Blog Internet of Things

Digitalization is Imperative, But How is Not Yet Clear

The landscape of the IoT market has been changing. Nowadays, it belongs to almost any company of any size that wants to preserve or gain more market share. Many companies have deployed proofs-of-concept (POC) and pilots. On the other hand, only a few have scaled to mass deploy the solution across their company. The scope of this article is to expose the different challenges and barriers to mass scale IoT deployments. Plus, how to solve them by understanding the different dimensions of business value and how to benefit from them.

The problem

According to consulting and market research companies, POCs and pilots have been widely used to test ideas and assumptions. Still, really few projects evolve to more mature phases. The reasons for failure vary. Some consider the execution the source of the problem. Others assume that the issue lies in the absence of strategy and focus. And yet a third line of thought considers the lack of technical knowledge and insufficient business understanding the main cause. Despite the split of ideas, it’s rare to find an article that only mentions one of them.

One group of analysts within Gartner1 and Bain & Company2 support that the main cause of failure is the execution. Meaning that the return on investment falls short in several areas of the business. Also, they defend that the right business model is not deployed to support new customer experiences or operational efficiency.

McKinsey3, The Economist4, and Capgemini5 disagree. They believe that the main issue comes from the shortage of technical knowledge in IoT standards, protocols and analytics. More, the absence of a proper business case is central too. In short, businesses know the importance of digitalization to their future. And hence, feel the pressure to deploy pilots. However, they do it without a proper understanding of the business case neither the technology existent to support their growth.

Another group of analysts from Gartner6 and, also, Kevin Aston7 go deeper in their analysis. To them, the source of the problem lies in the absence of strategy and focus. They defend that even though an opportunistic approach to IoT can be successful a strategic approach will generate higher revenue. Furthermore, without acquiring stakeholder’s confidence, having the right strategy and proper execution the chances for success are small.

Business Challenges in IoT deployments

Dimensions of business value created by IoT deployments

Solving an equation without a proper methodology and direct applicability is as good as doing a school assignment. In addition, it can lead to an incorrect answer. Similarly, answering how to get value from IoT without understanding the specific case and opportunities, is a shortcut for failure.

According to Cognizant8, an IoT deployment can generate 4 dimensions of business value: i) Operational improvement, ii) Product innovation, iii) Customer experience (product & service), and iv) New business models.

The first, operational improvement, means that the company will have as a goal the traditional improvements. Cheaper, better or faster processes. Currently, this is the most common source of value and dimension used.

On the second, product innovation, the company will use the voice of the customer and data gathered by previous deployments. As a result, they will use these inputs to improve the next product design by either including or eliminating features.

The third focuses on refining the customer experience. By deploying IoT in their products, companies have the possibility to deliver tailor-made experiences. As an example, it can be based on a set of geographies, during product usage or even for predictive maintenance.

Finally, the last, new business model, occurs when traditional product companies start selling services. This is only possible because the company has now valuable information that once didn’t have. Consequently, with the new asymmetry of information, the company can extract more value from the customer.9

A subset of value dimension and the recognition of intangible value creation

Gartner10 also agrees with the dimensions mentioned above, except that they don’t include product innovation. However, Gartner presents a more profound explanation. They separate each value dimension into two subsets. IoT deployments whose benefits will have an internal impact and initiatives that will have an influence on external stakeholders. To clarify, examples of the former are remote monitoring, control of operations and workforce productivity enhancement. As for the latter, good cases are improving customer loyalty, gain greater insight into customer behaviour and grow competitive advantage.

Equally important, the same group of analysts brings attention to the intangible value created by digitalization. To put it differently, these are the unknown unknowns of IoT. Simply put, these are the type of benefits that are impossible to predict due to the absence of empirical knowledge. Additionally, some benefits were simply not possible to be achieved before because there wasn’t proper data collection and analysis.

In conclusion, every implementation will have tangible and intangible benefits. Specifically, in a smart building project, the expected benefits are energy savings. As for unexpected benefits, they could be an increase in employee satisfaction and productivity.

Requirements for success in digital age

Requirements to successfully scale IoT to mass deployments

Even though there are diverse theories to explain the challenges of evolving to mass scale, the solution is unanimous. In essence, they are strategy and commitment. The reason being that with a well-defined strategy and commitment a company will be less vulnerable to abandon digitalization projects.

Even though there are several attempts to explain11/12, Capgemini13 does it best. They summarize it very well with 3 requirements. Your company needs to have i) an IoT strategy in place. Assign ii) a business and technical leadership sponsored by senior leadership or even the CEO. And finally, the team needs iii) to focus on high potential use cases as well as achieve quick early wins.

The three requirements above are fundamental for a long-term vision and high-level approach. In addition, there are also practical methodologies at the project level. These methodologies help the IoT leadership achieve traction and belief within the parties involved.

At the project level, there are two main approaches. The first is based on design thinking and co-innovation with the customer. The focus is external, in the client’s needs. The other method is based on IoT decision Framework by Daniel Elizalde14. This, on the other hand, focuses internally. The main purpose is to review and solve both the technical and knowledge gaps existing inside the company.

Design thinking is based on an iterative process that focuses on three cornerstone topics and questions:

  • (Human) desirability – is this product or service addressing a real customer need?
  • (Technical) feasibility – can we develop a solution that is technically feasible and better than competitors? and finally,
  • (Business) viability – is there a viable business model around this product or service?

IoT decision framework is also an iterative process. It consists of the review and assessment of all the IoT technology stack for every single decision area. An IoT technology stack can be divided into device hardware and software, communications, cloud platform and applications & analytics. As for decision areas in IoT, they typically include UX, data, business, technology, security, standards and regulations.

How to start?

The recommended approach to implement a successful digitalization project in your company is to take a top-down methodology. In contrast, if you start in a bottom-up approach the chances of your project being vetoed are extremely high. Unless, of course, you have a credible senior level person sponsoring you.

In the first phase is where you create the foundation pillars.  Namely, you need to have a strong and committed leadership coupled with a solid IoT strategy.

Then, the next step is to brainstorm business ideas from the four dimensions, followed with prioritization of the best. The prioritization should fit with your company’s strategy, maturity and ability.

As a third stage, you need to recognize what is most critical for your company’s success. Is it to generate value from internal or external initiatives? Simply put, is it more important to improve internal operations and optimize resource allocation? Or, on the contrary, to gain a market advantage and tighten customer relationships?

The fourth and final process can be also the trickiest. Will you focus mostly on your teams’ capabilities to understand the customer’s needs and create from within? Or will you take into consideration the stakeholders’ proactive involvement and include them in your product development?

Once you have answers for the above topics you are in the right direction to mass scale IoT.

Nevertheless, a digitalization process is complex. That said, if you still have difficulties on how to improve your digitalization journey or simply needing an experienced and knowledgeable person, do not hesitate to enter in contact with me. Haltian and I will make sure you’re in good hands.

Book a meeting with Paulo Lopes

References

  1. Gartner, “Business Benefits of the Internet of Things: A Gartner Trend Insight Report”, September 2017
  2. Bain & Company, “How Providers Can Succeed in the Internet of Things”, August 2016
  3. McKinsey Global Institute, “The Internet of Things: Mapping the Value Beyond the Hype”, June 2015
  4. The Economist Intelligence Unit, “The Internet of Things Business Index 2017: Transformation in Motion”, March 2017
  5. Capgemini, “Unlocking the business value of IoT in operations”, March 2018
  6. Gartner, “Implementing and Executing Your Internet of Things Strategy: A Gartner Trend Insight Report”, December 2017
  7. Hewlett Packard Enterprise, “Making Sense of IoT, How the Internet of Things became the humanity’s nervous system”, 2017
  8. Cognizant, “Connected Products for the Industrial World”, August 2015
  9. Daniel Elizalde, “Strategy and Date monetization with EY’s Head of IoT” podcast,
  10. See reference 1
  11. See reference 6
  12. Forrester, “The Internet Of Things Heat Map, 2016, Where IoT Will Have the Biggest Impact On Digital Business”, January 2016
  13. See reference 4
  14. Daniel Elizalde, “IoT Framework for Product managers”, 2018

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