Craig Resnick from ARC Advisory Group returns to discuss some of the biggest trends and challenges in the industrial market right now. We’re tackling new and disruptive technologies, overcoming resistance to change, the rapid growth of edge computing, open standards in automation, early adoption of new technologies, the evolution of virtual and augmented reality, treating cyber security as a journey, leveraging digital transformation, and differentiating factors that have enabled some companies to thrive during the COVID pandemic.
“Digital Transformation enables companies to be flexible, have real-time visibility into their supply chain and bring real-time to their supply chain decisions … we’re bringing real-time to business decisions.” – Craig
Craig Resnick is the primary analyst for many of ARC’s automation and financial services clients. His coverage includes digitalization, Industrial IoT, Industry 4.0, enterprise integration, industry best practices, and operational excellence. His focus areas include digital transformation, automation platforms, edge, OT/IT convergence, production management, and HMI/SCADA software solutions. Craig’s prior experience includes sales, marketing, product development, and project management in the industrial market, gained with major suppliers of PLCs, process control systems, power transmission equipment, and field devices. Craig holds a BS in Electrical Engineering and an MBA from Northeastern University.
Don: Well, hello everyone and welcome to Inductive Conversations. I'm Don Pearson and I'm sitting down today with ARC Advisory Group's Craig Resnick. Craig, thank you so much for being here, a returning guest on our podcast today, and we're gonna be discussing some of the current trends and challenges in the market right now.
Craig: Thanks Don, great to be here again.
Don: It's good to have you again. Before we begin, can you tell us more about ARC Advisory Group and what your role is in the advisory group?
Craig: Well, ARC Advisory Group, we're about 100 people located across the planet, we've been around since 1986, and we do everything from market research to management consulting and strategic planning for three types of customers. One is anybody that actually does any sort of manufacturing or processing, both in the industrial world, and also and as we extend over into areas like smart cities; the companies that sell solutions to that space, so the automation companies, certainly advice, such as Inductive Automation; and also the financial community, the companies that cover the publicly held companies in industrial and automation suppliers; for example, enterprise software suppliers, trying to help them with their guidance as well when they make the equities decisions for these companies.
Don: Thanks, Craig. I'm just sitting here listening to you and realizing that you were the very first guest on our very first podcast, we sat down in the ARC Advisory Group's Forum in Orlando a couple of years ago. And also, I realized that usually you're sitting on the other side of this particular microphone here because you've been interviewing me a half a dozen times in your executive interviews every time, so I'm happy to have a chance to put the shoe on the other foot and I get to do the interviewing of you today.
Craig: Okay, and hopefully you'll be as gentle with me as I am with you when you're interviewed.
Don: Oh, of course, of course. So listen, you mentioned overall what you're doing in the advisory group, but you guys do a lot of research and writing about new and disruptive technologies. Often one of the big obstacles to technology adoption is this big, broad category called resistance to change. So from your perspective, what are some of the most effective ways to overcome that resistance and to really assist people to be able to embrace a new solution?
Craig: The biggest mistake a lot of companies make is they send out a memo to their employees and say, ‘We're now going to be deploying this program or solution.’ And the employees are like, ‘What does that even mean? How does it affect me? Is this something that's positive or negative to my future?’ So we always say is if you bring people into the planning process ahead of time, empower them, take their inputs and concerns, show them how these technologies are gonna enhance their day-to-day role and actually provide a path for them in the future. They need to have an understanding and a buy-in of what the benefits of the technology are gonna be from all levels of the organization. And everybody has to get some sort of a sense as to kinda what's in it for me and will that technology provide them with a new or evolving role?
Craig: Sometimes you have people who maybe have a fear or, ‘Is this technology now going to replace me? Am I gonna lose my job?’ And if that's the case, you're gonna see an internal resistance that might hamper or delay any sort of future success or changes. It really involves empowering them, making them part of the input, showing them a path forward and showing them how technology actually can provide greater job security rather than potentially eliminating their role today. And if that is gonna be the case, how can you provide them a path tomorrow that's even gonna make them a more valuable employee in the future to their present company and also give them the skills it takes to go into the workforce again if they need to pursue opportunities elsewhere.
Don: That makes total sense. Obviously, you wanna get someone on the same page with the path forward, not trying to stop the path forward 'cause they see it as a threat to themself, their value, their future, whatever those concerns may be. So very good points. Let me shift a little bit: In Inductive Automation, we do see a demand for greater power and functionality at the edge of the network. Can you talk a little bit about why and how manufacturers are doing more with edge computing?
Craig: Well, edge is certainly one of the fastest growing areas in automation, and even in our market studies, it still has certainly one of the fastest growth rates over the next five years looking forward. What we find that a lot of companies are doing with the edge is especially in this IoT world, because there's so many more sensors that are available now to get information from. The thing is that, in industrial automation things need to be kept in a real-time domain, so people don't necessarily feel comfortable sensing that data and maybe going through a process of sending that data up let's say directly to the cloud. So what they like is, they like it an immediate point where that data can be gathered, analyzed, conditioned as needed, done that in real time, and then that data can either be used for the control system; for example, it's gonna help make control decisions or provide feedback for the operator, giving them that single version of the truth in real time.
Craig: At the same time, that data can also be now sent to the cloud because it could be used, let's say, for production management applications, it could be sent offsite to a data historian. So the edge really provides that intermediary of being able to gather data in a device that's designed for industrial applications and provides something that gives people the opportunity to both leverage their existing control infrastructure and at the same time, leverage today's cloud infrastructure and really kind of helps with this whole phenomenon of IT/OT convergence, it really helps make a lot of that production data available to a lot of IT applications that are hosted in the cloud. So edge computing is right now a tremendously strong phenomenon, and we expect a very, very bright future for edge going forward.
Don: That makes some really good points there. I wanna add another thing on that strikes me as I start thinking about even the ARC Forum over the last several years, and you have had many presentations that focus on. While a group called the Open Process Automation Forum, I think the first presentations by Don Bartusiak from ExxonMobil were actually done at ARC, the first time I heard him. Looking at the research they were doing saying, ‘We want open, interoperable, standards-based, secure, next-generation process automation systems. We're not gonna have a proprietary viewpoint towards the future, we need to have more choice, more flexibility.’ There is, it seems to be over the last several years, a real push towards open standards and open process automation. Can you talk more about what's driving this trend and how it can play a role in the OT/IT convergence, and in the Industrial Internet of Things trends?
Craig: Well, I guess the key here is, nobody wants to be a hostage to the past. They don't wanna be a hostage to their legacy systems, they wanna be able to leverage disruptive technology, whenever it's available, to help enhance their assets and systems. And the only way to do that is to make sure that all these solutions that are being deployed on the factory floor adhere to open standards, so they can not only communicate with each other, but they can also communicate with a lot of the legacy equipment that may not all be able to be replaced.
Craig: We always use the term in industrial automation called rip-and-replace, and most companies' budgets are not in a position that they can do full rip-and-replace of all their assets. But at the same time, they wanna make sure that they could leverage this latest disruptive technology to move forward. So by adhering to industry standards, open standards, open process automation, which is one of the reasons that that initiative's been driven, it enables people to be able to take advantage of not only best-of-breed solutions today, but to be able to be scalable going forward, so they can now buy what they need and expand as their solutions expand.
Craig: And at the same time, not be stuck with what I would say is 20- to 30-year life cycles. In many cases in industrial automation, when the DCS systems used today are sometimes, were often purchased in the 1980s, and they're still working 24/7, and they are continuing to run without any downtime. But at the same time, people don't wanna be a hostage to the old technology. So this way it enables them to be able to upgrade faster, and make changes faster, take advantage of the latest technologies as they're invented.
Craig: And so it's really something that has been accelerated by IT/OT convergence because at the same time you're trying to grow these technologies, you now have to incorporate a lot of the technologies in OT that are coming from IT, especially in the area of data management, cyber security in the cloud... So the whole acceleration of IT/OT convergence is actually driving the need for more open standards. So you'll not only be able to leverage all the various automation solutions, but now you're able to leverage all the enterprise and IT solutions, and making sure that everything can work together and provide a single platform that enables the best of both the IT and the OT world.
Don: No, that makes total sense, and I certainly have been involved in listening to and participating in some of the activity in that area, I think you make a good point when you say that organizations, while they live in a brownfield world, and they can't rip and replace as you say, they still don't wanna be a hostage to the past. And I think, if they're gonna take advantage of how fast newer technologies are moving, you have to have the basic platforms and open systems in place and standards-based, so they can actually take advantage of newer things. On the subject of newer things, I really wanna get your comment on two areas: Virtual reality, augmented reality. They're making inroads into manufacturing now, can you comment on those inroads and, where you see it at the present, and where you see it may evolve into the future as VR and AR continue to evolve?
Craig: Well, just like I was mentioning that edge computing is a rapidly growing area in industrial automation, we could make the same claim for virtual reality and augmented reality. Because, what augmented reality does is, you think of it, you're in a situation where there are fewer workers on the factory floor, whether it be because of just companies reducing their workers, whether it be with people retiring, we're losing a lot of the baby boomers, and certainly today with the COVID-19 pandemic, and with the people who are working remotely and social spacing of having fewer people on the factory floor. So now people have to multi-task. For example, the plant-room operator might be making rounds on the factory floor, and maybe even doing... To try to look at some of the various equipment on the factory floor that they may not be familiar with.
Craig: So now, whether they're using a tablet or they're using a smartphone, wearing a RealWear helmet for example, where they're able to visualize in their Hololens or Google Glass. They now... A lot of that extra information is being transported to the worker, so now as they walk the factory floor, they're able to take advantage of being able to see what's behind that dusty box for example, and how that information... It may be a motor-control center, or it may be a medium voltage drive, and not only tell them what's inside that box, but, if they need to make some ... Open up the box, safety precautions to make sure if they need to power off for a safety situation, that they know how to do it. So it's a combination of guiding them around the factory floor, providing them with the necessary instructions, and knowing the fact that the person has never had any experience or background in a lot of these products or assets they're seeing on the factory floor. So it's actually providing a digital assistant that helps to guide the person around, provides them the information that they need, and helps them make the best decisions without ever having to have been trained or having that experience.
Craig: So, it's really critical in this multi-tasking world with people, again, fewer on the factory floor, and people are working remotely to have these solutions. And I can tell you that when people are making their purchasing decisions, this is — augmented reality is something that they recognize the value with, almost immediately. It's something that has been — so that's one of the reasons for its fast adoption. Now, if we look at the difference between augmented reality and virtual reality: virtual reality does, is you think of, let's say, gaming, for example, where you're wearing a headset that essentially puts you into this simulated world, but instead of doing it through playing Fortnite, for example, it enables you to actually look, feel as though you are completely immersed in that process. Now, think about it from an aspect of training that now the person that's never had a training course, let's say, in what's going on in the factory floor. You can now simulate almost any potential condition and be able to teach someone how to respond in any potential disaster.
Craig: And it's interesting because pilots have been doing this for many years, when they go off on a certain level of frequency to simulate it, to practice scenarios like how to react if something perhaps happens to the airplane. And this is a case where the people on the factory floor are able to use virtual reality for training and practicing how to respond to any type of disaster or situation. So again, for augmented reality for maintenance, virtual reality for training, this is something that we see is having extremely rapid growth over the next five years. Very, very fast adoption amongst all the vertical industries.
Don: No, that makes total sense. It certainly has a great application when you take a look at both the maintenance and the simulation and the training opportunities to make things a lot safer on the plant floor for those taking that responsibility. So let's talk a little bit about security for a second, there's a lot of companies that are trying to strike, if you will, that kind of tricky balance between increasing access to data while keeping data secure. What are your thoughts about that broad category, or more particularly about cyber security in general?
Craig: Well, it's interesting because before the COVID-19 pandemic, many of our manufacturing and processing clients would say there is absolutely no way we would ever make remote access of any of our control systems or a factory floor, plant-floor assets available because we don't really feel as though that from a cyber security perspective that it provides us with the level of security to provide access to make monitoring or make control decisions, for example. What's now happened is after the pandemic, and again, because of social spacing with fewer workers in the plant and many people working from remote locations or their homes, they're really now in a situation that they really have a choice: Do we continue to operate the plant remotely and take some of the potential risks? Or do we not produce? And I think what's happening is most people are saying, what if we were to, based on role-based access, find ways and working with our automation suppliers, our software suppliers, our networking suppliers, companies that specialize in the cyber security, and considering that in many cases, most of the automation suppliers are manufacturing their systems to stand-ins, let's say like an ISA 62443, many of the cyber security precautions are already being taken in the latest hardware.
Craig: Obviously there is no perfect system. Cyber security is a journey, not a destination. It's something that you'll always have to try to keep one step above of the continuous hacking that's certainly gonna go on now and continue in the future. What we're finding is that there's companies that were a little bit more resistant to having that remote access, are doing it and putting more faith in their systems and their automation and solution suppliers to help to make sure that they have the necessary cyber security precautions. But at the same time, we're making remote access and in certain cases, remote control decisions, but certainly everything being role-based. So we have begun to see the pandemic has really accelerated this trend towards remote access for areas that was not available in the past, and we see this ongoing forward as the new normal. Now that people are getting used to this remote access and getting comfortable with this remote access, that this is something that's gonna continue post-pandemic.
Don: I think you make a really good point. It may not have moved so fast if it weren't for COVID-19 and the pandemic challenges, but since that pushed, out of necessity, remote access and remote monitoring in the manufacturing space faster than it would have evolved probably without that impetus from the outside. But when you get over that discomfort and you start realizing you can do things in a secure way, in a remote setting and it gives you more flexibility to deal with stresses and pandemics or challenges that may impact manufacturing in the future. I think you're right, I think it's gonna become a new normal. We're certainly seeing it with Inductive in our organization, and our technology, basically the utilization of that capability becomes more and more demanded by manufacturers. And I don't think there's gonna be a going back to the old, this will be the new normal, as you say, Craig.
Don: So let's go to the broad topic. For the last many years at the ARC Conference, we've certainly heard the words “digital transformation,” whether you talked as you said, that you deal in smart cities, where you're talking about the manufacturing space across really all verticals. So this topic, Industrial Organizations Going Through Digital Transformation, it's meant, in the general sense, doing things like going paperless or automating more processors or increasing data accessibility. Well, that is a great start. You guys look at this a lot with ARC: What further value can still be achieved through digital transformation as it continues to evolve?
Craig: Well, it really depends on where a lot of these customers are in the journey. For example, the first step we call is to digitize, which is really taking, for example, a lot of manual processes and things that were measured, let's say in an analog fashion, and shift that over to a digital process, and that's where a lot of companies are now to really leverage digital transformation, it's actually moving from digitized to digitalize, but the difference when you're going from digitized to digitalized, is now you've already gone through the digitizing process, and now how are you able to take everything that you've converted into digital information and be able to leverage the latest technologies to process it appropriately and really kind of accelerate through digital transformation.
Craig: And what I would mean by that is that for example, now you're able to ... you've collected all this great data, you've put in a lot of these low-cost IoT sensors for example, but if you are not doing the right prescriptive and predictive analytics, for example, to take advantage of that data, and be able to make the right business decisions, to be able to be storing that data on any conceivable scenario, so you now, you can move to the stage of artificial intelligence and machine learning, and again, making future decisions based on the fact that you've pretty much have seen almost any potential scenario that could have happened, and now you're able to make the right steps using artificial intelligence and machine learning.
Craig: So that's one area that we are digitalizing, the digital information has really helped. We talked a little earlier about augmented reality and virtual reality. For that to be done, you really need to have gone from this process of digitalizing all this information and recording what's going on in every asset and take information based on these sensors, so now you can provide that information to the operators, and to the people on the factory floor, or the people who are working remotely. That really helps too. You can't really enable augmented reality and virtual reality, if you haven't kinda gone through this digital-transformation process. What we've also found in the pandemic is that the companies best able to respond to the pandemic and best set up to survive the pandemic and in certain cases even thrive during the pandemic based on what particular markets they're in, they're the companies who have actually already gone further down that digital-transformation path.
Craig: So in reality, what digital transformation does, is it makes companies resilient to any potential disaster, kinda planning for the unplanned. And that so what we're finding is that even companies who've been a little hesitant in the past to move forward with digital transformation, we have seen a tremendous acceleration by the pandemic because they recognize that if they don't go through this process, they are really going to be in a situation that even sometimes their long-term viability is at stake. It is accelerating at a rapid pace. Think of it: You're in a situation where you're a pulp and paper company, and with the situation we've all witnessed, you make toilet tissue, and a typical company makes a 70% of that product for residential use, and 30% of that product for industrial use or commercial use, I should say, different grade of product, different type of materials, they leverage more recycling materials in the industrial grade product, and now you gotta make that shift right away to keep the store shelves stocked, less people using it in the industry and commercial applications, more people using it at home. Are you equipped with digital transformation to be able to change your manufacturing on the fly?
Craig: Also from a supply-chain perspective, now you're gonna need different types of materials to manufacture the product, but what factories are even open? Maybe you were sourcing some of your products in China, those factories may have closed now you're looking, say, to Europe, and those factories have closed and you're looking to North America, those factories have closed, but now the factories in China, for example, are beginning to re-open. So what it does is, it enables companies to be flexible, have a real-time visibility and flexibility into their supply chain, and actually bringing real time to supply-chain decisions. One time we only thought about real-time for the factory floor, now we're bringing real time to business decisions such as ‘Where am I sourcing my products? How fastly can I get my raw materials to keep up with market demand?’
Craig: So this pandemic has really rapidly accelerated digital transformation just for, just again for the ability for these factories to be responsive, for the companies that are making cleaners, companies are certainly going back in the chemical industry, certainly companies back in pulp and paper who are manufacturing cardboard and packaging materials with the absolute surge in online sales, shipped directly to the home consumer that may not want to shop in a retail store right now. How am I making the necessary cardboards and packaging materials, and again, being able to handle these market surges, food and beverage companies, pharmaceutical companies, that are really under the gun to keep up with the demands right now.
Craig: Even the companies that have been negatively affected by COVID-19 such as say, oil and gas where the pricing had plummeted, the supply was in abundance. Obviously, we've seen a recovery to a certain extent in the oil and gas industry with pricing and some of that really excess supply beginning to be worked off, but these companies have had to make major capex cuts, so a lot of manual labor has been converted into, it needs to be converted into digital labor, and in many cases, this has really accelerated the digital transformation processes, even with companies that are unfortunately forced to work with lower head counts and be able to automate some of the data gathering processes, for example, and some of the other processes that were very labor-intensive. So it's had an effect on the companies who are doing well because of the pandemic, and companies who are certainly sometimes fighting more of their own capex and opex budget challenges by having to implement these solutions. So either way, digital transformation has been greatly accelerated by the COVID-19 pandemic, and it's gonna keep companies more resistant for the future if, God forbid, you have a rebound with this particular pandemic or you're in a situation that there could be pandemics in the future. So I think, again, this has just accelerated the cause.
Don: No, absolutely, I couldn't agree more. I think that to be resilient, to be agile, to be able to move quickly to a new set of circumstances, a new supply-chain requirement, whatever it may be, is gonna be critical to these companies, and I would agree the acceleration has definitely occurred. Is there any kind of summary you might give? A minute of bullet points of what are some of the lessons that manufacturers have learned? We're talking about accelerating change. That also swings back to the very first question about resistance to change. So our organizations having to become more agile in terms of accelerating the change in their organizations, as well as some of these other functions that they'd perform differently. Any kind of summary thoughts you may make on that impact of COVID-19 crisis on manufacturing and managing change?
Craig: Well, I think that this pandemic will be Harvard Business School Case 101 now on who are gonna be the winners and the losers regarding this. Companies that survive and thrive is after the results of a pandemic and those that may not exist in the long term. And the reason that I say that is because it really shows that companies that resist change, employees that resist change aren't gonna be able to make it in the long term, because we really can't ... When I was saying about planning for the unplanned, I don't know any company that really had in their business plan a response to a global pandemic. I've seen companies that have had responses to natural disasters and weather-related issues, but I haven't quite seen one that said, ‘Okay, what are we gonna do in a pandemic?’ And what it says is that to make sure the company can be resilient to what we don't know what could possibly happen in the future, the only way to do your best to ensure that is to make sure that you are really well along your digital-transformation journey, that you have systems in place that can allow you to react in real time, that give you the ability to control and monitor your processes from any location, anywhere.
Craig: Systems that enable you to be able to know what's going on in your factory floor, even if it's fewer or no employees. If you're in a case where you have fewer employees that now are gonna be in a multi-tasking situation, do they have the right tools to be able to get the information that they need to make the best decisions? Getting back to the augmented reality story. So this is gonna separate the winners and the losers. So I think that if you're going to be making decisions as far as which companies to bet on in the future, when you're kind of reading through their annual reports for example, I think that seeing sections on digital transformation and how we have digitalized our entire business and manufacturing processes, those are gonna be the companies that will withstand and thrive in any future disasters. Ones, again, that we could not have thought of or planned on just yet.
Don: That's some very good points there, Craig. Listen, I want to thank you for taking a good chunk of time sharing your experience, sharing your expertise with us. Really appreciate having the conversation with me today. Before we wrap up, any final thoughts, anything you wanna share with our audience as we end off here?
Craig: I think that for those that were always trying to justify the digital transformation process that are looking, for example, to say, what's the return on investment? And I can't make any sort of investment decisions unless I can really have very, very thorough calculations of when these digital transformation solutions are gonna pay for themselves, just look in the mirror and just say the word "pandemic", and I can assure you that that's all the evidence that you need, if you are looking to go through the digital transformation process. So all I could say is: Do not hesitate, proceed, and I think that's gonna be your difference between the companies that'll be here 6 months from now, 12 months from now, 18 months from now, and those that they may no longer exist in their present form.
Don: Great point. Listen, thank you so much again. Appreciate your insights. Very valuable for our audience. And it's always great to have a chance to have a conversation.
Craig: Thanks, Don. Always great to be here.