Other applications take advantage of large sets of IoT-generated data to uncover insights and make predictions. Health care organizations use AI predictive analysis to find potential barriers to medication treatment and to identify potential contraindications. This gives doctors the tools to more effectively support patients, improve outcomes, reduce relapse, and enhance quality of life. Imagine pill bottles that track adherence to prescribed medications, alerting doctors and users when patients fail or forget to take their medication. Also in development are smart pills that can transmit information on vital signs after being ingested.
Significant additional value can be created when consumer IoT systems are linked to business-to-business (B2B) systems. For example, data from personal fitness tracking devices like a Fitbit or Apple Watch combined with clinical information can create a holistic view of the patient, allowing doctors to deliver better care.
The burgeoning array of IoT use cases, ranging from production optimization and demand response to fleet management and logistics, paint a good picture of the power and value of IoT. Most of the economic potential of IoT lies in B2B applications rather than consumer applications. However, simple applications like IoT-enabled baggage handling, so travelers know exactly where their luggage is, can go a long way toward increasing customer satisfaction across numerous consumer sectors. We are certain to see more of these IoT applications in the future.
Industries Mostly Impacted by IoT
IoT’s largest impact will be on companies operating in asset-intensive industries. Approximately 50 percent of IoT spending will be accounted for by three industries: discrete manufacturing, transportation and logistics, and utilities.21,22 Many of these companies increasingly face competition from powerful technology companies. For example, FedEx needs to invest heavily in IoT to stave off competition from Amazon, which has built its own delivery capabilities—including Amazon Air (a fleet of cargo jets), Amazon Delivery Services Partners (Amazon-branded delivery vans operated by licensed partners), and Amazon Flex (independent drivers who deliver packages using their own vehicles). With annual shipping costs greater than $20 billion, Amazon has substantial incentive to invest in its own delivery capabilities, putting pressure on FedEx, UPS, and others to innovate.23
Integrating digital IoT capabilities will have a profoundly transformative effect on companies in these industries, particularly in terms of reduced costs and increased operational efficiencies. Two major use cases alone—predictive maintenance and inventory optimization—will drive significant economic value. In the utilities sector, ongoing investment in smart grid capabilities will also create substantial value, as we have seen at ENGIE and Enel.
Closely following these industries, we will see a large impact on business-to-consumer (B2C), health care, process, and energy and natural resources companies. In health care, IoT will deliver great value—in terms of both economic benefit and human well-being—through new solutions for monitoring and managing illness in real time such as automated insulin pumps for diabetes patients. Similarly, in natural resource industries like forestry and mining, IoT solutions for monitoring resource conditions and improving safety will produce economic benefits and help save human lives and the environment. The IoT-enabled world promises to be wealthier, safer, and healthier.
FIGURE 7.5
The IoT Market Landscape
IoT Solution Providers
Many players in the IoT market are positioned to deliver valuable solutions:
• Industrial companies and manufacturers like Siemens, John Deere, and Caterpillar can extend their digital capabilities to create new IoT offerings and enhance their existing products—from jet engines, motors, and vehicles to farm and mining equipment—delivering more value to end customers.
• Telecommunication companies like AT&T, Verizon, and Vodafone can leverage their vast networks of communication assets and rich customer data to provide IoT connectivity and value-added services such as IoT-enabled home security.
• Enterprise software giants like SAP, Microsoft, and Oracle are attempting to incorporate capabilities into their platforms to support IoT devices for end customers.
• Internet and tech giants such as Google, Amazon, and Apple—already established in the consumer IoT space with products like Google Home, Amazon Echo, and Apple HomePod—will continue to enhance and expand their IoT offerings. Whether they attempt to offer B2B solutions—or will be successful if they do—remains to be seen.
• Across a broad range of other industries—energy, mining, oil and gas, health care, automotive, aerospace—IoT presents opportunities for companies to innovate, not only in how they harness IoT to operate more efficiently but also in how they incorporate IoT into the products and services they offer.
• Finally, some of the most exciting IoT offerings and solutions are certain to come from current and future startups.
Enablers and Barriers
As organizations look to harness IoT technology for their internal use or to develop IoT products and services, they need to consider several factors that will either further enable or potentially slow down IoT adoption and market evolution.
Security, privacy, and confidentiality will become increasingly important. Individuals entrust companies with their data and will require a compelling value proposition to allow for the data to be collected. They will also want to understand exactly what data are collected and how companies ensure data security. Failing to deliver on these promises will create significant barriers to adoption. Moreover, when IoT is used to control physical assets, security breaches can have potentially dire consequences.
For IoT technology to deliver on the promise of real-time decision-making, infrastructure developments in the area of 5G wireless communication must first come to fruition. Telecommunications companies across the world are in the process of investing billions of dollars in this infrastructure, with the first 5G networks beginning to roll out in 2019. When in place, this infrastructure will be a huge boost to the adoption of IoT, because it will provide the capability to move data wirelessly at speeds fast enough for real-time decision-making.
Mainstream mass adoption of IoT products will also require the continuing price decline of sensors, connectivity hardware, and batteries. Computing and storage prices must also continue their decline, as the increasing volume of IoT-generated data will require IoT product providers to consume more of these resources.
Regulation and public policy can also either spur development of the IoT market or significantly impede it. For example, regulation can set market rules and data practices that protect consumers and therefore increase adoption. Having the appropriate incentives in place will also be a market enabler. Certain technologies and use cases, such as self-driving cars, cannot proceed without government action. Those products risk delay if governments fail to act.
Finally, organizations may have to make changes to the company culture to fully leverage IoT’s power. In many cases, new IoT technologies will reduce the need for certain jobs and create new ones, requiring employees to develop new skills through training.
Implications for Businesses
Transforming the Value Chain
Every aspect of the value chain, from product development to after-sales service, is affected when companies embrace IoT in their product thinking.
In the past, product development was often very discontinuous, with companies focusing on periodic product releases. Going forward, design of IoT-enabled products will become increasingly iterative, particularly for products with embedded software that requires frequent updates via the cloud. Product teams will need new skills. Manufacturing companies will need not only mechanical engineers but also software engineers and data scientists.
As companies gather data through IoT devices, they gain new insights into customers and can better customize products to consumer needs. IoT will form a new basis for an ongoing dialogue with consumers, and new business models will emerge as products can be offered as a service. Sal
es and marketing teams will need broader knowledge to effectively position offerings as part of these connected systems.
For many companies, IoT will also have a major impact on after-sales services, since IoT makes remote service feasible. In addition, sensor data can be used to predict when parts are about to break, which makes predictive maintenance possible, enabling companies to significantly expand their value proposition to customers.
With IoT, security concerns become amplified, as IoT devices become targets of potential cyberattacks. Companies now are tasked with protecting thousands or millions of products in the field. Security must be embedded as a first principle in product design and across the value chain.
Redefining Industry Boundaries
Large-scale IoT adoption will affect companies’ strategies and how they differentiate themselves, create value, and compete. IoT will change the structure of entire industries, blurring the boundaries within industries and shifting bargaining power.
IoT products will change the basic principles of product design. Products will be designed to be part of systems and able to be continuously serviced and upgraded. Real transformation will happen when IoT brings what Harvard Business School professor Michael Porter calls “smart, connected products” together into a “product system”—where IoT products are integrated with other products to optimize the entire system. As an example, Porter points to John Deere, which is creating a “farming equipment system” by connecting and integrating its products (e.g., tractors, tillers, combines) with the goal of optimizing overall equipment performance for the farm customer.24 In the “smart home” space, Apple for example is creating the foundation of a product system with its Apple HomeKit framework, enabling third-party manufacturers to develop products—such as lights, sprinklers, locks, fans, etc.—that can be controlled with the Apple Home app. Competition in this sense will also move from competing on the best single product to competing on the best system.
This represents a fundamental change in a company’s business model—from making and selling a product to making entire product systems or platforms. The possibilities now available require companies to answer major strategic questions such as what business they are in. Companies have to decide if they want to be the system integrator that provides the entire platform or one discrete product on a larger platform.
Effect on Business Models
Embracing IoT is forcing companies to assess new strategic options. These important choices include which capabilities to pursue and what functionality to embed; whether to create an open or a proprietary system; what type of data to capture and how to manage it; what business model to pursue; the scope of the offering; and more.
The organizational changes I previously described will be evolutionary, with old and new structures often needing to operate in parallel. Many companies will have to pursue hybrid or transitional structures to allow scarce talent to be leveraged and experience pooled. Some firms will need to partner with focused software companies and experienced consultants to inject new talent and perspectives into their organizations. At the corporate level in multi-business companies, overlay structures are being put in place to evangelize IoT and AI opportunities:
• Stand-Alone Business Unit. This is a separate new unit, with profit and loss responsibility, in charge of executing the company’s strategy to design, launch, market, sell, and service IoT products and services. The business unit aggregates the talent and mobilizes the technology and assets needed to bring new offerings to market. It is free from constraints of legacy business processes and organizational structures.
• Center of Excellence (CoE). Supplemental to stand-alone business units, the CoE is a separate corporate unit, housing key expertise on smart, connected products. It does not have profit and loss responsibility but is a shared services cost center that other business units can tap. The CoE brings together cross-functional expertise in digital technologies (AI, IoT) and transformation strategy, helping guide IoT product strategy and providing expert resources for other business units.
• Cross-Business-Unit Steering Committee. This approach involves convening a committee of thought leaders across various business units who champion opportunities to share expertise and facilitate collaboration. This organization will typically play a key role in setting overall digital transformation strategy.25
IoT products will reshape not only competition, but the very nature of the manufacturing firm, its work, and how it is organized. They are creating the first true discontinuity in the organization of manufacturing firms in modern business history.
It is important for organizations to see IoT products first and foremost as a chance to improve economies and society. IoT products are poised to contribute great advances in the human condition—a cleaner planet through more efficient energy and resource usage and healthier lives through better health monitoring. They position us to change the trajectory of society’s overall consumption. Exponential opportunities for innovation presented by IoT products, together with the huge expansion of data they create, will be a net generator of economic growth.
IoT represents a major opportunity for organizations across industries—expected to create more than $11 trillion in global economic value by 2025—and will profoundly change how products are designed, supported, and used, as everything becomes a computing device. Many of the companies I talk with today are making IoT a first-level business imperative. Many more will follow. IoT, combined with the ability to analyze large data sets residing in the cloud and to apply sophisticated AI algorithms for specific use cases, will dramatically transform how businesses operate and create value.
The Ultimate AI and IoT Computing Platform
IoT devices are sensors—sensors that can remotely monitor the state of devices, systems, and organisms in real or near real time. They are proliferating across all value chains: travel, transportation, energy, aerospace, health care, financial services, defense systems, and government. They are becoming ubiquitous: smart watches, smart meters, home camera monitors. All modern aircraft, vehicles, and construction equipment are being equipped with sensors allowing the operator or manufacturer to monitor the equipment. Today humans wear Fitbits. Tomorrow humans will be fitted with heart monitors with sensors. Brain waves will be monitored. Pills with sensors will be ingested to report on the state of the gut, blood chemistry, heart arrhythmia, cortisol levels—all will be remotely monitored.
As discussed above, the rate of IoT sensor proliferation in the 21st century is breathtaking. Soon over 50 billion sensors will have been installed across industrial, government, and consumer value chains.
Taking a closer look at these IoT devices, when we peel off the cover, we find that—although it might only cost a few dollars or a few cents—each has computational and communication capacity. It is a computer connected to a network.
Recall Moore’s Law, coined by Intel co-founder Gordon Moore. In 1965 Moore described a trend he saw that the number of transistors on an integrated circuit was doubling every two years at half the cost. This cost economy proved the driving force behind the increase in computer and memory performance we have seen in the past 50 years.
FIGURE 7.6
As a scientist at Xerox PARC in the 1970s, Bob Metcalfe invented Ethernet—a breakthrough that made it possible to connect previously discrete computers into interactive networks. It was clear that the power of the computer network is greater than the sum of its components. In an attempt to describe that power, Metcalfe’s Law was first presented in 1980. Metcalfe’s Law states that the power of the network is a function of the square of the number of devices connected to the network.
You can think of digital transformation as a result of the collision and confluence of Moore’s Law and Metcalfe’s Law. With IoT we have 50 billion computers connected into a network. Fifty billion squared is on the order of 1021.
1021 is roughly equivalent to the number of stars in our universe. That’s 1 billion trillion! IoT may be
the single most important defining feature of the 21st-century economy. Yes, it’s a network of sensors. Yes, they collect massive amounts of data that can be used in new and powerful ways. But most importantly, this IoT constellation is a computing platform. Much of the computing takes place in the sensors themselves—that is, on the edge—that collectively constitute a computing platform the power of which was inconceivable only a few years ago.
FIGURE 7.7
IoT and AI are two sides of the same coin. It is this computing platform that fully enables AI and digital transformation.
Chapter 8
AI in Government
“Artificial intelligence is the future, not only for Russia, but for all humankind. Whoever becomes the leader in this sphere will become the ruler of the world.”1
Vladimir Putin
September 2017
Throughout this book I have argued that digital transformation will touch every industry. It will profoundly impact every facet of business and society. It will create enormous value globally.
It will also determine the future geopolitical power balance and the security of the world’s nations and their citizens. War is being digitally transformed.
AI is the new battleground in the competition for global economic and military power, with the U.S. and European democracies in the West vying with China in the East for AI leadership. Russia, while not a significant economic power, clearly understands and prioritizes the military importance of AI.
In this chapter I provide an overview of the battle for AI leadership, focusing primarily on the two central players: the U.S. and China. I also outline some of the ways in which AI can and is being applied today to drive significant readiness improvements, operational efficiencies, and cost savings in the U.S. military.
I believe it is incumbent on senior executives and government leaders to understand the dynamics of the global competition for AI leadership and its implications for national and global security. The private sector, as innovators and technology providers, will play a key role in the outcome of this competition. There is nothing bigger at stake.
Digital Transformation Page 16