Driving New Business Value with IoT

Hello and welcome to the SAPinsider podcast.  I am excited to be joined by Maribel Lopez.  Maribel is the founder of Lopez Research, a market research and strategy consulting firm. She’s also the co-founder of the Emerging Technology Research Council, a community of business and technical leaders in Fortune 1000 companies focused on driving innovation and business value with mobile, cloud, IoT, and advanced analytics solutions such as machine learning. Maribel is the author of the Wiley book “Right-time Experiences” and a contributor to Forbes. Her clients range from start-ups to global firms, including 5 of the Fortune 20. Prior to founding Lopez Research, Maribel gained her expertise by working at Motorola, International Data Corp., Shiva Corporation and Forrester Research. Follow her on Twitter @MaribelLopez and on Forbes.

Maribel: Thank you for having me.

Matt: What is the internet of things?

Maribel: Great question.  The internet of things can be really any connected device. The importance of IoT is that it is connected and it can transmit data. It could be as simple as a thermostat in your home or as complex as the instrument board in mining equipment.  They are really all about connectivity and delivering data. 

Matt: How are manufacturing companies and other businesses using these connected devices to generate data?

Maribel: I think the move to an IoT connected device strategy really provides a lot of great opportunities for manufacturers and businesses in general. One of the things we are seeing is that if you are a manufacturer, you can gain operational insights and improve your product quality by connecting your hardware.

A second thing we see happening is you can improve the customer experience with connected services. I think that is across all kinds of companies. This could be in terms of the pure looking at connecting something that is in the home, if you’re connecting equipment that is for business, or just in terms of building applications and connecting to things that happen in your cell phone. Really, this concept of improving the customer experience, whether it’s a consumer facing product or a B2B facing product.

Then, I think the third opportunity is deriving new revenue opportunities by serving customers in new ways. I think this quite applicable in the manufacturing and equipment space because instead of just building a product and selling it, you have the opportunity to now offer a set of services around it.

Matt: For equipment manufacturers, what are some specific use cases for what they can gain from an IoT evolution?

Maribel:  For equipment manufacturers, there really quite a few things they can gain, but I think it comes down into a couple of categories that are really super important. 

The first one is being able to baseline equipment performance and improve the future product design. In the past, it was very difficult to collect feedback on how the products were working and how the customers were using them. Now, you can sensor enable a product, you can understand its performance, you can understand its utilization. That can allow you to create a baseline of future iterations of that product. It can be better in terms of cost of repair, it can be better of terms of making it easier for the customer to use.

I think the second thing everyone is quite concerned with is you need to have a quality product in this day and age.  Quality is one of the key factors of customer experience and basically product repurchases.  In order to do that, you need to create some lead indicators that can indicate failures. You want to understand if a piece of equipment is going to fail before it fails and be able to alert the customer, be able to order a part, send them some information.  Whatever needs to happen so that customer doesn’t experience any downtime.  I think creating these lead indicators to prevent equipment failures is a very important aspect that IoT can help with. 

The third part is combining your data with third party data to enhance your products.  Let’s say you an air conditioning manufacturer and you can actually hook into weather data and in a building you can help control the environment based on if its hot or cold, based on how the heat is hitting different parts of the building.  Connecting the third party data and using your sensor data combine to deliver a better, more enhanced experience for your products.

Matt: You mentioned how IoT can change the customer experience for manufacturers. Is there any chance in how, with IoT data, manufacturers are changing their supply chain model, with regard to their customers?

Maribel: When we look at the supply chain and IoT, they are a match made in heaven. One of the things that is really important for an equipment manufacturer is to understand how parts are performing and if they are performing poorly and they need to get a new part, understanding where those parts are in the supply chain and how to actually integrate that so you can have just in time repairs or even just in time manufacturing.  So understanding perhaps the history of what that part has been performing at. If you have tires, what’s the actual wear and tear, the real mileage on those tires, how often you would have to change things out.  All of these are very important to making sure your supply chain runs extremely efficiently and you have the right goods in the right location when you need them. 

Matt: For a customer facing IoT strategy, what should manufacturers focus on to ensure their customers benefit from the better data?

Maribel: Obviously when manufacturers are gathering data, they want to make sure that this data is useful to the customers. One of the things they are trying to do is improve the operational visibility, understanding with things such as remote monitoring how they would have to do repairs and services. How they might help the customer optimize the use of the equipment.

This is data that really didn’t exit for the customer before. It was either on/off or break/fix. Now there is an opportunity to have a partnership with the customer where you are actually advising the customer on how to make more use of their assets, on how to make sure their assets have better uptime, and how to basically prevent things such as unscheduled maintenance or downtime. What you can really do is effectively schedule things so that the customer is always operating at its most efficient. This really creates this type of partnership where you want to do more business and work to building new business models with the customer.

Another thing I think is really important in terms of this operational visibility is that if you do have a service call, you want to make sure that these service calls are done efficient way. You want to send somebody out for repair, they don’t have the right part, they don’t know what’s wrong with the equipment, and they are spending a great deal of time just figuring out what the problem is.  You want to eliminate that understanding of what the problem is and just say “Ok, we already know what the problem is, we know how to fix it. We are here to help, we are going to get you up and running as fast as possible.”  That is the type of service call someone wants to have., which is very different than what we’ve had in the past. That helps in terms of minimizing unnecessary downtime, but it also really helps in that partnership with your client to say “We understand your needs, we are servicing your needs in the most effective way.”

Matt:  What are some ways manufacturers can leverage IoT strategy to increase sales?

Maribel:  Right now, when you look at manufacturers, they are selling a product.  They might be selling that product one time and they might sell it with consumables, think of the razor blade model. You need razor blades with a razor. We can actually go a lot farther with IoT.  One of the examples of that is moving from just building and selling a product to delivering equipment as a service to compliment your existing product sales. Its not just the concept of leasing equipment, it’s the concept of delivering something as a service. It’s not just a railroad car, but it is train service.  Its not a jet engine, it is hours of flight uptime.  You are working with the customer to figure out what is their actual need, how are they going to utilize this, and how can you provide them with ongoing service which gives you an ongoing revenue stream.

The other thing that is interesting about this is, it also means you are constantly updating and evolving the product, so that they get new features.  That creates a stickiness with your customer.  Instead of just selling them something once and then maybe five years later they come back and they are in a competitive bid and its you against someone else and it comes down to price. You’ve now created a relationship. You’ve created a service cadence. They are invested with working with you and you are invested in making sure their products are always up to date.

Matt: Are there any opportunities to generate revenue from the data that IoT devices are generating?

Maribel: You’ve actually amassed a great deal of data and that data in aggregate can be very valuable and you can start to look at data as services offering. So, for example, if you are in farming equipment, you might look at a connected products strategy that says I’m going to take the data from the farming equipment, I’m going to take all this information about soil, I’m going to take information about yield, and I’m going to put that all together and that delivers a piece of insight.  That insight can help farmers understand how to have better yield with their crops. That is valuable insight and that is insight that people will pay for.  That is the goal of taking the IoT data and perhaps integrating some of that third party data that might have been weather, soil conditions in specific areas.  Pulling all that together and saying “OK, I’ve now analyzed this, I have some insight about how you can have better performance in your business” and that’s a data as a service offering. 

I think you start by connecting equipment, I think you then move into a remote management monitoring and as a service strategy as a second stream of revenue, and then your third stream of revenue is delivering actionable insights to your customers that use big data and analytics tools, that leverage the power of cloud computing to deliver dashboards and visibility and control.  These are some of the new models that I think equipment manufacturers can benefit from if they embrace an IoT plus cloud strategy.

Matt: You mentioned the cloud. Is this one the technology upgrades that are needed to prepare for a move to IoT?

Maribel: I think every company, regardless of whether or not they are a manufacturer, needs to think about how cloud computing can impact their strategy. Cloud offers many things. It offers a way to have highly scalable infrastructure. It offers a way to have new platform as a service that can deliver new skills into your cloud services, maybe this is some of that third party data we talked about.  It could be calculators, development tools, middleware, machine learning services, there is just a wealth of platform as a service that is on top of the infrastructure that you can access and those two things combined create a tremendous amount of agility in your business and in your backend infrastructure.  That agility in your backend infrastructure is going to allow you to think more creatively about how you deliver products and services.

Its also going to provide you with the ability to provide a front end to your customers and connection to these new services that we talked about, where’s their data going to go, how’s it going to be analyzed, how are you going to provide them dashboards.  All of that is something that can be impacted positively by a robust cloud strategy. 

Matt: Why do IoT deployments fail?

Maribel: There are so many reasons IoT deployments can fail but I think a couple are at the top of the list. The first is connecting is not enough, you can connect your equipment, but you really need to think what is the business goal and outcome I’m trying to generate by that connection.  What data am I going to collect, how am I going to analyze that data, what new services am I going to provide as a result of that data. Once you have what I call the “what”, the what or the why.  Why am I connecting this and what am I going to do once its connected.  Then you have to figure out the how. 

A lot of people fail with the what, they spend all this time thinking about how to get devices connected as opposed to what am I going when I connect them.  Then, if you know what you’re going to do when you connect them, its only then that you select the right services. Trying to figure out what products and services you need before you understand what services you’re going to deliver makes it very challenging to pick the right solution. You might pick the wrong platforms if you don’t know exactly what you’re doing.

I think having that coordinated strategy of understanding what you’re trying to deliver and then, making sure that you can actually connect that with your existing infrastructure. You got supply chain management, you got enterprise resource planning, you got finance, you have all these systems in your organization that you also need to make sure integrate into your new IoT stack. How do you do that? These are questions that I think people have to be very conscious of when they are selecting.

The other thing is that IoT is really an ecosystem, so you don’t just roll up to the market and buy IoT. You actually have different pieces and you have lead vendors that work together to provide you a solution. It could be your cloud computing provider with your SCM ERP provider combined with a specialized fast software company that does building automation and industrial controls, for example. So these all need to come together and be integrated to deliver an end solution.

Matt: As we finish the podcast, what advice would you like to give customers when creating an IoT strategy?

Pick a business problem that matters, something around generating revenue or improving the product quality and customer experience  or reducing the cost.  You could have a scenario where your equipment is failing all the time and a connected product strategy could help you find out what’s wrong with that and how to fix it before there are critical issues. 

So job one is to pick a problem that matters and then job two is to design solutions and technologies around that problem and expand from there.  You need to land with one strong key project, get a quick win, and evolve into multiple things that could transition your business.

Manufacturers in every organization are struggling with the concept of innovation and not just innovation for innovation’s sake, but innovations that matter. How do you get to innovations that matter? Well you could sit in a room or you could gather customer feedback. How do you gather that customer feedback in a way that is quantifiable and fast so that you can act on it in a quick and meaningful way? One of the things that’s great about a connected product strategy is it gives you that data and insight into what’s happening with the customer, what happening with the product, and then you can match that against the market to figure out if you’re competitive or not and what might be the next thing that you move in your innovation cycle, how do you prioritize that innovation cycle, and this data that you get can help you do that.

Matt: Thank you for your time today Maribel. Listeners, you can learn more about this topic by reading the new report by Lopez Research, “Driving New Business Value with Connected Equipment” . 

Maribel: Thank you so much for having me.