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Growth Game Changer

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Growth Game Changer

  1. The Growth Game-Changer: How the Industrial Internet of Things can drive progress and prosperity January 2015
  2. Contents Seizing the Trillion Dollar Opportunity The Challenge of Economic Diffusion Driving Economic Diffusion Five Ways to Win Copyright © 2015 Accenture All rights reserved. 2
  3. In the shift from 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 shift from 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 the Industrial 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 the IIoT 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 Improved Conditions 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 1922 1932 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 © 2015 Accenture All rights reserved. 11
  12. Leaders can assess a 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 How do 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 the NACs 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 GDP Impact 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 © 2015 Accenture All rights reserved. 16 Five Ways to Win
  17. Five ways to win 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 • How to 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 director and 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

Notes de l'éditeur

  • 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”
  • 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!
  • 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
  • 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

  • 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

  • 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
  • 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
  • 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
  • Our historical research and interviews with experts have shown that “national absorptive capacities”—or “NACs”—play a central role in the economic diffusion process.
  • 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
  • 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
  • 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
  • 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.
  • 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
  • 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.
  • Trackable URL for Growth Game Changer landing page “here’ http://www.accenture.com/us-en/Pages/insight-growth-game-changer.aspx?c=acnihptwt_10000007&n=smc_0415

    Trackable URL for Growth Game Changer Outlook Article: http://www.accenture.com/us-en/outlook/Pages/outlook-journal-2014-how-ensure-industrial-internet-things-delivers-promises.aspx?c=acnihptwt_10000008&n=smc_0415
  • Trackable URL on this page: http://www.accenture.com/us-en/research/institute-high-performance/Pages/institute-high-performance-index.aspx?c=acnihptwt_10000006&n=smc_0415

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