But the implications of this revolution of connectivity extend way behind just smartphones and your home. In fact, it’s about to be applied on an industrial scale to everything from aerospace to mining in ways that people can hardly imagine. The Industrial Internet of Things (IIoT) will pull data from millions of tiny sensors on every piece of industrial equipment fathomable. Companies will harness this data in real-time to create insights and efficiencies on a crazy scale: GE estimates it will help to generate a $10-$15 trillion increase in global GDP over the next 20 years.
But can companies handle the IIoT?
While this all sounds great in theory, the reality is that the transition to a useful IIoT is going to be an ongoing challenge. Very different types of data need to be captured and integrated, and companies will need to find ways to turn huge amounts of data into focused insights. Bit Stew, from GE Digital, recently commissioned a survey of top IT execs to see if their respective companies were ready for the IIoT. The survey found that only 30% of companies are currently early adopters of the IIoT, while the other 70% are still in the planning phase. Perhaps more importantly, top IT execs identified the potential barriers to their companies adopting the IIoT, as well as the opportunities that the IIoT can unlock for their operations: Opportunities
80% of senior IT executives view improving operating efficiency and uptime as the top benefits that IIoT will bring. Other benefits identified: improved operating costs, better uptime, improved asset performance management, and knowledge transfer in the workplace. Larger organizations (1,000+ employees) found improving uptime to be a more compelling benefit than smaller organizations. 70% say that having proven capabilities for data modeling and mapping were more important for a IIoT platform than any other feature.
Barriers to Adoption
64% of senior IT executives said that integrating data from disparate sources and formats, and extracting business value from that data, is the biggest challenge the IIoT presents. Meanwhile, 36% say limited access to the right skills and expertise is the problem. Larger organizations (1,000+ employees) were more likely to struggle with traditional database management and analytics tools (34% vs 12%). 87% say that the overwhelming volume and veracity of data will result in losing valuable business insights. 33% say that businesses without a data management strategy will become marginalized, obsolete, or disappear.
Why is industrial data so complicated?
Industrial data comes from a variety of source types and is often messy. Combine this with its complexity, and that it comes in massive volumes and varied frequencies, and the situation is quite a quagmire for any aspiring adopter. To enter a truly connected world where data about everything is analyzed instantaneously on an industrial scale, we must first solve these issues around data. It’s only then that the IIoT will show its true potential for business. on But fast forward to the end of last week, and SVB was shuttered by regulators after a panic-induced bank run. So, how exactly did this happen? We dig in below.
Road to a Bank Run
SVB and its customers generally thrived during the low interest rate era, but as rates rose, SVB found itself more exposed to risk than a typical bank. Even so, at the end of 2022, the bank’s balance sheet showed no cause for alarm.
As well, the bank was viewed positively in a number of places. Most Wall Street analyst ratings were overwhelmingly positive on the bank’s stock, and Forbes had just added the bank to its Financial All-Stars list. Outward signs of trouble emerged on Wednesday, March 8th, when SVB surprised investors with news that the bank needed to raise more than $2 billion to shore up its balance sheet. The reaction from prominent venture capitalists was not positive, with Coatue Management, Union Square Ventures, and Peter Thiel’s Founders Fund moving to limit exposure to the 40-year-old bank. The influence of these firms is believed to have added fuel to the fire, and a bank run ensued. Also influencing decision making was the fact that SVB had the highest percentage of uninsured domestic deposits of all big banks. These totaled nearly $152 billion, or about 97% of all deposits. By the end of the day, customers had tried to withdraw $42 billion in deposits.
What Triggered the SVB Collapse?
While the collapse of SVB took place over the course of 44 hours, its roots trace back to the early pandemic years. In 2021, U.S. venture capital-backed companies raised a record $330 billion—double the amount seen in 2020. At the time, interest rates were at rock-bottom levels to help buoy the economy. Matt Levine sums up the situation well: “When interest rates are low everywhere, a dollar in 20 years is about as good as a dollar today, so a startup whose business model is “we will lose money for a decade building artificial intelligence, and then rake in lots of money in the far future” sounds pretty good. When interest rates are higher, a dollar today is better than a dollar tomorrow, so investors want cash flows. When interest rates were low for a long time, and suddenly become high, all the money that was rushing to your customers is suddenly cut off.” Source: Pitchbook Why is this important? During this time, SVB received billions of dollars from these venture-backed clients. In one year alone, their deposits increased 100%. They took these funds and invested them in longer-term bonds. As a result, this created a dangerous trap as the company expected rates would remain low. During this time, SVB invested in bonds at the top of the market. As interest rates rose higher and bond prices declined, SVB started taking major losses on their long-term bond holdings.
Losses Fueling a Liquidity Crunch
When SVB reported its fourth quarter results in early 2023, Moody’s Investor Service, a credit rating agency took notice. In early March, it said that SVB was at high risk for a downgrade due to its significant unrealized losses. In response, SVB looked to sell $2 billion of its investments at a loss to help boost liquidity for its struggling balance sheet. Soon, more hedge funds and venture investors realized SVB could be on thin ice. Depositors withdrew funds in droves, spurring a liquidity squeeze and prompting California regulators and the FDIC to step in and shut down the bank.
What Happens Now?
While much of SVB’s activity was focused on the tech sector, the bank’s shocking collapse has rattled a financial sector that is already on edge.
The four biggest U.S. banks lost a combined $52 billion the day before the SVB collapse. On Friday, other banking stocks saw double-digit drops, including Signature Bank (-23%), First Republic (-15%), and Silvergate Capital (-11%).
Source: Morningstar Direct. *Represents March 9 data, trading halted on March 10.
When the dust settles, it’s hard to predict the ripple effects that will emerge from this dramatic event. For investors, the Secretary of the Treasury Janet Yellen announced confidence in the banking system remaining resilient, noting that regulators have the proper tools in response to the issue.
But others have seen trouble brewing as far back as 2020 (or earlier) when commercial banking assets were skyrocketing and banks were buying bonds when rates were low.
