As leaders in technology, CIOs in many industries — particularly manufacturing, retail, healthcare, and utilities — are expected to understand the business opportunities that come with the Internet of Things (IoT). Executives are recognizing the opportunity to pivot business models toward higher-value services and optimize existing processes and assets with IoT. In fact, 33% of European organizations believe the IoT will fundamentally change the way the industry operates and how companies compete. An additional 40% believe that it will be adopted across their industry at varying levels. In Germany, organizations are already referring to it as “Industrie 4.0” (or the fourth industrial revolution) as it connects manufacturing processes, assets, and end products into a single network.
The IoT implies that companies are dealing with orders of a greater magnitude and larger volumes of data than ever. Hence, all IoT strategies are dependent on a sound data platform and architecture that runs across the organization. The approach taken will effectively make or break any IoT initiative within an enterprise. Looking at the big picture, the software layer is perhaps the single most important part of an IoT solution. Yes, all components need to work, but only if (and when) the application layer and information architecture is optimally configured can enterprises reap the return on their IoT investments. In essence, CIOs need to help an organization move from optimizing production and business operations to launching the creation of completely new business models.
There are various examples where this has already happened. In manufacturing, John Deere has transformed itself from a traditional agricultural machine manufacturer into a data provider for farmers and agriscientists.
Another good example of a company that is leveraging the data platform across its entire organization is BASF, one of the largest chemical producers in the world. The company has identified six areas of focus to drive transformation throughout the entire organization:
- Digital innovation ecosystem — Leveraging the external ecosystem to bring new ideas for new digitally based products and services
- “Verbund” optimization — Connecting manufacturing processes and systems to drive operational efficiency
- Predictive maintenance — Using sensors to determine the condition of in-service equipment and to predict when maintenance should be performed
- Digital business models — Delivering new capabilities to the market, where IT is fundamentally “the product” or, at least, makes up a big part of them
- Predictive planning — Optimizing the supply chain based on new data from various processes to respond to dynamically changing demand
- ERP integration with suppliers and customers — Linking back-office processes to the external ecosystem
In the BASF example, the data platform, which is connected to existing information systems, could lead to true digital transformation even though the infrastructure delivers a “working” IoT solution for the business. IDC research suggests that the IoT will lead one in ten Western European companies to create new business models in 2016, and this figure is expected to accelerate. IDC calls this “IoT 2.0,” where pioneers move beyond simple implementations and adopt compound and transformative applications.
Key to the success of the IoT will be the CIO and the IT department. It is ultimately up to the CIO to architect a framework that connects a single data platform to whatever IoT initiative the organization is deploying to help introduce potential new business models for the organization. Our data shows the surprising hold the CIO currently has on IoT initiatives: 54% of enterprises surveyed said the CIO/internal IT department had taken the lead in IoT deployment, and this number is set to rise to 64% going forward. This is a significant opportunity for the CIO to take ownership of digital transformation and manage the input of other departments that all have a vested interest in IoT solutions.
Winning the support of business executives and enhancing collaboration between decision makers are key to realizing the full potential of IoT and the data that comes with it — and the CIO really needs to drive this. Converting data into business value is a critical aspect in the journey toward digital transformation. We recommend that CIOs leverage IDC’s MaturityScape Snapshot to identify the key areas to focus on.
In general, European organizations first need to throw off the cloak of risk aversity that typically underlies technology adoption in production-oriented sectors, and to embrace the execution mode of their IoT journey by accepting that certain things may not work out exactly as planned. It’s the small failures that will feed the bigger success of the business model transformation that they are undertaking.