As the CEO of an IoT company, I have had the unique perspective of watching a number of IoT products enter established markets, sending incumbents running and scrambling to catch up. Some of these incumbents had been leaders in their markets for generations, comfortable with their products and their consumers. If you are an incumbent, right now there is likely someone out there thinking about how to reinvent the value your enterprise provides by using IoT — and you need to be ready with your own IoT Strategy.

Strategically Enhance Revenue And Profits Via An IoT Strategy

IoT strategy is a plan for using technologies to find opportunity in the face of disruptive threats. Turning the IoT threats into IoT opportunities, either by developing new products or creating massive improvements in process and cost advantage, is a challenge virtually all businesses will face in years to come. IoT is a race, and the starter pistol has been fired.

Venture capital is driving billions of dollars of investment into IoT, incentivizing entrepreneurs to build new companies, produce new products, and create original solutions to customer problems. This growth in investment has massively increased the “threat of entry” in virtually every market. We’ve already seen how products like Google’s Nest have completely changed the way people think about the thermostat — a technology that had not changed in generations. Having talked to several thermostat producers in the last few years, I can say with firsthand knowledge that very few people saw this disruption coming.

IoT technologies are so powerful they can make the substitution of a product permanent by turning products or services into subscriptions and deliver monitored knowledge to customers in a way incumbents are unable to compete with. This disruption is well underway for scores of sectors in both consumer and B2B.

What many incumbents don’t anticipate or comprehend is that as products become connected, value derived from the product or service is shifted from that of a standalone product to that of an information product — and information products are massively flexible in delivering value. When products send their information to networks, the knowledge produced from the information can rapidly become more valuable than the original product itself, allowing companies to further customize and improve their products with real-time data. All thermostats can turn on furnaces or air-conditioners, but a connected thermostat like the Nest can understand weather conditions through the network and anticipate the needs of the user.

The knowledge about a product’s status, state, or condition can deliver inherently more value than a static non-network, non-connected product can. For example, a connected temperature sensor with a remote cloud interface sold as a subscription service completely changes the value proposition against a digital thermometer sold over the shelf. Once purchased by the customer, the data stream and app interface create new, almost impossible, barriers to overcome to get the customer back.

While not all IoT products meet the classic Christiansen model of disruption, it is hard to argue that changing a product or service from a one-time fee into a subscription delivered with a constant data-stream, connected to the greater network world is not a disruption for the incumbent. If you are an incumbent who makes things — even everyday things like brooms, ladders, doorknobs or any other thousands of items that we touch every day — you might think there’s no chance a network product could disrupt your market. Before you get too comfortable, keep in mind the cost of silicon chips, radios, and sensors is dropping faster than any other manufactured good and Moore’s Law is making the price drop faster all the time. As Mark Andreessen, a venture capitalist at Andreessen Horowitz, said recently, “In 20 years, every physical item will have a chip implanted in it.”

If you think you’re in the service business and immune to the effects of the Internet of Things, you might want to think hard about how information and value flows in the delivery of your service. I personally believe Uber is an Internet of Things business just as much as it is a disruptive taxi business. Were it not for the network-connected power of GPS, accelerometers, and other advanced sensors, the delivery of their amazing business model would be impossible.

So what are you supposed to do about these powerful threats? Start by deciding that the Internet of Things is an opportunity, not just a threat. Understanding the opportunities in networked products involves looking forward to the future. It’s important for companies to take a hard look at what startups and other incumbents in their space are doing with IoT technology. Since one of the core purposes of building an Internet of Things strategy is to combat the rising strategic threats before they threaten corporate revenue, it makes sense that ownership of the IoT strategy starts at the very top. It should be a board-level discussion with ownership spread across the C-suite.

So where do you start? If you are looking to create a strategy to combat the rising strategic threats, my recommendation is to focus on the information value your product or service addresses. Companies need to ask themselves what sort of knowledge and information their customers gain or need in using their products or services. Distilling the information created in using a product or service is key to gaining insight, as is understanding the workflow and user experience. Traditional process control tools like value stream mapping can help with this endeavor as they are designed to show how information moves and value is created.

For many companies, IoT strategy will be a test of creative destruction. Unlike past leaps of technology, IoT can combine the power of networks, the cloud, apps, design, manufacturing, and products as a service in a way incumbents need to be prepared for. Connecting products or services to networks is a big job. In most cases it means redesigning from the ground up and rethinking channels, value proposition, and ROI models. These are tasks no CIO can handle alone — this has to be a collaborative effort across the entire C-suite.

The future is still wide open — most Internet of Things models and businesses have yet to be created. The keynote speaker at a conference I recently attended said that if we thought of the Internet of Things as baseball, we’d realize we are still in the first inning. And he’s right. There’s plenty more innings for incumbent companies to get creative, to be brave and make plans that turn IoT technologies into tomorrow’s opportunities. But we need to start now if we want to win the game.