The Internet of Things explained for businesses
Some have suggested that the internet of things “changes everything,” but that is a dangerous oversimplification. Navigating the IoT world requires that companies understand rules of competition and competitive advantage — that are as important as they have always been.
Note: this article summarizes the content of the following Harvard Business Review article.
The internet is simply a mechanism for transmitting information, involving people or things. What makes smart, connected products fundamentally different is not the internet, but the changing nature of the “things.”
The first wave of IT, during the 1960s and 1970s, automated individual activities in the value chain, from order processing and bill paying to computer-aided design and manufacturing resource planning [See “How Information Gives You Competitive Advantage,” by Michael Porter and Victor Millar, HBR, July 1985]
The second wave of IT, the rise of the internet, with its inexpensive and ubiquitous connectivity, unleashed the second wave of IT-driven transformation, in the 1980s and 1990s. [See Michael Porter’s “Strategy and the Internet,”HBR, March 2001]
While the value chain was transformed in these two waves, however, products themselves were largely unaffected.
Now, in the third wave, IT is becoming an integral part of the product itself.
In essence, computers are being put inside products. Embedded sensors, processors, software, and connectivity in products, coupled with a product cloud in which product data is stored and analyzed and some applications are run, are driving dramatic improvements in product functionality and performance.
Such wave is poised to be the biggest yet, triggering even more innovation, productivity gains, and economic growth than the previous two.
What Are Smart, Connected Products?
They have three core elements:
- Physical components. They comprise the product’s mechanical and electrical parts.
- “Smart” components comprise the sensors, microprocessors, data storage, controls, software, and, typically, an embedded OS and enhanced UI. They amplify the capabilities and value of the physical components.
- Connectivity components. These comprise the ports, antennae, and protocols enabling wired or wireless connections with the product. Connectivity amplifies the capabilities and value of the smart components and enables some of them to exist outside the physical product itself.
The result is a virtuous cycle of value improvement.
Connectivity
Connectivity takes three forms, which can be present together:
One-to-one. An individual product connects to the user, the manufacturer, or another product through a port or other interface. As an example, a LED light connects to a power outlet via a controller.
One-to-many: A central system is continuously or intermittently connected to many products simultaneously. E.g. a light management application connects to several LED lights.
Many-to-many: Multiple products connect to many other types of products and often also to external data sources. An array of types of equipment are connected to one another, and to other types of data such as geolocation data, to coordinate and optimize the system.
Connectivity serves a dual purpose:
- It allows information to be exchanged between the product and its operating environment, its maker, its users, and other products and systems.
- Connectivity enables some functions of the product to exist outside the physical device, in what is known as the product cloud.
For example, in rachio’s new smart sprinkler system there is a smartphone application running in the product cloud, which takes over the control of watering from the internet.
To achieve high levels of functionality, all three types of connectivity are necessary.
Smart, connected products are emerging across all manufacturing sectors.
In heavy machinery, Schindler’s PORT Technology reduces elevator wait times by as much as 50% by predicting elevator demand patterns, calculating the fastest time to destination, and assigning the appropriate elevator to move passengers quickly.
In the energy sector, ABB’s smart grid technology enables utilities to analyze huge amounts of real-time data across a wide range of equipment, alerting control centers to possible overload conditions, allowing adjustments to prevent blackouts.
In consumer goods, Big Ass ceiling fans sense and engage automatically when a person enters a room, regulate speed on the basis of temperature and humidity, and recognize individual user preferences and adjust accordingly.
Why now?
Several innovations have converged to make smart, connected products technically and economically feasible.
- Breakthroughs in the performance, miniaturization, and energy efficiency of sensors and batteries
- Highly compact, low-cost computer processing power and data storage, which make it feasible to put computers inside products
- Cheap connectivity ports and ubiquitous
- Low-cost wireless connectivity
- Tools that enable rapid software development
- Big data analytics
Moreover, the new IPv6 internet registration system opens up 340 trillions of trillions potential new internet addresses for individual devices, with protocols that support greater security, simplify handoffs as devices move across networks, and allow devices to request addresses autonomously without the need for IT support.
A new technology infrastructure
Harvard Business Review states that connected products require that companies build an entirely new technology infrastructure, consisting of a series of layers known as a “technology stack”
This technology enables not only rapid product application development and operation but the collection, analysis, and sharing of the potentially huge amounts of longitudinal data generated inside and outside the products that has never been available before.
Building and supporting the technology stack for smart, connected products requires substantial investment and a range of new skills — such as software development, systems engineering, data analytics, and online security expertise — that are rarely found in manufacturing companies.
What Can Smart, Connected Products Do?
Intelligence and connectivity enable an entirely new set of product functions and capabilities, which can be grouped into four areas: monitoring, control, optimization, and autonomy. A product can potentially incorporate all four. Each capability is valuable in its own right and also sets the stage for the next level. For example, monitoring capabilities are the
A company must choose the set of capabilities that deliver its customer value and define its competitive positioning.
Michael E. Porter and James E. Heppelmann, Harvard Business Review
Takeaways
- Smart Connected products They are made of three components: physical, smart, and connectivity.
- What make they different is not the internet, but the changing nature of the “things.”
- Why now? Several innovations have converged to make them both technically and economically feasible.
- Companies need to look at a fundamentally new technology stack.
- Building and supporting such technology stack requires new new skills that are rarely found in manufacturing companies.
