Digital Transformation, IoT and the Future

Digital Transformation, IoT and the Future

Session Description:
From the sewers below our cities to the roads and buildings above, the depth of the ocean to outer space, be it our genome or our micro-biome– how much will the Internet of Things and digital transformation change our lives?
Kirkpatrick: Okay, now, just quickly to introduce who else has just joined us, Mark Bartolomeo of Verizon.
Mark is in charge of all Internet of Things stuff at Verizon, which has become a huge part of Verizon’s strategy, as you will hear.
Next to Mark is Jessica Federer, who’s come all the way from Dusseldorf, although she is an American, as you’ll clearly hear. But she’s in charge of digital transformation at Bayer, which like GE is one of the world’s largest companies, and she has a job very similar to Bill’s internal transformation job across all of Bayer’s businesses, which are very much in the news now because they’re trying to buy Monsanto.
And finally, Mark Patel of McKinsey, who’s somebody whose career has kind of been mostly in semiconductors, real expert in that arena, but in recent years has become really one of McKinsey’s top thinkers about the Internet of Things.
So really basically, what we’re here to continue is this discussion about what an interconnected society means to the future of business. And I guess I wanted to start with you, Jessica, to just talk about how Bayer thinks about what an interconnected society and digital transformation enables you to do.
Federer: Yeah, it’s a wonderful question. So at Bayer, our whole mission for 150 years is science for a better life. And actually, digital science is making that much more possible. So in the past, we could make brilliant products, and we’d make these molecules, and making a molecule and researching and developing and manufacturing and marketing that molecule, you know, that takes 10 years and $2 billion dollars in the pharma sector. That’s really complex. But at the end, what we could make and sell is the molecule. And what we’re really excited about now in this new world is that we can start to shift the focus from the volumes to the value of the product, to the outcome. And that goes across both pharma and farming. But that’s really the promise of where we’re going is this end value to the customer and we love that.
Kirkpatrick: Just explain this volume to value. Explain that—and the outcomes, talk about that too a little bit.
Federer: Yeah, well, in the healthcare space—how many of you work somewhere in healthcare? Okay, so a good proportion. So you all have heard about hospital readmission rates and, you know, value-based pricing. There’s a lot going on to move the focus to the results. People don’t take a pill to take a pill. They take it for what it does. And so we’re just now at the cusp of being able to really have interoperability—I mean, come on, that took 15 years longer than it should have. But we’re getting closer. We’re just now getting systems in place and moving towards a world where you actually can have reimbursement based on outcomes and have more meaning for the end user. And bringing that value, bringing that result to the customer, I mean that’s why we all do this job. That’s what we’re here for.
Kirkpatrick: But sort of sensing and interconnectivity is indispensable to move in that direction. It’s just a given for you.
Federer: Absolutely. And frankly, you know, this is where if there’s regulators in the room, we do need help. You know, I look at the electronic health records and you’re like, come on, seriously, are we still trying to get value out of EHRs? When, you know, 15 years ago Intermountain Healthcare showed us how an interoperable system could deliver phenomenal outputs and they actually got reimbursed more from CMS because their outcomes were so good.
Kirkpatrick: You mean people were healthier? Yeah.
Federer: People were healthier, yeah. You eliminate errors. You give better care. You reduce C-sections. We’ve known this for a long time, but because our systems haven’t been interoperable, because we haven’t had this interconnectivity, it hasn’t delivered on the promise. And actually, at Bayer, we talk about digital a little differently. We say digital’s not a technology topic, it’s a people topic. And if you focus on it that way, it’s all about the connections and breaking down the silos and bringing the information together and speaking the same language. And it’s as much of how you work as—you know, it’s not just what you’re doing, it’s how you do it. And that’s really the promise of where we’re going.
Kirkpatrick: I don’t know, we may get to this culture question because that’s a key one. And I want to get back to regulation. But not quite yet, but I definitely think that’s a key discussion point here. But, Mark, talk a little bit why—you know, and I think a lot of the seeds of this have been planted already, so to speak, and agriculture’s an interesting view too. Why is Verizon so hot on IOT and what’s the priority for you in this discussion?
Bartolomeo: Yeah, so Bill and Jessica both mentioned moving lots of data, providing connections. I heard you say connections many, many times there in this interconnectivity. Today we manage more than 150 million devices on our networks today and it’s all around providing reliability and consistency and moving that data and getting the throughput. So when we look outside of some of our traditional markets, we see some similarities between the business we’re in today. So how do we bring reliable connectivity into areas that help improve important issues, which we like to call problems we’re solving. Things like sustainability; you know, how do we work with the growers in California who are in the fifth year of a drought, and help them improve yield on crops to feed a population that’s doubling by 2050, you know, with less and less resources. So those are some of the areas where we want to bring this connectivity and machine learning.
The same thing in areas of safety; how do we really work with some of the largest municipalities to improve transportation systems so that we reduce fatalities. And we see both of these coming together to drive economic growth. Where we have municipalities where people want to live, where people can be commuting safely, where they’re living in areas where sustainability is important, that’s going to drive economic growth.
Kirkpatrick: And you’re building entirely new businesses based around this connectivity. I mean just give an example of one or two of those.
Bartolomeo: So I’ll talk about food for a little bit. I know we talked about healthcare and transportation and things like that, but I think today, at least three times today you’ll have some interaction with a farmer or a grower, because, you know, we all have to eat. And that’s important to not only us but to our families. So how do we bring food into the market safely? So I saw a little write up in the brochure about bringing it to the deep oceans, and today there’s a lot of challenges around aquaculture. We’re working with many of the oyster farmers in Cape Cod, who not only are interested in improving yield and their own economic viability, but delivering a safer product that’s free of viruses into the restaurants here in New York or into Boston. So we’ve developed an entire business unit around food safety to work with them on monitoring how things are harvested, what temperature they’re transported at, and actually looking at that entire chain of custody and cold chain from the point of harvest to the point of delivery.
Federer: And actually, that’s where the connectivity also comes through for our companies. So Bayer has one of the largest animal health companies in the world and we’re also big in aquaculture, and fish and shrimp and oysters. And now, working with partners we didn’t always work with before—I mean we’ve always worked with Verizon, but now in very different ways, in our farming and crop science and animal health business. So the connectivity is coming across in the corporate world as well.
Bartolomeo: Yeah, I just wanted to mention, it is amazing to me how you see convergence take place. You look back years ago where you had this wireless communication industry and you had this fantastic automotive industry and very quickly we saw the convergence of the connected vehicle. But now we’re seeing the same thing with communication technologies in biotech. And it’s going to take all of these sciences coming together and it’s going to take great industrial industries like GE runs to really improve the outcomes around sustainability and really address things like global warming or climate change.
Kirkpatrick: Okay, other Mark, I have a question for you. We’ve heard a lot of optimism already here, right? A lot of gung ho and promising ideas. But the reality is, Internet of Things as a concept has been around for a hell of a long time, and in reality, not much has really happened, despite all of these great intentions and a few good examples of nice things happening. Why is that, and where do you see the overall kind of trajectory of this transformation?
Patel: So I mean I would say, I mean we, from a McKinsey perspective—and we did a significant body of work in the last two years to look at what do we think the transformational impact can be over the next ten years from an economic perspective. And we think the potential there is huge. I mean we’re talking trillions of dollars when we look out 2025 and beyond. So I would echo the sentiment of there’s an enormous potential all around the themes that Bill was talking about in terms of productivity, and then the societal benefits and the benefits that build on top of that.
This question around what’s it going to take to get there I think is the one that we’re all most excited and most energized to basically figure out. Because I think we can all start to imagine all these different use cases we’re talking about and the big question is what does it take to unlock that? How do we get that transformation going and how do we get adoption going? And in the last couple of years, as we’ve been working with clients on this, and we’ve really sort of, in a slightly non-McKinsey-like way, we’ve tried to go from just kind of developing the research to actually saying, okay, let’s go implement and figure out what it takes to implement and why sometimes it takes longer than we all hope.
The conclusions that I think we’ve started to come to—I would say we’re still very much on the journey. One of the themes that’s coming out for me, and it’s very much linked to some of the examples that Mark and Jessica and Bill talked about, is this theme of how you align, in any system, in any business system or any value chain, how you align all of the elements in order to drive the adoption. And if we all worked totally rationally as actors on a purely economic basis, then, yes, the alignment would happen very quickly and we’d get these benefits. But we know it doesn’t because it’s human, right? It’s a human thing.
And so I like Bill’s jet engine example as a great example of why I think it’s possible to move quickly in some realms but harder in others. So in the jet engine example, a manufacturer who understands the product extremely well and who’s designed it in a way where the sensor data is really part of the system, a single set of customers who also have a very clear incentive to optimize for the same outcomes, and just a business system that allows a limited set of actors to come together really quickly and actually get the benefits. And I mean I think of it as that’s an end to end system that you can really quickly align and get the benefit of the data getting generated, getting analyzed and translated into value.
If I think of a different system—and some of you in the audience might disagree with me on this one, but healthcare, that’s a hard one to go after because there’s so many different actors and so many interests to align in order to get some of the outcomes, even when we can see the benefits.
Kirkpatrick: And yet, so appealing as a place to tackle because the inefficiencies are so vastly obvious, right?
Patel: Absolutely.
Kirkpatrick: After I ask Bill this question, I’m going to ask you what you think the barriers are and the opportunities. But, you know, I know that you have a particular admiration that dovetails a lot with what you were saying before for Tesla and SpaceX. Explain why those two companies stand out for you in the economy as examples of what’s possible that are really pointing in the right direction.
Ruh: I think, you know, it goes back to this idea of asset productivity, that what they’ve done is taken a car and a spacecraft and they’ve made them much more productive product lines. And I think when you think about what it’s going to take, the technology is important. If you aren’t good at understanding how to connect this stuff together, and especially if you’re not good at the analytics—the analytics are everything. But if you look at what is really interesting, I would content they’re probably more of an analytic software company than as much a hardware company. They’re an analytic software company first. So to make a reasonable rocket without the analytics and software is probably not possible. I’d content it’s not possible.
Kirkpatrick: Well, you couldn’t land it on a barge.
Ruh: But the fact that you can do that is driven by the fact that they are building the world’s best analytics to do that. So they are taking companies who’ve been in the business for a very long time who haven't themselves been software-led, analytics-led, and I think that that’s what, if you look at both those companies, they are. So if you just even think about the Tesla, you know, some of the data I’ve seen says they don’t always buy it because it’s electric. They buy it because of the fact that it’s upgradable consistently. And even now, if you own one, you can get self-driving features and you then have to go buy a new car. And so the idea of the software-led environment, the way you build your products, we think is going to be a center point.
And again, I think IOT is less important than analytics. Whoever has the best analytics is going to win is what I believe.
Kirkpatrick: Okay. Before I move to Mark, you said something related to that when we were talking about Amazon, and I think Amazon came up in the conversations with most—actually, most of the speakers today, all day, Amazon came up in some fashion. But the thing that I found intriguing about your remark about Amazon was your connection to Jeff Bezos’s ownership of his own space company that you thought was significant, which is not something that people generally associate with the other miraculous things that Amazon is achieving. So explain why you think that’s significant.
Ruh: I think there are three markets that people play in broadly in this cloud/IOT space. One is a consumer, and you know who the winners are in the consumer space.
Kirkpatrick: Amazon is one, obviously.
Ruh: You follow the money, who makes money from consumers. You know, it’s Apple and Alibaba and Amazon. And then if you go to the enterprise space, we see a shift on our ERP systems to be—and we all know, we see SalesForce. We see ourselves moving more and more to the Microsoft Azure cloud to help our enterprise capability. But interestingly enough, Amazon is the only enterprise player that is both consumer and enterprise and doing well in both.
And then you start to look—and I look at what Amazon’s doing, what Jeff Bezos is doing, now he’s moving into, he’s buying planes and he has trucks and he’s now talking about spacecraft. So he’s moving into more traditional industrial. So I think when I look, it may be the only company that actually cuts across all three. You know, for us, we’re going to stay and work in the industrial space. But whether anybody can move across two has not been proven except for them. Can anybody move across three is going to be—you know, I think it’s going to be very, very hard.
Kirkpatrick: So the data he’s going to get from the planes, and even the rockets, and of course all the physical objects that he’s distributing throughout the world gives them fundamental advantages over anybody. But I don’t want to dwell on them, although it would be fascinating because everyone in this room cares about them surprisingly much more than even a year ago, I would argue.
Ruh: Yeah.
Kirkpatrick: But, so thank you for making that point. So, Mark, explain what you think the barriers are and where the opportunity to move forward more rapidly is.
Bartolomeo: So breaking it down into three areas, I think the number one barrier that we see is complexity. And the reason that we point to complexity is that the adoption rates, participation rates in IOT are actually very low. In order to participate in IOT, you need a world class CTO organization, you need an enormous amount of capital and you need to be a huge corporation that’s willing to take risk. So in order for IOT to really take off, and really for machine learning to deliver the promise, we have to start seeing it come down into the midmarket, where organizations that don’t have world class CTO organizations can easily adopt solutions.
I think the second element is this really fragmented ecosystem of service providers, and you have people who are providing equipment today, people you’re working with to provide connectivity, companies that provide analytics, hardware companies, you know, everyone trying to tie this all together. So what that’s doing is driving up the cost to participate.
And the third element that we really see coming together in there is what is the business case, what’s the really well-defined business case that justifies the expense, the complexity and the risk we’re taking. And I’ll just give you one example. If you think back to the early days, when the government first defined a lot of the requirements and standards for the national grid framework, you had companies like Duke Power and SoCal Edison and ConEd who needed to really comply with that, and they were looking out in this and saying, “How do we really adopt this? There aren’t the right standards.” But they moved forward, and their CTOs were looking at this and saying, “I’ve got to go out and take all this risk. I’ve got to invest all this money, and then I’ve got to go to the board and get funding. And the end result will be that our customers are going to buy less of our product, because as an energy company, all I have to sell is energy and the solution I’m going to deploy is going to incent people to consume less of it. So how do we make this work in terms of a really well-defined business case for our customers?”
Kirkpatrick: So I didn’t get the final answer there. What was the answer?
Bartolomeo: Oh, so the final answer there is actually, you know, organizations began to look at the technology expense and say let’s go ahead and adopt this, but let’s also drive benefit. For example, let’s defer the cost of building new generation equipment, because if people are consuming less power, that means I don’t have to build another plant. Let’s do load balancing. Let’s do more with the connectivity that have.
Kirkpatrick: You talked about the federal role, and the Energy Act of 1997 is what you mentioned on the phone. And this I think dovetails with a big point that I was really surprised to hear you all talking about, which is the role of government in actually facilitating progress here. You know, we think business hates regulation, but that is not the message I got from talking to these people in advance. So Jessica, what’s your thought on that?
Federer: Yeah, I mean what we all want to do is improve public health, right, make the world a better place, do our little part and improve whatever our area is. And if you look at our water systems, our electric systems, our vaccines, anything, you needed standardization. And that standardization isn’t going to come because a company volunteers to get all their buddy competitors to do the same thing. And so there really is an important role in the government, in regulation, and I think what we haven’t started to address yet is also when governments and regulators start getting involved in this massive amount of health data.
So, you know, if/when we have this interoperability pledge rolled out it the US and 98% of EHRs are speaking the same language, maybe there will be talk of a public health responsibility to use that data for public good. So right now there are many diseases that there’s no incentive for people to tackle. But if you give people a choice and say, you know, your data is your money in the bank, they put their money in the bank if they get interest. Well, they’re also happy if that benefits their family member with Alzheimer’s or someone with a rare condition. And if you look at 23andMe, over 80% of the people that pay to have their genome sequenced volunteer their data for clinical studies. Because even though they’re paying for the service, they’re happy to have their data utilized to do something for public good.
So, you know, as regulators start to—you know, and it’s good that regulators aren’t there yet, because we never want regulation to move before progress. We need to have the experimentation first. But there is a point at which you have to say, look guys, speak the same language, use the same system, use the same electric grid, or plumbing or, you know, train systems. There’s so many things where we could really benefit for overall society.
Kirkpatrick: Yeah, we don’t want government to like stipulate how you define progress. But we do need some prods toward collective action.
Federer: Well, the investment is so large. And as you were just saying, industries aren’t going to invest in something if they’re not sure that framework is the one that’s going to stick. But if you say this is the framework, well, I’ll invest.
Kirkpatrick: Mark, you’ve been nodding over there. What are you thinking?
Patel: So I may or may not be as far on the spectrum in terms of we need to regulate. I don’t think anyone on the panel’s saying that, but—
Federer: No, I’m not saying that. I’m just saying it’s very helpful for progress.
Patel: If I use the 23andMe example, I think it’s a great one. I think there’s a belief here that there’s also an element of the more data we expose, the more willingness there’ll be from both an individual and a corporate and an organizational perspective to then contribute data. And we come across a lot of the time this question around who owns the data, who’s going to own the data, how is that going to impact and drive either adoption or slow down adoption. I’d argue that the business value or the societal value is what’s going to unlock how we manage the data and how willing folks are to use the data.
Federer: And to change the conversation from who owns the data to who has the best algorithm to make that data useful.
Patel: Exactly. Yes, who’s going to get the best value out of it.
Federer: Yes. That’s what we want.
Bartolomeo: So I think the standards are a very important part of driving adoption and getting more investment in the marketplace. And, David, you mentioned the Energy Act of 1997. You know, prior to that, the electric industry was not really progressing on defining the standards for a national grid framework, which is very important to all of us. But once the standards were defined, they came together, they made the investments, and you’ve really seen the impact of how the national grid has really expanded and transformed the way people are consuming energy in the US.
Saw the similar thing with the Railroad Safety Act of 2005, which really defined the standards for positive train control. And as soon as that was defined, you had all five of the Class 1 freight carriers, CSX, Burlington Northern Santa Fe, and others, come together and define how they were going to manage the railroad network, how they were going to be able to run these in unattended mode, how they were going to improve safety on the tracks and move freight even more efficiently. And now you see the Drug Safety Act of 2013, which is defining the standards on how pharmaceutical companies will ship drugs and the requirement to track pharmaceutical shipments in 2017 from the point of manufacturing to the distributor to the wholesaler, and then in 2020 down to the dispensary.
Kirkpatrick: Okay. And to put words in both of your mouths, you also mentioned the Health and Human Services Interoperability Pledge as a similar step in the right direction. But the interesting thing you said, Mark, was that the—one of the first things you said when I was asking you, you know, where do we stand with Internet of Things, you said really, there’s only two places that IOT has really transformed industries, and one is in energy—and it’s still early but it’s happening—and the other is in railroads, and you tied it to those two federal actions that basically facilitated that to create really the only two industries that have now already been somewhat transformed—which I found quite intriguing. Anyway, to put words in your mouth.
Bartolomeo: That’s exactly right. So it comes down to, in order for things to scale, you really do need interoperability. You need to remove these walled gardens, and in order to do that, there has to be common standards. And I think the government does play an important role in helping define the standards.
Federer: But we can also learn from what other countries are doing quite a bit here. So China recently gave their complete track and trace contract to Alibaba. And if you think this through—
Kirkpatrick: For drugs?
Federer: Yeah, for pharmaceutical—for pharma products. And so if you think it through, they’re getting all the data from manufacturing to distribution to point of sale to when you scan it to see if it’s counterfeit or not, and it says, “Hi, welcome to the support group for your medication. Here’s your reminders…” And if you play that through [ph 0:41:22.2] a couple years, you know that we will be negotiating drug prices directly with Alibaba because they will own all the data, and then it changes the industry dramatically. Now, fortunately, in China, enough people had a problem with that monopoly approach that there were some lawsuits and now they’re bringing in other players. But that was one move that would have dramatically changed that entire business for us.
Kirkpatrick: Wow, I hadn’t even heard that story. What were you going to say?
Ruh: I would say that I think standards are important but I don’t—I have to say I think the bigger concern—and take the word Techonomy. Look, I think right now, you know—
Kirkpatrick: We like that word.
Ruh: We all love that word.
Kirkpatrick: Thank you.
Ruh: Data is water rights to the valley. If you don’t have data, you  have nothing. Now, without great analytics to compete on, you can’t win. But the reality right now is that around the world there are trade barriers being put up around data. There’s data sovereignty regulations—you can have all the standards in the world and it will be meaningless unless we have a level playing field to be able to build and ship products globally that allow us to create these kind of systems. And when you talk about critical infrastructure, you have all kinds of governmental concerns.
So right now I would say you’ve got leading countries, with China having Internet Plus, you have Germany with what they’re doing with Industry 4.0. And you look in the US and we aren’t even having a policy on data—
Kirkpatrick: Those are national government-driven policies.
Ruh: And I think—the only thing I’ll say is that it’s interesting, if you look at the TPP that was just negotiated with the Asia-Pac countries, that actually is the first time it’s being addressed in terms of data governance, but there are so many exceptions to the rule as to be not very useful, and the TTIP, which is being negotiated with Europe, doesn’t even address this, and yet you have the European Union and folks like Germany figuring out their own policies. If we don’t have some way to be able to open the borders on data and work effectively within some limitations and regulations, we’re going to find the technology’s going to slow down, trade’s going to slow down, and we’re going to take a step back.
Kirkpatrick: That’s very tweetable, by the way. Do you think that we really then need a US government, essentially industrial policy to push in this direction? To use a loaded phrase.
Ruh: I would say we need a—I’m not sure that an industrial policy would be the right way to describe it. Look, I think we have to have—we have to make some very core decisions about data, data sovereignty and what we want in our country and what we want outside so that the ability to conduct digital trade occurs. I wouldn’t call that industrial policy.
I think that we have to have a policy around—the fact is, automation is occurring and that will impact some jobs. But right now there’s 5.6 million high tech high paying jobs that are going wanting. You’ve got to cry, if you’re in the US, that there’s that many jobs going wanting because the skillsets are not there, and yet we worry about jobs.
Kirkpatrick: 5.3 million?
Ruh: 5.6.
Kirkpatrick: 5.6 million jobs that are unfilled?
Ruh: Unfilled.
Kirkpatrick: Wow, that’s a bigger figure than I thought.
Ruh: So then what’s our policy about—one, we have to have a policy about the work visas, and you’ve got to have a policy about how are you going to encourage that. And I think these are the kinds of policies that have to be conducted from a digital economy standpoint to be able to operate in this kind of new world, because if you don’t, you’ll be locked out of the trade, you won’t have the skillsets to be able to deliver, and I don’t think that you can function and win as—your country’s economy, and this is true of the US, Europe, China, anywhere, has to think these things through.
Kirkpatrick: So the summary concern is you are really worried about US competitiveness if we don’t address this.
Ruh: I would say, yeah, I feel that this is a key topic. And look, right now we’re having this panel because there are things called chief digital officers getting created without—you know, so business is starting to move in this direction. Do we have the right regulations? And while I agree with Mark, the kinds of regulations you saw led to the enactment of really, you know, helping to move things forward, the question is, are we—you know, I just look at the dates on those and that makes me want to cry, you know, how long ago these things—
Kirkpatrick: 1997, yeah.
Federer: But actually, the US is not as restrictive as other countries right now when it comes to data privacy law or data law. So I’d actually say the US is okay. What worries me more than that is even something we touched on last night, which is education. You know, if we’re talking about digital transformation, IOT and the future, and, you know, one of the big topics, which I know we’ll address a little bit later today, but that is close to all of our hearts is the education component. We’re talking about a world in which the children that are being educated today are not prepared to compete, and that’s something that’s even more challenging than anything else we talk about is what are we doing with education here, and that’s something that really will change the economy and drive the policy and drive the business.
Kirkpatrick: Okay, and that is a key point. I’m glad you mentioned it.
I want to hear from you all. Who has a question or comment? Because really, anything is fair game.
Sprague: Steven Sprague from Rivetz. My question is founded around an observation I’ve been working with for a long time has been that Internet of Things is a shift to a device identity architecture of the network, and that encrypted messaging is really critical to this global infrastructure. It’s interesting right now in a regulatory context, we’re actually completely backwards, from a government perspective, in even understanding. So I’d like to ask the panel the question of a) do you agree we’re transitioning off of ports and to a device identity architecture network with messaging, and then how do we communicate that, because today we don’t have that conversation of a change in the network architecture, so government regulators are upside down right now in the discussion.
Kirkpatrick: So you’re really saying why aren’t we putting security more at the center of this whole discussion.
Sprague: The Internet is over. We’re moving to a device identity-centric network, like a cellular network with SIMs. No more ports, no more LAN. That shift proclaims encrypted channels and encrypted messages, and today we’re pushing against that as opposed to for it.
Kirkpatrick: Okay. I think that’s a good thing for McKinsey to address. That’s the kind of thing you guys are supposed to know about.
Federer: All right , Mark, you’re in the hot seat.
Patel:  Thanks. So would I agree with the statement that we’re moving towards more of a device identity? Yes, but it’s going to be in concert with the model that we also live with today, which is still the consumer Internet. So I wouldn’t make the claim that we are, you know, we’ve gone binary here from one to the other. We’re going to have both and they’re going to have to exist in the world together. And I think the implications that you’re driving to are have we really thought through what that means in terms of whether how we’ve approached the integrity, the security, the communication channels even contemplates what the implications are for that. And I would argue now we’re at the tip of the iceberg in terms of actually what the implications are. And the experimentation and the point that we’re at in terms of putting some of these IOT devices and ideas and models out there have not really contemplated both what the requirements are going to be and how they’re going to interact in the future.
So I think I would agree with what you’ve said. I’d say there’s a lot of work to do. I don’t have any special answers on what the right approach is going to be to get there, unfortunately.
Bonchek: Hi, Mark Bonchek with SHIFT Thinking. My question is about timing and what kinds of things. So we’ve talked about big things like, you know, trains, airplanes. I know GE’s also working on making the lighting smarter. Those are small things. We’ve got hospital equipment, but also all the things we’re wearing on our wrists, and now Nike’s doing shoes and basketballs. Is there any pattern that you’re all seeing in terms of which things are going to get smarter first, and if you have assets, which ones should you be looking at first, which ones are going to take longer, and why?
Kirkpatrick: That’s a great question.
Ruh: Well, I’d go back to what I said before, I think there are three markets and each will develop themselves differently. I think what consumers want out of these devices—which one could say that’s—you might say, well, that’s in the lead because we’ve connected watches and thermostats and things like that. I think though that on the industrial side the reality is we’ve been connecting machines for 30 years. It was just proprietary. And we’re moving this from proprietary into this more open, where we take advantage of the underpinning technology that came out of the consumer and apply it in there. So I think it’s really a shift that’s going on to connect in the industrial space.
I would say this, that every—I look at all the industries and they’re all moving equally fast. And when I ask why, it’s not like the CEO wakes up and goes, “Gee, I really need an IOT strategy today.” What they really say is, “I’m not getting enough productivity on my power plant,” or, “I need to move more loads,” or, you know, “This maintenance is killing us.” That’s what they say, and then it’s, okay, the only way to deal with that is through better analytics and data so I fix the problem right at the point as it’s occurring. And then what happens is that rolls down into the organization and that’s why you have to do this.
So I will tell you right now that everybody I see in the industrial space, I’m like almost shocked how fast they’re saying, “I’ve got to do more” and they’re coming up with big problems they want to address. So I think you’re going to see it move quite fast in the industrial space.
Frank: Dave Frank. I’m with Verizon, actually. I’m a sales guy.
Kirkpatrick: You’re allowed to speak
Frank: So you mentioned the complexity and the fragmentation. So when we look at cloud computing, you mentioned Azure, you mentioned Amazon, and some of those big cloud plays where the intelligence lies and you’re building this neural framework relying on this fragmentation. How will that scale so that all these various devices and software components have a baseline operating environment?
Bartolomeo: Yeah, so Bill and I were actually talking about this last night. And it gets to the point where there needs to be this full interoperability. Everyone talks about IOT platforms and software as a service and the cloud computing, but many of these still end up being walled gardens and we need to start getting into the phase where the various platforms are interconnected and the technology just becomes in the background. So one of the things that we’re definitely seeing right now, which is why I am optimistic about IOT and data analytics progressing, is there are fewer conversations about technology and we’re seeing more conversations about things like the business outcomes that Bill was talking about or improved healthcare outcomes that Jessica was talking about, and the technology is beginning to move into the background, which says it is getting simpler and we are approaching some of the interoperability , but we still need to get to the point that was made here, David, around security, number one, privacy, number one. How do we bring that same credential and identity management that we had on the Internet, where there was a people interface, down to a machine. So IOT credential and encryption is going to be key to this also.
Miller: Michael Miller, PCMag. Five years ago, when Techonomy was starting and there were a lot of conferences, big data was a big issue. McKinsey says next five years it’s going to transform the economy, big productivity benefits and all of that. As Bill points out, we haven’t seen the productivity benefits and all that. Why is this time different?
Ruh: I think there is a lot going on that maybe isn’t out front for everyone to see. I get this same question very similarly around smart cities. We’ve been talking about smart cities forever and people point to, you know, a couple of cities in Europe and one or two cities in the US, but if you look at the municipalities, like just here in New York the things that are happening in the background that we just don’t see. They are making huge investments, they are improving outcomes. But also, a lot of the smaller businesses are now beginning to adopt this technology. So we work, as many do, with growers in California and they are seeing things like improved yield with using much less water. And then you see big macro issues, where in 1975 the average yield per acre was something like 25 bushels of corn per acre, and today it’s more than 100 bushels of corn per acre with 50% less water.
Kirkpatrick: That’s a nationwide statistic?
Ruh: That’s a nationwide statistic. And those are some of the things that we’ve seen where people are using data more effectively and they’re saying, “I need to use the resources to the best of the ability to get the yield that I need.” And I think those are the things maybe that aren’t out front, you know, being covered.
Banks: Thank you. My name’s Clayton Banks from Silicon Harlem. I had two quick things. It seems to me that IOT is dependent on two really critical things: broadband, and of course, from a consumer perspective, the type of things they’re going to buy. So we saw a digital divide when the Internet came out and all us exploded when we started to close that gap. Internet of Things has the potential to create another digital divide because of the affordability. So particular Bayer and Verizon, I would love to hear your perspectives on how you’re dealing with those two realities.
Kirkpatrick: Great question. Thank you for that one.
Federer: So is specifically your question—maybe say it one more time?
Banks: So I think there’s a corporate responsibility to think about affordability of new technologies, of where we’re going. And I think that there’s a critical nature behind broadband, which Verizon will probably speak to a little bit more. But when you talk about your purchase of agriculture, for example, and some of the new products that you’re coming out with, my question is there’s people that don’t even have broadband right now. There’s people that are suffering from a variety of other sort of social issues. Doesn’t mean they can’t benefit from IOT, but it’s incumbent on the corporations to figure out how do we make this accessible to a senior citizen, to somebody who’s below the poverty line? That’s why we have that big argument about 99%. You’ll be much more successful when 99% of people can have access.
Federer: Well, and we’ll be much more successful when people actually understand the medicines that we make. I mean right now we put $2 billion dollars and ten years into making a medicine and you give it to someone and they don’t take it and they don’t know why it’s important to take it as prescribed or with and without different things. So I think, you know, education is one of the big things.
For Bayer, since we make molecules, it’s harder to talk about the connectivity. So we do a lot around education in all the countries that we’re in, and a lot of philanthropic work, but probably what’s more interesting is more the macro level of how we’re using technology to deliver more value. Because at the end of the day, what you care about is what’s the result for you and for your family. You don’t care how cool the molecule is and how great the packaging is. And we do of course—I mean our industry exists in the pharmaceutical world because of volunteers. And many people don’t realize that for our phase I clinical trials, the first in man, at least at Bayer, those are Bayer employees that volunteer to take those first. And then, you know, phase II, phase III, our whole industry is because of people that volunteer to be in clinical trials. So we take that corporate responsibility very seriously because we know we exist and we’re successful because of the gift of someone else.
But that doesn’t touch the connectivity part. Maybe I’ll turn to Mark for that.
Bartolomeo: Yes. So I take that responsibility very seriously. We saw what, you know, transportation systems did in downtown markets to create a divide on how people can get to work and, you know, social development and economic development in those municipalities between the haves and the have nots. Broadband is something that we are pushing more and more across the US right now. So on a wireless basis, we’re covering about 98% of the population. We’ve reduced the cost of delivering that service and the end cost to the consumer, you know, by about 80% over the past eight years. But that’s still not good enough because there are people that still can’t afford that, so we do have programs where we go into neighborhoods and provide that as a free service or a highly subsidized service. We work with a program in Houston called Pecan Street where we work on providing broadband into those communities, into those schools. We work in Baltimore with some other programs through the Verizon Foundation. And then by next year, when we begin delivering 5G as a commercial product, that’ll actually allow us to deliver broadband even more pervasively as really what we see as almost wireless fiber into the home, which will be a very affordable asset available nationwide.
Federer: But just to add, it’s not necessarily the broadband, because, you know, I was in Mongolia a couple years ago, and my brother was working there. We went out to the Gobi Desert, and you’re like in the middle of nowhere. There’s not even toilets. You know, you’re really in the middle of nowhere. And yet, there are solar panels on top of the ger tents where they’re actually charging their mobile phones and using that to get information and read about how to care for their kids and their goats. So what you’re really seeing now is, through connectivity, through the mobile phones—I mean I often like to say that the mobile phone is the new toilet, because the toilet had the biggest impact on our society and our economy, for bang for your buck, investing in modern sanitation gives you the best bang for your buck. The only thing better is education. And education now is widely accessible to everyone in the world through their smartphones, through their phones.


Jessica Federer

Head of Digital Development, Bayer

Mark Bartolomeo

Vice President, Connected Solutions - Internet of Things, Verizon

William Ruh

SVP and Chief Digital Officer, GE

David Kirkpatrick

Founder and Editor-in-Chief, Techonomy

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