!
The IoT Impact
Finding Your Company’s Role
in the New Smart Connected World
!
!
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By!Bill!McBeath!
May!2015!
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©!ChainLink!Research!2015!–!All!Rights!Reserved!
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Table&of&Contents&
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Why$You$Need$an$Internet$of$Things$Game$Plan$Now$.......................................................................$1!
The!Pace!of!Change!..................................................................................................................................!1!
Heppelmann$and$Porter’s$Ten$Questions—A$Useful$Roadmap$..........................................................$2!
1)!Product!Questions!...............................................................................................................................!2!
Which!Smart!Connected!Capabilities!to!Pursue?!....................................................................................!2!
What!to!Put!in!the!Product!!vs.!in!the!Cloud!...........................................................................................!3!
IoT!Security!and!Privacy!..........................................................................................................................!4!
2)!Data!Questions!....................................................................................................................................!4!
Taking!a!Data!Census!.............................................................................................................................!4!
Leveraging!Calculated,!Inferred,!and!Federated!Information!................................................................!5!
Data!Brokers!...........................................................................................................................................!6!
Data!Ownership!......................................................................................................................................!6!
3)!Business!Model!&!Scope!Questions!.....................................................................................................!6!
Using!IoT!to!Transform!a!Service!Business!.............................................................................................!7!
Who!Are!You?!ReOexamining!Your!Core!Value!Propositions!...................................................................!8!
4)!Ecosystem!/!Partner!Questions!...........................................................................................................!8!
From!Open!vs.!Closed!Systems!to!Continuously!Evolving!Ecosystems!....................................................!9!
Rudin’s!Digital!Building!Operating!System—A!Story!of!Partnerships!.....................................................!9!
Guiding$Principles$of$IoT$Success$....................................................................................................$10!
Start!Now!...............................................................................................................................................!11!
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©!ChainLink!Research!2015!–!All!Rights!Reserved!
The!IoT!Impact:!Finding!Your!Company’s!Role!in!the!New!Smart!Connected!World!
Why&You&Need&an&Internet&of&Things&Game&Plan&Now&
!
Opinions,!predictions,!hyperbole,!pontifications—a!lot!has!been!written!about!the!Internet!of!Things!recently.!
But!precious!little!has!been!written!to!help!the!senior!executive!or!product!manager!who!is!trying!to!decipher!
what!it!all!means!for!their!business—what,!if!anything,!they!should!be!doing!differently,!and!when.!This!is!not!
simply!a!question!about!what!features!or!technology!to!add!to!a!product.!Our!research!has!shown!that!IoT!is!
impacting!business!models!and!in!turn!
industries’!very!structure,!the!basis!of!
Who’s$Impacted$By$IoT$and$Who$Should$Care$About$It?$
competitiveness,!what!it!is!you!sell,!and!
Many!different!types!of!organizations!are!being!deeply!changed!by!the!
Internet!of!Things!and!Smart!Connected!Products:!
who!you!partner!with.!In!fact,!we!expect,!
• Manufacturers!and!OEMs—Impacts!business!models!(e.g.!Productbasb
and!in!some!cases!are!starting!to!see,!
abService),!entire!approach!to!service,!channels!and!partnerships,!and!
industries!being!shaken!up,!a!major!
the!relationship!with!the!customer.!
reshuffling!of!power!and!positioning,!and!
• Solution!Providers—Software,!hardware,!and!telecommunication!
service!providers!are!jostling!for!position!(and!partnering)!to!try!and!
new!disruptive!entrants.!With!these!
capture!massive!new!market!opportunities.!For!some,!it!requires!reb
potential!upheavals!looming,!it!is!imperab
architecting!their!product,!relationships,!and!business!model.!
tive!for!organizations!to!understand!the!
• Third!Party!Service!Providers—For!transportation!carriers!and!third!
impact!to!their!firm!and!develop!an!
party!logistics!providers,!field!service,!packaging!services,!oilfield!
services,!and!other!service!providers,!IoT!impacts!the!delivery!model!
intelligent!strategy!soon.!It!is!critical!to!
and!types!of!services!including!realbtime!services,!embedded!
act!prudently,!but!also!to!start!now.!!
With!this!urgent!need!for!guidance!and!a!
paucity!of!good!sources!of!it!in!mind,!!
I!was!delighted!to!see!the!article!How!
Smart,!Connected!Products!Are!
Transforming!Competition!in!the!Harvard!
Business!Review.!Written!by!competitive!
strategist!Michael!Porter!and!PTC!CEO!Jim!
Heppelmann,!this!article!provides!
practical!advice!on!the!decisions!!
a!company!needs!to!reflect!on.!!
intelligence,!and!big!data/IoT!data!analytics.!
• System!Integrators—IoT!impacts!not!just!systems!integrators!(SIs)!for!
information!technology,!but!also!the!SIs!who!design!and!integrate!
manufacturing!plants,!oil!platforms,!campuses!and!facilities,!power!
generation,!city!planning!…!we’re!seeing!transformation!in!the!way!
that!virtually!all!complex!systems!are!conceived,!designed,!developed,!
delivered,!managed,!optimized,!and!consumed!(user!experience).!!
• Users/End!Customer!Firms—IoT!can!be!highly!impactful!for!those!using!
it.!IoT!has!proven!its!ability!to!provide!substantial!savings!in!energy!
use,!cost!of!operation,!safety!(literally!saving!lives),!tremendous!
efficiency!gains,!and!more.!Whether!the!customer!for!the!IoTbenabled!
product!is!an!airline,!a!mining!company,!retailer,!trucking!company,!
waste!management!firm!…!companies!of!all!types!are!being!impacted.!!
The&Pace&of&Change&
&
Tectonic!changes!like!this!always!happen!more!slowly!than!much!of!the!media!hype!suggests—these!
transformations!take!many!years,!even!decades.!But,!these!changes!happen!faster!than!many!organizations!are!
able!to!learn!and!adapt.!The!changes!required!are!profound:!developing!whole!new!arenas!of!expertise,!turning!
your!underlying!business!model!and!financial!model!upside!down,!completely!changing!the!pace!and!approach!
to!developing!products,!building!entirely!new!ecosystems!and!trading!partner!relationships,!deep!integration!
with!services!and!partners!that!you!may!not!have!even!heard!of!yet.!These!kinds!of!deep!transformation!take!
serious!effort!and!time—lots!of!organizational!learning,!and!trial!and!error.!That!is!why!it!is!so!critical!to!start!
the!journey!in!earnest!now!or!risk!being!outmaneuvered!and!unable!to!catch!up.!You!don’t!win!the!marathon!
by!waiting!until!you!see!how!things!are!shaking!out!before!even!taking!your!first!step!in!the!race!!
©!ChainLink!Research!2015!–!All!Rights!Reserved!
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Pg.!1!
The!IoT!Impact:!Finding!Your!Company’s!Role!in!the!New!Smart!Connected!World!
Heppelmann&and&Porter’s&Ten&Questions—A&Useful&Roadmap&
&
The!HBR!paper!uses!Porter’s!five!forces!analysis!framework!to!analyze!how!smart!connected!products!will!
impact!and!reshape!industries.!IoT!and!smart!connected!products!are!transforming!the!basis!of!competition!
and!hence,!companies’!business!models—their!fundamental!understanding!of!“what!business!am!I!in?”!
The!ten!strategic!questions!that!Porter!and!Heppelmann!suggest!companies1!ask!themselves!form!the!
centerpiece!of!their!HBR!article!(see!Figure!1).!They!provide!the!core!value!of!the!piece!by!providing!guidelines!
to!answer!the!question!“What!should!I!do!about!IoT”!in!very!specific!ways.!These!ten!questions!fall!into!four!
broad!categories:!1)!Product,!2)!Data,!3)!Business!Models!&!Scope,!4)!Ecosystem/Partner.!
!
$
Figure$1$L$Porter$and$Heppelmann’s$Ten$Strategic$Questions$for$IoT$
!
This!provides!a!useful!roadmap!for!considering!what!to!do!about!the!Internet!of!Things.!Below!we!consider!
each!of!those!four!categories!of!questions.!
1)&Product&Questions&
Which(Smart(Connected(Capabilities(to(Pursue?(
(
One!of!the!key!points!made!by!Porter!and!Heppelmann!is!that!a!company!must!understand!what!truly!is!of!
value!to!customers;!what!services!or!functions!are!they!willing!to!open!their!wallet!and!actually!pay!for.!!
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
1!
The!ten!questions!are!somewhat!biased!to!the!perspective!of!product!manufacturers!and!OEMs.!After!all,!the!HBR!article!is!about!
Smart!Connected!Products.!However,!many!of!the!questions!are!still!very!useful!for!other!players!in!the!ecosystem,!such!as!service!or!
software!companies.!
©!ChainLink!Research!2015!–!All!Rights!Reserved!
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Pg.!2!
The!IoT!Impact:!Finding!Your!Company’s!Role!in!the!New!Smart!Connected!World!
In!virtually!every!‘IoT’!company!we!have!spoken!with,!they!did!not!set!out!to!become!an!IoT!company,!but!
rather!set!out!to!solve!specific!problems.!Some!of!the!key!learnings!from!our!interviews:!
!
•
•
•
Rather!than!asking,!“How!can!we!become!an!IoT!company?”!ask,!“What!problems!does!my!customer!have!
that!I!am!in!a!position!to!solve?!How!can!I!add!more!value?”!
Companies!that!develop!true!collaborative!
partnerships!with!their!customers!discover!
Bigbelly,$An$Example$of$Solving$a$Specific$Problem$
The!founder!of!Bigbelly!had!an!idea!to!dramatically!reduce!the!
new!ways!to!solve!problems!and!add!value.!
frequency!of!trash!collection!in!public!spaces!(e.g.!parks,!
Some!of!the!best!disruptive!IoT!business!ideas!
beaches,!etc.)!by!creating!a!
come!from!experienced!industry!veterans!who! solar!powered!trash!
have!a!deep!appreciation!of!how!things!
compactor!to!replace!
actually!work!and!the!thorny!problems!in!their! traditional!trash!bins.!The!
enclosed!container!also!
industry,!and!who!are!imaginative!enough!to!
reduces!smell!and!rodent!
develop!a!practical!vision!for!how!things!could!
infestation.!Bigbelly’s!
be!done!radically!differently.!
compactors!were!successful!
(holding!5!times!as!much!as!
traditional!ones),!but!they!
realized!that!they!were!
being!emptied!on!average!
when!they!were!only!60%!
2
full. !So,!they!added!
sensors!and!wireless!
communications!to!their!
trash!bins!so!the!device!
could!tell!the!city!workers!when!it!was!time!to!pickup.!They!
were!not!asking,!“what!can!we!do!with!IoT!technologies?”!but!
rather,!“what!is!the!best!way!to!solve!this!specific!problem?”!
What(to(Put(in(the(Product((
vs.(in(the(Cloud(
(
The!second!question!posed!by!Heppelmann!and!
Porter!is!how!much!IoT!functionality!should!be!
embedded!in!the!product!vs.!in!the!cloud.!These!
choices!can!be!complex!with!product,!process,!
organizational,!and!revenue!implications.!As!
described!in!Distributed!Intelligence!in!the!IoT,!
there!may!be!many!layers!of!intelligence!and!
processing!between!the!product!and!the!cloud.!!
Consider,!for!example,!a!smart,!connected!infusion!pump!used!in!a!hospital.!It!may!communicate!its!location,!
be!remotely!programmable!based!on!the!patient!and!drug!being!dispensed,!and!sends!alerts!when!it!needs!
maintenance.!But!we!can!also!imagine!a!tight!coupling!with!other!systems,!for!example!heart!rate!and/or!blood!
sugar!monitoring!devices,!that!would!vary!the!rate!at!which!the!drug!is!dispensed!based!on!the!monitoring!
device’s!readings.!It!also!might!communicate!with!the!security!system!when!it!is!being!moved!to!a!location!
where!it!is!not!supposed!to!be.!Data!generated!by!the!pump!is!shared!with!other!devices,!other!applications,!
users!in!other!departments,!and!even!other!enterprises.!They!all!need!methods!to!access!the!data.!Thus!a!
system!of!systems!may!have!some!functionality!in!the!cloud,!some!in!the!product,!and!some!intelligence!
residing!in!local!processing!systems.!The!concept!of!an!IoT!gateway!is!another!example!of!local!intelligence!
sitting!between!the!smart!connected!product!and!the!cloud.!!
!
These!pieces!all!need!to!be!architected!to!fit!together.!Ultimately,!questions!of!what!functionality!belongs!
where!are!multibdisciplinary!decisions.!Many!engineering!factors!come!into!play,!but!they!also!involve!business!
models,!pricing,!partnerships,!security!and!privacy,!data!ownership,!and!more.!
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
2
!Cities!scheduled!pickups!often!enough!to!try!and!ensure!no!trash!can!is!ever!full,!because!otherwise!people!simply!leave!their!trash!
next!to!or!on!top!of!the!container,!causing!eyesores,!windblown!trash,!stench,!and!attracting!rodents.!
©!ChainLink!Research!2015!–!All!Rights!Reserved!
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Pg.!3!
The!IoT!Impact:!Finding!Your!Company’s!Role!in!the!New!Smart!Connected!World!
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IoT(Security(and(Privacy(
!
Having!your!computer!hacked!might!
be!disruptive!to!your!life.!Having!your!
selfbdriving!car!hacked!might!end!your!
life.!When!intelligence!and!
connectivity!are!added!to!a!physical!
product,!it!is!critical!that!security!and!
privacy!are!designed!into!the!
product—its!architecture!at!all!levels!
in!the!stack,!its!supporting!
infrastructure,!the!supporting!
organizations!and!service!providers,!
and!contractual!agreements.!Many!
product!manufacturers!do!not!have!all!
these!skills!or!expertise!internally!and!
will!need!to!bring!in!outside!help.!!
Rethinking$Security$in$IoTLenabled$Products$
Manufacturers!of!physical!products!already!make!decisions!about!physical!
security—your!coffee!maker!does!
not!have!a!lock!on!it;!your!car!does.!
These!decisions!all!need!to!be!!
revisited!once!a!physical!device!!
is!plugged!into!the!cyber!world,!
especially!as!they!integrate!into!
interoperable!environments!(e.g.,!
your!new!smart!coffee!maker!
integrating!into!your!smart!kitchen!
and!smart!home).!Within!the!context!
of!a!home,!hospital,!factory,!or!office!
building,!there!will!be!many!IoTb
enabled!devices!from!different!
manufacturers,!connected!together!
and!communicating!back!and!forth.!
When!multiple!devices!talk!to!and!
trust!each!other,!they!can!be!
exposed!to!the!security!flaws!of!the!
weakest!link.!Therefore,!devices!may!
need!to!pass!a!security!posture!
3
check !before!they!are!allowed!to!participate.!This!will!require!a!!
4
federated!approach !to!identity!management,!as!well!as!Identity!
5
Relationship!Management. !
In!our!research,!security!was!cited!as!
the!biggest!issue!associated!with!IoT!
implementation.!Still,!security!and!
privacy!in!IoT!are!frontier!areas!right!
now.!Most!makers!of!IoTbenabled!smart!connected!devices!are!just!dipping!their!toe!in!the!water.!We!have!
learned!over!and!over!that!trying!to!bolt!on!security!measures!afterbthebfact,!instead!of!architecting!them!in!
from!the!start,!creates!many!vulnerabilities.!If!past!experience!is!any!guide,!it!unfortunately!may!take!some!
disastrous!breaches!occurring!before!the!proper!level!of!investment!is!made!in!these!areas.!We!expect!to!hear!
a!lot!more!about!IoT!security.!!
2)&Data&Questions&
&
IoT!generates!a!tremendous!amount!of!data—much!more!than!people!generate!manually!with!their!keyboards!
and!cameras.!And!the!volume!of!IoT!data!being!generated!will!continue!to!increase!at!an!exponential!pace.!
How!can!companies!extract!the!maximum!value!from!that!data?!How!should!they!think!about!it?!!
Taking(a(Data(Census(
(
First,!it!is!helpful!to!get!a!solid!understanding!of!what!data!is!already!being!generated.!Data!exists!at!many!
different!levels!in!the!technology!stack.!Consider!a!fleet!of!‘smart!trucks.’!At!the!lowest!level,!there!is!data!
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
3
!A!security!posture!check!validates!that!the!device!implements!appropriate!security!protections,!such!as!antibvirus!capabilities!and!
encryption.!The!check!may!quarantine!infected!or!inadequately!protected!devices.!
4
!Federated!security!approaches!involve!establishing!a!set!of!shared!policies,!practices,!and!protocols!to!manage!identity!and!trust!
across!heterogeneous!organizations!and!devices.!!
5
!Identity!Relationship!Management!ties!the!identity!and!access!rights!of!a!device!to!the!identity!and!rights!of!the!device’s!owner.!
©!ChainLink!Research!2015!–!All!Rights!Reserved!
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Pg.!4!
The!IoT!Impact:!Finding!Your!Company’s!Role!in!the!New!Smart!Connected!World!
being!continually!generated!about!the!level!of!oxygen!in!the!exhaust!gas,!vacuum!pressure!in!the!intake!
manifold,!barometric!pressure!(to!adjust!fuel!mixtures!and!engine!timing),!coolant!temperature,!crankshaft!
position,!engine!speed,!oil!pressure—the!list!goes!
on!and!on.!Many!of!these!data!are!not!
Example$Uses$of$Smart$Fleet$Data$
6
communicated!outside!of!the!powertrain,!but!
GPS!data!may!be!used!for!geofencing !(ensure!vehicles!stay!on!
route),!for!continuously!updating!ETA!(estimated!time!of!
simply!used!in!realbtime!feedback!loops!for!things!
arrival)!and!generating!late!load!
like!controlling!the!fuel!mixture!or!providing!antib
alerts,!and!for!use!by!dispatchers!
lock!braking.!Today,!this!may!not!be!considered!to! to!identify!vehicles!headed!
be!IoT!data,!because!it!is!never!put!out!onto!the!
towards!the!vicinity!of!a!new!tob
7
bebassigned!service!request.!
internet, !but!there!is!often!a!lot!of!untapped!
Temperature!data!can!be!used!
value!in!exposing!some!derivation!of!that!data!to!
to!generate!refrigeration!unit!
the!vehicle!manufacturer,!service!providers,!fleet!
malfunction!alerts!and!predict!
operators,!and!others.!
shelf!life!of!delivered!produce.!
Accelerating!and!braking!data!
can!be!used!to!improve!driver!
At!the!next!level!up,!there!is!a!huge!amount!of!
habits,!resulting!in!better!fuel!
data!that!is!exposed.!In!our!smart!fleet!example,!
mileage!and!improved!safety.!
some!of!it!is!exposed!only!through!a!local!
Electronic!manifest!data!can!be!
interface,!such!as!EDR8!data,!but!increasingly!
used!to!inform!customers!of!the!status!of!their!shipment.!
When!fed!into!analytic!systems,!much!more!value!can!be!
some!of!those!are!available!over!remote!wireless!
squeezed!from!this!data,!such!as!identifying!safest!or!quickest!
links.!There!are!also!GPS!location!data!and!
routes,!best!time!of!departure,!and!more.!
temperature!data!for!refrigerated!loads.!Some!
trucks!will!carry!an!electronic!manifest!stored!in!
an!active!RFID!tag!affixed!to!the!trailer!or!container!for!use!by!carriers,!shippers,!customs!officers,!and!other!
third!parties!involved!in!the!transport!of!the!container.!
Leveraging(Calculated,(Inferred,(and(Federated(Information(
Often!the!most!useful!data!is!not!the!direct!sensor!data,!but!information!that!is!calculated!or!inferred!from!
combinations!of!that!data!by!an!algorithm.!An!example!is!a!realbtime!locating!system.!The!raw!reader!data!may!
provide!strange!results:!a!specific!item!seen!in!the!back!room!and!at!various!points!while!being!brought!to!the!
store!floor!suddenly!disappears!from!view!without!a!trace.!In!fact,!we!can!infer!that!the!item!is!simply!blocked!
from!being!read.!Algorithms!to!decipher!the!meaning!of!lowblevel!data!are!developed!by!experience!in!
environments!over!time!to!create!better!and!better!higherblevel!inferences!and!intelligence.!Data!may!also!be!
federated!from!multiple!sources!to!provide!a!broader!view.!For!example,!in!an!office!building,!data!from!the!
elevators,!lighting!systems,!heating!and!A/C,!security/surveillance,!and!other!systems!may!be!combined!to!
provide!a!higher!level!of!intelligence!about!the!building.!This!may!also!include!data!from!external!sources!such!
6
!Geofencing!can!be!used!to!detect!when!a!vehicle!deviates!from!the!planned!route!in!order!to!detect!a!theft!in!progress,!as!well!as!
other!varieties!of!driver!malfeasance.!
7
!High!volumes!of!internalbonly!data!used!for!realbtime!controlling!functions!are!found!in!many,!if!not!most,!IoT!systems.!
8
!Event!Data!Recorder!(EDR)!records!crashbrelated!data!such!as!speed,!vehicle!proximity,!brake!application,!clutch!application,!airbag!
deployment,!and!cruise!control!status.!In!addition,!they!may!provide!monitoring!of!the!driver’s!hours!of!service,!fuel!economy,!idle!time,!
average!speeds,!and!maintenancebrelated!information.!
©!ChainLink!Research!2015!–!All!Rights!Reserved!
Pg.!5!
The!IoT!Impact:!Finding!Your!Company’s!Role!in!the!New!Smart!Connected!World!
as!weather,!traffic,!what!time!a!big!game!is!letting!out,!or!other!external!events,!to!decide!when!to!prebheat,!
prebcool,!or!take!other!actions!in!the!building.!!
Data(Brokers(
!
Some!smart!connected!products!may!reside!in!a!‘closed’!environment,!in!which!the!products,!communications,!
and!cloud!software!all!come!from!the!same!company.!We!expect!the!majority!of!products!and!data!will!need!to!
exist!in!an!open!environment!with!many!devices!from!different!manufacturers!all!making!their!data!available!to!
many!different!applications!and!other!devices.!Open!environments!often!require!an!intermediary!private!data!
broker;9!a!system!that!collects,!protects,!and!provides!access!to!heterogeneous!data!for!whichever!systems,!
trading!partners,!and!third!parties!have!the!need!and!right!to!use!it.!Public!data!brokers!may!implement!
crowdsourcing,!such!as!Waze!collecting!GPS!location!data!from!millions!of!users!while!they!drive,!analyzing!it!to!
infer!and!provide!realbtime!traffic!conditions.!
Data(Ownership(
!
IoT!data!ownership!can!get!complicated.!Who!owns!the!data!generated!by!a!smart!truck?10!Data!ownership!
considerations!should!be!discussed!and!included!in!contractual!agreements!between!the!parties.!This!may!
include!multibparty!agreements,!anonymized!and!aggregated!uses!of!data!(for!example!for!benchmarking!
performance),!and!security/privacy!guarantees.!!
3)&Business&Model&&&Scope&Questions&
&
Smart!connected!products!have!the!potential!to!radically!shake!up!business!models.!For!manufacturers,!there!
is!a!natural!progression!from!selling!things,!to!selling!things!+!services!(i.e.!maintenance!and!repair),!to!selling!
outcomes!(productbasbabservice!model).!Building!intelligence!and!connectivity!into!products!is!a!key!enabler!of!
these!shifts,!but!ultimately!business!will!also!need!to!develop!new!types!of!payment!and!subscription!pricing!
models,!support!structures,!service!level!agreements,!and!service!organizations!and!partnerships.!As!well,!it!
impacts!product!design.!The!whole!relationship!with!the!customer!is!profoundly!impacted:!
!!
•
•
•
•
Ownership!of!the!capital!assets!shifts!from!the!customers!to!the!manufacturers.!!
Product!manufacturers’!interests!are!more!aligned!with!the!customers.!In!particular,!manufacturers!are!
incented!to!make!increasingly!reliable!products!requiring!less!maintenance!and!fewer!parts!replacements!
since!those!costs!are!now!solely!born!by!them.!!
Customers!are!protected!from!technology!obsolescence.!
New!pricing!models!are!needed!to!align!the!manufacturers’!compensation!with!the!value!gained!by!the!
customer!throughout!the!full!life!of!the!service.!
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
9
!A!data!broker!service!can!be!both!open!and!private!at!the!same!time.!It!is!open!in!the!sense!that!it!is!extensible!and!integrates!with!
heterogeneous!systems!and!devices.!Yet!it!is!private!in!the!sense!that!the!broker!is!an!invitationbonly!environment,!often!under!the!
control!of!a!single!enterprise.!You!can’t!just!sign!up!on!the!internet.!
10
!The!data!generated!by!a!smart!truck!could!be!owned!by!the!truck!manufacturer,!the!fleet!owner,!the!carrier,!the!shipper!of!the!
goods,!the!providers!of!monitoring!services!(such!as!produce!temperature!monitoring),!the!driver’s!employer,!or!different!combinations!
of!these.!
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The!IoT!Impact:!Finding!Your!Company’s!Role!in!the!New!Smart!Connected!World!
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Providers!of!the!productbasbabservice!become!
more!deeply!embedded!into!their!customers’!
environments,!with!a!more!fundamental!
understanding!of!their!customers’!needs,!
both!through!dialog!with!the!customer,!but!
also!via!more!embedded!monitoring!to!gain!
insights!into!actual!usage.!
Insights!can!be!used!to!optimize!outcomes,!
such!as!lowering!fuel!consumption,!increasing!
safety,!reducing!labor!costs,!reducing!
environmental!footprint,!and!more.!These!
optimization!services!can!become!a!source!of!
incremental!income!for!the!service!provider.!
Productbasbabservice!offerings!typically!
generate!higher!margins!than!does!selling!
physical!products!alone.11!Margins!are!
increased!by!continually!reducing!the!costbtob
serve!and!providing!a!broad!set!of!higherb
valuebadded!services!on!top!of!the!base!
service.!
ProductLasLaLService$Examples$
In!the!new!outcome!economy,!customers!can!buy!the!desired!
outcome!rather!than!buying!the!thing!producing!the!outcome.!
Examples!include!all!three!major!aircraft!engine!manufacturers!
selling!powerbbybthe!hour!
instead!of!selling!engines;!
Philips!customers!can!payb
perblux!instead!of!buying!
light!bulbs;!Schaeffler!
Industrial!Services!offers!
bearingsbasbabservice!for!
large!complex!machines!like!
wind!turbines!or!cruise!ships!
with!a!multibyear,!paybperb
rotation!contract;!Evergreen!
Lease!from!Interface!who!
installs,!cleans,!replaces,!and!
recycles!their!carpet!squares!so!the!carpet!is!perpetually!new;!
Contract!Air!service!from!Atlas!Copco!provides!compressed!air!
at!specified!pressure,!dew!point,!and!purity—the!customer!
pays!by!the!cubic!meter;!Philips!Healthcare!offers!paybperbuse!
programs!for!their!whole!technology!portfolio.!Additional!
valuebadd!services!are!wrapped!around!many!of!these!
programs.!
!
Companies!need!to!be!careful!to!not!get!stuck!in!existing!models,!even!if!they!seem!to!be!working!now.!New!
players!emerge!and!existing!players!change!what!they!do.!Some!equipment!providers!are!becoming!software!
or!platform!providers.!We!see!battles!being!fought!over!who!will!become!the!central!controlling!platform!for!
various!environments—the!office!building,!the!home,!the!farm,!the!mine,!the!smart!city.!
Using(IoT(to(Transform(a(Service(Business(
(
Business!model!transformation!from!IoT!is!not!just!happening!to!physical!product!manufacturers.!Take!the!case!
of!Fleet!Advantage,!a!finance!company!specializing!in!leasing!tractors!and!trailers!for!vehicle!fleets.!They!saw!an!
opportunity!to!change!the!whole!way!that!leasing!is!done!using!the!data!generated!by!the!smart!truck’s!
onboard!computers.!Traditionally,!trucks!are!leased!in!fixed!financing!arrangements!lasting!six!to!eight!years,!
locking!them!into!an!agreement!that!is!not!responsive!when!circumstances!change.!Fleet!Advantage!shortens!
the!terms!to!two!to!four!years!and,!critically,!bundles!in!services!that!aggregate!data!generated!by!the!onboard!
computers!in!the!fleet!into!a!format!that!allows!the!fleet!manager!to!make!more!sense!of!it.!They!also!bundle!
benchmarking!services!based!on!that!IoT!data!they!collect!and!provide!experienced!trucking!industry!veterans!
to!help!customers!interpret!and!take!action!on!that!data.!For!more!see!the!side!bar!“Disrupting!the!Truck!
Leasing!Business,”!(next!page).!
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
11
!However,!they!entail!radical!changes!to!pricing,!business!model,!and!organizational!competencies.!These!must!be!executed!well!to!
realize!the!higher!margins.!
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The!IoT!Impact:!Finding!Your!Company’s!Role!in!the!New!Smart!Connected!World!
Who(Are(You?(ReKexamining(Your(Core(Value(Propositions(
(
As!a!company!evolves!and!dives!deeper!into!
these!new!business!models,!the!very!
definition!of!what!they!are!evolves.!Bigbelly,!
the!solar!powered!trash!compactor!company!
mentioned!earlier,!originally!aimed!at!
reducing!trash!pickups.!This!had!knockbon!
benefits!of!reducing!the!number!of!garbage!
trucks!on!the!road!(thereby!reducing!traffic!
congestion!and!noise),!decluttering!public!
spaces!(far!fewer!trash!containers!needed),!
reducing!rodent!infestations!(containers!are!
fully!enclosed!and!animals!can’t!get!in),!and!
dramatically!reducing!windbblown!trash.!But!
then!they!found!some!of!their!municipality!
customers!asking!if!the!platform!could!be!
used!to!provide!public!WiFi!services.!This!did!
not!come!from!their!existing!customer!base,!
the!department!of!public!works,!but!from!the!
CIO’s!office!or!other!innovators!at!city!hall.!
Bigbelly!has!started!thinking!about!their!
device!as!more!than!a!smart!trash!can.!It!is!
selfbpowered!communications!platforms!
scattered!throughout!public!spaces,!located!
near!where!the!most!people!are.!Working!
closely!with!their!most!innovative!customers,!
they!are!exploring!other!uses,!such!as!adding!
sensors!to!detect!air!quality.!One!lesson!here!
is!to!take!an!expansive!view!of!who!your!
customer!is!and!what!your!value!proposition!
might!be.!Sometimes!a!broader!view!and!
different!perspectives!help!identify!the!
additional!value!you!can!provide.!
!
Disrupting$the$Truck$Leasing$Business$
Like!many!products,!truck!technology!is!evolving!ever!faster!each!
year.!That!means!that!within!a!two!to!four!year!period,!a!new!
generation!of!technology!is!available!that!can!provide!better!fuel!
mileage,!better!safety!features,!and!other!advantages.!With!Fleet!
Advantage’s!shorterbperiod!lease,!customers!can!continually!take!
advantage!of!the!latest!and!greatest!vehicle!technology.!Trucks!are!
cycled!through!multiple!owners!much!earlier!in!their!life!than!with!
the!traditional!leasing!model.!Tier!two!and!tier!three!lessees!all!gain!
access!to!relatively!newer!models!with!similar!benefits!as!well.!!
Fleet!Advantage!further!!
leverages!the!data!they!
collect!from!these!smart!
trucks,!combining!it!with!
maintenance!and!route!
data!from!their!customers!
and!runs!it!through!big!
data!analytics,!drilling!
down!into!a!cost!per!mile!
(normalized!for!season,!
terrain,!loads,!and!other!
factors).!This!allows!fleet!
managers!to!make!smarter!decisions.!They!can!track!fuel!economy,!
hours!of!service,!driver!behaviors!and!much!more.!They!can!detect!
when!an!engine!wasn’t!tuned!up!properly!or!a!driver!is!staying!too!
long!in!the!lower!gears,!thereby!using!more!fuel!than!necessary.!
These!generate!additional!savings!on!top!of!the!ones!gained!by!
having!the!latest!and!greatest!equipment.!
Thus!Fleet!Advantage!is!providing!much!more!than!just!a!financial!
service.!They!have!become!a!key!partner!in!helping!their!customers!
optimize!their!fleets.!By!adding!multiple!elements!above!and!
beyond!the!typical!leasebonly!service,!they!are!able!to!create!
incremental!value,!which!they!divide!equitably!with!their!
customers,!thereby!boosting!Fleet!Advantage’s!overall!revenue!and!
enabling!them!to!realize!higher!margins!than!typical!truck!leasing!
firms.!Combining!a!new!vision!with!a!deep!understanding!of!the!
industry,!Fleet!Advantage!has!been!able!to!leverage!IoT!data!to!
upend!the!leasing!model!and!create!a!whole!new!approach!and!
type!of!service.!!
4)&Ecosystem&/&Partner&Questions&
&
&
IoT!forces!companies!to!examine!their!role!in!the!ecosystem!of!partners.!One!key!question!is!to!what!extent!
you!are!creating!a!point!solution!vs.!a!platform!upon!which!other!applications!can!be!developed.!There!are!well!
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known!examples12!in!the!software!world.!Physical!product!manufacturers!may!be!the!new!integrators!and!
providers!of!platforms!for!applications!used!by!customers!or!other!providers.!For!example,!manufacturers!of!
farming!equipment!or!mining!equipment!might!ask!themselves!whether!they!should!create!the!platform!for!
the!whole!farm!or!the!whole!mine,!integrating!heterogeneous!equipment!from!their!competitors!as!well!as!
their!own,!and!making!that!ecosystem!and!development!tools!available!to!a!community!of!application!
developers.!!
From(Open(vs.(Closed(Systems(to(Continuously(Evolving(Ecosystems(
(
The!HBR!article!explores!open!vs.!closed!systems.!A!similar!evolution!occurred!in!the!software!world.!Some!
enterprise!software!companies!wanted!to!provide!the!entire!endbtobend!solution!(think!SAP,!Oracle,!and!other!
ERP!players),!whereas!others!focused!on!one!area!to!become!the!bestbofbbreed!solution!that!integrates!well!
with!other!systems.!In!the!end,!we!discovered!everyone!must!be!open!to!a!degree,!because!no!single!company!
can!supply!it!all.!So!rather!than!it!being!a!black!and!white!question!of!open!vs.!closed,!it!is!really!more!of!a!
question!of!the!scope!of!the!domain!you!want!to!‘own.’!!
For!example,!a!smart!appliance!
manufacturer!might!want!to!own!the!whole!
infrastructure!for!that!appliance—such!as!
providing!a!washingbmachinebasbabservice!
(on!a!paybperbload!basis),!including!
installation,!ongoing!maintenance,!and!a!
detergent!resupply!service.!So!they!own!that!
system,!but!they!may!not!own!the!whole!
smart!home.!It!might!be!a!higher!level!
platform!that!integrates!security,!appliances,!
entertainment,!lighting,!heating!and!A/C,!and!so!forth.!Even!that!smart!home!platform!may!need!to!integrate!
to!the!smart!grid!and!possibly!(in!the!future)!to!a!smart!city!platform,!domains!owned!by!yet!other!
organizations.!Hence,!these!concepts!and!new!models!have!evolving!interdependencies;!the!integration!points!
between!the!different!systems!will!be!in!continuous!flux.!This!will!require!a!new!degree!of!agility!in!forming!and!
adapting!relationships!and!technology!interfaces!as!things!evolve!ever!more!quickly.!!
Rudin’s(Digital(Building(Operating(System—A(Story(of(Partnerships(
!
Rudin!Management!is!another!company!transforming!themselves!with!IoT!technologies.!They!are!a!real!estate!
management!firm!that!owns!and!operates!a!portfolio!of!about!10!million!square!feet!of!commercial!and!five!
million!square!feet!of!residential!real!estate!primarily!in!the!New!York!City!area.!They!have!always!been!
technologically!progressive,!for!example!being!one!of!the!first!to!implement!carrier!neutral!risers13!in!their!
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
12
!In!the!pure!software!world,!Salesforce!is!a!good!example;!they!began!as!a!CRM!application,!but!with!the!introduction!of!Force.com,!
they!expanded!their!role!to!become!a!platform!upon!which!all!manner!of!enterprise!applications!could!be!built!and!integrated!together!
into!a!looselybcoupled!ERP!suite!of!bestbofbbreed!applications.!
13
!Prior!to!this!innovation,!carriers!pulled!their!own!cable!up!through!the!risers!in!the!building!to!the!customer’s!location.!Rudin!installed!
their!own!dark!fiber!up!to!each!premise!to!provide!customers!a!choice!of!carriers!and!provide!carriers!with!easier!plugbin!access.!
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The!IoT!Impact:!Finding!Your!Company’s!Role!in!the!New!Smart!Connected!World!
properties!in!the!midb90s.!In!2007,!they!began!
participation!in!a!smart!grid!pilot14!that!got!them!
thinking!about!how!they!could!make!their!buildings!
smarter!and!be!able!to!more!intelligently!respond!
to!changing!circumstances.!They!could!not!find!a!
commercially!available!“building!operating!system”!
that!met!their!needs,!integrating!information!from!
all!the!various!sensors!and!systems!within!their!
buildings!and!analyzing!and!presenting!it!in!a!way!
that!was!unified,!intuitive,!and!actionable.!So!they!
decided!to!build!such!a!system!themselves.!!
Rudin’s!expertise!is!in!managing!real!estate.!They’ve!been!doing!it!for!more!than!100!years.!They!had!been!
doing!commercial!software!development!for!exactly!zero!years.!So!they!teamed!up!with!Columbia!University’s!
Center!of!Computational!Learning!Systems!to!develop!a!proofbofbconcept!version!of!their!Digital!Building!
Operating!System!called!DibBOSS.!They!soon!realized!that!other!real!estate!companies!might!be!interested!in!
using!DibBOSS!and!decided!to!commercialize!it.!For!this!they!partnered!with!Selex!ES,15!an!international!
electronics!and!IT!firm,!who!took!responsibility!for!commercial!development!and!sale!of!the!product.!Rudin!
wisely!realized!that!they!did!not!have!the!core!competencies!to!build!and!sell!commercial!software.!They!
contribute!their!intimate!knowledge!of!managing!buildings,!while!their!partners!contribute!in!their!areas!of!
expertise.!
Guiding&Principles&of&IoT&Success&
&
Heppelmann!and!Porter!laid!out!10!probing!questions.!We!explored!these!along!the!four!dimensions!of!
product,!data,!business!model,!and!ecosystem!partnerships.!Finally,!our!research!has!highlighted!the!following!
eight!principles!that!successful!companies!tend!to!follow!when!answering!those!kinds!of!questions:!
1. Voice!of!the!Customer—Successful!companies!are!not!aiming!to!become!IoT!companies.!They!deeply!
understand!their!customers’!problems!and!the!improvement!opportunities,!and!find!creative!ways!to!
address!them,!including!but!not!limited!to!the!use!of!IoT!technologies!and!data.!They!partner!with!
customers!to!find!solutions!and!find!out!what!is!of!the!highest!value—identifying!and!creating!premium!
services!that!customers!are!willing!to!pay!for.!!
2. Charrette!Approach—Successful!companies!take!a!multidisciplinary,!charrette16!approach!to!develop!their!
strategy!and!architecture.!They!bring!together!experts!in!hardware,!software,!communications,!analytics,!
external!data!sources,!physical!services,!financial!and!ownership!models,!operations,!industry!domain!
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
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!The!pilot!explored,!among!other!things,!how!Rudin’s!buildings!would!respond!if!they!had!early!warning!of!a!blackout,!about!30b45!
seconds!before!the!blackout!was!about!to!occur.!!
15
!Selex!is!a!division!of!Finmeccanica,!a!€16B!Italian!industrial!conglomerate!in!highbtechnology,!aerospace!&!defense,!and!security.!
16
!A!charrette!is!bringing!together!multiple!stakeholders,!disciplines,!and!expertise!for!intensive!designing!and!planning!sessions.!
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experts,!and!security!experts.!Getting!all!of!these!disciplines!working!closely!together!is!one!of!the!keys!to!
success.!
3. Do!What!You!Do!Best,!Partner!for!the!Rest—Successful!companies!know!what!they!are!good!at,!where!they!
bring!value.!They!use!their!deep!industry!and/or!domain!knowledge!to!maximize!the!value!of!IoT!data!and!
systems.!Successful!companies!also!know!what!they!are!not!good!at!and!bring!in!partners!to!help.!They!do!
not!overestimate!their!internal!capabilities!or!try!to!turn!themselves!into!something!far!from!their!core!
capabilities.!They!leverage!partnerships!to!disrupt.!
4. Becoming!a!Platform—As!they!gain!critical!mass,!some!companies!can!make!their!solution!into!an!
extensible!platform!upon!which!many!new!services!can!be!built.!
5. Extract!Value!from!Data—Successful!IoT!companies!understand!the!value!in!aggregated!data!for!providing!
additional!valuebadd!services!such!as!performance!benchmarking,!industrybwide!trendb!and!patternb
spotting,!and!rich!analytics.!
6. Masters!of!Simplicity—Successful!IoT!companies!invest!heavily!in!simplicity!engineering.!This!is!especially!
critical!in!the!world!of!IoT!because!there!are!so!many!moving!parts!that!complexity!can!quickly!overwhelm!
and!sabotage!any!value!from!being!realized.!
7. Innovation!in!All!Dimensions—Successful!IoT!companies!think!beyond!product!innovation.!They!actively!
explore!innovations!in!pricing!models,!service!offerings,!ownership!models,!and!partnerships.!
8. Leaders!Willing!to!Disrupt—Successful!companies!have!bold!leaders!who!drive!their!company!to!innovate,!
even!if!it!means!disrupting!the!business!model!and!the!way!they’ve!always!done!things.!Their!leaders!are!
openbminded!and!toughbminded!to!overcome!existing!biases.!
Start&Now&
&
We!are!in!a!time!of!rapid!exploration!and!discovery—
learning!from!both!research!and!experience,!finding!
out!what!does!and!doesn’t!work.!The!first!mover!
advantage!exists!in!the!accumulation!of!data,!
algorithms,!customers,!critical!partnerships,!critical!
masses!of!all!these!things,!and!especially!accumulation!
of!experience,!expertise,!and!knowledge.!
Understanding!what!people!want,!what!they!will!pay!
for,!and!how!to!deliver!it!is!very!difficult,!with!many!
false!starts.!There!is!high!value!in!rapid!simulation!and!
exploration!of!concepts,!prototyping,!and!letting!
people!try!out!these!new!concepts.!This!is!‘frontier!
work,’!on!the!edge.!The!ability!to!cultivate!and!
experiment,!failing!fast!and!cheap,!is!highly!valuable.!
New!unexplored!territories!and!opportunities!abound!
for!those!ready!to!take!the!leap!and!seize!them.!
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About!ChainLink!Research!
ChainLink!Research,!Inc.!is!a!Supply!Chain!research!organization!dedicated!to!helping!executives!improve!business!performance!and!
competitiveness!through!an!understanding!of!realbworld!implications,!obstacles!and!results!for!supplybchain!policies,!practices,!
processes,!and!technologies.!The!ChainLink!3Pe!Model!is!the!basis!for!our!research;!a!unique,!multidimensional!framework!for!managing!
and!improving!the!links!between!supply!chain!partners.!
For!more!information,!contact!ChainLink!Research!at:!
719!Washington!Street,!Suite!144,!Newton,!MA!02458.!
Tel:!(617)!762b4040.!Email:[email protected]!Website:!www.clresearch.com!
!
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