Connected machines, sensorization and the Internet of Things (IoT) introduce vast opportunities for industrial manufacturers, utilities and consumers. It’s no wonder, then, that so many in the field are releasing and exploring exciting applications.
In fact, 58% of industrial equipment manufacturers studied by our Center for the Future of Work said their companies are already developing “smart” products. An equal percentage are also developing smart packaging, the same research found, and another 40% are investing in home devices.
Although the opportunities and risks of these solutions are unique to each industry, connected initiatives share four underlying elements: smart hardware devices (i.e., smartphones) that sense, gather, communicate and process the shared information; access to networking infrastructure, such as mobile data plans, wireless Internet, local networks and peer-to-peer transmissions; data management, both traditional and big data; and intelligent software that encourages user adoption.
For each connected device, these four ingredients generate a multitude of information regarding product design, resource consumption, usage, operating environment, maintenance history and user preferences. We call this swirling field of data a device Code HaloTM, one of several Code Halos (or digital footprints) that forward-thinking companies consider to make informed decisions.
Why Code Halos
Code Halo thinking helps make sense of connected ecosystems, which in our experience usually results in one or more of the following:
Operational improvement. Cheaper, better, faster – Code Halos help realize these goals, with the objective of creating highly efficient operations and processes. We recently applied Code Halo thinking to deep-sea oil exploration. By monitoring drill vibrations, the connected system helps identify harsh drilling spots, reduce downtime, predict motor failure and empower operators to make smarter decisions. The client expects to reduce drilling time by 5%, totaling $1 million in annual savings per rig.
Product innovation. Listening to consumer and business demands throughout the product lifecycle can substantially improve design and performance. For example, pharmaceuticals companies are starting to monitor social media activity to gauge public reaction. These organizations are integrating data from different phases of manufacturing, such as R&D, engineering and maintenance, to craft better recipes. The ultimate goal is to predict demand, yield, quality deviations and opportunities for improvement.
Better customer experience. A customer experience that is personalized, contextualized and consistent across channels is key to differentiation and profitability. From customized cars to customized healthcare, businesses are leveraging Code Halo thinking to tailor their products and services to the time, place, channel and preferences of the customer. Retailers and other businesses in the fashion industry are among the earliest adopters of this approach, but manufacturers can benefit too. We’re working with an international auto manufacturer to simplify its experience with regulatory compliance by country, especially the more demanding laws in Europe, Russia and Brazil.
New business models. With new insights come new opportunities. In insurance, for example, disruptive insurers are releasing pay-as-you-drive policies or, in the case of MetroMile, pay-by-the-mile policies. Doing so reduces premiums by as much as 30% because it allows insurers to more accurately reward good driving behavior. Smart metering in the utilities industry is another example of optimizing billing by evaluating usage patterns.
Overcoming “Connected” Challenges
In addition to universal benefits, Code Halos present universal challenges, regardless of industry. There are four in particular that executive leadership must overcome before seeing improvements.
Who owns what? Because connected manufacturing involves more moving parts, tighter collaboration is essential. For instance, while auto manufacturers own the overall responsibility for making a compelling car, other organizations – including telecom providers, specialized hardware makers and app developers – now contribute to that experience. In the process, the latter end up owning if not controlling much of the data being collected on driver preferences and usage, creating confusion among partners. But it also provides better differentiation. Better defined and more trusting partnerships can help overcome this challenge.
Monetization: Who pays for all this? The short answer is “the customer.” But a more complete response would also take into consideration the further complexy of how to generate value from the new interactions, such as how a driver operates a vehicle, how a machinist uses equipment, how a reefer’s performance impacts package metabolism, to name a few. The creation of new business models often lags behind the technology implementation, making this the most puzzling piece of the entire connected story. To answer the monetization question, connected ecosystems typically seek revenue through a variety of ways, including:
- Traditional revenue: Premium pricing for the smart product.
- Service-based revenue: Pricing by features, including advisory services, reports and data as a service – anything extra for which the customer opts to pay.
- Metered revenue. Unit pricing based on usage (per pound, per pack, per hour, per mile, etc.).
Security and privacy. With so much valuable data at stake, emerging manufacturing ecosystems are increasingly exposed to fraud and security lapses. And with so many devices and interfaces being used, an increased number of vulernabilities can be breached. Hence, smart organizations must secure not only their own doors but also those of their partners, their partners’ partners and so forth.
Technology selection. Businesses are struggling to keep pace with rapid technology change and want to build enterprise-wide architectures that can scale, interoperate securely and continuously change to avoid obsolescence. Given the plethora of choices surrounding hardware devices, communication protocols, data management and analytics tools, it is a significant challenge to select and standardize all of these elements. For example, hardware selection is based on performance and ease of connection, whereas communication protocol selection is based on bandwidth, latency and data footprints. Each has their own unique set of requirements, which complicates teamwork.
Adopting a connected ecosystem and Code Halo thinking requires significant collaboration within and across organizations. Because of their enterprise-wide ambition and impact, these initiatives must be driven by senior leadership. In most cases, a central, cross-functional authority should own the “connected” agenda. Otherwise, if individual departments are left to their own devices, momentum is difficult to achieve.