The Internet of Things and Applied Digital Strategy

April 4, 2016
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When I speak publicly (and internally) about the Internet of Things (IOT), I prefer the term Smart, Connected Products. Yes, I know – sounds like a buzzphrase.

When I speak publicly (and internally) about the Internet of Things (IOT), I prefer the term Smart, Connected Products. Yes, I know – sounds like a buzzphrase. But the words are used with intent, to shift thinking away from the tactical aspects of IOT, and focus on a strategic view of this important digital component. The term comes from a pair of HBR articles by Porter & Heppelmann. In the first – How Smart, Connected Products are Transforming Competition – the authors argue that the nature of our “product” is changing. Data and information can become new and differentiating features for the products and services that we sell – features that bring significant value to our customers (and significant problems to our competition).

This is quite different from what technology vendors push when they talk about the Internet of Things. The industrial world is quite comfortable understanding IOT as just the latest version of Machine-to-Machine (M2M) communications. Load up the expensive capital equipment on your factory floor with sensors and communications, and bring that operational data to the powerful analytics tools available in the cloud … Sounds great, and there is plenty of opportunity here for organizations looking to manage costs and optimize assets. But the real value creation will come from profitable new revenue streams, generating real growth and differentiating your company from the competition.

Your move …

The IOT presents companies with a choice –  top line revenue growth (“Smart, Connected Products”), and bottom line earnings improvement (“M2M and optimized operations”). Which is the right focus for your organization? Let’s start by figuring out how to connect this new-wave “digital thinking” to your enterprise strategy.

Strategic Impact: Adding Digital

This is where a clear understanding of your company’s strategy is helpful. What is the objective, the goal? What is the scope / domain of your business? And how exactly will you win – what is the advantage that you will lever to achieve your objective? This simple approach to defining a strategy (outlined in yet another HBR article, by Collis & Rukstad) provides connection points for introducing digital thinking to the CEO and the Board of Directors:

  • Objective: How can information specifically get us to our objective faster – with better quality and clear value generation?
  • Scope: What are our customers asking for? And where else might they get it – what is our current competition up to?
  • How We Win: How might “digital” become that new and a differentiating feature, that creates higher barriers to entry for competitors in established niches, and breaks down those barriers in growth areas?

Strategic Impact: Transformation

An alternative impact on your cleanly laid out strategy could be a bit more transformational – where by “transformational” I mean “let’s rip this to shreds before we get disrupted”…

Okay, clearly it’s not a good idea to rush to your boss with hair afire, excitedly promoting digital transformation in an organization calmly comfortable with their analog continuity. But our simple strategy breakdown can be used to gently introduce the topic:

  • Objective: How can information be used to change (improve?) the fundamental value that we can deliver for our customers?
  • Scope: For our current markets – what disruptions might come from new entrants, unhindered from legacy constraints? Alternatively – what new markets could we wade into?
  • How We Win: what happens if we add a new and deeper information component to the depths of our domain experience?

Strategy vs. Tactics

A tactical focus on optimized operations will create value for the shareholders / stakeholders, and deliver decent earnings growth. It’s also a great way to introduce an organization to new and different technology that may be far out of their comfort zone.

But I like the idea of driving profitable growth – with all the right adjectives (organic, sustainable, scalable, defensible, etc.). Enterprises are typically not driven to “merely exist” – the great ones create value for owners, customers, and employees. And you have probably figured out by now that most corporate strategies – at least the exciting ones – are focused on this value creation. Smart, Connected Products – adding “digital” to the mix – can be an important part of delivering that value.

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