The internet of things (IoT) presents an opportunity for enterprises to rewrite the rules of their industry. The potential upside is massive: According to research firm Gartner, there will be nearly 20 billion devices on the IoT by 2020, and IoT product and service suppliers will generate $300 billion+ in revenue.
By bringing together sensors, connectivity, cloud storage, processing, analytics and machine learning, IoT may well transform countless industries, from healthcare to manufacturing to utilities, transit, government and more. But IoT is still in its early days. Creating and executing an IoT strategy for your organization is no mean feat, says John Rossman, author of The Amazon Way on IoT: 10 Principles for Every Leader from the World's Leading Internet of Things Strategies.
Rossman, who spent four years launching and then running Amazon's Marketplace business, and who was also ran Amazon's Enterprise Services business, initially set out to create a specific roadmap to help companies approach IoT. But in the course of developing the book, he realized that methods are highly situational. Principles, on the other hand, provide vision that allow leaders to develop an IoT strategy customized to their unique needs.
"I think of IoT in layers," Rossman says. "In one way, it's the technology component, the sensors that are connected to cloud computing and analytics that are able to make optimizations that go back out to devices in the field. On the next level, it's really the use case that can be enabled. Whether its consumer or more industrial and business-to-business scenarios, there's a set of developing use cases that come up. At the third level, it's really the business models that can be developed, morphed and changed because of these insights and the ability to be always on."
Rossman recommends that business leaders focused on IoT think of it as a journey, not a single step.
"You don't implement IoT," he says. "This is an ongoing portfolio or program or overarching strategy for a company. It's a journey: how IoT is impacting your industry, where investors are going, where competitors are going."
Here are the 10 principles Rossman believes you should take into account when developing your IoT strategy. "They aren't all applicable to every company, but they do need to be contemplated," he says.
IoT principle 1: Obsess over customer experiences
First and foremost, Rossman says, pursue IoT projects only if you're obsessed about your customers, their experiences and how you can use connected devices to solve their problems.
"Connected devices and sensors give yet another vehicle to improve the customer experience," he says. "If it improves the customer experience, that's probably enough business rationale to proceed with it. Figure out how to monetize it afterward." Leaders start with the customer and work backward, Rossman says, and they work tirelessly to earn and keep customer trust.
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At Amazon, he says, "obsession" means a willingness to do really hard things just to make life easier for customers, even if those things won't drive short-term profit. It also means constantly reevaluating the customer experience and never settling for "good enough."
IoT principle 2: Create seamless experiences across platforms and channels
In an IoT-enabled world, your customers will interact with you across a series of platforms and devices. "You need to focus on the omnichannel experience when you connect across channels and experiences," Rossman says. "Providing that seamless customer experience is a really important part of improving that customer experience."
The key to creating great omnichannel experiences is to master information continuity, Rossman says. For instance, if a customer has a faulty connected vacuum cleaner and calls one of your customer-service agents, that agent should already be able to see where the vacuum cleaner is and what's wrong with it — better yet, that agent could contact the customer proactively with a solution.
IoT principle 3: Pursue continuous improvements
Connected devices and IoT offer the opportunity to examine your processes like never before, providing the tools you need to drive change and improvements on a continuous basis. "You have access to much better data, much better signals," Rossman says.
"That gives you the ability to create a whole new wave of visibility and process improvement within your organization." Connected devices, he says, can give you real-time insight into the flow, status and state of key items in your process
IoT principle 4: Data isn't enough, do the math
IoT will help you collect data on your operations at a scale and magnitude beyond anything you've seen before, Rossman says, but the data isn't enough. You need to leverage that data with models, analytics and algorithms that help you generate insight from it.
"Your operations can give you much better data, which can tell you what's happening within your organization," Rossman says. "With that, you can strive to create a formulaic understanding of your processes that will give you more insight and definition to tighten up and reinvent those processes."
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Within Amazon, Rossman says, teams spend as much, or even more time, defining and agreeing on how to measure a new feature, service or product as they do designing the feature itself. They consider the inputs and outputs of an operation and the data required to run that operation and understand its inner workings.
IoT principle 5: Think big, but start small
Successfully innovating with IoT requires vision, Rossman says. You need to think big if you're going to create fundamental transformation. But big visions are brought into being with small, discrete projects that allow you to fail and iterate with experience gained from those failures.
"IoT is about a journey, and you should have a notion of what the long journey is," Rossman says. "But you need to proceed in small, agile, low-risk bets as you seek to prove out what works and what doesn't. Understand what the small bets are that you're making relative to IoT and other innovations, de-scale the risk of those bets and they're no longer a bet anymore."
IoT principle 6: Use IoT to become a platform company
A platform business model, which allows other businesses to leverage your capabilities to build and grow their own businesses, creates a strong, sustainable competitive advantage for your business, Rossman says.
Seek ways to allow other businesses to leverage your connected devices. "A platform business is a type of business that enables others," Rossman says. "IoT, for some companies, provides the opportunity to think about how your products and services could be a platform for other companies to offer insights and services to their customers."
IoT principle 7: Facilitate outcome-based business models
Selling products is well and good, but IoT-connected devices allow you to go a step further and sell outcomes. Under an outcome-based business model, customers pay for the results a product or service provides, rather than the product or service itself.
That, Rossman says, shifts ownership, effectiveness and maintenance responsibilities from the customer to the provider; it also aligns customer and provider interests. "This is about the opportunity for companies to get real-time insights into how their products are operating with customers," Rossman says. "You transition to being a product with maintenance to providing the outcome that your customers want."
These models encompass a number of variations, from self-monitoring services that replenish themselves automatically, to subscription services with a regular fee, to 'as-a-service' businesses with services tailored to individual needs. Rossman acknowledges that outcome-based business models are not the right fit for every business, but if they are, he says, they can increase your profits, improve your relationships with customers and increase customer loyalty.
IoT principle 8: Find a path between monetizing data and protecting privacy
Data just may be the new "black gold." While Rossman says it's as yet difficult to find examples of IoT-based companies that have successfully packaged and sold their IoT data, the time is coming. The confluence of sensors, cloud computing, third-party data sources and APIs will all feed into the market for IoT data brokerages.
"The data is the business model," Rossman says. "If data is the new black gold out there, then IoT creates a lot of data. Some companies will have the opportunity to create value and monetize the data they're creating from sensors. It's a business model that you'll see more and more of going forward."
Some of that market is beginning to materialize, he says. Financial trading companies are buying cargo ship transit and port arrival information. Utility companies are buying building and appliance energy-consumption data. Smart home companies are selling data to advertisers and insurance companies.
IoT principle 9: Disrupt the industry-value chain by exploring new products and services
Innovation is the name of the game. IoT creates opportunities for expansion up and down the value chain, Rossman says. "Enter business in one place in the value chain," he says. "Then maybe partner heavily to get an overall solution. Learn the industry, looking upstream and downstream. Look for indicators of bad customer experience or trapped excess margin. Then look for strategies that would disrupt that industry value chain through IoT."
A value chain is the end-to-end set of processes and activities for an industry, Rossman says. Imagine, for instance, an HVAC system provider. Its customers are commercial building manufacturers. It could install sensors that would allow it to take responsibility for maintenance of the HVAC system in an as-a-service model, creating a new revenue stream while reducing the building manager's maintenance burden.
IoT principle 10: Build a flywheel for your IoT strategy
Many executives these days are big fans of Jim Collins' management treatise, Good to Great: Why Some Companies Make the Leap… and Others Don't. In the book, Collins asks readers to think about their business as a flywheel: Put your effort into identifying the factors that will generate and sustain the most momentum in creating growth.
Rossman says that if you have a clear understanding of the systems dynamics — the flywheel — of your business, you can then use IoT to identify and execute on opportunities and risks in your business.
"As you're developing your IoT strategy, seek to gain insight into who the right partners might be, where the threats might be," he says.
For instance, he says, the big plays in IoT — the ones that will drive billions of dollars in revenue — won't be rooted in proprietary connected devices themselves. Instead, the opportunity will be in providing the infrastructure and tools to help other companies and developers to design, build and operate their own IoT capabilities.
You need to understand the moving pieces that will give your IoT flywheel the momentum to carry you to bigger and greater things.