Internet of Things

The return on IoT – part 2

15 January 2018
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Reading time: 5 minutes

The rise of the Internet of Things is indisputable. Growth prospects based on data-derived insights are very promising. Both the predictions for the number of connected devices as well as the associated revenues run into the billions, just a few years from now. Therefore the time has never been better for companies to get close to their customer. So why is it that the Internet of Things still has not reached the “Plateau of Productivity” as depicted in Gartner’s Hype Cycle for the Internet of Things?

We find that many companies are struggling to implement a compelling Internet of Things strategy. We believe there are three major reasons for that:

  • Focus
  • Project setup and governance
  • Corporate culture

Our recent blog post dealt with the aspect of focus. In this blog, we take a look at the second reason – project setup and governance.

Even though the core initiator of the Internet of Things initiative in any given company may very well be on the business side, the topic of Internet of Things typically tends to become a technical topic very quickly. This is not surprising, given the technology it involves to implement such a strategy. As a logical consequence, ownership of the project is often transferred to the IT department, because “they deal with the networks”. Or to the Technology/R&D department, because “they develop the products”. In both cases, it becomes hard to find the necessary time and resources to define and implement a successful Internet of Things strategy. Even worse, many of these projects fail or do not deliver the anticipated results.

The problem with transferring the ownership of an IoT strategy to the CIO is not that the CIO is not capable of doing a great job. The real problem is that in many enterprises, the IT department’s budgets are flat at best, and very unlikely to rise anytime soon. And of that budget, the vast majority is allocated to keeping the lights on: system maintenance, system updates, bug-fixing, security. At the same time, CIOs are more than ever involved in business opportunities trying hard to create, select, implement and integrate the tools and environments that support these opportunities like mobility, cloud or machine learning but with very restricted resources. And any project that does not pay an immediate return on investment does not make it onto the final priority project list.

Buried under requests

In a similar way, the Technology/R&D department typically is buried under requests from business. Typically, these requests involve existing, real needs from existing, real clients on existing, real products. Very little time is allocated to developing a new competitive edge of which it today still is unclear how the real needs will evolve or what value can be derived from it over the course of a few years. The easiest way out of this discussion is claiming that the client does not want to provide the data hence there is no need for connecting any products. Another beloved area of resistance is data security and data privacy. All aspects that can be solved but they are sure to take the pace out of the momentum, at least for a while.

So is it wrong to transfer ownership of an IoT strategy to a technical department? No. Not necessarily. On the contrary, it can work very well. But only if an IoT project is set up in such way that a true transformation has a chance to succeed in the first place. Across silos, enterprise-wide.

Although IoT is often perceived as a very technical subject, it is not. Yes, the data needs to be acquired, analyzed and put to work in means of improved service, product behaviour, business processes or new business models. But the real challenge is that an Internet of Things strategy in reality is a business transformation, and as such needs to consider all major areas of an organisation. The IoT strategy must contribute to the company’s vision and mission, for example by providing the data that is needed to feed into the customer experience goals (all truly leading companies are obsessed with creating a compelling customer experience, but that is another story).

Saving time

The IoT data allows for automated processes, cutting slack, saving time, providing insights. IoT also has a major impact on the organization and how people work together. Or on what the company provides as a product or service. Of course, the IT and technology tools and processes need to be in place. Data scientists need to be able to derive value from the newly available data, and pour these insights back both into the organization and to the client in form of actionable data in dashboards, predictions or process improvements. And last but not least: All this needs to be secure, from the gateway to the dashboard. Figure 1 shows the seven key building blocks of an IoT transformation:

And that is where the governance steps in. It is not enough to hand over responsibility for a project to the IT department or Technology/R&D. Nor should it instead be transferred to the marketing or sales department. It can only work, for any department if that handover is accompanied by the necessary top-down prioritization of project goals, allocation of cross-functional strategic resources, across the seven building blocks, sufficient funding and clear communication of what the company wants to achieve and why. In other words: The project team needs to be able to do its work without running the risk of getting absorbed by daily business operations, contradictious year-end goal setting or withdrawal of key personnel. The funding for the necessary infrastructure (e.g. cloud, connectivity, analytics engines) needs to be in place and needs to be considered an elementary investment in the enablement of the Internet of Things, contrary to the wide-spread business case based approach of funding projects based on the anticipated return within a typical period of time of three years (e.g. NPV, or IRR) and just within one silo (department, branch location, tech centre, etc.). The project itself must be managed as agile as possible.

More loyal customers

The company-wide project team or teams must regularly gather in order to exchange information, discuss progress and hurdles, and share best practices to move forward as soon as possible, in today’s agile world. The project leaders should discuss openly and frankly all aspects that are both allowing or hindering success with a senior steering board in order to take further empowering or corrective actions without delay. Organizations with such governance in place are in a much better position to successfully implement their Internet of Things strategy, and as such are much closer to reaching their Return on IoT: lower costs, better insights into product usage and behaviour, optimized supply chains, demand insights, next-level service, new data-driven services, more loyal customers.

In our next blog post, we will focus on the third key aspect for a successful implementation of an Internet of Things strategy: corporate culture.

Principal Consultant

Harm Flik

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