Executives tasked with planning for Industry 4.0 / Maintenance 4.0 often rely on industry analysts for guidance. When faced with rapidly evolving technologies, analysts and consultants provide objective and third-party information that is vendor neutral. At least, this is the theory.
This blog article addresses a topic that does not get sufficient attention – should you trust analyst coverage on Industry 4.0 and Maintenance 4.0?
Full disclosure: Presenso is a Gartner Cool Vendor in Artificial Intelligence Across the Supply Chain and we have a positive relationship with quite a few analyst firms. At the same time, I have been observing trends within industrial analytics and Maintenance 4.0 for the last few years and have written extensively on a range of topics in multiple trade publications.
Analyst Objectivity or Pay-for-Play?
Every business depends on its revenues, and analyst organizations are no different. However, the murky business model of some analyst are not necessarily recognized in the marketplace.
Tier 1 analysts such as Gartner have rigorous methodologies for granting awards and do not accept payment.
Unfortunately, this professionalism and objectivity does not apply to all analyst organizations. In at least one instance, I know of a play-for-pay model that is used by analysts who generate a significant portion of their income by selling prestigious awards to solution providers and then honoring these vendors at an award banquet. My understanding is that analysts are financially incented based on the number of awards sold a year and that sales reps upsell the recipient company on consulting services as part of the award outreach.
Why is this important? There is nothing inherently wrong for analysts to charge for a service. The problem arises when the decision maker with the industrial entity (the end customer) does not understand the financial relationship between the analyst and the vendor.
Trade Publication Recognition Cost Money
In the last two years, Presenso has been solicited multiple times by trade publications offering the opportunity to receive a recognition award. The titles vary, but typically include the terms “top,” “leading” or “excellence.”
I’d like to share a (moderately modified) email that I recently received:
Why is this a concern? The stamp of approval that trade publications provide to technology vendors may be mistaken as an objective validation. The assumption is that the publication performed due diligence and researched the company as part of the selection process. This could not be further from the truth. The research relates to the vendor’s ability to allocate marketing budget to a campaign, and not the strength of the vendors solution. Whereas Gartner speaks to a vendor’s customers during its evaluation process, these trade publications are sending out purchasing contact information and executing email marketing campaigns.
Lies, Damn Lies and Statistics
Even though I am an avid reader of analyst reports on Industry 4.0, IoT and Maintenance 4.0, it is never clear how specific projections of market growth are derived. Will Industry 4.0 reduce operating expenses by 3% or 30%? What is the growth rate of the Machine Learning for Predictive Maintenance market?
Since I have no first-hand knowledge of analysts’ forecasting methodologies, I am going to hypothesize these two scenarios:
- A team of freshly minted MBA’s collect both historic data and develop complex assumptions for growth based on surveys and macro-economic trends. The assumptions are vetted by senior analysts and the model is tested and re-calibrated.
- The black box. Back-of-the-envelope guesstimates are made based on arbitrary assumptions. To be safe, the time horizon is 5, 10 or 20 years in the future.
I will not speculate which methodology is used more prevalently and there is no guarantee that the more complicated formula is more accurate than the intuitive one. However, these are some examples of forecasts that should be carefully examined:
- IIoT could add over $14.2 Trillion to the world economy by 2030 – Accenture, 2013
- Smart factories can generate up to $1.5 Trillion to the world economy within 5 years – Capgemini, 2017
- The industrial sectors will spend $900 Billion per annum over the next five years on Industry 4.0 – PwC, 2016
What is the danger in overestimating growth and investments? When forecasts become widely published, they gain credibility and are can be used to set benchmarks for internal investments. The most significant risk is when planners assume the accuracy of external data. A business case built on unrealistic growth expectations could lead to overinvestment in solutions that lack economic justification.
My advice to those tasks with planning for Industry 4.0 and Maintenance 4.0 is develop bottoms-up, data driven business cases based on testing / piloting solutions. If you are intend to rely on a third party, then understand how they are compensated and whether there is potential for bias.