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We are all software and analytics companies now

Energy is one industry that will benefit from the transition to advanced software analytics.
By Marco Annunziata

Chief Economist and Executive Director, Global Market Insights at GE

Published Last updated This article is more than 2 years old.

The next few years will see industries transformed by technology. From utility companies optimizing electricity distribution grids, to logistics companies shedding seconds from deliveries, to doctors drawing on immediately accessible diagnostics for their patients, software and analytics will fundamentally change the way the world works. By harnessing data, machines, and their analytical capacity, that technological transformation will usher in a new era of productivity for both industry and its workers.

At GE, we call this technology the Industrial Internet. And Europe, in particular, is ripe for that kind of transformative economic boost.

The challenge

Though it has emerged from the worst of the economic crisis, Europe continues to experience slow growth. In fact, GDP growth only last year inched back above its 2007 pre-crisis level. In comparison, GDP in the US is now already 10% higher than before the crisis, and in Australia, it is 22% higher.

It’s true that supportive monetary policy, a weaker euro, and lower energy prices have helped to stoke European growth. But part of Europe’s lingering problems are due to a lack of available work, and a lack of productive work. Unemployment—especially youth unemployment—is unacceptably high, and productivity across the EU has been cut in half, from a pre-crisis 1.8% down to 0.9%. In other words, European productivity growth is half of what it used to be, and half of what it could be.

Productivity growth is crucial to sustainable economic growth, and at GE we sense an opportunity in Europe’s output gap. If European companies can transform traditional industrial assets into smart, connected devices, Europe can reboot productivity, competitiveness and prosperity, and help the region unleash investment and growth.

The opportunity

Three years ago, we estimated that if connected machines and advanced analytics could help make industry just 1% more efficient, the sheer scale of industrial operations across the globe would translate into economic gains valued in hundreds of billions of dollars. It turns out that was a conservative estimate. GE’s Industrial Internet solutions are actually delivering not 1%, but 20% improvements in efficiency, on average, across our industries. If these kinds of performance gains can be realized across European industrial sectors, this could equate to a $1.7T annual boost to EU GDP.

Improvements have multiplier effects. For example, reducing healthcare costs frees up public money that can be directed to infrastructure improvements or reducing taxes. It also keeps the workforce healthy and productive. And on factory floors and across supply chains, digital technologies will boost the efficiency and productivity of European manufacturers. That will help to both strengthen their competitiveness and grow exports.

In addition to hardware improvements, industry needs an app economy—software built for industrial platforms—to unleash its full potential. And though the app economy is already an important job creator, between 2015 and 2018 the EU app economy is expected to create another 2.9 million jobs. As developers increase their focus on building software to transform industry, high-quality European jobs will emerge.

The stakes

This next wave of innovation will rapidly change the global industrial landscape. Those countries best positioned to move quickly to adopt these transformative tools will enjoy a significant competitive advantage. Particularly exciting for poorer economies or emerging markets, some of these technologies could even help them leapfrog existing gaps in infrastructure, or bolster weaknesses in institutional structure.

Europe should take heed: As we noted in a previous study, two decades ago Europe was too slow to capitalize on the opportunities presented by the consumer internet and ICT revolution. But today’s digital industrial revolution has the potential to be even more disruptive than the ICT revolution was then. It requires an even higher degree of flexibility, adaptability and coordination to deliver its full potential. If Europe doesn’t move to leverage the potential of the fourth industrial revolution, it could fall behind.

Until then, GE and other great companies will continue to make big bets on Europe. It is home to eight of the twelve most competitive countries in the world, and is tackling some of the toughest challenges in healthcare, energy, transportation, and environmental sustainability. With the right conditions in place, Europe is optimally placed to lead the upcoming digital-industrial revolution.

GE is hosting industry leaders in Paris for a forum focused on the digital transformation of industry. To find out more about how Europe can lead the next industrial revolution, click here.

This article was produced on behalf of GE by the Quartz creative team and not by the Quartz editorial staff.

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