment to theindustrial network.Expansion of the Industrial Internetwill require all stakeholders to becomeproactive participants in securitymanagement. Every actor has a role to playin promoting cyber security. The followingare some potential responsibilities:Technology Vendors: The focus will beon supply chain security, as well as productdesign and product performance. Products(devices and software) should containembedded security features to maximize thelayers of defense against cyber threats.Asset Owners/Operators: Thepriority will be on securing facilities andnetworks. Cooperation with regulators,law enforcement, and the intelligencecommunity can help improve the visibilityof evolving threats. Courses of actioninclude sharing threat information andmitigation efforts.Regulators/Policymakers: An effectivecyber security regulatory regime shouldpromote innovation, encourage theeducation of all stakeholders, and supportthe development of a capable workforce.To build a stable foundation, governmentshould pursue the development and broadadoption of voluntary industry standardsand best practices for cyber security. Thereneeds to be industry-based performanceand technical standards that encourage a“culture of security.” Ideally, standards anddata privacy policies would be consistentacross states and countries. Currently thereare several standards bodies, but they arefragmented. The promotion and adoption ofcommon and consistent standards on datastructure, encryption, transfer mechanisms,and the proper use of data will go a longway in advancing cyber security.International Institutions: Althoughcountries will develop national guidelines,the development of international norms andstandards will also be required. The focusshould be on developing norms related to IPprotection and international data flows (e.g.server localization requirements), as well asthe “weaponization” of the internet.Academia: Further research on datasecurity and privacy should be pursued,including research on enhancing IT securitymetrology, inferencing concerns with non-sensitive data, and legal foundations forprivacy in data aggregation.50The pursuit of a cohesive cyber securitystrategy will minimize the risks andenable society to take advantage of theopportunities associated with theIndustrial Internet.Talent DevelopmentInnovation doesn’t exist without specializedtalent. The rise of the Industrial Internet willrequire new talent pools to be created andgrown. Beyond the obvious technical skills inmechanical or electrical engineering, therewill be need for a wave of new technical,
33analytical, and leadership roles that areexplicitly cross-discipline. Like the “datascientist” today, a role emerges in nameand is populated by those who are alreadypracticing in it. Over time it gains clarity,partly through self-definition by the initialtalent pool, and sets of loosely acceptedpractices are developed.The following are sets of various jobcategories that will be needed to drive theIndustrial Internet:Next gen engineering: There will be agrowing need for variety of cross-cuttingroles that blend traditional engineeringdisciplines such as mechanical engineeringwith information and computingcompetencies to create what might becalled “digital-mechanical” engineers.Data scientists: Will create the analyticsplatforms and algorithms, software,and cyber security engineers, includingstatistics, data engineering, patternrecognition and learning, advancedcomputing, uncertainty modeling, datamanagement, and visualization.User interface experts: Industrial designfield of human–machine interaction, toeffectively blend the hardware and softwarecomponents required to support minimalinput to achieve the desired output; andalso that the machine minimizes undesiredoutput to the human.Where will this talent come from? Thereare shortages today in many of thepotential foundational capabilities inmany geographic regions: cyber security,software engineers, analytics professionals,among others. Talent markets shouldeventually realign but firms will probablyneed to create a talent pool of their ownby drawing upon their most versatile (andadventurous) employees. Labor marketsthat are more “sticky” either from culture orregulation will be less able to adapt to meetthese new demands.Other alternatives for sourcing cross-discipline talent might include developingthe existing resources in the native domainthrough collaborative approaches. Insteadof building or buying talent that has multipleskills, create environments that acceleratethe ability of people with different skills tointeract and innovate together. On a largerscale, approaches such as crowdsourcingmight be able to close some of thecapabilities gaps that are sure to occur.The changes required upstream in theeducational system will need to be driventhrough stronger collaboration betweenfirms and universities. There is a great needfor educational programs to be developedto formalize the knowledge foundationsthat “data talent” will require. Today, thepeople that manage big data systemsor perform advanced analytics havedeveloped unique talents through self-driven specialization, rather than throughany programs that build a standard setof skills or principles. Co-development ofcurriculum, integration of academic staffinto industry, and other approaches will beneeded to ensure that the talent needs ofthe Industrial Internet do not outpace theeducational system. Some programs havealready started to emerge in this area, butmany more will be needed.Crafting and promoting the vision ofthe Industrial Internet, its value andapplications, is ultimately a leadershiprole. These visionaries will need supportfrom company leadership to sustain theinvestments through business cyclesand through the peaks and troughs ofspecific industries. Innovation requiresrisk tolerance, and many of aspectsof the Industrial Internet may stretchfirms beyond their comfort zone andinto new partnerships. Firms will need anew generation of leaders that can formand execute on the vision, and build theorganizations, culture, and talent thatit requires.In summary, the growth of the IndustrialInternet will rest on important key enablers,catalysts and supporting conditions. Keyamong these are continued dynamicinnovation, an effective internet securityregime; supporting IT infrastructure andthe right talent, skills and expertise.There is a greatneed for educationalprograms to bedeveloped to formalizethe knowledgefoundations that “datatalent” will require.
34The long cycles of innovation and evolution within the economyand society that have occurred are reasonably well understood.When new technologies are brought forward and adopted at scale,tremendous waves of transformation and disruption are unleashed.This transformative cycle is a happening again as traditionalindustrial systems integrate intelligent technologies, not only layeredon the periphery of an industrial system, but within the designs andfunctions of a new generation of machines. While still early in theprocess, the meshing of the industrial world with the internet andassociated technologies could be as transformative as previoushistorical waves of innovation and change.The scope for transformation is tremendous. The potential impactof Industrial Internet technologies spans almost half of the globaleconomy and more than half of the world’s energy flows. In ahost of industries, linking intelligent devices, facilities, fleets andnetworks with people at work and on the move will offer newpossibilities in process optimization, increased productivity, andefficiency. Early adopters have charted some of the paths forward,laying the groundwork of the Industrial Internet. Going forward,broader adoption of Industrial Internet technologies are expectedto drive deeper beneficial changes in industry cost structures. Thiswill alter the competitive balance and force rapid adoption by therest of the industry to survive. This clearly will happen at a differentpace in different industries, but as adoption increases the impactwill be felt more broadly across the economy.The compounding effects of even relatively small changes inefficiency across industries of massive global scale should notbe ignored. As we have noted, even a one percent reduction incosts can lead to significant dollar savings when rolled up acrossindustries and geographies. If the cost savings and efficiency gainsof the Industrial Internet can boost US productivity growth by1-1.5 percentage points, the benefit in terms of economic growthcould be substantial, potentially translating to a gain of 25-40percent of current per capita GDP. The Internet Revolution boostedproductivity growth by 1.5 percentage points for a decade—giventhe evidence detailed in this paper, we believe the IndustrialInternet has the potential to deliver similar gains, and over alonger period.While the US is currently pushing the technological frontier inrelative terms, the benefits of the Industrial Internet will be feltacross the world. Emerging markets still have enormous need toincrease infrastructure investment, a priority for generatingrapidly rising levels of production and incomes. If they becomeearly adopters of the new technologies, the Industrial Internetrevolution will have a powerful impact on the global economy.If the US can secure a 1.5 percentage points acceleration inproductivity growth, and the rest of the world achieves just halfthat increase, within the next twenty years the Industrial Internetwill have added to the global economy an additional $15 trillion–about the size of the US economy today – and boosted world percapita GDP by nearly one fifth.In a context where the largest advanced economies struggle withdisappointing economic growth, resulting in high unemploymentand disappointing income dynamics, the benefits of such anacceleration in productivity and growth would be enormous.Moreover, the Industrial Internet would play a substantial rolein alleviating the constraints to strong and sustainable globalgrowth, in terms of commodities consumption and reducedenvironmental impact.Innovation has always been the single most powerful ingredientto help us create more with less, to ease constraints, to generateimproving living standards for larger and larger numbers of people.The Industrial Internet holds the potential to drive the next wave ofinnovation for the world by pushing even further the boundaries ofminds and machines.VII. Conclusion
35VIII. Endnotes1Jan Luiten Van Zanden, The Long Road to the Industrial Revolution, (Leiden: The Netherlands: Koninklike Brill, 2009).2For an excellent overview see Robert Gordon, Is US economic growth over? Faltering innovation confronts the sixheadwinds, (CEPR Policy Insight nr. 63, September 2012).3See Chris Freeman and Francisco Louca, As Time Goes By: From the Industrial Revolutions to the Information Revolution(Oxford University Press: New York, 2010).4Johnny Ryan, A History of the Internet and the Digital Future (London: Reaktion Books, 2010), p. 125.5Ryan, p. 82.6The Associated Press, “Number of active users at Facebook over the years,” October 23, 2012; The Wall Street Journal,“Facebook: One Billion and Counting,” October 4, 2012; Facebook, One Billion – key metrics, http://newsroom.fb.com/News/One-Billion-People-on-Facebook-1c9.aspx.7Industry sectors discussed here correspond to the international standard industrial classification (ISIC) divisions 10-45 andinclude manufacturing (ISIC divisions 15-37). It comprises value-added in mining, manufacturing, construction, electricity,water, and oil and gas. Manufacturing refers to industries belonging to ISIC divisions 15-37. In North America (US, Canada,Mexico), the more detailed North American Industry Classification System (NAICS) is the standard used by Federal statisticalagencies. For the NAICS, the industrial sector is defined as the (21-23) and (31-33) groupings at the two-digit level. Bothsystems are generally comparable at the most aggregate reporting levels.8The economic share calculations are developed by multiplying the most recent percentage shares of GDP at the countrylevel to the 2011 nominal GDP statistics provided by the World Bank.9The transport sector defined here aligns with ICIS Division I - Transport, storage and communications. Health servicesaligns with ICIS Division N- Health and social work.10GE estimate based on August 2012 forecast in current dollars.11Statistics in this section are GE estimates based on BP Statistical Review of World Energy 2012, International EnergyAgency (IEA), and internal GE analysis except as noted.12IEA (2009) Energy Technology Transitions for Energy: Strategies for the Next Industrial Revolution.13Boeing Commercial Airplane Statistical Summary, July 2012, http://www.boeing.com/news/techissues/pdf/statsum.pdf14General Aviation Manufacturers Association, 2011 Statistical Databook and Industry Outlook, http://www.gama.aero/files/GAMA_DATABOOK_2011_web_0.pdf15Platts UDI Database, June 201216GE Strategy and Analytics power generation outlook 2012.17Oil and Gas Journal refinery survey (December 5, 2011), http://www.ogj.com/ogj-survey-downloads.html.18GE estimate based on Oil and Gas Journal Nov 5, 2012 world-wide construction survey 2012 which shows more than 130new refinery projects and expansion to existing refineries.19International Air Transport Association (IATA) Vision 2050 2011. http://www.iata.org/pressroom/facts_figures/Documents/vision-2050.pdf20International Air Transport Association (IATA) Annual Report 2011 and September 2012 Industry outlook presentation.21Federal Aviation Administration (FAA). Estimation of NAS inefficiencies. 2006. Includes estimates of potential fuel savingsfrom better flight planning and operations along with other operational changes. This supports the assumption that 5percent in fuel savings is possible.22Idem IATA Vision 205023IATA, Airline Maintenance Cost Executive Commentary, January 2011, http://www.iata.org/workgroups/Documents/MCTF/AMC_ExecComment_FY09.pdf24Sources: GE Transportation, Transport Expenditures United Nations Statistics Division, MIT Research: Commoditization of3rd party logistics.Journal of Commerce: http://www.joc.com/logistics-gdp-and-rising-costs.25GE Strategy and Analytics calculations based on country-level generator gas demand estimates derived from historicdata sources including International Energy Agency (IEA), and the BP Statistical Energy report, EIA..26GE Strategy and Analytics estimates based on country level natural price estimates multiplied by power sector gasdemand estimates.27Maugeri, Leonardo. “Oil: The Next Revolution” Discussion Paper 2012-10, Belfer Center for Science and InternationalAffairs, Harvard Kennedy School, June 2012. http://belfercenter.ksg.harvard.edu/files/Oil-%20The%20Next%20Revolution.
36pdf28See the Digital Oil Field: Oil and Gas Investor Supplement April 2004 for an early discussion of the potential of theIndustrial Internet. http://www.oilandgasinvestor.com/pdf/DOF0404.pdf29Ibid Digital Oil Field: page 3.30Biofuels and use of natural gas liquids account for the differences in crude oil production and global oil productconsumption of about 88 million barrels per day. Source: BP Statistical Review of World Energy June 201231Barclay’s Equity Research Global E&P capital spending update May 2012.32GE Oil and Gas estimate based on internal project tracking supplemented by external sources like Barclays, PetroleumFinance Consultants (PFC) and Rystad Consulting.33PricewaterhouseCoopers Health Research Institute (2010)34Ibid.35Intel’s co-founder Robert E. Moore observed in 1965 that the number of transistors in integrated circuits doubledapproximately every two years. He predicted the trend would last at least another ten years—in retrospect, “at least” was acrucial qualifier.36Kevin Stiroh, Information Technology and the US Productivity Revival: What Do the Industry Data Say? (Staff Report,Federal Reserve Bank of New York, nr. 116, January 2001).37Barry Bosworth and Jack Triplett, Productivity Measurement Issues in Services Industries: “Baumol’s Disease” Has BeenCured, (Federal Reserve Bank of New York Economic Policy Review, September 2003); and Barry Bosworth and Jack Triplett,Services Productivity in the United States, (Hard-to-measure goods and services: Essays in Honor of Zvi Griliches, Universityof Chicago Press, 2007).38Martin Wolf, Is the age of unlimited growth over? Financial Times, 03 October 2012.39For a detailed discussion of the possible definitions of advanced manufacturing, see Science and Technology PolicyInstitute (2010) and references therein.40Michael Spence and Sandile Hlatshwayo, The evolving structure of the American economy and the employmentchallenge, (Council on Foreign Relations Working Paper, March 2011).41Gordon (2012)42Dale W. Jorgenson and Khuong M. Vu, Potential growth of the world economy, (Journal of Policy Modeling, Vol. 32, nr. 5, 2010).43Erik Brynjolfsson, Lorin M. , Hitt and Heekyung Hellen Kim, Strength in numbers: How does data-driven decision makingaffect firm performance?, (ICIS Proceedings, Paper 13, 2011).44Bart Van Ark, Mary O’Mahony and Marcel P. Timmer , The productivity gap between Europe and the United States: Trendsand causes, (Journal of Economic Perspectives Vol. 22, nr. 1, 2008)45Nicholas Bloom, Raffaella Sadun and John Van Reenen, Americans do it better: US multinationals and the productivitymiracle, (American Economic Review nr. 102, 2012)46Van Ark, O’Mahony and Timmer (2008)47Ganz, John; Reinsel, David; The 2011 Digital Universe Study: Extracting Value from Chaos, IDC: Sponsored by EMCCorporation, 2011.48Forecast by GE Energy, Global Strategy and Planning, 2012. Note that this is the cost of the building infrastructure andmechanical and electrical equipment but does not include the cost of the servers.49GTCSS2011, Emerging Cyber Threats Report 2012 http://www.gtisc.gatech.edu/doc/emerging_cyber_threats_report2012.pdf50National Institute of Science and Technology. http://csrc.nist.gov/groups/SMA/forum/documents/june2012presentations/fcsm_june2012_cooper_mell.pdfEndnotes (Cont.)
37AcknowledgementsWe would like to thank the many contributors to this paper. In particu-lar, we would like to extend our appreciation to Michael Farina, BrandonOwens, Shlomi Kramer, JP Soltesz, Matthew Stein, Niloy Sanyal, NicholasGarbis, Alicia Aponte, and Georges Sassine.Author BiosPeter C. Evans is Director of Global Strategy and Analytics at GeneralElectric Co. and served for five years as the head of Global Strategy andPlanning at GE Energy. Prior to joining GE, he was Director, Global Oil,and Research Director of the Global Energy Forum at Cambridge EnergyResearch Associates (CERA). He also worked as an independent consul-tant for a variety of corporate and government clients, including the USDepartment of Energy, the Organization for Economic Cooperation andDevelopment (OECD), and the World Bank. Dr. Evans has extensive in-ternational energy experience, including two years as a Visiting Scholarat the Central Research Institute for the Electric Power Industry in Tokyo,Japan. He is a lifetime member of the Council on Foreign Relations anda Board Member of the National Association for Business Economics.Dr. Evans holds a BA degree from Hampshire College and a Master’sdegree and PhD from the Massachusetts Institute of Technology.Marco Annunziata is Chief Economist and Executive Director of GlobalMarket Insight at General Electric Co. He is the author of “The Econom-ics of the Financial Crisis,” published by Palgrave MacMillan, and two-time winner of the Rybczynski Prize for best paper in business econom-ics, awarded by the Society of Business Economists in London. Beforejoining GE in 2010, Dr. Annunziata was Chief Economist at Unicredit,Chief Economist for the Eastern Europe, Middle East and Africa region atDeutsche Bank, and spent six years at the International Monetary Fund,working on both emerging and advanced economies. Dr. Annunziataholds a BA degree in Economics from the University of Bologna and aPhD in Economics from Princeton University.