With early indicators of a global recession starting to appear on the radar and a mounting list of risks from geopolitical uncertainty to increasingly sophisticated cyber-attacks, 2018 will be seen as a year of very good growth before some very challenging times. Challenges create opportunities, however, and even as major suppliers revise their guidance for 2020, there are many new opportunities, even if overall growth in the market is slowing.
Accelerating technology adoption
Much of this growth is driven by the promise of new technologies and the business value they can provide. The automation marketplace is adopting a new wave of increasingly sophisticated computing technologies at a much faster rate than before, all driven by the collective vision of the Industrial Internet of Things (IIoT) and digital transformation. Historically, the automation marketplace moved relatively slowly when it came to adopting new computing technologies. Adoption of commercial off the shelf (COTS) operating systems like Microsoft Windows, for example, took many years. Adoption of standard Ethernet technologies also took some time.
With the introduction of virtualization technologies, however, this began to change. End users were more familiar with the value that the wider scope of commercially available IT and computing technologies could provide. The typical 10-year gap between adoption of new technologies in the world of IT and adoption in the mission critical world of operations technology (OT) shrunk to just a couple of years. Delays adopting digital transformation are driven by the end users needing to determine how they can derive business value from technology by applying it effectively. This is also markedly different from adoption cases for previous technologies.
With IoT and its suite of promising new technologies, from cloud and edge computing to analytics and machine learning (ML), adoption happened almost instantly. End users clearly see the value, but it can be a long road from that vision to a real-world solution that works. Desire to adopt also happened quickly. The gap between vision and sustained success is wide. Scalability and ROI are critical challenges as companies try to better understand what digital wisdom they need to use these technologies effectively.
We're starting to see some of those growing pains as users create actionable digital transformation strategies. Suppliers are also dealing with their rapidly transforming businesses. Not all suppliers have found it to be a smooth road, but all the major suppliers are still very much in the game, investing in new businesses, acquiring new companies, and reorganizing to adapt to accelerating change.
Suppliers adapt to survive
Rapid advances in technology have created some serious issues in the traditional automation supplier business model. The shift to software and managed services is accelerating. Fundamental restructuring is happening everywhere. In previous years, at least for the major suppliers, the emphasis seems to have been on increasing company size and filling key gaps in automation offerings. The drive to acquire is still there, but again, rapid technology advances led many suppliers to restructure their businesses to adapt effectively.
We mentioned supplier deconsolidation as a major trend last year, and this is continuing. Very large suppliers with integrated businesses are see the value of spinning off some businesses, while retaining investments in them. We saw this last year in the formation of AVEVA Software Solutions, as a kind of reverse acquisition by Schneider Electric, where all its software-related businesses were transferred to AVEVA, while Schneider kept 60% ownership of AVEVA.
Meanwhile, Siemens recently spun off of its gas and power business; Hitachi acquired 80% of ABB’s Power Grids business in December 2018l; and GE recently gave up majority control of Baker Hughes.
Order of leading suppliers unchanged—for now
Even with all this change, the relative positions of the Top 50 biggest worldwide and North American process control and automation suppliers in terms of revenue didn't changed significantly from 2017 to 2018. The positions of most global suppliers remained essentially unchanged, while the Top 50 added some new suppliers that were previously overlooked. In North America, we didn’t see any major shifts in position, until IMI claimed the 14th spot in 2018.
Even with the list of top suppliers remaining essentially unchanged, there's a new cadre of suppliers entering industrial automaton from the world of IT, IoT and cybersecurity. These include edge and cloud computing suppliers, analytics and ML companies, and a wide range of industrial cybersecurity suppliers and service providers. These markets are all growing well into the double digits. Some of these suppliers could create serious competition for traditional automation suppliers, while others are already forming alliances or being acquired by them. Major cloud providers are intent on getting market share by commoditizing many aspects of software, such as data storage, which are cropping up as digital transformation occurs, particularly at the edge.
Suppliers revise 2020 guidance
Major automation suppliers are expecting an increasingly challenging business environment, and several have already downgraded their guidance for 2020. The current climate shows underlying weaknesses in key industry sectors like upstream oil and gas, food and beverage, and pharmaceuticals. In North America, much of the downgrade in upstream oil and gas is due to lower than expected investment in the PermianBasin. However, the future is unwritten, and even as we write this article, Saudi Aramco’s oil fields are recovering from a drone and missile attack that paralyzed 6% of the world’s oil supply literally overnight and sent oil prices soaring to their highest level since post Hurricane Katrina. Extreme weather is cited as a market headwind by more than one supplier, and was cited as a factor in reduced investment in upstream oil and gas and the building automation sector.
Traditional world adapts to digital transformation
Because digital transformation and IoT are now a reality, ARC finds many end users are struggling to determine what a successful digital transformation looks like and how to develop a good roadmap. More data is being generated and accessed than ever. Increasingly, physical assets (devices, machines and other “things”) are being interconnected. Advanced technologies such as ML proliferate. The cost of these advances continues to decline, encouraging industrial and infrastructure-related organizations to harness this combination to modernize, improve, and transform their businesses and services.
Digital transformation is mission critical for business health and viability in both the short- and long-term. Digitally transformed organizations will be able to transition to and thrive in digital economies, making digital transformation a matter of not of “if,” but “when. Despite the promise, companies are struggling to execute and scale digital transformation. ARC has observed a huge gap between the desire of most organizations to digitally transform and their ability to do so. Most of these struggles are about organizational culture and the inability to build a bridge between business strategy and execution. And so, for the short term, digital transformation remains limited in terms of scope, ROI and sustainability for most companies.
Despite these challenges, we're seeing pockets of success. ARC has witnessed real results from digital transformation, Industry 4.0, and IIoT-related projects. Predicting asset failure, optimizing processes, and improving product quality are three areas where organizations have achieved good, measurable returns.
Advances in edge computing
The IIoT's edge is the place where physical devices, assets, machines, processes and applications intersect with Internet-enabled portions of the architecture. IIoT edge devices provide input to and may receive output from industrial Internet-enabled systems, applications and services, but reside outside clouds and data centers. Edge systems typically operate on-premise, but are distinct from traditional non-Internet connected automation and control systems.
Suppliers are responding to the emergence of the IIoT edge by expanding the range of hardware, software and solutions targeted to serve its broadening functional spectrum. Traditional automation gateways used for simple protocol conversion have morphed into edge computing devices that support standard microprocessors and COTS operating systems, particularly Linux, as well as containers. At the same time, a new “thick edge” tier populated with high-end edge servers designed to serve escalating edge compute and storage requirements is being forged above the network infrastructure layer.
The software landscape is similarly evolving. IIoT edge platforms have emerged from their origins in device connectivity, visualization, security and management into full-blown IT/OT integration and application execution environments capable of serving escalating requirements at this tier of the architecture. These platforms are increasingly viewed as the vehicles for local computation and application execution in service to IIoT-enabled business improvement processes.
Savvy end users recognize that IIoT should be pursued not just for technology’s sake, but to achieve concrete business outcomes. Defining your desired outcome is a place to start determining the best solution since offerings vary. Early IIoT edge implementations tend to emphasize outcomes such as reduced machine downtime (connected products), incremental performance and safety improvements (connected operations), cost savings for service operations (connected service), and product and service innovation. IIoT edge solutions enable these outcomes through applications such as analytics and ML-based predictive maintenance capabilities, although the spectrum of targeted activity continues to broaden.
Cybersecurity: changing threats, new solutions
The market for industrial cybersecurity continues to experience growth well into the double digits as cyber threats continue to evolve to target industrial infrastructures. End users also struggle to develop in-house cybersecurity expertise, and are increasingly relying on third parties to help them develop and maintain effective cybersecurity strategies. With increased public awareness of the potential consequences of cyber-attacks, customers and other public stakeholders expect that companies take the necessary steps to protect the integrity of their businesses and products, and the information they contain.
The influx of IoT technologies also has users asking themselves how they can measure cyber-risks to production and safety that new technologies pose. The impetus for the adoption of IoT technologies can often come from the IT side of the business, and attackers are increasingly exploiting weaknesses created in the gaps that still exist between IT and OT. A good industrial cybersecurity strategy must address both.
Industrial control system (ICS) cybersecurity supplier landscape is large and complex. Solutions range from industrial firewalls to entire suites of managed services that encompass threat detection and response solutions, cybersecurity assessments and more. The major automation suppliers are also beefing up their own cybersecurity offerings, either internally or through acquisitions and partnerships. End users are challenged with sorting through an increasingly complex list of suppliers, while developing their own cybersecurity selection criteria for systems, applications and devices.
Cyber threats related to specific elements of control system infrastructures continue to become more focused and targeted. We're also learning more about leading cybersecurity threat groups like Xenotime, which was responsible for the Triton/Trisis attack on a process safety system at Middle Eastern petrochemical facility. We're discovering that groups like Xenotime have been operating much longer and targeting a wider range of systems than previously imagined. End users are increasingly investing in more advanced threat monitoring and detection methods, which can identify these kinds of complex, multi-stage, systemic attacks early.
Can OPAF progress keep pace?
As part of the Open Group, the Open Process Automation Forum (OPAF) continues its mission of creating a standards-based, open automation architecture that avoids many of the burdensome and repetitive installation, operational and migration costs associated with conventional automation systems. OPAF promises to greatly widen the playing field for potential players in process automation. OPAF is revising its standards documents (really a “standard of standards”) with greater detail. The current schedule calls for OPAF to publish the revised documents in January 2020, and present its content at the ARC World Industry Forum in Orlando in February.
At the members-only OPAF Interop event in June 2019, participants from 15 OPAF member companies exercised 25 prototypes. Findings and feedback from the event will be shared among OPAF's members. As development of these products continues, more interop events will be scheduled, with the next likely to take place in early 2020.
Not to be outdone, ExxonMobil, which provided the entire impetus for the OPAF project, is continuing with its own test bed. This program follows the recent completion of its proof of concept and prototype programs, which its described in February at the ARC forum. The next step in ExxonMobil's journey is development of a more rigorous test bed, which will take place during the next 18 months.
The objectives of the test bed are to support continued testing of components and standards, and reduce risks associated with integration, interoperability and scalability. ExxonMobil also wants the test bed to generate experimental data to measure the readiness and completeness of selected components and standards for field trials at ExxonMobil. It also wants to demonstrate supplier capabilities to produce components and products aligned with the O-PAS standard, which was first published last year and is being updated now.
Finally, ExxonMobil wants to move this technology forward in terms of their own evaluation of its technology readiness levels. Like many large process owner-operators, ExxonMobil manages introduction of new technology into its manufacturing operations through a tightly controlled and gated qualification and readiness evaluation process. Successful completion of the test bed phase will be followed by field trials at ExxonMobil, as well as at other major process industry end users collaborating through the Open Group in developing this technology. The field trials are expected to begin in 2021.
About the authors
Larry O'Brien, vice president of research; Chantal Polsonetti, vice president of advisory services, Harry Forbes, research director, automation; Mike Guilfoyle, director of research and Eric Cosman, contributing consultant, all of ARC Advisory Group, can be reached via Larry at LOBrien@arcweb.com.