According to a 2016 Forrester Report IoT can drive three very different business value propositions. When business people grasp the possibilities that flow from instrumenting physical assets, they often focus on optimization examples like “reduce the number of forklifts needed in a factory by 10%.” In addition, companies seek to use improved data about products, processes, and customer behavior to achieve other levels of IoT value: differentiation and transformation. In order to keep up with today’s pace of disruption, one must do it all. However the questions which remain are what, why and how.
Our first article of this series highlighted three core enablers for effective transformation of your business and operations in a Connected World. A clear strategic IoT directive, an enabling IoT technology platform, and a strong focus on core business strengths greatly increases your chance of early IoT delivery success.
Our focus in this article shifts towards establishing a better understanding of actual IoT implications in relation to your desired business outcomes.
Optimize, differentiate or transform?
From an IoT strategy execution point of view we recommend our clients start by determining in which category they fall (optimization, differentiation or transformation as described by Forrester in their 2016 IoT Heat Map). Where optimization is achieved by implementing process efficiencies through IoT, and the mainly operating model changes associated with that, true and competitive differentiation can only come from proper changes in the business model through the adoption of IoT.
In order to understand which scenario and to what extent they will pursue, companies need to make sure that the “What” of their IoT efforts is properly underpinned with the “Why” of doing them.
Optimization (scenario 1) impacts efficiencies in the business architecture and cost model. People, process, systems or organizational changes are a result of operational excellence improvements and more cost effective ways of doing things. Those changes, however, do not fundamentally impact the business model a company uses to deliver customer value.
Differentiation (scenario 2) happens when companies find new and innovative ways to offer a product or service to their customers, solving that customer’s problem and resulting in improved business outcomes.
Transformation (scenario 3) occurs when companies find ways to truly differentiate in what they do while optimizing how they do it. A smaller percentage of companies are successful in their attempts, as it requires them to simultaneously challenge the “what” and “why” of doing things with the “how” of delivering products or services through IoT adoption.
The better companies are at combining both differentiation and optimization, the more disruptive they become. Successful transformation is a result of the “how” (operational excellence and costs) being perfectly aligned with the “what” (business model and revenue). Given today’s pace of disruption some larger established companies struggle to keep up. Everything needs to happen simultaneously and given the sheer size of the organization, this is difficult. In addition, many do not have a clear view on which scenario will lead to the best outcomes before they start implementing actual IoT solutions.
In a perfect world, transformation (scenario 3) is often the result of having sufficient time to think through how you differentiate before optimizing the way you do that. The challenge comes with the fact that that perfect world does not exist.
Partner or Buy?
Startups and smaller companies are typically better suited to disrupt because it is easier for them to challenge existing business models and satisfy the customer without having to worry about any legacy business and/or operations.
As established companies need to keep up, their survival ultimately depends on how quick and effective they are in adopting new ways of working in order to truly differentiate in the most optimal manner. The real challenge lies in the fact that they have to optimize their current business architecture in context of new business models all at once. This increases complexity, decreases execution speed and as a result lowers their chances of achieving desired business outcomes in a shorter timeframe than their disrupters.
The transformation scenario, as a result, requires a top-down driven approach allowing teams to think outside of the box around how a company is generating revenue, and, how they can do so more efficiently through rapid IoT adoption.
As most companies do not naturally progress from using IoT to first optimize, then differentiate and finally transform, they end up engaging in an enterprise wide IoT transformation effort that is way bigger in scale and nature than they are effectively able to handle.
When defining and executing an IoT strategy, companies need to keep in mind three relevant dimensions to delivery success. In essence, do they have the much needed business (1), operational (2) and delivery (3) ability to tackle IoT adoption challenges simultaneously?
They need to understand the scale and nature of the challenge in context of their historic ability to deliver with success. Where they lack the ability or speed required, companies need to partner or buy, rather than try to do it themselves!
In this context we mentioned the importance of leveraging historical business strengths where possible in our last article, or as Coca-Cola’s CTO, Alan Boehme, stated during the 2017 IoT World Conference:
You cannot ideate in a vacuum, we know our business, and we partner with those who know the technology.
If I can’t do it all, how do I choose?
Given IoT is such a vast and wide domain with endless possibilities, it is important to support any business design thinking with a solid portfolio prioritization mindset. Opportunities to connect and leverage big data are endless, requiring companies to be smarter about how they select which opportunities to pursue. This evaluation and selection process needs to tightly link to an iterative blueprint design utilizing collective value prioritization.
This approach tests the interdisciplinary collaboration, digitization and integration across all functions (both internal and external) necessary to deliver an IoT solution for certain products or services. Focusing on testing the IoT solution in a collective manner results in better alignment between key stakeholders when selecting the best IoT solutions.
Intense and iterative collective discussions around business outcomes and deliverability are more important than a rigid and non-flexible best practice approach to portfolio optimization. We believe that a collaborative process of questioning, simplifying and engaging around the prioritization based on true customer value is key as disruption occurs faster than any textbook process can handle. Or as Matthew Kokkonen highlighted in our recent San Francisco Executive Dinner:
Kill Best Practice. Question, Simplify and Engage while continuously prioritizing your IoT delivery portfolio.
To achieve successful transformation you always need to be able to answer the question of what value will a process change provide (value for money), what the effort and costs will be to implement it (affordability) and finally how realistic the timeframe is based on current ability and skillset (feasibility and deliverability).
Pcubed attended the 2017 IoT World Conference May 16-18 in Santa Clara, CA where Daniel Elizalde, who teaches a course on “Product Management for the Internet of Things” at Stanford Continuing Studies, articulated that one of the top strategic pitfalls in IoT is “not addressing a real customer pain”.
People don’t buy IoT, they buy a solution to a problem.
Regardless of whether you are a company with a product or service centric business model, the relationship with the customer and addressing your customer’s “pain” has become even more important in the Connected World.
Not only do you need to prioritize these solutions in our consumer economy, but to solve this pain rapidly, effectively, and before somebody else does, companies often need to also “BREAK” process. Organizations with lengthy transformation or implementation cycles stand little chance in surviving in the long run.
Pcubed partners with clients to assess and understand the organizational implications of IoT, think through all relevant business and operational impacts and immediately mobilize on critical delivery interventions. In many cases this can only be done with collaborative solutioning, a cross functional end to end mapping of business, operational and delivery changes necessary across the organization, in order to deliver the right IoT solutions. This requires logically thinking through the implications of your IoT strategy on your business model and supporting architecture, i.e. which functions, processes or systems need to be transformed to deliver the relevant IoT products, services or combination of both.
In our next article we contextualize on understanding value, delivery complexity, integration preparedness, scalability and flexibility in extending and improving IoT DELIVERY EXCELLENCE. Stay tuned for our next update.
Written by Tom De Winne, Pcubed Vice President and Head of NA Digital Transformation.
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