The Internet of Things Will Change Your Company, Not Just Your Products

I have had a front row seat as companies have struggled to enter the emerging world of the Internet of Things — first, 10 years ago as a vice president at Ambient Devices, an MIT Media Lab spinoff that was a pioneer in commercializing IoT devices, and then as a consultant.

One of the biggest obstacles is that traditional functional departments often can’t meet the needs of IoT business models and have to evolve. Here are some of the challenges that I’ve observed:

Product management. Successful IoT plays require more than simply adding connectivity to a product and charging for service — something many companies don’t immediately understand. Building an IoT offering requires design thinking from the get-go. Specifically, it requires reimagining the business you are in, empathizing with your target customers and their challenges, and creatively determining how to most effectively solve their problems.

A company that understood this was Vitality, which reimagined the pill box as a smart service to get patients to take their medications in accordance with their physicians’ instructions. So instead of creating another pill dispenser, it launched a compliance-enhancing system.

In addressing the billion-dollar adherence problem, Vitality (since acquired by NANTHEALTH) considered the interests of the players in the diverse ecosystem, including pharmaceutical companies, retail pharmacies, and health care providers. It also took into account their roles in changing patient behavior.

The resulting GlowCap offering provides continuous, real-time communication to users and caregivers via a wireless connection. Changes in light and sound indicate when it’s time to take medication. Weight sensors in the pill cylinders indicate when the medication has been removed. Accounts can be set so that text notifications or a phone call are sent if a dose is missed. By pushing a button on the device, an individual can easily order a refill from his or her pharmacy. Weekly e-mails with detailed reports can also be set up, creating a comprehensive system of medication management.

Finance. Finance teams, which are not known for their flexibility to begin with, often have trouble changing their traditional planning, budgeting, and forecasting processes to accommodate radically new IoT business models. I saw this when traditional manufacturers tried to build internet intelligence into products like refrigerators, office products, and health management devices. The finance departments of these companies struggled to account in the same set of books for both one-time revenues for product sales and the recurring subscription revenues for IoT-related services.

Finance departments also had trouble dealing with the fact that the cost of services and the resulting subscription revenues can accrue in a complex manner. Prices for IoT-related services may be based on utilization, thus creating a sliding scale of costs and revenues based on bandwidth utilization, volume of API calls, or changing hosting costs.

Forecasting and planning for product upsells, service additions, increased utilization, and churn across both products and services can also be difficult. Finally, changes in the focus of the business can quickly upend long-held key performance indicators (such as average revenue per unitor customer lifetime value) that may be core to the company’s management culture and how the business is understood.

Operations. When product-based companies add services and connectivity, operational requirements increase. The resulting challenges may include new contract-manufacturing relationships, which can be a complicated and disorienting process for the uninitiated.

The addition of third-party services and shared customer ownership can introduce tiers of customer-support challenges. Inventory requirements, warranties, and returns may change. In addition, companies may suddenly find themselves having to comply with unfamiliar laws and regulations, including those related to the U.S. Federal Communications Commission, the U.S. Health Insurance Portability and Accountability Act (HIPAA),  and customer “Personally Identifiable Information” (confidential data such as names, addresses, contact information).

Sales. In IoT businesses, sales departments often struggle to determine how to best take a combined product and service to market. New skills may be required, new distribution options may emerge, and field conflict (direct and channel) is not uncommon. Sales operations must consider changes to market segmentation, territory management, and resource allocation. Numerous opportunities may arise for distribution partnerships, and determining how best to approach partnerships and compensation can be complicated. (Channel compensation for subscription services with recurring revenue can be a particular challenge.)

Human resources. HR has the job of developing the human capabilities needed to capture the IoT opportunity. These may involve new areas for the company (e.g., telemetry, communications and connectivity protocols, electrical hardware engineering). Building them can be an especially daunting task when the business itself is unsure of what capabilities are required.

Sometimes in IoT businesses, the answer is actually less tech and more traditional execution. My favorite example of this is iRobot, the maker of the innovative Roomba vacuum.

Rodney Brooks, a former director of the MIT Computer Science & Artificial Intelligence Lab and the co-founder of iRobot, told me that the company initially believed that robotics specialists could best explain its robotics-based offerings to the market. But it then discovered that the folks who could best distribute the offerings were vacuum industry veterans who knew the industry lingo, had existing relationships, and understood and managed the channels of distribution.

Engineering. It is rare for a single company to have all the required engineering capabilities under one roof. Consider the breadth and scope that may involve communications and connectivity technologies (telemetry, WiFi, Bluetooth, Zigbee), electrical hardware engineering (sensor technologies, chips, firmware, etc.), and design and user experience. Developing these engineering skills is one big challenge; integrating them into a functional, integrated engineering effort is another.

Since new companies built from the ground up as IoT businesses lack the departmental baggage of older firms trying to make the transition into the IoT world, the former’s learning curve is often shorter. However, the immaturity of the IoT industry means that the practices and capabilities that suffice today will not tomorrow. An ability to evolve — and to do so quickly — is a prerequisite for success.

by Joey Fitts: hbr.org