You’ve heard about the Internet of Things (IoT). You might even have a Nest thermostat, wear a Fitbit, or chat with Alexa daily.
But what do smart devices mean for your organization? How could they help you achieve the ambitious goals you have? To solve problems and leave a lasting impact?
It seems counterintuitive, but the internet and the range of potentially connected devices aren’t the most exciting part of the Internet of Things anymore.
Access and options for sensors, actuators, and connected devices are rising and prices are falling. More and more devices have their own built-in computers and network connectivity.
The technologies are important, but they’re tools. Think of them like lego pieces that you can build new business models, experiences, and solutions with.
What the IoT is really about
While IoT conversations are typically about the technology, adapting to a world with the Internet of Things isn’t just about purchasing the latest gadgets or software.
It’s also about changing how you think about your business. Interacting with customers in new ways. And confronting assumptions about where innovation can come from.
In their book “The Inversion Factor” authors Linda Bernardi, Sanjay Sarma, and Kenneth Traub talk about how IoT enables “inverted business models.” They also outline how traditional organizations can make the shift.
We’ll explore what this means for how we design our products, business, and portfolio. But first of all, what do the Bernardi, Sarma, and Traub mean by “inversion”?
In their words,
“Inversion is a paradigm in which a business’s mission and core competence are defined needs-first, rather than product-first… Inversion changes the object of business from selling products to meeting needs- filling those needs with technology in a way that reduces friction, increases efficiencies, leverages network effects, and turns the customer into a collaborator.”
– Bernardi, Sarma, and Traub
The IoT toolkit
There are plenty of smart devices on the market that make us wonder, “why do we need this?” So how does IoT support an inversion economy focused on customer needs and experiences? What’s possible beyond controlling all of our appliances from our phone?
There are four characteristics of IoT that help fuel an inverted business model. Here’s how the authors describe the new principles that engineers, product designers, and business leaders should start embracing:
Connectedness- The device is connected to a data processing platform via the internet. This allows for updates between companies and customers, where info can flow both ways.
Composability- The customer can combine the functions of multiple connected devices. With customers in the driver’s seat, their needs can be met more rapidly. This also allows companies to compose new solutions and experiences from products that are already in the hands of customers.
Recruitability- Rather than having a static function, devices can be used in new ways. Because they were designed to be versatile and accessible thanks to features like APIs and non-specific controls like touchscreens and cameras. With devices acting like platforms, it’s easier to recruit existing tools to perform new functions.
Immersion- The vision of immersion is a collection of smart devices that work together to create a seamless and personalized experience for the user. Beyond interactions with just one device, value comes from a system of devices and companies working together. With immersion, companies can focus on orchestrating a valuable experience, instead of selling standalone products.
These design principles allow us to unlock new business value like:
- Collecting information as people use your product instead of launching a new product and wondering how customers reacted or relying on surveys or reviews.
- Changing the product after it’s been deployed instead of requiring the customer to purchase a new version.
- Recruiting your existing products to do new things in the future instead of investing resources to build them again from scratch.
- Recruiting other people’s products to do new things and provide value to customers instead of needing to build out all of the functionality yourself.
“IoT is the technology that lets a business extend its awareness and its influence directly into the customer’s experience, in real time.”
– Bernardi, Sarma, and Traub
What are you in the business of?
Creating business value with IoT tools may require your organization to shift from a product-centric business to a needs-centric one. The authors describe the difference between the two and I’ll sum it up as follows:
A traditional product-centric business…
- Designs, manufactures, and distributes static “things.”
- Defines their branding around the products they currently offer.
- Incrementally iterates on those products.
- Worries about protecting and capturing market share from other people providing similar products.
- Is hesitant to change because of the amount of time, money, and resources invested in those products.
- Defines the value they create based on the technology they own and gadgets they sell.
- Thinks about their products in terms of what they were originally designed to do.
- Conditions customers to expect that they’ll maintain the status quo.
- Asks “what is” to identify new opportunities related to their existing product lines.
- Makes decisions based on short-term revenue goals, and lets the long-term outcome emerge from there.
An inversion needs-centric business…
- Designs, crafts, and continually transforms experiences and platforms that other people can use to create value.
- Defines their branding around their values and customer experience.
- Constantly looks for new ways to solve the customer’s problems, even if that means new products or technologies.
- Aims to address core human needs differently.
- Is driven by curiosity and constantly exploring and delivering.
- Defines the value they create by the experience they offer or problem they solve.
- Thinks about their products in terms of what they could potentially do in the future.
- Conditions customers to expect that they’ll keep redefining the status quo.
- Asks “what if” to identify hidden opportunities in existing markets.
- Makes decisions based on the long-term vision, and lets revenue emerge from there.
“We are transitioning from a technology-defined world to a vision-defined world.”
– Bernardi, Sarma, and Traub
The IoT provides tools that allow businesses to focus on rapidly creating new experiences. Since existing products can now do more than one thing, designers are no longer constrained by the typical product development cycle of research >> design >> build >> launch the new product to customers >> repeat again with an updated model.
And with so many IoT options already on the market, many ideas that seemed far-fetched in the past can now be easily created by combining existing elements. It’s just a matter of expanding your view of what your business does and is willing to explore.
Sounds like an exciting direction but how do you start moving there as a company?
IoT and your portfolio
Your portfolio management process is a good place to focus your efforts on shifting to an inversion business because it already includes customer, business, and technology viewpoints. Plus a place to see and discuss how you’re investing your resources.
The authors define three pillars of an inversion company, which they refer to as the Inversion Triangle: technology, innovation, and culture. We’ll examine how to incorporate all three into your portfolio process.
Technology
The most obvious way to incorporate the internet of things involves changing technology. Shifting the options you’ll consider, how you think about ownership, and how you design new devices. That might mean thinking about your architecture differently, but the new technology approach opens up opportunities for different experiences and business models as well.
- When examining the current state, review the “smart” objects already in your business that you could build upon.
- Consider what devices your ideal customers already have or use in their lives that you could build new value propositions around.
- Collect ideas of smart devices, data sources, sensors, actuators, and integration patterns to inspire your future state.
- Decide whether to purchase, design, customize, or orchestrate IoT tools to address customer or internal problems.
- Design devices with connectedness, composability, recruitability, immersion, security, and privacy in mind.
- Consider future flexibility as a major benefit when you estimate the value of an IoT project.
- Add more sensors, actuators, and processing power than you think you might need initially to give yourself more options in the future. But launch a basic platform to start and see how customers interact with it before enabling new functions.
“Start thinking of technology as a dynamic, interactive platform for curating how your customers experience part of their world.”
– Bernardi, Sarma, and Traub
Innovation
The second pillar is innovation, or using the technology in new ways that address customer needs and orchestrate valuable experiences. A proactive portfolio approach, maybe even a distributed one provides the opportunity to continuously explore new ideas instead of just reacting to requests that come in.
- Open up your intake process to employees, customers, and stakeholders.
- Consider opening up your tools to allow third parties to create solutions with them.
- Devote a portion of resources to breaking down concepts, exploring, and experimenting.
- Apply Enterprise Design Sprints as a way to explore IoT applications.
- Imagine new customer experiences, aided by the IoT.
- Imagining new business models, aided by the IoT.
- Let your customers define or change their experience after they’ve already purchased the product.
- Consider how you could sell outcomes instead of products or services. ex. Schneider Electric is working towards billing customers a flat monthly fee per kilowatt hour instead of selling them electrical control systems.
Culture
The last pillar is culture. If you have the technology and a vision but your internal processes, rhetoric, incentives, and decision-making criteria aren’t in alignment, then new ideas will stall. The multidisciplinary nature and real conversations that happen during portfolio management can help highlight and address culture challenges.
- Make decisions based on your values with a shared value framework.
- Assign an investment theme and % of your portfolio for inversion projects.
- Talk about how you’re shifting to an inversion needs-centric business in your communication to execution teams or other stakeholders.
- When discussing your portfolio and business vision, focus on the core customer needs, but stay flexible on the products, technology, or solutions to serve that need.
- Include all company divisions and disciplines in this mindset shift whether they’re a core portfolio team member or just in the loop.
- Set goals and decision-criteria based on the vision instead of short-term revenue targets.
- Recognize that in an immersion economy, where the lines between businesses are blurrier, your company culture will become a strong brand asset. Investments in your internal structures now will pay off externally in the future.
“Ask ‘How do we play in the inverted, experience economy?’”
– Bernardi, Sarma, and Traub
Embracing IoT unlocks a new set of tools that could help you and your customers solve problems quickly with lower up-front costs. Sounds like a fun space to play in.
Does your company leverage the internet of things in your business model? How might you take advantage of these tools to achieve your big goals?