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Marco Annunziata: How Interconnectedness Is Creating a New Kind of Industrial Company

The convergence of the digital and the physical world spurred by the Industrial Internet and augmented by Advanced Manufacturing and the Global Brain is bringing a profound transformation to industry.

 

A connected device or machine becomes something entirely new. Think of the multiple roles that smartphones play in our everyday lives; or how cars are turning into communication and navigation platforms with an increasing degree of autonomy. The same revolution is underway in industry.

It is redefining the nature of industrial companies: An industrial company that combines the digital and the physical to produce interconnected devices becomes a fundamentally different entity — and opens entirely new dimensions in the way it operates and in the value it creates for customers and shareholders.

Industrial Internet solutions are beginning to deliver substantial benefits in a wide range of sectors, from aviation to energy to transportation, as well as to cities and hospitals. Thanks to GE’s Industrial Internet solutions, airlines can reduce fuel burn and flight delays and cancellations; railways can achieve 10 percent to 20 percent increases in network velocity; wind farms can raise annual energy output by up to 5 percent and profitability by 20 percent; hospitals can deliver better healthcare at lower costs; and interconnected lighting becomes a city’s nervous system, delivering budget savings, greater eco-sustainability and a better quality of life.

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A company like GE is ideally positioned to unleash and capture the value of these innovations, through two key strategic steps: First, developing a platform, to optimize data gathering, collaboration, compatibility and interoperability of applications — GE’s Software Center of Excellence has developed Predix, a proprietary software platform for the Industrial Internet. Second, deploying Industrial Internet solutions across a vast installed base of industrial assets, to rapidly achieve scale and trigger network effects. While we are still at the beginning of the process, this strategy is already demonstrating a meaningful impact in terms of revenue generation for GE.

Combining deep expertise in both digital technology and industrial machines is no easy task — but it transforms a company from a traditional industrial equipment producer into a full-range customer solutions provider, able to maximize customer value and profitability. As these benefits unfold, “new generation industrial companies” will also be seen by markets as fundamentally different, with a revenue growth and margin potential closer to that of software-driven companies than traditional industrial companies. This should translate in the strengthening of key market valuation metrics.

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The new wave of innovation spurred by the Industrial Internet is bringing about an unprecedented transformation. As software-driven performance improvement reverberates through the world’s massive installed base of industrial machinery and gets embodied in new investment, it will reshape industry, reshuffling the competitive landscape. Mastering both the digital and the physical is the key to accelerating value creation in this new industrial world.

As innovation reshapes industry, we are witnessing the rise of a new kind of industrial company.

This piece was based on a paper, The Value of Interconnectedness: Toward a New Kind of Industrial Company

Marco Annunziata is the Chief Economist and Executive Director of Global Market Insight at GE.

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