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Extreme makeover needed to capitalize on IoT products

The IoT presents great potential for companies to redefine products. But to capitalize on IoT products, manufacturers will need to redo org charts and change internal operations.

The Internet of Things (IoT) presents endless potential for manufacturing companies to redefine their products and spread their wings into new markets while pursuing radically different business models. At the same time, the still-emerging technology paradigm promises to have an equally transformative effect on manufacturing companies' own internal structures and operational practices, according to IoT experts.

During a keynote presentation at the recent PTC LiveWorx 2015 conference, PTC CEO Jim Heppelmann and Harvard Business School (HBS) professor Michael Porter outlined their vision for the metamorphosis to smart, connected products while cautioning manufacturers that sweeping internal change will be necessary to fully capitalize on the opportunities made possible by IoT.

"For the first time at any scale, IT technology is not just inside the company, but it's actually embedding itself inside the product and that dramatically changes the functionality of the product and what it really means," said Porter, a Bishop William Lawrence University professor at HBS.

How a company is run will change dramatically

But it's not the just product that's changing.

"How we run a company is going to change much more dramatically than in previous generations of IT," he said. "And how we organize companies is going to be changing because of the impact of smart, connected products on the nature of what companies have to get done in their organization."

The changes start with data -- one of the most pivotal components of IoT products. Products with sensors, like mountain bikes and connected cars, will fuel an endless stream of information chronicling their condition and status, creating what Heppelmann and Porter refer to as a data lake that will need to be managed, stored and analyzed to drive actionable insights. Ownership and orchestration of that data lake and related analytics processes is going to require the formation of a unified data analytics group, which is foreign territory for most manufacturers.

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"We need a whole new part of the value chain we never really had before," Porter said. "Those organizations are starting to be built today because it doesn't make sense for all the little parts of the firm to keep the data that's relevant to their part. We're going to see a lot of new groups set up to perform this function and we're going to see a lot of chief data officers -- this is the latest C [level exec]."

Product R&D also is not immune to the transformational effect of IoT. Because of the enormous complexity of building IoT products that aren't just mechanical or electrical, manufacturers will need to set up organizational structures and workflows that support far more rigorous and regular collaboration between IT and engineering, groups that have historically operated as silos.

Being good at continuous, incremental change is important

Org charts will need to evolve to include new groups that foster this high-level collaboration, including a new entity that draws from traditional domain expertise in engineering, IT and the data center. Manufacturers also will need to establish new DevOps teams -- common in software-as-a-service companies -- to take charge of testing, implementing and communicating software changes as they are made over the lifetime of an IoT product.

"We have to learn how to get very good at continuous, incremental change to the cloud part of the solution," said PTC's Heppelmann. "It's part IT, part product development and part operations because you're actually changing the product that the customer is operating. It's a new way of operating that most manufacturers haven't seen before, but they are going to have to figure it out."

Although the factory floor will be affected less than other areas, the service organization will need to be reconceived, shifting from the conventional culture of field technicians equipped to do reactive service to an organization staffed to analyze data streams as a means of delivering proactive and prescriptive service, Porter explained.

Marketing, sales will need to operate differently

Marketing and sales in a world of smart, connected products is also a very different animal, Porter said. Instead of what he called "episodic sales" where you close a deal and walk away, sales organizations in the age of smart, connected products need to be structured to take responsibility for a product over its lifetime -- a change that will require different skill sets, different compensation models and new ways to build relationships.

There are no easy answers and no one-size-fits-all solutions, and like most ambitious technology and change management initiatives, Heppelmann and Porter said most companies won't want to make sweeping changes overnight. Many early IoT pioneers, including Bosch, Philips and Caterpillar, have set up centers of excellence around IoT and tasked them with aggregating talent, developing business strategies and driving the organizational change required for implementation.

Although there have been major changes in manufacturing organizations over the past 50 years, Porter contended that they are evolutionary compared to what IoT will drive in the not too distant future. "The whole process of working within a company is going to be totally different," he said. "The inside implications of smart, connected products are more profound and will be harder to deal with than all the functionality that they create."

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