How to Maximize Value from the Internet of Things
Smart Manufacturing. Industry 4.0. IIoT. Every conference, article, podcast, and roundtable is buzzing about the Internet of Things and what some are referring to as "the next industrial revolution."
At Rockwell Automation's Automation Perspectives 2016 event in Atlanta, Georgia, Bob Sternfell of McKinsey & Company pointed out that the automation industry's advance toward the Internet of Things is a transformation based on "unprecedented levels of data connectivity across supply chains, pervasive sensing, the use of data analytics to drive ever greater levels of efficiency and the maturation of new cyberphysical technologies such as artificial intelligence, 3D printing and robotics."
This advance toward the IoT is driven by an immense amount of data, less than 1 percent of which is being leveraged on a daily basis. "We now create as much data every two days as we did between 1100 and 2003," remarked Sternfels. So much information at our fingertips; most of which goes unused.
McKinsey & Company recently conducted a survey of 200 executives from the largest industrial companies across the globe. Survey results revealed that most of these executives believe the IoT will boost competitiveness, but only a third of those same executives consider their companies to be making progress in positioning themselves to take advantage of the Internet of Things. According to them, the transformation process is very difficult because it requires coordination across many different business units and job responsibilities. Executives must have the courage to push the transformation and the ability to apply it across the entire business model. There also seems to be a lack of talent, with a shortage of data scientists. Some have concerns about cybersecurity and data ownership, insourcing versus outsourcing, technology integration, and implementation.
The key to driving an IoT initiative forward is determining the value and how to maximize it. McKinsey & Company estimates that $11 trillion worth of value will be created by IoT by 2025, most of which will be captured by industrial companies. Industrial organizations that successfully carry out this digital transformation can expect a 40 percent improvement in operating income. Publicly traded companies can also expect stock valuations to double, due to new ratings based on increased levels of potential growth.
To effectively capture the value of the Internet of Things, Sternfels advised applying these five elements:
1. Analyze the entire digital thread related to your products—from R&D to the end of product life—rather than analyzing by function or department.
2. Don't try to take on everything at once. Focus your efforts on a limited number of high-value applications, such as overall equipment effectiveness, real-time monitoring, or throughput optimization. Start with quick, easy-ROI projects.
3. While concentrating on these short-term ROI projects, invest in IT infrastructure.
4. Rethink your relationship with suppliers, customers and partners you may not have seen as part of your ecosystem. It is is too difficult and time consuming to attempt conquering IoT on your own. “You have to link your executive strategy with the ability to deliver clear digital ROI, transformational change management and sector-specific insights, plus deep hardware and software expertise. It’s just too difficult for one company to do all this, that’s why there is such a need for partnerships.”
5. Develop your organizational capability to adapt. This is the most difficult element, as it involves moving from a siloed organization to an integrated structure. It also means moving from a matrix organization with permanent roles to a more flexible network with evolving roles, or from centralized coordination with fixed KPIs to self-coordinating teams with evolving KPIs, or from a fixed project budget approach to venture capital types of budgeting.