Defining IoT Business Cases
Starting a new IoT project is a pretty exciting process. The prospect of having new technology whirring away in your business, improving operations, your bottom line and making everyone’s life easier is inherently appealing.
However, it’s all too easy to get carried away by the glittering allure of IoT technology and get lost in the excitement of creating and deploying systems. Many hope that IoT systems will ‘unlock untapped potential’ for them, but often fall short: a staggering 74% of IoT initiatives project outcomes are deemed ‘unsuccessful’1.
As exciting - and interesting - as it is to work through the technical details of building an IoT system, there is one fundamental question that must always be answered before diving head-first into technical details.
How will this system improve my business, and by how much?
Before you start an IoT project, you need to clearly and concisely answer that question; unless, that is, you’re comfortable running the risk of investing significant time and money with undefined returns.
This is simple advice that is unfortunately rarely adhered to. In the recent IoT-Signals2 report, it was found that one of the leading causes of IoT pilot project failure is the inability of projects to demonstrate clear business value.
What we propose here is a straightforward process to help you get an initial understanding of the potential value an IoT system could provide for your business. This is intended to help manage as much business risk as possible, before getting stuck into any development work. A little planning upfront could prevent a boatload of heartache in the future.
A caveat to note before we proceed: we’re focusing exclusively on business and processes here. We aren’t attempting to take technology costs (development, deployment, and on-going) into account yet, as these are typically unique to each IoT system.
Process
1 - Strategic alignment
Firstly, any technology development - IoT or otherwise - needs to align with your strategic goals. Before you get started, take the time to revisit these goals. An IoT project will need to closely align with them, else you might have difficulty getting buy-in from key stakeholders, putting the project at risk before it’s even started.
Through the remainder of this process, keep your strategic goals in mind, and check whether each step is in alignment.
2 - Where to focus
Next, clearly define which business area you want to improve, and why you’d like to improve it. What issues are you facing? You may already have an area in mind from the previous step. If so, skip to step 3.
If you don’t have a clear idea and you’re exploring whether you could benefit from an IoT system, try this:
List out all of the functional areas within your business. IoT may not be applicable to all of them, and that’s OK for now.
Of these areas, which have a ‘real world’ component, where you can either collect data from the environment or devices, or control a process? For instance:
Manufacturing machinery - power consumption, vibration, data interface
Horticultural operations - water usage, light levels, nutrient application rates
Warehouse operations - tracking usage and movement of equipment
Of these areas, which would you actually like to improve, and of those, which align closely with your strategic goals?
Of the remaining areas, which have the strongest potential for improvement? As someone intimately involved in your business, you’ll have a gut feeling of what these areas are. For instance, with the examples above:
Manufacturing machinery - are low yields an issue? Unscheduled machinery downtime? Costly regular servicing? Wasted manufacturing inputs?
Horticultural operations - excess or insufficient watering, tracking equipment breakdowns, temperature control issues
Warehouse operations - is equipment breaking down at inopportune times? High equipment maintenance costs? Asset tracking issues?
Choose 1 - 3 issues that you think your company would benefit most from solving.
3 - Create a baseline benchmark
The next step is to create a financial benchmark of the issue(s) you want to improve.
Naturally each industry and business is unique, so here are some considerations you can take into account when creating a benchmark:
What is the overall process being followed?
Where within that process are losses or inefficiencies occurring?
What are the drivers for revenue or profit within the process?
What is the magnitude of those values? How does that translate to monetary value?
Are there knock-on effects? Would increases or decreases affect another activity elsewhere in the organisation?
How does it affect staff?
Does it affect customers? Does it do so in a positive or negative way and by how much?
Does it have any intangible effects (staff morale, customer satisfaction)?
In the next step we’ll look at how addressing these issues can improve the business, but for now just focus on thoroughly understanding and modelling the problem.
Here are some examples of issues you could investigate and questions to ask to help build the benchmark cases for each:
Workplace accidents - what are the current costs associated with workplace safety incidents, taking into account healthcare costs, lost productivity and insurance premiums?
Unscheduled equipment maintenance - How often does it occur? What are the costs associated? What are the knock on impacts? How long does a repair take? Is it more or less expensive than a preventative repair?
Some of these can be relatively straightforward, whereas others can involve complex modelling. By taking the time to understand the problem and establish a baseline benchmark, you’ll end up with a clear picture of the financial aspects of the issue - if you don’t already. The process may also highlight areas you have incomplete information or insight into, and can investigate those further.
A quick note on intangibles: While these may be difficult to tie back to financial performance, it’s still entirely possible for an IoT system to have positive impacts on them, and thus it’s useful to ensure they are properly measured and recorded as part of the baseline benchmarking process.
4 - Model realistic improvements
The next step is a bit more challenging - determining what improvements could realistically be made on the problem, and how much those are worth. Use your experience and judgement here.
Continuing with the examples from the previous step include:
Workplace accidents - how realistic would it be to reduce workplace accidents by 10%? What would the monetary value of that be worth?
Unscheduled maintenance - would it be feasible to reduce emergency maintenance by 25%? What would the impacts of a reduction like that be, both immediate and knock on effects?
The anticipated value needs to clearly stand out - if it’s borderline then once all costs have been accounted for it the ROI may very well end up being negative.
If the calculations do come back borderline, it’s also important to try and be objective about any assumptions you’ve made in your model - resist tweaking numbers to make things look more attractive. It’s a very easy trap to fall into, but don’t do it. If you don’t know something, highlight it as a point to investigate.
5 - Alternative measures
When going through this process, it is always worth asking the question - is IoT really the right solution for this? In some cases simple staff training, checklists or better use of existing data sources can remedy part of your problem with lower risk and investment.
Before committing the time and resources to a new IoT system for collecting data, it may also be worthwhile carrying out an ‘audit’ of your existing data sources. By doing this, you may be able to identify useful sources of data to help solve identified problems, or if carrying out exploratory analysis, find new insights for areas to improve.
Next steps
Having gone through this process - without spending an iota on technology development - you’ll now have a better idea on what a potential solution might be worth to the company.
If you feel that the financial benefits are very clear, then the next step would be to talk to an IoT systems developer to work out what a staged approach to the system development would look like. This will typically involve:
Understanding the problem being solved and proposing an IoT system design that best provides the solution.
Helping you look at how the system’s costs would impact the business case for it
Working with you towards an initial small scale system implementation, with the purpose being to validate the business case and value as well as test assumptions.
Helping you scale the IoT system into the full system originally envisioned.
We hope this gives you a starting point in assessing whether an IoT project is right for your business.
If you’d like to see a worked example of the above process, you can find one in the second part of this guide.
If you’d like to talk to us about whether there is value in an IoT system you’re considering at the moment, feel free to get in touch with us.