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OODA Special Report: Digital Transformation in the Industrials Sector

This OODA special report focuses on the Industrials Sector, which is the part of the economy that makes big things.

It is written both for firms that are in the sector who are seeking competitive advantage and for firms in other sectors that can use this awareness for strategic planning (all our market based special reports are available on our OODA network resources page).

As a market-based assessment, this special report will be of most use when read in conjunction with the functional and technical research we provide OODA network members, and we provide contextualized recommendations for related research throughout this report.

The industrials sector has a broad range of businesses that build and distribute big things. This includes aerospace and defense firms, as well as firms that formulate, design and build construction equipment and other large machinery. All firms in this sector are related because they build industrial equipment or platforms, but the type of platform varies widely. When analyzing for innovation needs it can be important to clarify which sub-segment of the sector is being discussed. For example, the Aerospace and Defense firms like Boeing, Northrop Grumman and SpaceX are going to focus innovation on things very different from agricultural equipment makers like Deere or construction equipment makers like Caterpiller.

Innovation in Industrials Today:

The firms in this sector build machines that get big things done. Machines that move earth, for example. Even in parts of this sector that are pedestrian there is innovation. Building machines that move earth, for example, is done using computer based design and the system itself will now be built to operate in environments with extreme automation. Agricultural equipment may be highly instrumented. Considering that this sector also has firms that will launch rockets, rockets, design, assemble and build aircraft, ships and military platforms, it is not a surprise to see that innovation has been sweeping the entire sector.

  • The wave of innovation that has swept across this sector has improved back offices, enabled more targeted marketing, improved design of product and enabled smarter supply chain management.
  • Providers of high end platforms such as aircraft are better able to track issues and proactively solve them when their platforms are in operation and therefore are better able to keep customers happy.
  • Innovation has also enabled more automation of many platforms including drones, construction equipment, mining equipment and factories. We expect this to continue.
  • There is a growing demand for automated vehicles, and innovation around this need has been occurring at a fast pace. This includes production of robotic mining equipment, robotic drones, and highly automated factories.

Cybersecurity in The Industrials Sector:

Successful innovation requires appropriate cybersecurity. The Industrials sector efforts in cybersecurity are uneven. Larger, well resourced firms may have mature efforts with multiple layers of defense and an ability to detect issues and respond appropriately. Many mid-sized firms and most smaller firms have room for significant improvement.

There is also a huge issue in this sector that comes from the duel edge issue of having very smart technical leaders throughout the firms in this sector. Many, including almost all the defense firms, believe they are very good at cybersecurity. We have seen first hand the danger of this attitude, which can lead to hubris and complacency. This may well be the biggest threat to solid defenses in this sector.

Our recommendations for cybersecurity in the Industrials Sector:

  • Establish a relationship with the appropriate cybersecurity information sharing organization for your firm (learn more about ISAOs here). Membership will enable sharing of information on threats but also provides a venue for exchange of best practices in cybersecurity.
  • It is very common for firms in this sector to have large and complex supply chains. This makes communication on cybersecurity topics very important. Larger firms can aid in improving the security of smaller firms and their entire supply chain by advocating for use of common cybersecurity frameworks and taxonomy’s, like the NIST Cybersecurity Framework. Smaller firms can proactively show how serious they are about security by adopting this framework.
  • All businesses in the sector should ensure executives in the business have a baseline understanding of cyber threats as well as geopolitical threats and technological risks. We provide a plain english daily threat brief designed to improve this awareness. Sign up at The Daily Pulse.
  • Think through your nightmare scenarios. In this sector it could include theft of intellectual property and theft of client data. Disruption of production or distribution by cyber attack is also a threat in this sector. Thinking through nightmare scenarios will help you plan to mitigate risks and prioritize resources appropriately.
  • There are a variety of compliance regimes over firms in this sector. Any firm doing work with the DoD will need to comply with security provisions of NIST and soon will have to provide independent metrics around that via the new CMMC.
  • All firms, large and small, should leverage outside experts to evaluate security. This type of external assistance can include review of plans, policies and architecture. External red teaming efforts should also be leveraged as an independent way of evaluating comprehensive security programs. For more on both types of security evaluation see OODA.com

Enhancing Innovation in the Industrials Sector:

  • The first wave of digitization of industrials has produced a great deal of innovation and is positioning firms in this sector for continued transformation. We recommend reviewing the insights provided for the government, materials, and transportation sectors for insights on what future customer needs will be for industrials and informing your transformation strategy with those insights.
  • Aerospace and Defense firms have been at the forefront of digitization efforts, but when it comes to cybersecurity they bring to mind the fable of the cobbler whose children have no shoes. Innovation by these firms is stolen by adversaries like China, which erodes our nation’s competitive edge. Firms which can optimize their cybersecurity to the point where data is not being stolen can give themselves and edge in this market. Doing so will require a dose of humility, since these firms all find it hard to believe that others can be smarter than them in cybersecurity and they will need outside help.
  • The number one technology that will transform the industrials sector is Artificial Intelligence. To leverage it, organizations need an AI strategy. Building this strategy can occur one of two ways, either top-down or bottom up. The top-down approach involves a corporate strategy that focuses on centralization of resources. The bottom-up approach takes a strategy of decentralization of resources. Pick the approach that fits the culture of your organization.
  • Shifting data analysis to the cloud can enable new, faster algorithms and Artificial Intelligence to work over data to improve operational business decisions.
  • Quantum Computing is in its nascent stage, but the devices have been proven to work. One day, perhaps 5 years from now, working quantum computers will be fielded in ways that transform the design and manufacturing of the type done in the industrials sector.

For Businesses Seeking To Serve the Industrials Sector:

  • Executives in this sector stay very busy. Do your homework and prepare prior to any discussion so you never waste their time. Understand as much as you can about their needs before any meeting. Also understand what you can about their clients and supply chain since increasingly these are topics on the mind of corporate decision-makers.
  • Every publicly traded company in the industrials sector provides an annual report that captures specifics on their market and approach which includes intentions for the near future. These are available on corporate websites and should be one of the first documents read before any sales call.
  • Be fluent in the technologies of high interest in this sector including Cyber Security, Cloud Computing, Quantum Computing, Quantum Security, and Artificial Intelligence.

These are additional references that can help accelerate digitization in the energy sector:

AI Topics:

Quantum Computing:

Cybersecurity Topics:

OODA network members can find these and all other research reports at our OODA Network Resources page

Bob Gourley

Bob Gourley

Bob Gourley is the co-founder and Chief Technology Officer (CTO) of OODA LLC, the technology research and advisory firm with a focus on artificial intelligence and cybersecurity which publishes OODALoop.com. Bob is the co-host of the popular podcast The OODAcast. Bob has been an advisor to dozens of successful high tech startups and has conducted enterprise cybersecurity assessments for businesses in multiple sectors of the economy. He was a career Naval Intelligence Officer and is the former CTO of the Defense Intelligence Agency. Find Bob on Defcon.Social