Are you ready for the Industrial Internet?

Imagine an economy in which goods, machines and people interact with one another to improve production, increase safety and optimise supply chains based on data gleaned from thousands of sensors. In such a world, engineers analysing the data from these sensors would be able not to make processes and engines run more smoothly. They would also know in advance when to replace a part before the system breaks down, thereby saving time and money.

These prospects for increased efficiency, productivity and better allocation of resources are the underlying motivations for engaging in what many are now referring to as the Industrial Internet. The potential for gains is strong indeed. According to McKinsey & Company, total operational costs in manufacturing could nearly double by 2025 to reach $47trn by 2025. If this is true, even a 1% improvement would deliver up to half a trillion in annual savings.

The benefits could in fact extend well beyond the sector to encompass nearly 40% of global economic activities. A particularly important sector would be healthcare, where remote monitoring could let a patient when to go to the hospital, which hospital to go to and book the appointment in advance. Along with a optimized hospital throughput, this also would lead to reduced patient care costs, something particularly important in chronic diseases, where patient care accounts for 85% of total costs (in developed countries). Overall, annual savings from the Industrial Internet in healthcare could reach $1-2.5trn by 2025 according to the same McKinsey & Company study. Other sectors from energy to transport could also be transformed, delivering smarter grids, more efficient wind turbines and smoother and safer road and air transport.

How close are we to this faster, better, more efficient world?

Change is already under way, driven by the reduced cost of monitoring, increased computing power and a more interconnected world. Advanced sensors now cost less than $10 apiece, computing power and efficiency have increased nearly 10,000 times since the 1990s, and there are now nine billion machines connected to the Internet—a number Cisco expects to double by 2016. These developments have given birth to pilot projects in the fields of health, manufacturing, energy and transport. Using remote sensors on 1,000 cars, for example, a pilot project in the UK managed to cut fuel bills and maintenance costs by 20% and 25%, respectively. Similarly, the use of mobile technology has brought the lab to the patient, delivering test results on the spot instead of in weeks.

Leveraging these opportunities at the scale of an entire economy will require careful management of the tensions that result from applying these concepts on a large scale— including finding the balance between increased information flow and the need to respect privacy and minimizing cyber security risks.

Finding network solutions that can accommodate the increase in data flows will also be key. A single gas turbine sensor, for example, creates 500 gigabytes of data daily. With approximately 40,000 gas turbines operating worldwide—and assuming three sensors per gas turbine—60 quadrillion bytes of data would be generated per day. That’s 24 times the daily traffic generated by the global Internet in 2000; and that’s just for one sector. All included, annual global IP traffic is expected to pass the zetabyte threshold—one million quadrillion bytes— by end of next year, according to Cisco.

Companies will also need to create management structures that can rapidly operationalise the strategic insights gleaned from analysing this enormous amount of data. This will require new skills, but also new approaches to performance management and design. Will the Industrial Internet be the next Schumpeterian way and allow us to finally leverage the productivity gains so many were hoping to achieve with the Internet? It’s a bit early to tell. But with collaborative demonstration projects underway and a new generation of industrial internet startups in the pipeline, change may come sooner than we think.

This article is published in collaboration with GE LookAhead. Publication does not imply endorsement of views by the World Economic Forum.

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Author: Dr. Elie Chachoua is an expert in strategic and multidisciplinary research.

Image: An internet cable is seen at a server room in this picture illustration. REUTERS/Kacper Pempel.