As the price of IoT sensors has decreased, new IoT use cases are gaining traction. But what about maximizing the value of an IoT investment?Over the past several years the price of IoT hardware components has declined dramatically, decreasing overall IoT costs and creating opportunities for positive return on investment in many new use cases. Companies still wrestle with IoT ROI calculations where the return doesn’t seem to justify the cost, despite the hypothetical transformative power of connected devices to reduce costs. Like computers and the internet before it, IoT has gone through a phase where much of the potential is not yet realized and many applications are novelty uses that are difficult to justify financially. So where is the ROI on IoT? There are several obstacles companies face both in calculating and realizing ROI from IoT, and managing them appropriately can be the key to achieving IoT success.
No one knows what they don’t know – and they certainly don’t know the cost of what they don’t know
IoT sheds light on the dark corners of your business: where is your excess inventory? Where do your people spend their time? How are your assets being utilized? When is your equipment under unnecessary stress? Very few companies can quantify the current, pre-IoT costs of these unknowns, but an estimate is needed to calculate the ROI. The instinct is often to stop after calculating the cost impact on the layer of operations immediately adjacent to the potential IoT project. For example, when quantifying the baseline cost of reactive (versus predictive or prescriptive) maintenance, too many companies would only include down time for unexpected outages, but may not consider reduced life of the machine, maintenance overtime, lost sales due to long lead times, supply chain volatility risk for spare parts, and the list goes on. Putting a dollar amount next to each of these can be challenging, but thinking bigger is foundational to getting an accurate ROI calculation. For companies looking to add connectivity to their products, helping customers successfully conduct ROI calculations can be an important marketing tool for showing the value of your innovation.
IoT isn’t Jeopardy! – don’t start with the answer and then come up with the question
IoT solutions are most successful when they are approached as one tool in the toolkit of process improvement and are implemented using change management best practices. It can be tempting to see a cool new technology and try to imagine how it might be used at your company rather than starting with the problem to be solved. Too often companies feel like the types of data they are able to collect are prescribed by the sensors integrated into connected devices. Unsurprisingly, Harvard Business Review found in 2018 that less than half of structured data and less than 1% of unstructured data held by companies were used in decision making. Planning how data will add value for your company and then optimizing hardware to collect that data greatly increases the likelihood of success of an IoT implementation.
Don’t use a hammer on a screw – find the right solution for your particular business process
With a proposed IoT-enabled process map in hand, companies dive in to the overwhelming search for the right solution in a massive sea of providers. Most companies don’t have IoT experts, so they turn to the IT staff who speak the language. It can be tempting to turn everything over to the IT team when conversations turn to gateways and clouds, yet it’s important that a diverse team that includes business process owners stays engaged. Companies generally start with software and analytics but it is important to make sure this isn’t where your team stops. Getting the right sensor hardware that provides the right data is just as important. Settling for only temperature sensing when the combination of temperature, humidity and location is really what will drive useful insights in your analytics is a sure-fire way to destroy value and erode your ROI. Your analytics are only as good as your data, so don’t sink a multi-million dollar IoT software investment with the wrong sensor network hardware choice.
IoT technology is now ubiquitous, but that doesn’t mean it’s all the same. Good management practices such as accurate ROI projections and good change management will be the difference between true transformation and wasting money on gimmicks. Now is the time to question your assumptions and re-examine what IoT can do for you.