The core theme to my writing is the management and leadership changes necessary for businesses, governments, and non-profit organizations to take advantage of the growing data connectivity and advanced analytics using that data. The terms “internet of things”, industrial internet, Big Data, etc. have, in my opinion, become over-hyped in the amount of impact they will have in the short-term.  They will go through the “zone of disillusionment” at some point soon, after more organizations try and fail to generate value from using them. But as organizations adjust their management practices – incentive structures, roles & responsibilities, skills, processes, and strategies – these technologies will significantly alter the way economic value is created and delivered.

Last week I attended the Internet of Things World Forum in Chicago. The “hype-meter” was in the red with vendors such as Cisco, Rockwell, Siemens, etc. all highlighting the potential for productivity and customer service improvement when everything is connected.  There were, in fact, several great case examples of companies employing connectivity and analytics to drive dramatic improvements in throughput, quality, and/or new services.  However, the operators in the audience and on the panels were much more cautious.  Many of them have employed connectivity & automation over the past decade and are proud of their accomplishments.  But they’re careful to highlight how long it takes to implement, how difficult it is to integrate across entire plants or supply chains, and how risky it is to connect to cloud infrastructure.

Capturing the economic value from new technologies requires changes to management & leadership at least as great as the technology itself.  ERP systems, sales force automation, electronic hospital records all required significant behavioral change to implement, and as a result took longer for mass adoption and impact than people thought.  For example, retailers had visibility into their inventory levels but management had to change its view of stocking incentive structures, cost allocations, and store management incentives to enable stores to be used as shipping warehouses as well as retail outlets.  In large organizations, these kind of changes require breaking current mental models, constantly communicating a new way of doing business, and investing in training on new processes.  None of this is as easy as connecting a device, even in a complicated wireless world.

For aggressive companies, this is good news. Leadership teams that recognize the changes necessary and move aggressively stand to gain an advantage on the pack.  Not to say that first movers will win.  But companies that thoughtfully combine significant change in management practices aligned with the changes in connected technologies can shift the operating model of their industry.

Tesla is an example of one such company.  We normally think of Tesla as a manufacturer of electric cars.  However, another way of looking at their business is as a company employing a completely new business and management operating model to take advantage of connected devices.  The “connected car” has long been discussed. But Tesla realized they needed to reinvent the way car companies were managed to deliver those benefits.  Benefits such as avoiding the need to go to the dealer for simple updates by using over the air software updates, predictive maintenance, eventually automated driving, all required a car that was fully electronic.  It also required different distribution and incentive models with dealers; different types of relationships with suppliers; a change to product releases from every five years to a regular rhythm of software releases.  All of these changes (and likely many more) are necessary to deliver on the promise of connectivity.  The electric vehicle was just one of the many pieces necessary.

Other industries offer similar opportunities to transform the customer experience with connected technologies.  We will likely see three successful models in the near-term.

1. Point solutions within larger companies where the management changes necessary are limited in scope and one part of the organization can execute without a cross-organization change effort.
2. New, innovative companies that re-think the business model and management practices from the top down.  These may not always be start-ups, but they will most likely be smaller companies without the breadth of changes necessary in a large company.
3. A top-down transformation of a larger company that sees the threat from new players and realizes early the shift of management necessary to take advantage of these technologies.

This is not to say that the projections on connected devices is over-stated. Nor that the insights coming from the data are not real.  But the business and economic impact from these insights will only be realized when management changes to take advantage of them.

In the coming weeks and months I look forward to continuing this theme and adding greater depth to what organizations can do to really benefit from the connected world.