Industrial IoT: Driving Digital Transformation and New Business Value

The Industrial Internet of Things (IIoT) is reshaping enterprise operations and customer engagement, promising significant operational gains, fresh market opportunities, and new revenue streams.

Hardware miniaturisation, lower power consumption, falling component costs, and ubiquitous wireless connectivity are powering a wave of connected products, keeping the conversation alive, says Joe Barkai, consultant, speaker, author and blogger.

The convergence of emerging technologies and innovative business models fuels IIoT growth. Both business‑oriented and technology‑driven arguments show that IIoT can catalyse radical transformation across virtually every industry.

The return of the real‑time enterprise?

Remember the real‑time enterprise concept—also known as sense‑and‑respond networks or on‑demand enterprises—that aimed to boost organisational responsiveness in the early 21st century?

Though not precisely defined, its core objectives can be summarised as:

• Reduce response times to market demands from customers and partners.
• Increase transparency across the enterprise, breaking down information silos.
• Improve operational efficiencies and cut costs through process automation and enhanced visibility across internal and external functions, including supply‑chain partners.

These goals echo the aspirations of the Industrial Internet of Things.

Understanding the IoT transformation

The IIoT delivers incremental transformation across four stages. These stages are largely sequential and unlock progressively greater value:

• Automate – Embedded control software and device connectivity automate operational and decision‑making tasks.
• Accelerate – IoT shortens information latency. Remote access, combined with data analytics and decision‑support systems, boosts organisational response times. Most implementations today focus on accelerating response times, with less emphasis on optimal resource allocation.
• Enhance – Big‑data analytics, simulation tools and similar aids optimise every phase of the product lifecycle by mining enterprise data. Unlike the first two stages, which are largely tactical and reactive, this phase leverages data depth to improve long‑term predictive decisions in product design and operations.
• Engage – The pinnacle of an IoT‑centric strategy: connected products paired with advanced decision‑making transform traditional business models and engage customers through fine‑tuned, outcome‑based service offerings.

Restructuring the value chain

In his bestseller Competitive Advantage: Creating and Sustaining Superior Performance, Harvard Business School professor Michael Porter describes the product value chain as a “general framework for thinking strategically about the activities involved in any business and assessing their relative cost and role in differentiation.” He views a firm as a system of sequentially organised subsystems—each with inputs, transformation activities and outputs—responsible for core value‑generating activities such as inbound logistics, operations, outbound logistics, marketing & sales, and service. Secondary activities—HR, training, IT infrastructure—support the primary chain.

How does the Industrial Internet of Things influence, or even enhance, a company’s value‑chain activities?

Value‑chain‑based processes focus on articulating and creating customer‑value‑add activities and the interfaces between them. Yet these subsystems can unintentionally create technology, process and functional silos, reinforced by entrenched business culture.

The IoT provides greater visibility into every value‑chain activity, transforming inputs into outputs and advancing the product lifecycle. It enables organisations to aggregate and analyse data from historical and real‑time value‑chain events—both positive and negative—and to respond quickly and efficiently based on objective, timely data.

For example, product companies generate and store service‑related transactions across the value chain: customer‑service visits, warranty claims, sales orders, and so forth. These records often remain locked within the originating function’s IT system—service, warranty administration or sales. A forward‑looking company, however, merges sales forecasts, product‑service history and real‑time device data to predict service‑operations workload, forecast warranty‑repair costs and optimise parts inventory.

Connected products and enterprise systems generate information that can reshape every activity in an organisation’s value chain. They both impose and enable flexible, permeable functional boundaries, changing the traditional order of value‑chain decisions.

Thus, while the Industrial Internet of Things enhances efficiency and agility in value‑chain operations, it also fundamentally disrupts and rearranges Porter’s original rigid incremental model. Porter touches on this idea in his HBR article “How smart, connected products are transforming companies,” even though he does not alter the core model.

Get ready

Many enterprises resist redefining traditional value‑chain boundaries. But as IoT adoption spreads and business value becomes evident, functional boundaries must shift to accommodate new models and practices. Organisations need to envision IoT‑driven business models and optimised value‑chain operations powered by pervasive visibility and heightened decision‑making capacity.

The author of this blog is Joe Barkai, consultant, speaker, author and blogger.

It was first published on joebarkai.com