IoT Market Drivers and Barriers for Analog companies
The word “analog” describes companies that have not gone through a digital transformation. In marketplaces typically dominated by analog company-derived products and services, the rules are not only changing, but in many cases, entirely new games with radically different playing fields are evolving. Industries and markets that didn’t exist just a few short years ago, are sprouting up everywhere.
There are thousands of young companies creating new products, services, business models, and ecosystems which have already begun to revolutionize the world. In the coming years, these companies and others to follow will encroach on the more traditional markets and if nothing is done, any company, no matter how large, might be negatively impacted, and shareholders will likely see their stock values reduced.
Both young companies and “analog” companies face the same drivers:
- Large IoT investments
- Low-cost sensors
- High mobile adoption
- Expanded internet connectivity
and the same barriers:
- Security concerns
- Privacy concerns
- Implementation problems
- Technological fragmentation
The Weapons Available to Analog Companies to Fight Back
In a recent post I wrote about the IoT false beliefs. One would think that to successfully leverage the IoT, you need to be a start-up when the reality is that late incumbents benefit from the mistakes of the others when they enter a specific market.
Analog companies have weapons at their disposal to fight back and even lead the digital transformation. It’s not too late for incumbents/analog companies to adapt, especially if they leverage their considerable assets and resources to counteract off the attacks. The World Economic Forum has issued a great White Paper on this subject.
These assets include:
- Investment capital
- Production capabilities
- Strong brands
- Strong channels
- In-depth relationships with global accounts
- Mobilization of Sales force on the ground
- Influence power: standardization, market price, specifiers, etc.
If you are an analog company: perhaps you feel that you have your analog business sewn up tightly enough that you don’t need to worry about any of the changes that are happening. Or you might not see significant opportunities in adopting or incorporating these new technologies into your strategies. Possibly, you even believe that your products don’t fit this new market, or that you have plenty of time to consider your options carefully—and that in short, you can gradually and even slowly move into this brave new world.
Unfortunately, in the meantime, your competitors may have already defined digital transformation strategies and be in the process of implementing solutions that could jeopardize your business and traditional market share and in a worst-case scenario, even drive you completely out of your marketplace.
Analog companies have weapons to fight back; but what are the 3 digitization challenges ?
Number 1: people and organizations
The biggest challenge of the transition to the IoT lies in the human factor. A company is, among all hard and soft assets, made up primarily of a group of people. In fact, the most valuable corporate assets are oftentimes the people it employs.
Middle management plays a pivotal role when dealing with digital transformation.
Analog company leaders willing to embrace the Internet of Things should help the company’s middle management to understand the goals and outcomes, as well as the risks and threats to the existing business.
Setting a vision and giving a purpose to the mission is not only about defining what needs to be done. It is ultimately about creating the environment in which employees can challenge the status quo, creating enhancements to the business model, processes, products, and services, as well as the corporation itself.
For managers in traditional industries, this can be a tall order. Many current CTOs come from a “good old analog” industry and must discover and learn about the digital side of the coin instead of focusing only on their R&D. Applying yesterday’s successful recipe will no longer work. Many assumptions about what is
possible and impossible, based on experience with last century’s technologies, are no longer valid in the digital world. How do you move beyond your current mindset to find opportunities that digital technology can support and enable?
The challenge is how to make those people understand the new realities and how to bring solutions to them. They have tremendous experience and understand the marketplace, so it is vital to include transitioning the existing workforce as part of your strategy.
My book, Digitize or Die, focuses on the importance of the ‘why’. The challenge resides in the digital transformation of middle management.
Number 2: explaining the ‘How?’
As stated in previous chapters, analog leaders that have to deal with digital transformation of their business model (including the consequences and potential disruptions of IoT) are faced with four possible choices:
- Milk the cow
- U-turn the mothership
- Transforming from the edge
Considering the following:
- Digitization and IoT in particular, can drive your financial performance
- That “transforming from the edge” is the right strategy for your company to leap frog your competition
- And in order to avoid commoditization, you need to adapt your current analog offer portfolio to make it more “IoT compatible”. You must also define offering differentiation strategies and choose the most relevant business models.
If all three of these are addressed, you still need to clarify the how. In other words, how will you make it happen and are there different options? Typically, once you have clarified your strategic moves, the next question you should ask is ‘How will you execute the transformation’?
There are five execution strategies (none is mutually exclusive) when dealing with digital transformation which perfectly apply to the “transforming from the edge” strategic option:
Building is a good option if you are ready to create independent internal organizations (internal startups) from the core to achieve your goals. Studies show that organizations operating independently from their parents are more innovative and have higher market-penetration rates than those that had remained integrated. Companies wanting to transform from the core or even from the edge but with non-autonomous ventures or organizations, under-perform those with separated entities. Even with fully autonomous ventures, they need to be treated as startup and should address at least the following:
- Limited, step funding and strong financial oversight to avoid the “no money and time limit” syndrome that internal startups in big corporations very often face.
- Appoint senior managers, risk, compliance and control ‘relationship managers’ with an entrepreneurial and pro-active attitude to work closely together with the startup.
- Let the startup make its own decisions in running their business in all of its aspects—technology, operations, HR, etc. aspects
Acquire – Buy
If you need to move quickly you may find yourself following an acquisition strategy to purchase your way into the new paradigm. Acquiring is not a strategy in and of itself; it’s really about the synergy with the acquired company, in a way to ideally accomplish your strategic move.
Partner or Ally
Another option is to partner with other businesses to build alliances which move your corporation into the new paradigm. Partnering or Allying to enhance joint development relationships can be a very productive way to accelerate your market penetration if the counterpart has made the same effort to clarify their strategic options and moves to tackle what IoT’s accessible growth can create.
Invest in companies which will help move your business towards the digital revolution. Putting in place the venture capital for early and later venture investments should facilitate market access or joint development agreements.
Work with developers all over the world to help you create the IoT products and services you will need.
Number 3: Explaining the ‘Why?’
As stated before, we do not want to give any guidance regarding which execution strategy might be best suited in each case and company. However, this resource’s detailed description will give you a relevant list of options.
When you have defined which IoT strategy fits your circumstances and the associated execution strategy, your next hurdle is the internal communication you need to put in place to streamline your execution.
Explaining the ‘Why’ and the ‘How’ are as important as defining them.
Usually companies focus on their customers, on their channels, and on their branding towards those who sell and buy their products, software, services, and so forth. However, they often underestimate the importance of internal communication. It is vital for companies to explain to their employees the how and the why.
Unfortunately, the attitude often is “Employees are there to be doing what they are told, so why bother explaining to them the how and the why?” If this is your belief – if this is how you perceive the core resource of an enterprise – then change management will not be your cup of tea. Change is all about people, and it is all about communicating and enhancing change in the mind of people the enterprise stands for. If you wish to drive and succeed in change management, then communication is at the core.
Chip Heath and Dan Heath, in their book Made to Stick, shed the light the importance of internal communication towards employees when there are strategic choices made that require changes in behaviors as well as the understandings that trigger those. They highlight in particular the importance of guiding those behaviors: “If your frontline employees can talk about your strategy, can tell stories about it, can talk back to their managers and feel credible doing so, then the strategy is doing precisely what it was intended to do: guide behavior”.
Tell your strategy as a story to make it realistic and understandable for middle management. Use a common language to be understood by all your companies’ employees. Being practical and down to earth are important aspects of useful communication when dealing with change. If you are a leader of a legacy analog company, you must perfect these communications.
YOUR EDUCATION IS THE KEY TO SUCCESSFUL DIGITIZATION
I very often meet people that are afraid to ask the questions that, in fact, everyone is looking to have an answer to such as:
- What is the IoT?
- What does it mean?
- How can I benefit from it?
- What are the technologies out there?
- and so forth.
‘A fool thinks himself to be wise, but a wise man knows himself to be a fool.’ William Shakespeare
You might be finding a lot of commercial and marketing IoT books but very often with a lack of strategic guidance, or anecdotal reference to what companies are facing. None of the technology books and blogs expanded on the IoT, beyond the pure technology element, in a way that would help companies understand how to transform, leverage themselves and supersede their competition.
I want to bring an answer to those questions through blogs, interviews and books such as ‘Digitize or Die’.