Turning Internet of Things into a growth engine

The next wave of innovation promises to drive economic growth, but the private sector and governments will have to make important investments in infrastructure, training and education.

Discussions on productivity drivers and the role of innovation in business transformation make for great window dressing but achieving real outcomes isn’t easy. The warm and fuzzy buzzwords do hold potential, but as US industrial giant General Electric’s chief economist Marco Annunziata points out, unlocking it requires a new way of thinking.

Speaking to Business Spectator in San Francisco two weeks ago, Annunziata discussed how the next wave of internet-driven productivity will indeed change businesses, provided the private sector and governments make the necessary investments in infrastructure, training and education.

For Australia, Annunziata’s message holds particular import. The usual harping about cutting pay and onerous penalty rates just isn’t going to cut it anymore. With businesses having squeezed as much efficiency out of their operations as they can, the easy stuff is off the table.

Economic growth in the developed economies is going to have to come from smarter uses of technology.

“You see economies like the US and Europe are still struggling with low growth and unemployment which is too high and a situation where governments cannot really do that much more; public debt is already high and interest rates are at zero,” Annunziata says.

“The push has to come from the real economy, the private economy and it has to come from stronger productivity.”

“Stronger productivity has to come from innovation. If you look at countries like the US, companies have become almost as efficient as they can possibly be with the current technology.”

Riding the next disruption wave

Annunziata sees the internet of machines – the technologies connecting smart devices in homes and industries – as the driver for the next wave of business productivity growth and innovation.

Most of the case studies of the internet of machines revolve around consumer applications; two days earlier at the Dreamforce conference, Salesforce CEO Marc Benioff discussed the possibilities of connected toothbrushes and GE itself recently invested $US30 million in Quirky – a company best known for its smart refrigerator egg rack.

However, Annunziata says the real benefits of the Internet of Things lie beyond consumer products, “you’re applying Big Data into the industrial sectors which are the real drivers for economic growth.”

This enthusiasm about the industrial possibilities of the Internet of Things is shared by Cisco CEO John Chambers who recently described the technologies as “the greatest opportunity of my career”.

Like most vendors GE has its own term for these technologies, preferring the phrase ‘industrial internet’ to describe how they see wind turbines, locomotives and jet engines being connected.

“If you look at US productivity growth, it pretty much doubled in the early 1990s,” says Annunziata. Much of these productivity improvements are attributed to personal computers and the internet being adopted by businesses in that decade

“After about ten years productivity slowed down again.” he adds.

Annunziata reckons the industrial internet could be the next catalyst to put growth back on the agenda.

Global productivity overdrive

Those 1990s productivity gains were not evenly distributed across all economies with the US benefiting the most while Europe lagged, Annunziata sees that being due the flexibility of economies and labour markets on the two continents.

“If you’re in a situation where you can’t move workers around or you can’t create new companies that process is going to be slowed down and benefits will accrue at a slower pace.

Low labour rates though are not what Annunziata sees as being the main driver for increased productivity, something he emphasises in his comments about China’s adoption of these technologies.

“They are very focused on the objective of moving up the value added ladder, because they want to stimulate domestic consumption to have a balanced economy and they understand that stronger domestic consumption requires higher wages which can only be justified by higher productivity.”

He also sees Latin American countries as being other strong adopters of the industrial internet, particularly those like Mexico and Brazil where the oil and gas sector is heavily investing in these technologies, which highlights the important role of governments in making infrastructure available to industry.

 “You do need to have a physical infrastructure of power and data for the industrial internet to deploy its full benefits.” Annunziata states

Jobs of the future

This transformation will have an undeniable impact on employment. A lot of jobs will have to go but it’s important to keep things in perspective.

At the beginning of last century nearly half the workforce in almost every country was employed in agriculture – today it’s less than two per cent in developed nations.

“One of the concerns that comes up often with this new wave of innovation focused on big data, is the idea that we’re moving towards an economy where there will be room only for engineers, data scientists and highly specialised individuals,” Annunziata says.

“The industrial internet will also give rise to new categories of workers, we have of course the data scientist but we’ll also have a whole range of what we’ve labelled ‘mechanical-digital engineers’ who understand both how the actual machines work but also understand the data and the software.”

Governments again have a role in dealing with the effects of a changed industrial landscape. “There’s no doubt whenever you have innovation, it is disruptive,” Annunziata says.

In Annunziata’s view, both government and private enterprise have a role to play in retraining and supporting unemployed workers.

“It has to be addressed both at the level of the company and public policy. You need to have a safety net that helps people through retraining and unemployment benefits.”

“It’s still true that the more you move into advanced areas of manufacturing, the more you need to have an educated and skilled workforce. So you need to make sure your education system gives you a strong pipeline.”

Managing big data

‘Information is power’ is a truism that Annunziata subscribes to, seeing the availability of data as an opportunity for business leaders to re-imagine their markets and operations.

This brings with it a couple of headaches. Firstly, managers will have to understand the data, and their own industries to reorganise their business. Then there’s the issue of putting the data to good use.

“That will require the skills of individual managers but it will also require the flexibility of the market and the economic system to implement the changes.”

While there will be applications present to understand and absorb the data, the multitude of possibilities could actually hinder prompt decision making.  

 “As an economist, the value of information is intuitive,” concluded Annunziata.

“When we look back in twenty, thirty years from now we’ll be shocked at how little we knew and used the data so far.”

Paul Wallbank travelled to San Francisco as guest of Salesforce and to Barcelona as a guest of Cisco Systems.

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