Europe Has The Potential To Dominate Industrial IoT, But Can It Deliver?

Last autumn I moved back to Finland after spending five years in the U.K. and Germany, building Futurice’s international offices. The Finland I returned to was a very different economy from the one I’d left — no more AAA rating or Nokia phones.

The startup boom here is hot, thanks to mobile gaming, Aaltoes and Slush, but it will take a long time to fill the gap in Finland’s total productivity, which is now lower than it was during the big crisis in the mid-90s.

Finland, like others across Europe, is a country of industrial manufacturing and high-tech skills, but it’s facing a rapidly changing environment. It’s a small country hit hard by a few major changes inside a short period of time: iPads ate the markets of two economic cornerstones, Nokia and the paper industry; the Russian export business declined rapidly; and the population, like many in Western European nations, is aging at an alarming rate.

So what will it take for Finland to recover its status as a tech nation? Or has its time come and gone, and it should be looking at alternatives? A look into the past may help us answer some of these questions.

According to Steve Blank, Silicon Valley development was driven by the threat of Germany during World War II. U.S. military technology research, with a focus on microwaves and electronics, made Stanford University the “MIT of West,” and the new ecosystem gave birth to new digital-era companies. Hewlett-Packard and Google were both set up by Stanford graduates in California garages.

If the Silicon Valley ecosystem, as we know it, was born as an unintended result of government-driven military investment, should European governments also be proactive rather than reactive? As recently as 10 years ago, Europe was leading the telecommunications industry, but currently most of the high-tech innovation is happening elsewhere. Last year China and the U.S. accounted for 87 percent of the total growth in patent filings.

“Industrie 4.0” is a German vision that could help bring manufacturing back from Asia and allow Europeans to focus on work with high added value. It means cyber-physical systems — integrations of computation with physical processes – quite similar to “Industrial Internet,” a term invented by General Electric to describe the industry-focused Internet of Things.

The Industrie 4.0 movement means replacing traditional hierarchical automation structures with decentralized, partly self-organizing networks that enable mass customization, among other things. Besides factory automation and robotics, cheap sensors and Internet connectivity enable such things as remote diagnostics and predictive maintenance for machines and devices.

Through the leadership of Angela Merkel, the German government is very visibly driving its Industrie 4.0 program. At this year’s Hannover Messe, the largest industrial fair in the world and the place where the term was coined a few years ago, every German company was talking about it like it was in common usage all over the world, and having a sensor or two on your product was enough to trot it out. As Tim O’Reilly highlighted earlier this year, IoT is not only about gadgets or sensors but systems.

Whatever you call it — Internet of things, Industrial Internet, Industrie 4.0 — the big changes will take place on a system level, with re-engineered workflows and totally new business dynamics as well as models. Just like Uber or Airbnb, industry giants of the near future do not necessarily own any hardware.

John Deere is a well-known example of thinking differently with IoT. Instead of tractors, it sells better profitability by optimizing farming. To do that, it combines several real-time and historical data sets from the machines themselves: weather conditions; environmental sensors (soil conditions, air pressure and humidity, temperature, etc.); and business systems. Combining hardware and software helps farmers gain a deeper understanding of their business, make better decisions, increase efficiency and ultimately increase profitability.

Inspired by German Industrie 4.0 vision, the Finnish Government published a research paper and a 2020 vision in which Finland could become the Silicon Valley of the Industrial Internet – an agile environment where regulation, the tax system, education, and infrastructure would all support experimentation with new business models by domestic and foreign companies.

Just like companies, countries also need to attract talent and build an environment conducive to success. A government can have a strategy and a vision and should refrain from taking steps in economic development that are not in alignment with that strategy and vision.

Industrie 4.0 as a vision has inspired many German companies, which is in itself a major achievement for the German government and a good start for a larger transformation.

Europe has a number of global B2B powerhouses, with a high level of engineering skills, capable of producing world-class factory automation and robotic solutions and world-beating software. This creates an environment that is possibly much more conducive to industrial Internet innovation than regions that are either less developed or more consumer-driven. However, it also has substantial fragmentation in terms of language, economies and sociological factors, which could be dangerous for the Industrie 4.0 vision.

By playing to its core strengths, staying focused and moving quickly, Europe can become the leading industrial Internet economy and offer an alternative vision of cooperation between the public and private sectors in navigating a new, rapidly digitalizing economy.