Digitalisation & IoT projects – stress test for companies

• The special challenge: IoT projects are interdisciplinary, cross-functional and highly complex.

• Success depends on the driver: predevelopment, visionary or innovation hub.

• The innovation potential lies in the product environment as a testing ground for new services.

Digitalisation and associated IoT projects can be quite challenging for companies operating in the machine construction & plant engineering sectors, and indeed others.

IoT projects are different: they put established organisational structures under enormous strain; they necessitate change and can thus turn into real stress tests for many companies. But how much stress digitalisation projects actually entail and how successful they are very much depends on the strategy and the approach. We introduce three examples and what we can learn from them.

Digitalisation affects all sectors

All manufacturers have to adapt to new competitors these days: unexpected newcomers disrupt one industry after another. In retail, media and advertising, this upheaval has been in full swing for more than 15 years (cf. Alibaba and Amazon in retail, Facebook as the largest media group), and the energy industry started seeing changes around 10 years ago (examples include virtual power plants, comparison portals, Nest). Banks and insurance companies followed about 5 years ago (Fintechs, Paypal, Number26, crowdfunding platforms, Bitcoin), and machine construction is currently kicking off with Industry 4.0. Tomorrow all other sectors will be affected!

How do IoT projects differ from conventional projects?

My observations in this article are based on machine construction and plant engineering, medical products and the consumer sector, usually involving the linking of digital value creation with physical products. So what makes IoT projects so "stressful“? How do they differ from conventional projects? Some key aspects:

• IoT projects are interdisciplinary (hardware, networking, software)
• IoT projects are cross-functional within the company (product management, sales, R&D, company IT, production IT)
• IoT projects involve all development disciplines: mechanical engineering/construction, electronics/sensor technology, embedded software, connectivity, cloud computing, app development, integration with corporate IT, IT security (there are no isolated systems – as a rule, sensor technology is accessible via the Internet)
• IoT projects are highly complex
• IoT projects are comparatively easy to handle (although usability can hide inner complexity)
• IoT projects are highly scalable, but associated with large uncertainties (e.g. how many users will use the ultimate solution?)

In other words, IoT projects are special and complex. In addition, a high degree of creativity is required to help new business models break through, based on a digitalisation strategy. In many cases it is therefore not enough to ask your own IT department to implement ‘just another’ project. Complex projects require diverse competencies and involve a wide range of stakeholders, and they can have a huge impact on previously well-established forms of organisation.

Organisational anchoring in the company

Commissioning predevelopment
One approach I have seen at one of our customers in the machine construction sector resembles "two-speed IT“. The responsibility for the IoT or digitalisation project moves to the predevelopment stage, with the aim of rapid implementation.

This approach worked quite well, especially in the beginning: the project gained momentum in a short time, the team developed its own ideas for finding solutions, and the first results were delivered quickly. In the medium term, however, there were downsides to this approach: non-functional requirements were neglected (which had a strong impact on the architecture), operational issues were omitted (which required extensive rework), back-end IT systems were not integrated (which required additional budget and caused the deadline to be exceeded significantly). Predevelopment went its own way, which undermined orderly product development, making it difficult to integrate the two aspects.

But not everything was bad in this example. In my view, the procedure is in fact well suited to quickly verifying initial ideas and to building an initial proof of concept (PoC). In the next phase, however, customers and all other stakeholders should be involved at an early stage in order to counteract the project risks identified above.

A visionary sets the tone

At an industrial component manufacturer we came across a visionary who was keen to work with us on the development of an innovative IoT platform for future digitalisation needs, including new business models. We started this project with great enthusiasm and implemented the vision step-by-step. Unfortunately, it eventually turned out that two quite different product families existed within the group:

• Location 1: highly complex industrial component system, high demands, visionary stakeholders, low quantities, low business volume
• Location 2: simple industrial component, few requirements, down-to-earth product management, high quantities, "bread and butter business" – that's what the company lives on!

Location 1 drove the entire IoT development along the lines stipulated by the assertive visionary. This gave the misleading impression that we quickly approached the finished product (methods: lean start-up, MVP). It was only at a rather late stage that we were surprised to see new stakeholders from location 2. This led to hopeless confusion and the definition of a plethora of new goals, resulting in conflicting approaches and requirements. The project had to be restructured, the requirements drastically reduced and adapted to the current needs of location 1, because these requirements were essential for the future market success of the entire company.

A visionary can be helpful at the start of a project, for the development of initial ideas and to get a project rolling. But in the next step it is essential to ensure that all the key stakeholders are on board.
 

Innovation hub, innovation lab, digital partners, ‘Secret weapons’ department, …

Another popular approach that we are seeing with many clients is to simply outsource the creativity needed for digitalisation. The corresponding constructs come under different names: innovation hub, innovation lab, digital partners, ‘Secret weapons’ department, etc. Essentially, it is about bringing creativity and technology together – often deliberately physically separated from the existing company locations. The problem is that such labs are not only very expensive, but in many cases also not particularly successful. According to a study by Cap Gemini, they fail in over 80% of all cases.

Another study by Forbes gives concrete reasons for this failure: in some cases such labs are only creative but not innovative! Both the business model and the organisation are severely neglected. As a result, many of these constructs only stage 'innovation theatre': everything is colourful, different, fun, creative and takes place in cool locations. But their actions are not in line with the strategic goals of the company as a whole. As a result, the activities have no focus, numerous attempts are combined while bad ideas are retained, and in the end they fail to generate profit and benefit for the company.
 

The approach of one of our customers with high-precision machines is an example of how this can be prevented. They defined the following mandatory requirements for their digitalisation projects.

• A product owner from the department makes 100% of their time available to the innovation lab team. This creates a solid foundation and ensures the focus remains on the company's objectives.
• Every project necessarily needs a management representative as a sponsor. Digitalisation projects are a matter for top management. Without this kind of support many approaches wither away.
• Early implementation of professional customer interviews in collaboration with the sales department. The "voice of the customer" provides quick feedback regarding the needs & benefits of the idea.
• Establish co-creation within the project. Through cooperation between the client, customers and external innovation & development partners, requirements and implementation competence complement each other right from the start.
• The team is continuously committed to tangible, prioritised results. This creates a concrete benefit, and overly playful ideas are quickly dropped.

This approach led to the consistent implementation of the major objective: to advance and sustainably accelerate the digital transformation of the business units (see also "rent-a-start-up“). Of course, this doesn’t necessarily mean that this approach is suitable for every company. But the example shows that digitalisation projects don’t have to get out of hand and degenerate into a stress test.
 

Success factors for digitalisation projects

So what are the decisive factors for successfully aligning projects in terms of organisation, technology and expertise right from the start?

Overcoming silo mentality in technology and business

As already mentioned, digitalisation projects are complex and interdisciplinary. Nevertheless, we often encounter counterproductive silo mentality in a variety of situations:

• Silo mentality in development
  • Separate development department for mechanical engineering and construction
  • Separate development department for electronics and sensor technology
  • Separate development department for embedded software
  • Separate corporate IT with cloud & app development
• The business side of things is also affected by silo mentality: sales, marketing, production, purchasing.
• Silo mentality can be prevalent in the group as a whole: per location, per brand, per product.

This is not conducive to achieving the goal, as the trend in digitalisation projects clearly points towards interdisciplinarity. "Think big" should be the motto:

• From one development area to several development areas
• From an individual product to various products
• From one business area to several business areas
• From one plant to several plants

Overcoming any existing silo mentality can therefore be regarded as an essential prerequisite for successful implementation.
 

Digital innovations: product environment illustrates potential for new services

In many cases, we focus too strongly on the technical product. In doing so, we tend to overlook how important it is to consider the whole picture, especially for digitalisation projects:

• What is the product used for?
• How is the product used?
• Are there non-core users who use the product in a way that was not intended (does this possibly show new potential)?
• Which user issues have not yet been resolved?

This can open up new business models, for example by expanding from product business to service business or new operator models (pay per use, focus on availability rather than purchase, performance, rent etc.). Naturally, this also represents a challenge for the entire organisation, because it involves significant change for a traditional product company. And it applies not only to development, but also to product management, sales and service and other aspects.
 

Key learnings from digitalisation projects

In summary, I will list the eight key insights for the successful implementation of IoT projects:

• Digitalisation is a matter for top management and affects the entire company (no success without commitment by the management)
• Cannibalise yourself – otherwise others will do it (don't be afraid of new business models – your competitors aren't afraid either)
• Multiple stakeholders create complexity (which must be mastered)
• A single visionary is no substitute for a business case (and can destroy investment capital)
• First priority is a business case, then a technology decision (technology usually acts as an enabler and follows from the use case)
• Innovation hub needs a firm grip (otherwise only "innovation theatre" takes place)
• Constrain predevelopment in good time (in order to focus on the scope that is critical to success)
• Digital added value is our USP of tomorrow (hardware will become increasingly interchangeable in the future)

Successful implementation of the digitalisation strategy is a complex undertaking and should be based on experienced partners. Because digital business is fast, mistakes cost valuable time in terms of time-to-market. Use external competence to lead business innovations and technical implementation to success.

By the way, I also gave a presentation on this topic at the MS Industry Day, which you can watch on YouTube.

I would be very happy to discuss these aspects further with you – from the initial idea to the finished product!