How to align profit and purpose in a connected world?
IoT provides an unprecedented opportunity to understand the impact of our interactions with customers, society, and the environment
What if I told you that you do not have to choose between doing business for profit versus doing it with a social purpose? Well, the Internet of Things (IoT) provides enormous opportunities to align both objectives. In this article, we hope to shed further insights on how we see the development of this field, its challenges, and how it can be harnessed to produce a positive impact for society and the planet while helping businesses create value and deliver profits to its stakeholders.
To begin, we believe that the potential of IoT for businesses can be realised in two ways. First, by improving operations management, and secondly, by providing new opportunities for business model innovation. Let’s look at these two areas in more detail.
IoT can help businesses make smarter decisions because it provides ample data in a timely manner. Moreover, appropriate analytics can translate that data into actionable intelligence for preemptive action (i.e. maintenance) and/or proactive process redesign. The benefits can be better summarised as follows:
- Improved asset utilisation
Businesses can track and monitor their assets (ex. machinery, equipment, tools, etc.) when these are connected to the internet, and benefit from real-time insights and visibility into their operations. For instance, they could more easily measure throughput and utilisation, analyse the impact of existing asset conditions on productivity, and perform condition-based maintenance.
- Improved productivity
Business processes can be reengineered and automated for improved productivity by managing operational performance with reliable and timely data.
- Efficient processes
Organisations can use real-time data from sensors and actuators to monitor and improve process efficiency and reduce energy/resource use. Streamline production by managing asset idle time, identifying production bottlenecks, reducing waste, manage inventories, etc.
- Significant cost savings
Costs can be reduced through improved asset utilisation, productivity, and process efficiencies. Moreover, the generated data can provide a comprehensive picture of the asset’s incurred costs during its life-cycle, and allow enterprises to continually improve their operation.
Business model innovation
The second area where we see important contributions from IoT is in the development of new business models. This is the result of rich data sources that provide new economic opportunities, and brings to mind the phrase “knowledge is power”.
In a report in 2015, McKinsey & Company described three types of new business models enabled by IoT. These are:
- Monetisation of IoT data
Data is a commodity that can be used to elaborate consumer profiles, improve product design and its commercialisation, and provide predictive insights. Thus, collecting and finding a market for that data is a natural business opportunity.
- New pricing models
IoT allows businesses to better understand the market in which they operate. As a consequence, businesses can tailor their offering and pricing based on valuable insights following industry trends, competitor activity and the customer’s willingness to pay for the product or service.
- Service-based business models
The internet provides a medium to collect and communicate data that enables the offering of Anything-as-a-Service (XaaS). Some of these services can include Cloud Computing, Software-as-a-Service, etc.Consequently, companies can concentrate on their own offering with the support of digital tools provided by third parties; this can eliminate or to a large extent reduce capital expenditure through a pay-as-you consume model.
As a consequence, IoT has allowed new players to disrupt existing markets, and make established players re-think their strategies and business objectives. Nevertheless, several challenges remain before the full potential of IoT can be realised. These challenges include:
- Aligning the organisation
IoT provides a data-rich environment that requires analytical rigor to drive decision making. This could involve developing closer cross-functional collaboration that would break organisational silos, and promoting transparency and trust. Moreover, fast-paced business demands require that some decision making processes be automated. Also, close collaboration between IT functions and different business spheres requires new performance metrics to make sense of the data influx.
- Interoperability and analytics
Interoperability is the ability of devices and systems to exchange information with each other, and it is crucial for capturing between 40% to 60% of IoT’s potential (Manyika et al. 2015, 103). It facilitates data collection from different sources and allows analytics to make sense of the available information. Some of the barriers include the lack of common software interfaces, data format standards, and common connectivity protocols. An approach to deal with these barriers is the use of an application program interface (API) architecture that would include a set of routines and protocols to serve as “bridges” between different applications.
- Security and privacy
Interoperability could create additional points of vulnerability in interconnected data systems making them susceptible to security and privacy breaches. This will require the development of ways to safeguard data from “prying eyes”. Equally important is the ethical discussion on the use of the data generated by businesses.
For profit and purpose
So far we have concentrated on the business benefits of IoT and if we did not know better, we could leave it at that. However, as global citizens, we are constantly in touch through the media, or in the flesh, with the effects of Climate Change and environmental degradation, as well as pressing social issues. If we can agree that business plays a role in society beyond profit maximisation, the next question is: what can business do to address these issues?
IoT, through data collection, provides us with an unprecedented opportunity to understand the impact of our interactions with customers, society, and the environment. For example, operations management has a direct impact on energy and resource efficiency, which in turn have an impact on carbon emissions and environmental exploitation. Moreover, the digital revolution is pushing for more collaborative ways of working, transforming the way we interact with our peers, flattening hierarchies, and facilitating the engagement of our workforce. Also, business model innovation results from better identifying needs and understanding new ways of delivering value to society (i.e. customers). Therefore, “making a buck” does not have to be isolated from working responsibly, especially when technology is facilitating this process.
The potential of IoT goes beyond its impact on business processes. As a technological enabler, it allows us to have a better understanding of the multiple dimensions on which operations take place to include new ways of doing business. It also has the power to redefine working relationships as it emphasises cross-functional collaboration, promoting engagement and empowering decision-makers with a vast array of information. In addition, it has spawned the growing field of data science with its potential to help us shape our future into a sustainable direction through informed resource management. Therefore, IoT has the potential to facilitate the development of businesses that care for the triple bottom-line: profit, people and planet.
We hope you join this conversation. Please leave a comment below and follow us on Twitter @BulbThings.
Manyika, J. et al. The Internet of Things: Mapping the Value Beyond the Hype. McKinsey Global Institute. June 2015.