Tag Archives: HBR
Recently, I got to speak to a CIO at a Global 500 Company about the challenges of running his IT organization. He said that one of his biggest challenges is getting business leaders to understand technology better. “I want my business leaders to be asking for digital services that support and build upon their product and service offerings”. I think that his perspective provides real insight to how businesses should be thinking about the so called Internet of Things (IoT), but let me get you there first.
What is the IoT?
According to Frank Burkitt of @Strategy, by 2029, an estimated 50 billion devices around the globe will be connected to the Internet. Perhaps a third will be computers, smartphones, tablets, and TVs. The remaining two-thirds will be “things”–sensors, actuators, and intelligent devices that monitor, control, analyze, and optimize our world. Frank goes on to say if your company wants to stake a claim in the IoT, you first need to develop a distinctive “way to play”—a clear value proposition that you can offer customers. This should be consistent with your enterprise’s overall capabilities system: the things you do best when you go to market.
While what Frank suggests make great sense, they do not in my opinion provide the strategic underpinning that business leaders need to link the IoT to their business strategy. Last week an article in Harvard Business Review by Michael Porter and James E. Heppelmann shared what business leaders need to do to apply the IoT to their businesses. According to Porter and Hepplemann, historical, enterprises have defined their businesses by the physical attributes of the products and services they produce. And while products have been mostly composed of mechanical and electrical parts, they are increasingly becoming complex systems that combine hardware, sensors, data storage, microprocessors, software, and data connectivity.
The IoT is really about creating a system of systems
Porter and Hepplemann share in their article how connectivity allows companies to evolve from making point solutions, to making more complex, higher-value “systems of systems”. According to Russell Ackoff, a system’s orientation views customer problems “as a whole and not on their parts taken separate” (Ackoff’s Best, Russell Ackoff, John Wiley and Sons, page 47). This change means that market winners will tend to view business opportunities from a larger versus a smaller perspective. It reminds me a lot of what Xerox did when it transformed itself from commoditized copiers to high priced software based document management where the printer represent an input device to a larger system. Porter and Hepplemann’s give the example of a company that sells tractors. Once a tractor is smart and connected, it becomes part of a highly interconnected agricultural management solution.
According to Porter and Hepplemann, the key element of “smart, connected products” is they take advantage of ubiquitous wireless connectivity to unleash an era where competition is increasingly about the size of the business problem solved. Porter and Hepplemann claim that as smart, connected products take hold, the idea of industries being defined by physical products or services alone will cease to have meaning. What sense does it make to talk about a “tractor industry” when tractors represent just a piece of an integrated system of products, services, software, and data designed to help farmers increase their crop yield?
Porter and Hepplemann claim, therefore, the phrase “Internet of Things” is not very helpful in understanding the phenomenon or even its implications. They say after all what makes smart, connected products fundamentally different is not the Internet, it is a redefinition of what is a product and the capabilities smart, connected products provide and the data they generate. Companies, therefore, need to look at how the IoT will transform the competition within their specific industries.
Like a business slogan, the IoT is about putting IT inside
IT leaders have a role to play in the IoT. They need to move IT from just assisting business management drive improvements to the company value chain to organizations that as well embed IT in what become system oriented products. How perceptive, therefore, was my CIO friend.
Porter and Hepplemann claim connectivity serves two purposes. First, it allows information to be exchanged between a product and its operating environment, its maker, its users, and other products and systems. Second, connectivity enables some functions of the product to exist outside the physical device. Porter and Hepplemann give the example of Schindler’s PORT Technology that reduces elevator wait times by as much as 50% by predicting elevator demand patterns, calculating the fastest time to destination, and assigning the appropriate elevator to move passengers quickly. Porter and Hepplemann see as well intelligence and connectivity enabling an entirely new set of product functions and capabilities, which can be grouped into four categories: monitor, control, optimize, and autonomy. To be clear, a systems product can potentially incorporate all four.
- Monitored products alert users to changes in circumstances or performance. They can provide a product’s operating characteristics and history. A company must choose the set customer value and define its competitive positioning. This has implications design, marketing, service, and warranty.
- Controlled products can receive remote commands or have algorithms that are built into the device or reside in the product’s cloud. For example, “if pressure gets too high, shut off the valve” or “when traffic in a parking garage reaches a certain level, turn the overhead lighting on or off”.
- Optimized products apply algorithms and analytics to in-use or historical data to improve output, utilization, and efficiency. Real-time monitoring data on product condition and product control capability enables firms to optimize service.
- Autonomous product like are able to learn about their environment, self-diagnose their own service needs, and adapt to users’ preferences.
Smart, connected products expand opportunities for product differentiation
In a world where Geoffrey Moore sees differentiated products constantly being commoditized; smart, connected products dramatically expand opportunities for product differentiation and move the competition away from price alone. Knowing how customers actually use your products enhances a company’s ability to segment customers, customize products, set prices to better capture value, and extend value-added services. Smart, connected products, at the same time, create opportunities to broaden the value proposition beyond products per se, to include valuable data and enhanced service offerings. Broadening product definitions can raise barriers to entrants even higher. The powerful capabilities of smart, connected products not only reshape competition within an industry, but they can expand the very definition of the industry itself. For example, integrating smart, connected farm equipment—such as tractors, tillers, and planters—can enable better overall equipment performance.
Smart, connected products will not only reshape competition within an industry, but they can expand the very definition of the industry itself. Here Porter and Hepplemann are talking here about the competitive boundaries of an industry widen to encompass a set of related products that together meet a broader underlying need. The function of one product is optimized with other related products.
Porter and Hepplemann believe that smart, connected products allow as well companies to form new kinds of relationships with their customers. In many cases, this may require market participants to develop new marketing practices and skill sets. As companies accumulate and analyze product usage data, they will as well gain new insights into how products create value for customers, allowing better positioning of offerings and more effective communication of product value to customers. Using data analytics tools, firms will be able segment their markets in more-sophisticated ways, tailor product and service bundles that deliver greater value to each segment, and price those bundles to capture more of that value.
Some parting thoughts
So summarizing their position, Porter and Hepplemann believe the IoT is really about taking smart things and building solutions that solve bigger problems because one can architect the piece parts into a solution of solutions. This will impact marketplace dynamics and create competitive differentiators in a world of increasing product commodization. For me this is a roadmap forward especially for those at the later stages of product lifecycle curve.
Analytics Stories: A Banking Case Study
Analytics Stories: A Financial Services Case Study
Analytics Stories: A Healthcare Case Study
Who Owns Enterprise Analytics and Data?
Competing on Analytics: A Follow Up to Thomas H. Davenport’s Post in HBR
Thomas Davenport Book “Competing On Analytics”
Solution Brief: The Intelligent Data Platform
Author Twitter: @MylesSuer
If you ask a CIO today about the importance of data to their enterprises, they will likely tell you about the need to “compete on analytics” and to enable faster business decisions. At the same time, CIOs believe they “need to provide the intelligence to make better business decisions”. One CIO said it was in fact their personal goal to get the business to a new place faster, to enable them to derive new business insights, and to get to the gold at the end of the rainbow”.
Similarly, another CIO said that Big Data and Analytics were her highest priorities. “We have so much knowledge locked up in the data, it is just huge. We need the data cleaning and analytics to pull this knowledge out of data”. At the same time the CIOs that we talked to see their organizations as “entering an era of ubiquitous computing where users want all data on any device when they need it.”
Why does faster, better data really matters to the enterprise?
So why does it matter? Thomas H. Davenport says, “at a time when firms in many industries offer similar products and use comparable technologies, business processes are among the last remaining points of differentiation.” A CIO that we have talked to concurred in saying, “today, we need to move from “management by exception to management by observation”. Derick Abell amplified upon this idea when he said in his book Managing with Dual Strategies “for control to be effective, data must be timely and provided at intervals that allow effective intervention”.
Davenport explains why timely data matters in this way “analytics competitors wring every last drop of value from those processes”. Given this, “they know what products their customers want, but they also know what prices those customers will pay, how many items each will buy in a lifetime, and what triggers will make people buy more. Like other companies, they know compensation costs and turnover rates, but they can also calculate how much personnel contribute to or detract from the bottom line and how salary levels relate to individuals’ performance. Like other companies, they know when inventories are running low, but they can also predict problems with demand and supply chains, to achieve low rates of inventory and high rates of perfect orders”.
What then prevents businesses from competing on analytics?
Moving to what Davenport imagines requires not just a visualizing tool. It involves fixing what is allying IT’s systems. One CIO suggested this process can be thought of like an athlete building the muscles they need to compete. He said that businesses really need the same thing. In his eyes, data cleaning, data security, data governance, and master data management represent the muscles to compete effectively on analytics. Unless you do these things, you cannot truly compete on analytics. At UMASS Memorial Health, for example, they “had four independent patient registration systems supporting the operations of their health system, with each of these having its own means of identifying patients, assigning medical record numbers, and recording patient care and encounter information”. As a result, “UMass lacked an accurate, reliable, and trustworthy picture of how many unique patients were being treated by its health system. In order to fix things, UMASS needed to “resolve patient, provider and encounter data quality problems across 11 source systems to allow aggregation and analysis of data”. Prior to fixing its data management system, this meant that “UMass lacked a top-down, comprehensive view of clinical and financial performance across its extended healthcare enterprise”.
UMASS demonstrates how IT needs to fix their data management in order to improve their organization’s information intelligence and drive real and substantial business advantage. Fixing data management clearly involves delivering the good data that business users can safely use to make business decisions. It, also, involves ensuring that data created is protected. CFOs that we have talked to say Target was a watershed event for them—something that they expect will receive more and more auditing attention.
Once our data is good and safe, we need to connect current data sources and new data sources. And this needs to not take as long as it did in the past. The delivery of data needs to happen fast enough that business problems can be recognized as they occur and be solved before they become systemic. For this reason, users need to get access to data when and where they it is needed.
With data management fixed, data intelligence is needed so that business users can make sense out of things faster. Business users need to be able to search and find data. They need self-service so they can combine existing and new unstructured data sources to test data interrelationship hypothesis. This means the ability to assemble data from different sources at different times. Simply put this is all about data orchestration without having any preconceived process. And lastly, they need the intelligence to automatically sense and respond to changes as new data becomes collected.
Some parting thoughts
The next question may be whether competing upon data actual pay business dividends. Alvin Toffler says “Tiny insights can yield huge outputs”. In other words, the payoff can be huge. And those that do so will increasingly have the “right to win” against their competitors as you use information to wring every last drop of value from your business processes.
Solution Brief: The Intelligent Data Platform