The industrial Internet of Things (IoT) has the potential to lower costs, improve productivity, enhance safety and open new markets by changing how a company acquires, communicates, stores analyzes and visualizes data. But despite what appears to be obvious benefits, building a bullet-proof industrial IoT business case can actually prove to be quite elusive. However, it is not impossible.
How to Build an Industrial IoT Business Case?
- Think Business Problems – The number one mistake people make in building a compelling business case for investment in an industrial IoT project is to start with a focus on the technology and how it works. Sure, technology is cool. But the most important thing to include in the business case is a clear articulation of the business problem that the industrial IoT implementation will solve. Will it lower operating costs? Improve production? Improve compliance? Open a new market? By describing the problem in business terms, the business case will help reinforce why an industrial IoT project is important to the company.
- Articulate Value – Not only should the business problem be defined, but the expected value to be realized should be stated in the industrial IoT business case an order-of-magnitude estimate is sufficient at this point. Keep in mind that no matter how great the solution, if the value realized is small, management will direct resources to other projects.
The components of the expected value should also be included. For example, rather than quoting a lump sum, such as “maintenance costs will be reduced by $100K,” state the specific savings: 1) reduced transit time (-$10K); 2) elimination of any unnecessary routine maintenance (-$45K), and 3) elimination of costs associated with unplanned outages (-$45K).
- Know Your Customer – All too often industrial IoT projects are considered to be infrastructure or IT projects. However, the true “customer” is the department that benefits from the specific business problem being addressed. The people in the customer organization—typically reliability engineers, maintenance supervisors, or plant managers – need to be convinced of the business case–not the technology people. A business case should be written to make sure the benefits to the “customer” are clear and focus less on the technical details.
- Change Behavior – The industrial IoT is not about technology. The industrial IoT is about using digital technology to change the way an organization conducts business to gain a competitive advantage. As a consequence, the business plan needs to show how the project will change behavior and work processes and flows—without that change, there will be very little value to the organization. The business case should describe the change mechanism and what the new behavior will look like. Will there be less travel by personnel to service machines? Less manual readings? More informed decisions? The business plan must convince the intended audience that change can and will occur.
- End-to-End Solution – One of the key concepts for generating value is to ensure that the industrial IoT project generates an end-to-end solution. Below are the five basic things that the industrial IoT needs to have in order to generate value. Without all five, data will become “stranded” and the full value of the project will not be realized.
- Sensors – Sensors are required to take a machine’s measurements.
- Communications – The communications and protocol conversions needed to relay data from the machine sensors to the gateway to the enterprise.
- Collection and management of big data – The ability to collect and store contextualized big data from virtually any source in order to identify patterns and detect trends as well as build predictive models.
- Analytics – A powerful analytics engine that can make sense of the data so actionable insights can be found is a necessary component of an end-to-end solution.
- Visualization – Visualization is about displaying complex information and data sets in an easy-to-understand visual format for all users, regardless of skill set.
One of the more exciting aspects of the industrial IoT is how it enables new business models, some of which are shown in the figure below. In a conventional implementation, the customer procures the hardware and the various software components such as the operating system (OS), databases, and compilers; install the parts; and write the application. You would then run all aspects of the operations, including patching the OS, fixing hardware failures and updating core software components. If the system fails to deliver the desired business results, the customer absorbs all the risk and the hardware and software suppliers still get paid.
With the advent of the industrial IoT platform as a service (PaaS), service providers deliver the infrastructure and many of the software building blocks (hardware, OS, SQL, NoSQL, business intelligence, machine learning) to the customer. Some PaaS suppliers provide pre-built application components such as equipment health. Unlike the conventional approach, this is a shared risk model where the PaaS is accountable for the delivery of essential infrastructure and core software tools, while your organization still writes the applications upon the platform. If the supplier does not provide the agreed-upon services, they do not get paid.
There are also business models that involve the customer buying data as a service (DaaS). In this case, the service provider installs the sensors, backhauls the data to its cloud, performs the analytics and then delivers the information back to the customer. In the case of no data, no payment is made to the suppliers. This model moves all the risk to the supplier and significantly accelerates project implementation.
The business case must show how the solution will move beyond the proof of concept (POC) and be implemented at scale. The greatest value is achieved when an organization achieves a step-change in its basic business approach, and typically small-scale implementations do not result in large step changes.
Most industrial IoT projects do not pass the PoC stage due to the following reasons:
- Cost and complexity of deployment at scale – Setting up five devices in a lab environment is easy, but implementing 5,000 devices in the field can be hard. Make sure the solution is cost-effective to deploy at scale and consider ways to manage those costs. One strategy might be to avoid the need for costly, specialized skills in the field of self-configuring devices.
- Total cost of ownership – Be sure that the total cost of ownership is considered. For example, any time savings can rapidly evaporate when frequent trips to the field are needed to update devices and perform maintenance. In this case, consider whether updates be pushed to all the devices from a central location.
- Cybersecurity – Many projects never move to pass the PoC stage because the cybersecurity risk is too great, typically because security was an afterthought rather than an upfront consideration. Many of the “carpeted space” security solutions, such as user ids and passwords, do not scale in the IIoT space.
The industrial IoT holds great promise to reduce costs, improve production, enhance safety and open new markets. However, it must be approached in a manner that generates a significant competitive advantage for the company. By following these guidelines, a solid business case for the industrial IoT can be created.