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IIoT’s new business models

Three intersecting trends may indicate a strategic opportunity area for you—or your competitors.

Today, most companies see the value of the Industrial Internet of Things (IIoT) as additional information— data—that can help them do the things they already do, just better and more efficiently. And there lies a lot of low hanging fruit in Capturethe form of reduced labor, higher reliability, increased productivity, and more.

But for some companies, a much greater value is coming in the form of whole new capabilities—new products, services and businesses that could not exist without IIoT technology. “This higher value of IIoT is hidden in a lot of people’s minds—they’re not able to see the potential,” said Joe Sinfield, senior partner, Innosight and tenured professor of civil engineering, Purdue University. Sinfield spoke at September’s Smart Industry 2016 conference in Chicago about how individuals and companies can learn to see and take advantage of these new opportunities.

“IIoT will transform virtually all industrial companies,” Sinfield said. How will the IIoT ecosystem evolve, and where is value shifting? How can industrial companies spot and capture related opportunity? What are the strategic roles available for industrials? What shifts in strategic planning are needed to unlock the value of IIoT? “To extract value in this changing environment, you must thoroughly understand the complex IIoT ecosystem.”

Furrowed brows 

“Despite IoT growth, executives struggle to realign their strategy,” Sinfield said. While IoT device installations are expected to grow 37% year over year and 84% of executives believe using the IoT can create new income streams, 93% have not developed a comprehensive strategy and invested accordingly. “Executives see the potential but struggle to build a strategy around it,” he said.

The challenge stems from the degree of change brought by IoT technologies, increased ecosystem complexity, increasing uncertainty of technological adoption paths, multiple “clock-speeds” in solution design cycles, and complex ecosystems that shift value—and relationships—to new roles.

Rocket GraphicSinfield cited the example of an agricultural machinery company that added IIoT technology to its existing value chain to create a new value network. Along with the traditional manufacture, sales and dealer service functions, it added remote condition monitoring and diagnostics. “This uses new paths of information to create new roles in data analytics, and as application integrator and service provider,” Sinfield said.

“The OEM/dealer relationship shifts to application integrator. The ecosystem is three to five times more complicated, nonlinear and shifting, but making this major change in the value chain is giving the company new opportunities.”

For many similar companies, primary revenue stream is product sales and the aftermarket is traditionally largely given away to third parties. “Now, with data, we have aftermarket 2.0, and the product becomes secondary,” Sinfield said. This challenges historical roles and leadership because technical uncertainty makes it hard to make lasting decisions, the technologies require integration and the clock speeds are much faster. “The redesign clock speed for a traditional manufacturing machine is 30 years, for a car chassis, five to six years,” he said. “IoT is much faster, and a lot of organizations are not used to this. It’s a challenge to R&D.”

Where to look 

Industrial companies typically see themselves as part of an industry segment, such as automotive, aerospace, healthcare, etc. Instead, “Think in terms of jobs and circumstances,” Sinfield said. “Services/solutions instead of products, with outcome-oriented pricing.”

For example, an industrial job might be to ensure machine health, the circumstances could be difficult vs. easy, critical or not, and volume. “So ensuring health of machinery that is critical, difficult and high-volume forms an opportunity worth investment,” Sinfield said.

Focus on business opportunities instead of technologies. For aerospace, a job could be managing uptime, and a product could be power-by-the-hour. For automotive, the job is providing transportation, the product might be car subscriptions. In healthcare, improve outcome/results with value-based care; in agriculture, increase crop yields with “precision ag by the acre,” he said.

Focusing on “solutions” can shift the basis of competition to outcomes rather than products, and outcome-based pricing can lead to new supplier-customer relationships.

Work back from the future 

In general, “Intersect three trends to make a strategic opportunity area (SOA),” Sinfield said. For example, high fuel and land costs together with low food prices put commercial farmers under margin pressure. “They need a means to improve, and you see how it can be done using drones for aerial imaging and crop monitoring,” he said. “Take the opportunity, or expect your competition will.”

Sinfield warned, “Existing marketing/sales organizations are not oriented this way. They may require different people and skillsets, or deep reorganization.”

IIoT offers new business models, new levers and new degrees of freedom to add value. Three types of opportunities are those that:

1. Improve internal operations/costs

2. Improve customer experience/comfort

3. See new businesses/services

“These take three different parts of the company— three different approaches and people,” Sinfield said. “And the third is usually not done. You need to look at those more, maybe first, to lead in your industry.”

Instead of extrapolating current trends, “Take a vision of what might be,” Sinfield said. “Work back to what you need to do now to get there.” Assess future customer circumstance-based jobs. Think broadly to determine who is pursuing the same jobs you are. Assess the potential for your offerings to be commoditized. “Ask yourself if you are capturing your fair share of the value,” he said.

Finally, “Experiment, experiment, experiment,” Sinfield said. To de-risk new strategies, pursue a portfolio. “Work like a venture capitalist,” he said. “Start six or seven ideas for every one success, and reward smart failures.”

Want more? Find the white paper "IIoT Protocols to Watch" here. 

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