The Surprising Truth About What Makes IoT Valuable
This article was first published on SmarterChains’ blog.
Explaining the paradox between smart technology investment and lagging value gain
Imagine a world where each product you sold would give financial returns well after the moment of purchase, charging customers by usage. At the same time, that product would tie your company directly to the customer, give access to their habits and preferences, and allow your teams to cross-sell additional products or services.
The customers would also benefit; products would deliver personalized experiences to them, the payment system would be transparent and fair, they’d receive remote support and potential digital product upgrades.
That world is not that far away. IoT technologies, defined as “sensors and actuators connected by networks to computing systems” [I], have arrived and will (eventually) enable — or force — the “as-a-service” model outlined above. And yet, despite big-budget experimentation, an astonishingly small percentage of companies harnesses IoT value. [II]
Simply put, there’s a disconnect between smart technology investment and business value gain. This paper explains why.
Smart Technology Investments Unlock Value Over Time
The greatest advantage of IoT is interoperability. Interoperability is the ability of a product or system to exchange information and resources with other products or systems, software or hardware, without restriction. Consider the following scenario:
Smart technologies inside an automotive factory, connected to remote workers, optimizing products based on real-time smart-car data. On one hand, this scenario shows that when IoT-enabled systems communicate with each other, their value potential is multiplied. On the other hand, it shows that to achieve maximum gains through interoperability, certain conditions must first be met. In this particular instance, the scenario assumes successful technology implementation, workforce buy-in, customer adoption, and no regulatory hurdles.
Harnessing this kind of value from the Internet of Things will take time.
Manufacturing companies will first need to overcome big technical, organizational, and regulatory barriers. Before starting to collect IoT data, for instance, companies will need to build digital talent capabilities to extract actionable insights from them. Today, the reality is that precious few companies have these strong foundations in place — a prerequisite to harnessing IoT value.
Consequently, smart technology investments should be evaluated with a multi-year horizon; and should be attempted only as part of an orchestrated enterprise-wide transformation effort.
The True Beauty of IoT Is Horizontal and Societal
A skeptical executive may now be contemplating what’s the point of investing in IoT if a big part of the benefits is not immediately available to the business. However, trying to assess the financial impact of IoT vertically (e.g. how much it impacts car-making efficiency in an automotive factory) is insufficient.
The true beauty of IoT is horizontal; it lies in its potential to deliver value to the customer. And this value is going to increase exponentially over time, as IoT becomes an integrated part of human life.
Let’s go back to our previous sample scenario: Smart technologies in an automotive factory would first improve operations efficiency. Second, they would improve worker security, boost morale and productivity. However, the value potential goes far beyond the factory walls. Assuming a smart-car product, the business would have access to the customer’s exact usage patterns to deliver better products. The customer would be able to benefit from condition-based maintenance services. The carmaker could sell useful smart-car software upgrades to the customer. Or, simply, the customer could collect remote customer service, paid by the hour.
In other words, assessing IoT’s value-potential from the perspective of the manufacturer is misleading. Its true value can only be seen by assessing it on a horizontal, societal level. As written, harnessing this kind of value from the Internet of Things will take time. But it will happen. The impact is going to be tremendous.
What Comes Next
New models will be developed and implemented across most industries, for consumer and business-to-business companies both. Why sell capital goods (e.g. industrial machinery) as one-off products, when you can sell them through recurring subscriptions, or charge continuously based on usage? Why not use sensors to monitor when consumables get spoiled, reduce prices instantly, and generate revenue before they go bad? Why not use real-time customer data, collected through smart products, in order to deliver delightful experiences?
The “as-a-service” era is here. It will take time for companies to create the systems required to maximize IoT value, but it’s going to happen. Then, the forward-thinking manufacturers who started building the Industry 4.0 foundations early will have such a dominant hold on the market that competitors will find it almost impossible to disrupt.
SOURCES
[I] MGI: The Internet of Things: Mapping the Value Beyond the Hype
[II] Connected Futures Cisco: IoT Value: Challenges, Breakthroughs, and Best Practices
