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FOR CIOS

Brief: The Two Fundamental IoT Business


Opportunities
CIOs Need To Help Their Business Partners Focus On The Right IoT Value Scenarios

by Frank E. Gillett
January 25, 2016

Why Read This Brief Key Takeaways


The growth of Internet-of-Things (IoT) ideas and The Two Core IoT Scenarios Are Connected
technology has sparked a wide variety of options Products And Connected Business Processes
and confusion, with many stakeholders involved. Product managers can embed IoT sensors
But if you break IoT possibilities into the two in products or product dispensers to enable
fundamental IoT scenarios, it makes it much better customer experiences. Business process
simpler to think through the options. This brief owners at all companies can use IoT to
frames out the details of the two IoT scenarios improve their operations and tie them closer to
and their stakeholders, elaborates on the six customer journeys.
categories within the two scenarios, and analyses
Firms Should Work To Capture All Three Levels
the three levels of IoT business value for each.
Of IoT Business Value
We spell out four action items for CIOs to better
Business execs often fixate on cost savings
work with their business partners on IoT.
as the primary IoT value contribution. But the
business value of IoT reaches much further.
Successful companies will leverage their IoT
investments to optimize their existing operations,
differentiate their products and services, and to
transform entire markets through new offerings.

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For CIOs

Brief: The Two Fundamental IoT Business Opportunities


CIOs Need To Help Their Business Partners Focus On The Right IoT Value Scenarios

by Frank E. Gillett
with Pascal Matzke, Laura Easton, and Ian McPherson
January 25, 2016

The Internet Of Things Has Confusing Breadth And Variety


The IoT continues to spark excitement among business leaders and their CIO partners as a way to
potentially improve, change, or even disrupt their businesses. The concept for IoT sounds so simple
sensors or actuators connected to tiny computing devices that send data and information about real-
world events and trigger automated action. But as CIOs are confronted with rising business demands
around IoT, they have to realize that the reality is incredibly complex, because IoT spans:

Many different use cases. IoT can be wired into building systems, integrated in manufacturing
systems, or spread across large systems such as electrical power grids and smart meters. It can be
used for better business operations, for new customer products, or for connected subcomponents
that go into finished goods. There is not one universal application or a use case that applies to all
industries in a common way.

A wide range of device size and complexity. IoT includes tiny sensor devices like Bluetooth
location beacons and deeply integrated sensors systems in complex products like a luxury car. IoT
devices can be wired, robust systems on an agricultural combine or tiny wireless devices that must
last 10 years on a coin cell battery. They include mobile devices connected by telecom networks
and simple, stationary devices connected by Wi-Fi. There are no common technologies that span
many or all IoT use cases.

A variety of benefits and stakeholders. Enterprise IoT use cases span technologies for people
activities in offices or stores, industrial assets on company property or on job sites, and large-
scale infrastructure such as power grids or cityscapes. The stakeholder implementing IoT can be
a product engineer, a factory manager, or a fleet operations exec. Customers using IoT-enabled
products can be consumers tracking their fitness with wearables or monitoring for water leaks, or
they can be a hospital radiology department head trying to maximize patient experience.

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For CIOs January 25, 2016
Brief: The Two Fundamental IoT Business Opportunities
CIOs Need To Help Their Business Partners Focus On The Right IoT Value Scenarios

The Two Fundamental IoT Scenarios For Creating Customer Value


Despite all the variety and complexity of IoT, there is an important way for CIOs to cut through
the clutter and clearly see two very distinct IoT scenarios that require very different sets of skills,
technologies, and strategies. The two fundamental IoT scenarios are (see Figure 1):

Making connected customer products. Using sensors to deliver product experiences.

Operating connected business processes. Improving ops with better information.

FIGURE 1 Two Fundamental IoT Scenarios Emerge From Two Different Business Stakeholders

Customer product Business process


Business owner Product design Line of business
examples Product engineering General manager
Chief product officer Chief of operations
Chief technology officer Chief operations officer
Chief marketing officer
Relevant types of Product companies All companies
companies (discrete manufacturing or
consumable goods)
IoT sensor location At the customers point of use In multiple company assets
with a physical product: across a business process,
- In products such as garage door including a customer experience:
opener - Internal operations, such as
- On product dispensers, such as manufacturing
coffee maker - Customer-facing operations, such
as retail store or amusement park
Customer impact Direct Indirect
- Improves the customer experience - Improves the service experience
with a specific physical product of the customer interacting with
at the point of use company operations

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For CIOs January 25, 2016
Brief: The Two Fundamental IoT Business Opportunities
CIOs Need To Help Their Business Partners Focus On The Right IoT Value Scenarios

Making Connected Customer Products

Product managers and CTOs are engineering new IoT-enabled features and services into commercial,
industrial, and consumer products to differentiate their products, improve customer experience, and
create new ways of engaging with customers in an ongoing way. This scenario doesnt have a widely
used descriptive phrase, though youll sometimes hear it called connected products or smart
products. Many product design teams have launched connected products, such as GE Healthcare
magnetic resonance imaging machines or the iRobot Roomba 980 vacuum cleaner. A connected
product IoT scenario has two forms, based on the nature of the product itself:

Durable goods. Product designers are adding sensors to simple objects like garage door
openers, as Chamberlain does, and very complex products like agricultural combines, as John
Deere does. Simple IoT implementations such as the Chamberlain MyQ provide real-world
notifications about events, such as when you leave your garage door open or your spouse gets
home. Complex implementations such as John Deeres FarmSight, FieldConnect, and HarvestLab
enable customers to manage their products better, while improving their success at tasks such as
irrigation and harvesting.

Consumable goods. You cant put sensors in products meant to be consumed, such as fuel,
pharmaceuticals, or food. And they dont make sense in most disposable products, such as rubber
gloves or paper cups though an Australian sunscreen maker is hoping to get sun exposure
sensors cheap enough to put on sunscreen bottle caps!1 Behmor worked with Dado Labs to
create connected coffee makers and coffee roasters to provide customers fine grained control and
automation for that vital morning cup of joe. For care providers trying to ensure patients take their
daily medications at home, the Vitality GlowCap provides reminders and notifications to ensure
patients take their meds.

Operating Connected Business Processes

All companies use physical assets to conduct business, even if all they use is office space. Line-of-
business managers and business process owners are interested in how IoT sensors can help them
improve their business processes. Industry discussions often focus on how IoT sensors can lower costs
by preventing expensive downtime and improving asset utilization. But execs can also use IoT-enabled
business processes to offer customers more and faster custom manufacturing options, better service,
and more reliable experiences. This IoT scenario is often called operational technology (OT), though
that term sounds industrial and doesnt really evoke the full breadth of business processes that IoT can
help with. There are four different types of business processes that IoT-enabled assets can help with:

Consumer services. Car sharing companies such as Car2Go and Zipcar have created car-as-
a-service offerings that enable customers to access and pay for cars in their neighborhood by
the hour. The Comcast Xfinity and ADT Pulse professional monitored home security services offer
home owners 24-hour surveillance of their properties. And Verizon Hum is a monthly service for
your car built on simple accessories plugged into the diagnostic port and clipped onto the visor
that offers maintenance alerts, repair shop guidance, and roadside assistance.

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For CIOs January 25, 2016
Brief: The Two Fundamental IoT Business Opportunities
CIOs Need To Help Their Business Partners Focus On The Right IoT Value Scenarios

Commercial real estate. Any space occupied by people can be monitored and managed using
IoT-connected sensors and actuators to improve the experience of customers and the performance
of employees. Property managers use building management systems like Johnson Controls
Metasys to manage building comfort, energy, and safety. Hospitality, travel, entertainment, and
sports venues can use IoT to improve the customer experience. For example, Royal Caribbeans
new smart ship, Quantum of the Seas, relies on WOWband bracelets, RFID luggage tracking, and
multiple self-service kiosks to enable seamless services, experiences, and payment.2 And everyone
can relate to the idea of Torks EasyCube connected washroom gear that monitors for supplies and
spills so that help is always just in time.3

Industrial operations. Many organizations operate equipment onsite at company buildings or


premises and at customer job sites. They use static capital assets, such as wind turbines, ATM
cash points, hospital radiology gear, or manufacturing lines, and mobile assets, such as fleet
vehicles, construction equipment, or drilling rigs. For example, Pitney Bowes uses GEs Predix
software to track and manage performance data from its mail sorter/inserter machines at customer
locations in order to anticipate and prevent problems and downtime.

Infrastructure monitoring and operations. Some types of assets arent confined to just one
organization, property, or location. These company or government assets, such as roads, power
grids, pipelines, and street lights, span property lines, jurisdictions, and geographies. The GE
LightGrid system enables cities such as San Diego to have automated monitoring and control
of efficient new LED streetlights and creates a platform for improving citizen services by adding
weather, air quality, and crime monitoring sensors to the lighting head unit.

Note that these two IoT scenarios, customer product and business process, are fundamentally
different, though companies can combine the two. For example, Kaeser Compressor makes and sells
air compressors for use in construction. The product team designs sensors into the air compressor
to improve how customers can use the product by enabling automatic adjustments. And Kaeser
operations teams can integrate IoT sensor data with maintenance service operations or product-as-
a-service operations to offer the customer new or better forms of customer service and experience,
beyond the direct use of the air compressor.

Firms Use IoT Technology To Create Three Forms Of Business Value


Firms that implement IoT scenarios dont see simple one shot benefits. There is a rich, escalating
spectrum of value in three tiers that are somewhat different for the two fundamental IoT scenarios
(see Figure 2):4

Optimize processes and assets to drive flexibility and speed. In the first tier, firms can use
digital data about the real world to better understand and document events and make better, faster
decisions. For example, location and status data about a hospitals infusion pumps enables an
administrator to efficiently allocate infusion pumps to the most appropriate patient while reducing

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For CIOs January 25, 2016
Brief: The Two Fundamental IoT Business Opportunities
CIOs Need To Help Their Business Partners Focus On The Right IoT Value Scenarios

the overall number of pumps needed to ensure availability. Many execs just consider the cost
savings from optimization. A better approach is to play out the customer benefits of faster, better
customer experiences that often result from optimizing operations.

Differentiate products and services to drive incremental business growth. Having digital
information about real-world events enables product and process managers to use software
to create better experiences. For example, product designers can give existing products new
features that make them stand out from the competition, as Anova did with its sous vide Precision
Cooker or Caterpillar did with its AccuGrade Grade Control System for tractors and motor graders.
Business process owners can use sensor data to improve customer service as Holcim did. Holcim,
a cement delivery company, used telematics in Singapore to deliver cement faster and more
consistently than before. With connected experiences like these, all business owners can create
better experiences that result in brand preference, customer retention, and, ultimately, in higher
revenues and profit.

Transform offerings to disrupt existing and create new markets. Often, early adopters apply
new technologies such as IoT to their existing products and practices. Eventually some start
experimenting with ideas for new product and business models that are enabled by the new tech.
Product owners are using IoT to offer product-as-a-service business models such as Daimlers
Car2Go and SolarCity to flip the idea of asset ownership on its head. So customers pay Car2Go by
the hour for driving a Smart Fortwo auto and pay SolarCity for the electricity they use at long term
contract rates, without having to own the asset. And Daimler and SolarCity gain customers and
revenue they never would have in business models based on product purchases.

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For CIOs January 25, 2016
Brief: The Two Fundamental IoT Business Opportunities
CIOs Need To Help Their Business Partners Focus On The Right IoT Value Scenarios

FIGURE 2 The Three Forms Of IoT Value Differ Subtly For Product Versus Process Scenarios

Customer product Business process


Optimize Help customer use product more Optimize company asset use across
efficiently to save their cost. a business process to increase
efficiency.
Innovate Differentiate the product via better Create new or better offerings or
customer service. improved operations to create
customer preference.

Transform Use IoT tech to create entirely new Create new processes across the
customer experiences, new levels company or partner ecosystem to
of engagement, or new business enable new levels of customer choice,
models such as product-as-a-service. engagement, and payment models.

Recommendations

Help Your Firm Start From The Customer View For IoT
Its easy for business and product execs to get confused about the technology and business value of
IoT. CIOs and their product CTO partners can start to straighten out the confusion by helping business
execs focus on the two fundamental IoT scenarios and making sure they understand the three levels of
business value that IoT enables. Since IoT is fundamentally a business funded and led phenomena, the
role of the CIO and her organization is to help business execs with technology insight and assistance
so that IoT deployments are more secure and better integrated with business technology systems.5
CIOs should help their business partners:

Develop IoT product strategies, in addition to operations strategies. If youre at a product


company, find the product owners and verify that theyre exploring the full range of durable and
consumable products possibilities for IoT, especially around customer engagement. Then you can
work with them to develop the appropriate security, software, and analytics infrastructure that will
support great customer experiences.6

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For CIOs January 25, 2016
Brief: The Two Fundamental IoT Business Opportunities
CIOs Need To Help Their Business Partners Focus On The Right IoT Value Scenarios

Plan beyond the initial optimization benefits of IoT. Business operations execs may fixate on
the cost savings they can extract by using IoT sensors to improve asset utilization and efficiency.
Help them break out of that straightjacket so that they dont bet on rigid or limited solutions that
lack headroom. Guide them toward IoT hardware and software that enables a range of options for
easier integration with enterprise applications and adding processing power at the edge.7

Start with customer-facing operations and work back into internal operations. If your business
process partners havent committed to an IoT project, urge them to start with customer-facing
processes, such as customer service or order fulfillment, to explore for ways to improve operations
with IoT in ways that can boost revenues and profits. Usually youll find that there are also cost
savings possibilities that will help fund the project.

Use one-time and ongoing savings to fund better IoT platforms. IoT initiatives can generate
ongoing reductions in spending, such as LED smart lighting upgrades that cut electricity bills in
half. Or they can generate one-time savings, such IoT asset management solutions that cut the
number of assets needed and create a reduction in a planned equipment purchases. Be sure to
use those savings to fund a flexible hardware and software platform for your IoT deployment, rather
than the cheap, quick solution. That way you can avoid the painful budget battles later when you
need to upgrade the IoT software platform or, even worse, ask for budget to go back out in the field
to install upgraded IoT gear.

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For CIOs January 25, 2016
Brief: The Two Fundamental IoT Business Opportunities
CIOs Need To Help Their Business Partners Focus On The Right IoT Value Scenarios

Endnotes
You can see a brief write up about ReApply Reminder project sponsored by Vitality Brands and built by the VML digital
1

agency at the sources below. Source: ReApply Reminder: A Smart Sunscreen Bottle, Digital Buzz Blog, June 6, 2015
(http://www.digitalbuzzblog.com/reapply-reminder-a-smart-sunscreen-bottle/) and The ReApply Reminder (http://
www.reapplyreminder.com/).

Forrester gives more details on the Royal Caribbean ship and examples in the hospitality industry. See the Bridge The
2

Broken Internet-Of-Things Promise Forrester report.

For more details on Tork EasyCube, visit the Tork website. Source: EasyCube Tork (http://easycube.sca-tork.com).
3

Internet-of-Things (IoT) technologies enable firms to strengthen eight dimensions of engagement and retention across
4

the customer life cycle. Putting IoT systems into action in service of customers will require CIOs to work in new
ways across the company, partnering with teams in product engineering, operations, marketing, and support. This
report outlines four action items for CIOs who are starting out on the path to using the IoT to better serve their firms
customers. See the Brief: The Internet Of Things Will Transform Customer Engagement Forrester report.

Product execs and line of business leaders choose and implement IoT use cases. But they want secure integration
5

with enterprise applications and analytics. So the CIOs tech management team will end up with shared responsibility
to get IoT data integrated with business technology systems. See the Brief: CIOs Will Architect And Operate The
Internet Of Things Forrester report.

S&R professionals in all industries must understand the tremendous risk associated with IoT-enabled, -connected
6

solutions and help their organizations adopt such technologies safely with a comprehensive security strategy.
Developing and deploying smart, connected products and retrofitting existing equipment is very challenging, requiring
coordination of network connectivity, application protocols, data analytics, and system management. To succeed,
technology execs will turn to a new category of software: IoT platforms. See the An S&R Pros Guide To IoT Security
Forrester report and see the Internet-Of-Things Software Platforms Simplify Transformation Of Business Operations
Forrester report.

This report analyzes how firms should use IoT gateways to deal with IoT challenges, which vendors provide them, and
7

which class of vendors will play a growing role in IoT gateways. We also touch on why CIOs need a different strategy
for customer-facing IoT gateways. See the The Future Of IoT Gateways: Evolving To Enterprise Grade In 2016
Forrester report.

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