The Rise of the Internet of Goods: A New Perspective on the Digital Future for Manufacturers >> HOME


The Digitization Paradox

The next question, of course, is why the information revolution has not generated a productivity bonanza thus far for manufacturers. We first observe that manufacturers have far behind in the digitization race. There is a large disparity in investment in IT equipment and software for manufacturing and the tech/telecom sector. For this analysis, the manufacturing sector omits computer and electronic manufacturing, which is included in the tech/telecom sector. We use data from the BEA, which tracks software investment and tech equipment investment by industry.*

Manufacturing Investment in IT Lags
Spending on IT equipment in billions of dollars

 
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Software Investment: Manufacturing vs Tech/Telecom
Billions of dollars

 
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We see that the gap in IT equipment and software investment between the manufacturing sector and the tech/telecom sector started in the mid-1990s, and has continued to widen ever since. Indeed, a McKinsey survey found that roughly half of U.S. manufacturers had no digital roadmap.

Moreover, there are big differences between manufacturing industries. The computer and electronics industry alone employs 90,000 software developers and programmers, while the transportation manufacturing industry, including motor vehicles, employ another 30,000. These industries also make heavy use of robots and automation. But far fewer robots and software developers are found in other manufacturing industries such as metals and food processing.

Here is another way of looking at the differences between manufacturing industries. The BEA tracks the average age of “intellectual property assets” like software and R&D. All else being equal, industries that report younger software investments are more likely to be using cutting-edge technology. Older software means that the industry is not keeping up.

The average software and intellectual property deployed by the motor vehicles industry and the computer and electronic products industry is less than three years old. That makes sense because the motor vehicle industry is the main place where robots have already been deployed.

By contrast, the average software and intellectual property in the machinery industry is 4.8 years old. That two-year gap looms large given the rapid pace of change in the digitization of manufacturing.

Which Manufacturing Industries Have the Newest Technology?
Average age of software, R&D, and other intellectual property

 
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*In theory, the BEA data includes any spending on information technology equipment or software that would be capitalized.