What separates leaders from laggards in the Internet of Things PART I
Even among companies working at scale with the Internet of Things,
there’s a wide gap between top and bottom performers. Nine practices
distinguish the leaders from their less successful peers.
For all
the excitement that has built up
around the Internet of Things (IoT)—the network of digitally connected devices
whose economic value could amount to trillions of dollars per year—the IoT’s impact varies greatly from one company to
next. Many enterprises have launched pilot projects to develop IoT-enabled
products and services or use the IoT to achieve operational improvements. Of
these, less than 30 percent have taken their IoT programs beyond the pilot
phase, according to our research.
Yet even among companies with
large-scale IoT efforts, a significant gap separates the top tier of performers
from the bottom tier. In a survey of IoT practitioners at 300 businesses with
mature IoT programs (those that have expanded beyond pilot projects), about
one-sixth said their companies had seen a significant payoff from IoT, an
aggregate cost and revenue impact of at least 15 percent.1 We call these companies IoT leaders. At the other
end of the spectrum, about one-sixth of respondents—the IoT laggards—said their
IoT efforts had yielded an aggregate revenue and cost improvement of less than
5 percent (Exhibit 1).
Exhibit 1
IN ORIGINALARTICLE
What separates the leaders from the
laggards? The superior performance of the leading companies appears to be a
function of much more than luck. Our survey results indicate that their
approaches to the IoT exhibit the following distinctive practices. These
companies are aggressive: by pursuing a large number of IoT applications, they
quickly climb the IoT learning curve and pass the point at which new applications
consistently generate a great deal of value. They develop a clear idea about
the commercial opportunities associated with IoT, and they align everyone in
the organization, from the executive suite to the front lines, toward a common
set of goals. And they’re pragmatic about how they implement their IoT plans,
building their IoT offerings around existing products and services and relying
on outside partners to furnish them with sophisticated technologies. In this
article, we’ll offer a closer look at the nine practices that are closely
associated with IoT leadership.
Be aggressive
The most surprising finding from
our survey research is that IoT leaders implement many more potential IoT
applications than their less successful peers. That might sound obvious. All
other things being equal, one could reasonably predict that implementing more
IoT applications produces more benefits. What’s less obvious is that the IoT
has a steep learning curve, such that companies that get an early start or
move quickly will reap the rewards of their efforts before slower-moving
companies. Moreover, IoT leaders change business processes to capitalize on the
potential of their IoT applications, and they go after opportunities to use
advanced IoT end points such as autonomous vehicles and wearable devices. In
these ways, the IoT rewards aggressive players.
Practice 1: Implement lots of use cases
We noted earlier that many
companies have yet to move their IoT programs beyond small-bore pilot efforts.
The reasons for this phenomenon vary, but one we hear often is that initial IoT
use cases seldom produce the kind of significant financial impact that might
encourage companies to press ahead with others. As it turns out, it’s not just
those few use cases that can be unimpressive. Our survey suggests that the
first 15 or so IoT use cases typically have a modest payback—and the average
payback continues to rise until companies have implemented around 30 use cases
(Exhibit 2). In other words, the 20th IoT use case that a company implements
will likely have a greater financial impact than its tenth.
Exhibit 2 IN ORIGINAL ARTICLE
The formula for real financial
impact—using the IoT in a high number of instances—was also evident when we
compared IoT leaders and laggards. IoT leaders pursue 80 percent more IoT use
cases than IoT laggards. The difference points to a disproportionate increase
in financial gain: IoT leaders anticipate that their IoT use cases will boost
their gross profits by 13 percent over the next three years, three times as
much as IoT laggards.
One global transportation-equipment
manufacturer’s experience with developing IoT-enabled products underscores the
importance of scale. After the company launched its IoT strategy with four
minimum viable products (MVPs), executives soon found that performance wasn’t
improving as much as expected. A cadre of IoT leaders pushed back against
voices of caution and tripled the number of MVPs. It turned out that putting
managers in charge of more IoT projects and products focused their attention,
creating a bias toward action. Previously unexpected synergies soon emerged:
engineers used similar data architectures for multiple offerings and discovered
ways the digital end products could support one another. Before long, the more
aggressive slate of use cases had produced more than $1 billion in new revenue.
Practice 2: Change business processes to unlock the IoT’s
value
Exhibit 3 IN ORIGINALARTICLE
Understandably, many executive
teams have perceived the IoT mainly as a technology challenge and put their
chief information officers (CIOs) at the helm of their IoT efforts. Casting the
IoT as a pure technology play, though, carries the risk that companies will
overlook all the value they might capture by redesigning processes to take
advantage of the IoT’s capabilities. Using remote sensors to collect
performance readings from a gas turbine, for example, can supply a utility with
enough data to perform predictive maintenance on the turbine, which can be more
efficient than doing preventive maintenance according to a preset schedule. But
if utility workers don’t align their work routines with the new predictive-maintenance
approach, then the potential efficiencies can’t be realized in full. No wonder,
then, that survey respondents at IoT leaders were three times more likely than
IoT laggards to say that managing changes to business processes is one of the three most important capabilities
for implementing IoT solutions (Exhibit 3).
This distinction was manifest at
one metals manufacturer. The company outfitted three rolling mills with IoT
sensors to capture and analyze previously unused data, with the aim of
diagnosing and resolving capacity constraints at the facility. But mill
operators didn’t act on the insights generated by the system, so there was no
financial impact. Management responded by simplifying the complex metrics the
system was producing and by changing the inspection routines of plant
supervisors, whereby they checked more often with mill operators about how many
times they had to wait for materials to arrive—and why delays had occurred.
The repeated queries prompted the
mill operators to look into the delays and identify several hidden causes of slowdowns
and stoppages, issues that earlier problem-solving efforts had missed.
Supervisors and operators also added problem-solving sessions to their daily
plant-area “huddles” so they could correct the hidden causes of material-flow
backups. Overall equipment efficiency subsequently increased by 50 percent,
saving hundreds of millions of dollars in planned capital expenditures.
By Michael Chui, Brett May, Subu Narayanan, and Ridham Shah
https://www.mckinsey.com/business-functions/digital-mckinsey/our-insights/what-separates-leaders-from-laggards-in-the-internet-of-things?cid=other-eml-alt-mip-mck&hlkid=6e4d05a8320e4413b4a3065bfc3a9b84&hctky=1627601&hdpid=55f995b7-10a7-4fe0-9618-999f03e7315c
CONTINUES IN PART II
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