Jim Montague is joined by A.R.C. Advisory Group’s Larry O’Brien and Craig Resnick to discuss the latest Control Top 50 Global and North American Automation Companies report, from how the Top 50 are managing market conditions to their implementations of the Industrial Internet of Things and digitalization.
Transcript
Jim Montague: Hi, this is Jim Montague, Executive Editor of CONTROL Magazine and controlglobal.com. And this is the tenth in our Control Amplified podcast series. As usual, we're talking with different experts about important topics in the process, control and automation field, and seeking to go beyond our print and online coverage to explore some of the underlying issues affecting users, system integrators, suppliers, and other people and organizations in these industries. Once more, I'm interviewing our friends at A.R.C. Advisory Group, who researched and analyzed all the content that went into our October 2019 cover article on the CONTROL/A.R.C. Top 50 Global and North American Automation Vendors and get beneath some of the numbers and trends to crystallize some issues and find a few basic bottom lines, hopefully.
Now, with me today is Larry O'Brien, A.R.C.'s vice president for research. His area of expertise is process automation on the supplier side and the upstream and midstream oil and gas industry. We're also joined by Craig Resnick, vice president and a member of the automation consulting team at A.R.C. that covers the PLC, PAC, HMI, IoT and industrial PC markets as well as the packaging plastics and rubber industries. Well, guys, thanks for letting me bend your ears again today.
Craig Resnick: Hey, no problem Jim. We like to be here.
Larry O’Brien: Thanks, good morning.
JM: Okay, all right. Let's get started. I guess, first off, we just put seething lava and a ready for a rumble headline on CONTROL's October cover, but those are really the only signs of the latest must-happen-every-10-years recession that I've seen. We're about two years overdue. Can the Top 50s performance or their latest guidance indicate when or if this train will ever arrive?
CR: Well, it's a great question, Jim. You know, one of the things that we hear repeatedly when we talk to the customers in this industry is the thing that they fear is the fear of the unknown. And right now, the unknown tends to be in areas such as trade and tariffs. And in many cases, what they've been doing is they've been holding off on some projects, purely because they just want to know: what are these trade agreements going to be? When are they going to be signed? What type of implication does that have regarding their supply chain and costs?
So, in no cases is anybody saying, "We're cancelling projects or not going forward, or we are really necessarily afraid of a recession." But what they are is afraid of the fear of the unknown. Because even if the news isn't good, it enables them a position to say, "Okay, if our costs are such, now we can make the right supply chain and cost decisions based on the facts."
So, one of the things that we are finding is, is that the fear factor is less on the economy falling apart, but more so right now on this fear of uncertainty. And I would say that in many cases once some of these decisions are made, whether it be U.S. and China, whether it be when Brexit gets officially executed as an example, USMC agreement, these are the things that they're looking at to help them make decisions going forward. So that seems to be kind of like what we're hearing from the end users who are as far as from a project perspective, and also, as we talk with the automation suppliers as they're putting together their quarterly forecasts. I think that their getting some clarity on the future regarding some of these trade and tariff agreements will go a long way to kind of eliminating this feeling of turbulence regarding having a recession.
JM: Right. Well, I mean, but uncertainty and seeking clarity, they're like a perennial hazard. They're always present, right?
CR: The difference is that at one time you kind of knew, "Okay, if we do business with China, the costs are going to the X, for example." And right now, there isn't that certainty as far as what is that going to be and how is that going to turn out? I'm obviously I'm just using U.S. and China as an example. But whether the issues of, are we going to have tariffs with the Europeans regarding the importing of European automobiles is another example. So, right now, they've never had this level of uncertainty. Now conversely, they're all very, very excited about the latest technologies. And the one thing, Jim, that we've all witnessed as we're out in the field and even going to some of these events, these user group events, is you notice that the attendance is always breaking records. No matter what event we go to, it's like it's bulging at the seams with people.
So what's happening is that even though these companies are maybe nervous for the economy, but they're not showing their nerves as far as sending key people that are leaving the plants and factories and taking often a week of their time and investing their time into looking at some of the latest technology and solutions. And that's really why we're kind of a little bit more optimistic going forward that once we can get through some of this economic turbulence regarding trade and tariffs and even with certain extent, geopolitical uncertainties, I think we'll be in a position that some of these projects that are on hold right now will be moving forward.
JM: Right. And Larry, I trumped on your voice as usual again. So, what were you going to say?
LO: Oh, that's okay. I mean, I just wanted to point out if you read the article that we wrote for the CONTROL Top 50 this year, we do point out that many of the automation suppliers are expecting an increasingly challenging business environment moving forward for 2020. So, they're planning on reduced performance in the next year.
JM: Yeah. So, they're ready for it pretty much. I mean they're...
LO: They're planning for it. And I think they're being pretty upfront that they expect some headwinds, you know, particularly in upstream oil and gas. But so are some other companies we’re calling out, food and beverage, pharmaceuticals and so forth. So, there are some underlying weaknesses that are there, but they are prepared for it. And I think that's one of the things that makes this kind of a challenging environment right now is they see these things on the horizon. And there is this uncertainty like Craig says, but at the same time, everybody is undergoing their own digital transformation.
JM: Yeah. But it's not their first rodeo, right? I mean, they know what they have to do.
LO: That's happening on both sides, on the supplier side and the end user side. The end users are trying to navigate their way through digital transformation and figure out what all this new technology means, and you know how to implement this in their organizations in a way that provides a real business value, right? And suppliers themselves are in the process of undergoing some pretty radical transformation in some cases of traditional businesses that have been in place for quite some time.
JM: Yeah. So then, if the overall economy is maybe headed somewhere unexpected, you know, are efficiencies generated by the Industrial Internet of Things and cloud computing and machine learning and artificial intelligence and other kinds of digitalization, are those really having an impact? The Top 50 sure seem to be buying into the IT side, but is it still too soon for IIoTs impact? Maybe declining energy costs are helping, too.
LO: Yeah, I mean, IIoT is happening now. So, it's not right to say, "Is it too soon" because it's happening. And as Craig said, if you go to most of these major user group meetings, you see how it's happening now.
JM: Yeah. But, I mean, is it having an impact on their like, you know, a significant impact on their financial performance as reflected in the Top 50 data?
CR: Oh, yeah. I think what's happening is, is that, you know, remember these projects are very scalable. And the respect is that people are not doing full-blown rip and replace for IoT. So you're not going to see, you know massive, massive projects and hockey stick like curve growth rates that...and I think, you know, and as the article says for 2020, I think a lot of the headwinds that Larry brought up are because of the fact that a lot of these projects begin small and scalable. And I think the idea is that these companies are beginning as they're reinventing themselves, as the customers are reinventing themselves, they're beginning to slowly but surely deploy IoT and many of these other technologies. So, we're seeing artificial intelligence and machine learning and certainly analytics, especially analytics embedded at the edge, for example. And so, you're actually able to process information locally and share the business type of information up into the cloud.
So, these things are happening now. But I can tell you, the common denominators that we're seeing both in talking to the customers and at these user group events, the implementation of technologies such as augmented reality and virtual reality, because those are things that are providing tangible, immediate value. I mean, using for example, augmented reality as somebody is doing maintenance on the factory floor, especially if that person is a new worker that's replaced a baby boomer has recently retired. That augmented reality is now supplementing the information that, that worker needs as they walk through the factory floor and help them do the job, help them repair something faster.
They put them in a position that they don't make a mistake that could involve them endangering the plant or endangering their own lives because it's in fact giving them guidance and step-by-step information. We're using virtual reality. Many of these new workers are coming from the area where they’re much more familiar with Fortnight than they are with some of the products that their new company is manufacturing. And it gives them the opportunity to use some of the tools that they're comfortable with. And it gives them the training that they need to help them go through any particular scenario that could possibly happen on the factory floor and be prepared for it and be trained for it.
So, in many cases, we're starting to see this digitalization play a key role. But again, from a sales perspective, and I think the reason that some of these numbers tend to be flat going forward in 2020, as the article discusses, these are things that are going to be done incrementally. And as the value is proven and the ROI's are proven, then you're going to start to see going forward certainly far greater business when it comes to all the digital transformation IoT technologies. But we're very excited about certain ones such as augmented reality or virtual reality, or the combination of the two, which is known as mixed reality. Those are some of the things that we're seeing booth-by-booth at these user groups, you know case studies, and we're seeing users purchasing.
JM: So, one of the things that people have been doing is digitalization seems to be a way to not have to rip and replace. And you can put a cheap video camera in front of an old gauge. And then conversely, it seems like IT and cloud computing are relying on the edge devices, which is one of the talents and long-standing capabilities of the Top 50. So, I assume you guys agree with that, right?
CR: Oh, yeah, absolutely. Because you're really in a position here where a lot of what information you're gathering at the edge has to do with asset performance management. I mean, if you say what are some of the biggest challenges that any manufacturer or processor has is to reduce or preferably eliminate unscheduled downtime. So, the idea is now with IoT and being able to embed low-cost sensors into these rotating assets and being able to do predictive and prescriptive analytics, and they want any analytics often located as close to the asset as possible. And now you're getting involved with edge.
But because edge is not necessarily making a controlled decision, I mean, even if you're feeding information on the health of bearings or the health of an asset, for example, vibration. This is not information you're getting necessarily from on or off or temperature pressure level or flow that's going to be making a decision that a PLC or a PAC or a DCS may make certainly for a control loop, or PID loop. So, this is information that is going to the cloud and helping to now schedule for example, when do we need to have a preventative maintenance shutdown? When are we going to be able to have the assets that need to be repaired, scheduled to arrive so they arrive the day they're needed and not too early so we're not adding excess inventory to the end user?
We're also in a point where now we can schedule the right maintenance people to be there. So, when we've had the schedule shut down, then the necessary repairs can be made and the right human assets will be in place as well as the physical assets. So, this is something where all the major automation suppliers, I think they're doing a great job with their asset performance management solutions. And that's something that really takes advantage of the edge and the appropriate analytic software that helps them determine to make these right prescriptive and predictive analytics decisions.
JM: So are there any...You know, I know the suppliers are doing a good job with this. Is there any of the end users or industry sectors that are handling the digital transformation especially well and maybe they've got some best practice they could teach the other industries and users?
CR: Well, one of the things that we've seen is one of the beauties of digital transformation is the ability to remotely connect assets in locations that are either expensive to get to or difficult to get to, and it also enables to help people maintain a relationship with their assets. So, we're seeing, for example the OEMs. We talked to a lot of our OEMs and not only are they...once they sell the machine, for example, that helps them derive money from the CAPEX side of the ledger. But now they're able to maintain a connection to their machine, and whether it'd be patches or updates, or helping them with the diagnostics and monitoring and managing those machines. A lot of times, the OEMs are really doing a great job of leveraging digital transformation to maintain that connectivity and provide tremendous value to their end users that are deploying those machines as part of their manufacturing or processing that they're doing on the factory floor.
So, this is something that we're seeing they're doing a really good job. So, I think the OEMs are certainly benefiting from it. Also, certainly when you get into the regulated industries, looking at, for example, like life science and biotech and food and beverage, because for things that do require regulation, and do require having that level of information, documentation going forward, I think those industries have benefited from it. And certainly, anything to do with...Larry can certainly speak with things like upstream and midstream where you're in remote locations and you often do not have a worker that can be managing that asset. Rather than having to fly a worker out or gather information on a clipboard and manually enter it into an Excel spreadsheet, for example, but the ability to do that from remote locations that, again, is difficult and expensive to access. So those are some of the areas where we've seen that, and even some of the quickest response.
LO: IoT has definitely brought on, you know, intensified this trend toward remote operations. Particularly, as Craig said, in upstream oil and gas, offshore and onshore applications, where a lot of these companies don't want to put people in harm's way anymore. They don't want to have people out there in remote locations doing this kind of work. And one long-term trend that we see also is this shift from not just remote monitoring and remote operations management, but also shifting more and more into controlling these processes remotely. We're not 100% there yet, but we are headed in that direction. All of these things create concerns around cybersecurity.
You know, you mentioned before, the great thing about IoT is you can get a cheap device and put up a video camera to monitor a process, but you don't know if that device is secure, or it's been commissioned securely, or it's from a trusted vendor, if you just went out and bought it at Home Depot to use in the plant. So, this is where security concerns really start to mount, in my opinion—the remote monitoring, remote operations and moving into remote control. And you know, this huge number of sensors that we have for IoT and not all of them are purpose-built for industrial applications. So, we definitely we need more of a focus on cybersecurity when it comes to IoT and all these sensors and all these very sensitive applications that we have.
And we have assets now that used to be just dumb assets, right? And then one example is from the forum back in February that we had, it was an end user that had to instrument their blowout preventers into reporting of maintenance information and basically live data from blowout vendors and offshore applications to ensure greater safety in the Gulf of Mexico. And you've got to remember a lot of these assets have previously been completely dumb. So now we're instrumenting and connecting to a lot of stuff that we've never connected to before. So, those are all things that we need to take into consideration to make sure that those are secure and built for purpose.
JM: Right. But just as some of the traditional values of going out and seeking data points and bringing them in, what I'm finding with the recent security coverage is that a lot of your traditional characteristics of the process automation and control engineers is that they can use that inquisitiveness or that ability to go and grab data points or implement process safety. Those attributes can then be used for security too, right?
LO: Sure, they can. Yeah. Well, now you're getting into the topic of data management, right, which is a whole other issue, because it's also creating this enormous cloud of data. So, what do you have to do is be able to efficiently use that data and turn it into useful information, right? You have to contextualize it and actually enable people to use all of this data to make intelligent decisions about what's going to happen in the business or the process or what have you. So, the mountain of data is a challenge, too. And yeah, some of that data can be used with an eye toward improve cybersecurity. We're seeing huge growth in the market for ICS or operational-level cybersecurity applications and products and services. It's a whole new class of vendors out there.
Hundreds of vendors, many of them are still in the startup phase. And a lot of the data coming from these devices is being used for that purpose. I think there are some underlying issues within the industry in terms of how we manage data, how we do things like management of change, you know, hasn't always been 100% at the end user companies. So, in some ways to get the data, to get the value out of this IoT and all this data, we also have to consider how we're using that data and maybe break away from some of the patterns that we've gotten into in the past that maybe not effectively using that data, right? Or having access to a bunch of data that we don't really use.
JM: Well, I was just thinking that the traditional abilities of the process control engineer as far as doing their job could also be used then to make cybersecurity a little less alien and something that had to be worried about. I hope that's true.
LO: Yeah, and I think cybersecurity is something that has to permeate throughout the enterprise. So, not just on the engineering side but also on operations, right? We haven't fully examined how cybersecurity affects different roles within a process plant, for example, like what kind of information does an operator need to see from a cybersecurity perspective? How should cybersecurity be looked at in the engineering phase of a project? How do you incorporate cybersecurity into the selection process when you're looking at a new vendor? You know, some of these changes that have yet to fully permeate their way through the industry, let's say.
JM: Well, but they always talk about lawyers being 10% private detectives. And I was just thinking that, you know, a process control engineer is kind of a detective, too, for the values they have to get and the safety, you know, risk assessments they have to do. And then the cybersecurity assessment could just be another thing to go and investigate.
LO: Actually, a lot of the learnings that we've seen in process safety as far as HAZOP analysis and things like that, we're seeing a lot of learnings that we've seen developed in the world of the discipline of process safety now being applied to the world of cybersecurity. We basically have like a cyber-PHA or cyber-HAZOP process, but there's more of an eye toward the making cybersecurity a risk-based science versus just trying to counteract every possible threat that's out there. In my opinion, we need to approach cybersecurity more like we do process safety, and that's already happening.
JM: Certainly. To go off in a bit of a tangent, I just covered the bio forum’s search for plug-and-play process automation at the Automation Fair last week, and they acknowledged that they're talking to our friends at the Open Process Automation Group as well. And I was just wondering, is there any news on the Open Process Automation standard effort, and are more Top 50 members joining in, do we know of?
CR: Well, I know there was a recent announcement where ExxonMobil, Amaco, BASF and ConocoPhillips, Dow Chemical, Georgia Pacific and Linde are collaborating together to create a test-bed. And this test-bed will be a place where many of the OPAF supplier members can go and begin to develop and test various products that would come into and adhere to the OPAF standards that are certainly in the process of being developed. So, I think the test-bed really goes a long way in saying that, A, this is not just for ExxonMobil, and not just for the oil and gas industry that it's spreading certainly to other heavy process industries as well. And B, that the fact that this is not going to go away.
I think that the suppliers, those that we have, are enthusiastic members of OPAF and maybe those that haven’t may begin to, say, join OPAF going forward. I think they all recognize that this is something that is here to stay. And it's something that will be to the benefit certainly of all end users in process control. And at the same time, I think is going to provide help to the suppliers who continue with their own digital transformation efforts as far as what types of products and solutions they provide...And in some cases, yes, these may be some disruptive technologies that may change the way we look at traditional systems from the past. But I do think that going forward, this is really going to enable all these suppliers that have an incredible amount of industry knowledge and intellectual property to really leverage that into some of their unique OPAF solutions.
And I think what this is going to do is, even though it may change the type of products and solutions and services that they are bringing out rolling forward, but I think it's really going to secure each of their positions as major players in process automation going forward. And again, maybe you're moving a little bit from the CAPEX side of the house to the OPEX side of the house, from hardware more towards software and services. But I do think that the incredible amount of IP and process knowledge that the suppliers have is really going to be very, very important for OPAF and provide them with really a huge role going forward, even if they're presenting that role maybe in a slightly different fashion than they have traditionally.
LO: Well, I think it also opens the door to new players, too. OPAF is not going way. Back in June, they had the Inter-Op event for OPAF with participants from 15 OPAF member companies. They brought a total of 25 prototypes. So, it's not just the ExxonMobil tested, which is definitely proceeding a pace but lots of other prototypes found their way into that meeting. And they're not all from the major suppliers. And that's a positive thing, right? I think that's a positive thing. So, this is not going away.
JM: Yeah. It's another manifestation of digitalization, right?
LO: Yeah. And you know, OPAF isn't reinventing the wheel. I mean, they're drawing off the existing standards and technologies that are out there. So, this isn't all just new stuff. A lot of this is just hashing out, you know "What standards are we going to follow and how? And how does that translate into a system?" So, there's a lot of activity in OPAF and it's not going to stop.
JM: Cool. Well, it's, it's good to hear. You know, I guess, we kind of come full circle trying to reduce some of the uncertainty. You know, they have standards, and common ways of carrying out technology. So, I was kind of wondering, Hey, if we're going to do safety risk assessment, we're going to do cybersecurity risk assessment, maybe there's a way for listeners within their own local economies, maybe they could do economic risk assessment for their organization in their locality. Since the times are going to remain uncertain. You know, maybe there's some ways that people can reduce their economic worries a bit. Are there?
CR: Well, I think there's no question that all major users looking at not only certainly the dangers of what would happen if their manufacturing processes are compromised, if their safety systems are compromised, both from the potential loss of lives within the plant and sometimes even within the community surrounding the plant. And I mean, these are things that are just absolutely, positively unacceptable. And I think every responsible organization today recognizes the fact that that is their No. 1 priority. As much as all these companies that are publicly held and are responsible certainly for maximizing the shareholder value. But most important, it's the protection of their workers within the plant and the people that reside in the communities around the plant.
And I think that that is getting certainly the sea level attention that it deserves. And I think what it does is it puts these companies in a position that they recognize that there is no ROI measurement on that level of safety and protection, because now you're at a point that the whole enterprise and community can be at risk. So, in this particular case, I think you're seeing the attention at all levels of the organization. And one of the things that we do, for example, at A.R.C. at our annual February forum, and Larry leads up many of our cybersecurity workshops. And I think those are probably our most well attended and popular programs at the forum for that exact reason, that there is no strike two.
You absolutely positively have to do everything in your power to make sure that the protection of the plant and the community, that you're taking every conceivable step. And in many cases, you may be just keeping one step ahead and unknown and there's no magic thing that you can do to prevent from anything from happening. But you have to be making that continuous journey to stay ahead of anything happening within your plant using whatever tools and resources possible.
JM: Right. Yeah, like I always say it's not something you can buy in a box. You have to implement it in your organization. And it can have a…
LO: I think the difference now is that we're seeing plants and facilities as a target of attack, you know, and not just cyber attacks. I mean, they had that drone strike at Aramco earlier this year. So, since I've been in the industry, that's kind of a new thing, you know, seeing stuff like that, which also was brought about by new technology. In this case, you know, it was drones and other advanced technology. But, you know, there's definitely more of an urgency I think that users are concerned about these kinds of advanced, persistent threats. They say in the cybersecurity industry where you have organizations that have the backing of nation states with very deep pockets to do things like reverse engineer proprietary safety system protocols to try and disrupt plant operations. So that's a new emerging threat.
JM: The investing in safety and security, people are really realizing it can have a positive economic benefit as opposed to just being a cost. And maybe that'll give it a lot of momentum, right?
LO: Yeah. The investment in the technology more than outweighs the cost of an incident. I mean, by far, right? And I think a lot of companies are starting to appreciate that more. But the problem is we need a standard methodology to measure risk, I think.
JM: Yeah, yeah. And those have been established to some extent, and are probably going to get more sophisticated going forward. But...
LO: There's some other things that need to be addressed. We don't have any kind of standards around reporting incidents, you know, and things like that. There are organizations in the financial sector that are starting to take an interest in actual OT level cybersecurity performance among manufacturers because they feel that that affects their long-term viability as a company.
JM: And the insurers too, right?
LO: Insurance companies, yeah. Creditors. It's not just a manufacturing thing anymore.
JM: Yeah, cool. Oh, man. Okay. Alright. Well, we've plumbed the depths here. I'm sorry. We've run over probably our...this may be a record-breaking podcast. But there's a lot of ground to cover, and we've certainly covered it today, guys. Thanks again. That was again some good analysis on everything that's going on. And thanks for talking to us again today.
LO: Thank you, Jim.
CR: Thank you, Jim. It was great to be here.
JM: Well, this has been a yet another Control Amplified podcast. I'm Jim Montague. Thanks for listening. And please remember that Control Amplified podcasts are available on most podcasting apps, such as the iTunes Store and Google Play, and also on CONTROL Magazine’s YouTube channel podcast. Plus, you can also listen at controlglobal.com at any time of course. All right, thanks a lot.
