by Satya Ramaswamy
June 16, 2016 | Harvard Business Review
We've all seen some eye-bulging numbers in recent years about the internet of things (IoT). Since 2011, General Electric has publicly stated it would spend more than $1 billion on developing sensors, wireless devices, and related software to install on its aircraft engines, power turbines, locomotive trains and other machinery. Companies such as Ford, Toyota, and Caterpillar have invested heavily as well. And our own survey of 795 large companies (average revenue of $22 billion) in North America, Europe, Asia-Pacific, and Latin America found average per-company spending on IoT initiatives — $86 million in 2015 — was projected to grow to $103 million by 2018.
Yet it would be a mistake to think the IoT is a game only for high rollers and crack technologists. Our research and client engagement experience has shown us that generating strong returns from the digital sensors, wireless communications devices, digital cameras installed in buildings and other smart, connected devices does not come down to writing big checks or being technologically savvy. The companies with the greatest value from IoT to date are the best at dealing with how products are performing for customers.
Once you accept that, it becomes a lot easier to understand what you need to do to get value from IoT.
Of course, every company eventually gets the truth about how its products and services are performing for customers. The call center logs customer complaints. Spot surveys become snapshots of limited customer input. More recently, social media monitoring tools have given companies the means of seeing who's sounding off on their offerings around the clock and around the world. But for many companies, such truth often comes too late — after customers have decided to find another supplier.
Consider a recent example: A friend's coffeemaker that he purchased two years ago just went on the blink. It was an expensive machine, but it's past the warranty period. His wife called the manufacturer, who walked her through a troubleshooting routine, but to no avail. The rep then said the company would mail the customer a diagnostic tool in 7-10 days so the customer could troubleshoot it further.
Like the two-thirds of American adults who consume at least one cup of coffee a day (according to Gallup), he and his wife are miffed. They need a coffee maker right away, and won't wait at least a week to get a possible fix for the machine they have. They told me they will now buy a competing brand.
The manufacturer could have avoided losing its customer had it installed a wireless digital sensor that reported on how well the machine was performing. If it had, the firm might have been able to alert the customer that the machine was headed for downtime before it happened, and sent the diagnostic tool before it broke down. Now the company will lose out on the big revenue stream from this customer that follows the machine: the money from its coffee pods.
This kind of data, on how a company's product is performing in the field for customers, is, indeed, the ultimate truth because it can alert companies to product problems and customers who are about to defect. This truth could be very different from what the company thought it was or was marketing it as. It is the ultimate truth because most companies get this information far too late, when a loyal customer has left them behind without a "Dear John" note.
In our survey, we found that as of last year, only 26% of big companies had put IoT technologies into their products. In other words, three out of four didn't have the means to get the ultimate truth on product performance. What's more, that percentage generally goes down the lower the price of a product. For example, only 6% of companies selling products with less than $100 price tags had embedded wireless sensors in their offerings. In contrast, 54% of companies whose products' average sales price was between $1 million and $10 million did have digital sensors that communicated product performance back to them.
But even if your firm has installed IoT technologies in its products, that doesn't mean it's about to get the ultimate truth about those products or that it will do something with that information. That requires your firm to do much more.
We see four key elements of using the IoT to get the ultimate truth on product performance:
When companies are prepared to deal with these four, they will be far more likely to see and act effectively on the possibilities of the Internet of Things. By dealing with the ultimate truth well — how their products are performing every day for customers — they will be far more likely to keep their customers for the long haul.