So if sheer spend doesn’t guarantee success with IoT, what does? After poring through the data on the Leaders and Followers and connecting it to what we heard in our interviews, we found seven primary elements of success with IoT. We see these distinctions as strong guides for all companies that are investing today or plan to invest in IoT technologies in the years ahead.
The data that companies are now able to get affordably and reliably through IoT technologies – data about customers, the places they do business with customers, and (most of all) how customers are using their products – doesn’t come automatically from customers. To ask for that data, companies must give customers something big in return – something that customers highly value. Put another way, companies must deliver significant value to customers in order to get value in return from their IoT data. Thus, IoT requires substantial value exchange between a company and its customers.
That is profoundly different from previous waves of technology investments, which didn’t require a company to get data on how customers were using its products or services. For example, companies implementing enterprise resource planning systems during the last 20 years haven’t had to ask customers for their approval, because those customers didn’t have to fork over their own data. ERP systems enabled companies to better organize and manage their own data – from their finance, supply chain, and other internal operations. The same was true with customer relationship management systems; the data in those systems was data that a company generated in marketing, selling to customers, and servicing those customers. However, product usage data always remained with the customer.
IoT data is very different – particularly post-sales data that monitors product usage. When customers take possession of those products, the company’s right to monitor product usage data doesn’t come automatically. Companies must secure those rights. As a result, something of value must be handed to customers in return. Executives who want their companies to capitalize on IoT technologies must focus as much or more on delivering customer delight as they do on delivering shareholder delight by increasing revenue and decreasing costs. Without the first, the second won’t happen.
By delivering new and substantial value to customers, Leaders are better able to make money from that value through new business models, product and service offerings, product bundles, and selling data.
In comparing the results of Leaders and Followers by the percentage that adopted new business models, leaders were twice as likely to make some business model changes:
Additionally, a higher percentage of Leaders (45%) have bolstered their product support and repair business because they can monitor how customers use their products, compared with 35% of Followers. (See Exhibit IV-6.)
Still, it’s very much the early days of making radical business model changes from IoT efforts. Even for Leaders, less than half have made all of the business model changes of the type we’re pointing to here. However, since only 3% of Leaders said they haven’t made any business model changes, that shows the overwhelming majority have made at least one business model change. In contrast, 25% of Followers hadn’t made any changes to their business model because of the IoT.
Leaders are more likely to see the breakthrough potential of IoT technologies to obtain the ultimate truth about how their offerings are performing and being used by customers. Before the onset of affordable digital sensors and low-cost communication networks this decade, it was impossible for companies to feasibly track how customers were actually using their products and services, and the performance of those offerings. Companies had to rely on partial visibility – for example, through complaints to the call center or sales force.
Now the increasing power, affordability, and adoption of IoT and other digital technologies give companies much broader and continuous visibility on how they’re performing for customers. Put another way, companies can get a much deeper understanding of the ‘truth’ about their standing with customers. In fact, four types of truth become more apparent:
Despite the power of IoT technologies to help companies rapidly learn the truth about their products, services, premises, and customers, the data is just a means to an end. The end, of course, is fixing a product or other customer problem in the field quickly – or even before the customer knows there’s a problem.
This requires a company to be able to handle truly Big Data – enormous volumes of digital information streaming in from thousands of sensors in its products, premises, and supply chains, and digital information from customers who have opted in to smartphone apps. It also requires companies to push the ability to act on this data back into the field – ideally to create products and services that can correct themselves.
Companies need Big Data and analytics functions that can deal with the data deluge. One of the biggest differences between Leaders and Followers was the emphasis the Leaders placed on having a group that focused on analyzing IoT data to deeply understand how customers are using the firm’s products. They gave it a 3.91 importance rating, while Followers said it was only moderately important (3.00). General Electric has invested $1 billion to create such a group over the last four years.
Leaders place much greater importance on being able to react rapidly in a world in which IoT technologies quickly send back data on the status of their customers, products, services, and premises. They gave it a 4.02 importance rating on our scale of 1-5, while Followers gave it an average 3.03. That was one of the biggest gaps we found between Leaders and Followers about the key success factors of IoT initiatives.
Of all the technologies that big companies have adopted during the last 50 years, IoT technologies may create the greatest organizational resistance. Such technologies provide data on issues that are highly sensitive in a company: exactly how their products and services are performing, or not performing, for customers. Companies can expect significant resistance to hearing what we referred to earlier as ‘the ultimate truth.’
“Without question, the biggest barrier to the Internet of Things by a large margin is cultural,” says Intel’s Jonathan Ballon, who before moving to Intel last October was heavily involved in GE corporate strategy and the firm’s software and analytics center in San Ramon, Calif. “It’s organizational inertia that gets in the way. People are afraid about what new technologies might reveal about the business.”
It’s one of the reasons that all of the companies we interviewed told us that without strong support and understanding at the very top, their IoT initiatives would not have gone very far. As Intel’s Ballon put it: “The companies I find that are brave are driving this change from the top. The more timid and change-averse companies tend to dig in with their feet, get lost in the weeds, and take too long to make technology decisions.”
Digital sensors, cameras, embedded software, and other IoT technologies considerably increase the technology risks of companies. It’s one thing for a large global automotive manufacturer to have its financial or ERP systems down because of a hardware or software glitch or because it was hacked by an insider or outsider; it may have to close its books at the end of a quarter a day later, or send orders to its factories by phone. It’s a whole other issue when a firm’s embedded product technologies fail because of hacking or a software bug: technology-assisted cars may not be able to help drivers avert crashes, or even worse, a car maneuvered totally by its onboard systems may get into an accident because the consumer placed his trust in his driverless vehicle. (Several automakers and technology companies, including Google, have stated publicly that the driverless car will be possible very soon. The head of Google’s self-driving car initiative said earlier this year that the company expects such cars to be on the road in the next two to five years. In fact, the company said in May that its prototype will be operating on California roads this summer – with a driver riding along, as is required by law in the state.)
Making early inroads on the potentially huge security risks of IoT technologies was a key reason why Intel bought a security software firm (McAfee) for $7.7 billion in 2010. In its press release announcing the acquisition, Intel said it will “ultimately better protect consumers, corporations, and governments as billions of devices – and the servers and cloud networks that manage them – go online.”
William Ruh, the General Electric vice president who heads the company’s Global Software Center, sees new attention in the industrial world being paid to what he calls “operational technology cyber security” (vs. IT security for the data center, PCs, etc.). He believes that operational technology cyber security will be a crucial way for GE to differentiate its offerings.
Despite all these concerns, the Leaders in our study don’t appear to be frightened off by the technology risks of the IoT. They collectively assigned its importance to IoT success 3.88 on our rating scale of 1 to 5.
IoT initiatives can involve enormous investments. As our study found, many companies will be making major investments in the IoT this year. In fact, 12% said they’ll spend $100 million or more this year, with 3% spending at least $1 billion. However, spending big doesn’t at all guarantee benefits.
“We see lots of companies trying to do hugely transformational things [with the IoT],” Intel’s Ballon told us. “But they are getting bogged down. Many companies try to boil the ocean.”
That leads us to our seventh observation on the primary ways that Leaders differ from Followers: The former are much more deliberative about their IoT spend. They are more likely to test it in one area of their business before triggering wide-scale adoption and big investments. Intel’s investment in IoT to improve its internal operations is a case in point. Its supply chain IoT initiative started with one plant (in Malaysia) rather than every Intel chip-making or assembly plant. Now that the effort has shown itself effective, Intel plans to roll it out more extensively.
The IoT Leaders place greater importance on having clarity on which IoT opportunities to explore first. They rated as most important to IoT success the ability to identify and pursue new business and revenue opportunities (giving it a 4.12 rating on the 1-5 scale). While Followers also rated it to be their most important success factor, they weren’t as strong about its importance to success. They gave it an average score of 3.53, which was more than ‘moderately important’ but less than ‘highly important.’