The One With The Most Networked Stuff Wins:
Pressure is Mounting For Businesses To Provide Smart Services
We think most companies and executives would agree that virtually any product that can be networked, will be networked. Why then haven’t all OEMs stepped up to the plate and network-enabled their manufactured things by now? Particularly when it is obvious that the first players in any given market to do so will own the information feedback loop to the customer making it very hard for competitors to pull customers out of that loop.
The key word is risk. The leadership in many manufacturing companies is not accustomed to the volatile, high-stakes world of business driven by networked devices, and it is this transition, not the technological shift, that many will fail to make. Many changes in thinking will have to take place for companies to succeed in networking their devices and updating their organizations for the next era of information technology.
“Chance favors the prepared mind,” observed the scientist Louis Pasteur. In the same way, emerging technologies favor prepared companies. When a global data network—the Internet—arrived on the scene, alongside rapidly advancing technologies for large-scale data management and analytics, most management teams in the world were not thinking about the implications of putting machines on networks. But prepared leaders in asset-intensive companies like GE, Siemens, Honeywell, Philips, ABB and the like, spotted the shift and its disruptive potential. Now machines and products could be wired up throughout a business, and the connectivity was cheap enough to permit continual monitoring of them. All of these players saw unprecedented opportunities.
Consider the players in the large turbine business such as Siemens, GE and their peers. Their major customers, major electric utilities, have good reason to hate equipment failures. At the least, any downtime creates huge opportunity costs for these customers; often it means they have to pay hefty regulatory compliance fines. To reduce that risk, the OEM invests heavily in monitoring and diagnostics so it can deploy a technician or engineer ahead of a failure (preemptively) as opposed to doing so according to a schedule based upon assumptions (proactively) or, even worse, after the power has gone off (reactively). For one thing, this has a dramatic effect on the profitability of virtually all OEMs’ maintenance services. Most manufacturers cannot charge more than $100 to $130 per hour for their technical support because of price and benefit pressures from local competitors. For OEMs that have invested in remote digital services and efficient network-enabled analytics, they can charge $500 to $600 per hour for the same technician who has become a subject matter expert. Even more important, the information generated by these capabilities positions these OEMs to take on additional tasks for the customer in the future, such as:
- Managing and automating a customer’s spare parts inventory and their third party supply chain and maintenance providers for vastly improved levels of service;
- Providing the customer’s and OEM’s support personnel with complete access to unified data and knowledge about the status of the equipment to inform fully integrated maintenance processes;
- Analyzing the history of the equipment in use against diverse data sources such as weather patterns and peak customer usage requirements to optimize its performance.
Customers are looking to equipment manufactures not just for high-quality equipment but also for help in optimizing their ability to supply consistent and high-quality service to their customers. This has allowed these manufacturers to tie their pricing directly to the benefits they provide.
If you place this evolution into a much larger context – say how the Internet of Things will impact our planet’s resources – the potential impacts become even more profound. Even with the productivity improvements we see today, modern power delivery systems are still extremely inefficient. Over 20% of electricity generated each year is never consumed from the grid. This represents more than enough energy to power an entire region like the United States or Europe for an entire year. Utilizing sensors and network technologies to make the grid more efficient would allow us to retire well over 1000 coal-fired power plants. Combining sophisticated sensors, real-time connectivity, and massive computing power can equip businesses for the next level of optimization across virtually any industry or sector.
Of all the new capabilities that Smart Systems and the IoT enables, it is the unbroken circle of data and information, about peoples, processes and relationships that is the most important. The value of this is probably best exemplified by Amazon and Google. Amazon’s ability to recommend various books and products to users based on profiling patterns and Google’s indexing of web and related content to drive advertising revenue underscore the new economic value of smart systems.
Amazon stopped being a “store” and started being an intelligent entity that, to some very real degree, understood who you were and what you cared about. Google quickly transcended being a search engine and reached for an understanding of what people found interesting and designed targeted advertising as an entirely new business model. Just look at Google’s acquisitions and announcements focused on the home and consumer such as Nest and Google Home. They are spending billions on home automation, autonomous cars, and robotics, much to the chagrin of established players like Honeywell. Google has really become a data magnet for your preferences, usage habits and behaviors and is now intent on leveraging many more real world devices like thermostats that can turn your entire home into a data magnet.
Everyone agrees that information is power, but until recently, business has had the sketchiest of information about its own goings-on – partial pictures, isolated snapshots, fleeting, blurry, outdated glimpses. New digitally enabled business models will turn the physical world into a virtual world of information awareness.
Embracing the disruptive potential of Smart Systems and Services is not primarily a technical challenge alone. The necessary technologies, while critical to the task, are becoming well enough established by this point. Rather, in most organizations, the biggest challenge will be getting senior management to adopt a new perspective on the nature of the business that includes a new vision for enterprise systems.
But not every company is thinking about smart connected systems on that level. In many companies today, IT technologists are operating with outdated models of data, networking and information management that were conceived in the mainframe and client-server eras and cannot serve the needs of a truly connected world. The Internet’s most profound potential lies in its inherent ability to integrate smart machines, information systems and people. Companies need to recognize that the challenges and the benefits associated with a truly distributed global information system are just now beginning to take center stage—not only in business communities, but in most technology communities, too.
Thinking about the business opportunities associated with the Internet of Things can be an equally creative and challenging process. Even just considering the simple question “what will stand in your way as you try to move forward in a new business mode?” can yield surprising results. Despite the potential for new revenue streams and defensible strategies, there are significant cultural and technical challenges that will need to be met. It would be irresponsible for us to minimize the technology hurdles you will undoubtedly face. The fundamental challenge that the smart services and IoT is exposing is the difficulty of integrating IT with OT, data with processes, applications with infrastructure or enterprises with ecosystems, the difficulty of integration is omnipresent within all markets.
While these changes are many they pale in the face of the leadership challenges that come with the pursuit of new smart services business models, including:
- In internal leadership, we have already seen and expect to see more cases where many members of organizations have a clear view of where the company needs to go, yet are unable to present the business case for change in a compelling manner.
- In planning, companies may not know whom to invite to the table, let alone what to do when everybody’s there. They may have strategic planning processes in place that are ill-equipped to deal with major paradigm shifts.
- In business execution, manufacturers may have little understanding of the nature of a new, information-intensive offering, or the needs of a market that will be trained by the companies that have made the shift successfully. Such customers will be far more demanding than in the past.
- In organization, companies may fail to understand that the new skills, shifting alliances, and new customer behaviors that can come with Smart Systems and Services may demand radically new organizational structures, roles and relationships.
Many companies have already seen some of the challenges inherent in shifting to information-driven services. In fact, the phrase “shift to information-driven services”, though accurate, can be dangerously misleading as it can make the required corporate culture and business model changes sound almost tame. They aren’t. The era of near perfect, real-time information about physical assets and customer behaviors is looming like a tanker coming out of the fog. Any degree of complacency – even from those who consider themselves “advanced” – will be deadly.