Calculating Internet of Things ROI — important tool

Posted on 3rd December 2013 in design, Internet of Things, M2M, maintenance, management, marketing, Uncategorized

Just came across this video while researching how to calculate ROI on Internet of Things investments for the e-book I’m writing, and felt compelled to share it.

That’s because it may be hard to calculate ROI fully and accurately for IoT investments if you aren’t thinking in terms of what my friend/patron Eric Bonabeau always pounds into my head: what can you do now that you couldn’t do before?

In the case of the IoT, there are  several things, such as “predictive maintenance,” that weren’t possible before and thus we don’t automatically think of calculating these benefits. It will require a conscious change in figuring ROI to account for them.

According to Axeda CMO Bill Zujewski, there are 6 levels of M2M/IoT implementation, and there are both cost savings and revenue enhancements as you move up the curve:

  1. Unconnected: this is where most firms are today. No M2M/IoT investments.
  2. Connected, pulling data for future use: No return yet.
  3. Service: the investment begins to pay off, primarily because of lower service costs.
    1. Cost reductions:
      1. fewer repair visits  Now that you’re harvesting real-time information about products’ condition, you may be able to optimize operating conditions remotely.
      2. first-time fix rate increases: Now you may know what the problem is before you leave, and can also take the proper replacement parts.
      3. reduced call length: You may know the problem in advance, rather than having to tinker once you’re there to discover it.
    2. Higher Revenues:
      1. Greater customer satisfaction. Customer doesn’t have to pay as much for repairs, down-time is reduced.
  4. Analyze: Putting data into BI and other analysis tools to get greater insights. For example, understand what are bad parts, when they’re failing.
    1. Cost reductions:
      1. fewer service visits: instead of monthly service you may be able to switch to quarterly.
      2. lowering returns
      3. improve product design
    2. Higher Revenues:
      1. Increase product up-time: due to better design and more effective maintenance, longer mean-time-to-failure.
  5. Data integration: begin to integrate data with business processes.
    1. Cost reductions:
      1. warrantees (especially for industrial equipment): fewer claims if you can monitor equipment’s operations, warn owner if they’re using it improperly.
      2. recalls: reduced.
    2. Higher revenues:
      1. pay-as-you-go leases: as we’ve discussed earlier, you may be able to increase revenues by leasing products based on how much the customer actually uses them (which you can now document), rather than selling them.
      2. increased sales of consumables: you’ll be able to know exactly when the customer needs them.
  6. Reinvent the customer experience: According to Zujewski, this is where you “put machine data into the end users’ hands” through a smartphone app, for example, that gives them access to the information.
    1. Cost reductions:
      1. reduced calls to call center: the end user will be able to initiate service and troubleshoot themselves.
    2. Higher revenues:
      1. increases sales: your product will be enhanced, leading to more successful sales calls. You also may be able to charge for some of the new data access services that make the product better.

Zujewski concludes by saying that all of these changes combine into 4 major benefits:

  1. world-class service
  2. business insights (such as better understanding of how your customers are using your products) from all the data and analysis
  3. improve business processes: integrating data allows you to improve the way you perform current processes
  4. highly-differentiated offering due to to the apps and information you can provide users. “You end up demo-ing your apps vs. just the machines”

I was really impressed with this presentation, and it makes sense to me as a framework for calculating ROI on Internet of Things investments (I want to think about other benefits of the IoT that were impossible before to see if there are any other factors that should also be calculated).

I’d be really interested in your reaction: is this a valid methodology? what other factors would you also include?

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IoT Essential Truths: Coordination

Posted on 1st November 2013 in design, Essential Truths, Internet of Things, M2M, maintenance, management

Just as I’ve written repeatedly about one of the “Essential Truths” of the Internet of Things is that we have to learn how to collaborate, there’s another “co- word” that’s crucial to realize its full potential: coordinate!

That’s brought to mind by news from this week’s Internet of Things World Forum in Barcelona, where SAP (full disclosure: I’m working on a project for them), and SK Solutions, the global leader in anti­-collision software (heck, I didn’t even know there was such a thing as anti-collision software, let alone that SK was the leader!) have teamed to create a system helping engineering and construction companies increase collision avoidance and protect workers through real-time information sharing.

I’d never thought of it, but modern construction sites are a nightmare in terms of the need for coordination, with huge cranes, a multitude of construction vehicles, and many workers on the site.

The system, being tested at a construction site in Dubai, is gathering actionable, real-time data (historical data is pointless when so many players are interacting right now!) from mobile field workers, equipment and operational processes.

When you think of it, it’s difficult to maximize productivity and cut costs on a job site because so many operations have to be coordinated.

Here’s how it works:

“SK Solutions deploys sensors on cranes and construction vehicles to pull data such as 3­D motion control via inertial motion unit, location via GPS and load weight, equipment usage and wind speed and direction. This data is loaded first into the Navigator real­time operating system and its on­board set of applications, including collision avoidance. The data is then fed through the SK Navigator Anywhere Agent, which uses SAP technology. Site and project managers monitor the equipment via a dashboard built with SK Asteroid, which uses the SAP HANA platform, SAP® 3­D Visual Enterprise applications and SAP LumiraTM software. SK Asteroid 360 Middleware is a cloud­based platform that provides connectivity to SAP® Business Suite software.”

That leads me to another “Essential Truth” of the Internet of Things:

We have to start asking, where are there situations where real-time data from a variety of sources could help coordinate inter-related activities to improve safety & efficiency and reduce costs?

Whether it’s coordinating hospital rooms, integrating supply chains or assembly lines — even traffic flow — there are situations everywhere in which the Internet of Things can improve productivity, reduce operating costs — and even save lives.

N.B. For those who are interested in what the prefix co- really means, it’s from a Latin prefix of the same name, and means together; mutually; jointly. Class dismissed..

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General Electric Keeps on Practicing What They Preach!

Posted on 9th October 2013 in collaboration, design, energy, environmental, health, Internet of Things, M2M, maintenance, management, manufacturing, marketing, services, strategy, transportation

I’m beginning to sound like a schill (no, not a typo, just a bad joke: short for [Curt] Schilling, the former Red Sox pitcher — sorry, I can’t get those guys out of my head today…) for GE, but it’s hard to argue with their impressive record of walking their talk about the “Industrial Internet,” their marketing term for the subset of the Internet of Things dealing with the industrial sector.

The latest evidence? A report today in the NYTimes‘ “Bits” blog that GE has just announced “14 more products that combine industrial equipment, Internet-linked sensors and software to monitor performance and analyze big streams of data. G.E. had previously announced 10 similar industrial products.”

Equally impressive, the Industrial Age behemoth turned nimble IoT leader said that by next year, almost all industrial products it makes will have built-in sensors and Big Data software to analyze the huge data streams those sensors will create.

Right now I’m writing an e-book on IoT strategy for C-level executives (not sure if I can disclose the customer — it’s a big one!) and GE VP of Global Software William Ruh, used the news to fire a shot across the bow at companies that are slow to realize a fundamental paradigm shift in manufacturing, product design and maintenance is well underway:

““Everyone wants prediction about performance, and better asset management… The ideas of speed, of information velocity, is what will differentiate the winners from the losers.”

You in the corner office: got your attention?

Equally important, given my insistence that the IoT is all about collaboration, GE simultaneously announced partnerships with Cisco, AT&T and Intel. It had already inked deals with Accenture and Amazon’s cloud subsidiary and has also invested in  Pivotal, an Industrial Internet app creator.

Smart companies will follow GE’s lead in radically reforming the product design process to capitalize on the rapid feedback on performance that the Industrial Internet products’ built-in sensors yield. According to Ruh, they’re switching to an iterative design process, with rapid changes based on data from the field:

“… G.E. is adopting practices like releasing stripped-down products quickly, monitoring usage and rapidly changing designs depending on how things are used by customers. These approaches follow the ‘lean start-up’ style at many software-intensive Internet companies.

“’We’re getting these offerings done in three, six, nine months,’ he said. ‘It used to take three years.’” (my emphasis)

That change is definitely going to make it into my e-book! Brilliant example of how the IoT, by allowing companies to think in terms of systems dynamics, especially feedback loops, will have profound impacts on the design and manufacturing processes, integrating them as never before (oh, and don’t forget, the data from the built-in sensors will also allow companies to start marketing services — such as leasing jet turbines, with the lease cost based on the actual amount of thrust the engines create)!

Combined, that’s definitely a paradigm shift!

Oh, I almost forgot. Here’s a brief rundown of the products themselves and the industries served. They are clustered under the Predictivity name, and are powered by Predix, a new IoT platform:

  • The Drilling iBox System (oil and gas)
  • Reliability Max (oil and gas
  • Field 360 (oil and gas)
  • System 1 Evolution (oil and gas)
  • Non-destructive Testing Remote collaboration (oil and gas)
  • LifeMax Advantage (power and water)
  • Rail Connect 360 Monitoring and Diagnostics (transportation)
  • ShipperConnect (transportation)
  • Flight Efficiency Services (aviation)
  • Hot SimSuite (healthcare)
  • Cloud Imaging (healthcare)
  • Grid IQ Insight (energy management)
  • Proficy MaxxMine (energy management)

Given the diversity of industries the Predictivity products serve and GE’s global clout, I predict this level of commitment will radically accelerate the IoT’s adoption by big business, as well as accelerating the payback in terms of lower operating, energy and maintenance costs, and reduced environmental impacts.

Will GE’s competitors in these sectors get on board, or will they be left in the dust?

 

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Essential Truths of the IoT: Listen to the Things

Posted on 4th October 2013 in Essential Truths, Internet of Things, M2M, maintenance, management, manufacturing, marketing

No, “Listen to the Things” isn’t some sort of zen lesson, although it could be!

It is one of my occasional series of “Essential Truths of the IoT“: fundamental underlying principles that are essential to understanding the true nature of the Internet of Things as a fundamental paradigm shift.

Sensor-equipped GE power turbine

I think particularly of General Electric when I think of this fundamental principle, because GE is turning “listening to things” into major innovations in product design that, in turn, are leading to new ways of marketing their products and new revenue streams.

For example, not only is GE able to optimize production of the advanced cell-phone tower batteries at its state-of-the-art factory in Schenectady, NY because of 10,000 sensors on the assembly line, but also the batteries themselves include built-in sensors that allow GE to monitor their condition.

Thinking in terms of “listening to things” has revolutionized the very way GE markets its jet engines. Some of its new engines contain 20 sensors, which can generate up to a were 20 sensors that monitor the engine’s performance, generating up to a terrabyte of information on a cross-country flight. That allows the airline user to do “predictive maintenance,” which uses actual data on the actual engine — not just some recommended service interval for engines in general, to determine when that specific engine needs maintenance for best performance.

It also gives GE the option of leasing the engine instead of selling it, with the actual price of the lease again dependent on the actual usage of that particular engine, rather than some arbitrary average.

The customer also benefits — as does the global environment. GE calculates that if “an average-sized airline used F&CS  (Fuel and Carbon Solution to achieve a 2% improvement in fuel consumption, it would be equivalent to removing more than 10,000 cars from our roads.”

Here’s the problem — and the opportunity. We’re used to “dumb things” that were inscrutable — you couldn’t “listen” to how they were actually operating if your life depended on it. As a result, we don’t automatically see the opportunities to redesign products to include sensors that will automatically report real-time data about their operating state and possible problems. To capitalize on this “Essential Truth” of the IoT we will have to start asking a new question:

what things that are part of our intrastructure and/or our products
can be redesigned so we can “listen” to them — and 
learn from them?

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It’s Official: Tom Friedman Anoints the IoT; Plus Jobs Issue Is Raised!

Posted on 16th September 2013 in 3-D printing, Internet of Things, M2M, maintenance, manufacturing, services

OK, the Internet of Things is officially a Big Thing: Tom “World is Flat” Friedman wrote about it in the Sunday NY Times.

Friedman, searching for evidence of American “exceptionalism” in a bleak landscape of Capitol Hill paralysis, etc. zeroed in on GE’s “Industrial Internet” initiatives as a ray of hope. As he wrote,

“I wanted to see what new technologies, and therefore business models — and therefore jobs — it might be spawning that public policy, and education policy, might enhance. I have no idea whether or how G.E. will profit from any of these breakthroughs, but I saw the outlines there of three radically new business trends that the United States should want to dominate.”

One of those themes was how 3-D printing could streamline the design and production process.

The second, which I wrote about earlier, was the concept of crowdsourcing design, in particular the contest GE held to design a new jet turbine mount (more about that later!!!).

Finally, Friedman zeroed in on the IoT, specifically widespread use of sensors:

“Lastly, we are on the cusp of what G.E. calls ‘the Industrial Internet’ or the ‘Internet of Things’ — meaning that every major part of a G.E. jet engine, locomotive or turbine is now equipped with online sensors that constantly measure and broadcast every aspect of performance. Computers capture all this big data and use it to improve everything from the flight path to energy efficiency.”

He gave several examples, such as wind turbines and hospital beds, where data from sensors can help to optimize efficiency and cut operating costs. He pointed out that the data allows GE to create new services “… that offer not just to manage an airline’s or railroad’s engines, but how fast all its planes or trains go, how flight and train schedules are coordinated and even how its equipment is parked to get optimal performance and energy efficiency (aside to marketing managers: what kinds of services would the IoT allow you to introduce, perhaps replacing actual sales of products with leases based on use? Think about it!).

Friedman concludes, “Watch this space, even if Washington doesn’t: When everything and everyone becomes connected, and complexity is free and innovation is both dirt-cheap and can come from anywhere, the world of work changes.”

Indeed! Nice to have someone with Friedman’s clout recognizing the IoT is a paradigm shift!

MEANWHILE: Make certain to read the comments following the column. They are primarily negative, and zero in on one thing: the IoT’s threat to jobs. In particular, the critics focused on the GE engine mount design contest.  One was particularly pointed:

“According to CNNMoney, General Electric CEO Jeffrey Immelt pocketed $25.8 million in total compensation in 2012. That’s about $20,000 every hour and a half. How come 8 geniuses cost only 90 minutes of CEO time?”

You’ve gotta agree, $20,000 ($7,000 to the winner) is a pretty paltry sum considering what GE gets in return, and given readers’ suspicions that companies may let go their salaried designers and instead exploit freelancers (I’ve thought the same about some of the incentives offered by Innocentive member companies for some of the crowdsourcing projects that they’ve offered), you can bet that there will be more criticisms in the future if this becomes a common practice.

The IoT will undoubtably result in loss of some jobs — disruptive technologies do that — although optimists say they will create jobs as well. But if companies don’t want to reap a lot of criticism for their IoT initiatives, they’d better put some thought into the job creation aspect as well!

 

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Automated factories: that’s not the IoT’s potential!

Posted on 7th June 2013 in automotive, Internet of Things, M2M, maintenance, management, manufacturing

It’s easy to see why some people make the assumption that one of the results of the Internet of Things will be fully-automated factories.

After all, if automatic, real-time machine-2-machine data sharing would allow self-starting and self-regulating machinery, wouldn’t that allow us a utopian vision of completely autonomous manufacturing?

Instead, I think Bosch’s Volkmar Denner nailed it with this blog entry. He says that rather than complete automation:

“Instead, it’s about finding ways to increase agility. Putting that into figures, optimizing resource allocation within a more flexible production process can result in a jump in productivity of as much as 30 percent. Our goal is to be able to customize even the smallest unit volumes while retaining optimum productivity, and ultimately leading to achieve optimized multi-variant series production.”

I agree totally that what’s going to happen is an end to centralized management and top-down control of information (see my last post, on “Buckyball Management”!, with decentralized, self-management emerging that could threaten old industry leaders who don’t get it (see my posts about how GE does get it!) :

“… And I’m convinced that this shift will provide opportunities for established companies to offer new business models. But they too need to watch out: the IoTS is shaking up what until now has been very much a closed market, opening it up for entirely new players such as IT companies. Here, the IoTS is not just about connecting objects, machines, and systems. On the contrary, it’s also about how to use the data that this connectivity generates. And instead of using this information only within the plant itself, now everyone along the manufacturing chain can be given access to the data over the internet. Once again, the knowledge gained from these data can be applied to generate new business models.”

Denner says that one of the #IoT services that Bosch — the leading supplier of automotive sensors and one of the leaders in industrial sensors — is developing is predictive maintenance, which innovators such as GE (with its jet turbines) and the railroads (I’ve never traced my ancestry on my father’s side, but I harbor the possibility that I’m descended from the Stephensons, pere et fils, who invented the locomotive, so I have a warm spot in my heart for that industry…) are already doing.  As Denner says, “Having such a solution in place allows organizations to offer their customers new and improved levels of service, including a guarantee of reduced downtimes.”

So don’t count out the human element in manufacturing once the IoT is commonplace: in fact, it will be more important, and more valuable, than ever!

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