In my previous article (Industrial IoT: it’s all about costs), I mentioned the importance of costs when it comes to Industrial IoT, introducing the notion of TCCA (Total Cost of Connecting Assets).
As a person rightly commented on the article, if cost is an important element of the RoI equation, it’s equally important to look at the value created by connecting assets – let’s call this as was proposed the Total Value of Connecting Assets (TVCA).
TVCA can originate from one or several of the following levers:
· Operations optimization creates value through cost savings or cost avoidance, for example by optimizing the supply chain, reducing energy consumption or working capital needed to operate the business. Usually easy to quantify. However, as written previously, some of the low-hanging fruits in this domain have been addressed years ago with GPRS. This lever alone may not always finance an IIoT project.
· Regulatory compliance / quality traceability can be a powerful IIoT motivation for some industries. Being able to provide evidence of what happened to the asset or its content (think of products requiring controlled-temperature environments) can be/become mandatory, or may prove a serious competitive advantage.
· Customer Experience improvement. Connecting assets may provide ways to improve customer satisfaction, potentially differentiating from competition. Challenge here will be to quantify value creation (additional market share? churn reduction?). Quantification becomes easier if the improved Customer Experience translates in a reduction in customer complains, or can be sold as an extra service – experience however shows we tend to overestimate customers willingness to pay extra for better service… freemium rules the world these days.
· Product and/or Customer knowledge. Getting a feedback loop on the way your products behave or are used by your customers will obviously help improve your offering on the market. This is an interesting lever, as it is possible to derive significant value without connecting 100% of your assets, by using the right statistical analysis. This can help build a progressive business case for your IIoT project.
· The last – but most strategic – lever of value creation is business model change. Thanks to IIoT, you may for instance restructure your distribution model, potentially going for direct customer sales instead of indirect, or you may take back control of your final customer relationship management. IIoT may also allow to transition from a discrete product sales model to recurring service sales.
The interesting thing is that there is absolutely no correlation between the technical IIoT solution deployed and these five value creation levers. At Alizent, we have many examples of the same technical solution rolled out to different customers with a completely different value creation rationale in each case. And even within Air Liquide, we learnt that geography sometimes strongly influences an IIoT project value creation (regulation, standard of living, social behaviours…)
A common situation in Industrial IoT context is to limit the value creation analysis to the first lever (operations optimization) – this can lead to missing some important value creation levers, and as a result, dropping a project that would have made sense but can’t be financed on pure operational savings.
This is why we advise our clients to dedicate a bit of time for a “value creation workshop” at the very beginning of any IIoT project, before rushing into the feasibility study / Proof of Concept that everyone is excited about (techno fans will know what I mean).
This is not always an easy exercise, as the various value creation levers are owned by different departments within the enterprise, but well worth it. It may avoid dropping a project for the wrong reasons. It will sometimes avoid spending money and time into experiments that have no business future. And if the project is kicked-off, the high-level TVCA analysis will provide invaluable guidance for designing the right technical solution, including its target TCCA.
Alexis Duret – 30/06/2017