Finding Value In IoT Data

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One day soon, we will wake up and wonder how we ever survived in a world of “dumb” disconnected things. Our homes, including our pantries, closets, and shoe racks, and our offices, factories, and vehicles will be full of connected devices.

The World Economic Forum estimates that the number of connected devices will grow at a compound annual growth rate (CAGR) of 21.6% over the next four years from 22.9 billion in 2016 to a headline-grabbing 50.1 billion by 2020 – equivalent to almost five connected devices for every person on the planet.

By 2020, there will be an estimated 5 connected devices to every 1 person on the planet.

But that will be just the beginning. Welcome to the Internet of Things (IoT).

Underpinning the growth of IoT are tumbling prices for the sensors that turn “dumb” things into “smart” devices and capture data from the environment around them, and the vast data-centric and mostly wireless networks that connect these devices to each other and to the broader Internet.

As the sensors grow ever cheaper, and the network grows ever larger, the more data we as individuals, professionals, companies, and governments can collect and analyze to make ever more intelligent decisions.

Just like other commoditizing electronic components, fierce competition, and Moore’s Law has driven down prices, especially for accelerometers and gyroscope sensors typically used in smartphones and other mobile devices.

As a result, manufacturers can add sensor and communications modules to almost any product for a few dollars, bringing the day when everything (valued at $10 or more is) I0T-ready a big step closer.

“Our perspective is that cost of both the sensors and devices is approaching free and the size is approaching invisible,” said James Bailey, managing director of the mobility practice at Accenture, last year. “Literally everything will have IoT technology at some point.”

At the same time, the cost of embedded processors, networking and cloud-based computing – other key components in the IoT world – have all fallen.

The opportunity for transformation

IoT, particularly the Internet of Industrial Internet of Things (IoIT), is about hyperconnectivity and sensor-generated data – huge amounts of it. But the real value lies in what you can do with that data – in the outcomes it enables, rather than the collection, transmission, or storage of that data.

“We need more data-driven decision making,” said Tanja Rückert, executive vice president of Digital Assets and IoT at SAP,  during the SAP Executive Summit on the Internet of Things that took place earlier this month.

Her views were echoed by Nils Herzberg, senior vice president and global co-lead of IoT Go to Market, who stressed that “data is the fuel of the 21st century.”

Nevertheless, a recent study found that while 81 percent of business executives believe that successful adoption of industrial IoT is critical to their company’s future success, only 25 percent have a clear industrial IoT strategy.

A challenge and a huge opportunity remains for those enterprise software and services companies that have the technology and tools available to help people and businesses make sense of, analyze, and harness the tsunami of data that we are about to be engulfed by.

Here’s the real business potential to add value through IoT: Companies in almost every industry will transform into digital businesses which means oversight must be powered by real-time data – fed in large part by sensors.

As Herzberg, says, the beauty of sensors that they bring real-time data to applications: “Customers run applications for business critical processes, which could run better with real-time awareness.”

Big Data analytics and machine learning will deliver personal and business insights and will enable us to make immediate decisions based on that data – rather than relying as we have in the past, on guesswork or out-of-date forecasts. “When sensors provide real-time information, customers can make better decisions, rather than using guess work,” says Herzberg.

IoT data is already helping companies track goods on their way through the supply chain and immediately alert managers in case of theft or damage, reducing waiting times in busy ports, playing a key roll in jet engine and tractor predictive maintenance, helping farmers optimize crop yields, and improving safety across a number of public and private enterprises.

The market

So how big is the market opportunity? Cisco, the networking equipment group, predicts the global Internet of Things market will be $14.4 trillion by 2022, with the majority invested in improving customer experiences.

Cisco suggested that additional areas of investment would include reducing the time-to-market ($3T), improving supply chain and logistics ($2.7T) and cost reduction strategies ($2.5T) and increasing employee productivity ($2.5T).

But the implications of IoT and the Big Data analytics that it feeds will go far beyond traditional business models and have a profound impact on both enterprises and individuals. When combined with machine learning and cognitive computing, the insights derived from IoT data will enable us as individuals and businesses users to deploy intelligent agents empowered to make autonomous decisions and negotiate with other agents on our behalf.

This is not about machines replacing humans. Rather, intelligent apps augment humans’ ability to run the business. Predicted businesses will deploy intelligent agents across multiple areas to help all employees, from sales to suppliers to shop floor.

Things to outcomes

Ultimately, machines will help people understand connections between information by monitoring, analyzing, and correlating data that people wouldn’t see ordinarily. This helps people improve outcomes. For example, in healthcare it can mean improving patients’ recovery times.

Enterprise IoT may be Big Data’s killer app, but ultimately it is still about people.

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Do Companies Get a Digital Home Field Advantage?

sap_Q316_digital_double_charted_inforgraphicThe digital technologies that are transforming the world economy have converted once-solid industry boundaries into permeable membranes through which new players may enter—or exit. But for established firms, the smartest move right now may be to reinvent their existing markets rather than pursue ventures in unfamiliar business segments.We used S&P Global Market Intelligence’s Compustat database to examine the diversification behavior of 1,932 companies in 10 industries between 2007—the year the Android operating system and the iPhone debuted—and 2015. Only a handful of firms reported entering a new market segment or exiting an existing one. Analyzing the overall returns showed companies entering new business segments (as defined by the North American Industry Classification System) increased their revenue by an average US$437 million.

However, the companies that charged into new segments were less profitable on average, as measured by return on assets, compared to companies that made no changes or that consolidated into fewer segments (the consolidating firms were the most profitable).

Given that diversification requires investment, it’s possible that companies making strategic moves into new segments have not yet realized the payoff from doing so. Nevertheless, the findings align with the conclusions of a 2015 Economist Intelligence Unit survey (sponsored by SAP) in which more than half (57%) of executives said digital disruption by established competitors posed a greater threat than new industry entrants.

 


In the Digital Era, Disruption Comes from Within

Companies that stay focused on core business segments are most profitable

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Comparison of average rates of change in company-level returns on assets, 2007—2015

Find the New Business Models Within

sap_Q316_digital_double_charted_images1Digital technologies are now fundamental to creating new business opportunities, observes Pontus Siren, a partner at innovation consulting firm Innosight. Companies are finding profitable ideas close to home by using new technologies to transform processes or capitalizing on data they capture from their existing businesses. For example, Disney’s MagicBand, the chip-enabled bracelet that patrons use to buy passes, food, and souvenirs, “is a great example [of] where they are not fundamentally changing the business, but they are transforming the experience,” Siren says.

Using digital technologies to become more efficient or to create a better customer experience should ultimately lead to higher revenue and profits. But companies pursuing digital transformation need to constantly reevaluate their strategies, how they use data and innovate, how they win customers and compete, and how they define their value proposition, says David Rogers, a professor at Columbia Business School and author of The Digital Transformation Playbook.

sap_Q316_digital_double_charted_images2“The traditional idea of putting up barriers to entry and creating a unique, sustainable competitive advantage is not a winning approach anymore,” says Rogers. He argues that tying value generation to meeting evolving customer needs means that executives must be open to making investments that serve this value.

The porous boundaries of the traditional auto industry illustrate this dynamic. Personal transportation is an evolving concept with a bevy of new players: smartphone-hailed ride services from the likes of Uber and Lyft; driverless cars backed by Google; and high-performance electric vehicles with software-based support services from Tesla. These disruptions have prompted a tide of investments from incumbents. As Reuters recently reported, Toyota will invest $1 billion over the next five years in artificial intelligence to enhance driver safety. GM has taken a $500 million stake in Lyft, according to Bloomberg. And Ford, like firms in banking, retail, and industrial manufacturing, has opened an R&D center in Silicon Valley.

Keep an Eye on the Exits

Rogers notes that transformation may also lead to divestments as companies pour their efforts into digital initiatives. He points to GE, which has been working to shrink its GE Capital unit as it beefs up investment in a new business devoted to services for industrial customers using analytics and the Internet of Things.Verizon, Rogers, adds, spun off the famous Yellow Pages business telephone directory business 10 years ago when it decided to invest heavily in its high-speed fiber optic cable network for television and internet services.

“The stock market was really annoyed,” Rogers says. But it was a good call because while the unit still had market value, it was not core to Verizon’s strategy. “That takes leadership,” he says. “‘This is a cash cow, but we can see this is declining in relevance to our market. We’re not going to turn it around, so let’s take money out of it while we can.’ And then they put it in a new opportunity to create value for customers and be a growing area for them.”

Today’s strategic choices involve the same criteria. “Looking to use digital technologies, through the lens of ‘How can I use this to create a new offering and additional value to my existing customers?’ sometimes opens doors to additional customers,” Rogers says. “And sometimes that involves building novel business models that are new to your company.” D!