What it takes to get an edge in the Internet of Things
Three
practices can help differentiate successful companies from those that struggle
to gain traction.
Internet of Things (IoT) technologies have evolved rapidly in recent years and continue
to change how we interact with our surroundings. For companies, IoT brings new
ways to monitor and manage objects in the physical world, while massive new
streams of data offer better avenues for decision making (often mediated by
machines). The steady fall in prices of sensors and communications
technologies, combined with a parallel rise in understanding of how they can be
applied, have raised the strategic importance of IoT. As we have shown
elsewhere, this can produce immense value in settings ranging from retail and healthcare to
manufacturing and technology.
Despite the promise, we
continue to see substantial differences in how well companies apply IoT in their businesses. Targeting IoT applications
correctly and managing them effectively is far from easy, leaving many
companies stuck and unable to move beyond pilots. To better understand what
differentiates successful initiatives from struggling ones, we surveyed IoT
executives at 300 companies—those that have moved beyond experiments and have
scaled up IoT use in their businesses.1 We asked them about the
practices that directly support their IoT strategy, as well as other factors
that may influence it, and sorted leaders from laggards based on their
self-reported economic impact from IoT.2 We found that while a number
of IoT “habits” play a role in successes, three are particularly relevant for
C-level executives who may be considering heavier investment in IoT or
searching for reasons their programs have failed to gain traction.
Habit 1: Begin with what you already do, make, or sell
There’s no single path
to IoT success. Some companies focus on connecting existing products to make
them more attractive and useful to customers. Others exploit opportunities to
achieve operational improvements that increase efficiency and lower costs.
Still others push more boldly, using connectivity to create entirely new
products or remake business models (even moving into separate IoT businesses).
Our survey found that companies that achieved scale in IoT did so by pursuing a
variety of strategies—and all with at least some degree of success. However,
when we looked more closely at the gains, we found that the most successful
companies often played to their strengths—rather than betting on unfamiliar
markets or new products (Exhibit 1). These IoT leaders, the group getting the
most economic benefit from IoT, were nearly three times more likely to add IoT
connectivity to existing products they sell than the laggards
were. Conversely, laggards—those in the bottom quintile of economic
returns—were significantly more likely to focus on developing new IoT
products or services.
Playing to market
strengths was the course chosen by strategists at an agricultural-equipment
manufacturer, after they observed digital players from outside the industry
sizing up opportunities to offer sophisticated analytics services to farmers.
In response, the company shifted R&D investments to “IoT-enabled” products
and services in existing lines of business. Their new system used farm-based
sensors to read soil conditions continuously, relaying the information to a
cloud-based analytics platform that farmers could use to monitor variations on
their mobile devices. Other sensors tracked irrigation levels and sent alerts
whenever moisture readings hit predefined levels demanding attention. With
these real-time insights, farmers were able to optimize their water and
fertilizer use. That, in turn, increased yields over the growing season while
substantially reducing water, fertilizer, and fuel costs for equipment. As the
manufacturer added users, the growing quality and breadth of data improved the
predictive capabilities of the system, further increasing value to farmers who
joined the ecosystem.
The success of the
agriculture manufacturer underscores the advantages incumbents often have in
their ability to define use cases for IoT that build upon existing product
lines, as well as their better line of sight on how improvements can create
value for customers.
Habit 2: Climb the learning curve with multiple use cases
Many companies become
frustrated when they don’t see early signs of transformative impact from an IoT
pilot. Our research points to one key reason: a single use case just won’t get
you there. Scale, both in terms of number of use cases as well as the breadth
of application, helps maximize impact. Leading companies in our survey
implemented on average 80 percent more IoT applications than laggards. More
widespread usage, it seems, forces a cultural shift. It stokes organizational
energy behind changes and creates new mindfulness about the benefits of IoT. In
a ripple effect, this momentum often exposes weakness in technology along with
gaps in talent—both in terms of in-house IoT skill levels and the numbers of
experts needed to implement IoT at scale. This “go big” approach may seem counterintuitive, particularly among
executives who have fewer resources to deploy and feel more comfortable
focusing on a small number of applications. While a smaller scale may be good
for very early days, there is a clear learning curve that companies climb as
they add use cases—and one that has a powerful impact. Our research shows that
a greater number of use cases correlates with economic success, regardless of
the use case or type of company.
Take the experience of
one major transportation-equipment manufacturer whose initial IoT deployment,
executives soon realized, just wasn’t bold enough. It had launched the IoT
strategy with four minimum viable products (MVPs) but soon found that this
narrow focus wasn’t improving performance as much as expected. A cadre of IoT
leaders pushed against voices of caution and expanded the number of MVPs to 11.
Executives also found that giving managers a larger number of IoT projects (and
products) to oversee focused their attention, creating a bias toward action. That momentum built on itself as the company’s best
talent wanted to be part of the innovative push. A broad base of 30 IoT scrum
teams, meanwhile, helped loosen bureaucratic decision-making rules. Finally,
unexpected efficiencies turned up as engineers were able to use similar data
architectures for multiple offerings and found numerous synergies among the
digital end products. The more aggressive use-case strategy produced in excess
of $1 billion in new revenue.
Habit 3: Embrace opportunities for business-process
changes
IoT is one of today’s
most promising (and exciting) technologies. But people create the conditions
for value creation. IoT has often been portrayed primarily as a
technical-implementation challenge, with the drive for adoption spearheaded by
specialists in the CIO function. Yet time and again we see that deriving real
business gains from IoT efforts requires changes to a business process—the hard job of modifying the way a company
does things. Connecting production
equipment to the internet, for example, will allow a company to manage usage
more effectively and predict when maintenance is needed. However, if the
surrounding business processes aren’t modified and optimized, then value won’t
be maximized.
Those second-order
challenges were manifest at one metals manufacturer. The company had connected
three rolling mills with sensors in an IoT deployment. The goal was to capture
and analyze previously unused data from the machines. Executives were pleased
that they were able to get the system up and running in just three weeks, to
help solve nagging capacity constraints at the facility. However, there was a
problem: the insights generated by the system weren’t being used by the
frontline employees.
The management team
responded by modifying a range of plant-floor processes. For starters, they
simplified the complex analytics that the system was churning out, synthesizing
the output into one number that measured operator wait time. This change
enabled line operators to recognize immediately when bottlenecks in the process
were forming. The company then changed the inspection routes of plant-area supervisors,
whereby they circled back to bottlenecked lines four times daily, checking in
with the operators on how many times they had to wait—and why. Those
discussions resulted in a change to daily plant-area “huddles” that included
the operators, who were given greater latitude to adjust frontline processes to
resolve underlying issues before they caused product flow backups. The
IoT-informed process changes had a big effect. Operators were able to identify
several hidden causes of slowdowns and stoppages, issues that earlier
problem-solving efforts had missed. Overall equipment efficiency increased by
50 percent, saving hundreds of millions of dollars in planned capital
expenditures.
This metals
manufacturer learned that, in order to maximize IoT value, people have to
behave differently, make decisions differently, and operate in a new normal of
rapid information flow. It’s not surprising, then, that IoT leaders were three
times more likely than IoT laggards to claim that having a strong ability to manage
business-process change was a top-three IoT capability.
As we noted earlier,
companies need to be attuned to other reasons why IoT deployment may fall
short. For one thing, if the CEO and top team aren’t focused on potential IoT
gains, providing visible encouragement (and adequate resources) for the
efforts, they are likely to stall. Leaders need also to be mindful that IoT
increases the potential for privacy breaches and data-security risks, since
there are many more information nodes for hackers to penetrate. These risks
need robust and continuous management, and those costs need to be incorporated
into projected returns. Finally, even companies with a good IoT track record
shouldn’t think they can go it alone. Technical IoT ecosystems are growing—and
improving—by the day. Collaboration, often with smaller players that have high
levels of expertise in areas such as software development, will provide a solid
source of competitive advantage. That will help companies accelerate their
programs and better position themselves to become IoT leaders.
By Michael Chui, Brett May, and Subu Narayanan
https://www.mckinsey.com/business-functions/digital-mckinsey/our-insights/what-it-takes-to-get-an-edge-in-the-internet-of-things?cid=other-eml-alt-mkq-mck-oth-1809&hlkid=e09691b917bc4f45b634649f3c1a7426&hctky=1627601&hdpid=00b57a05-0df2-4b1d-998c-48ebafcd120a
No comments:
Post a Comment