IoT Impact--Part Three: The Role of Partnerships and Ecosystems
on Jun 16, 2015
IoT forces companies to re-evaluate their partnerships and their role in the ecosystem, as well as whether to take an open vs. closed approach at different levels in the solution stack co-created by them and their partners.
In Part Two of this series, we examined the impact of IoT on data and how IoT has transformed some company’s core business model. In this part three, the final in the series, we look at ecosystem/partnership questions.
4) Ecosystem / Partner Questions
IoT forces companies to examine their role in the ecosystem of partners. One key question is to what extent you are creating a point solution vs. a platform upon which other applications can be developed. There are well known examples1 in the software world. Physical product manufacturers may be the new integrators and providers of platforms for applications used by customers or other providers. For example, manufacturers of farming equipment or mining equipment might ask themselves whether they should create the platform for the whole farm or the whole mine, integrating heterogeneous equipment from their competitors as well as their own, and making that ecosystem and development tools available to a community of application developers.
From Open vs. Closed Systems to Continuously Evolving Ecosystems
The HBR article explores open vs. closed systems. A similar evolution occurred in the software world. Some enterprise software companies wanted to provide the entire end-to-end solution (think SAP, Oracle, and other ERP players), whereas others focused on one area to become the best-of-breed solution that integrates well with other systems. In the end, we discovered everyone must be open to a degree, because no single company can supply it all. So rather than it being a black and white question of open vs. closed, it is really more of a question of the scope of the domain you want to ‘own.’
For example, a smart appliance manufacturer might want to own the whole infrastructure for that appliance—such as providing a washing-machine-as-a-service (on a pay-per-load basis), including installation, ongoing maintenance, and a detergent resupply service. So they own that system, but they may not own the whole smart home. It might be a higher level platform that integrates security, appliances, entertainment, lighting, heating and A/C, and so forth. Even that smart home platform may need to integrate to the smart grid and possibly (in the future) to a smart city platform, domains owned by yet other organizations. Hence, these concepts and new models have evolving interdependencies; the integration points between the different systems will be in continuous flux. This will require a new degree of agility in forming and adapting relationships and technology interfaces as things evolve ever more quickly.
Rudin’s Digital Building Operating System—A Story of Partnerships
Rudin Management is another company transforming themselves with IoT technologies. They are a real estate management firm that owns and operates a portfolio of about 10 million square feet of commercial and five million square feet of residential real estate primarily in the New York City area. They have always been technologically progressive, for example being one of the first to implement carrier neutral risers2 in their properties in the mid-90s. In 2007, they began participation in a smart grid pilot3 that got them thinking about how they could make their buildings smarter and be able to more intelligently respond to changing circumstances. They could not find a commercially available “building operating system” that met their needs, integrating information from all the various sensors and systems within their buildings and analyzing and presenting it in a way that was unified, intuitive, and actionable. So they decided to build such a system themselves.
Rudin’s expertise is in managing real estate. They’ve been doing it for more than 100 years. They had been doing commercial software development for exactly zero years. So they teamed up with Columbia University’s Center of Computational Learning Systems to develop a proof-of-concept version of their Digital Building Operating System called Di-BOSS. They soon realized that other real estate companies might be interested in using Di-BOSS and decided to commercialize it. For this they partnered with Selex ES,4 an international electronics and IT firm, who took responsibility for commercial development and sale of the product. Rudin wisely realized that they did not have the core competencies to build and sell commercial software. They contribute their intimate knowledge of managing buildings, while their partners contribute in their areas of expertise.
Guiding Principles of IoT Success
Heppelmann and Porter laid out 10 probing questions. We explored these along the four dimensions of product, data, business model, and ecosystem partnerships. Finally, our research has highlighted the following eight principles that successful companies tend to follow when answering those kinds of questions:
Voice of the Customer—Successful companies are not aiming to become IoT companies. They deeply understand their customers’ problems and the improvement opportunities, and find creative ways to address them, including but not limited to the use of IoT technologies and data. They partner with customers to find solutions and find out what is of the highest value—identifying and creating premium services that customers are willing to pay for.
Charrette Approach—Successful companies take a multidisciplinary, charrette5 approach to develop their strategy and architecture. They bring together experts in hardware, software, communications, analytics, external data sources, physical services, financial and ownership models, operations, industry domain experts, and security experts. Getting all of these disciplines working closely together is one of the keys to success.
Do What You Do Best, Partner for the Rest—Successful companies know what they are good at, where they bring value. They use their deep industry and/or domain knowledge to maximize the value of IoT data and systems. Successful companies also know what they are not good at and bring in partners to help. They do not overestimate their internal capabilities or try to turn themselves into something far from their core capabilities. They leverage partnerships to disrupt.
Becoming a Platform—As they gain critical mass, some companies can make their solution into an extensible platform upon which many new services can be built.
Extract Value from Data—Successful IoT companies understand the value in aggregated data for providing additional value-add services such as performance benchmarking, industry-wide trend- and pattern-spotting, and rich analytics.
Masters of Simplicity—Successful IoT companies invest heavily in simplicity engineering. This is especially critical in the world of IoT because there are so many moving parts that complexity can quickly overwhelm and sabotage any value from being realized.
Innovation in All Dimensions—Successful IoT companies think beyond product innovation. They actively explore innovations in pricing models, service offerings, ownership models, and partnerships.
Leaders Willing to Disrupt—Successful companies have bold leaders who drive their company to innovate, even if it means disrupting the business model and the way they’ve always done things. Their leaders are open-minded and tough-minded to overcome existing biases.
We are in a time of rapid exploration and discovery—learning from both research and experience, finding out what does and doesn’t work. The first mover advantage exists in the accumulation of data, algorithms, customers, critical partnerships, critical masses of all these things, and especially accumulation ofexperience, expertise, and knowledge. Understanding what people want, what they will pay for, and how to deliver it is very difficult, with many false starts. There is high value in rapid simulation and exploration of concepts, prototyping, and letting people try out these new concepts. This is ‘frontier work,’ on the edge. The ability to cultivate and experiment, failing fast and cheap, is highly valuable. New unexplored territories and opportunities abound for those ready to take the leap and seize them.
1 In the pure software world, Salesforce is a good example; they began as a CRM application, but with the introduction of Force.com, they expanded their role to become a platform upon which all manner of enterprise applications could be built and integrated together into a loosely-coupled ERP suite of best-of-breed applications. -- Return to article text above
2 Prior to this innovation, carriers pulled their own cable up through the risers in the building to the customer’s location. Rudin installed their own dark fiber up to each premise to provide customers a choice of carriers and provide carriers with easier plug-in access. -- Return to article text above
3 The pilot explored, among other things, how Rudin’s buildings would respond if they had early warning of a blackout, about 30-45 seconds before the blackout was about to occur. -- Return to article text above
4 Selex is a division of Finmeccanica, a €16B Italian industrial conglomerate in high-technology, aerospace & defense, and security. -- Return to article text above