James Tetherton of Kaiser Associates discusses the challenges and benefits of moving physical products into the virtual environment.
With high hopes and seemingly boundless opportunities, manufacturers are jumping into the growing frenzy over the Internet of Things (IoT).
Hailed the “new Industrial Revolution”, successful application of the IoT promises customers increased productivity, quality and safety, and offers manufacturers opportunities to develop new business models, and capture new sources of long-term growth and profit.
However, within this land of opportunity, competitive pressures are also rapidly increasing.
With the past 40 years spent putting “a computer on every desk and every home”, technology companies are now chomping at the bit to apply their expertise to new sectors and devices.
OEMs are – for the first time – facing opposition not just from their traditional competitors, but from an entirely new set of threats, including global technology leaders, small start-ups and pure service companies.
Frequently, these new players have entirely different team structures, company cultures, skill-sets, marketing approaches and business models relative to the competitors that manufacturers are accustomed to facing.
OEMs need to be on the defensive as well as the offensive.
Our experience suggests that there are a number of key stages in deploying a new IoT strategy:
- Acquiring and retaining technical capabilities;
- Building a successful business model;
- Transitioning legacy infrastructure, assets and products from the physical to the virtual.
Manufacturers have taken a number of different approaches to try to accelerate their success.
In general, most companies seem to be considering a combination of three key strategies:
PROS: If the intention is to apply the IoT as a core, long-term growth strategy, bringing new skills and expertise in-house makes a great deal of sense.
CONS: Integrating new talent and building capabilities often takes a significant amount of time. Given how fast the industry is changing, time is now a luxury that few companies can afford.
PROS: Relative to building in-house, acquisition offers the possibility of a significant, fast uplift in capability, along with access to established customer relationships.
CONS: Acquisition (often in competition against Private Equity and Venture Capital firms) typically requires paying a high price for an attractive asset. This cost usually means companies are faced with the risk of making a few “big bets”. Equally, integrating a tech acquisition with an OEM can be challenging due to strong differences in culture and business models.
PROS: Partnership gives value to optionality – i.e. allowing OEMs to place many small bets, rather than a limited number of large, high risk investments.
CONS: Since most partnerships are non-exclusive, they carry significant risks. Smart partnership agreements need to be sufficiently attractive to entice strong interest and commitment from the partner, while maintaining proprietary advantages for the OEM.
Regardless of whether they have chosen to build, buy or partner, Kaiser’s work with some of the “early winners” in IoT has uncovered five core attributes that consistently underpin their success:
1) Centralised leadership
A central person (or group) with a clear IoT mandate, separate funding and direct line to the
CEO can help to drive focus, build knowledge and drive rapid change across the business
2) Clearly defined goals
Long-term success begins with a clear business model and a well-researched customer value proposition
Keeping that long-term goal in mind, maintain sufficient flexibility to enable the offering to constantly evolve based on external factors
4) External focus
Deeply invest in the capabilities necessary to understand customer needs, emerging competitors, new channel partners and potential partnership offerings
5) Carefully selected KPIs
Using traditional KPIs such as market share or ROI may be too rigid for this new industry. New measures of success, such as adoption and endorsement, should be considered so as to allocate funding appropriately, support initiatives for the right length of the time, and build long-term success.