The Industrial Internet of Things and the Performance-based or Outcome Economy
Aug 12, 2016
When we think of the Internet of Things or connected products, we tend to think of our hyper- connected world of gadgets, whether it be smart phones, refrigerators, or toothbrushes that appear to have non-essential and cool product features for the technophile. When looking at the world of sensors, internet-enabled products, and cloud computing, it's hard to truly comprehend the enormity of what's happening at a fundamental level, that being, the definition of business value and how it will affect all of us.
For as long as we can remember, products have been bought and sold. The transfer of ownership comes with the sale and service ends with the warranty term; we can consider this the transactional model. As business has evolved, we have added more advanced value-added concepts to this simplistic model. This includes EDI-type of inventory systems to ensure that we manage demand for a customer base as efficiently as possible. As with other services, consulting or other informational type of engagements, we use things like a "trusted and reliable partner". This suggests the relationship has moved beyond simple buy-and-sell to more of an understanding of the other's needs and proactively manage one's activities.
With the Industrial Internet of Things, there is an extension far greater from being a good partner or vendor to tying business value to measurable-based performance outcomes. Theodre Levitt captures this concept in his quote, “People don’t want a quarter-inch drill. They want a quarter-inch hole!” As Joseph Barkai writes in his recent book, "The Outcome Economy", companies create value not just by selling products and services, but by delivering complete solutions that produce quantifiable business outcomes for customers.
It's important to note that the value of the Internet of Things does not come from connected devices, but rather from the ability to extract, mine, organize, and influence action from the information stemming from connected device data. The rubber will hit the road for all the companies designing expensive technology solutions that don't result in concrete results, but for the ones that do, new billion-dollar entities will be born. Organizations will be able to statistically argue their value as opposed to the empty slogans like "I guarantee it!" or "100% Satisfied or Your Money back".
New business models will emerge based upon an ongoing relationship outcome-based approach to doing business. We already see the subscription and membership economy becoming a dominant model and the Holy Grail in terms of recurring revenue with companies like Netflix. SaaS (Software as a Service) is morphing into things like SeaS (Sensor as a Service). For the scrappy independent business owner, considering this shifting landscape and embracing it could lead to significant gains and huge disruptions in their industry.