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The organizational psychology of IoT

We are in the midst of a major confrontation between an irresistible force and an immovable object. The irresistible force is technology disruption, and the immovable object is the change monster — the inability of large organizations to make the necessary changes to remain competitive on the global stage in a world that is swiftly turning digital.

A recent survey sent to all Fortune 500 CEOs asked, “What is your company’s greatest challenge?” Topping the list was their concern of keeping up with the rapid pace of technological change, which has never been faster than it is today. If we look at the amount of time it takes for new technology to reach 50 million customers, we find that the telephone took 75 years, radio 38 years, television 13 years, Facebook three years and eight months, WhatsApp Messenger 15 months, the Angry Birds game app 35 days and, in 2016, Pokémon Go reached 50 million in just 19 days. It’s never been easier to rapidly assemble technology components in a way that meets a large audience and disrupts established industry players.

With IoT, analysts are predicting big numbers:

  • 30 billion IoT devices in service by 2020 (IDC, 2015)
  • 50% of new business products and services with IoT elements by 2020 (Gartner, 2016)
  • $11 trillion of economic impact via IoT technologies by 2025 (McKinsey, 2015)

To add some context, $11 trillion starts to approach the value of the entire U.S. gross domestic product. These are huge numbers, and what we’re seeing is a reflection of the fact that IoT is not an industry unto itself, but rather a macroeconomic megatrend that affects all industries as the products and services around us become internet-connected versions of themselves.

Technology is not the real challenge

Early this year, an annual longitudinal survey of nearly 300 U.S. industrial manufacturers about the way in which IoT is affecting durable-goods manufacturers showed that the anticipated impact of IoT is on the rise. Companies that view IoT as having low or neutral impact are asymptomatically approaching zero, and nearly 70% of organizations now believe IoT will have a critical impact on their business over the coming decade. These same companies are responding with formal digital strategies and specific timelines for success, and these strategies have matured significantly over the past few years.

However, many are surprised to find that the greatest challenges these businesses face have not come from technology, but from their employees, interdepartmental politics and incumbent corporate processes. It is this fact that makes the organizational psychology of IoT so important. This was recently addressed at a think-tank discussion I led with 50 leading industrial organizations on hurdles faced in their digital transformation process.

During this session, five common hurdles organizations face when attempting to roll out a company-wide IoT strategy were identified:

  1. Lack of clarity and executive sponsorship
  2. Organizational misalignment around objectives
  3. Low cross-departmental collaboration
  4. A culture slow to adopt the necessary changes
  5. Inconsistent or disjointed market feedback

Although the technology is tough, organizational change and alignment is tougher. To help understand why this is, let’s start by looking at the way in which people put together complex jigsaw puzzles. An IoT project requires people, has lots of disconnected pieces and doesn’t include directions, just like a difficult puzzle.

There are generally two strategies people use to solve puzzles. The first strategy is to work on it from the inside out, focusing on familiar colors and shapes, and building outward from there. The more advanced puzzle-solving technique is to work from the outside in by defining the edges and then dividing and conquering sections of the puzzle. Along the way, the size, shape, orientation and color of the puzzle pieces all make a difference. Also, you might find you are missing necessary pieces to complete the work, which is particularly frustrating if you don’t realize that ahead of time.

IoT projects often fail because they invite misalignment from the start. Most organizations believe IoT will have a critical impact on their business, but far fewer actually know what to do, or how they will monetize the outcome. Different groups may begin to tackle some of the problems, but these efforts are often disconnected. This phenomenon is called Conway’s Law, named for Melvin Conway, a computer programmer who, in 1967, said, “Any organization that designs a system will produce a design whose structure is a copy of the organization’s communication structure.” What Conway is saying is that if you have a four-person software team creating a compiler, you’ll get a four-pass compiler as a result.

Complex systems mimic the organizations that produce them and mirror the way in which people interact in your company. This principle is amplified with IoT systems, which require not only software teams, but a cross-discipline effort that touches every part of a business. Rigid organizational structures lacking a strong digital strategy produce IoT systems that are fragmented, brittle and subject to failure. They are also very costly.

Developing competency is key

Successful organizations don’t just “let IoT happen.” Instead, they treat it as a strategic decision, which provides healthy constraints for the business that can guide investment and priority tradeoff decisions, ensuring everyone is working toward the same outcome. The strategy of using constraints to guide organizational behavior is like inverting the Conway Maneuver. If you design a system that models the way in which your future organization should behave, the system will then, in turn, affect the way communication happens within your company. Just like a fighter jet in a dogfight, an inverted Conway Maneuver is a way to combat the negative effects of Conway’s Law and turn it into a competitive advantage.

For many industrial manufacturers, getting into IoT puts them outside their comfort zone, so defining a solid strategy is one thing, but actually doing it is quite different. Building an organizational competency is even more complex and requires a multitude of components, including people, processes, products, market knowledge, new skills in new areas and effective communication up, down and across the company. Organizations are made of people. If organizations are to become competent at IoT, they must have people that become competent in IoT.

If you design a system that models the way in which your future organization should behave, the system will then, in turn, affect the way communication happens within your company.

In the field of psychology, the “conscious competence” learning model describes how individuals move from incompetence to competence in a certain subject area. There is no shortcut to the ultimate goal of unconscious competence. Skill gaps must be identified, followed by an involved process of growth through failure before one can finally attain mastery of a subject as second nature. Moving from naïve to knowledgeable requires training and learning from others who know more than you. Moving from knowledgeable to experienced requires planning, execution, learning from failures and repeated success under pressure.

The same is true for organizations attempting to become good at making and selling IoT products. For an organization to become knowledgeable, it requires leaders to champion the opportunity to change, bring others along on the journey and seek outside counsel to fill in the gaps. In large companies, it also requires strategic vision from the top that is clear, compelling and actionable.

To become experienced, a business must launch not one, but numerous connected products that achieve success in the marketplace. Initial IoT applications are available, but business models are not yet proven, standards are still emerging and organizations are wondering when the right time is to jump in. For an organization to become masterful, they must turn successful IoT initiatives into a set of institutional behaviors that cover process, people skills, business models, support, manufacturing, tooling and user experiences into a cyclical feedback loop that enables the company to become known as a connected brand.

Four case studies

Having worked with hundreds of organizations through this journey of IoT competency, below are four real-world examples that have taken the outside-in approach to preparing for and solving IoT.

Company A: A decades-old, industrial-air-handling equipment company is beginning its IoT journey by asking, “Why IoT?” and “Who cares?” Though still naïve in this realm, it is moving toward IoT knowledgeability. Through an organizational skills assessment and a series of collaborative learning seminars to identify competency gaps, market opportunities and competitive dynamics, this company is taking the task of learning about the impact of IoT on its business seriously.

Company B: A multinational, electromechanical gas and filtration company is planning for IoT success by getting organized and asking, “What should be done?” and “How best can we proceed?” This company is IoT knowledgeable and gaining experience by driving a top-down initiative consisting of processes, business models, security standards, user-interface guidelines, partnership strategies and a scalable enterprise technology platform for the rest of the organization to adopt.

Company C: A market-leading consumer and commercial products company is building momentum through repeated IoT-experience success. This company is progressing toward IoT mastery by using a bottom-up, technology-driven approach to digital transformation and is encouraging leading divisions to pioneer new offerings that make sense for their part of the business. Corporate leadership is then highlighting divisions that have demonstrated market success and using those examples as archetypes for future IoT deployments.

Company D: A multidivisional materials science and medical products company already has numerous IoT products in the market and is now optimizing organizational efficiency with learnings from IoT deployments. Because this company has already demonstrated IoT mastery, it is now incorporating data from commercial IoT products to derive additional interconnected product experiences and services.

While each business and circumstance is unique, these companies all have one thing in common: they innovate from the outside in. If you’ve mastered a skill, it’s likely you spent time with someone who had already mastered that same skill. Vincent Van Gogh first apprenticed with an art dealer. Plato was a student of Socrates. Henry David Thoreau studied under Ralph Waldo Emerson. And so it is with organizations. Industry-leading businesses look outside the four walls of their company to other advisors, influencers and partners that have previously been through the digital transformation journey, while, in parallel, building out their internal capabilities and closing necessary skill gaps.

Five best practices

Regardless of where your organization is in the IoT competency journey, there are common best practices that organizations follow to significantly improve chances of success.

Five ways organizations can build a sustainable IoT competency include:

  1. Have a baseline of current IoT competence in the areas of digital innovation, technology maturity, business-model clarity and market readiness — because you can’t improve what you can’t measure.
  2. Develop and communicate a clear, compelling, actionable IoT strategy across the organization that includes executive support, funding from the top and a mandate for cross-departmental collaboration.
  3. Start small with quick wins targeted at reducing business risk while addressing pressing questions early on.
  4. Look for opportunities to standardize and reuse common components across divisions and projects.
  5. Close the knowledge gap by building the organization from the outside in. Start with external help and, simultaneously, develop and grow internal core IoT competencies over time.

The key to success tomorrow is directly proportional to an organization’s ability to transform themselves into a digital enterprise today, and this transformation is both technological and psychological in nature. IoT with smart, connected products will redefine entire markets and the very nature of competition in the coming years. By solving the IoT puzzle from the outside in and following these best practices, the potential for success is exceedingly strong and will lead to an organization that is best equipped to compete and perform over the coming decade.

All IoT Agenda network contributors are responsible for the content and accuracy of their posts. Opinions are of the writers and do not necessarily convey the thoughts of IoT Agenda.

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