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The Trillion Dollar Risk : Smart Systems and Internet of Things Impact on Diversified Industrial Manufacturers

We believe existing schemas, institutions and approaches for new growth development are, for the most part, broken. The complexity, interdependent relationships and related timing required for new growth ventures in the Internet of Things arena only compound the challenges. In this environment growth is dependent on interacting in new and creative ways. Linking functions by breaking down the barriers to communication is the first step, but it can’t stop there. The key is building truly collaborative networks.

As networks have invaded the “physical” world, traditionally unique components and interfaces between and among electronic as well as mechanical and other related sub-systems are becoming more and more standardized as designers see the growing values that come from communications within and between sensors and machines.

Beyond efficient support of products and equipment, the convergence of collaborative systems and machine communications will enable entirely new modes of services delivery and customer interactions.  This implies a total paradigm-shift. The depth of this shift has begun to suggest itself, but it is by no means accomplished.

The implications of these trends are enormous.  No product development organization or its suppliers of componentry and sub-systems will be able to ignore these forces — product and service design will increasingly be influenced by common components and sub-systems.  Vertically defined, stand-alone products and application markets will increasingly become a part of a larger “horizontal” set of standards for hardware, software and communications.

Just One Example of a Smart Systems Application Opportunity….

As it becomes easier and easier to design and develop smart systems, competitive differentiation will shift away from unique, vertically focused product features towards how the product is actually used and how the product fosters interactions between and among users in a networked context.

How well prepared are manufacturers for the advent of smart systems and services?  We tend to believe that in most companies, people, functions & processes are too disconnected to create new smart systems opportunities.  Large organizations have many rules and policies that often seem completely disconnected.  Our business culture has created language, business processes and systems that seem to be a triumph of technique over value.

Most knowledge comes from human experience and expertise but today knowledge and expertise largely resides in functional silos and systems dispersed across organizations.  Acting singularly, functional organizations are constrained by the resources under their control.  Legacy processes and habits inhibit any natural ability to communicate and work together to solve big problems or create new solutions.  In many companies, lean practices have been applied so aggressively that people are simply consumed by “running the business.”  It restricts their ability to harness the collective intelligence available throughout a company and its networks to inform creative products, systems and solutions.

So how have manufacturers been able to continue to grow and create value in the equity markets?  Global expansion; re-engineering; lean practices; mergers and acquisitions – all reasonable strategies for growth and value creation.  But in a marketplace of rapidly consolidating businesses what worked in the past is less likely to work now or in the future.  For many companies, these strategies have already reached the point of diminishing returns. Besides there are not enough acquisition candidates left to “move the value needle.”

We believe existing schemas, institutions and approaches for new growth development are, for the most part, broken.  The complexity, interdependent relationships and related timing required for new growth ventures in the Internet of Things arena only compound the challenges. In this environment growth is dependent on interacting in new and creative ways.  Linking functions by breaking down the barriers to communication is the first step, but it can’t stop there.  The key is building truly collaborative networks.

How Are Players Doing?

So what progress has really been made in driving organic smart systems and services opportunities?  For those brave enough to invest in new smart systems opportunities, progress, in our view, has been slow in coming.  In many ways, most of the larger diversified industrials have not gotten any further than “first base” in realizing connected smart systems and services values.

Why is this?  We believe this is due to focusing too much attention on captive OEM services.  While many manufacturers have begun to build remote services programs most are largely focused only on services delivery productivity and efficiencies.  These remote services programs are inwardly focused; not focused on creating new customer values.

Based on Harbor Research analysis, many of these systems utilize less than even 10% of the data value collected (often not even 5%). While many players are talking a “Big Data” game, few are realizing any significant new value from machine data and analytics.  To date, the remote services opportunity has been comprised of “simple” monitoring applications & related tracking and location services; what we like to call the “alerts and alarms” syndrome.  Manufacturers are “stalled” wondering how to get to a future focused on collaboration between devices, data, people and systems.

So what will it take to really win big in the future smart services arena?  The solutions we are describing here will have far less managerial hierarchy, command and control decision- making or proprietary ownership of ideas than companies have been accustomed to.  These networks will be self-organized by manufacturers, partners and customers who are motivated to explore and develop ideas they care deeply about. Collaborative innovation will extend beyond ideas about new products and services to the very manner in which business is conducted.

What’s at risk for manufacturers who continue to iterate existing products, systems and development protocols?  If you calculate the smart services value of connecting the products manufactured by the dozen or so of the largest diversified manufacturers it doesn’t take much math to get to over a trillion dollars of new, networked value. Not that much at risk, huh?

To really drive new value and success, players will need a whole new frame of reference to work with. To discover, design and develop innovative systems, organizations must consider all the elements involved and the context they fit into.

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