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Growth Game Changer
The document discusses how countries can maximize economic growth through adoption of the Industrial Internet of Things (IIoT). It finds that IIoT could add $10.6 trillion to global GDP by 2030 under current conditions, and $14.2 trillion with additional investment and policy support. Countries' ability to "absorb" IIoT innovations, known as national absorptive capacity (NAC), will influence their economic gains. The document provides recommendations for countries to strengthen NAC and fully realize IIoT's growth potential.
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Growth Game Changer
- 1. The Growth Game-Changer: Howthe Industrial Internet of Things can drive progress and prosperity January 2015
- 2. Contents Seizing the TrillionDollar Opportunity The Challenge of Economic Diffusion Driving Economic Diffusion Five Ways to Win Copyright © 2015 Accenture All rights reserved. 2
- 3. In the shiftfrom an industrial to a digital economy, many countries are targeting the Industrial Internet of Things (IIoT) as a means to deliver faster growth. But without establishing the right enabling conditions, they will not fully capture the opportunity. To make this happen, countries need to understand their “national absorptive capacity” (NAC)—their ability to weave innovations into their economic and social fabric— and how that influences their ability to grow. How can countries get started? • Accenture analyzed 20 countries to identify their NACs and how NACs affect IIoT economic potential • Economic modeling revealed US$10.6 trillion in additional GDP by 2030 for the 20 nations as a result of the IIoT • …and that’s just based on today’s investment and policy trends With additional investment and intervention… • US$3.6 trillion could be added to that total! How can policy and business leaders capture these enormous benefits? THE BIG IDEA Copyright © 2015 Accenture All rights reserved. 3
- 4. Seizing the Trillion Dollar Opportunity Copyright© 2015 Accenture All rights reserved. 4
- 5. In the shiftfrom an industrial to a digital economy, countries are targeting the Industrial Internet of Things as a means to deliver faster growth David Cameron, 2014 The UK and Germany could find themselves on the forefront of a new industrial revolution.” IoT has the potential to enhance Europe's competitiveness and will be an important driver for the development of an information based economy and society.” European Research Cluster on the IoT, 2013 The Internet of Things can lead to a rebirth of manufacturing in the US.” Michael Mandel, Progressive Policy Institute, 2013 2/3 Accenture survey, 2014 business leaders believe the IIoT will lead to long-term job growth. CNN, 2012 US$800M Accenture survey, 2014 87% Copyright © 2015 Accenture All rights reserved. 5 Chinese government investment into IIoT by 2015. business leaders said the IIoT would offer emerging markets the ability to leapfrog developed economies.
- 6. What is theIndustrial Internet of Things (IIoT)? The IIoT is the industrial application of a network of physical objects that contain embedded technology to communicate and sense or interact with their internal states or the external environment. Business Impact Consumer Impact Public Sector Impact More control over life, leisure, and health Greater efficiency in business processes Productivity and innovation in public delivery systems Copyright © 2015 Accenture All rights reserved. 6
- 7. How can theIIoT deliver faster growth? The IIoT’s national impact will be felt in a number of ways. But not all of them will show up in formal GDP measures. Greater productivity New market opportunities Faster cycles of innovation Improved quality of life Copyright © 2015 Accenture All rights reserved. 7
- 8. Current Conditions ImprovedConditions Our analysis shows that the IIoT could be worth US$14.2 trillion in the next 15 years Forecasts show sizeable potential gains We evaluated 20 leading mature and emerging economies…….. 1.5% 0.2% US$10.6 tn 50% Improvement in enabling factors US$3.6 tn Lift in GDP in mature markets in 2030 Lift in GDP in emerging markets in 2030 Increase in IIoT investment Value of cumulative GDP uplift by 2030 …….and calculated the impact of additional measures …….. Value of cumulative GDP uplift by 2030 Copyright © 2015 Accenture All rights reserved. 8
- 9. The Challenge of Economic Diffusion Copyright© 2015 Accenture All rights reserved. 9
- 10. 0 2 4 6 8 10 12 14 1902 1912 19221932 1942 1952 1962 1972 1982 1992 Without the right enabling conditions for the economic diffusion of IIoT, countries may not reap the rewards it promises Technology diffusion describes a relatively limited process of technology adoption—economic diffusion carries broader implications. It begins with technology diffusion, but also reflects growth, innovation, and financial reward spread across multiple sectors and industries. Source: The Cross-country Historical Adoption of Technology (CHAT) dataset, Accenture analysis Gross output of electricity energy per capita Era of industrial electrification Era of consumer electrification US UK FRANCE ITALY KwHr (thousand) As the story of electrification teaches us, rolling out a new technology is only the first step—capitalizing on its economic potential is the next. Copyright © 2015 Accenture All rights reserved. 10
- 11. Driving Economic Diffusion Copyright © 2015Accenture All rights reserved. 11
- 12. Leaders can assessa nation’s economic diffusion of the IIoT from the National Absorptive Capacity (NAC) Index To assess the economic diffusion of the IIoT, countries must understand the factors that underpin this process—which we call “national absorptive capacity”. We identified four pillars that underlie a country’s NAC. NAC INDEX Business Commons How technological and institutional foundations are facilitating the IIoT Take-off Factors How rapidly IIoT technologies are being scaled and spread across the wider society Transfer Factors How firms, consumers and society are embracing IIoT technologies Innovation Dynamo How the IIoT is creating self-sustaining innovation and development Copyright © 2015 Accenture All rights reserved. 12
- 13. The NAC Index Howdo countries perform on the NAC Index? Source: Accenture and Frontier Economics 0 10 20 30 40 50 60 70 80 90 100 UnitedStates Switzerland Finland Sweden Norway Netherlands Denmark UnitedKingdom Japan Germany Australia SouthKorea Canada China France Spain Brazil Italy India Russia The United States, Switzerland and three Nordic countries are the furthest ahead in terms of their NACs, but they also exhibit room for improvement within each of the four pillars. Copyright © 2015 Accenture All rights reserved. 13
- 14. How do theNACs affect the economic potential of the IIoT? Cumulative GDP Impact of IIoT In the 20 countries we analyzed, current policy and investment trends in IIoT products and technologies point to cumulative real GDP contributions of US$10.6 trillion by 2030. With greater investment and the enactment of key measures to absorb IIoT technologies, that figure could rise to US$14.2 trillion. US$ trillion With additional measuresUnder current conditions - 2 4 6 8 10 12 14 16 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Source: Accenture and Frontier Economics Copyright © 2015 Accenture All rights reserved. 14
- 15. - 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Country spotlights Cumulative GDPImpact of IIoT US$ billion United States - 100 200 300 400 500 600 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 US$ billion United Kingdom - 100 200 300 400 500 600 700 800 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030US$ billion Germany - 250 500 750 1,000 1,250 1,500 1,750 2,000 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 US$ billion China Source: Accenture and Frontier Economics With additional measuresUnder current conditions Copyright © 2015 Accenture All rights reserved. 15
- 16. Copyright © 2015Accenture All rights reserved. 16 Five Ways to Win
- 17. Five ways towin Make IIoT investments that work with the grain of the economy Play to the country’s strengths Create a chain reaction across industries Combat resource deficiencies Shorten the investment lag Join the dots to connect and collaborate Create new ecosystems that cut across traditional industry boundaries and value chains—look to product-service hybrids Connect various stakeholders together Turn strategy into reality by promoting experimental, pilot and demonstration projects in IIoT applications Decide whether to “make-or-buy” resources including skills, capital and technology 51 2 3 4 Copyright © 2015 Accenture All rights reserved. 17
- 18. Additional Reading • Howto ensure that the Industrial Internet of Things delivers on its promises can be accessed at Accenture Outlook • The Growth Game-Changer: How the Industrial Internet of Things can drive progress and prosperity can be accessed here Copyright © 2015 Accenture All rights reserved. 18
- 19. Mark Purdy Managing directorand chief economist mark.purdy@accenture.com Ladan Davarzani Thought-leadership research manager ladan.davarzani@accenture.com For more information about the report, contact the authors: Copyright © 2015 Accenture All rights reserved. 19 Follow this link for more information about the Accenture Institute for High Performance
Editor's Notes
- #3 Here’s a preview of what we’ll be discussing: kind of growth impact the IIoT is likely to deliver to nations the ways IIoT will impact economies How countries are positioned for IIoT growth Then, we’ll look into the more theoretical and historical aspects of the IIoT’s expansion, drawing on an idea we’ve called “Economic Diffusion” We’ll then look at the idea of “National Absorptive Capacity”, which is our term for describing how countries will integrate the IIoT into its economic and social fabric Finally, we’ll discuss some of the steps nations can take to get the most economic benefit out of the IIoT, or how they can “win the IIoT race”
- #4 We are moving into a post-industrial world Instead of outright industrial capacity, countries’ economic strengths are increasingly assessed in terms of: digital capabilities high-tech skills and expertise policy conditions that enable innovation-driven growth Assessed these strengths in terms of countries’ “national absorptive capacity”, or NAC. created an econometric model to analyze 20 mature and emerging economies’ NAC factors On current trends—with IIoT investments and policies remaining the same: the IIoT will contribute US$10.6 trillion to the collective GDP of those economies by 2030 With policies and investments to support the IIoT’s expansion—i.e. by working to create the right NAC factors our selected countries are likely to get an additional US$3.6 trillion – that’s US$14.2 in total!
- #6 Many governments looking to IIoT as a means to drive macroeconomic growth Chinese government has designated the IIoT as an emerging strategic industry UK is working with Germany to lead this “new industrial revolution”. UK government is directing nearly US$125 million to IIoT research Germany’s “Industry 4.0” initiative is geared toward increasing the productivity of its manufacturing sectors by 30% Other initiatives and public-private partnerships looking to the IIoT as a key way to increase their competitiveness in a world defined by ubiquitous IIoT connectivity E.g. “Smart Manufacturing Leadership Coalition” in the US “Digital India” Business leaders also agree that the IIoT can deliver benefits for their companies Nearly two-thirds of the business leaders we surveyed said the IIoT would offer emerging markets the ability to leapfrog developed economies, while 63 percent said it would close the competitive gaps between companies in emerging and mature markets
- #7 Why such optimism over the IIoT? The IIoT has the potential to impact all areas of society. Business impact Large industries with lots of capital goods to maintain and fleets to monitor used IIoT-enabled sensors to keep track of all of these assets Industries are realizing the benefits in creating process efficiencies in production and logistics Consumer impact IIoT has also moved into the retail and consumer sphere cheap RFID tagging allowed retailers to keep track of inventories and floor stock connecting sensing technologies move into connected lifestyle products and remote patient monitoring allows users to keep track of their health and vital stats with their smart devices Public sector impact Local governments are increasingly looking to create “smart cities”, fully networked into the IIoT ecosystem E.g. sensors placed on waste bins in urban areas tell waste management workers when the bins are full Limits amount of time, travel, and gas spent managing empty bins E.g. Public-private partnerships creating driverless car road networks Reduces traffic fatalities Eases congestion Better use of public resources E.g. smart buildings Cities saving save millions in more efficient use of thermostats Municipal governments can incentivize the use of this technology in the private sector, saving money and natural resources
- #8 There are a number of channels in which the IIoT can impact economies: Greater productivity Billions can be saved at the firm level through IIoT-enabled process efficiencies IoT-networked sensors link capital equipment and fleets to optimize supply chains, streamline processes, and create organizational efficiencies Networks of sensors generate volumes of data (“Big Data”) about system performance Sophisticated analytics software can recommend maintenance or process re-routing before a problem occurs These savings can then be reinvested back into the economy: Hiring more employees Research and development Purchasing more capital equipment New market opportunities IIoT offers new market opportunities to innovative firms able to capitalize on the demand for IIoT-related products and services New markets will present themselves as companies increasingly seek to “servitize” the IIoT economy “Servitization" of the IIoT economy—creating service ecosystems around IoT products rather than one-off IoT devices—will benefit forward-looking companies More opportunities for long-term revenue streams based on continuous upgrades and service offerings E.g. In 2012, aftermarket services accounted for 59% of the US$22 billion M2M market in the automotive sector. By 2022, this M2M market will be worth US$422 billion, 88% of which will come from aftermarket services. –Telefonica Connected Car Report, http://websrvc.net/2013/telefonica/Telefonica%20Digital_Connected_Car2013_Full_Report_English.pdf Improved quality of life This is something that may not show up in GDP measures so readily In the aggregate, millions of consumers monitoring their own health, homes, utilities, and vehicles will contribute to GDP growth by creating greater socio-economic efficiencies Demand for new products and services will fuel supply from high tech firms and grassroots innovators Time-saving goods such as “smart” appliances and homes and personal health monitoring devices will give consumers better quality of life and more leisure time New products and services will drive increasing consumer demand More sophisticated, unforeseen means of generating revenue will emerge Faster cycles of innovation With IIoT tech getting cheaper, more accessible, and more modifiable, grassroots “makers” are creating innovative IIoT solutions for their homes, cars, appliances, and devices These makers tend to be well-informed of developments in the tech sector Will be a driving force for innovation Availability of cheap, modifiable IoT technology has democratized the innovation process The "maker movement" is a growing community of technology-oriented DIY inventors who work to improve existing products by assigning them connectivity capabilities through devices such as Raspberry Pi Makers as “entrepreneur-consumers” of IIoT technology will provide grassroots source of innovation
- #9 Aggregate effects of IIoT applications in industry, the consumer sphere, and in the public sector likely to add trillions of dollars to global GDP in the coming decades Our number is large: for the 20 leading economies in our sample (accounting for nearly ¾ of global GDP), we put the value at around US$10.6 trillion by 2030 But that is assuming that IIoT investments and policies stay the same. If governments and businesses take action, we see a potential for an additional US$3.6 trillion - taking the total to US$14.2 trillion by 2030
- #10 Realizing the potential benefits of the IIoT won’t be easy Countries must recognize the difference between adopting a technology, and generating economic rewards from it This first idea is technological diffusion The second is the economic diffusion of technology
- #11 Why did the US lead the race? Because it had the right conditions for the economic diffusion of electricity, the US was able to surpass its closest competitors who had access to the same technology. In the US, the economic diffusion of electricity involved economy-wide changes, including: Building new electric factories Reorganizing labor and production methods Instead of workers lumbering around static workstations, electric assembly lines brought the parts to workers, vastly increasing efficiency and output Re-skilling workers to new technology Establishing a consumer market for electric household appliances By 1950s, 94% of US households had access to electricity This fuelled demand for consumer products ranging from Hoovers, washing machines, iron etc. So while many countries had access to the technology, the US was able to achieve the economic diffusion of electricity The US had the right enabling conditions—what we would call “national absorptive capacity”—to reap the rewards of the new technology across various sectors and industries
- #12 Our historical research and interviews with experts have shown that “national absorptive capacities”—or “NACs”—play a central role in the economic diffusion process.
- #13 Four pillars of NAC used to create an index of a country’s current and projected performance in achieving the economic diffusion of the IIoT: Business Commons Accessibility of technology and the business and institutional climate in a given country Key components: educated workforce a reliable financial system rule of law good governance Take-off Factors Contribute to the scaling of technology beyond niche markets and players Key components: presence of hi-tech firms strength of the science, technology, engineering and mathematics (STEM) workforce government support for R&D in IIoT technology Coupled with the degree of urbanization and the growth rate of the middle class on the demand side Transfer Factors Enable the spread of the technology to the broader economy Induce organizational and social transformations for those who adopt it Change less about technology, more about how business and society adapts to it Key components: exchange of knowledge—formal and informal Shifts in social and company norms that make harnessing the new technologies possible Innovation Dynamo Point at which the technology is so ubiquitous that its presence is assumed and it’s integrated into an array of different innovations Cycle of self-sustaining innovation takes place that has the potential to generate advances unimaginable today Key components: companies’ market strategies health of the research ecosystem presence of technology clusters strength of entrepreneurialism
- #14 Leaders can assess a nation’s economic diffusion potential from the national absorptive capacity index, which shows the potential for economic diffusion of the IIoT in a given country Nations in higher positions on the index are more likely to reap the rewards of IIoT diffusion A country with a NAC score of 100 would be the top performer on each of the 55 indicators compared to the other study countries Our model shows that while there are certainly leaders, every country has room for improvement United States, Switzerland and three Nordic countries furthest ahead in terms of their NACs if each of the 20 countries invested the same amount of capital in the IIoT, countries higher on the NAC index will gain more economic benefit from the investment, ceteris paribus
- #15 In association with Frontier Economics, we modeled the potential GDP impact of the IIoT for 20 developed and emerging economies. To illustrate how the NACs affect the economic potential of the IIoT, we compared the results of two different scenarios: “Economic impact of the IIoT under current conditions” Based on a country’s current position on the NAC index and projected investment levels Under these conditions, the IIoT would add around US$10.6 trillion to cumulative GDP by 2030 for our 20 selected countries ”Economic impact of the IIoT with additional measures” Extrapolated an IIoT development trajectory by assigning a country a higher score on the NAC index and increasing investment in IIoT technologies, products and services by 50% Here, we found that the value would jump to US$14.2 trillion during the same period
- #16 United States In our model, the IIoT is projected to add US$6,132 billion to United States’ GDP in the next 15 years under current conditions. However, by taking additional measures such as improving the country’s broadband infrastructure, this figure could grow to US$7,146 billion. United Kingdom For the United Kingdom economy, the IIoT is estimated to add US$303 billion to GDP in the next 15 years under current conditions. However, with additional measures such as companies hiring more people with skills related to the IIoT, this figure could grow to US$531 billion. The United Kingdom’s current potential is limited by its structural bias towards financial services. Germany The IIoT is projected to add US$593 billion to Germany’s GDP in the next 15 years under current conditions. However, with additional measures, such as the government encouraging consumer trust in IIoT offerings, Germany’s GDP could grow by US$700 billion. Germany’s relative strength in manufacturing—a sector ripe for IIoT applications—is an important factor driving its IIoT-led growth. China Under current conditions, the IIoT is estimated to add US$497 billion to China’s GDP in the next 15 years. However, with additional measures such as improving its research ecosystem, this figure could grow to US$1,824 billion.
- #17 With these massive potential benefits, countries must look to strategies that will strengthen their NACs No “one-size-fits-all” solution Countries must assess their specific historical and economic circumstances But we do see five guidelines for policy and business leaders to follow to help them win the race
- #18 1. Play to the country’s strengths Agricultural economies can use IIoT technology to monitor environmental conditions that improves crop yields Industrial economies can apply the IIoT to streamline manufacturing processes Example: Its “smart agriculture” program allows farmers to utilize IIoT technology to monitor online the temperature of grain bins and receive alerts when temperatures for crops reach dangerous levels 2. Create a chain reaction across industries Building product-service ecosystems rather than one-off IIoT products will be a key growth area in the IIoT But only 13% of business leaders we surveyed see the IIoT as a means to generate new revenue streams through new products and services Encourage businesses to look beyond their own industries and build new partnerships Create new business models New products and services from the IIoT 3. Combat resource deficiencies Deficiencies in skills, capital, and technology may confront policymakers trying to integrate the IIoT into their economies Policy leaders can follow “make-or buy” strategies to counter resource gaps “Make”: governments can create incentives for investment in home-grown IIoT technology solutions “Buy”: encourage technology transfer via foreign direct investment in the country 4. Join the dots to connect and collaborate To spur innovation in the IIoT, governments can draw on their powerful networks of stakeholders (such as industry, academia and non-government organizations) to share ideas and leading practices, and identify areas of mutual interest for further research Governments can also play a part in increasing collaboration and partnerships among global and large regional companies, small and medium enterprises, and start-ups Example: South Korean government’s “creative economy” initiative has brought together large companies and municipalities to establish innovation centers with IIoT capabilities. It is also working with small businesses and regional firms to help them modernize their operations with IIoT technologies. 5. Shorten the investment lag 79% of the business leaders we surveyed have developed strategies for the IIoT, but over a third are investing in them Turn strategy into reality by promoting experimental, pilot and demonstration projects in IIoT applications Example: Singapore, which has been experimenting with driverless cars for several years, is welcoming industry and academia to run pilot tests with citizens’ participation.
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