IoT May Be Changing the Business You Are In

A friend of mine is the SVP & Head of Design and Research for a large ($10B annual revenue) multinational IT services company with a presence in Silicon Valley. The company’s CEO has made design thinking a core component of their strategy in delivering value to their customers, and from time to time they take on small proof-of-concept projects to demonstrate their capabilities.

Paradigm-Shift: Redefining a Business

In one case, the client was an agricultural products company that produces all manner of seeds, fertilizers, pesticides, etc. to support farming operations around the world.  The client wanted to explore how they could help minimize waste and increase crop yield for their customers, thinking that this would probably entail using information more effectively in their manufacturing operations. On the surface, this might appear to be a question of organic chemistry and process control that would help the company optimize its product characteristics, but the design team instead looked at it as an information problem focused on the plants themselves. By combining an automated hydroponics system with sensor input and machine learning, in just 45 days, and with $40 in materials, the Plant.io project team was able to create prototypes that dramatically increased growth rates for target plant systems.

While this is commendable as a technological achievement, the most significant outcome was much broader. The project result was paradigm-shifting for the client’s executives because it forced them to reconsider the business they were in. Before the project, they thought of their core business as being about molecules — the products they sold to farmers. After the project they realized they were actually in the business of increasing crop growth, and they saw that using an IoT approach could produce significant benefits through a very different set of products and services. They had to redefine the business they were in.

The Digital-ization of Businesses

Other disruptions are happening all around us. For decades taxi companies have provided short-range, on-demand transportation by deploying fleets of cabs dispatched by radio. Drivers initially innovated with technology by using GPS to help them navigate to pickup and dropoff points. In contrast, Uber, Lyft and others created the “ridesharing” business without owning a fleet of vehicles, but rather by facilitating connections between drivers and riders. In 2014 the addressable market for taxis in San Francisco was $140M; that year ridesharing service Uber made revenue of $550M in the San Francisco market. Ridesharing didn’t just disrupt an industry; it grew the size of the addressable market by offering a more valuable experience fueled by real-time information.

Consider potential IoT-fueled disruption in the healthcare industry. The current system is designed to be largely reactive, addressing health issues after they have presented themselves, with diagnostic equipment and medical personnel consolidated at particular locations. As health monitoring sensors are embedded into our common Internet-connected wearable devices it will become possible to not only track health parameters in a continual, long-term basis, it will also be possible to provide insights and corrective suggestions to head off preventable conditions. (For example, the Apple Watch Series 3 with cellular connection and its onboard sensor package will enable remote diagnosis of “hidden” cardiac arrhythmias that a wearer might otherwise not suspect and not take any measures to detect despite their possibly fatal consequences.) Ultimately, a great deal of healthcare intervention might be managed remotely and designed around pre-disease intervention and preventative care. Healthcare systems could shift away from on-site clinical practice to off-site health monitoring and maintenance, and different generations might work together to manage health in a family. The objective – better health – might be achieved with a much leaner version of the healthcare industry we have today, and cost structures would transform as a consequence.

These examples illustrate the importance of looking at a business on the basis of what it is trying to achieve rather than on what it currently does. IoT opens up new creative possibilities of how organizations can deliver value that is specifically tailored to individual customers as well as how they can better understand the environment in which they operate. Information can also enable different behavior patterns and shifting of economic resources to drive new economic activities.

Key Factors Driving Transformation

The Industrial Revolution brought the capability to mass produce products. The Information Revolution gave us the ability to mange information that has been captured and stored in the digital domain. IoT is one part of a broader concept that IBM researchers have labeled a “Cognitive Computing” revolution. This is being fueled by four technological developments evolving in parallel:

1. Distributed sensor systems (IoT) that can sense phenomena in the physical world and create accessible digital data sets from that information in real-time
2. “Cloud-enabled” digital data centers where organizations can collect, aggregate, and manipulate large data sets from multiple different systems and for different purposes
3. Artificial intelligence (AI) / machine learning (ML) approaches that can process data sets and derive data-based insights (often in real-time) in a manner human analysts could not achieve
4. New forms of interface — mobile devices, natural language programming (NLP; e.g. Siri, Alexa), AR, VR, etc. — that can deliver insights to users with appropriate contexts (e.g. predicted time to destination using GPS and traffic data.)

Together these concepts create tremendous opportunities to deliver context-sensitive insights derived from up-to-the-minute, large-scale data sets in a highly customizable format. They also change the nature of the information economy. Because information can be gathered at a “microeconomic” level (e.g. performance of an individual customer’s product) and transmitted almost instantaneously anywhere in the world, there are opportunities for businesses to analyze different data combinations and deliver new, highly personalized and customizable, products and services.  Adding “macroeconomic” level contextual information derived from trending analysis across all of its customer data and other available data sets, businesses have the opportunity to further inject value into the information supply chain.

Going Beyond “Re-Wrapping” Data

At the dawn of the social media era, many companies were asking the question, “How can I sell information about my customers, or otherwise leverage what I know about my customers to create valuable products and services (e.g. targeted advertising), for other constituencies?” Those who joined Facebook, Google+, and other online communities were not truly customers of these companies, but rather a form of “inventory” they offered others who paid for access.

Other companies, like Amazon and many other shopping sites, track their customers’ website purchase behaviors to increase their yield per customer based on individual actions and those of others who had similar interests. Amazon’s Dash button could be seen as an IoT-inspired escalation that translates the online shopping GUI experience into a physical experience using network connected sensor inputs (buttons). While this appears to have the elements of IoT – a networked sensor (tangible input button) tied to a cloud-based interpreting system, it is merely re-wrapping an old behavior; the button is now tangible rather than an interactive graphic.

Many businesses today (including the social media giants and shopping  e-tailers) are similarly focusing on re-wrapping newly available data sources in a quest for new revenue streams and/or product differentiation. The available data is no longer limited to user interactions on websites through information devices, it now encompasses all manner of data that can be collected by sensing technologies.

In the face of a revolutionary environment, these organizations are asking still asking traditional questions about the business they are in:

1. What data can we collect from our customers / operations using new technologies?
2. How can we collect data in new ways from our customers’ activities in the physical world?
3. How can we combine that data with other information to create new offerings?

While these are valid questions to ask and may have yielded profitable results in the past, in the face of disruptive competitors looking to pioneer new opportunities these are not the questions that will lead to breakthrough innovations.

Questions to Drive Business Transformation

Organizations that are interested in transforming what they do, and remaining relevant in the future, need to ask a different set of questions:

1. Are we targeting the right set of customers?
2. Do we really understand our customers’ fundamental objectives?
3. What information do our customers…
   • …need to achieve their current objectives?
   • …have access to that could open up new future options?
4. How can we collect data that will help serve our customers’ needs?
5. How can we present information so as to deliver actionable insights to customers?
6. What other data / insights might impact our customers’ performance in the future?

Note that this list starts with questions about the core business objectives an organization is pursuing (where “business” could easily be the mission of a non-profit, a government agency, or some other organizational unit.) Note, too, that although the list is laid out here in a linear fashion, in reality the process incorporates several feedback loops. As in the Plant.io example described at the start of this post, prototypes designed to answer questions #3-6 can sometimes lead to new answers to the earlier questions.

Are You in the Business You Think?

Is IoT changing the business you are in? Most likely the answer is “yes,” but maybe it’s not happening as successfully as it might. Gartner predicted that 75% of business would be fully digital – or preparing to be – by 2020. Gartner also predicted that only 30% of those efforts would be successful.

No one wants to be a Juicero, the startup whose $700 juice device used WiFi and QR codes to overcomplicate the process of checking the expiration date for a juice package. The goal is to develop applications of IoT that contribute true value in our work and personal lives.

So how can you help lead the change rather than be disrupted by it? One of my engineering professors at Stanford once made the observation,

“We are cleverness-limited. We have technology that can do all manner of things, we just have to determine what it is we want it to do.”

This is true for our efforts to achieve transformation with IoT technologies. While there are many things we COULD do given the combination of drivers outlined above, it will be the expert leveraging of technology capabilities, business opportunities, and digital experience design that will ensure successful transformation. The process for achieving this balance… will have to be the subject of a future post.