Critical Success Factors for Capitalizing on the Internet of Things

You probably have heard a lot about IoT. There are big numbers being thrown around. According to latest IDC’s report, the IoT market is expected to be $1.7 trillion by 2020. Gartner predicts that there will be over $25 Billion connected “things” by 2020.

IoT continues to generate a lot of excitement around the globe and IoT indeed represents a major growth opportunity for businesses.

The truth is, there is no standard definition for the Internet of Things. If you have heard or read about IoT, chances are you’ve come across a number of different perspectives. Despite how complex IoT seems, it essentially comes down to four areas:

• Physical “things” (and/or intelligent edge devices) such as line of business assets, including industry devices or sensors
• Those “things” have connectivity to the internet, to each other, and to people
• Those “things” collect and communicate data—this may include information gathered from the environment or inputted by users
• And then there are analytics performed on that data that enable people or machines to take action

Once you get past all the confusion and noise and realize just how simple and powerful IoT can be, the next question becomes: “What can it do for my business?” 

Before your organization can capitalize on the IoT, you need to take a few steps back and rethink fundamental notions about your business- you need to be ready to change! Heraclitus, a Greek philosopher, has been quoted as saying “change is the only constant in life.” You can’t do business as usual if you want to take full advantage of the opportunites brought by IoT. Your success with IoT will depend on how you are transforming your traditional business(es). Before we go deeper into the subject let's take a very simple example.

A device manufacturer called "DM1" is just great at selling its robots to production lines of companies worldwide. Today DM1 is using a transaction-based business model. When DM1 is selling a robot to customer 2 (C2), the transaction is often the only business DM1 will do with C2 and there will be little to no contact with C2 post-purchase.

But if DM1 would sell a secure, intelligent and connected robot that f.ex. can be remotely monitored, captures data on product usage and can be maintained predictively DM1 would have the opportunity to contact C2 to offer to service the robot before it fails. This proactive approach to product maintenance will open the door to a broader business model and a better customer experience. For C2 the worse thing which could happen is to stop the production line because of a broken robot and he's more than willing to pay to stop this from happening.

While this example is a simple one, it shows that IoT can enable new business models that allow companies to capture revenue from the entire lifecycle of the device, not only one sales transaction.

To conclude with that and before I will talk about other critical success factors for capitalizing on the IoT we've seen different transformations:

• in your market offering (f.ex. from "MRI scanner" to "Remote diagnostics subscription" or from "Industrial Machine" to "Machine uptime subscription" or from "Thermometer" to "Temperature Control Service")
• in your profitability (f.ex. from hardware margin to subscription margin; from capex to capex+opex)
• in your customer relationships (from transaction relationship to annuity relationship; from procurement relationship to business owner relationship)

Around 17% of companies with Internet of Things projects reduce costs and increase sales by at least fifteen percent each. McKinsey listed success factors in which these trailblazers stand out from the average.

How does the use of the Internet of Things pay off in terms of cost and revenue? McKinsey examines this question in a comparison of companies that have already left the pilot phase behind. The consultants document the study in the paper "What separates leaders from laggards in the Internet of Things."

Above-average successful companies use "intelligent edge devices" such as drones and autonomous vehicles more often than other companies.

About 17 percent of the 300 companies reviewed see cost reductions and sales increases of more than 15 percent. McKinsey identified factors that make the most successful study participants stand out. These are:

More IoT projects bring more success

This seems to be obvious :-) but according to McKinsey's data, decision makers are not yet allowed to expect too much from their first IoT projects. It is only with growing experience that better results are revealed. "The twentieth IoT project is likely to pay off more than the tenth," the consultant mentioned.

Process Adjustment

DM1 in my example above can achieve positive effects through predictive maintenance-if workers adjust their processes accordingly. Instead of doing regular routine maintenance, they must be based on the data of each robot.

Upgrading the intelligent edges or start making the edge devices intelligent

McKinsey defines augmented and virtual reality, drones, autonomous vehicles and wearable devices as "advanced endpoints." The study shows that successful IoT users use such intelligent edge devices at an above-average rate. Please see below an interesting blog post of Sam George, Director Azure IoT.

Defining the business case and the value prop for your customer

What do you want to achieve through the IoT deployment- this question must be answered as accurately as possible. Decision-makers need a value proposition (products or services that benefit the customer more than before), a delivery model (how and with the participation of which business partners, the product or service comes to market) and a clear idea of how to make money out of the use case. I always use the business model canvas for that, please see below.

The CEO should sit in the boat

When it comes to IoT initiatives all companies declare to have the commitment of the C-Suite. Among the successful study participants, however, a striking number of people speak of the CEO being a "champion" for these IoT projects.

Mobilize the entire company

Pioneers in IoT understand well above average that the Internet of Things pervades the entire company, from developing new products and services to manufacturing and delivery, selling, customer service to realigning the portfolio and the management of key functions. Therefore, the entire workforce needs to understand why there are IoT initiatives and what it is intended to achieve. Furthermore it is very important to compensate sales reps to align to your cloud strategy. I recommend following whitepaper from Alexander Group:

Start upgrading existing offers

All the companies in the survey started using IoT at some point and were faced with the choice of upgrading existing products or services or designing entirely new offerings. In retrospect, it can be seen that the above-average decision-makers have set their sights on existing offers.

Use the eco-system

In comparison, firms with better results involve their business partners and suppliers more than the rest of the field. From a technological point of view, this means that, when choosing their IoT platform, leaders also focus on the extent to which it supports the involvement of external clients.

Be prepared for cyberattacks

All study participants speak of the risk posed by cybercriminals. McKinsey, however, presumes that successful companies learn more from cyber damage. We need to embody the highest levels of security in every network connected device- every child's toy, every kitchen appliance. High development and maintenance costs have limited strong security to high-cost or high-margin devices. I encourage you to read the research "Seven Properties of Highly Secure Devices"

The outcome of this research is a solution called Azure Sphere: Azure Sphere is a solution for creating highly-secured, connected Microcontroller (MCU) devices, providing you with the confidence and the power to reimagine your business and create the future.

To conclude with the positive impact of IoT solutions on citizens, businesses and governments will be significant, ranging from helping governments reduce healthcare costs and improving quality of life, to reducing carbon footprints, increasing access to education in remote underserved communities, and improving transportation safety. But to be successful with your IoT solution you need to keep a few things in mind. I would love to get your feedback and happy to listen to your experiences while dealing with IoT solutions.

Best, Justin

(based in Munich, Germany - working in Microsoft's IoT division)