Can Sensors Fuel Productivity Growth?

For all the hype and dollars spent, the Internet Revolution has so far failed to deliver the kind of long-term productivity punch we got from the Industrial Revolution. Meanwhile, embedded devices like sensors stubbornly refuse to achieve their potential. Sensor-driven smart devices thus have no chance of kickstarting Internet-driven productivity, right?

Wrong, say two General Electric executives, strategist Peter C. Evans and chief economist Marco Annunziata. They recently released a report, “Industrial Internet: Pushing the Boundaries of Minds and Machines” [pdf]. It predicts that the Internet of things — or really, of industrial machines like jet engines, turbines and MRIs, as well as dozens of others — will lead to large-scale improvements in efficiency. In fact, they’re predicting it will add 1 to 1.5 percent of productivity growth a year to the U.S. economy between now and 2030.

What would be the impact of that kind of productivity growth? According to the report,

• As much as $15 trillion in GDP growth around the globe by 2030 (the equivalent of adding the entire U.S. GDP to the global economy).
• The elimination of $150 billion in wasted spending.
• A 25 percent to 40 percent rise in U.S. incomes.

Here’s a taste of how, from their report:

The Industrial Internet starts with embedding sensors and other advanced instrumentation in an array of machines from the simple to the highly complex. This allows the collection and analysis of an enormous amount of data, which can be used to improve machine performance, and inevitably the efficiency of the systems and networks that link them. Even the data itself can become “intelligent,” instantly knowing which users it needs to reach.

In the aviation industry alone, the potential is tremendous. There are approximately 20,000 commercial aircraft operating with 43,000 commercial jet engines in service. Each jet engine, in turn, contains three major pieces of rotating equipment which could be instrumented and monitored separately. Imagine the efficiencies in engine maintenance, fuel consumption,crew allocation, and scheduling when “intelligent aircraft” can communicate with operators. That is just today. In the next 15 years, another 30,000 jet engines will likely go into service as the global demand for air service continues to expand.

A sure thing?

There’s much to be skeptical about.

There are potential security issues that arise with connecting machines to the Internet, as noted in the articles “GE Pimps the Industrial internet” and “Industrial Internet Will End Downtime, GE Hopes.”

GE says little about real-world examples in its report, though the Journal article notes a deal it made with Air Canada to smooth maintenance. MIT Technology Review goes further in highlighting some of the company’s efforts with customers.

And then there are the numbers. Evans and Annunziata acknowledge that in the U.S., the Internet Revolution pumped productivity growth for just eight years, 1996 to 2004, when productivity grew 3.1% annually. Since then productivity has slumped to 1.6%, about the same as it was from 1969 to 1995, or basically from Vietnam to Netscape. Meanwhile, from 1950 to 1968, U.S. productivity growth roared along at an annualized 2.9%. That was 50 years after the huge wave of Industrial Revolution-driven innovation that ended around 1900. (It probably didn’t hurt that post-World War II, the U.S. had little competition and was helping to rebuild Europe).

That’s caused economists like Robert Gordon to question the impact of the Internet Revolution. Evans and Annunziata are saying that it’s too early for the Gordonites to dismiss the magnitude of the Internet Revolution. They say intelligent devices, intelligent systems, and what they call “intelligent decisioning” — people and organizations who use data from intelligent devices and systems to make better, faster decisions — will drive a new wave of productivity growth.

Adoption of sensors has lagged that of other technologies. GE is a very large company and it makes a lot of industrial equipment. That means any company involved in sectors GE touches better brace itself for the Industrial Internet in some form. They might even want to embrace it: What company doesn’t want to find a way to cut a percent or two from costs?

At GE’s Minds+Machines event last month in California, GE CEO Jeff Immelt pushed the theme further, saying the company will boost its software hiring and even invest in industrial analytics companies. He also promised that 2013 is the year manufacturing “gets sexy” again.

Immelt’s skill as a forecaster will be evident before that of his chief economist.