The Keys to Successfully Leading Your Business Through Digital Transformation

Erik Walenza

CEO, IoT ONE, Chairman, IIC Smart Factory Task Group

CEO, IoT ONE, Chairman, IIC Smart Factory Task Group

Digital technologies have helped disrupt the media, telecom, finance, and retail industries. New players are using software and the internet to radically transform value creation and cost structures.

Meanwhile, the impact of digitalization on traditional industries has been relatively limited —many factories and hospitals operate using similar technologies today as they did in 1990.

The Industrial Internet of Things (IIoT) is shifting this dynamic by bringing the capabilities of the internet to the gateways, devices, and equipment at the edge of the enterprise network. Improvements in core technologies, business models, and integration will all accelerate IIoT adoption.

What is the IIoT?

Five technology layers:

1. Device hardware are the “things” in the IIoT. They can be an integrated device or components that convert an existing device into a connected device.
2. Device software turns hardware into a “smart device.” “Software-defined hardware” enables a device to serve multiple applications, which may change over time.
3. Communications enable devices to exchange data with other local devices and the world (i.e., the internet).
4. Cloud platforms provide structure for an IIoT system. They manage data collection, analytics, and application programming interfaces.
5. End users interact with cloud applications. They can be deployed on desktop, mobile, wearables, and industrial equipment.

Six core benefits of digital transformation

1. Differentiate existing products and services.
2. Innovate new products and services.
3. Develop new pricing and business models.
4. Shift costs from fixed CAPEX to variable OPEX.
5. Reduce costs through efficiency gains.
6. Enable agile decision making based on timely data.

Six common digitalization bottlenecks

1. Decision paralysis due to the surplus of possibilities.
2. Lack of software and data expertise in operations.
3. Lack of digitalization experience in management.
4. Data siloswithin and between organizations.
5. Misalignment of priorities between IT and OT.
6. Legacy equipment, product portfolios, and processes.

Five key success drivers

1. Re-evaluate your operating model to leverage the IIoT.
2. Develop a partner ecosystem to fill capability gaps.
3. Invest in data management and analysis capabilities.
4. Evolve your culture to embrace agile principles.
5. Think big but start small to sustain momentum.

Think Big, Start Fast

When planning your IIoT strategy, the first priority is to get started.

The second is to not be a hero — don’t reinvent the wheel. Across industries there are common use cases that your peers are already using — remote operations, predictive analytics, preventive maintenance. Pick one and get going.

Third, dream big but start small. This will help you get support from your CXO, create an ecosystem, and build your team.

Fourth, learn from peers’ mistakes. Like with any new effort, there will be mistakes and some of your peers will have already made them.

Lastly, transform your culture with technology. These tips may sound obvious but I’ve seen many projects that have not followed them and failed.

What’s hot and what’s hype in IIoT?

1. The arrival of practical edge to cloud computing

• “Edge computing has been hyped for a long time and now it’s turning into reality,” says Mike Dolbec, executive managing director of GE Ventures. “Companies need to know how they will split the work so it happens in a variety of places at the edge, with the heavy lifting happening centrally in the cloud.”

2. The rise of open technology and co-innovation

• “Vertically integrated companies have traditionally developed entire solutions using proprietary technology, but we now see customers asking ‘Why should I pay a premium for a custom solution based on yesterday’s technology?’” says Maciek Kranz, general manager of Cisco’s Corporate Strategic Innovation Group. “Instead they are inviting horizontal specialists to work together in developing solutions based on open standards and architectures. Customers don’t want to just be buyers, they want to co-innovate and co-develop solutions with technology providers.”

3. Servitization of industrial business models 

• “Most industrials sell products as their primary business model viewing services as cost centers with the goal of breaking even,” says Tim Chou, IoT chairman of Alchemist Accelerator. “However, the margins on most product businesses are below 10 percent, while service margins are 20-40 percent. What if a firm could move to 80 percent service and 20 perent product? What if a traditional industrial could move from marginal service revenue today to 50 percent in 2025? Companies will use IIoT systems to build service businesses and achieve much better margins.”

4. Shifting focus from technology to product “IoT is just another set of technologies that has come into the market. Most focus has been on building the core technologies but it is really about using these technologies to build better products,” says Daniel Elizalde, an IoT product management instructor at Stanford University. “The biggest trend now is that companies are taking a step back from the technology to figure out their product strategy to solve real business problems to contribute to ROI for customers and scalable revenues for them. This is a necessary transition before we see real adoption of IoT.”

Erik Walenza, CEO, IoT ONE, Chairman, IIC Smart Factory Task Group, [email protected]