Finding New Growth Opportunities through the Industrial Internet of Things
There is widespread agreement that the potential for the Industrial Internet of Things (IIoT) – the incorporation of intelligent industrial products, processes, and services that communicate with each other and with people over a global network -- is enormous. Worldwide spending on the IIoT is expected to reach $500 billion by 2020, and the most optimistic predictions of the value created by the IIoT range as high as $15 trillion of global GDP by 2030.
"Businesses need to be thinking about their digital strategies for taking advantage of the new world of IIoT"
This potential encompasses both operational efficiency (from increased automation, more flexible production techniques, and predictive maintenance) and top-line growth (from new digital products and services representing entirely new sources of revenue).
Many companies have begun to explore the benefits provided by the IIoT in terms of operational efficiency. Predictive maintenance, for example, can save companies up to 12 percent over scheduled repairs, reducing maintenance costs by up to 30 percent, and reducing breakdowns by up to 70 percent. Other benefits can be realized in areas including optimizing operations and reducing the cost of resources used in production.
Fewer companies, however, have tapped into the IIoT to introduce new products and services. Some manufacturers have pursued wins by using the IIoT to improve the maintenance and repair services they already offer, but the IIoT offers radically new ways to think about products for operating assets and facilities. Companies seeking to grow through the IIoT should, we believe, take these four distinct steps:
1. Innovate through Product-Service Hybrids: We define product-service hybrids as connected, intelligent physical goods capable of producing data for use in digital services. These hybrids enable companies to create hybrid business models, combining product sales and leasing with recurring income streams from digital services. These product-service hybrids should go well beyond incremental improvements, such as feature changes; they should, instead, address unmet customer needs or solve critical business problems with breakthrough solutions.
2. Become the “Most Valuable Information Player”: Sell products and customers interact only when they want to fix or prevent problems. Sell services, and gain multiple opportunities to create customer touch points, build trust, and establish customer loyalty. Finding the right business partners is critical here, as few companies have all the requisite skills and technologies within their own organizations. With an ecosystem of partners in place, companies can educate customers about their Internet of Things and create next-generation customer experiences.
3. Treat Services as R&D: As many large technology companies have found, providers of product-service hybrids now have a faster and less costly alternative for releasing innovative products: they can experiment by developing and offering new services. By doing so, they can see how customers use information-based features and gain insights into their needs. As enterprises start offering cloud-based IIoT services, they can quickly test features to uncover the capabilities customers find most valuable and continue to offer the best. Over time, as companies understand the customers’ needs, they can use what they have learned from selling services to build a well-targeted generation of products designed for the IIoT.
4. Integrate Digital and Human Labor: Offering product-service hybrids will require a workforce to create, support, and sell them. Such employees will include product managers, software developers to create and test new information services, hardware designers to develop the products, data scientists to create and interpret analytics, and user interface and experience designers. Sales managers and marketers will be needed to position and sell the new offerings, within product and service providers and across sales channels.
While the potential for revenue generation from the IIoT is vast, the challenges facing companies that seek to explore this potential may seem daunting. Companies can begin by piloting new services that benefit key stakeholders such as customers, original equipment manufacturers, and dealers. They should also begin thinking about tomorrow’s partner ecosystem – the partners and suppliers needed to create and deliver services to reach new customers.
Companies interested in building revenue from the IIoT should work to develop the architecture and frameworks that will accommodate sensor networks, industrial analytics, and an ecosystem of intelligent machine application. They should also be examining the financial models now in use to see if they can accurately evaluate the return on these investments, as well as to manage the costs of transitioning from a product to a product-service mix.
Another key area of concern is the sales or dealer network. It is important to assess whether the current network has the right incentives and training to support a new growth strategy. Marketing, customer support and service operations need to be prepared as well. In addition, to deliver new digital services, it is essential to consider what data governance, legal and other protections should be in place. For example, it might be necessary to determine who has the permission to use data generated by a “connected” piece of machinery.
Ultimately, people will be at the center of any IIoT strategy. Data must be delivered in such a way that experts and non-experts alike can easily work with it. Companies need to identify the skills needed to run an IIoT-based business while creating ways to obtain the requisite talent.
The Industrial Internet of Things is evolving quickly and bringing with it the potential for enormous disruption across many industries. Businesses need to be thinking ahead about their digital strategies for taking advantage of a new world of industrial products and services. While there are still numerous technological, operational and security challenges to overcome, the companies that use the IIoT to identify new growth opportunities and launch new product-service hybrids will be the ones who are best-positioned to compete in the digital marketplace of tomorrow.