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Companies need clear strategies to guide their IoT initiatives
The ‘real’ world today, is a combination of digital and physical—it’s multi-state, dynamic, and live.
By adding sensor physical things and connecting to the digital ecosystem—they become responsive and closed loop—hence, can grow, evolve and adapt to the dynamic context. IoT brings Life to Things. Thus, by combining physical context and digital intelligence—a synthesis of human and AI—customers can unlock the latent, unexplored and limitless possibilities, and extract exponential value.
A hotbed of activity around Internet of Things
The billions of digital wireless sensors that are embedded in products, attached to building walls and factory lines, resident in things we wear (digital wristbands) and inside the devices we carry (mobile phones) are testimony that we’re living in an IoT age. They have already begun to change the way companies operate in every sector.
A TCS survey this summer on how more than 1,000 North American and European companies have been digitizing their businesses found just how crucial IoT technology has been. Nearly two-thirds (64%) said digital wireless sensors have had an extreme or high impact on their sector’s digital transformation this decade. A higher percentage (68%) predicted that strong impact would continue into the next decade. Four industries reported the highest impact from IoT: telecommunications, automotive, retailing, and consumer packaged goods. (See Figure 1.)
Yet, getting big returns on IoT technology is a challenge at many companies. In a TCS survey this spring with 516 marketing executives in North America and Europe, only about one in five (22%) are using digital data from digital sensors in their products to personalize communications to customers in post-sale support.
Other studies also point to low overall usage of IoT technologies, and even lower returns. For example, a 2018 study by McKinsey found that less than 30% of companies with IoT initiatives had moved them past the pilot stage. And in 300 companies with large IoT programs that were long past the pilot stage, only a sixth generated improvements of at least 15% in lower cost and/or greater revenue.
Getting Major Returns on IoT Technology
From our vast experience, generating high returns on IoT investments requires a top-down strategy whose overarching goal is a specific (and large) improvement in the business—not technology gains.
We believe companies that are on the path to getting exponential value from IoT are focusing their investments in four primary ways. Let’s get into each one. (See Figure 2.)
1. Launching new business models
Companies such as Rolls-Royce PLC and Caterpillar have been early adopters of IoT. They have installed wireless sensors in their products: aircraft engines for Rolls-Royce, and construction equipment for Caterpillar.
Those technologies have enabled these and other manufacturers to monitor the performance of their products in the field, and thus alert customers when they need to be maintained, repaired, or replaced. For example, Rolls-Royce uses on-board sensors in its aircraft engines and satellite communications to collect performance data for airlines. The company that creates a ‘digital twin’—a computer-based replica of its engines—and uses the data from the real engine to replicate its performance in the virtual versions. The virtual engines then use artificial intelligence-based analytics to determine how well they are operating and predict when they will require maintenance.
Caterpillar, a $54 billion global manufacturer, counts 850,000 of its machines that are digitally connected through sensors and communications networks that receive data on their operating performance. The company believes that tracking equipment performance through this digital capability will be key to doubling its service revenue, from $14 billion in 2016 to $28 billion by 2026.
With IoT sensors in their products, these manufacturers can change their business models—from selling equipment that customers own, to renting that equipment to customers, who then can pay depending on how much they use the products. In the future, this new business model can evolve to become a networked ecosystem model, whereby certain other players in the ecosystem can get value from a manufacturer’s database.
2. Creating seamless customer experiences
IoT sensors give companies an unprecedented capability: the ability to monitor how their products (and their companies) are performing for customers throughout the customer life cycle. Customers that want their products to be working continually in a frictionless manner, and with minimal downtime, view this capability as a great benefit. Caterpillar and Rolls-Royce know the performance of their digitally connected products in the field. Since the overall customer experience extends far beyond the purchase, this is a major capability.
In TCS’ survey of 1,010 CIOs, we found that the most successful companies in generating revenue from their digitally enabled products and services were more likely to view IoT as creating future business growth than were least digitally successful firms. Some 61% of the ‘digital leaders’ believe IoT is very important for growth vs. only 46% of the digital followers.
3. Optimizing value chains
Digital sensors embedded in products are not the only source of value from IoT technologies. When companies install such sensors in their manufacturing and distribution operations, remarkable improvements in cycle time, cost, quality, and shrinkage (i.e., products disappear due to theft, etc.) are possible.
IoT makes these supply chains more flexible—that is, able to automatically change themselves due to weather, transportation bottlenecks, and other disruptions to the flow of products from factory to customer.
Product shrinkage is a major goal of a number of IoT supply chain initiatives. For example, the global pharmaceutical sector has been implementing ‘track-and-trace’ programs to reduce the number of counterfeit drugs. Forrester expects such initiatives to be the biggest driver of IoT spending in the supply chain by 2023, a year in which it predicts that companies around the world will spend $435 billion on IoT. Researcher Gartner predicts that more than half of major global firms will have deployed IoT sensors, AI, and analytics in their supply chains by 2023.
4. Improving the quality of life
A growing number of companies have installed IoT sensors in their factories and distribution networks to improve safety and security. There’s good reason for this. In the U.S., more than 410,000 injuries and 300 deaths occurred in factories in 2016, while in the UK factories had 60,000 injuries and 19 deaths as a result of industrial accidents. As a result, workplace surveillance and safety have moved to the top of list of boardroom topics.
Companies are using smart technologies such as laser scanners and digital sensors in factories and warehouses to more safely operate robots and cranes, prevent collisions, and reduce other workplace accidents. Some firms are using technology to monitor employees—i.e., truck drivers and machine operators—checking to make sure they aren’t overtired.
Within IoT initiatives focused on safer operations are those focused on improving the health of customers, especially consumers. A great case in point is Procter & Gamble. The consumer packaged goods giant has been selling a digital electric toothbrush that tells consumers how well they’re using the device, with sensors and AI embedded in it. P&G see such capabilities as vital to improving patients’ dental hygiene—and keeping the company competitive in the $5 billion ‘brushing market’.
The biggest benefits of IoT technology come when companies make their ‘things’ self-aware.
Extracting exponential value from IoT
How do you make sure your company is on the path of unlocking the huge hidden value of IoT in its value chain?
Three overarching principles must be in place:
A perfect time to Bring Life to Things
As we’ve illustrated with these examples, the time is now for companies to seize the bountiful opportunities of implanting digital intelligence in their products, production operations, and distribution channels. Companies that have done so and brought life to things with a clear, strategic path are becoming entities that their customers can’t do without.
The framework in this article points the way companies need to gain substantial and ever-improving value from their IoT investments.