I recently had the privilege of speaking at the SIIA’s conference on “Deciphering the internet of things” in San Francisco. The session started with a report that I had come across two years back — the World Economic Forum’s 2015 report on the industrial internet. The report’s framework concerning the adoption of IoT is still applicable today. Here is a brief summary:
While the world is recognizing the potential for IoT to deliver value, it is still in the early stages. We are only beginning to unlock the full potential of IoT, specifically industrial IoT. Many large industrial companies, while well-established, are not quick to change. Startup and tech companies move at a more rapid pace and strive for constant innovation. These two types of companies must come together for IIoT to move further along.
The four waves of IIoT adoption
There are four waves of adopting IIoT, and currently we are still in the first wave: operational efficiency. This includes activities such as asset utilization, operational cost reduction and worker productivity. These types of activities can produce fast results. Therefore, ROI can be readily determined and it is easier to fund these types of projects.
The first wave lays the foundation for the infrastructure required to drive the next wave. The second wave is new products and services. This consists of new business models, software-based services and data monetization. For example, Michelin sells tires. But if the company sells tire as a service, it takes on monitoring the usage of the tires as well as replacing them when they exceed the maximum mileage. Michelin now creates more value and generates higher revenue. The second wave connects both products and services in a way that improves each.
The third wave of adoption is the outcome-based economy. This wave drives unconventional revenue from products and services. It spans three areas: products, equipment services and information services. For example, the traditional offering is a product with a service contract attached to it. And there is usually a set of information services that come with it, such as maintenance, inspection and monitoring. However, products are increasingly digital. For instance, tractors are connected with sensors. Once connected, a tractor can now be enabled with remote diagnostics and optimization services. This is the very beginning of digital services. With the sensors, the farm equipment is capable of soil, plant and equipment analysis. As this kind of example grows, there will be a new marketplace for agricultural information services.
The final wave of IIoT adoption will be the autonomous pull economy. This is an economy where automation occurs end to end. It results in resource optimization, waste reduction and even continuous demand sensing. This final wave will unlock value on multiple fronts. Consider the example of the Rio Tinto autonomous mine. The mine covers all the different aspects of IIoT — heavy machinery, transportation, critical operations and high downtime costs. See the video for more info:
Even though some of the leaders like Rio Tinto have taken the leap, this wave is still under development. Every single company will have its own unique approach as operations move from manual to self-organizing and demand-driven.
Technology and IoT
According to a recent report published by ReadWrite, there are about 2,888 companies focused on delivering IoT technology and solutions. This follows a report by IoT Analytics covering the 450 IoT platforms that are available today. Yet, according to a survey done by the World Economic Forum, only a small fraction of the companies that could use this technology have a funded budget for IIoT.
The technology vendors, new as well as established, are investing heavily in addressing the technology challenges that arise because of IoT. As a result, even though the ecosystem and standards are still in flux, technology is available for buyers who are looking to get ahead of their competitors. The biggest emerging IoT opportunities are created by companies that can deliver value today by combining deep domain expertise while also laying the foundation for the later adoption waves of IoT. Successful companies have in-house experts with domain, industry and technical knowledge that is combined together to deliver solutions to the problems that these industries are facing.
As IoT adoption grows, the value of IoT in the near future will no longer be based on how many billions of things are connected. It is not even the terabytes of data that are being generated from these connected things. It is the valuable insights that are being unlocked to generate new revenues, reduce costs or mitigate risks.
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