Europe is beating the U.S. in the industrial internet of things

When Bain surveyed executives in Europe and the U.S. in 2016 about their plans for deploying industrial use cases for IoT, we found that European companies had pulled ahead of their U.S. counterparts. More European executives (27%) planned to deploy IoT compared with their colleagues in the U.S. (18%). We also found companies in some European industries devoting more of their IT budgets to IoT, particularly in automotive, buildings and industrial.

The results of our 2018 survey showed Europeans pressing their IoT advantage. While the long-term ambitions of executives in both regions appear closely matched, Europeans remain further along in implementation than their U.S. counterparts, particularly in the industrial sector. Europeans also appear further along in cracking the code to unlock value from IoT systems.

Europe’s lead in implementation is a direct result of companies allotting a higher percentage of their technology spending to IoT deployments compared with their U.S. counterparts (see Figure). Funding levels have remained roughly constant in Europe over the past two years, suggesting that it can take longer than expected to overcome implementation barriers, especially security. Discrete manufacturing represents the greatest percentage of allocation in Europe and the U.S., with process industries following closely behind.

Europe’s stronger engagement in proofs of concept (POCs) and higher investment levels in 2016 helped them move to scale faster, with three times more extensive implementations in 2018. U.S. companies are ramping up investing in POCs and plan to invest primarily in these through 2022.

Europeans also remain more concerned about security. U.S. executives share these concerns, but they also struggle with implementation — an indicator that they have not climbed as high on the learning curve as their European competitors.

Industrial customers in the U.S. say that they are more concerned with issues that would bring IoT systems into the mainstream of their businesses — namely, integration with other operating technology, interoperability, technical expertise and transition risk. U.S. executives were much more likely to cite these concerns in our 2018 survey than in 2016. These challenges limit the degree to which companies scale their POCs into daily, operational implementations of IoT technology.

Europeans’ more extensive experience with implementing IoT contributes to their increased awareness of cybersecurity risks. Bain research across industries finds that executives at companies with greater cybersecurity sophistication see more risks than those at companies with less sophisticated cybersecurity capabilities (for more, see the Bain Brief “Cybersecurity Is the Key to Unlocking Demand in the Internet of Things“).

Looking ahead, the greatest challenge for Europe’s IoT providers is to become leaders in cybersecurity, and to meet the needs of their commercial and industrial customers that remain wary due to their security concerns. European companies must also continue to address the complex privacy and regulatory environment of the EU. Mastering these challenges could position Europeans as global leaders with a competitive advantage over their peers from other regions.

IoT providers in both regions could also speed their progress in reducing barriers by focusing their investments on fewer industries, which would allow them to develop greater expertise and deliver more comprehensive end-to-end offerings to their customers. The learning curve effects from POCs will allow vendors to overcome the implementation concerns of their customers by offering more packaged products and services that can scale more easily.

Leading industrial companies across regions are moving quickly past the proof stage, and now, it’s all about scaling. Over the next two to three years, clear winners will emerge as the benefits of early investment kick in and their POCs scale up to operational levels. Companies that have put off investment will lose ground to competitors that are learning how to derive value from the internet of things and becoming more data driven every day — skills that will form the basis of competition in a world of extreme automation and artificial intelligence.

This article was co-written by Ann Bosche, Christopher Schorling and Oliver Straehle, partners with Bain’s Global Technology practice in Silicon Valley, Frankfurt and Zurich, respectively.