Connected Products - Is this the right strategy for you?

I am going to make a distinction between 1) connected products for internal use – manufacturers that incorporate connected devices into their production line to improve performance and reduce costs, and 2) connected products as a business strategy – manufacturers that build connectivity into the devices they sell to their customers and sell add-on solutions for predictive maintenance, condition monitoring, etc.

Internal Use

For the first group, the answer is an unambiguous “YES”, and it is amazing to me that fewer than 20% of manufacturers (according to #Pathfindr) have put these technologies into production.?The benefits of monitoring equipment to reduce downtime and extend the useful life are now abundantly clear:

• Increase efficiency
• Cost savings
• Improve safety
• Competitive advantage
• Future-proofing.

?And they don’t have to do it themselves.?They can buy the solutions from vendors with connected devices; they can buy packaged solutions from technology companies such as #Cognite, #Augury, #Bsquare; or they can bring in specialist systems integrators such as #Meshsytems.?

Connected Products as a Business Strategy

This is not nearly as clear-cut.?I am a big cheerleader for manufacturers to do this because it can offer many benefits:

• New revenue streams
• Increased customer loyalty
• Competitive advantage
• Improved customer insights
• Improved operational efficiency.

But the unfortunate truth is that this strategy is not going to be right for every manufacturer.?I have worked with some where this is absolutely the right direction; I have also worked with companies that have invested millions in building out connected products and solutions, and have pretty much wasted their money.

Here are some of the key criteria that I have identified:

1.??????Assets that are worth monitoring:

• High-value assets: any downtime or failure can be costly in terms of lost productivity, repair costs, and potential safety hazards. Examples of high-value assets include high-end manufacturing equipment, medical equipment, and critical infrastructure.?Connecting and monitoring a $1500 pump cannot be justified in most environments, as customers will simply manage to failure or replace on a regular schedule.?However, if the pump is a critical element in a larger production process, and failure would lead to the entire process going down, it would be worthwhile;
• Assets with high maintenance costs: by monitoring the asset's performance, maintenance can be performed proactively, reducing the likelihood of expensive emergency repairs;
• Remote or hard-to-access assets: in these cases, monitoring can provide real-time insights into the asset's performance without the need for physical inspections. This is also an ideal scenario for using VR/AR;
• Assets with safety implications: By monitoring these assets, potential safety hazards can be identified and addressed proactively, reducing the risk of accidents and associated costs.
• Assets with regulatory compliance requirements: Certain assets may be subject to regulatory compliance requirements. Monitoring can help to ensure that these requirements are met, reducing the risk of non-compliance penalties.

2.??????Having a significant market share

As more and more manufacturers deliver connected devices customers will want to consolidate the number of dashboards they have to install.?It doesn’t make sense to have separate dashboards and analytics from three different manufacturers of the same type of devices.?The company with the largest installed base will have the best opportunity to become the default solution for the entire production environment.

As an example, we worked with a packaging equipment supplier with 10% market share, competing against two larger companies with 25-40% each.?They have spent a lot of money on developing their technology, but it is likely only a matter of time before their customers standardize the monitoring and analytics with one of the larger vendors.

Having said that, there is an opportunity for a smaller company to take market share if they have an aggressive strategy of connecting to their competitors' devices and becoming the “single pane of glass”.

3.??????Willingness to absorb an investment with an uncertain outcome

A connected devices strategy is a bet on the future.?For most companies the investment they have made has not generated an ROI in a normal time frame.?

When a manufacturer upgrades a production process, e.g., replacing manual labor with automation, they will have a clear calculation on the labor savings and the length of time it will take to make a return.

This is not the case with connected devices.?The initial investment is often much larger than expected, as the initial PoC cascades into a need for more programmers, data scientists, a different sales team, etc. At the same time there is no good way to determine a realistic adoption rate by their customers.?The calculation is usually based on, “If 20% of our customers:

• Buy the connected devices
• Connect to our gateway
• Agree to provide us with their data
• And are willing to pay us $39/month per connected device.

That is a lot of “ifs”, and getting to a break-even can be a much longer runway than management expected.?That is when the board starts to ask awkward questions, and there needs to be a commitment to accept the uncertainty in order to lay the foundation for future success.

4.??????Willingness and ability to change the company culture

Connected devices cannot be a siloed project, off in the corner of a company.?The engineering and product development may not directly impact the rest of the company, but when it comes time to drive sales and customer adoption, every part of the organization needs to be involved.?

When companies introduce connected devices, it starts to change the DNA from being cost-plus and transaction-based to delivering a service.?There is a tremendous organizational resistance to making this change, and not everyone will be able to do it.?Unless a company is prepared to evolve their culture, building the world’s best-connected devices will not be enough.

#connectedproducts #IIoT #industry40