AI and IoT - build, buy, or use both options?

Briefly

• Industrial IoT is on its way to becoming mainstream as projects become more successful and common problems diminish.
• Companies have a choice between "build", "buy-integrate" and "buy-out" approaches to IIoT solutions. Each approach has its advantages and disadvantages.

Why it's important

• For those who implement IoT: The data obtained allows you to decide on the best approach to the realization of an IoT implementation project.
• For IoT vendors: The data provides insight into what approach to IIoT solutions is best suited for a particular type of customer.

The State of Industrial IoT in 2023

Industrial IoT (IIoT) is on its way to becoming mainstream in 2023:

• Two-thirds of industrial organizations reported that they are implementing an IoT strategy.
• The success rate of IoT projects is 14% higher than it was five years ago.
• The median time for IIoT projects to reach breakeven over the same period decreased from 24 months to 20 months.
• Common challenges such as budget availability, project complexity, and data management decreased by about 50%.

This article is based on the 82-page reportDigital Operation Signals - Industrial IoT Solution Spotlight (July 2023), published by Microsoft in partnership with research firm IoT Analytics. The report takes a detailed look at 300 recent IIoT initiatives, their challenges, successes and, in particular, how they are being implemented. Between October and December 2022, IoT Analytics surveyed key stakeholders working on their employers' IIoT initiatives and conducted in-depth interviews with some of them.

While IIoT is becoming more commonplace, a basic question remains: should companies try to buy an off-the-shelf IIoT solution, should they custom build one, or is there some middle ground?

The study found that there is no one-size-fits-all approach to IIoT adoption, but the right approach is often found for individual projects.

Build, buy or buy and integrate?

Choosing the right approach for individual IIoT projects depends on several organizational factors, including:

• Affordable budget
• Striving for differentiation from competitors
• Break-even / return on investment targets
• Available examples of use

The study found that the trend toward using the buy approach is growing: 30% of projects started in 2021 or 2022 used the buy approach, compared to just 9% of projects completed in 2020 or earlier. This increase was due to a decrease in preference for the buy-and-integrate approach, which fell from 50% to 28%.

"We clearly see a trend that people prefer proven standardized solutions"

IoT solution providers also recognize this trend. David Shook, CIO of Uptake, a U.S. company that helps customers implement IoT solutions, explains, "We clearly see a trend where people prefer proven, standardized solutions over building something from scratch.

Three approaches to IIoT implementation

Build

In an "build-it-yourself" approach, the end user builds much of the technology stack for an IIoT solution, either on its own or with the help of an external service company. He or she may purchase infrastructure and basic services or platform components (e.g., data collection, analysis and visualization).

Buy

In the case of a purchase, the end user buys the entire IIoT solution - often together with hardware and software. The solution is plug-and-play, with little effort required for configuration and integration to achieve business results.

Purchase and integration

In the "buy-and-integrate" approach, the end user purchases the entire software product from the vendor or a number of ready-made components/services that require moderate modification and integration into his information and operational technology environment. He does it himself or with the help of an external service company to achieve a business result.

However, many organizations still choose the "build" and "buy and integrate" approaches. The report provides insight into the decision-making process for each of these approaches.

1. Approach to building IIoT solutions

47% of respondents said their IIoT initiatives have used an "build-to-suit" approach, with 40% saying that custom-built solutions have exceeded their expectations. Different industries use different solutions. For example, 89% of respondents from the construction industry said a build approach was used, while 33% of respondents from the engineering industry said the same.

"If you built it, you own it."

The main reasons for building

In the words of the vice president of a U.S. consulting firm specializing in cloud integration, "if you build it, you own it". This expression captures the main advantage of the "build" approach: organizations building their IIoT solutions own the intellectual property rights and can include any features they want. This approach provides freedom to customize the entire IIoT solution, from its integration with new and current hardware to the user interface/user experience. In addition, organizations do not need to be tied to any vendor.

Main reasons for not building

The decision to create an IoT solution involves money, effort and time. First, organizations need either a strong IT department or a reliable partner who will not only create and integrate the solution, but also maintain and update it.

Further, developing a solution can be costly or unforeseen, and approving major funding often takes time. 20% of respondents faced budget constraints, which is the biggest challenge in using this approach, with the Chief Strategy Officer of a Spanish electronics company explaining, "This initiative required huge funds and it took us a long time to raise such a large amount."

Finally, building an IIoT solution typically results in the longest project timeline of all three approaches, from inception to large-scale deployment. The report shows that stakeholders spend an average of 9 months to develop a business case versus 6 months for a purchase case. Other stages of development and launch, including the average time to amortize the investment, were also longer compared to the buy approach.

2. Buyer's approach to IIoT solutions

As IIoT becomes more mainstream and IoT developers from different industries share lessons learned, more off-the-shelf solutions are available on the market, although availability is still limited. As organizations standardize their operations with industry-standard hardware or IT architecture, proven IIoT solutions can integrate with these tools to improve operational efficiency and analytics. For new companies, starting with an off-the-shelf solution allows them to build an IT/OT architecture around their IIoT solution, rather than trying to integrate from scratch.

"In the first stages, it's rare to have to resort to customized solutions."

Main reasons to buy

Off-the-shelf solutions can be useful for start-ups or small organizations with limited budgets and resources. The director of logistics for a European engineering company noted that "in the early stages of the [business] journey, there is rarely a need for custom solutions" because companies need to learn and understand their customers' needs, adding that "starting with standard products speeds up projects and lowers the overall cost."

Another advantage of the buy approach is the reduction in implementation time. The study found that with this approach, the average time required to complete the first two phases of an IIoT project is 9 months, compared to 16 months for the build approach. Since the buy approach offers out-of-the-box, robust solutions, organizations and vendors only need to customize the solution according to the organization's needs and equipment.

The study also found that 43% of respondents who used the buy-side approach had a shorter time to break-even point, with the average time from first project expenditure to break-even point being 12 months, compared to 20 months for the other approaches.

Finally, purchasing allows an organization to stay lean. External developers of off-the-shelf solutions often offer ongoing support and updates for them, which means an organization doesn't need to maintain an internal team just for that purpose.

The main reasons not to buy

While the "buy" approach limits the resources required and reduces implementation time, only 13% of respondents said this approach exceeded their expectations. The report shows that 30% of projects using off-the-shelf solutions lacked end-user capabilities, and 20% experienced problems in addressing cyber threats.

13% of projects also faced challenges with internal collaboration and resistance to change. Because commercial IIoT solutions come with their own processes, workflows and (sometimes) hardware, organizations can find it difficult to integrate the solution into their own processes and architectures. A senior engineer at a German chemical company stated, "To support the IoT device maintenance team, the change management team had to do some hands-on training."

3. Buy-and-integrate approach to IIoT solutions

38% of IIoT initiatives in the dataset utilize a "buy and integrate" approach. Buying and integrating an IIoT solution allows organizations to combine proven technology and product support with the freedom to customize the solution to meet their IT/OT and user experience needs. It also helps eliminate some of the limitations inherent in "build and buy" solutions, such as implementation time and end-user capabilities.

According to the report, the electronics and engineering industries had the most assembly-and-integration solutions (57% and 52% of projects, respectively).

"Purchase and integration allows you to combine proven technology with freedom of customization"

Main reasons for purchase and integration

The choice to take a "buy and integrate" approach is often driven by necessity, including the following factors:

• Lack of off-the-shelf solutions that fit the organization's IT/OT architecture
• Limitations on the ability to fully develop and/or maintain the solution
• Budgetary constraints
• Cybersecurity needs are not being met by available solutions

The decision to use this approach may also be driven by overriding reasons, including:

• Freedom to customize most of the solution
• Creating a defensible competitive advantage that a widely available off-the-shelf solution cannot provide
• Limit vendor dependency, balance required support and updates with the ability to adapt to changes in-house.

One respondent, the Chief Experience Officer of a US pharmaceutical company, pointed to a combination of necessity and advantageous factors: "We didn't have enough in-house IT and operations expertise to consider building a system from scratch. We did not want to be completely dependent on third parties for maintenance. A customized solution was necessary to ensure operator confidence, so a hybrid model was the best fit."

Complex integration projects can also benefit from a "buy and integrate" approach, where a custom solution would be too costly and off-the-shelf solutions are not designed for such complexity. An engineering manager at a FMCG company said: "Because the size of our facility is too large, it has become very difficult for us to synchronize our machines with different sensors and software tools." Opting for a "buy and integrate" approach allowed the company to integrate various commercial software tools and different OT equipment.

Main reasons for not buying and integrating

Although the "buy and integrate" approach is intermediate between the other two approaches, it also incorporates some of their disadvantages. First, off-the-shelf solutions are often built for specific applications, so engineers and developers have to understand them and work with vendors to develop additional integration services. This requires additional management of internal and external stakeholders.

In addition, while the "buy and integrate" approach may be ideal for complex projects, the complexity of implementation and integration was the top challenge faced by those adopting this approach (19% of projects). In second place, organizations lacked the IT capabilities to customize and integrate solutions (15% of projects), requiring additional dependence on vendors for solution development and support.

Finally, developing additional integration services becomes an additional project for the organization, which means there may be uncertain costs.

These reasons are among the factors contributing to the fact that this approach has the longest break-even time of all three options.

Which approach to choose

While there is no one-size-fits-all optimal solution, the report shows that organizations should carefully weigh which approach best fits their budget, desire to differentiate themselves from competitors, break-even goals and use cases.

Read the full Digital Operation Signals - Industrial IoT Solution Spotlight for additional insights and considerations about the approaches, what industries they are commonly used in, and what results they produce.

The report is published by Microsoft, with research for the report conducted by IoT Analytics.