The Internet of Things: Industrie 4.0 vs. the Industrial Internet

Industry worldwide is waking up to the importance of internet integration, big data, and ever-faster processing. All of these innovations are shaking up standardized production and distribution techniques. Intangibles (software and processing) and tangibles (production assets) combine to form “cyber-physical systems” (CPS). CPS is a German-coined concept of software that is embedded in hardware and the two use adaptive logic transmitted through the internet. Stretching this notion from a single device through production, design, and distribution produces a network of devices tied up in a holistic CPS.

Enabling Disruption
A fast pace of innovation is instilling some fear among market participants—the fear of being left behind the competition. The title of a recent open letter by the CEO of Axel Springer, a publishing house, to the executive chairman of Google exemplifies it well: “Why we fear Google.” He might as well be saying that many companies fear the technological change that arises from new digital applications. Aside from disrupting the marketplace, what these technologies have in common is that they concentrate minds around the need to learn and adapt to the challenges posed by the new status quo. There is no escaping it.

The frantic pace of change has convinced governments and the private sector alike that this disruption needs to be enabled or catalyzed. In this paper, I compare the most robust European enabling project—Germany’s Industrie (Industry) 4.0—with a roughly equivalent concept of the Industrial Internet, catalyzed by the Industrial Internet Consortium (IIC). Similar projects in other countries include Smart Factory in the Netherlands, Usine du Futur in France, High Value Manufacturing Catapult in the UK, and Fabbrica del Futuro in Italy.1

Defining Industrie 4.0 and the Industrial Internet
Industrie 4.0 describes a decentralized production chain that stretches from design all the way through the supply chain, manufacturing, distribution, and customer service. This CPS employs software- and internet-enhanced machines that communicate in real time to limit errors and failures and raise efficiency. The Industrial Internet encompasses roughly the same processes, except its horizon stretches beyond manufacturing.

The essence of both approaches is that machines, analytics, and people are all tied together.2 Appropriately, the Industrial Internet Consortium has named this Industrial Internet System (IIS)—the rough equivalent to the CPS. The two concepts are about greater efficiency, integrating people with machines, and leaning on constant data analytics. It is fair to say that Industrie 4.0 and the Industrial Internet are transatlantic cousins, albeit separated by language, traditions, and business culture. On closer inspection, however, the two approaches differ starkly, with some differences less visible to the naked eye (Table 1).

Table 1 – Comparison of Industrie 4.0 and the Industrial Internet Consortium

Source(s): MAPI Foundation

Source(s): MAPI Foundation

Breaking Down Both Approaches
Key Authors
The German government has drawn up a series of policies in support of new technologies through its High-Tech Strategy in 2006, High-Tech Strategy 2020 in 2010, and High-Tech Strategy 2020 Action Plan in 2012. One of the planks of the latter was Industrie 4.0. The project has been since seconded to the Plattform Industrie 4.0. Nonetheless, ownership rests firmly with the federal government, which has spent some €400 million so far to kick off the project. Research on Industrie 4.0 will last many years, and by the end of 2016 the first models with example-embedded applications should be available. The challenge is to have an all-encompassing process ready for reproduction by 2030.3

General Electric, which coined the term “Industrial Internet” as a holistic new application, joined with AT&T, Cisco, Intel, and IBM in 2014 to set up the Industrial Internet Consortium. The IIC is a nonprofit that has become a go-to resource for ideas and testbeds on the subject. According to a 2013 fact sheet, the IIC “catalyzes and coordinates the priorities and enabling technologies of industry, academia and the government around the Industrial Internet.”

Key Stakeholders
Industrie 4.0 has three main stakeholders:

  • The federal government is represented by the Ministry of Education and Research and by the Ministry of Economics and Technology.
  • Academia is represented by Fraunhofer-Gesellschaft, which conducted an early pilot study; the National Academy of Science and Engineering, which was tasked with drafting the first set of recommendations; and the German Research Center for Artificial Intelligence (among others).
  • The private sector is led by Plattform Industrie 4.0, which is made up of three trade associations: BITCOM for IT, VDMA for machinery, and ZVEI for electronics. Many individual companies, such as Bosch and SAP, are directly linked to Industrie 4.0 by way of sharing best practices.

By contrast, the IIC, which is staffed by about a dozen experts located in the U.S. and Europe, is predominantly business-driven. The consortium counts among its 170 members mostly private companies and some academic institutions from two dozen countries, including China, India, and Germany. Bosch, Siemens, and SAP are corporate members while Fraunhofer-Gesellschaft is an academic member; all three are flagship entities at the forefront of Industrie 4.0’s development as well.

Membership in the IIC is open and fees are pro-rated by size, offering substantial discounts to smaller corporates and nonprofits. While no entity has been announced for the government membership level, the consortium is connected to government through grants for testbeds that IIC members obtain by way of public bids.

Whereas Industrie 4.0 is owned by a government, the IIC is owned by its members (private business and nonprofit institutions).

Taxonomy of Revolutions
Industrie 4.0 takes its name from the “fourth industrial revolution,” which is supposed to be taking hold now or in the near future. According to this taxonomy, the first technology breakthroughs came in the 18th century and involved mechanized production. The second revolution—born early in the 20th century—ushered in mass production through an assembly line that was enabled by electricity. The third revolution came to life in successive stages with data processing, computing, and internet spurred by military applications around the middle of the 20th century. Finally, the fourth revolution is about CPS, connected devices, and customized production.

GE’s taxonomy of the Industrial Internet takes a somewhat less detailed snapshot of time. It bundles the industrial and mechanical breakthroughs of the Industrial Revolution into a first stage, followed by a second revolution, the Internet Revolution. The Industrial Internet represents the third, currently unfolding revolution.

I argue that data processing, computing, and the Industrial Internet may very well constitute a continuum of applications whose lifespan is not over yet. After all, revolutions are recognized as such only after a generous lapse of time. In this taxonomy, we may still live in the third industrial revolution, one that began with advances in computing around the middle of the 20th century—exactly as the authors of Industrie 4.0 timeline it.

Support Platforms
Industrie 4.0 is unabashedly about Germany’s industrial policy. According to Plattform Industrie 4.0, “The ultimate goal of Industrie 4.0 is to safeguard a sustainable competitive advantage of Germany’s manufacturing base. On the one hand, we must train German industry to build and install CPS, and on the other to make these remain competitive worldwide.”4 

The view of the Federal Ministry of Education and Research, meanwhile, is that “Germany sits at the top of world trade with its research-intensive products—and particularly with high-tech goods, such as machinery, plant engineering, autos, and medical technology. The federal government not only ensures that this remains the case in the future, but also, through effective support for innovation, renders the future itself possible. We shall get there, among other ways, through the Future Project Industry 4.0.”

In applying the newest digital technologies to production and distribution, the Industrie 4.0 project is meant to introduce the country’s corporate world to the new realities of high-tech.

The motivation behind the IIC is different. The five large companies that chartered the consortium span the world of telecommunications, data processing, and manufacturing—precisely the components behind the integration of man, machine, and data. The IIC’s mission is to enable and accelerate the adoption of the internet in any type of business process, manufacturing or otherwise. The companies banded together because they realized that they could only gain by sharing best practices. Acting alone would have been expensive and might duplicate effort.

Their key focus is the interoperability of products and technologies and the so-called “testbeds.” These are platforms for carrying out experiments on a recurrent basis, using theories as well as data and test results. Examples include Track & Trace (location and misuse of tools to avoid injuries), Microgrid (flexibility of real-time analytics and control to raise efficiency in power generation, particularly in renewables), and INFINITE (dynamic reconfiguration of a network without changing hardware and achieving connectivity via multiple access points).

Sectoral Focus
Industrie 4.0’s priority appears to be the factory floor. Germany is a manufacturing powerhouse and the project attempts to help industrial companies stay competitive in the face of disruptive applications. New digital technologies have been largely conceived outside the country and there is a fear of falling behind in the marriage of hardware (a traditional German strength) with software and platforms (a German weakness).

The Industrial Internet’s name suggests a similar manufacturing limelight, but this would be an incorrect assumption. As the IIC has noted, “Industrial Internet systems cover energy, healthcare, manufacturing, public sector, transportation and related industrial systems.” We can easily add agriculture and utilities to this mix—effectively spanning some 65-70% of economic activity.5 By contrast, Germany’s manufacturing share of GDP amounts to 22%, according to World Bank data.

Technological Focus
Industrie 4.0 specifically singles out embedded systems, automation, and robotics—all directly applicable to manufacturing. The CPS itself is modeled after a production platform that is linked to a supply chain.

The Industrial Internet, meanwhile, is concerned with anything that can be connected to the internet, provide data as feedback, and raise efficiency. A great deal of work is being done on seamless device communication, data flows, and controls. At the same time, big data plays a role in predictive analytics applied to topics as diverse as agricultural yields and devising tennis strategies based on massive-scale analysis of shot-making. The technological scope is much broader in the Industrial Internet Consortium than in Industrie 4.0.

Holistic Focus
Wrapping up the discussion on sectors and technology, the German policy-centered approach is a bit more about the hardware (robots, plants, automation) whereas IIS focus equally on the software (communications, data processing, analytics). Of course, CPS and the Industrial Internet are concepts that incorporate both—one cannot work without the other. Still, Germany sees its comparative advantage in manufacturing, so hardware lies at the center of its policy. Members of the IIC find it easier to apply their expertise where they excel; some members offer expertise in software and data processing, others in industrial systems, and yet others in communications and research. This quote summarizes it well: “It’s imperative to combine intelligently the technically sound existing solutions with new possibilities being created by the IT sector in order to take the innovation jump.”6 

Geographical Focus
Industrie 4.0 is strictly about Germany. Contrary to some statements and suggestions,7 there is nothing European, international, or global about this policy. German taxpayers’ money is being spent on helping domestic companies compete internationally. One of the earlier policy papers on implementation of Industrie 4.0 makes it clear: “The lead market for Industrie 4.0 is German-based manufacturing companies.”

The IIC, while set up by U.S.-based companies and domiciled here, is open to any entity worldwide that believes it has a stake in the future of the Industrial Internet. As noted by GE, “the availability of private, semi-public, or public cloud-based systems may displace the need for isolated systems. The result could be a more rapid closing of the productivity gap between advanced and emerging nations. And in the process, the Industrial Internet would ease resource and financial constraints, making robust global growth more sustainable.”

In sum, Industrie 4.0 is national in focus and IIC is global in reach.

Corporate Focus
Industrie 4.0 is about anticipating and catalyzing change in business models. On the one hand, the German government wants to educate the wider public and the corporate world about the ongoing revolution. But by far the weightier task is to exact change on the shop floor. It is particularly relevant to small and medium-sized enterprises (SMEs). They dot the country’s corporate landscape and are the backbone of its industrial success. Yet SMEs tend to lag in their application of big data and analytics, a sentiment that is echoed at the European level. The German EU commissioner for digital economy and society recently remarked that “a mere 14 percent of [the EU’s] SMEs use the Internet as a sales channel today” and “1.7 percent of all EU enterprises use advanced digital tools to innovate in products and processes.”

The IIC was chartered by five very large companies and its membership is dominated by other large corporates, including ABB, Siemens, Mitsubishi, and China Telecom. It has also attracted smaller, entrepreneurial entities, such as Xcaliber Technologies and CyberX. With membership fees that are drastically lower for small startups, the IIC has a mixture of small members, big firms, and research institutions.

Both Industrie 4.0 and the IIC are open to businesses of all sizes, but the former’s concern is more about SMEs while the latter is attracting mostly large companies.

Optimization Focus
In Industrie 4.0’s vocabulary, the CPS is a stylized manufacturing concept. As such, it centers on efficient use of labor, materials, and energy; the right supply chain; quality controls; and warranty costs. In other words, it looks at optimization from a production perspective.

By contrast, the Industrial Internet targets any asset as it tries to find incremental increases to its return. Improvements in electricity transmission, geological prospecting, and crop yields stretch the notion of assets beyond the physical capital on a production line.

The difference is perhaps insignificant but it underscores the emphasis placed in Germany on production of goods. The Industrial Internet speaks about optimization writ large.

Standardization Focus
According to an initial report on Industrie 4.0 commissioned by the German government and presented by the National Academy of Science and Engineering, “the three challenges for implementation [of Industrie 4.0] will be standardization, organization of labor, and availability of products.” In a later report, the Ministry of Education and Research commented that “through cross-sectoral exchanges, practical implementation and development of technologies, standards, and business models will be promoted.” Developing standards that can be copied and multiplied appears to form a plank in Industrie 4.0’s agenda. At this stage, it is unclear how this quest for standards (and their adoption) should proceed.

The IIC takes a different route. Its recently released report on reference architecture provides “guidance for the development of system, solution and application architectures. It provides common and consistent definitions in the system of interest, its decompositions and design patterns, and provides a common vocabulary with which to discuss the specification of implementations so that options may be compared.” The intent of this approach is to give guidance to standards organizations. This is distinctly different from creating the standards themselves.

The IIC seeks industry consensus on platforms and interoperability rather than norms and requirements. Standardization is on the agenda for Industrie 4.0 but not for the IIC’s program.

Economic Approach
The CPS is a forward-looking concept of a factory of the future and multiple reports8 refer to it in general terms. Industrie 4.0 is not about specific applications or technology; rather, it is a theoretical description of a vision of future manufacturing. It captures a generic process of adjustment of existing technologies toward what the authors believe will be the factory floor in 10 to 20 years. In this sense, Industrie 4.0 is couched in normative economic terms. Normative economics describes value judgments and policies as they should be, as in this quote from an early Industrie 4.0 recommendation: “Germany should use its strengths as the world’s ‘factory supplier’ and producer of embedded systems to herald the fourth industrial revolution, incorporating the Internet of Things into the factory floor.”

The Industrial Internet, by contrast, takes a two-fold approach: it is firmly embedded in things as they exist today while seeking to solve interoperability and security challenges for the future. It focuses on available applications and technologies to search for better outcomes. For example, GE spends a great deal of energy on applying big data’s predictive analytics and diagnostics to any type of rotating equipment, such as bearings, turbines, and blades. The object is to extract feedback rules from large data sets in order to predict breakdowns, locate future failures, and—most of all—achieve greater efficiency. The Industrial Internet Consortium as practiced in the United States is couched in the language of positive economics, that is, observable facts and cause and effect analyses.

Business Approach
In summary, it appears that Industrie 4.0 is reactive to technological change while the Industrial Internet is proactive in how it sees change unfold. German policies attempt to preempt the possibility that the country’s industry could fail to catch the digital train. The IIC attempts to keep the train moving forward; the consortium’s members believe that a rising tide will lift all boats and they keep working together to raise that tide. In this sense, the Industrial Internet Consortium is a proactive force.

Complementary Forces
Industrie 4.0 and the Industrial Internet Consortium do not compete against one another—they are complementary. The two approaches occupy the same real estate of technology and they share some members. What unites them is the excitement about the future of the Internet of Things.

Appendix: Internet of Things in China

Two recent Chinese initiatives appear to emulate some of the goals put forth by Industrie 4.0 and the IIC. Both were announced in March 2015 and they may well be related despite bearing distinctive names.

One of them is Internet Plus (IP), a plan initiated by the State Council, China’s cabinet. It strives to meld on a large scale the modern internet (cloud, mobile, and big data) with manufacturing and electronic retail trade. Few details are available, although an action plan is supposed to be forthcoming. The plan will likely focus on upgrading traditional industries with modern technology, searching for new technologies to spur economic growth, and spreading internet applications within the public sector.

An action plan specifically targeting circulation (distribution) was released in May 2015 by the Ministry of Commerce under the name Internet Plus Circulation. Its main goal is the development of e-commerce, particularly in small and medium-sized cities. The plan is heavy on numerical targets to be achieved by 2016 and links to the 13th Five-Year Plan. It may well be the plan’s e-commerce component. For example, one target is to establish 60 e-commerce demonstration bases and 150 e-commerce companies. The object appears to be linking rural areas with modern distribution technologies and lessen China’s urban-rural divide.

The other initiative, dubbed “Made in China 2025,” was conceived by the Ministry of Industry and Information Technology with assistance from the China Academy of Engineering. This project aims to upgrade the country’s manufacturing base using best practices writ large. The object is to have industrial companies move up the value chain. If IP is more about services, high-tech, and distribution, Made in China 2015 is strictly about manufacturing.

The initiative is broad-based in at least three dimensions. In a sectoral dimension, it lists 10 priority areas, including IT, modern transportation equipment, advanced engineering, and biomedicine. Made in China 2025 is also broad-based within the value chain. The manufacturing state-of-the-art in China is relatively uneven compared with, say, Germany or the United States. Made in China 2025 strives for improvements in very low-tech, low-tech, mid-tech, and high-tech. Finally, the plan aspires to make Chinese manufactured products more competitive across a large swath of price points, from the low level (Vietnam), through the middle level (ASEAN-4: Indonesia, Malaysia, Philippines, and Thailand), and the high end of the developed world.

China vs. Germany vs. the United States
How do IP and Made in China in 2025 stack up against the German and American efforts at catalyzing the internet? China’s initiatives appear to more closely resemble the Industrie 4.0 blueprint. Both are government-sponsored and state-funded, with time-specific goals. One similarity stands out: the German and Chinese manufacturing blueprints were conceived by governments but were quickly seconded to an engineering academy for vetting and design. Both countries’ efforts also train on the resilience of domestic manufacturers in the face of foreign competition, something that is not in the IIC’s book. Like Industrie 4.0, Made in China 2025 targets manufacturing whereas IP more closely resembles some of the IIC initiatives that seek efficiency anywhere. Unlike Industrie 4.0’s and the IIC’s focus on advanced manufacturing, China is shining an all-tech spotlight.

If Germany’s goal is to have its SMEs hitch on to a high-tech revolution, China aims to comprehensively upgrade its industry in all dimensions (human capital, management, optimization, quality control, etc.). In other words, Made in China 2025 represents a holistic approach to manufacturing whereas Industrie 4.0 focuses primarily on internet integration.

It appears that Made in China 2025 took at least one page out of America’s book. The Chinese plan foresees the creation of 15 manufacturing innovation centers by 2020 and 40 by 2025. A few years ago, the U.S. government co-founded a National Network for Manufacturing Innovation (NNMI) made up of several Institutes for Manufacturing Innovation, a concept similar to Chinese innovation centers. Although distinct from the Industrial Internet and the IIC, the NNMI bears a distinctive hallmark of industrial policy. In this sense, Made in China 2025, Industrie 4.0, and America’s NNMI all trace their origins to government activism.

Finally, IP has more similarities to Industrie 4.0 than the IIC’s activities. First, IP is government-sponsored and government-funded. Second, it aims to establish demonstration units and spread best practices, possibly standardizing processes along the way. Third, the approach is reactive to the force of change coming from elsewhere. Finally, IP employs normative value judgments to guide the private sector and local governments to what the national authorities believe the future should look like.

Final Thoughts
As with Industrie 4.0, the two Chinese initiatives have not moved beyond the vision stage. The probability of success is therefore hard to judge. History is littered with failures to support pet industries in China, the U.S., and Europe. However, if only small parts of the plans bear fruit, it will be good news for China and its trading partners. The infrastructure of doing business—education, management, rule of law, and governance—would presumably improve, lowering operating costs and decreasing uncertainty. Western companies only stand to gain from any Chinese success.

How realistic are the plans? How can the state specify numerical targets while relying on the market to deliver innovation and change? There are few, if any, answers. The government continues to write five-year plans whose execution depends on the vagaries of markets, the flow of private capital, and animal spirits of entrepreneurs. The two proposals are long on top-heavy vision and short on details, and probably include levers not officially disclosed. They are a reflection of a hurried leadership trying to keep up with technological disruption on the one hand and domestic economic disruptions on the other.

1. The National Network for Manufacturing Innovation (NNMI) in the U.S. is not a benchmark in this category. NNMI is a government-sponsored web of institutes tasked with research on technologies such as composites, lightweight materials, and semiconductors. For CPS, Industrie 4.0 and IIC are the right comparators.
2. Peter C. Evans and Marco Annunziata, Industrial Internet: Pushing the Boundaries of Minds and Machines, GE, November 26, 2012.
3. Industrie 4.0. Whitepaper FuE-Themen, Plattform Industrie 4.0, April 7, 2014, p. 14.
4. This and all other German-sourced references translated by the author.
5. Industrial Internet of Things: Unleashing the Potential of Connected Products and Services, World Economic Forum, January 2015.  
6. Umsetzungsempfehlungen für das ZukunftsprojektIndustrie 4.0; Forschungsunion, National Academy of Science and Engineering, and Ministry of Education and Research; April 2013.
7. See Roland Berger's Industry 4.0: The new industrial revolution: How Europe will succeed and Günther Oettinger's April 2015 speech at the Hannover Fair. Both documents link Industrie 4.0 to a European strategy. Industrie 4.0 has nothing to do with Europe and is strictly about a German strategy to catch up in digital innovation.  
8. See most of the German-language reports cited in this analysis.  

The author has benefited from conversations with Roberto Crapelli of Roland Berger Strategy Consultants, Milan; Lynne Canavan of Industrial Internet Consortium, Boston; Dietmar Goericke and Judith Binzer of the Verband Deutscher Maschinen- und Anlagenbau, Frankfurt; and Scott Kennedy of the Center for Strategic and International Studies.