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February 25, 2015
What’s the business value of the Industrial Internet of Things? Part One
By: Mark McDonald

The Four R's
Part 1: Revenue and rules

The Industrial Internet of Things (IIoT) is a powerful and disruptive force, but a force for what, exactly? IIoT uses sensing and communications technologies to digitize the day-to-day interactions at the foundation of your business—between things and core systems and between things and people.

During this initial phase of discovery and exploration into IIoT, discussions have been primarily technical in nature—about how things are connected and about handling the flood of data to feed analytics.

But executives need to think about the Industrial Internet of Things (IIoT) in business terms, not only in technical ones. Business leaders care (or should care) about the Industrial Internet of Things because it creates new customers and new sources of value.

Each sensor-enabled device becomes a potential consumer of services as well as a source of valued information and interaction. The resulting explosion in information intensity and connections presents leaders with strategic and technology choices that affect the way their companies operate, interact and apply capability and capital to create value.

This mindset requires asking and answering questions that I will call the “four R’s”:

  1. How can you create new revenue streams?

  2. What are the new rules and strategies to monetize the IIoT?

  3. What new roles are created by IIoT capabilities?

  4. What new combinations of resources are most important?

In Part 1 of this blog I will focus on “revenue” and “rules.” Then in Part 2, I’ll close by looking at “roles” and “resources.”

So, first:

How can you create new revenue streams? By:

  • Creating new sources of value from information-based products and services. The Children’s Hospital of Los Angeles wins research projects and revenue using the patent telemetry and test results supporting by IIoT technology.

  • Earning more through expanding business capacity. Disney’s “My Magic+” capabilities at Walt Disney World help to create unique and customizable customer experiences. Even more important, they raise Walt Disney World’s guest capacity by more than 10 percent, generating an immediate boost in revenue.

  • Making more to sell more by raising production capacity. Cerrejon, the world’s largest coal mine, raised productive capacity by 10 percent (and therefore revenues) by using sensors to improve the movement of mining equipment (something that also improved safety).

  • Accelerating capital velocity. Increasing automation and integration used to be only cost reduction measures. Now, with IIoT, they accelerate the velocity of invested capital—growing revenue without requiring additional capital outlays and exposure. Capital liberated through IIoT capabilities expands enterprise investment and growth opportunities.

Second:

What are the new rules and strategies for IIoT? Here are five of them:

  • Think beyond yourself. Extend the idea of a “customer” to include service points—the situations where applying your offerings creates value. It is not so much that you have to market to machines as it is that each service point will gain the capacity to choose products and services based on transparent pricing.

  • IIoT is an extension not an exception to digital disruption. Every organization is an industrial organization because it operates complexity at scale. Thinking that IIoT applies only to industrial equipment blinds you to new possibilities and profits.

  • Own smart objects that work on a simple network. Secure access and rights on the emerging public IIoT infrastructure. Avoid building a proprietary network unless that is your core competency.

  • Ruthlessly standardize background operational and administrative processes. If you don’t, you probably will not be able to profitably handle the deluge of data generated by IIoT capabilities. Non-value added activities have always been benign at best. The IIoT makes them margin-killers.

  • Pursue information in all its dimensions. Vertically integrate information inside the organization for insight and efficiency while horizontally expanding information access outside for engagement and effectiveness.

In Part 2, I’ll look at two more “R’s”: “roles” and “resources.”

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