Monday, July 15, 2019

Learning to innovate in the IoT Age

Lately, many commentators are given to sweeping claims about seismic change.  We are either in the 3rd or the 4th industrial revolution, depending on the commentator.  It can be hard to keep up.  However, where there is smoke there is often fire.  These commentators are correct in the sense that we are entering a time where the Internet of Things (IoT) and the data generated by billions of IoT devices will create radically new opportunities for innovation.  In one sense that fact is a good thing - it means innovation takes on an entirely new life.  In another sense it is a difficult thing - because so many companies haven't mastered the basics of innovating yet, before the deluge of data changes everything.  Innovation is about to get a lot more interesting, and I think a lot more complex.

If innovation today is like playing chess, innovation in the IoT age will be like playing three dimensional chess against several opponents simultaneously.  Companies that have mastered innovation today (and there are few that are really good at innovation now) will face much more complexity in innovating in the future.  Companies that have avoided innovation or who have fiddled around the edges are about to encounter a much more difficult task.

What makes innovating in the IoT Age challenging?

Until a few years ago, the vast majority of products were "dumb" products.  That is, they weren't connected to the internet or communication channels and did not create or publish data.  Your average physical product exists in a space outside of the internet and neither collects, generates or receives data.  As IoT devices and capabilities expand, this is going to change, and when it changes it changes everything.

Take for example my favorite insulated cup that I drink my breakfast beverage from every day.  It does not have sensors or IoT capability.  But if once it does, and if it connects to the internet to share data about my location, my beverage or other data about my life and experience, a number of things change in the creation and use of the cup, and the ability to obtain value from the cup after the purchase.

First, consider the creation of the cup.  Mass production of the insulated cup is simple without a sensor, but becomes a bit more complex by adding sensors, since the sensor must also have power or receive power from the environment, must gather data and share that data with the manufacturer through communication channels like Bluetooth or WiFi.  Simply designing and manufacturing the cup becomes more interesting, but that's the easy part.

Next, think about the business model implications of a connected cup.  One could imagine the ability to sell the cup with the sensor at full price, allowing the customer to determine if or when the sensors are turned on or connected to the internet.  Alternatively, one could imagine a business model in which the cup is provided at cost or perhaps even for free to consumers in return for full access to all the data generated.  In other words, there are many possible business models and consumer relationships possible where as in the past there were few.

Next, consider all of the data.  There are thousands or perhaps millions of insulated cups.  If all join the internet and share data, all of that data must be capture and managed.  We could go into a rather interesting discourse on what happens when millions of different products, each of which are acquired by millions of customers, all generate data every day.  The sheer volume of data generated by even a few IoT devices in your home is difficult to imagine, and also carries exceptional value.  AI and Machine Learning will be vital in many cases to parse out this data and combine it with other data to create new insights, recommend new offers, suggest new features.  However, most companies aren't ready to manage all the data, much less create value or insight from all that data.

So what's this got to do with innovation?

Today innovation is easy.  We understand customer needs or "jobs to be done" for a product or service and build a relatively simple, typically dumb product to meet those needs.  Since the product is dumb, we don't worry too much about business models, revenue models, data and data management, customer experience and other considerations.  Innovation today is primarily focused on getting the product's features - primarily physical features - right and getting the product to market on time.

As IoT enabled products become an increasing reality, innovators have to consider a much larger scope.  They may need to consider different revenue models or business models.  They may need to consider how data is captured, exchanged, and even monetized.  They may need to think about how data may enhance or detract from a customer experience.  They may need to consider how to augment their product with readily available third party data.  In other words, innovators will be forced to think through a number of alternatives and possibilities that just aren't on their radar today, and more importantly all of these considerations are intertwined.  For example, if you capture data, could that have an impact on the cost of the product?  The customer usage and experience of the product?  Will the data have value that can be monetized? 

Learning or relearning how to innovate

All of these factors and more are why I say that every firm will need to rethink how they innovate, and most will need to gain a much broader understanding of what innovation is, and what the product, service, business model and ecosystem considerations are for their products today, and more importantly in the future.

What innovation teams used to worry about were primarily physical features inherent to the product.  In the near future these issues will still remain top of mind, but will compete with issues and challenges related to data capture and exchange, business model and revenue model options, customer service and customer experience considerations and likely the need to involve third parties to provide data, data exchange, support or service for a connected device.  And all of that must be considered in the front end, a place that many companies haven't invested enough in up till now.

The companies that have mastered innovation will need to expand the definition and scale.  Those that have not mastered simple product innovation are about to be faced with a much more daunting challenge.  I'll address some of the factors that companies must consider when innovating in an IoT Age in a subsequent post.
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posted by Jeffrey Phillips at 7:48 AM


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