IT vs. OT in Manufacturing: How Will Convergence Play Out?
on Jan 16, 2014
For much of the last 50 years, IT and OT (Operational Technology) have remained two separate and different worlds. Much of the M&A that has occurred over the last decade has been about consolidation by a few mega-vendors within the IT and OT spaces. As these two worlds come together, how will convergence play out? Will it result in a better outcome for manufacturing customers?
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IT vs. OT: Definition
The label “IT” or Information Technology is well known (especially to those working in a corporate environment) where the Corporate IT function and the role of the CIO as it's executive leader are well established within the organizational structure. On the other hand, many are unfamiliar with Operational Technology (OT). This is partly because it is a new label for technologies associated with Industrial Automation as well as the fact that its role and function aren’t readily visible to the corporate level audience.
If you think of your business conceptually as a pipe that transforms inputs to output, then OT is the technology capability that directly controls the physical value-add or transformation of goods in real-time (as illustrated below):
Hint: If your business has a facility that looks like NASA’s mission control room, then you have an OT environment. The key differences between IT and OT can be summed up as follows:
Scope & Ownership
Information Technology (IT) covers the spectrum of systems that support corporate functions like Finance, HR, Supply Chain, Order Management, Sales, etc. More often than not, these functions and their processes tend to have commonality across industries.
Operational Technology (OT) covers the spectrum of systems that deal with the physical transformation of products and services. They are task-specific systems, are highly customized for industries and considered mission-critical. They typically fall under the domain of Engineering.
In the world of Corporate IT, the end-point being managed is often a human (whose job tends to be information-intensive) using a computing device (that has been relatively homogeneous until the recent and growing BYOD [bring your own device] trend.)
In the world of OT, the end-point being managed is often a physical asset such as pumps, motors, conveyors, valves, forklifts, etc., where these “things” come in all shapes, sizes, level of complexity, versions and vintage.
The software applications that make up the IT portfolio are people-centric in the sense that they help people “make money” by managing and coordinating the higher-level processes and transactions of the business.
In contrast, most of the software applications in OT’s portfolio are “thing-centric” in the sense that they help “make product” by controlling the physical equipment with a great deal of precision (and safety), where the human’s role is supervisory (as automation increases.)
Besides being pervasive in our personal lives, IT is a relatively standardized world, and that is far more homogeneous than OT.) IT also tends to adapt far more quickly to multiple computing trends, from PCs to Internet to mobility, all of which have broadly shaped today’s Corporate IT strategy.
In contrast, OT is filled with silos of proprietary architectures because of its task-specific nature. For example, a refinery is designed so it can run continuously for 5+ years before it is shut down for maintenance. In other words, reliability can often trump innovation, open architecture, interoperability, etc.
IT vs. OT: State of Manufacturing
For much of the last 50 years, IT and OT have remained two separate and different worlds. And over the last decade, the dizzying amount of M&A that has occurred has been about consolidation by a few mega-vendors within the IT and OT spaces (as illustrated below.)
The IT mega-vendors, using ERP as the “anchor” platform, have expanded their footprint by going wide to encompass end-to-end supply chain activities including design, sourcing, manufacturing, logistics, sales & marketing, and service management.
In contrast, the OT mega-vendors have used DCS or PLC as the “anchor” platform to consolidate their traditional strongholds on the process side (e.g., ABB, Emerson) or discrete side (e.g., Siemens, Rockwell) of real-time operations.
Some OT vendors have made select forays up into what is clearly seen as “IT territory” (e.g., Asset Management, PLM) but they have largely been industry-specific plays. And the land-grab for the world in-between is already underway (e.g. MES.)
Lately, OT vendors have been far more aggressive as they are driven by both opportunity (desire to embrace new technologies like mobility or big data) as well as risk (forced to shed proprietary or obsolescent technologies in their portfolio.)
As to whether there will be mega-mergers between IT and OT giants in the future, that is anyone’s guess because the rationale for the past M&A activity seemed to have been driven by revenue growth and availability of cash rather than any overarching architectural design or industry vision. (Oracle’s acquisition of Sun comes to mind.)
The challenge for end-users is that it’s hard to tell if all this consolidation will eventually be good for them. The vendors seem to think so – after all, they believe they are simply giving what manufacturers have been asking for the past 20 years: An integrated technology platform to support the “shop-floor to top floor” vision of the real-time enterprise.
But the real question is, will the promise of “one throat to choke” (single point of accountability) come at the cost of being locked into a specific architecture that can stifle future innovation and adaptation?
Why should Manufacturing look at the Telecom industry as a case study?
Those with a vested interest in understanding how IT-OT convergence plays out should step back and look at the US Telecom industry as a case study. Its evolution is a useful parallel, especially from the customer perspective because, as turbulent as it was for the industry, it eventually resulted in a better outcome for end-users.
(Few other industries have gone through the level of structural and transformational change in the last 30 years, and the following graphic attempts to compress it into a simple timeline to help underscore the following discussion points, so apologies in advance.)
It actually began with an integrated model: For almost a hundred years, the telephone service in the United States remained unchanged under the AT&T/Bell monopoly, which in effect, represented a single technology platform (POTS aka “plain old telephone service”), that was delivered via a vertically integrated structure.
Competition accelerates innovation: In the absence of competition, the government forced the break-up in 1982. Deregulatory action had the effect of greater customer choice and accelerating innovation (some of which, ironically, could be traced back to former subsidiaries like Bell Labs.)
Innovation is disruptive (and inefficient): What followed in the next 30 years was a turbulent time in the industry for both customers and vendors as silos of innovation proliferated, with different platforms for voice, data, video, etc., that often required redundant infrastructure.
The need for a layered architecture: Given the scope and complexity of the product/service, one of the things that had consensus among the designers of the industry was the need for a layered architecture or stack – even though there wasn’t agreement on whose stack to standardize on. In other words, engineers were simply following good design principles so innovation could continue within layers while ensuring interoperability between layers.
Open vs. proprietary: No vendor plans to be open unless they have to be. After all, captive customers are good for business and lock-in via proprietary methods became the default mindset. During this time, the networking war was also playing out with IBM pushing its proprietary vision vs. TCP/IP, the open standard. Twenty years since, IP has changed the face of modern telephony.
The need for customer-centric visionaries and evangelists: Imagine if there was no Steve Jobs and Apple – how would the industry have evolved without a clear and compelling customer-centric vision like the iPhone? Would the convergence have happened as quickly? Would the user experience have been the same?
Back to the future: 30+ years after the break-up of the old AT&T, the industry has reconsolidated to where four companies (as of this writing) dominate the market. On the outside, it looks a lot like the past. But from the inside, it is a very different industry today with a vastly better outcome for customers because of a few catalytic decisions and events.
Now let’s revisit the question: Will the manufacturing IT-OT convergence result in a better outcome for customers? Or will businesses end up with a modern-day version of Ma Bell and a POTS-like platform with limited potential and options?
How will IT-OT convergence in Manufacturing play out?
Simply put, for manufacturing customers to get a better outcome eventually depends on whether the evolution is customer-driven or not. To understand whether that will indeed be the case, we need to look at it in the larger context of the virtuous cycle of value, whose dynamics are captured below:
In Telecom, Customer Power is evident today through greater choice and lower switching costs. In Manufacturing, whether the power shifts in favor of customers or suppliers is yet to be seen. Much of it will be determined by what happens next in the OT space over the next few years. In Manufacturing, the IT customer is in a stronger position than the OT customer. ERP and most enterprise apps are considered a mature offering. Switching costs are high but not necessarily prohibitive. In contrast, there is far less competition in OT due to task-specific nature of systems resulting in little choice or leverage for customers.
In Telecom, we saw an unprecedented level of innovation (along with the creative destruction that accompanies it), especially in the last two decades. A vision of a converged experience (voice, data, and video) on a single platform relentlessly drove the transformation. Unfortunately, in Manufacturing a parallel vision is not as simple as an iPhone. Plus, a Steve Jobs or Apple of the Automation industry has yet to emerge. But there are definitely industry visionaries on the customer side – unfortunately, many of them don't even know their fellow visionaries in other industries to come together to collectively shape the IT-OT convergence.
Finally, on the topic of industry standards, a number of organizations like MESA, etc., have contributed significantly to creating a layered architecture that promotes open standards and interoperability. Active participation by customers represents the best chance to strengthen the position of end-user companies to shift the virtuous cycle in the customers' favor.
At a minimum, there are three simple takeaways for customers to improve their position in the balance of power:
Demand open: If you had the opportunity to lock your customers into your business model, would you do it? Of course! So why would anyone expect vendors to voluntarily do this? Without a critical mass of active participation in industry standards initiatives and accountability during the selection process, vendor enthusiasm for open standards will be limited.
Design for (interoperable) layers: Whether one single mega-vendor delivers on all the layers or different vendors at each layer, a layered strategy protects you from technology obsolescence and increases your business agility when business conditions change.
Don’t sell yourself short on vision: We have big problems in manufacturing that demand “insanely great products” – so channel the Steve Jobs spirit, dream big and expect more from vendors.
Sree Hameed is a regular guest contributor for ChainLink Research. The views expressed in this article are his own and do not represent any particular company. Sree's (infrequent) observations on the changing structure of business can be found at shapeofbusiness.com.
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