How to begin your corporate IoT strategy, realizing immediate returns while laying the foundation for more radical change later.

1. I suspect that if you’re
sufficiently interested in the IoT to
be attending this track, you are at
least pretty confident that the IoT
will eventually have a major impact
on the economy and your own
company, but you may not have
made any specific IoT investments
and or created a comprehensive

2. IoT adoption strategy. This afternoon
we’re going to consider tangible,
affordable strategies that will allow you
to begin incorporating the IoT into your
operations, achieve some tangible
benefits, and acquire basic
understanding of the IoT and its
benefits that you can later apply to
more radical transformation.

3. If you haven’t made a real
commitment to the IoT, you’re in good
company. A December 2013 survey by
the American Society for Quality found
that only 13% of US manufacturers
are using any smart manufacturing
technologies so far.

4. However, I have a stark warning
for you.
The IoT is now a reality: since 2009
there have been more things than
people on the Internet, and Cisco says
that 50 billion things will be linked by
2020, and the company’s John
Chambers warned that 40% of the
companies attending a recent seminar
wouldn’t survive in a “meaningful way”

5. within 10 years if they don’t begin now to
embrace the IoT.
Even if you aren’t looking to create IoT
products for the consumer market, the IoT
will change your business: the McKinsey
Global Institute estimates that B2B uses
can generate nearly 70 percent of
potential value enabled by the IoT, and
Gartner says a majority of IoT changes will
be behind the firewall, dealing with
corporate operations: as they call it, the
“Intranet of Things.”
In other words, you simply don’t have
time to wait.
Even though the price of sensors will
drop and analytical tools will become
more powerful, making the IoT even more
robust in coming years, you must begin to
develop and implement your IoT strategy

6. now.

7. In my talk this morning, I described
how the Internet of Things can bring
about radical transformation in
everything you do, from product
design to corporate organization.
However, there’s also a more
modest, less-costly, less-jarring
approach you can use to begin the
transformation.
Several years ago, in the Managing

8. the Internet of Things Revolution e-guide
that I wrote for SAP, I suggested that the
way to test the waters, install the
infrastructure you’ll need to make more
radical changes, and to gain some
important IoT experience is by using it
first to dramatically increase the operating
efficiency of your existing operations.

9. There’s no better model for this
strategy than GE, the only member of
the original Dow Jones Index that still
exists — let alone thrives.
While I maintain that the company
is probably the leading example of
radical transformation through the IoT,
its stated goal for its “Industrial
Internet” initiative is more modest, to
increase operating efficiency, first in its

10. own operations, and then in the various
industries it serves, from railroads to
health care, through IoT-based
incremental improvements. As an
admiring report from the Motley Fool said,
“GE estimates that a 1% improvement in
its productivity across its global
manufacturing base translates to $500
million in annual savings. Worldwide, GE
thinks a 1% improvement in industrial
productivity could add $10 trillion to $15
trillion to worldwide GDP over the next 15
years.”
Or, as GE put it elsewhere, just looking at
benefits to the US economy:
“If the cost savings and efficiency gains of
the Industrial Internet can boost US
productivity growth by 1-1.5 percentage
points, the benefit in terms of economic

11. growth could be substantial, potentially
translating to a gain of 25-40 percent of
current per capita GDP.”
Let me emphasize that: they’re setting
the bar very, very low: only a 1% boost in
productivity, when in fact the improvement
will probably be much, much higher.
Does that sound like a reasonable
goal for your company?
So let’s go into this topic of building
efficiency through the IoT in some more
detail to decide how to begin.

12. The secret to such an increase in
efficiency is a degree of precision in
everything — everything — we do that
was impossible in the past.
In the past, it was impossible for
us to measure in real-time exactly
what was happening in our supply
chain, in our factories, in our
distribution networks and with our
products after they left the factory,

13. and to share that information instantly
with everyone who needed it to to their
job more efficiently and/or make better
decisions.

14. That is really a profound
difference, and it’s worth restating,
because this is such a change from
the past.
In the past, it was so difficult to
collect data — about the state of our
manufacturing equipment, about how
products performed once they left the
factory, that we were only able to
gather limited data, typically from

15. mechanical gauges, read infrequently by
humans and recorded on a clipboard. But
what happened if there was a pressure
spike in between the readings? What if his
supervisor forget to check the form?
What if there was a critical factor, such as
metal fatigue, that couldn’t be detected by
a gauge?
You get the picture: we didn’t have
much data, and it was hard to share, so a
lot of our strategy and daily operations
were based on guesstimates.

16. But now, especially with the
advent of the IoT, we have much more
information, collected 24/7, and
there’s still more to come with the full
deployment of the IoT, so the smart
place for you to begin with an
incremental approach to the IoT is to
make the investment now in cloud
storage for data, data analysis tools
such as HANA, and, dashboards and

17. visualization tools that will let everyone
who needs it to share this data on a real
time basis.
The great thing about investing in
analytics is that it will pay off immediately,
even before you invest in the rest of the
IoT, simply by improving your ability to
make sense of the growing amount of
data you collect. As an MIT study several
years ago documented, among the 179
large companies studied, the ones that
switched to “data-driven decision
making” had 5-6% higher productivity
gains than were explained by other
variables.

18. Once you have the analytical tools
in place, you can begin to apply them
in a variety of ways that will be
valuable to begin with, and only gain
in value as more IoT sensors are
deployed and your volume of data
increases. For example, you can begin
now to profile your customers using
measures such as customer lifetime
value, based on past buying

19. decisions, and the analysis will become
more and more valuable as sensors are
deployed in the products themselves to
show how customers actually use the
products and as iBeacons at retailers
provide more information on how they
actually behave in a store.

20. Now let’s come back to GE,
because it is pioneering what I call the
“Era of Precision Manufacturing,” in
which all aspects of the production
cycle, from supply chain to the factory
floor, to the distribution network and
retailing, are linked to an
unprecedented degree.
Why?
Because, for the first time, they will

21. now be able to share real-time data about
exactly what is happening, allowing
unprecedented coordination and
efficiency.

22. A number of companies, including
Bosch and Johnson Controls, are
creating systems to make this
possible, but perhaps the best
example is GE, which calls its initiative
Brilliant Factories, and it is leading the
way by eating its own dog food:
applying the concept internally to its
own 400 factories, then planning to
spread the benefits to customers

23. through the machinery it builds.
Look at this graphic of the benefits it
hopes to achieve!

24. To better understand why your
initial IoT strategy could build a solid
record of achievement by beginning
with the Brilliant Factory approach,
consider GE’s Durathon battery plant
in Schenectady.
It makes high-precision back-up
batteries for cell towers in remote
areas of the world, and because it
make take days to get a repair crew to

25. the site, GE puts sensors into the
batteries that can, among other things,
detect the earliest signs of failure, so the
repair crew can be dispatched long before
the battery ever fails: the so-called
predictive maintenance approach that GE
now is able to offer its customers as a
benefit.
GE could just slap the sensors on
when the battery is ready to leave the
plant, but, instead, they’re designed in to
the very beginning of the complex,
weather-sensitive chemical process that
creates the battery. That means that every
single battery — not the sampling of
products that are given quality checks
elsewhere — is monitored throughout the
production process.
But that’s not all: instead of that lowly

26. worker walking around a factory with a
clipboard writing down gauge readings
that his boss might or might not read, the
manager of the Durathon plant walks
around with an iPad, directly monitoring
the readings from the 10,000 sensors
embedded in the assembly-line
machinery, as well as real-time data from
the National Weather Service. That’s
critical, because the chemical process
that forms the battery is highly weather-
dependent, and the manager can make
real-time adjustments to the process
based on the weather data. In fact,
according to Industry Week, he’s even
done it on the weekend from his home
when a storm was predicted!
Imagine the precision that this kind of
monitoring gives!

27. Or, for that matter, consider Siemens’
“factory of the future,” which
manufactures its Simatic custom control
devices, which include more than 50,000
annual product variations on 950 different
products, made from 1.6 billion different
components. Despite that complexity, it
only has 15 defects per million, 99%
reliability, and 100% traceability, because
of the IoT sensor monitoring.

28. The factory will become more
productive when more and more
sensors are built into it: when the
10,000 sensors on the Durathon
assembly line becomes
commonplace. Make certain that
because capital equipment is used for
so long, that any new machinery your
are considering today includes built-in
sensors!

29. Predictive maintenance, which allows
you to identify issues such as metal
fatigue that aren’t apparent to the naked
eye but will be documented by sensors,
will allow you to deal with a maintenance
issue in the earliest stages, when it can be
dealt with as cheaply and quickly as
possible, and during scheduled down-
times, to avoid disruption.

30. The benefits of this new ability for
everyone who needs it to share real-
time data instantly can also benefit
your company in another aspect of
precision manufacturing.
For the first time, we can have true
just-in-time supply chains and
distribution networks, if we choose to
share production data with suppliers
and distributors, eliminating both

31. excess inventory and shortages.
Instead of a linear process, in which each
partner in the production and distribution
business was unable to know exactly
what the other was doing, we will have a
continuous loop, with real-time IoT data
as its hub, so each partner will know what
the other is doing, allowing them to fine-
tune the resupply process. In many cases
this will be done on an automated, M2M
basis, requiring no human intervention.
And, on what used to be the other
end, the sales process, SAP’s prototype
vending machine has shown that putting
sensors in the machine and sharing the
data instantly can not only lead to
marketing insights, but also allow
automated changes to distribution based
not on historical patterns, but on what’s

32. happening right now.

33. Even as lowly a function as logistics
will become precise with the IoT, and
that’s critical. Consider just a few
statistics about the current state of
logistics today:
*trucks in the US are, on average, only
60% full, and globally the efficiency is
only 10%!
*in the US, they were empty 20% of
miles driven

34. *US business inventories were $1.6 trillion
as of March, 2013 — so much for “just-in-
time.”
*time-sensitive products such as food,
clothes and medical supplies are unsold
because they can’t be delivered on time.
Instead, we’d move from the old point-to-
point and hub-and-spoke systems to
ones that are “distributed, multi-segment,
intermodal.” A single, exhausted, over-
worked (and more accident-prone) driver
would be replaced by several. It’s a little
counter-intuitive, but while it would take a
driver 240 hours to get from Quebec to LA
under the current system, instead, 17
drivers in a distributed one would each
drive about 3 hours, and the cargo would
get there in only 60 hours!

35. Under a new, linked logisitics system, the
current fractionated, isolated warehouse
and distribution mess would be replaced
by a fully-integrated one involving all of
the 535,000 facilities nationwide, cutting
time and dramatically reducing
environmental impacts and fuel
consumption.
Trucking is such a quintessential 20th
century industry, but the IoT will reinvent it
for the 21st!

36. Another early stage IoT approach
that you can launch within the
confines of your existing business and
again focusing on increasing precision
and reducing chance and variation
focuses on workplace safety.
Especially in very large, complex
workplaces such as ports or
construction sites where there were
many workers, many vehicles, and

37. many companies involved, the best we
could do in the past was to plaster the
site with warning signs and decals, and
constantly remind workers of the need for
safe practices. However, as a practical
matter, these sites are characterized by
constant changes, even in a single day,
and lack of routine, so minimizing
accidents was almost impossible to do on
any kind of systematic way.
Now SAP is using the power of HANA
to reduce harbor and construction site
danger and accidents. Perhaps the most
dramatic example is in Dubai — home to
25% of all construction cranes in the
world — where it partnered with a
worldwide leader in construction site
safety, SK Solutions. Sensors are located
on machinery throughout every site,

38. reporting real-time details about every
activity: machinery’s position, movement,
weight, and inertia and critical data from
other sources (as with the GE Durathon
factory’s use of weather data), including
wind speed and direction, temperature,
and more.
Combining SK and HANA, site managers
can detect potential collisions, and an
auto pilot makes instant adjustments to
eliminate operator errors. “The information
is delivered on dashboards and mobile
devices, visualized with live 3-D images
with customizable views.”
Amazing!
Equally incredible is the change at the
Port of Hamburg, Germany’s biggest port,
which must juggle 9 million containers
and 12,000 vessels a year, not to mention

39. a huge number of trucks and trains. You
can imagine the potential for snarls and
accidents. Since installing HANA, all of
these components, including the drivers
and other operators, are linked in real
time. Average waiting time for each
truckload has been cut 5 minutes, and
there are 5,000 fewer truck hours daily.
The coordination has gotten so precise
that, if a trucker will be held up by a
bridge opening, the nearby coffee shop
will send a discount coupon to his iPad.

40. This is also the time to begin to
decide what your long-term IoT
strategy will be, both so you can
target expenditures wisely and so that
you can create a competitive
advantage.
Because only a few companies can
take on multiple roles in the IoT, you
will need to begin now to decide what
niches to focus your efforts on,

41. influenced by factors such as your current
products, what customers you serve, and
your flexibility.
Frank Burkett of Strategy& suggests, in A
Strategist’s Guide to the IoT, that there
are three major niches to consider:
•“Enablers,” such as Cisco, Google, HP,
IBM, and Intel. They develop and
implement the underlying technology
such as sensors, the cloud and analytic
tools. I suspect that none of you would
fall into that category — that’s pretty
much reserved for the pioneers, who
already have massive infrastructure.
•“Engagers,” is the most wide-open and
easily penetrable category. It is primarily
in the area of devices such as hubs and
connected services that actually engage

42. customers. Engagers tend to be most
active in hubs and connected services.
•Finally, there are the “Enhancers,” which,
according to Burkitt, are just beginning to
emerge, and create “their own value-
added services, on top of the services
provided by Engagers, that are unique to
the Internet of Things. They provide
integrated services that reframe and
repackage the products and services of
the Engagers. They succeed by finding
new ways of creating and extracting
value from the data, relationships, and
insights generated from IoT activity.”
Examples range Progressive Insurance,
which uses a plug-in device to measure
drivers’ actual behavior to determine
rates, to MetLife, which is using data
customized to individuals’ needs, and

43. premiums based on their fitness habits.
This process will take time, and you
company’s early experience with
implementing IoT technology will help
guide your decisions.

44. Burkett says “You may also need
to develop some “table stakes”
capabilities that all IoT companies
must have.” As I’ve already
mentioned, that starts with having the
tools to manage and analyze huge
streams. In addition, he says you’ll
need “… to integrate diverse portfolios
of services, and to build business
relationships with other IoT-related

45. companies, some of which may have very
different cultures. You probably already
have innovation processes in place, but
they may not be customer-centric
enough. You may also need to foster more
opportunities for people in your company
to experiment and learn rapidly about
what works and what doesn’t.”

46. You’ll also need to consider
whether to redesign products to
include IoT devices that will give them
new powers.
One of my favorite examples is the
BigBelly, a municipal trash can like no
other.
It would have been neat enough to
have just made its initial solar-
powered compacter, which will hold 5

47. times as much trash as a conventional
wire one, without all the wind-blown litter
or dented cans. But BigBelly had an IoT
vision, and also built in wireless
communications, which allows the
container to notify the city DPW about
how full it is, so it only needs to be
emptied when actually near capacity,
rather than just guessing when it might be
full based on past experience. But that’s
not all: the same wireless transmission
system lets it create an instant mesh
network that can serve people on the
streets or be a critical tool for city
agencies in an emergency.
If a humble trash container can
become a communications hub, how can
your product be transformed?

48. Another key decision you’ll face
before launching an advanced IoT
strategy is to decide whether to
convert products you used to sell into
services, another innovation that was
impossible in the past, before the
constant stream of data from products
made possible by the IoT.
One of the most dramatic
examples is Rolls Royce’s Total Care

49. program, which has dramatically eclipsed
its sales of jet engines in recent years.
These days, engine manufacturers are not
any more in the business of selling
engines, but selling thrust. Now, 80% of
all Rolls engines are leased by the hour.
The engines send a constant data stream
from the 50-60 sensors on each of them
to 4 center where each engine is under
constant surveillance while in the air. That
allows them to spot possible maintenance
problems so early that replacement parts
are in place at the plane’s destination,
avoiding more costly repairs later — or
catastrophe.
The company also markets the data
streams to its customers so that they can
combine the data with other real-time
data such as weather conditions, to

50. optimize operating efficiency. Rolls now
has a constant revenue stream, and its
customers have more reliable engines.
Everyone wins.
Could your company’s products go
through a similar transformation?

51. And, in this early stage, you can
also begin to consider more
fundamental changes that could use
the IoT’s promise of real-time data to
all who need it to truly transform your
company.
This morning I talked about how
limits in how we were able to collect
and share data in the past naturally led
to the hierarchical and linear

52. management charts and practices that
characterize most companies today —
even IoT startups.
Now, because — for the first time ever
— everyone who needs real-time
information about things of all sorts to do
their jobs more efficiently and/or make
better decisions, can share that
information instantly.
Think of it: all of the old work-arounds
we created to manage and share the
limited information are no longer needed.
Instead, we need new management
forms and practices to instead capitalize
on this instant sharing of information, and
I suggest that — just as we can now
replace the old linear progression of
supply chain — factory — distribution
network with an integrated loop with IoT

53. data as its hub, so too can we replace the
linear and hierarchical management
structures with cyclical ones that also
have IoT data as their hub, allowing us to
break down information silos between
departments, let departments — such as
product design and marketing — that are
concerned with the same issues to
collaborate in real-time, and create new
integrated decision-making skills and
methods that capitalize on this real-time
sharing.
I’d like to end on that note, and am
glad to take questions!