SMART, CONNECTED, AND PROFITABLE

There are variety of emerging technologies poised to disrupt the status quo – artificial intelligence, autonomous driving, virtual reality, and robotics to name a few. But none have been more widely pursued, adopted and rushed to market as the Internet of Things (IoT).

IoT, a network of physical devices embedded with electronics, sensors, and software that are connected and able to exchange data, has captured attention from nearly every type of organization as they push to integrate IoT into their current product suite. Startups are founded on IoT platforms, enterprise organizations are introducing IoT into their systems and products, and consumers everywhere are attracted to the novelty of a shiny, new connected thing that promises to make life better.

If it’s not yet connected, you can bet someone is working on a way to add data-gathering sensors and cloud computing capabilities to make just about everything in our lives “smarter.” Gartner1 predicts 20.8 billion connected things will be in use worldwide by 2020, up from 6.4 billion in 2016. While the allure of data, connectivity, and convenience has attracted many, few companies have figured out how to make a profit with IoT.

Twisthink has been called upon to help many organizations solve this problem, and the most successful companies are the ones that understand that IoT doesn’t just represent a shift in a product or service, it represents a fundamental shift in how business value is created.

Based on more than a decade of experience with brands like Philips, Stryker, Whirlpool, Herman Miller, and Milliken, Twisthink, a leading product innovation and business strategy consultancy, cultivated five steps to monetize a successful IoT strategy.

Five Steps to monetize your IoT strategy

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IoT represents a fundamental shift in how business value is created.

1 Gartner, “Gartner Says 6.4 Billion Connected "Things" Will Be in Use in 2016, Up 30 Percent From 2015,” November 2015

Most startups become obsessed with the technical feasibility of an idea– of proving an idea can work and stretching it as far as it can go. On the opposite end of the spectrum, many enterprise organiza-tions are first concerned with incrementally improving what’s already working as quickly as possible and with as little risk as possible.

When setting out on this journey, we advocate a classic human-centered design approach. With this process, it is paramount to begin by clearly defining the current stake-holders - customers, suppliers, employees, communities, partners - as well as the potential new customers to be gained. Once these are defined, we must next strive to understand the potential uses and grasp how desirable the technology will be to each stakeholder.

Understanding your customers and stakeholders takes time, investment and research. Furthermore, nearly all organizations overestimate what they think they know about their customers. Adding to this is the pressure to get things done quickly; to be fast and first with new ideas. In reality, we often see that leadership will not make the investment at the onset to research and pinpoint the end value for stakeholders. In this case, talk about the potential values with internal stakeholders and use these findings to persuade leadership. Once leadership begins to see the potential for untapped value and is in alignment, you can start the hard process of engaging with the real end stakeholders.

If you take the time to visualize the benefits of smart technology for your customers and company, you will be far better prepared to communicate and organize with confidence around a focused strategy. It requires time, but this data-driven approach is a proven pathway to rich, valuable insights that will lead to success.

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1. CLEARLY define your stakeholder’s needs

Strive to understand the potential and grasp how desirable the technology will be to each stakeholder.

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2. DEVELOP new models of value creation in your organizations

There is an opportunity for traditional goods and services companies to make the shift to intangible or digital assets. A Verizon Oxford Economics study2 found that only 8 percent of businesses are using more than 25 percent of their IoT data. In our experience, this is likely because the organization has not found an effiecient and user friendly way to extract and pull value from this data. This represents a huge opportunity for those that have already started down the path of IoT, but it will not be without its challenges.

Intangible assets can be built from data that has never been accessible. Once data is captured and analyzed stakeholders can derive meaning and in turn, generate new value and revenues. This does not require new technology, but it requires a new vision and a creative application of the existing technologies to unlock new value. There are multiple established and emerging models to consider - premium subscriptions, membership, flexible pricing, metered use, software, monthly reoccurring revenue (MRR), etc. Consider how each could be applied to your organization and which would be best suited for your stakeholders.

For example, a leading manufacturer used analytics to predict when and where a very expensive bearing was going to fail. By organizing their proprietary data, they saved several million dollars from their inventory because they had insight into how and when these bearings were being used. The cash created by the liquidation of inventory paid for the entire IoT design and development.

Nowhere is the potential value of connectivity palpable than in the automotive industry. For example, McKinsey3 predicts the expected growth of the value from car data and shared mobility could reach more than $1.5 trillion by 2030. As vehicles are increasingly becoming connected, they are amassing an inordinate amount of data on vehicle health, driving behaviors, fuel efficiency, locations and traffic patterns, and more. Automakers are already beginning to monetize this data. Consumers can opt-in to share data with insurance providers for discounts on safe driving. Dealers can receive updates on the health of a vehicle, and predict when it will need service or maintenance. Marketers could access location information and driving patterns and market directly to the driver through the vehicle when they are near a brick and mortar location.

One thing is for certain, change is constant. For those who venture down this path, the ability to embrace continuous iteration will be essential to ensure long term viability.

2Verizon, “State of the Market: Internet of Things 2016,” 20153McKinsey, “Car data: paving the way to value-creating mobility,” March 2016

Only 8 percent of businesses are using more than 25 percent of their IoT data.

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3. ORGANIZE people, talent and processes around innovation

When a traditional goods and services organization begins to explore the digital domain, the entire organi-zation must be brought along for the shift. Just as an organization must develop the infrastructure and processes to manage physical products, they must also adapt to manage and extract value from data.

Many product-centric companies are simply not struc-tured to deal with massive amounts of data. Additionally, the investment required to acquire new systems, func-tions and capabilities to sell IoT-based services are oftentimes a reason monetization is slowed. The organi-zation’s technology leaders must also begin evaluating how to effectively update and integrate its existing resources and systems to support the new endeavor.

As the digital platform is built, organizations often underestimate the time and investments required to educate and train employees who will be expected to shift the very nature of their jobs. Typically, the commercialization paths are developed subsequent to the technical platform or product develop-ment. However, companies that do this in parallel have a better chance of commercial success. This requires engaging with your sales and marketing teams to collaborate as the new technology is developed.

Evaluate your customer service ecosystem and begin organizing and training for the new relationship with the end users. By engaging early on with these key functions, you will be able to draw insights on customer needs, challenges, and pain points throughout the product development process and ensure the organization is prepared to support the new sales models. Keep an eye toward the long tail service revenue and use this as your north star as you shift your team and infrastructure.

Technology leaders must evaluate how to effectively update and integrate its existing resources and systems to support new innovation endeavors.

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4. REFINE the user experience

Today’s highly digital society demands convenience above all. For this reason, the subscription-based economy is proliferating and many organizations are moving away from selling units to creating subscription models. From retail products like groceries, razors and underwear, to B2B services such as software, computing power and specialty manufacturing, many companies are making the transition from a traditional unit sales structure to a subscription based model. Once you understand intangible assets and data, you may be able to transform your data into a recurring revenue model that your customers will want to pay for routinely.

It’s also important to ask if your strategy requires an app or will a web portal suffice? How often will your end users engage with the app and what will they want to do with it? The human centered design process is invaluable at this stage. Avoid choosing the path of least resistance for your organization, and instead embrace and organize around your customer's voice.

With many of these new models - subscription, membership, metered use - your customers won’t just be using your product regularly; you will be asking them to engage with your brand on a consistent basis. If done well, this allows your company to exponentially strengthen its brand and value to the customer through their user experience. With customer service as the differentiator, this can give your organization a competitive advantage.

While many organizations have keenly perfected their customer acquisition or sales process, and have refined the user experience, it can be easy to overlook the commissioning stage. Commissioning refers to the process that occurs after the sale, to get the new customer’s technology or service installed, activated and online. This is a critical stage as it is the first experience your client will have as your customer. It is also the stage where there is the most risk of dissatisfaction.

For example, TwistHDM, a Twisthink company with a commercial IoT lighting solution, has become successful in large part due to the way it has managed to differentiate itself with hospitality at the commissioning stage. It works diligently to streamline the process for its clients to ensure it is as fast and frictionless as possible. In fact, 85 percent of customers come back to TwistHDM because they have experienced the ease with which they can get up and running.

Embrace and organize around the customer demand.

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5. CREATE a vision

Due to the speed at which technology changes, a future-proof perspective is compulsory. How do you develop something today that won’t be brought to market for several years? How do you develop technology that is flexible to new advances? While it is impossible to get an exact picture of what the future will bring, it’s important to not let technological evolution slow experimentation with connected solutions. Anticipate product and market evolution, keep it simple, and align your IoT strategy to future projections.

Five years ago, Whirlpool had a vision to connect seemingly disparate home appliances and so we helped them develop a Wi-Fi module for one kitchen appliance. Today, that module is an option on many home appliances Whirlpool manufactures, enabling the breakthrough smart home solutions we see today. At CES 2017, the company demonstrated the ability to use Amazon’s Alexa to pre-heat your oven or set your dryer to quiet mode. This new level of connectivity and convenience will now be available across its suite of products in ways that were never thought possible five years ago when Alexa was just an idea. Instead of waiting for the product to come to market, Whirlpool could develop future use cases and act quickly when Alexa was announced.

While there are no guarantees when it comes to future-proofing, it is imperative that you have a team in place focused on creating flexible and moldable solutions with an eye toward constant change and advancement. Furthermore, leadership must have a clear vision, with the stakeholders at the center, to guide the strategy and empower a strong cross-functional team to own it long term. Start with the minimum viable product and know that, over time, you will refine, enhance and upgrade it for both new and existing clients.

Anticipate product and market evolution, keep it simple, and align your IoT strategy to future projections.

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THE TAKEAWAY

While monetizing IoT may seem like a daunting task, here’s the good news: your organization can make the transition if it has a prioritized strategy and focus in place that puts your stakeholders at the center. Be it in healthcare, automotive, manufacturing or consumer goods - take the time to truly understand your customers, use their insights to create the value proposition and chart your course using this information as your north star. Identify critical technology control points, understand your internal capabilities and limitations. Finally, ensure that your entire organization understands the scope of this undertaking. While the first step may be an incremental improvement, new value and profit centers will be realized when your organization is open to a shift in its business model.

ABOUT TWISTHINKTwisthink is a product innovation and business strategy consultancy that delivers game-changing technology solutions to bring new value to its clients. Through the team's technical expertise and human-centered design approach, Twisthink gives life to unimagined possibilities for clients across automotive, medical, industrial manufacturing, consumer products and beyond. For more information about Twisthink, visit www.twisthink.com.