Twenty-five times revenue speaks volumes about value. That’s what SoftBank will pay to acquire ARM Holdings based on the promise that the Internet of Things (IoT) will make microprocessors ubiquitous. Verizon Communications, a leading provider of IoT connectivity to all markets, is spending $2.4 billion to buy Fleetmatics in an apparent pivot to a vertical IoT market. After investing over a billion dollars developing and marketing its Predix platform, IoT bellwether GE is moving to Microsoft’s cloud platform Azure.
Yes, the IoT has value, but if leaders like GE and Verizon keep shifting their position in the value stream, how do the CEOs and CTOs of midmarket companies identify and develop meaningful value propositions based on predictions of 50 billion connected things, promises of 500 connected devices in every home, or an ocean of power-efficient microprocessors? Indeed, a recent Forrester survey found that while 51 percent of companies surveyed have deployed IoT to collect data, only a third of them are using that data in an actionable way.
One of my favorite business books of the last decade is “Ten types of Innovation” by Doblin. I originally read it presuming I would disagree with the premise — “How can there be only ten types of innovation?” But as Einstein said “Everything should be made as simple as possible and no simpler.” I found Ten Types to be a simpler and much more inspirational view of innovation than I expected.
Simplification also exists for the spectrum of IoT value propositions. Five distinct types of IoT value provide clarity for those looking to launch new IoT enabled products. Like Doblin’s Ten Types, this simplification is a tool that both guides and measures value design. When developing a new business concept one can use the five types to search for ways to solve customer problems in each value context. The number of value types and strength each has with customers then measures the offering’s likely impact in the market. As Einstein advised, simplicity provides clarity.
Here are the five ways the IoT provides value to customers.
Cost reduction has been the leading motivator of the industrial IoT since GE forecast the global impact of the IoT as $15 trillion from a 1 percent improvement in industrial efficiency. The opportunities for cost reduction with IoT are many, but as the forecast indicates the gains of from automation in mature markets like agriculture and industrial production are becoming incremental and do not always justify the investment.
However, IoT data streams bring new opportunities to reduce costs. Specifically, data analysis provides better and deeper understanding of not just equipment as described by so called digital twins, but of the operations and the business itself. IoT technology enables companies to deploy sensors in new ways to get the data that the business needs to perform better.
Operational variance, for example, is a major source of cost in the management of the retail supply chain. Supply-side variances create scrap, add time and require inventory to manage. Target and Walmart recently launched initiatives demanding a reduction in on-time delivery variance from vendors that will in turn improve Target and Walmart’s demand-side store performance. Better data allows better understanding and measurement of sources of cost which is the first step to reducing cost.
Risk reduction was recently cited as the biggest advantage of using IoT. Risk management relies upon two things: understanding root cause and the probability distribution of undesired events. IoT data provides clarity of both. Companies will capture and analyze the data necessary to understand their risk and, like variance, once there is an operational understanding risk reduction can follow.
Root causes of undesired events can be forecast or removed entirely. The enterprise can also predict the cost of risk and affect a “make vs. buy” decision on the insurance. Forward thinkers in the insurance industry have already predicted IoT data will dramatically change their position in the management of risk. IoT data will create new value propositions that shift the risk-return curve to favor the innovator.
Engagement is the life blood of internet companies like Netflix, Facebook and Amazon. They work relentlessly to drive user engagement and avoid churn. Engagement has the same value in the application of the IoT to industrial markets. New “smart products” can engage customers, but there is a deeper value proposition from improving user engagement with products, both new and existing.
User engagement is a critical source of data of many types, e.g. activity, compliance and operational status. Since data analysis is the focus of most IoT solutions, engagement increases both the value of the solution and the data it creates. Examples include driver use of routing suggestions in fleet management solutions, operator compliance with complex assembly and test procedures, and patient engagement with DIY therapies like diabetes.
Operations leaders traditionally focus on cost when trying to increase productivity, i.e. reduce the denominator. But at some point any production process hits the fixed costs and unless the process is lights-out, i.e. no labor involved, productivity can only be improved by improving the output of the employee workflow.
The IoT can improve workflow in two ways. First, it can elevate people’s roles within organizations. By eliminating tedious tasks like gathering and recording data, workers can focus on more important tasks that only they can do. Healthcare, for example, offers a massive opportunity for workflow improvement via automation of health data records allowing care givers to focus on patients.
The second method is providing more and better, e.g. contextual, information to the worker. Wearables will be a key facilitator of this proposition by sensing worker location and personalizing information display. Boeing and GE are already using wearables in the workplace to simplify complex assembly as well as measure and document production progress.
Moving money faster seems an obvious value proposition in the context of consumer and institutional finance with names like Apple Pay, Android Pay and Amazon Prime. But automated financial transactions are equally valuable when one contemplates machine-to-machine transactions where the machines are owned and operated by different enterprises. But the decentralization effect of IoT complicates the integration of corporate systems in which the financial transactions are captured.
Verifying and recording the financial transactions of inter-enterprise handoffs in real time will thus be of great value. The speed of the commerce must be as automated as the transport of materials moving without human intervention. Already we see developers engaging this challenge using new technologies like blockchain to provide secure recording of financial transactions in the IoT.
The early days of the Hype Cycle are past and the hard work of solving real problems with IoT is now underway. Identifying and creating value is the next phase of the IoT. These five types of IoT value provide clarity within the ever shifting value stream and growing spectrum of applications. With clarity can come action and with action results. Is there value in the IoT is no longer the question.
The question is how does one find it and sell it.