More companies are putting IIoT strategies into practice

A man in a modern factory with a tablet in his hands.
Sheila Zabeu -

September 08, 2023

How are companies implementing Industrial Internet of Things (IIoT) technologies and what problem areas are they facing? Answers to these questions were provided by the report “Digital Operations Signals: Industrial IoT Solution Spotlight”, prepared by Microsoft and IoT Analytics. It interviewed 300 decision-makers around the world in the industrial, energy and buildings sectors. In-depth interviews were also conducted with executives from the IIoT ecosystem.

The study revealed six points around successfully implemented projects:

1. IIoT is gaining popularity: 65% of the organizations interviewed are putting IIoT strategies into practice. Challenges related to budget, project complexity and data management have reduced by around 50% compared to five years ago. The average break-even time for IIoT projects has been 20 months compared to 24 months five years ago.

2. Companies are increasingly looking to buy off-the-shelf solutions: The share adopting this approach has increased from 9% to 30% in the last two years. In this category of IIoT projects, the average break-even time has decreased by 40%.

3. There are good reasons to use each type of approach — Develop, Buy-and-Integrate and Buy: Develop guarantees total customization freedom to meet specific needs and not be tied to any one supplier. Buy-and-Integrate combines tried-and-tested, supported technologies with the freedom of partial customization. Buying, on the other hand, is a cost-effective solution that allows for a faster return on investment with fewer integration challenges.

4. Large companies prefer to develop solutions; electronics and machinery companies prefer to buy-and-integrate: The main sectors that prefer the Develop approach are construction (89%), automotive (56%) and retail (56%). Those who tend to choose the Buy-and-Integrate approach are the electronics (57%) and machinery (52%) sectors, while the sector that uses the Buy approach the most is pharmaceuticals (31%).

5. Vendor ecosystems accelerate value generation: Vendors are coming together in partner ecosystems to provide near turnkey solutions that help accelerate value generation. Some of these initiatives have to do with components for off-the-shelf solutions, dedicated technical and commercial support.

6. Budget constraints have disappeared, but there are other problematic points: cybersecurity remains the main concern. In addition, the shortage of talent and knowledge has increased.

Three approaches

The three approaches to IIoT projects mentioned above – Develop, Buy-and-Integrate and Buy – have positive and negative points, and none of them can be considered a universal solution. However, regardless of the approach chosen, the survey revealed that, in general, companies were satisfied with their projects – 89% of respondents said that the IIoT solutions met or exceeded their expectations.

More specifically, the Develop and Buy-and-Integrate approaches received equally high marks, with 40% of respondents saying that the projects “exceeded expectations”. As for the Buy approach, only 13% of respondents reported projects that “exceeded expectations”, although a significant proportion (70%) rated the approach as “meeting expectations”. It’s worth noting that the Buy approach had the shortest time to amortize investments — a median of 12 months.

 Best practices when implementing IIoT initiatives.

IIoT status

The report identified some changes between the early adopters, pioneers in the adoption of IIoT solutions, who began their initiatives more than 10 years ago, and the early majority of more recent years.

One is that projects are being more successful. Those who have completed their IIoT projects more recently tend to report that expectations have been exceeded more often than those who completed them a few years ago. More specifically, 43% of those interviewed by the survey made this claim compared to 38% for older projects.

The most common positive results pointed out by the interviewees are: greater operational efficiency, better asset utilization, reduced downtime, better product quality, improved supply chain visibility and increased revenue due to productivity gains, sales or customer satisfaction.

Another change is the reduction in break-even. According to the report, the median number of months between the first dollar invested in an IIoT project and the realization of the return on investment (ROI) fell by four months for projects completed in the last two years compared to those completed in 2018 or earlier. This reduction can be attributed to less time spent on the initial phases of IIoT projects. The first two stages of a total of five phases saw a significant decrease: developing the business case (63%, from eight to three months) and evaluating the approach to be adopted (50%, from six to three months).

The third change highlights that companies are developing the business case more quickly. The initial articulation of the business case has been fundamental before launching any initiative. However, the amount of time spent on this stage is debatable – too little time can be negative, but too much time may not produce benefits. In the report, 58% of the early majority consider it necessary to have a detailed business case compared to 68% of early-adopters. This reduction may be related to the growing confidence in the IIoT ecosystem among those starting new projects.

Another change, mentioned earlier, is that companies are increasingly looking to buy off-the-shelf solutions. The preferred approach (42%) is to develop IIoT solutions from scratch, either in-house or with the help of a third party. However, a growing number are migrating to the Buy approach – 30% among the early majority compared to 9% of early-adopters.

Finally, implementation processes are presenting fewer challenges. Among respondents who have recently completed their IIoT projects, only 22% reported implementation challenges compared to 52% for older projects. In addition, this group reported that budgetary constraints have been much less of an obstacle (16% versus 29% in older projects).

The three main technical challenges reported by respondents are the development of new applications (49%), the protection of operational technology (OT) networks (43%) and interfacing with business applications (42%). The obstacle that has seen the biggest increase in mentions by respondents is the lack of skills and competencies of end users (14% versus 28%).