For many manufacturing industries, the Internet of Things is already here, and the race has already started. The following are Stonehill’s analysis and findings, based on what we have seen, on how to win this new arm’s race.
The case for IoT. Today’s specialty is tomorrow’s commodity, and competition is fueling the trend towards commoditization in manufacturing. That exerts pressure on profit pools from the traditional selling of equipment itself, sending manufacturers in search of new profit pools. IoT and IoT-enabled services can fill that gap, because their profit pools are growing, and that trend is set to continue.
Furthermore, IoT generates data, and there are considerable scale benefits in data and data-driven services. (E.g., the more searches Google has, the better its search results, which means more searches). That creates urgency for manufacturers to be the first to develop market share in IoT and IoT-enabled services.
Picturing IoT. The phrase, Internet of Things, can sometimes be abstract or vague. IoT will take many forms, and it will be unique in every industry and at every company, which can make it hard to conceptualize. A review of an industry that is one of the earlier adopters of IoT can shed some light on what an IoT revolution could look like in other industries.
Jet turbines are farther along with IoT than many types of equipment. While the plane is in the air, a network of connected devices collects information about the engine. When the plane lands, the engine company begins maintenance based on insights derived from data gathered and transmitted during flight. Before the days of IoT, preventive maintenance was largely the same series of checks, regardless of what that engine needed at that moment in time. With IoT, the maintenance team treats the specific needs of the engine at this moment in time. The maintenance team provides what is called predictive maintenance, the next evolution beyond preventive maintenance.
Additionally, the engine company now has a software development department that pushes updates and innovations to the connected devices via the cloud. The airline pays for these regular software updates via monthly payments (e.g., subscription, license), which creates a healthy tension with the traditional pricing structure of upfront big-ticket fees for engines. Some engine companies have gone so far as to charge minimal up-front costs for the engine and then charge per hour of flight, incorporating maintenance and updates into the hourly rate. What a different way to provide engines to an airline!
The plan to bring IoT to your offering. While IoT in your industry may not look exactly like it does in the jet engine industry, every manufacturer will need a robust go-to-market strategy to win this IoT arm’s race. A good go-to-market plan will understand the market, the customers, and the value chain. A thorough go-to-market plan will need to articulate the offering, the revenue model, and the strategies for marketing, acquisition, and retention. A great go-to-market plan will also address the operating model and organizational design needed to execute and implement IoT.
Operationalizing the IoT transformation will bring exciting innovations to every department at a manufacturing firm.
· Marketing and Sales will have new value propositions and pricing structures to communicate.
· Engineering will be joined by Software Development and IT in the product development process.
· Manufacturing, QA, Supply Chain, and Procurement will incorporate the connected devices and vendors into their production processes.
· Maintenance will learn predictive maintenance and work alongside software and IT teams to maintain the fleet.
· Finance and Accounting will see changes to accounting and FP&A rules and practices.
· HR will have new positions to recruit for, and existing positions will see changes in their accountabilities, performance metrics, and training.
Key success factors. IoT does not happen on its own. In our experience, four key success factors are crucial to implementing any transformational change, including IoT: executive sponsorship, change management, agile operations, and a robust program management office.
· Executive sponsorship is a must. Since introducing IoT is commercial and enterprise-wide, executive sponsorship should come from the very top.
· Change management will need to answer many important questions your workforce will have. Staff will silently ask “how does this impact my role and career?”
· As with any new endeavor, there will be a lot of learning, and organizations that are agile in their way of doing business will learn the fastest and the most.
· It is difficult to manage an enterprise-wide transformation from within a department that was designed to do something else. A PMO that reports to the CEO and is purpose-built to implement IoT is best practice.
The Internet of Things is an opportunity to better serve customers and position yourself as the market leader with an innovative offering. Such a magnanimous change is not quick and easy. But savvy business leaders and empowered organizations can do it. The best way to climb a mountain is one step at a time.
Sean McCoy is Vice President at Stonehill. Sean is an expert in strategy, marketing, and operations and is passionate about driving change for his clients. Connect with him on LinkedIn or at firstname.lastname@example.org.