What it takes to establish a strategic edge in IoT
McKinsey’s recent article, “What it takes to get an edge in the internet of things” advised firms to focus on three habits:
- Begin with what you already do, make or sell;
- Climb the learning curve with multiple use cases; and
- Embrace opportunities for business process changes.
The management consultancy’s analysis of different financial indicators concluded that organizations stand to benefit by implementing a greater number of IoT use cases; the effect levels off at around 30. Its survey also showed that that leading companies implemented on average 80% more IoT applications than laggards.
Could such an approach, driven by bottom-up change, significantly transform a firm’s competitive status? Or is it more a case of playing the probabilities for quick win gains?
Here is why it is important to prepare strategically. Everybody accepts that IoT technologies and innovation will change our world. As far back as 2015, McKinsey reported that IoT will significantly alter broad swathes of the economy. Many businesses will be affected, either through direct competition or because of indirect business model innovation. And these won’t simply be short-run impacts. Any attempt to master IoT capabilities and systems, through good habits, needs to address a firm’s long-term model. Businesses should not stop at quick-win or high-priority technologies, but build toward longer-term ones.
The need to manage short-term imperatives while not ignoring long-term implications is not a new phenomenon. Large organizations frequently squander good ideas. This is the kind of situation that saw Blockbuster, Kodak and Nokia lose their respective market positions. In the case of Blockbuster and Kodak, both had a decade of notice of the impending changes bearing down upon them, but could not bring themselves to make the changes necessary to take advantage of new opportunities.
What does a holistic IoT strategy look like?
Most medium and large companies will be home to hundreds of use cases and IoT applications. Instead of approaching these in piecemeal or silo fashion, it makes sense to anticipate commonalities across the roughly 30 use-cases highlighted by McKinsey’s research. One type of commonality deals with IoT knowhow. Another area covers the IoT platforms necessary to manage connected devices and applications. Targeting commonalities is also known as “thinking horizontal” and delivers economy of scale benefits.
The Industrial Internet Consortium describes promising technologies in the form of “Centers of Competency” and standardized IoT platforms. Centers of Competency allow businesses to pool and share expertise across organizational departments or business units. Standardized IoT platforms involve the application of common technology and tools across use cases. This minimizes the risk of distributing investments across too many subscale technology stacks.
A second commonality objective centers on the concept of interoperability. On one level, this means designing systems that can accommodate devices and applications from multiple vendors. Through this, companies retain the power of competitive choice.
Over the longer term, interoperability design principles mean that solution architects can build IoT applications that cut across operating silos and expose new application possibilities. This is particularly relevant for small- and medium-sized organizations that will need to embrace IoT systems that span industry supply chains, for example. Think of application interoperability as a way of capitalizing on economies of scope.
A holistic IoT strategy, in other words, looks ahead for design and operating commonalities across multiple applications. It avoids the compatibility, complexity and costs associated with stitching multiple applications together after they have been deployed.
Prepare for the future by planning beyond today’s priorities
In addition to solving immediate application challenges, organizations should invest some effort in looking ahead to a longer-term roadmap. What are the second- and third-generation application possibilities for initial success stories? Consider, for example, a service provider that is responsible for measuring traffic flows and congestion points in a city’s road network. It might seek to apply some of its data to help a waste management company optimize its garbage collection schedule. Or, it might work with environmental monitoring agencies to understand and eventually manage pollution hotspots.
Rather than focusing primarily on technology challenges and use case requirements, organizations need answers for governance and change management issues. Governance goes beyond the involvement of technology and operational departments. It needs to involve end users and a design approach that meaningfully represents their needs. Change management deals with the adoption of new systems and techniques that foster user adoption and support at the level of executives who are responsible for corporate strategy and funding decisions.
Organizations also need to work on a financial plan. Beyond the immediate costs involved in a pilot, businesses need to plan for growth and expansion-oriented costs. These may have investment horizons running into the decades, as in the case of infrastructure for the buildings, cities and mass-transportation sectors.
As companies explore these issues and investigate longer-term implications, they will also come across new revenue opportunities from service innovation and complementary business model changes.
The idea of embracing opportunities as they arise and with an organization’s core business areas won’t be enough. It leaves too many new and transformative opportunities unaddressed. To compete with a cutting edge, businesses have to be proactive and look further afield.
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