The Internet of Things

DISRUPTING TRADITIONALDISRUPTING BUSINESS MODELS THE INTERNET OF THINGS

THE INTERNET OF THINGS DISRUPTING TRADITIONAL BUSINESS MODELS EXECUTIVE SUMMARY

With the Internet of Things, or IoT, we’re at the dawn The possibility of generating data, collecting it, and then of a new revolution, which could be compared with using this information to create new services is opening the digital wave that disrupted most industries not so up new potential not just for existing players but also long ago. For although digitalisation clearly created for newcomers reinventing traditional business models. immense value for consumers, it was also very tough Who will be the Uber or BlaBlaCar of IoT? on companies unable to adapt quickly enough. So, how can we generate value in this new game? Is it so fantastic to imagine that Google could revolutionise the world of insurance? Could it aggregate key behavioural The Internet of Things is everywhere. Wearables, and lifestyle data collected through a powerful ecosystem or portable technologies, and other health-related of wearable objects and connected objects in the home accessories are among the first to come to the fore, and car, combined with data from the web, and relegate such as bracelets, watches, bathroom scales, and insurers to the lower value-added role of risk bearer? others, with Fitbit, Jawbone, Withings, and iWatch. Objects like cars, tractors, suitcases, fridges, garbage Imagine a world where we no longer have to go to the cans – even the human body – are getting connected. supermarket or make grocery lists online, because groceries are delivered directly to us – according to Yet machine-to-machine (M2M) interfaces are nothing our needs, which are identified from the data collected new: they’ve been around for over two decades. So, in the home by a connected refrigerator. Does this what has changed? Significantly lower sensor costs, sound like science fiction? Think again. an explosive rise of connectivity, increased computing processor power, and miniaturisation of these components The development of a data-based society will challenge are all factors that augment innovation opportunities traditional business models in a big way. In our view, and hence the range of connected objects. four types of impact should be expected: •• Impact 1. The dividing line between business sectors The figures speak for themselves: in 2008, there were as and industries will shift and become blurred. many connected objects as there were humans on Earth, •• Impact 2. New cross-industry ecosystems combining about seven billion. The number of connected objects is data from different sources will be established. expected to rise to between 50 and 100 BN by 2020, or Will this move us toward a monopoly situation or annual growth of over 30%. The current value added by coexisting ecosystems? IoT is estimated to represent €400 BN, and should reach •• Impact 3. The Internet of Things will accelerate the €1.8 to €2.2 TN by 2020, or five times what it is today. establishment of services. •• Impact 4. Customer relationships are becoming But beyond the figures, the burning issue is how this hybrid and business-to-business-to-consumer value will be distributed. Who will benefit? One thing (B2B2C) is growing fast. is certain: there will be winners and losers. How can companies avoid being disintermediated or attacked Anticipating the disruptions, being an active player in in their market by newcomers or incumbent players these changes, and understanding new business models who manage to capitalise on the potential of IoT before and corresponding ecosystems are the keys to getting everyone else? How can they avoid the establishment the most out of the Internet of Things revolution. of de facto platforms able to capture data from several different spheres and thus the corresponding value?

DISRUPTING TRADITIONAL BUSINESS MODELS

5 TECHNOLOGY IS AT A TURNING POINT

11 IMPACT 1 AS DIVIDING LINES BETWEEN INDUSTRIES BECOME BLURRED

17 IMPACT 2 ECOSYSTEM INTEGRATORS WILL CAPTURE VALUE

23 IMPACT 3 IOT IS ACCELERATING THE DEVELOPMENT OF SERVICES

29 IMPACT 4 NEW BALANCE IN CUSTOMER RELATIONSHIPS

34 HOW CAN YOU MAKE INROADS INTO SUCH A VAST SUBJECT?

IOT SCENARIOS IN NINE INDUSTRIES

38 INSURANCE A NEW DIRECTION FOR INSURANCE

48 HEALTH HEALTHCARE IS POISED FOR TECHNOLOGY-LED TRANSFORMATION

56 AIR TRANSPORT STEP UP THE PACE OF GROWTH IN THE ALREADY FLOURISHING AIR TRAVEL INDUSTRY

62 RETAIL TECHNOLOGICAL EVOLUTION, BEHAVIOURAL REVOLUTION

68 INDUSTRIAL INTERNET A FOURTH INDUSTRIAL REVOLUTION?

75 SMART BUILDINGS WHAT ARE THE IMPACTS? WHAT ARE THE STAKES?

82 UTILITIES AND SMART GRIDS A NEW WORLD

90 TELECOMMUNICATIONS BEYOND CONNECTIVITY?

101 SUPPLY CHAIN WHY AND HOW TO DEPLOY NEW SOLUTIONS

EMMANUEL AMIOT The Internet of Things, or IoT, is everywhere and the phenomenon is accelerating. Many industries will see profound effects on their historical positioning and business models. The landscape will be remodelled as new ecosystems emerge. Some players have already assumed their new position. Value will be created, but there will be winners and losers. So, to stay in the race, you urgently need to define your IoT strategy and anticipate future developments. In this first chapter, we describe the main impacts of IoT in terms of business models, data ecosystems, the migration of value toward services, and customer relationships. We then recommend an approach to define your IoT strategy based on a central principle: start with the end-to-end customer experience, and how they are using products, to redefine your new value proposition and corresponding portfolio of services before thinking about data and connected objects. THE INTERNET OF THINGS\\DISRUPTING TRADITIONAL BUSINESS MODELS TECHNOLOGY IS AT A TURNING POINT

The Internet of Things (IoT) – Internet More than just trendy gadgets, IoT is of Everything or Internet of Objects – is triggering a real business model revolution, generating a buzz and making the front based on data and service. This shift will page. Wearables, or portable technologies, be faster than expected. However, we’re and other health-related accessories are not talking about just machine-to-machine among the first to come to the fore: bracelets, (M2M) but rather multiple connections watches, scales, and other activity trackers across machines, people, and processes. (such as Withings, Fitbit, and Jawbone) And we’re no longer talking only about are blockbusters. In the mass market, connections to smartphones or internet countless objects – cars, pressure-cookers, boxes but also about objects that can washing machines, refrigerators, light interact with each other and generate bulbs, utility meters, thermostats, suitcases, huge volumes of invaluable data, radically dustbins, drugs, and even the human transforming services and relationships body – are getting connected. The same with users. applies to machine tools, vehicle fleets, planes, buildings, and many other areas of business and daily life (see Exhibit 1).

Exhibit 1: IoT revolution in different industries and spheres of life

Agriculture Leisure Environment City Machine Building House Mobility Industry Retail

SELF Construction Telecommunication

Financial Utilities services, insurances

Transportation Health

Source: Oliver Wyman

This is about new features that will change standard connectivity features, a wi-fi our daily lives at a dizzying pace as four connection, an accelerometer, and so on. essential ingredients come together: Explosive rise of connectivity. There are •• An object currently about 1.8 BN 3G connections •• A smart component – with sensor, and 500 MM 4G. By 2020, 3G will have microprocessor, storage, software, operating system, and so on doubled and 4G increased fivefold as these figures rise to 3.6 and 2.3 MM respectively. •• Connectivity Other forms of connectivity will also grow, •• Huge volumes of data including wi-fi, Bluetooth, ZigBee, LoRa (low-speed and low frequency connections, consuming very little power), as well as more TECHNOLOGY CAN proprietary protocols such as SIGFOX and NOW BE ACCESSED li-fi (light-powered connection). Objects AND INTEGRATED will communicate directly with each other, without necessarily passing through EVERYWHERE hubs. Between 2014 and 2018, the speed of connection will be multiplied by four. Five trends are changing the game today Starting in 2019-2020, 5G should be an (see Exhibit 2) and will accelerate the important accelerator of IoT by enabling the development of IoT and a more automated optimisation of multi-network data traffic. society, based on the generation and intelligent use of data in real time. Increase in processor power. The computing power of processors will continue to double Significantly lower sensor costs. The every 18 months. Moore’s Law (predicting average cost of a sensor is now €0.5, just a doubling of processing power every two half what it was a decade ago. This cost is years) will remain valid but the appearance expected to drop below €0.3 by 2020, even of quantum processors could accelerate though sensors will still have all the this pace.

Miniaturisation of all of these components. Exhibit 2: IoT technology trends 2014-2020 Processors the size of a grain of sand (1x1x1 mm) – including a solar cell, wafer-thin IN 2020 (VS. TODAY) battery, memory, pressure sensor, wireless radiowave component, and antenna – now Sensor cost € 0.3/captor animate objects. Cameras the size of a grain of salt, with a resolution of 250x250 pixels, are Penetration rate of 4G multiplied Wireless connectivity by five already available. Sensors the size of a grain of dust collect and transmit information on

Processor power x6 temperature, pressure, and movement.

“Computers” the size of a grain Development of the “cloud”. Cloud Miniaturisation of sand computing is giving access to almost infinite storage capacities, facilitating Cloud, storage, data x16 data volumes data integration and combining this data in megabases, thus enabling the Source Intel, GSA, GSMA, law Moore, IDC, ExtremeTech distribution of virtual applications.

MORE THAN reality, and smart lighting varies according to daylight intensity and movement. Traffic JUST TRENDY management can now be facilitated by a GADGETS, NEW precise view of traffic flows in real time. Every IOT APPLICATIONS big city is moving in this direction, from Barcelona (recognised as the best smart city ARE REVOLUTIONARY in the world by Juniper Networks in 2015) to Nice, Amsterdam, and New York. The first IoT applications are already astonishing, whether for the retail or business Smart buildings are producing tangible market. The following are just a few examples. results. Selex ES solutions for connected buildings send out recommendations for Vehicle fleets are being optimised. Maximise real-time adjustments, identify inefficiencies, vehicle fleet usage, increase the productivity of allow preventative maintenance, and reduce human intervention, reduce fuel consumption average energy consumption by 7%. Philips’ by at least 10%, redefine itineraries in real LED lighting fixtures are connected directly time depending on traffic and weather to the Ethernet network and all have an IP conditions: Orange Applications for Business address. So any user with a smartphone and and Océan (the geolocation specialist it IP address triangulation can be geolocated recently acquired) are already offering these by the lighting fixtures and thus control applications to construction sites, public their immediate environment (lighting, works, retailers, utilities, and others. temperature, and so on). Facility managers receive real-time information on building Supply chains are being revolutionised. occupation, and cleaning staff know which Instantaneous information as well as the offices have been used since their last visit. combination of data from various sources (like temperature, humidity, verification when a The connected factory is becoming a package is opened, truck capacity utilisation, reality. We are witnessing the emergence vehicle arrival time, and driver fatigue) of a new generation of production lines and make revolutionary applications possible. smart robots able to react to information Caterpillar already does this, for example, by received in real time. Details such as order tracking driver eye movements and fatigue. status, characteristics of materials entering Throughout the supply chain, players have the production line, and status of other started integrating IoT into activities such as machines enable production systems to adapt planning, management of the last mile, and their parameters in terms of pace, quality, storage. Bobcat, for instance, increased the descriptive labelling, packaging, and signage. productivity of its connected forklifts by 20%, SAP and Festo AG are already developing with a return on investment in just 18 months, production lines that can produce either while Amazon’s Kiva robots are reducing the remote-control units or cellphone cases on cost of preparing orders by 30%. demand, using the same plastic cases. The improved synchronisation of production lines Smart cities are emerging. Optimised and the resulting reduction in downtime is parking space management with real-time reflected in 10% lower energy consumption identification of free spaces has become a and 40% lower customised production costs.

Copyright © 2015 Oliver Wyman. All rights reserved. 7 IOT STATISTICS ARE Planes are getting connected and are optimising their routes and fuel ALREADY IMPRESSIVE consumption. Flight Efficiency Services is the operational predictive maintenance and In five years, there could be five times optimisation system established by GE. A more connected objects generating multitude of sensors compile and analyse 50% more value. engine performance data to optimise flight and maintenance processes. Alitalia, for In 2008, the number of connected objects instance, reports fuel economies of 1.5% equalled the number of humans on Earth, for its connected planes. that is to say about seven billion, each object being equipped with multiple sensors. Shampoos are closely tracked. Manufacturers of consumer products, such Up from 15 BN in 2014, it is estimated that as L’Oréal, are integrating more and more the number of connected objects will rise to radio-frequency identification (RFID) chips between 50 and 100 BN by 2020, or annual into their products. Inventory management is growth of over 30%. improving in productivity and responsiveness. Manufacturers are starting to understand Every second, 80 new objects connect to the their product flow better than retailers do. internet for the first time. Retail is getting connected to help The value added by IoT is estimated to shoppers. In Lille, Philips LED lighting represent €400 BN. This figure is expected fixtures guide shoppers through to rise fivefold by 2020 to reach between supermarket aisles based on their shopping €1.8 and €2.2 TN. list. Carrefour’s C-Où (“Where is it?”) application helps customers build their Data volumes will explode. In 2008, IDC shopping itinerary based on the products estimated that the internet contained they want to buy. 800 BN gigabytes of data. This is barely the amount that 20 homes will generate in Preventative healthcare is becoming a 2020. The brain of the mouse was modelled reality. The Withings bracelet is a gadget in 2014, and forecasters estimate that even opening the door to personal health. the human brain will be modelled by 2030. Employee health and well-being services The pace at which data is generated is are developing at record speed. phenomenal. It should also be noted that 75% of data will not be structured, and that Industries like agriculture are, contrary 40% will come from sensors. to popular belief, at the leading edge of digital technology. Sowing is optimised The share of IoT in global gross domestic and crops are treated based on weather product (GDP) should rise from 1.5% in forecasts, fields needing fertiliser are 2014 to 2.1% in 2020. identified by infra-red systems, and weeding and harvests are mechanically assisted.

Exhibit 3: IoT trends

NUMBER OF CONNECTED OBJECTS IN BN 20122020 100

More M&A x10 x3 in the first 4 75 months of 2015 Venture capital IoT IoT-related M&A than in the 12 in 2014 vs 2010 2013 vs 2014 Morgan Stanley months of 2014

50 Cisco

IDC 25 x5 3.5 pts Siemens Value added by IoT Impact on French 2014 to 2020 GDP by 2020

0 Gartner 2012 2014 2016 2018 2020

Source Gartner, Cisco, Morgan Stanley, IDC, Siemens, CrunchBase, TechCrunch, 451 Research, Montaigne Institute

After 2020, these figures are expected to Ten times more venture capital was invested grow exponentially. On several occasions in in IoT in 2014 than in 2010 (€341 MM vs. the past, the penetration of innovations has €34 MM). Major technological players have been largely underestimated. Didn’t Thomas also accelerated their investments. IBM Watson, CEO of IBM, think in 1943 that there announced in March 2015 that it would would be a worldwide market for about five invest €3 BN in IoT between 2015 and 2017, computers? More recently, in 1999, peak while Cisco is investing $1 BN in creating penetration of mobile phones in France a platform for IoT known as Intercloud. In for example was estimated at 90%; today 2014, Google acquired Nest, the global the rate is 120%. Cisco, in turn, predicts connected thermostat leader, for $3 BN. 10,000 BN objects will be connected in 2030. The same year, Facebook bought the Oculus What appears certain is that it is impossible virtual reality company for $2 BN. In China, to make such long-range predictions. Alibaba launched an IoT Smart Living strategy in April 2015 and Baidu announced The level of investment in connected objects that it could put the first autonomous car on is probably the most reliable indicator (see the market as early as 2015. Exhibit 3). It shows that we are now at a critical turning point. One of the surest signs The pace of acquisitions is accelerating. that an industry is about to be structurally Companies have spent more on mergers transformed is the sudden surge of “tech” and acquisitions in the first four months of entrepreneurs investing in it, supported by 2015 than during all of 2014, or $14.8 BN in private equity firms. 2015 versus $14.3 BN in 2014.

The real question is about the allocation IMPACT 2 of the value generated by IoT. One should naturally expect winners and losers, and the New cross-industry ecosystems disruption of existing business models. combining data from different sources will be established. Are we moving toward We have experienced this with digital a monopoly situation or coexisting transformation, which created immense ecosystems? Quality data won’t be free of value for consumers and players who were charge. Imagine the power of ecosystems able to adapt quickly enough, but was able to combine data as different as the also rough on everyone else. The term weather, personal health information, and “uberisation” is now being bandied around; behavioural indicators with aggregate data IoT may become equally significant. on health for each population segment.

IMPACT 3 THE BOUNDARIES IoT will accelerate the establishment of BETWEEN services. The migration to services (touched INDUSTRIES ARE upon in our report Digital Revolution: New Customer Experiences, New Business BEING CHALLENGED, Models, New Transformations) is not a new PROMPTING A phenomenon but will be multiplied tenfold REVOLUTION IN by IoT, enabling the development of new services. With IoT, the service dimension BUSINESS MODELS characteristically precedes the object, so that the Internet of Services must be The development of a data-based society conceived before the Internet of Objects. will challenge traditional business models The Withings strategy is a perfect illustration. in a big way, and we can identify four likely impacts. IMPACT 4

IMPACT 1 Customer relationships are becoming hybrid and “business-to-business-to-consumer” The dividing line between business sectors (B2B2C) is growing fast. Alongside players and industries will shift and become blurred. who will be in a position to reinforce their The possibility of collecting and using new customer relationships with intelligent data will enable players to expand outside their data collection strategies, others will be traditional positioning. For instance, automakers disintermediated. Some businesses will will be able to expand into insurance by move from business-to-consumer (B2C) to collecting, aggregating, and analysing business-to-business (B2B), and vice-versa, driving data. Insurers, on the other hand, will while B2B2C relationships will facilitate more be able to manage customer pools actively. direct access to the end user.

IMPACT 1 AS DIVIDING LINES BETWEEN INDUSTRIES BECOME BLURRED IOT IS RESHAPING BUSINESS MODELS THE INTERNET OF THINGS\\DISRUPTING TRADITIONAL BUSINESS MODELS

The possibility of generating, collecting, and Although these offerings are still fairly using data to create new services is opening consistent with existing models, they could up new potential, not just for existing radically change the landscape tomorrow. players but also for newcomers reinventing Just imagine: traditional business models. Peugeot as car insurer. Insurers could lose There’s no need to panic but the risks mustn’t their grip on the car insurance customer be underestimated either. We don’t believe relationship if policies are integrated in a monolithic scenario where Google directly into the vehicle purchase contract. dominates every industry and has a finger Automakers would then be the first to collect in every profession. What is more plausible data essential to pricing, and insurers would is the emergence of new players, now still become mere subcontractors. at the incubation stage. The following examples illustrate potential disruptions Google as home insurer. By aggregating of the value chain in different industries: key personal data (for example, on behaviour insurance, retail, health, and energy. and lifestyle) collected through a powerful ecosystem of connected objects (in the home, car, carried, or worn) and data from INSURANCE the Web, Google could become a formidable agent for risk selection and appraisal. Google AUTOMAKERS ARE TAKING could then reverse auction batches of risks ON CAR INSURANCE, to insure, relegating insurers to the role of GOOGLE IS ENTERING THE low-value-added risk holder. HOME SERVICES MARKET, WITHINGS IS GOING Withings as health insurer. By analysing INTO HEALTH, TRIMBLE the behaviour, lifestyle, and health INTO BUSINESS habits of its customers, Withings could directly offer home, health, and personal The aggregation of essential data is accident insurance. critical to the insurance business model. The collection and use of great volumes Trimble as vineyard insurer. Agricultural of data have long been the main barriers specialisation puts this tech and IoT preventing newcomers from entering the player a step ahead of the game. As a market until now. The possibility of new result, Trimble is becoming an expert in entrants aggregating key data to select agricultural claims patterns. risks more efficiently or personalise prices based on the assets insured, and especially Some of these examples smack of science the characteristics of insurance subscribers fiction but IoT represents a real risk for (lifestyle, behaviour, age, and so on), insurers as they could lose a significant effectively reshuffles the deck. share of their revenues. On the one hand, pinpointing risk and enabling better Premiums based on driving style (pay-how- prevention will reduce the cost of risk and you-drive) and lifestyle (pay-how-you-live) the corresponding premiums. On the other already exist. Insurers like John Hancock hand, the value captured by other players have turned pay-as-you-live into a core value with smart data could confine insurers proposition: the healthier your lifestyle, the increasingly to the B2B side of the equation, cheaper your insurance. (See Exhibit 4.) focused on risk management.

Exhibit 4: Peugeot would become your car insurer, Google your home insurer

Allianz

AXA Aviva Manufacturers include car Google manages all home insurance in a bouquet of services (insurance contracts, “on demand” mobility services support/assistance services) Generali

Customers pay Pay How You Drive according to “Reverse auctions” their “actual risk” (for insurers)

Insurers would become mere Risk “risk bearers/ Risk solvency checkers”

Source Oliver Wyman

RETAIL include ChillHub, whose connected fridge is now equipped with sensors and tomorrow THE SUPERMARKET IS will have cameras on GE’s IoT appliance BECOMING SECONDARY – platform. With Amazon’s Echo or Dash, UBER DELIVERS GROCERIES consumers can dictate or scan their grocery BASED ON YOUR list, and washing machines can order laundry CONSUMPTION AND HABITS detergent automatically before it runs out. (See Exhibit 5.) New delivery providers The online supermarket is nothing like Onfleet already combine orders from new. This isn’t what we mean. We’re different sites and optimise delivery rounds, talking about a logistics provider who proposing a profitable on-top model. revolutionises shipping to become your main retailer. In neighbourhoods and whole Uber collaborates with Amazon Fresh. cities, an ecosystem is being created, Amazon’s objective is to attract customers which is capable of capturing restocking willing to pay a little more for the convenience requirements and optimising distribution. of a fresh produce delivery service. Extending Connected objects are being used to collect Amazon Fresh also enables the online brand data, aggregate this data across different to acquire and retain customers in other spheres, and provide connected shipping. spheres – making profitability on fresh produce almost a moot point. The impact It will no longer be necessary to go to is enormous, and the figures speak for the supermarket or make a grocery list themselves: with 2% earnings before interest on Ooshop. Uber delivers to consumers and taxes (EBIT) and 20% volume-based according to their needs, identified directly variable costs, and 10% of volume transferred in the home with an entire ecosystem of from the offline to the online sphere, data collection partners. These partners traditional retailer margins will vanish.

AMAZON

Dash Amazon Amazon Amazon Replenishment Dash Button Dash wand Echo Service

AMAZON OR WALMART? COULD ACQUIRE OR DEVELOP AN UBERTYPE SERVICE AND REPLACE YOUR SUPERMARKET

Smart homes equipped with devices allowing Amazon to detect what’s missing. Orders are placed automatically and delivered by Amazon Services, using an “Uber-like” delivery model.

UBER

HEALTH Apple on health and recruited numerous professionals from B2C companies. What if IBM AND WELLTOK ARE tomorrow IBM became a major B2C player BECOMING YOUR PERSONAL with an instrumental role in converging HEALTHCARE ASSISTANTS these two spheres?

Could a B2B player like IBM, very advanced If IBM or Apple manages to convince patients not only in the cloud and data analysis to open their medical file and share their data, but also in healthcare and the weather, will these players be positioned to capture become a retail market player in the the lion’s share of the value created in the healthcare industry? health sector?

IBM recently announced a $1 BN investment Other players are emerging on the health in the Watson Group, including $100 MM market. The American start-up Welltok, for intended for start-ups developing applications example, which raised $59 MM in 2014 then on the Watson Developer Cloud. Just imagine $37 MM in 2015, provides customers with the impact when billions of personal data fitness itineraries and healthcare treatments records are connected to an analytical from its CaféWell platform in partnership platform like Watson, identifying the right with IBM. The symptoms detected by the patterns and generating personalised Simband bracelet from Samsung or a Vital recommendations to improve well-being Connect biometric patch are combined with and health. (See Exhibit 6.) In keeping with personal behavioural data collected by Apple this dynamic, IBM signed an agreement with Watch or using external factors provided by

Exhibit 6: IBM could conduct patient check-ups

SYMPTOMS IBM DIAGNOSIS FEVER, HYPERTENSION, WATSON HEALTH CLOUD OXYGEN Philips, Medtronic, Vital Connect, cue

PERSONAL DATA CARDIAC ACTIVITY, SPORT, NUTRITION Apple Watch, Fitbit, Withings DISEASE DATABASE CONSULTATION Health insurance, WITH A DOCTOR EXTERNAL FACTORS WebMD, NHS RESEARCH AND TIME, HUMIDITY, REMOTE HEALTHCARE, POLLUTION DOCTOR’S APPOINTMENT Nest, Weather Channel, ZocDoc Honeywell

Source Oliver Wyman

The Weather Company (IBM Cloud). This Others, like Google or Actility in France, convergence of individual and collective could go much further. In the USA, Google data represents a real revolution. Indeed, has a licence to purchase and distribute most health improvement initiatives do not power. Happy Hereford, the wind farm require a doctor’s intervention. of its subsidiary Google Energy, is the second largest in this domain. Its new- generation batteries are today providing ENERGY power storage solutions for the car, and tomorrow will do so for the home. Its NEST-GOOGLE IS REDUCING family of thermostats – connected to YOUR ENERGY BILL household equipment (such as washing machines, so they start at the right time), The utility industry is among those smart meters, and car battery recharging most affected by IoT, for example in the terminals – is growing continually and residential market. New solutions are enabling the immediate and flexible coming from all sources: public service and integration of network production capacity. telecommunications (telecom) operators, utility players, and new technological players. By becoming a power distributor that can Orange Homelive and AT&T Digital Life are optimise the balance between demand already offering energy optimisation solutions, and production in real time, Google is in a compatible with any supplier or partner, like position to cause major disruption to the Hive with British Gas. All of these offerings business model (see Exhibit 7). require specific action by the customer.

Exhibit 7: Could Google – or Orange – become your power service provider?

Renewable energy sources 2014-15

Energy licence 2013-14

Nest 2014 Rush-hour Rewards

Long-lasting electrical autonomy with Google batteries Google batteries

Communicating with Whirlpool household appliances is now possible

A single hub to control electronic devices

Source Oliver Wyman

All players are conscious that the capture of customers and protecting their private and use of data, and the identification of information? Could de facto standards be attractive patterns, will create value. imposed, reinforcing the asymmetry of access to information from which the digital That said, will this data be free of charge, economy already suffers? We can improve sold, or easy to collect? According to our understanding by distinguishing three Gartner, more than 30% of the data used steps in the management of data: by companies in 2017 will come from 1. Collection specialised service providers, which 2. Coordination naturally want to monetise this asset. How do we collect this data? What strategy can 3. Analysis we implement while retaining the trust

Exhibit 8: Percentage of applications requesting data access, 2014 COLLECTION

PERCENTAGE OF APPLICATIONS DATA WON’T ALWAYS BE FREE REQUESTING DATA ACCESS In B2C, mobile phones will remain a data collection hub. The most widespread Internet method to collect personal data is through applications on mobile terminals, which are Storage already stuffed with sensors (gyroscope, accelerometer, GPS, digital fingerprints, Caller ID and so on). For example, the new Samsung Galaxy S6 contains more than a dozen types Location of sensors.

Sound The mobile phone sensor market is expected Contacts to grow annually by 19% on average from now to 2018, rising $2.3 to $6.5 BN from 2012 to 2018. New sensors are constantly 0% 20% 40% 60% 80% 100% being integrated into smartphones: barometers, magnetometers, pedometers, detectors of light, proximity, heart rate, UBER APPLICATION COLLECTS DATA radiation, and humidity, for example. The applications then capture all the data that the smartphone has collected. Applications Email account You probably can’t imagine the amount of personal data you already provide without Location knowing it. According to Accenture, 79% Telephone of companies directly collect personal UBER data from their customers, for instance, through online accounts. When you use an application, it collects your internet Wi-fi access data 90% of the time, your phone connection Battery number 65% of the time, and your contact Internet data list 35% of the time (see Exhibit 8). Many Android applications don’t even ask for your Source: Uber, Oliver Wyman analysis explicit permission.

To use Facebook Messenger, for example, you must provide a large amount of personal data and give the application direct control of your mobile phone.

Most consumers are willing to share their data, since they derive a tangible benefit from it. This is not expected to stop but will be done more transparently with opt-in

authorisations by type of data, granted by gradually become the norm. Under the aegis users with greater awareness. According to of the World Wide Web Consortium (W3C), a Morgan Stanley study, 81% of users would protocols will interact extensively across be willing to share their personal data if they equipment, within networks, and in the cloud. received an advantage in return, such as a lower insurance premium. Data monetisation The Thread Alliance, led by Google, will increasingly make consumers more integrates the application layer (or cluster aware of the value of their data and thus more library) of ZigBee with Nest. Since 2014, likely to attempt to monetise it, for example, it has supported an open IoT vision, in through personal data intermediaries. which objects don’t need applications to interconnect and transmit data. This alliance Some rare data should continue to be free, creates more bridges with other standards, but merely collecting information has little such as the Open Interconnect Consortium value if there is no aggregation ecosystem to of Intel and the AllSeen Alliance. The latter utilise it properly. promotes AllJoyn, an open source, open standard platform conducted by the Linux and Qualcomm foundation. Its objective is AGGREGATION to ensure the interoperability of equipment, regardless of brand, network, OS, and so MONOPOLIES, DE on. Apple’s decision to open its ecosystem FACTO STANDARDS, OR and use Thread/ZigBee to support its COEXISTING ECOSYSTEMS? home automation solution, HomeKit, with the iPhone as a control hub is a move in The first digital revolution created an this direction. asymmetry of information between new players, like Google or Bookings, and But beware, because these declared traditional players at the expense of the intentions of opening up technology latter. Will such an imbalance recur with must not hide the fact that technological connected objects? convergence by no means prevents the rise of de facto standards. Specific platforms The subject is not technological, as there may also become dominant because of their is little doubt that open standards will aggregation capacity and the simplicity of the

Exhibit 9: A strategic control point, ecosystem aggregation of data starts with data organisation

ORCHESTRATE C AGGREGATE ANALYSE OLLECT SERVICE

Source Oliver Wyman

getting established (think of Google, Apple, De facto standards have and Samsung), so latecomers will have a lot of trouble modelling a system favourable to become widespread, their interests. and the same thing Big names joined the Nest/Dropcam ecosystem during the Las Vegas CES in could happen in IoT January 2015, including Samsung, Somfy, ARM, Pebble, Jawbone, Philips, and LG. In April 2015, Apple launched HealthKit, its health application, and Apple Watch. Now being pilot tested, its connected home management application, HomeKit, has heavyweight support from Philips, Honeywell, Haier, Netatmo, Withings, and others. CarPlay, an on-board version of iOS for vehicles, has been launched with Volkswagen, Toyota, Renault, Peugeot, and Ford.

customer experience, akin to what happened A sign that IBM is entering the retail market with Apple and Android. By nature, these is the partnership signed with Apple to platforms will be able to incorporate data penetrate the corporate market with Apple from multiple sources, while the suppliers of objects fed with IBM intelligence. Samsung objects and IoT services will have access only is lagging behind. Based on its own to their own data and possibly a negligible operating system, Smart Home (announced share of information from other objects. These in January 2014) integrates Smart TV, platforms will thus acquire supremacy on household appliances, and smartphones. data, which will put them in a near-monopoly The mobile terminal is becoming the position. They will then be free to sell this residential hub used to control everything, data to third parties, utilise it and monetise from the front door and the elevator to it themselves, and therefore deprive the home appliances. companies participating in their ecosystem of a considerable opportunity to create value. These aggregations by sphere depend on open and horizontal technical platforms Although Android is currently an open that enable the various verticals to design standard, middleware and application professional applications (see Exhibit 10). layers (Google applications, for example) Horizontal IoT platforms like ThingWorx, use proprietary specifications. The Android acquired by PTC in 2014, are growing operating system (OS) installed on 80% of non-stop. They make it possible to mobiles worldwide is not the Android it was accelerate development and maintain IoT at the beginning. De facto standards have applications by providing infrastructures become widespread and the same thing in software-as-a-service (SaaS) mode or could happen in IoT. facilities where developers can come to develop their applications. Between 2013 Aggregating or combining relevant data and 2014, ThingWorx revenues rose by within the same sphere will become critical approximately 60%. (see Exhibit 9). Ecosystems are quickly

Exhibit 10: A monopolistic backbone or coexistence of integrator Similarly, in March 2015, Microsoft ecosystems cutting across different industries? presented a project to personalise its Azure cloud platform for IoT in three dimensions:

myFox credit management, remote surveillance, and preventative maintenance. This platform Kiwatch will include services such as Azure Stream Analytics, which identifies patterns by Allianz analysing data flows, or Azure Intelligent AXA Systems service platform, designed to interconnect electronic sensors and other devices. Legrand Within the residential and mobility sphere, ORANGE the question is about how to gain a foothold in data access for the future and prevent a small group of players from capturing the Somfy lion’s share of the value. We feel that the key is to build strong and attractive ecosystems Netatmo that offer enriching applications and a Withings simple customer experience. Users won’t want to juggle ten different ecosystems, but two or three at most. In the retail Philips market, this requires the creation of trustworthy ecosystems aggregating the APPLE services of different players. This can be done by local players who already possess valuable “trust capital”, such as a telecom Honeywell operator integrating automation and Haier security into the home.

Jawbone Telecom operators have a special position in the home. Recognised for their reliability and security, they enjoy the trust of consumers, GOOGLE so they will be able to market connected Nest • Bridges across protocols, residential home automation, security, and technological convergence energy solutions. Playing an aggregator • Open standards do not mean role, they will open up an extensive market “no defacto standards” • Several ecosystems driven by the to the manufacturers of connected objects, Whirlpool players with the greatest impact bringing them credibility and enabling them Mercedes on ecosystem performance, with a simple and enriching to develop their services. However, Apple with customer experience HomeKit and Google with its new operating Source Oliver Wyman system for the home have similar intentions.

In business and smart buildings, the same Integrating and utilising data and ecosystem rationale should prevail. This developing IoT applications require very rationale requires designing vast libraries specific expertise. Numerous platforms, of professional applications as well as some global, are being launched or detailed knowledge of each profession. growing fast. Datavenue, Orange’s IoT Some companies, like Schneider Electric, platform, was created with corporate have started integrating all the verticals of partners, including Schneider Electric, construction. This rationale is also applied by Malakoff Médéric, SEB, and TF1. This Orange Business Services. Precise knowledge platform offers secure data hosting to of customer professions is therefore essential its customers, opens its application to design business applications for fleets program interfaces (APIs), and provides of vehicles and construction sites, combat toolboxes (for data flow management, data theft on construction sites, or optimise anonymisation and utilisation, invoicing, maintenance in services. and so on) to developers, thus becoming a service engine. Datavenue is also being In the midst of such expansion, it is not increasingly integrated into corporate easy to secure a position in the market. processes and information systems. Despite the difficulty, a wait-and-see attitude would be very risky. Every company In the same manner, a significant number must soon clarify its strategy and the role of start-ups (like Always Prepped) as well as it wants to play. Builder of a multisector incumbent firms (such as Equifax, Acxiom, ecosystem? Leader of a vertical ecosystem and Experian) are developing their data integrating competitors? Or central player collection and aggregation activities, in a powerful ecosystem? combining the sale of data and software. Still others are positioning themselves on “analysis as a service”. This is true for Granify, ANALYSIS Mineful, and Retention Science. VALUE IS SHIFTING TOWARD Today, companies cannot get around PLAYERS WHO MAKE THE the need to collect and utilise data and BEST USE OF DATA develop applications. Is this part of their core business? Do these skills need to According to IDC, only 1% of data is be developed in-house or can they be currently utilised. Although this rate outsourced? Our vision is that data analysis appears probable on average, there creates more value when it remains very are, however, significant differences close to the core business. Value will migrate between players. Retailers don’t use much toward companies that are able to develop information about sales slip, but Amazon powerful analysis tools by industry, or even exploits all your data. Banks don’t utilise for specific niches. However, this transfer the information they have on you, whereas poses an acute skill challenge. By 2020, the the new financial technology players, or USA will be short of about 1.3 MM experts FinTechs, do so intensively. known as data scientists.

IMPACT 3 IOT IS ACCELERATING THE DEVELOPMENT OF SERVICES

Data per se is of little value but can be used autonomous movement. With the help of in many ways to: a new generation of software and robots, such as the Kiva Systems robotic assistants, •• Improve performance and reduce costs vehicle production lines can be optimised, •• Raise service levels or develop reducing the time required to produce new services a personalised car by 40% and energy •• Reinforce customer relationships. consumption by 10%.

Industry has already started to move For retail, IoT is a great tool to optimise toward services, and IoT is accelerating this storage and shipping. Amazon, whose phenomenon dramatically. business depends on a powerful and reliable supply chain, uses more than 15,000 smart Kiva Systems robots to IOT IMPROVES make the picking process faster and more efficient. These robots, connected to OPERATIONAL the central ordering system and able to EFFICIENCY, WHICH navigate through the warehouse with RFID HELPS COMPANIES codes, reduce picking costs by 20% to 40%. Amazon is thus estimated to save $500 to DIFFERENTIATE $900 MM annually.

IoT is a source of productivity gains and In logistics, IoT creates new fleet management operational performance for companies. solutions. Masternaut services, for example, give customers real-time visibility on In the industrial sphere, IoT enables the their fleet (position, productivity, vehicle emergence of Industry 4.0. These cyber- usage, or geolocation) and goods shipped physical systems connect objects and (compartment temperature). These solutions allow them to interact without human help Masternaut customers optimise their intervention. They may be designed, for costs and cut their fuel bill by 25%. example, to optimise utilities or allow

In water and electricity, IoT solutions to track IOT SUPPORTS SIX and manage infrastructures remotely help suppliers such as Veolia and Thames Water SERVICE PATTERNS save millions and more effectively ensure the quality of the resources they manage. For These six patterns, described below, force example, the start-up Redbird uses drones existing players to migrate from their initial to assess the state of infrastructures in real positions (see Exhibit 11). time and identify anomalies that could cause future incidents. Redbird’s customers, REINFORCE THE VALUE such as GDF Suez, can use these services OF EXISTING PRODUCTS to arrange preventative maintenance and reduce the cost of technical interventions. Offering customers a better experience than competitors do is the objective of companies Concentrating exclusively on performance like Bouygues, SEB, Babolat, and Terraillon. gains and cost cutting is nevertheless These firms are already integrating IoT too simplistic; IoT is above all a source of technologies into their products. For instance, innovation, a new way of thinking about a in addition to providing tennis rackets to business, an opportunity to be different and Rafael Nadal and the best tennis players in get a jump on the competition. IoT is also the world, Babolat equips its rackets with the only option that can eliminate the risk sensors that allow players to analyse their of disintermediation. game and improve their technique. Terraillon uses its connected scales as a platform to offer online fitness coaching services and support customers in their efforts to lead more active lives. Although still quite new, this type of product value reinforcement stands a good chance of quickly becoming the norm.

Exhibit 11: Six service patterns accelerated by IoT and data

REINFORCED PRODUCT TO SERVICE NEW SERVICES PRODUCT VALUE

Terraillon SEB Schneider Biotronik ThyssenKrupp Orange Bouygues Babolat GE Philips John Hancock Allianz

SERVICE WITH NO OBJECT PRODUCT AND SERVICE AS A INFINITELY SERVICE USAGE, MULTIOBJECT PERSONALISABLE SERVICE

AutoGrid OPower DriveNow Smoove IFTTT OnFarm Wink Whirlpool Keolis

• Drives players to move from their initial positions • Performance becomes dependent on system players • Reinforced service “motorisation”, B2B

Source Oliver Wyman

OFFER CUSTOMERS the traditional “physical” product (elevators INNOVATIVE SERVICES in this case) – make it possible to reduce operational risks (with up to 70% fewer Whether it is a matter of going further and technical incidents) and introduce more improving existing services or proposing predictability into operational planning. new services, IoT expands the portfolio that equipment insurers, retailers, and EXPAND THE “PRODUCT-AS- manufacturers offer to their customers. In A-SERVICE” (PAAS) CONCEPT construction insurance, putting sensors into concrete has driven the development The ability to collect product usage data of novel solutions. Issues related to the makes it possible to let customers pay for malfunctioning of connected objects, and, products according to usage, rather than in particular, civil liability, offer considerable purchasing them outright. potential for new services. IoT will thus enable the development of new support We are at the dawn of a zero marginal cost services by insurers or telecom operators. economy where only the use of the product is relevant, rather than acquisition and The increased need for cyber-security will ownership. Equipment manufacturers, generate the development of adapted in particular those making household services. Due to their control of connected appliances, are already thinking about home hubs, telecom operators will be in introducing usage-based pricing. IoT is a good position to expand their services accelerating the move toward a world beyond connectivity. Orange’s Homelive and where private individuals pay for their Canadian Rogers’ Smart Home Monitoring washing machine by the load, and airline are integrated security, comfort, and home companies pay for their engines according automation solutions that allow people to the number of flights or miles travelled. to control their alarms, doors, and lights And usage is becoming increasingly remotely. Such services will form an integral hybrid. For example, it is no longer the part of the connected home offering of car that is insured but the use of a means tomorrow’s operators, which will manage of transportation. the customer experience inside the home and develop more engaging relationships INTRODUCE with customers, creating many additional GENERIC SERVICES service opportunities. The proliferation of IoT communication MOVE FROM A PRODUCT- standards creates interoperability issues. CENTRIC OFFERING TO For example, movement detectors of one SERVICES AND SOLUTIONS brand may not be able to communicate with the alarms of another. As a result, In industry, for example, equipment new generic – or objectless – services are manufacturers, such as ThyssenKrupp, emerging, including platforms such as propose predictive maintenance services to Wink, which helps customers make their their customers by collecting and analysing homes fully connected and interactive. data. These services – which complement

OFFER INFINITELY The same applies to the energy sector. PERSONALISABLE SERVICES Schneider Electric has become a supplier of building objects but is also increasingly The IFTTT (If This Then That) service goes a maintenance and facility management even further by enabling the creation of player. Data gathered from these objects action and reaction pairs, opening the door and fed back to an IoT platform will enable to hundreds of applications. For instance, as the significant development of services. soon as your Nest Protect detector signals The Schneider Electric Andover Continuum a high carbon monoxide level, an Android solution helps to reduce average building warning is sent to you and your neighbours energy costs by 30% using the smart are notified by SMS. EcoStruxure system, which controls heating, ventilation, air-conditioning, lighting, IT In sum, IoT primarily paves the way to services, and security (access, cameras, and accelerate the transition from product to alarms). In this way, Schneider Electric is service, and it creates new opportunities employing new IoT technologies to expand for global companies such as GE, Schneider its portfolio of services and capture value Electric, and Philips. from facility management companies.

Although IoT represents a real threat IOT STIMULATES THE for insurers, it also creates formidable opportunities for those that manage to TRANSITION FROM rethink their value proposition completely. PRODUCT TO SERVICE IoT makes it easier not only to segment risk in detail and identify fraud but also In industry, some companies are to reinvent the service model. Examples transforming their initial business model. GE, are rife, ranging from the development for example, is expanding its service model of prevention systems to automatically well beyond the manufacture and repair of triggered emergency and assistance aircraft engines. It collects and utilises data services, not to mention the installation concerning the operation of its engines to and monitoring of supervision cockpits. establish increasingly powerful predictive maintenance plans. GE is also developing In the construction industry, IoT allows fleet management and operational tracking equipment manufacturers to become services for Airbus and airlines themselves. service providers. For example, the elevator Specifically, with each flight, 100 sensors manufacturer ThyssenKrupp Elevators per engine generate 500 gigabytes of data (TKE) is installing hundreds of sensors in to analyse. As a result, Alitalia reduced its its products to track indicators such as fuel consumption by 1.5% while AirAsia, engine temperature, speed, friction, and by augmenting its fleet usage, generated braking. Using the collected data, TKE can annual savings of more than $10 MM. predict incidents before they happen, plan

maintenance to reduce downtime, make With the continuous drop in 3D printing repairs faster (the technicians are equipped costs and real-time data feedback from with analysis systems to quickly identify connected objects, spare parts no longer the cause of incidents), and optimise the have to be produced in a central hub and operation of its elevators. In short, data then delivered to the customer; they can makes it possible to integrate services into now be printed on demand, where they are facility management. needed. A manufacturer such as Siemens is now able to deliver spare parts to its The same is true for utilities. Industrial customers ten times faster than before. gas, for example, could move from selling products to providing services with IoT. Media excitement around IoT emphasises One global industrial firm is offering a objects particularly for retail consumers. medical gas distribution solution supported However, by 2020, IoT equipment for by sensors and a remote IoT SIGFOX industries, companies, and buildings will communication system. This solution grow more quickly than for the mass market. involves providing not just the product Professional IoT is expected to represent at (industrial gas in this case) but also quality least 40% of connected objects. control, remote monitoring, and support on critical situations such as alarms, In terms of value, industry will also represent emergencies, and fluid supply failures. an essential share. From operational optimisation that cuts costs and improves In the household appliance sector, SEB is responsiveness to innovative service developing connected products that perfectly offerings that differentiate a business, IoT embody industry’s migration to services. represents a very attractive opportunity. For example, its smart multi-cooker Cookeo According to Cisco, 36% of the total value Connect can be controlled by Bluetooth added by IoT in 2020 will come from purely from the customer’s tablet or smartphone. B2B applications through better asset The Cookeo app can automatically add the management and usage, and optimised ingredients for a selected recipe to the user’s supply chain and logistics operations. electronic grocery list and offer advice on how to prepare the dish. Rather than being a mere The imminent service revolution will be cooking utensil, the multi-cooker has become enabled by the collection and aggregation of a residential cooking services platform. data, so missing this first step will make the transition to services much more difficult. From aeronautical products to gas turbines, IoT is transforming the spare parts business in the industrial equipment sector. Siemens is becoming a technological partner rather than a supplier, a service provider rather than a simple product manufacturer.

IoT is revolutionary in another domain – the will permit a substantial increase in the customer relationship. The connection frequency, intensity, and particularly the of objects can allow players, upstream in relevance of interactions with customers and the value chain or from other sectors, to consumers. We have identified six disruptive capture this relationship. It can also help trends, described below, concerning these historical players to reinforce the quality relationships (see Exhibit 12). of their customer service. Indeed, IoT

Exhibit 12: Six disruptions that change the relationship and deepen knowledge of the customer

REINFORCED PARTIAL TRANSACTIONAL CUSTOMER RELATIONSHIP REINTERMEDIATION TO INTERPERSONAL

Mahana Adidas Tesco L’Oreal Danone Evian Philips GE Jaguar Carrefour Virgin Atlantic Procter & Gamble Michelin Allianz

PARTIAL DISINTERMEDIATION INTERMEDIATION B2B TO B2C

Home equipment gaining Insurance sold Industrial gas ground versus distributors by manufacturers to home healthcare

Source Oliver Wyman

IOT REINFORCES agree to be geolocalised in the store, their itinerary can be analysed in detail in order to THE CUSTOMER model customer types according to profile. RELATIONSHIP Distribution thus reinforces the relationship with consumers in several ways. IoT makes it possible to create new contact points and opportunities to interact with customers, and in turn reinforces the IOT REINFORCES relationship with them. KNOWLEDGE OF Take, for example, beacons: their large-scale THE CUSTOMER deployment in sales outlets and throughout cities is set to be an incredible vector of Manufacturers of consumer products have transformation for retail. Already installed long been frustrated by their lack of direct at Carrefour, Macy’s, Mahana, Tesco, and knowledge of end customers. Retailers alone Virgin Atlantic, the Apple iBeacon is an had a direct relationship with consumers indoor geolocation system using Bluetooth at the time of purchase, relegating Low Energy (BLE) technology that can the manufacturer to a back-office role. detect receptive terminals and send signals Consumer service initiatives, surveys, and to them. This new category of transmitters other clubs were simply palliatives. revolutionises in-store experience while making a whole range of new services We are at the dawn of a partial available to customers with compatible reintermediation, as integrated RFID tags, applications. From geolocation in stores or the connection of products, makes it to payment at the cash register, including possible for manufacturers to collect hitherto available product promotions, the iBeacon inaccessible information. Information on offers a more fluid and intuitive experience. store-by-store sales flows and inventory levels is now available. Manufacturers can For retailers, these beacons add value to therefore adapt their logistics, promotions, the point of sale by making it interactive. and advertising by location and in real time, Passers-by are notified of available discounts depending on sales and inventory levels. to attract their attention. If shoppers

We can also imagine future connections tyres and battery, Jaguar can anticipate between products and customers, enabling technical incidents and notify customers the establishment of detailed links between before a problem occurs. A significant specific customers and usages or buying amount of data can also be collected to behaviours. Whereas retailers currently understand precisely how customers use use very little sales slip information, their cars. Using this data, Jaguar can manufacturers are building a knowledge suggest the models that are most suited to base to develop a better understanding individual customers for their next purchase. of consumers, or even establish a direct relationship with them. B2B TO B2B2C Companies like Danone, Evian, L’Oréal, and P&G have started to take this decisive AND PARTIAL approach which, over time, should REINTERMEDIATION change the balance of power between manufacturers and retailers. E-commerce has long fostered the reinforcement of direct customer relationships by upstream value FROM TRANSACTION- chain players, and IoT will drive these opportunities even further. Without BASED TO becoming fully B2C, a certain number of RELATIONSHIP-BASED business models will continue to operate as B2B2C but the balance of power will shift The frequency of contact with customers will among value chain players. increase. Jaguar Land Rover, for example, is trying to do this by becoming a partner to Take a household appliance manufacturer, for customers throughout the life cycle of the example. Its connected washing machines car, in order to monetise the relationship or refrigerators gather data that enables it after the initial transaction (see Exhibit 13). to perform remote maintenance and update product performance for a given usage. The connected car enables Jaguar to establish a direct relationship with The potential to migrate further toward B2C customers. The automaker provides them and services is obvious. It isn’t essential to with essential data in real time and creates go through a pure B2C phase because the opportunities to contact them. For example, manufacturer doesn’t have to take charge of with remote verification of the state of the sales and distribution. On the other hand, it can

Exhibit 13: Jaguar as customer partner throughout the life of the car

ESTABLISH A DIRECT RELATIONSHIP WITH PROVIDE KEY DATA CREATE NEW CUSTOMER THE CUSTOMER IN REAL TIME CONTACT OPPORTUNITIES

Last park location of vehicle Direction to your vehicle Warning! The battery is low. Please start the engine or contact your dealer for more information

Slide to unlock

JLR’s customer relationship Track the customer throughout the vehicle life cycle to management philosophy monetise the relationship after the initial transaction

Source JLR

capture value in terms of customer satisfaction into home health support. All forms of home and loyalty, and will also be in a position to assistance and care, supported by IoT, could challenge retailers on aftersales service. attract companies from the industrial sector to service activities for the end customer. B2B TO B2C Likewise, public works and construction players could transform their business models. Other players could modify their model Could a company like Colas, which integrates while moving more radically toward B2C. We sensors into roads and sidewalks, develop have already cited the case of IBM, whose other B2B or B2C businesses using the data power to analyse combined data opens up collected? Will the latter make it possible to opportunities to enter the consumer market. supplement data collected by JCDecaux, for Other industries could make the same sort of example, through its urban display panels? move. Air Liquide Healthcare is already moving

B2C TO B2B A company that collects data to develop ad hoc services is well on its way to reinforcing The reintermediation of some players is its customer relationships. A player who driving the disintermediation of others, but misses out on these changes, on the other one is not necessarily better than the other. hand, is likely to be disintermediated. But is this a real problem? According to For example, an insurer losing the sale of a our research, models will be increasingly policy to an end customer and becoming hybrid. Companies will be in direct contact the supplier to a car manufacturer is not with some customers while also being on necessarily losing out if its volumes are large the sidelines with others. This will require and the market is consolidated around two additional agility compared to current or three insurers. models. (See Exhibit 14.)

Exhibit 14: Potential IoT value and risk by vertical

Potential value

AND

High CHAIN UTILITIES

TRANSPORT

Average INDUSTRIAL INTERNET SUPPLY INSURANCE CONNECTED BUILDING TELECOM TECHNOLOGY RETAIL AIR SMART HEALTH Limited Productivity and costs

Differentiated Risk of disruption/risks customer service Innovative services High Revenues Average

Risk of disruption Limited Source Oliver Wyman

APPROACH IOT DERIVE A DATA AS A BLANK AGGREGATION SLATE, STARTING STRATEGY FROM WITH SERVICE THIS ANALYSIS

It is highly tempting to start with available Data will not always be free, and powerful data to derive an IoT strategy. We believe, ecosystems capable of capturing them however, that by starting with their existing will come to the fore. It is thus important assets, companies may miss out on the most to establish strategies to collect solid data innovative business models. in a manner that respects customers. Depending on its specific position in a The scope of exploitable data will become domestic market or its size on a global level, infinite. It will be easy to get lost while trying each player must decide if it wants to be an to determine what can be exploited. Starting integrator of different systems or a mere again with a blank slate and customer needs, participant in an ecosystem. thinking about usage ever more deeply, in terms of service: this is the approach most Philips, for example, has adopted a position suited to designing innovative models. of compatibility with major ecosystems. The Withings initially built its offering by thinking company works in partnership with major as much about personal health and well- players that complement its lighting offer, being as about data and collection tools. such as ABB. Such approaches, which derive their power from a detailed understanding of what users Any data strategy must be based on trust value, mean plunging into different verticals and security. In a connected economy, or spheres. They also increasingly require the the pact of trust between the company ability to navigate laterally across verticals. and its customers will be key. Establishing transparent opt-in agreements is essential, just like IoT end-to-end security to avoid the remote hacking of connected objects (for example, at home or in the car) and the plundering of data.

DIFFERENTIATE We have observed many usages with attractive return on investment (ROI). YOURSELF BY By equipping its refrigerated grocery aisles TRANSFORMING with sensors that respond immediately to YOUR OPERATIONAL potential breakdowns (to avoid the loss of food products), one supermarket chain MODEL amortised its IoT investment in a matter of months. To succeed, it is essential to adapt your operational model and differentiate yourself, Pilot testing of “first viable products” is which involves large-scale transformation essential with IoT. This makes it possible of practices and the value proposition. A to discover potential usages and gradually number of disruption points are emerging. establish corresponding business models We believe that only open-system models within ecosystems. will be successful. Designing products with non-proprietary protocols is imperative. BUILD AN OPEN Virtualisation and increasing disconnection of the physical product (or hardware) and ECOSYSTEM software must be integrated far upstream. (MARKETPLACES, Products will have longer life cycles than ALLIANCES, software. Products will therefore have to be more evolutionary and reparable through START-UPS) online updates, meaning that cars or electricity meters must integrate this factor Succeeding in IoT will require establishing right from the design stage. cross-vertical collaboration in different spheres. No company, no matter how large, Service must be thought out before the can invest alone in tomorrow’s applications. product and must cover multiple products and models. The infinite potential of The first impact will be the development concepts such as IFTTT must be integrated of marketplaces where various players into design as much as possible. contribute to building the right solution. Telecom operators in particular are in a good Some of the examples presented at the position because they can be the architects beginning of this article may still seem of ecosystems, combining verticals and remote, but concrete, short-term initiatives the technological building blocks that they can already generate significant value. provide and integrate.

Some players think they can develop an ADOPT A EUROPEAN IoT strategy while remaining closed. They believe that they will be able to protect their APPROACH BASED ON business of installing automated home COMMON STANDARDS appliances by creating a closed ecosystem in the home. We think that these attempts are When a manufacturer develops a solution highly likely to fail. On the other hand, open for the United States or China, an immense strategies are likely to succeed if they offer market immediately opens up. This is less exemplary customer experience and service true for Europe. The rationalisation of as well as consistency. European industrial plans, reduced from 34 to 10, including one focused on connected Major European corporations do not appear objects, is a very good sign. to be very advanced in IoT. Nonetheless, there is a great proliferation of ideas and However, this is not enough. Aligning start-ups that need funding, especially for standards between different countries the second or third round of financing. To in Europe would be a decisive driver to us, it seems difficult today to differentiate accelerate the emergence of European through IoT without an established IoT leaders. Such alignment is also critical and ambitious investment strategy or to maintain innovation in Europe, as well partnerships with start-ups. as to ensure European data security, independence, and control.

In particular, a European response would support the emergence of ecosystems driven by large industry or service players, and would counterbalance the establishment of Only open-system dominant de facto platforms. Building European cloud and IoT data models will platforms as credible alternatives to global platforms therefore seems desirable in more be successful ways than one.

The Internet of Things affects all industries, but their maturity level in this transformation depends on their particular characteristics. This is why we chose to carry out a more in-depth study of nine industries that appear most affected by this phenomenon: insurance, health, air travel, retail, industry, smart buildings, infrastructure and smart grids, telecommunications, and the supply chain. For each industry studied, we analyse the impacts of IoT and the opportunities and threats for incumbent players, and we end by anticipating strategic scenarios and new IoT business models. THE INTERNET OF THINGS\\IOT SCENARIOS IN NINE INDUSTRIES

INSURANCE A NEW DIRECTION FOR INSURANCE

DAVID GIBLAS THIERRY MENNESSON THE INTERNET OF THINGS\\IOT SCENARIOS IN NINE INDUSTRIES Insurance

THE IMPACT OF IOT Hancock’s pay-how-you-behave policy (Manulife). Others are thinking about an ON INSURERS application for home insurance, namely pay- how-you-live. Insurance is an industry heavily dependent upon understanding and analysing risk, We believe that commercial insurance will through gathering and observing data also be greatly impacted by the emergence over time. Until now, this involved finding of IoT, even if the implications are greater correlations between the frequency and for risk prevention and selection than for severity of insurance claims on the one hand pricing models. Some industries are natural and data describing insurable assets on the candidates for rapid transformation, such as other. These analyses were then used to agricultural insurance, building insurance, develop models to select and price risks and and small and medium-sized businesses in manage risk portfolios. This information, some market segments. known as cold data, primarily entailed a static description of the object of insurable risk In addition to data, IoT is also revolutionising (such as a car) and the environment likely to the customer experience. Interactions were influence that risk (including driver profile and until now few and far between (claims being car usage type). made every four to five years on average in some lines of business) and often with IoT deeply affects the insurance business by negative perceptions because they were providing access to new types of dynamic connected to claims management. IoT information, known as hot data. This data makes it possible for insurers to move from relates to the object of risk, its usage level, a low-frequency transaction-based model to and user behaviour. For many branches of a much more interactive model built on new insurance where risk is directly correlated to ways to provide prevention, advice, coaching the exposure and behaviour of policy-holders, services and, of course, rapid assistance this hot data will deeply transform risk and support. The transition from “insurer as selection, pricing, and monitoring models. payer” to “insurer as protector” is therefore a fundamental change in positioning, allowing Personal lines insurance (automotive, home, insurers to play their role fully in protecting and health) is directly concerned by this customers and, in the process, to generate correlation, with motor insurance being the new potential sources of revenue, reduce most advanced in applying IoT-based models claims, reinforce customer relationships, and (see Exhibit 1). Indeed, telematics initiatives improve their image. were carried out for this purpose as early as the 2000s. Key takeaways. IoT is creating two major shifts that will have an impact on the Insurers have now made great advances economic models of insurers. It is now in pay-how-you-drive offerings based possible to exploit new information – known on dongles plugged into the dashboard, as hot data – relating to policy-holder usage smartphones, telematics devices (‘black and behaviour; Insurance will move toward boxes’), or a combination of these more prevention and monitoring in real technologies. Some have already launched time, for the well-being and protection of an equivalent health offering, such as John customers from day to day.

Exhibit 1: The impact of IOT on personal lines insurance

More accurate underwriting, SMART CAR risk mitigation, risk INSURANCE SERVICES management, and claims services AXA Progressive Aviva Coverbox Allianz Generali

New pricing models: pico-segmentation, usage-based insurance (UBI) SMART HOME pricing models INSURANCE SERVICES Development of smart end-to-end BNP Paribas StateFarm protection New insurance/non American Family Allianz insurance services: Insurance prevention, coaching, monitoring, etc.

SMART HEALTH INSURANCE SERVICES New customer experience, better customer Manulife Oscar engagement, and improved client satisfaction Cigna BP AIA

Source ABI Research, Oliver Wyman analysis

IoT could revolutionise how property refined data and on the other to generate and casualty (P&C) insurance is new relevant data and ultimately extract the intelligence required to feed their business priced, distributed, and serviced; models in real time. An additional threat to it could shift the business model insurers is posed by the emergence of a new category of players, the aggregators, which toward service-driven ecosystems consolidate data from multiple ecosystems to propose new services.

Further down the value chain, in the domain THREATS of distribution as well as the customer relationship, there is a battle to gain access TO INSURERS to the customer. A wide variety of threats are coming from pure players (for example, GAFA IoT offers real opportunities to insurers but and Instech), data concentrators, new big also presents major new threats, which must data players (such as Big Telematics, Cobra, be anticipated and managed. and SAS), telecommunications operators (like Orange), “big tech” (IBM for instance), service Upstream of the insurance value chain, the operators and manufacturers (including car need to possess huge volumes of data was the manufacturers and energy providers), IoT principal entry barrier until now. Today, this equipment manufacturers, and so on. barrier is fast disintegrating under pressure from new players like GAFA (Google, Apple, The danger of disintermediation is very Facebook, Amazon). These players are able real for insurers. IoT incontestably flattens on the one hand to collect increasingly the value chain, as evoked in Thomas

L. Friedman’s best seller, The world is flat. But the new rules of the game are even more Hyper-connectivity and the flow of data threatening to traditional insurers. Indeed, enable players from different industries to some players might even be tempted to expand into the insurance market. Different extend their incursion into the insurance value players may have different strategies but chain as soon as they have perfect control they share the ability to generate, collect, or of data and the customer relationship (see consolidate data and, based on the extracted Exhibit 2). Players like Google will very soon intelligence, to develop customised, on- be able to calculate the cost of risk precisely, demand service propositions. They are and so could set up a reverse auction system positioning themselves as unavoidable based on the estimated price for a given pool access points to customers. Some players of risk. In this scenario, insurers would lose appear more likely than others to win this control of pricing and be relegated to the low- battle. The legitimacy and ability to cope value- added role of risk holder. with these changes is becoming a burning issue for insurers in each market segment. The question remains open on whether these players – whose ability is now proven – actually We are also seeing a demoduralisation want to become fully fledged insurers for phenomenon led by specialised players certain types of risk. The decision to continue who hack the customer relationship on a along this path depends essentially on their very specific activity through a low-price interest in positioning themselves in a highly approach combined with IoT. Automotive regulated business made less attractive by the assistance in the US is a good illustration of rising cost of capital. this phenomenon. Newcomers like Urgent. ly (partners of Mapquest and AT&T) are The accepted objective of using data to using service provider network management acquire new knowledge is to make our capacity combined with technology firmly lives easier, safer, and less exposed to risk. woven into the customer relationship to According to our estimates, we can expect a position themselves in the automotive big reduction in losses and consequently a assistance market and extract it from the shrinking of premiums by more than 20% for traditional insurance value chain. The specific business lines. This will drive insurers mandatory installation of eCall into all cars to find new ways to generate revenues to starting in 2018 will very probably amplify compensate for the lost turnover. We see this phenomenon in Europe. three main revenue-generation opportunities: the rising need to insure cyber-risk and new The home assistance market is also IoT intelligence; diversification of insurance attractive, with many start-ups positioning to provide customers with prevention and themselves as service aggregators coaching services; and first-mover advantage, (HomeAdvisor.com, Buildzoom.com, and in which a new IoT-based selection and Pro.com for example) or Amazon and Google pricing model is used to attract the most deploying new home services offerings. profitable risks in the market and leave the The “uberisation” of assistance, which we rest to the competition. translate as the emergence of sophisticated relational marketplaces, will spread In the latter cases, the adverse-selection gradually to all domains; we wouldn’t be phenomenon could be fully tapped by surprised if Uber itself decided to extend its adopting an IoT business model. There will know-how into the assistance sector. be big winners but also some big losers.

Exhibit 2: Threats are coming from all sides

IN THE NEW IOT AND DIGITAL WORLD, MANY ACTORS ARE WELL PLACED TO CAPTURE THE CLIENT RELATIONSHIP

COMPANIES PRODUCING/ SELLING THE INSURED ASSET

COMPANIES Siemens Bouygues WHO FINANCE IOT THE ASSET Mercedes MANUFACTURERS • How can client access and relationships be maintained in this new ecosystem? HSBC Nutmeg TomTom Nest • Which actors are the best placed and have the credibility Lending Club Jawbone to capture the insurance relationship? INSURERS • Can we keep/do we have to keep the customer SMART PROTECTION relationship? COMPANIES COMPANIES • What are the best distribution channels to sell smart PROVIDING SERVICING INFO & ACCESS THE ASSET protection o erings? • Which actors would be the best possible distribution partners for insurers? Alibaba Amazon Apple COMPANIES British Gas Véolia Tesco Goggle PROVIDING Facebook TELCO & IT SERVICES Jones Lang Lasalle

Cisco Orange IBM Samsung

Source Oliver Wyman

Customer hyper-segmentation and risk selection and portfolio management models. pooling challenges are now burning topics The trend is thus toward the de-averaging of discussion, particularly concerning the of pricing, without knowing at this stage impact of pay-how-you-drive offers. IoT whether this will ultimately lead to purely will make it possible to refine knowledge individualised pricing or even if the public of usage- and behaviour-related risks, and authorities will allow it. sanction of higher-risk profiles. We believe that pricing will be increasingly segmented, The new offerings will encourage customers probably starting with the populations that to reduce their exposure to risk by adopting are least well segmented today due to the safer and more responsible behaviours. lack of basic behavioural information (on Ultimately, this would be in the best interest young drivers for instance). Segmentation of customers and insurers alike. will then be refined in other areas as the correlation between behavioural, usage, and However, this principle cannot be applied claims data is better understood. uniformly in every domain. In healthcare, for example, this system would strongly penalise Some insurers are already applying micro- people who suffer from unfavourable genetic segmentation of risk to particular types of predispositions and who cannot reduce their insurance, and IoT is opening the way with exposure to risk by simply changing their nano- or even pico-segmentation. We are behaviour. We consequently recommend also convinced that pricing models will extreme caution and discernment in applying fit in nicely with highly sophisticated risk such models to ensure that populations

known or considered to be particularly at personalised, on-demand service while risk can continue to find insurance at an improving the core business of the insurer. affordable cost. The public authorities will have a major role to play in managing the In our view, the IoT value proposition for application of these new models. insurers will have seven dimensions (see Exhibit 3): Key takeaways. Insurers face many 1. Sophisticated risk segmentation, threats to the value chain both upstream selection, and management (including data collection and usage) and 2. Improved fraud identification and downstream (such as distribution and claims management customer relationships). 3. Establishment of automatic assistance and emergency services, automated We are already witnessing the emergence claims notification, and automated of players in many industries attempting to claims management adapt or divert the customer experience in 4. Development of new pricing models their favour: the latter are sometimes termed based on usage and behaviour customer experience (CEX) specialists or 5. Introduction of new risk prevention, growth hackers. Some of these players protection, and management services may even be tempted to become fully 6. Real-time risk tracking and management fledged insurers. 7. Redefinition of the customer experience

Insurers must imagine new sources of We believe that implementing these new revenue to compensate for the reduction proposals must be both segmented vertically in insurable assets. The adverse selection (retail, car, home, health insurance, and phenomenon will considerably boost the so on) and progressive. This will make it premium to the first movers who manage possible to manage the greater complexity of to industrialise an IoT business model multiple factors, such as the need to process suited to insurance. The public authorities new data not immediately exploitable will have a major role to play in regulating for the purpose of understanding claims, the application of these new models and acquire new skills, transform the value ensuring that some population segments do chain, create new partnerships, and stabilise not become uninsurable. applicable technologies.

These new IoT-based propositions will force NEW IOT BUSINESS insurers to address the key issues of their data access strategy and their distribution MODELS AND and customer relationship strategy STRATEGIC SCENARIOS DATA ACCESS STRATEGY Insurers must thoroughly rethink their value proposition to take account of the Many initiatives launched today by insurers unprecedented disruption of the industry depend largely on a collaborative partnership that IoT will cause. The value proposition, with IoT suppliers: telematics for the car, which covers not only products and services thermostats and other sensors for the home, but also the customer experience, must be fitness bracelets for health, to name only a few. fundamentally changed to migrate to more

Our perception is that these initiatives We are convinced that insurers cannot win are principally designed as vehicles for the data battle alone, due to the unbalanced communication or “buzz”, or to test new distribution of power. They will thus have to customer services and learn to use new data, cooperate with other players across, within, rather than as a real medium-term strategy. or by combining vertical ecosystems (car, home, health, and so on) and cannot afford Many questions remain concerning the to ignore the need to monitor ongoing data target of the IoT data collection and usage initiatives and conduct multiple pilot tests environment, and there are a number of to pre-empt the best possible partnerships potential operating models. These include a depending on the estimated value of the data. single open platform by ecosystem, several proprietary platforms by ecosystem, a platform covering multiple ecosystems, open data platforms, and hybrid models.

Exhibit 3: New IoT value proposition for insurers

New customer experience: hassle-free, differentiation through selected delights, signature moments, experience innovation

Prevention and risk advisory services, feedback and ability to change/command Rapid emergency in case of customer behaviours claims, fast FNOL (First Notice Of Loss) and claims processing, anticipation of indemnification Better risk assessment, Risk monitoring in real time: more accurate pricing auto diagnostic, (predictive) and risk monitoring maintenance, self monitoring, tele coaching services, … New pricing models: usage/behaviour-based pricing Better fraud identification, better assessment of the DEPLOY NEW cost of loss NON INSURANCE SERVICES OFFER IMPROVED INSURANCE SERVICES IMPROVE RISK CARRIER CORE BUSINESS

INSURE THE RISK CONTROL THE RISK PREVENT THE RISK 5. Insurance only Insurance and assistance + tracking, emergency, some + prevention, monitoring, coaching, vs. diversiﬁcation location-based services multiple adjacent services 4. Static vs. dynamic Static Fast reactive Dynamic: dynamic pricing, product value chain conﬁguration, instant marketing, events-triggered services

3. Past-based vs. Static models based on + usage based data + behaviour data and predictive model past claims patterns predictive patterns

2. “Cold” vs. “hot” data “Cold” data + rapid adjustment + “hot” data on-the-ﬂy 1. Few data vs. variety of data Internal data used (customer, risk, + external static data + multiple IoT data sources history, claims record, …)

Source Oliver Wyman

DISTRIBUTION This package would cover a whole range AND CUSTOMER of needs, from prevention to assistance, RELATIONSHIP not to mention coaching and monitoring. STRATEGY This model could be established either through partnerships (service Many players, such as GAFA, are betting orchestration) or extending the value chain on using data to capture the customer (service integration). relationship. Their objective is not to sell raw data or even the corresponding patterns Disintermediation incontestably puts great but to position themselves as unavoidable pressure on producer margins, and this players in the customer relationship by will be the main problem with archetype 1. incorporating multiple services using the Nevertheless, we feel that this positioning intelligence extracted from this data. Faced can generate great value if insurers can with this new type of competition, insurers fully exploit the potential of their data and must define their positioning precisely. establish wide-reaching partnerships with distributors. These extended relationships We expect the polarisation of distribution must be based on providing high-value- and customer access models (see added services around the intelligence Exhibit 4), with the emergence of two extracted from customer, product, and major archetypes: service innovation data. They should also be backed up by sophisticated selection and Archetype 1. An “insurance inside” pricing models, adapted marketing and sales model distributed by other upstream materials, effective distributor and customer or downstream players in the insurable tools, and a portfolio of assistance services. matter value chain. This insurance could be subscribed to when purchasing an The ability of insurers to operate item requiring insurance (for example, internationally will also be critical in car manufacturers could sell a package of implementing this archetype. Indeed, services including IoT-based auto insurance) it is highly likely that the shift from or paid over time according to the usage business-to- customer (B2C) to business- of the insured good or service (energy to-business (B2B) coverage will require providers and telecoms providers are insurers to propose offerings covering all well placed to distribute IoT-based home of the countries where manufacturers or insurance). This archetype may go as far as service providers do business (for example, transferring (some) retail insurance to cover automotive). This could therefore lead to the civil liability of the manufacturers of consolidation of non-life insurance players. goods and providers of services. This is true, for example, in the automotive industry, The main problems with archetype 2 lie where the spread of autonomous vehicles in the feasibility of execution and the will cause a large share of premiums to legitimacy of insurers in playing a service migrate from coverage of drivers to liability hub role. Indeed, distribution and coverage of manufacturers. customer experience have not been the historical strength of insurers. In addition, Archetype 2. A “smart protection services” digitalisation of the insurance sector model in which the insurer preserves remains immature in comparison with other the customer relationship by providing a industries, even if some insurers have greatly package of services, insurance, and more. accelerated their digital transition.

Exhibit 4: Polarisation of archetypes in insurance

NEW MODELS TRADITIONAL MODELS NEW MODELS RISK CARRIER CLIENT ACCESS

ARCHETYPE #1 THE LOW COST THE MULTI LINER ARCHETYPE #2 THE PURE SMART PROTECTION RISK HOLDER SERVICES Model key • Insurer is competing • Insurer is competing • Insurer provides a • Insurer has become characteristics on its core “risk on price and provides wide range of tailored an end-to-end risk carrier” business only basic products insurance products manager and services • New players have and services • Insurer plays the role secured client access • Insurer only targets • Distribution model of a hub aggregating and expanded into selected consumer is a combination of insurance and insurance services proﬁles proprietary and non-insurance digital distribution non-proprietary services for its channels customers (white-labelling) Margin potential

Di culty Low Medium Medium High Value creation model s s s s e e e e c c c c i i i i v v v v r r r r e e e e S S S S

Clients Clients Clients Clients

Source Oliver Wyman

This archetype will thus require huge efforts insurance companies already use their from insurers to establish a customer- assistance subsidiary as a secret weapon for oriented culture, create a seamless and diversification and pilot testing. The most user-friendly customer experience, adopt pressing questions would then involve insurer new fast execution practices, develop governance and the ability to deliver rapidly. tangible innovations, accelerate digitalisation, As one famous insurance industry CEO told reinforce the agility of the value chain, recruit us: “Assistance used to be sold with the and retain new talent, and build extended insurance; but in the future, we might see ecosystems. To accomplish this, insurers are insurance being sold with the assistance.” advised to take inspiration from best practice, including by pure internet players, and pay It is crucial for insurers to apprehend the particular attention to the aforementioned forces at play and the changes to come in CEX specialists and growth hackers. each of their verticals. By analysing their positioning, strengths and weaknesses, We believe that insurers who have an existing investment capacity, and legitimacy, they assistance subsidiary are better equipped to will be able to identify the most relevant build archetype 2 because these structures business models. The definition of these can help create and manage service target business models will have to start provider networks and provide a strong(er) with a detailed understanding of the end- customer culture. Moreover, several large to-end customer experience (for example,

Exhibit 5: Main challenges for insurers in the IoT race from car insurance to integrating the need for mobility of all kinds) and, at each step, rethink the corresponding value proposition, capitalise on the intelligence of current “Hot” data collection How can we avoid losing the and intelligence extraction crucial “hot” data battle? and future data, as well as develop the best sourcing strategy for data, services, and technology (see Exhibit 5).

In the automotive industry, for example, insurers may well be obliged to come up New data-driven services How can we shift from a product-selling with an “insurance inside” archetype, business model to a data-driven services business model? given the power of auto makers. The latter have already made great efforts to reinforce control of their ecosystem and erect new entry barriers (for instance, with

How can we ensure su cient agility connected cars and autonomous cars). and reactivity in the business model Other serious players are also in the race, Agile value chain and and value chain (pricing, product business model modularisation and personalisation, such as Google and Apple. It is probable that marketing campaign)? the “insurance inside” model, as we have already mentioned, is just an intermediate stage for auto makers before moving to B2B insurance. Conversely, in home, health, and corporate insurance, the game isn’t over yet. How can we retain client access or, Client access at least, not lose it completely? Although the battle is raging in all of these sectors, insurers can still hope to position themselves in the customer relationship with Source Oliver Wyman a smart protection services archetype, using their assistance subsidiary as a spearhead.

Key takeaways. IoT will drive insurers to redefine their value proposition, in terms of offering but also customer experience, and migrate toward more prevention- oriented assistance services. Data access and distribution strategies will be decisive in executing these new IoT business models. Addressing these Two distribution archetypes will come to the fore in the long term: insurance inside challenges will require and smart protection services. These new business models must be defined, starting insurers to shift to different with the end-to-end customer experience, by rethinking the corresponding value marketing strategies and proposition at each stage. The ability of insurers to form partnerships and join the rethink the end-to-end right ecosystems with a vertically segmented approach, and capitalise on their assistance customer experience services or offers, will be decisive.

ANDREW CHADWICK-JONES

These days, the surest sign that an industry behind, particularly when compared to Uber is about to undergo wrenching change is a for personal transport, Amazon for shopping, sudden influx of tech entrepreneurs backed or Open Table for picking a restaurant and by venture capital investment. Travel, retail, making a reservation. In healthcare, nearly journalism, and media have all been the everything is inconvenient, slow, confusing, target of their own tech attacks in recent and opaque. It is hard to determine which years. The process has created immense doctor to see and even harder to know if they value for consumers but has been brutally are following evidence-based guidelines, hard on the companies that traditionally taking a holistic approach to medicine, or are dominated those sectors – at least those that priced in line with the market. failed to respond quickly and well. And so the tech entrepreneurs are doing For decades, healthcare has largely been what they do best: redefining the rules and exempt, despite serious attempts by market tipping value their way, creating magnetic leaders in financial services, consumer new products and services that eliminate technology, software, and beyond. But it hassles and delight consumers. now seems this vital industry’s turn has come at last. Over the past five years, tech Some provide general health information start-ups and venture capitalists (VCs) (such as Greatist or WebMD), help have been targeting health and healthcare consumers prepare healthy meals (Zipongo), at a rapidly accelerating pace, urged on or even provide live, video-based personal by regulatory reform, a crisis in costs, and training sessions (Wello). Others drive value-starved consumers. While perhaps not personalised engagement by aligning highly visible (yet), the tech sector has been consumer actions and behaviours with quietly working on the next generation of incentives and rewards (Welltok), offer our healthcare market: Health Market 2.0. primary care based on a whole new model (Iora Health), or enable consumers to find Most commentators would agree that doctors, make appointments, and identify healthcare systems are inefficient and the low-cost opportunities (Castlight and product of policy decisions taken more than ZocDoc). And of course there are the apps for a generation ago. smartphones and tablets, tens of thousands of them, to count your steps, track your For example, the UK NHS’ structure is little blood sugar, connect you to a community different from the time of its inception in 1948. of patients with similar concerns, provide And in a time of rising consumer expectations, health information, or let you compete with the user experience of healthcare is falling your friends on who burns the most calories.

Exhibit 1: Healthcare software and apps companies early Consumers have responded. WebMD stage funding attracts 180 MM unique visitors each month to its network of websites. Jawbone’s Up NUMBER OF ROUNDS OVER $2 MM 2009 2013 band, one of the leaders in fitness tracking, 100 recently registered its trillionth step. There

x7 are between 50,000 and 100,000 health and fitness apps, mostly monitoring exercise 75 and eating, some tied to wearable sensors or biometric devices.

50 According to the research firm Research2Guidance, the top ten health 25 and fitness apps generate up to four million free and 300,000 paid downloads each day. The top-ranked, MyFitnessPal, says 0 it has more than 40 MM registered users. 2009 2010 2011 2012 2013 And where there is accelerating consumer Source Oliver Wyman demand, there is investment. In 2010, only 17 healthcare-focused software companies attracted seed investments of $2 MM or more. In 2013, the number was 89 (see Exhibit 1).

There are between Just as important as venture capital are the investments that the incumbent technology 50,000 and 100,000 health firms are plowing into health-related projects. Google, in addition to developing and fitness applications a “smart” contact lens that measures blood glucose levels, has invested in a dozen health start-ups through Google Ventures. IBM recently announced it would invest $1 BN into the new Watson Group, including $100 MM toward venture investments to support start-ups who are building cognitive apps through the Watson Developer Cloud. In early 2014, Intel bought Basis, a health- related smartwatch company, for somewhere between $100 MM and $150 MM. WebMD launched a new programme in its iOS app Health Target that integrates not just activity from a Fitbit or Jawbone UP band but also data from health devices essential to those with chronic diseases (such as glucometers and wireless scales). Apple made a series of announcements in September 2014 positioning the company to broadly expand their consumer relationships into health.

All in all, the past two or three years have Consumers have never had access to seen an outpouring of innovation and this kind of data before. Neither, for that investment in health and healthcare that is matter, have their doctors (except in the simply remarkable, and all the more so for its emergency department or intensive care pace – easily ten times faster than anything unit). Physicians tend to look at electronic healthcare has seen before. health records (EHRs) only when patients are symptomatic – a few times a year (or decade) – and the records are mostly THE FUTURE HEALTH limited to clinical information. But we’re approaching a time when the EHR will SYSTEM AND incorporate real-time data on multiple THE RISE OF THE metrics, and the conversation between QUANTIFIED SELF doctor and patient will have greater intensity and depth, supported by real-time data. Consumers have long tracked activities relevant to their health, keeping diaries It makes eminent sense that a population’s and logs of exercise, calories, and the like. health managers would support and pay But over the past few years, the “quantified for predictive, preventative, personalised, self” movement has taken the practice to real-time engagement that could help a new level, using electronic sensors to consumers live without many acute health track a variety of metrics that can then be events. Already, companies from BP to digitally processed, interpreted, and shared San Francisco start-ups are giving their in databases with other people’s information employees Fitbits to track exercise and (see Exhibit 2). sleep, thinking that knowledge is power and can help to reduce healthcare spend while The popular devices created by Fitbit and increasing productivity. Jawbone let us track steps, activity, and sleep. Soon though, we will also be able The quantified self movement will set the to track metrics on calories consumed stage for long-term behaviour change and burned, blood pressure, glucose, by engaging consumers and activating oxygen levels, heart rate, and cholesterol. social networks. By encouraging the Consumers at last will have access to a set silicon players, retailers, and consumer- of relevant numbers regarding their health, health companies to enter the market, just as they have had numbers to track the movement will catalyse the rise of their finances. a consumer health market, counter- balancing the current health producer- Already 95 MM Americans are using mobile centric world. And once consumers have phones for health information, according experienced health and wellness in a to Manhattan Research. Most are tracking a connected, social or mobile, 24/7 retail single health indicator, such as weight, diet, setting, they will inevitably come away with exercise routine, or symptoms. Consumer higher expectations for service, access, tools such as Greatist (general health personalisation, and speed from their information), Zipongo (nutrition), and care teams. Wello (fitness) allow consumers different entry points to improve their “health IQ” – and resources to help change long- term behaviour.

Exhibit 2 Finally, imagine the impact when trillions of personal data points are connected to a big-data analytical engine that can perceive patterns and dispense advice. Consumers will soon have access to IBM’s HEALTHY LIVING Watson computing system for personalised VALUE • Steps or activity advice on health and wellness. Welltok’s • Sleep • Nutrition integrated CaféWell platform connects • Stress health plan members to a wide range of • Weight health improvement programmes, devices, CLINICAL AND HEALTH CONDITION health and lifestyle information, and VALUE • Blood sugar applications in a single consumer interface. • Weight changes With its Watson partnership, it is creating • Blood pressure EXPENSES AND • Heart function BUDGET VALUES CaféWell Concierge, delivering a uniquely • Blood oxygen • A ordability • Deductible status personalised experience and advice based • Exposure on the information gathered by Welltok • Pharmacy costs • Reward opportunities and processed by Watson’s big-data SUMMARY computing capability.

HEART RATE BLOOD PRESSURE

SYSTOLIC 120 mmHg DIASTOLE 80 mmHg

CHOLESTEROL: 250 110 BPM This convergence of big data and consumer

BODY MASS LDL CHOLESTEROL

GOOD GOOD GOOD social data – or whole population data and individual data – suggests how the supply side and smart care teams will be able to QUANTIFIED SELF, THE BRIDGE radically improve prevention and care, in TO A PERSONALISED HEALTH AND WELLNESS MARKETPLACE addition to providing another pathway to higher consumer expectations. Real-time personalised preventive Philip Elmer-DeWitt, long-time Apple Increased health relevance and watcher and online columnist for Fortune, engagement through social asks: “What if the more important market – the communities one that’s ripe for disruption and big enough to warrant Apple’s attention – is people for whom things like pulse oximetry are a matter of life Smart and death?” He goes on to add: “Real-time personalised shopping triage. Long-term observation. Correlation

SOCIAL AND EXPERT with hospital records. With the baby-boom COMMUNITIES generation about to move en masse into EXCHANGES AND SHOPPING MARKET government-subsidized health insurance programs, nursing homes and hospice care, those are serious growth markets. And if a generation of young, healthy joggers could be

HEALTHY LIVING trained to watch for trouble signs before – not REWARD EXCHANGE after – they get sick, we’d all be better off.” Source Oliver Wyman (fortune.com, 3 February 2014)

And remember, many life-preserving and can win by creating new magnetic offerings life-enhancing activities don’t require the for consumers. External innovators are lithe intervention of doctors. Could a company and well funded. They know consumers but like Apple persuade a substantial number of not healthcare. They are unlikely to displace consumers to open up their medical records, the incumbents, with their risk reserves, share their biometric data, and treat their actuarial science, contracted networks, iPhones as their main point of contact with medical licences, and power to save lives. care, then persuade them it’s fun and cool? For incumbents, the first priority is to be In a few years, consumers will look back and honest about what they bring to the table realise how antiquated the medical system and what parts of their legacy business used to be: measure a handful of numbers models may play a lesser role going forward. (such as high- and low-density lipoproteins, Leaders need to understand the relationship triglycerides, glucose, and the A1c diabetes between value creation, strategic control, blood test) every 12 to 18 months, hear a and the new profit zones. Value capture, few admonitions about diet and exercise, in particular, is highly sensitive to strategic and forget them without any follow-up or control. Too many organisations do the coaching. Is that really how we did things? heavy lifting required to create competitive Why didn’t we think to demand more? advantage, then fail to fully capture the value. IMPLICATIONS Unlocking the incumbent’s dilemma is no easy task. The rate of failure far exceeds that FOR INCUMBENTS of success. Through in-depth leadership discussions with existing players and When an industry is hit by a transition like innovators and careful study of non- the one facing healthcare, incumbents face healthcare success stories, we found the tough challenges. Instances of existing following five insights to unlocking the players navigating these successfully are incumbent’s dilemma. rare and worthy of note: IBM made it from tabulating machines to mainframes to CHANGE YOUR FRAME minicomputers to PCs to outsourcing to OF REFERENCE big data. Apple went from computers to smartphones to personalised streaming to The future world combines health and active lifestyle management (dashboards, wellness, includes retail, and shifts the shopping, and so on) to dynamic social market from supply-led to demand-led. communities. What will it take for healthcare It also breaks the “healthcare is local” incumbents to prosper in the new world? paradigm through web services, mobile apps, big data, and remote healthcare. If We think existing players need to you are operating your business within the understand how the new entrants are realities of today, reframing what the future redefining consumer expectations of world will look like is critical. value, and then consider participating in a redrawing of the landscape in which both

Exhibit 3: Health plan skip generation plays Incremental improvements on the current business model are not sufficient; skip generation plays through strategic partnerships are essential in health market 2.0

CARE DELIVERY ECOSYSTEM HEALTH PLAN 1.5 3 Coaching TECH. AND BIG DATA E-health/

Network model: web-based Medication performance-based services management Exchange based decision tools

Value based bene ts and 1 HEALTH PLAN 1.0 rewards Weight Monitoring management

Network model: broad or narrow

Health and pharmacy Lifestyle/ bene ts Home My personal wellness budget and services risk tolerance HEALTHY LIVING ECOSYSTEM Convenience clinics

CONSUMERVALUE MARKETS HEALTH PATIENT CENTRED CARE MODELS HEALTH MARKET 2.0

PPOS AND NARROW NETWORKS

4 HEALTH PLAN 2.0

SMART SHOPPING TOOL 2 HEALTH PLAN 1.5

Exchange based decision tools Network model: performance-based

Networks and Value based care models Bene ts bene ts and con guration rewards Personal engagement Convenient level Care

Configurable Retail Healthy benefits Living Services Acute and and network TRANSPARENT CONSUMER Complex Care MARKETS Services

Surgical and In plan year Diagnostic Major Diseases PPOS AND HIGH (and network) Procedures and Conditions PERFORMANCE NETWORKS marketplace

Source Oliver Wyman

BE AWARE OF YOUR PLACE SKIP A GENERATION ON THE VALUE LADDER Continued improvements on the current Thinking you are best-in-class and an business model are required but not sufficient industry standard while you are about (see Exhibit 3). Getting better at sickness care to be commoditised by a better-value or offering lower-cost health plans is great alternative is a peril of markets undergoing in the short run but won’t drive a winning transformational change. What happens position in the new race for consumer value. when Walmart redefines the convenient Why not build a future market strategy care market? Or Theranos cuts the cost of document – a “playbook” – based on next- diagnostics in half while improving the value generation technology and introducing big by a factor of ten? data, passive monitoring, and retail pharmacy integration as part of the patient-centred KNOW IT’S NOT A LEVEL medical home strategy? PLAYING FIELD DON’T GO IT ALONE Many of the new players are consumer web service companies competing at Bridging health and wellness, becoming silicon speeds, in a global marketplace, a consumer company, redefining using ecosystem thinking, and constantly personalisation, and deploying big data, innovating. For these companies, five complex adaptive workflow, and passive cents of capital produces a dollar of monitoring to prevent most acute events; revenue – compared to many of the these are massive changes. When you take incumbents where it takes a dollar of a careful look at most incumbents through a capital to produce a dollar of revenue. readiness lens, you realise there is a long list Not surprisingly, capital markets favour of missing competencies. When you look at the new players. Partnering then allows the new players, you realise you don’t have incumbents to participate in that capital to build it on your own – and the capital market advantage. markets are already doing the heavy lifting.

SÉBASTIEN MAIRE

Exhibit 1: IoT in industry IoT presents a considerable opportunity to create value for the air travel industry KEY VALUE CREATION DRIVERS ILLUSTRATIVE STAKES (see Exhibit 1). All players – designers, manufacturers, suppliers, airlines, airports – could capitalise upon IoT in many ways to optimise their operations, understand their customers better, and develop new sources AIRPORTS of revenue. The idea of using smart objects is not new. GE Aviation has used sensors in its most innovative flight management systems since 2007. Today, however, the real value AIR TRAFFIC PASSENGER CONTROL EXPERIENCE of IoT lies in the way objects are connected and data is collected, aggregated, and analysed, making it possible to boost the performance of the entire industry or even reinvent the business model. AIRCRAFT AND EQUIPMENT TOTAL COST AIRLINE MANUFACTURERS OF OWNERSHIP COMPANIES Air transportation firms will be able to cash in on new IoT technologies. According to GE, optimising flight itineraries would allow airlines to reduce their fuel consumption by 1%, saving $30 BN over the next 15 years. Reducing the number of technical incidents Source Oliver Wyman or the time needed to solve them would also have a real impact on maintenance costs, aircraft utilisation rates, and overall customer satisfaction. Data has thus become the most invaluable component of tomorrow’s air travel value chain, and industry players must learn how to collect, process, and monetise it.

Imagine a world where airlines pay their IoT can be applied in several domains fleet by usage, the number of flights, or of air travel. All of the principal industry even the number of passengers, and so have players – aircraft manufacturers like Airbus, nothing to do but manage the customer Boeing, Bombardier, and Embraer, airlines relationship. A world where engine and like American Airlines and Emirates, aircraft manufacturers such as Rolls-Royce, or today’s large airports – use IoT to GE, Airbus, and Boeing can identify and fix optimise the business and reinvent their technical incidents before they even occur. customer proposition. A world where airports adapt the customer experience to the preferences of individuals, who waste no more time waiting or seeking information. This is the world of air travel in the era of the Internet of Things (IoT).

OPTIMISE This process reduces unplanned maintenance costs and makes it possible to track the state OPERATIONS of all key aircraft parts in real time. With the average cost of maintenance at $1,200 Reducing operating costs (like energy per flight hour (including 43% ascribable and maintenance) and optimising flight to engines alone) for commercial aircraft, itineraries, crew management, and aircraft improving engine maintenance efficiency by life cycles will rationalise air operations and just 1% would generate savings of $250 MM. ensure that assets are better managed. Taleris, a partnership between GE Aviation REDUCE AIRCRAFT and Accenture, also offers a data analysis OPERATING COSTS and visualisation solution for predictive maintenance activities. This tool improves Real-time in-flight analytics use thousands general aircraft reliability and reduces of sensors and captors to study the itinerary turn-around time as well as grounding time, of each flight and recommend an ideal which includes air turn-back and “aircraft on itinerary to pilots in real time. For example, the ground”, or AOG. (See Exhibits 2 and 3.) by coupling aircraft parameters with weather conditions such as wind speed, the duration MAXIMISE THE VALUE OF of flights can be reduced and fuel saved. THE AIRCRAFT GE’s Flight Efficiency Services, for instance, make it possible for airlines to optimise By collecting information on the state of each their itineraries and adjust their flight aircraft component such as maintenance parameters – like the wing flap angle prior to history, it becomes possible to quantify the landing – to consume less fuel. Alitalia also residual value of individual parts, re-certify managed to reduce fuel costs by 1.5% in one them, and finally recycle or reuse them. A year and has saved $46 MM since. true commercial opportunity emerges as existing fleets age and as airlines, as well as OPTIMISE THE AIRCRAFT manufacturers, seek new ways to reduce costs LIFE CYCLE and maximise the residual value of fleets.

Made possible by IoT, predictive maintenance LOOK EVEN FURTHER tracks key aircraft parameters in real time. The A350, the latest generation of Airbus When a very broad set of data is known and planes, can record 600,000 parameters, or utilised, the total cost of ownership of aircraft twice as many as the A380. Moreover, the fleets can be optimised and risks managed speed at which data is transmitted between much better. It is then possible to imagine aircraft and the control tower is accelerating moving to usage-based pricing. Rather continuously, from less than 1 Mbps in 2002 than selling aircraft, manufacturers could to 5 Mbps in 2007, and is even faster today. rent them to airlines, whose operations will therefore become more agile and better Structural health monitoring instruments adapted to the needs of the business. enable Airbus to detect engineering problems Predictive maintenance will optimise the in the areas around doors with the installation aircraft life cycle. Finally, new IoT technologies of fibre optics in key components to collect will make the spare parts market economically real-time data and perform acoustic tests. viable and more attractive than it is today.

MEET CUSTOMER post-flight services. Better knowledge of customers will facilitate the reduction or EXPECTATIONS even elimination of many constraints. Today, MORE EFFECTIVELY how can we change a taxi reservation in the event of a delay if a passenger cannot With IoT, it becomes easier for airport communicate during the flight? All industry operators, incumbent airlines, and possibly players will have new ways to make newcomers (recent start-ups or large, passenger experience more pleasant and, diversified opportunistic players) to offer most importantly, more closely adapted to a multitude of innovative pre-flight and the specific expectations of each customer.

Exhibit 2: Example of a regular aircraft maintenance plan – without IoT

PERFORMANCE

Detection/Risk Detection/Risk Restoration Restoration

Operability threshold

Technical incident

Immobilisation Immobilisation TIME

Source Oliver Wyman

Exhibit 3: Example of a regular aircraft maintenance plan – with IoT

PERFORMANCE

Intervention planned Nominal restoration

Decision to intervene

Operability threshold

Technical incident

Reduced Reduced immobilisation immobilisation

Monitor Prepare parameters intervention TIME

Source Oliver Wyman

MOVE TOWARD PROACTIVE CONTROL AIR TRAFFIC AND INTERACTIVE AIRPORTS MORE EFFECTIVELY

Airports are now establishing solutions IoT will help to densify – and thus to make it easier and more efficient for expand – airspace capacity, by making it passengers to move around. more transparent and secure. IoT will also support the efficient use of existing airport Google glasses improve the infrastructures and reduce the need to invest individualisation and quality of service in new landing strips; these are burning issues when customers check in to business class. for Heathrow and Munich. This is all the more Automating check-in and security check critical given the rapid rise in the number of procedures has a positive impact on sales. commercial passenger and cargo flights in Indeed, according to SITA, a passenger certain regions of the world. New geolocation who has to wait ten additional minutes in solutions, such as automatic dependent the security check queue purchases 30% surveillance, will make it easier to track the less before the flight. Optimising baggage exact position of individual flights in real time. loading procedures or loading luggage on planes only once passengers have boarded These solutions will also help to reduce delays (a solution provided by Amadeus and due to the still-wide distance between landing SITA) helps to reduce delays. The Danish planes. Using IoT, London Heathrow airport company BlipSystems proposes solutions eliminates 80,000 minutes of delay every to collect data from passengers to predict year. Finally, new support technologies, such and optimise security check flows. These as the electronic flight bag, and real-time solutions helped the Cincinnati airport information guarantee safer air travel. save passengers more than 150,000 hours of waiting. Likewise, IoT supports London The rise of IoT in air travel is accompanied City Airport in its goal to become the fastest by the gradual transformation of incumbent airport in the world. business models. Indeed, IoT affects aircraft and equipment manufacturers as much as LAUNCH NEW PRE-FLIGHT it does airlines. IoT can potentially make AND POST-FLIGHT SERVICES the aeronautical and aviation ecosystem more flexible and responsive, in particular Airlines and start-ups can offer complete by reducing delivery time and enabling end-to-end service to high-value customers manufacturers, airlines, and airports to to make their trip as comfortable as collaborate together more effectively. It also possible. In the event of delay, on-board creates opportunities for players in other sensors could communicate with airport industries, such as Accenture, Cisco, or IBM, services during the flight to adjust the post- to enter the market and very rapidly capture flight itinerary of passengers, for example, a share of the value generated by IoT. to notify the participants of an important meeting that the flight of an attendee VALUE IS SHIFTING TOWARD is likely to arrive late. These services DATA ANALYSIS allow incumbent players to reinforce the customer relationship and differentiate The quantity of information generated themselves, and in turn generate new by aircraft sensors is two to three times sources of revenue. larger than it was just a few years ago. For

reference, a Boeing 787 generates over 500 British Airways propose increasingly gigabytes of data per flight today. sophisticated group holidays, competition is intensifying for adjacent opportunities Considering the complexity of information, (such as hotel reservations, car rental, and the value of the future model will be shopping). Consequently, one of the key proportional to the ability to aggregate this objectives of airlines is to find a way to data and draw valid and relevant conclusions monetise flight time while reinforcing the from it. By supporting airlines in their customer relationship. activities, a player like Boeing can create new sources of recurrent revenues and Passengers, until recently passive players in reinforce customer relations. For example, an infotainment system with low interactive GE currently has a 1,500-terabyte database content, are becoming active and captive (ten million flights between 2013 and 2015) consumers of connected services. IoT thus available for such analyses. enables the emergence of very lucrative new opportunities. The future will tell which of the Certain components of the value chain can, multiple players – airlines, manufacturers, however, be collected by new companies telecommunications operators, and so on – that are specialists in the analysis of such will be able to seize them. data. As an illustration, understanding operational and maintenance histories would THE PRODUCT INNOVATION make the re-certified spare parts market AND DESIGN CYCLE IS EVOLVING

Augmented reality and 3D printing have become increasingly available to small and A Boeing 787 generates medium-sized industrial players, which previously did not have access to such over 500 gigabytes of technologies. These companies, which are second-tier suppliers or marginal partners in data per flight today the aeronautical world, now have more ways to innovate. They can considerably reduce the time needed between the initial concept, prototyping, and serial production.

more profitable and support the emergence Aircraft manufacturers, however, could of specialised players (the Google of soon be ambushed on the aeronautical aeronautical maintenance) with the potential market by these players who used to be to dominate this industry in the future. relegated to the sidelines. If this happens, manufacturers like Airbus and Boeing as well REBUILD THE as major equipment suppliers like Safran, CUSTOMER RELATIONSHIP Thalès, Zodiac Aerospace, Honeywell, and UTC should consider creating partnerships Today’s airlines face a growing risk or open innovation networks. By including of intermediation, as new start-ups, other players in their sphere of control, they in particular TripIt or WorldMate, will reinforce their own innovation capacities introduce innovative pre-flight and post- while sharing the revenues. flight services. Even if companies like

XAVIER MUSSARD

If only your grocery list could be automatically between retailers and FMCG manufacturers compiled by all your household appliances, and even the role of retailers in the value chain. put up for auction, and prepared by multiple retailers or local producers able to offer the best price and quality. Picture the scene as IOT ENABLES Uber delivers these groceries right to your door. And Fast Moving Consumer Goods DIFFERENTIATED (FMCG) brands such as L’Oréal and P&G know CUSTOMER more about their customers than Walmart EXPERIENCE or Carrefour, so they can make customised offers. We can achieve all this with the help Retail is special in that it has already of the Internet of Things (IoT) in retail. experienced IoT v0.0 for over 15 years, with the installation of radio-frequency IoT has the potential to modify the retail identification (RFID) technology. Far from landscape and FMCG. In the immediate initial assurances and the promised big term, IoT will find its place in stores and help bang, RFID has had mixed beginnings. improve sales by 10% to 20%, as well as But over the past decade and a half, boost margins by ensuring better control of the technology has gained in maturity, product availability, reducing markdowns, RFID chips cost eight times less, and and improving the customer experience. complementary technologies such as near Nevertheless, the full potential of IoT is still field communication (NFC) and beacons to come. IoT will facilitate access to customer have been developed, with the potential data – the key to customer relationship to transform the world of retail. To the management (or CRM) is currently the initial objective of inventory transparency exclusive domain of retailers – and redefine is now added the capacity to interact with the purchasing process from end to end. This smartphones and any connected wearable is enough to challenge the balance of power carried by customers.

Exhibit 1: IoT in retail and the customer relationship

REINFORCED CUSTOMER PARTIAL TRANSACTION BASED RELATIONSHIP RE INTERMEDIATION TO RELATIONSHIP BASED

STORE

SALE

RFID chips

Source Oliver Wyman

As a result, Apple’s iBeacon makes the could go with the product selected by the customer experience more fluid and customer. Retail is thus accelerating the intuitive. A geolocation system able to move toward relationship-based practices interact with customers can propose (see Exhibit 1). personalised offers, suggestions, and promotions based on personal buying Another key component, the real-time history. Retailers such as Macy’s, Tesco, location of inventory, makes it possible to and Virgin Atlantic are testing or deploying anticipate potential availability issues. Now, hundreds of beacons in their stores to enrich according to benchmarks, stock shortages interactions with their customers. In London, cause earnings losses of about 5% for a growing number of brands are doing the many retailers. With the ability to locate same thing on Regent Street. Shopkick, inventory precisely, retailers can play with one of the iBeacon marketing platforms, is pricing and promotion models, for example, used in 3,000 stores, and boasts that it has to push products close to their expiration increased retail partner revenues by over date, perhaps with an alert. In this way, $500 MM in 2014. retailers can work more effectively with their suppliers and reduce waste. According to Similarly, the use of RFID codes and smart advance estimates, markdowns could be mirrors allows retail clothing distributors reduced by as much as 50%. to create a more memorable customer experience. On the mirrors of its fitting These in-store initiatives offer both retailers rooms, Burberry projects a short film and suppliers many opportunities to improve underlining the value of the product, its their sales and margins. However, behind origin, and its unique aspects. Adidas the tactical possibilities offered by IoT lies a NEO stores propose complete outfits that large-scale strategic upheaval.

IOT EMPOWERS brands appear to be very actively installing connected objects and applications to (re) FMCG BRANDS create direct contact with their consumers. L’Oréal’s Makeup Genius application uses the The development of IoT is supported by telephone as a mirror and suggests make- the exponential growth of accessible data, up to go with the user’s outfit. The Pampers shifting the balance of power between Village online community allows parents to retailers and FMCG manufacturers. In the share advice and offer adapted products. pre-IoT world, FMCG firms had few ways to access precise data on customer buying As well as the behavioural data collected, behaviour. Retailers, on the other hand, had these solutions provide a service valued direct access to consumers and a detailed by consumers while constituting a less vision of their behaviours – data largely commercial context than the store to offer exploited for targeted marketing campaigns its products. and trade negotiations. Direct access to consumers allows FMCG IoT upsets the status quo by enabling FMCG firms to disintermediate retailers and gain brands to capture the data at the point of control of various commercial drivers. They consumption, without having to depend are now able to target their promotions – an on retailers any longer. This is where the enormous advantage to the extent that the potential of IoT resides for them. According promotional budgets of these players can to Accenture, 81% of branded product exceed €1 BN in some countries. It is also purchasing decisions are made at home, easier for them to identify opportunities compared to just 19% in the store. to develop products to satisfy specific segments and propose new services. Finally, For instance, household appliance knowledge of the customer is used during manufacturers are developing refrigerators negotiations with retailers and to build that integrate connected technologies merchandising plans. functioning in cold environments, like General Electric’s ChillHub, to identify Retailers are not nevertheless inactive and refrigerator contents and update grocery are developing their own solutions based on lists. Another example, the Egg Minder egg connected objects. The objective for them rack keeps customers informed remotely in is to preserve the direct link with existing real time on the number and expiry date of customers and attract new ones. the eggs in their refrigerator. Darty, a consumer electronics retailer, for How much longer until we have connected example, has the Darty button (with 30,000 cupboards, plates, forks, bottles, and customers to date), which enables customers rubbish bins, which are now regularly with a simple press to be contacted by displayed at electronics fairs or are currently Darty aftersales service concerning any being financed on crowdfunding platforms? questions about the operation of one of the brand’s products. This service monetises In addition to capturing detailed data on aftersales service and underlines its quality, user behaviour, connected objects provide while collecting information on all of the immediate service to their users through customer’s products, including those bought the applications that support them. FMCG outside its network.

To cite another example, Amazon recently Retailers and FMCG brands use the launched Echo, a connected speaker that opportunity offered by IoT to integrate can respond to vocal commands through a the purchasing process as far upstream virtual assistant called Alexa, with features as possible, and they do this starting similar to Siri or Google Now. Echo collects in the home, where products are most demands and anticipates the future needs often consumed. of its customers. In parallel, Amazon has registered a patent for a method to Danone, for instance, developed Smart anticipate shipping of an order even before Drop, a connected button attached the customer makes the purchase. to the refrigerator door to facilitate ordering of Evian water on direct delivery site evianchezvous.com. IOT TRANSFORMS Amazon has also developed the concept THE PURCHASING of the connected button with Dash, which PROCESS makes it possible to configure buttons for any product in the home (such as a The most fundamental change – but also washing machine or refrigerator) to order the most remote – generated by connected corresponding products and consumables objects is the modification of the purchasing automatically (like Tide detergent, Gillette process. Connected objects are increasingly razors, and L’Oréal moisturiser). The order is automating the preparation of shopping lists then delivered to the customer, who doesn’t and order placement. These modifications need to do anything after pushing the button. could endanger the traditional store model, Amazon therefore positions itself upstream while taking the digital rationale engaged from its traditional competitors, with multiple by omnichannel and e-business even further optical instruments (Dash, Echo, Dash (see Exhibit 2).

Exhibit 2: The changing stakes of retail

AUTOMATED TRANSACTIONS STAKES OF DOMINATING THE ECOSYSTEM

Who will occupy this space? Amazon

SIMPLIFIED HOME PURCHASING STAKES OF DEVELOPING E COMMERCE REVENUES

Darty P&G

IMPROVED IN STORE CUSTOMER EXPERIENCE IMPACT ON PRODUCT SALES, MARKDOWNS, AVAILABILITY

Carrefour Sephora

TIME

Source Oliver Wyman

Button, and Amazon Fresh or Prime) to secure Over time, traditional retail players face a dominant position in the connected home. the twofold risk of sacrificing market share to the new channels opened up by These innovations nevertheless run the risk IoT, but also of being disintermediated of fragmenting the purchase of everyday and losing the central role played in the consumer products. For example, customers customer relationship. can order Evian water and other consumer goods through Amazon Dash, but buy fresh Retailers can, however, anticipate the fruit and produce from specialised local changes to come and take a dominant suppliers. As things stand today, the cost of position in the value chain redefined by IoT, delivering the last mile makes several small in particular by: deliveries relatively unprofitable compared •• Exploiting in-store opportunities to one big shipment. offered by IoT to develop their sales, increase their margins, and improve the That said, the development of delivery offers customer experience relying on the zero marginal cost economy •• Capitalising on their omnichannel (Uber, Airbnb, Blablacar, and so on) could know-how and extending the playing constitute the missing building block for field to the new uses generated by IoT IoT to develop direct sales. A new delivery in the home, preventing other players approach could thus challenge the one-stop from taking control of the customer shop advantage proposed by bricks-and- relationship and purchasing process, integrating the uses of IoT into existing mortar stores and supermarkets. Start-ups online solutions, and thus preserving the such as Onfleet have already established advantages of the one-stop shop flexible parcel deliveries that combine all •• Building the ecosystem of tomorrow requests from users – regardless of the service by exploiting the features of IoT and used – and ensure delivery after establishing redefining how they are used, namely an optimised and profitable road map. to control the data capture objects, exploit information, and support traffic In the longer term, and by pushing the FMCG generation while providing a value-added order automation rationale as far as it can service, specifically through strategic go, human intervention may potentially be partnerships with other IoT players. reduced to a bare minimum in the purchasing process. On the basis of preset parameters, In an ecosystem undergoing a major all the everyday product needs of consumers transformation, retailers must adopt a would be captured and incorporated by proactive approach to the changes to come connected objects and their applications. The and reinvent their profession to avoid finding latter would generate automatic requests, to themselves isolated from new distribution be sent to retailers or the suppliers offering practices. Learning how to test various the best deal. This change of practice would strategies and concepts will enable them to sharply reduce the influence of retailers and identify what is feasible and what works while focus attention on the network able to provide having a clear vision of the desired objective. customers with the best price-to-availability ratio on their products.

GUILLAUME THIBAULT XAVIER RUAUX

FROM TRANSACTION- tracks flight operations online and corrects BASED TO bugs remotely. RELATIONSHIP-BASED Maintenance and renovation. Using data captured by sensors and analysed remotely, INDUSTRY IN THE AGE OF THE ThyssenKrupp automatically launches CUSTOMER RELATIONSHIP maintenance on its elevators, reducing costs by 30% and breakdowns by almost 70%. In a few short years, digitalisation has disrupted service markets: retail (Amazon), Solutions. Having data on how their tourism (Booking), music (Apple), media equipment is used enables manufacturers (Google), transportation (Uber), and so on. It to offer customers complementary services has also affected professional services (cloud and even complete solutions. Sanofi computing, for example). However, its full created a centre of excellence dedicated effects have not yet been felt in the industrial to integrated care. This model connects world, given, on the one hand, the tangible digital tools to terminals, for example, to nature of the products sold and, on the other track blood sugar levels and send alerts to hand, the barrier often posed by distributors doctors automatically. obstructing the relationship between manufacturers and end customers. IoT has the power to reposition certain products into service platforms, open IoT is changing the game by making industry to proprietary residential applications. enter the digital era head first. The possibility In business-to-consumer (B2C), the of connecting objects to the internet opens smartphone will become the aggregator a vast range of commercial opportunities. of preference for services (home, health, Equipped with a chip or sensor, all goods leisure, transportation, and so on). In can now give rise to new services, which industrial markets, many products will play enhance the way these products are used or a similar role (for instance, in production or reposition them as service terminals. logistical cockpits, machine tools, vehicles, and other capital equipment). Alerts and notifications. Smart Whirlpool appliances notify their users when a washing As a service platform, the connected object cycle is complete or when the refrigerator opens the door to new revenue models: door is open, using an iPhone application. payment by usage, paid services (by The m2ocity telecommunications operator (a customers or through commissions paid to Veolia and Orange joint venture) can notify application providers), and monetisation of the local maintenance team when there data collected from third parties. Safran and are technical incidents concerning public Michelin, for example, invoice their products utilities (leaking water pipes, for instance). according to flight time or miles driven.

Remote configuration or control. Airbus So a new era is dawning for manufacturers. has developed e-solutions, a suite of services Until now, the products were sold on a to optimise flight and ground operations transactional basis, according to their (including fleet management, engineering, intrinsic characteristics (like price or quality). maintenance preparation, and flight Manufacturers, with little visibility on how operations), while Airbus’ AIRMAN-web their products were used, suffered from a offer (for AIRcraft Maintenance ANalysis) high risk of attrition.

Copyright © 2015 Oliver Wyman. All rights reserved. 69 INDUSTRY 4.0 Conversely, the products of tomorrow will derive their value from the services they host. Associated with the potential of big data, the connectivity of these products Industry 4.0 is originally the name will allow manufacturers to establish a longstanding of a work group formed in January relationship with their owners. Manufacturers will have 2012 in Germany by the National a better understanding of how their products are used Academy of Engineering Sciences and will be able to interact with owners by sending them alerts, proposals, and personalised offers in push mode. (Acatech) and supported by the Ministry of Education and Research. GE Aviation is one of the companies that has managed This group includes manufacturers to transform its business model, and has successfully (Siemens, ThyssenKrupp, BMW), branched out from aircraft engine sales to operations equipment suppliers (Bosch, analysis and optimisation through the Flight Efficiency Trumpf), technological services (HP, Services or Intelligent Operations Services offered by Cisco, DAP) and major federations Taleris, its joint venture with Accenture. like Bitkom (high technologies), VDMA (machine tools) and ZVEI (electro-industry). Its purpose is A NEW OPERATIONAL to take advantage of the country’s MODEL relative advantage in the field of INDUSTRY 4.0 integrated software systems to break IoT down for industrial processes. Product networking constitutes the real IoT revolution. The principle behind cyber-physical systems is what The group initiated several common connects objects and enables them to interact without research programs for an investment human intervention for a specific purpose, such as which will attain €2.6 BN by 2020. optimising smart grids or enabling autonomous Partnerships formed in 2015 concern movement of vehicles or robots. Industry 4.0 is another communication tools (DT and SAP), application of this. According to this vision, the value cyber-security (DT and Infineon Tech) chain is entirely digitalised, connecting the supply chain, and production software (SAP and production, and customers from end to end and opening the door to a potential fourth industrial revolution. Huawei). According to estimates, the program could generate annual In the customer’s home, connected products will growth of 2.2% for German industry generate data that will be aggregated remotely by 2020, as well as a productivity gain not only to recommend new services (advice, of 18% over the same period. The maintenance, or inventory control) but also to optimise “Factory of the Future” plan revealed production planning. by the French government in May In certain cases, automatic renewal will be offered to the 2015 was inspired by this program. customer and production orders will be sent directly to the factory. In others, the customer will initiate orders through a digital channel, such as an e-commerce gateway or by electronic data interchange (EDI). In all cases, complete digitalisation of the order will enable production to be conducted according to a lean Source: Bitkom, VDMA, ZVEI, German government approach, free of inventory.

Copyright © 2015 Oliver Wyman. All rights reserved. 70 SAP-FESTO At the factory, completely automated production will be enabled by a new generation of production lines and CONSORTIUM smart robots, such as KUKA’s robotic assistant LBR iiwa. Production lines will react to information received in SAP and Festo (production solutions real time (such as order book status, characteristics of provider) have developed an Open materials entering the production line, and the status Integrated Factory offering designed of other machines) to adapt their parameter settings to build automated production lines. in terms of rate, quality, labelling, packaging, signage, and so on. Better production line synchronisation by On these lines, all parts are equipped reducing downtime – already in place at Siemens – will with an RFID chip connected to help to reduce energy consumption by more than 10%. ERP and ME (production process management) systems. The chip The machine of the future will be general-purpose and contains the instructions necessary permit the production of individual batches according to to manufacture the finished product, customer needs. SAP is already developing production which is communicated to all lines that can manufacture remote control units or cell phone cases from the same plastic cases. workstations on the line (furnace, laser, etc). These workstations Of these new processes, 3D printing is the most carry out the designated tasks dynamic and is growing annually by more than 20%. and communicate in turn on their 3D printing helps to reduce industrial waste, drive realisation. According to Chen Jun, down manufacturing costs, and increase flexibility the CEO of the first factory in China and responsiveness. This technology, increasingly have this type of production line, this widespread in industrial processes, is expected to represent a €10 BN market worldwide in 2020, with more system saves 40% on the production than 30% of it in Europe. GE hopes to realise 50% of its costs of a customised Land Rover. worldwide production in this manner in five years’ time.

At the factory door, logistics will be optimised by being digitally integrated with the preceding stages of production. A continuous flow of information, from the customer order to distribution, will make it possible to reduce the volume of inventory. Centralised and digitalised, forwarding will be optimised using algorithms to minimise manual intervention. During handling, products will themselves contribute to the efficiency of the process by sending alerts and instructions to stakeholders. Transmitted information will concern details like the location and destination of goods, the operations required for their packaging, and their quality and status.

Industry 4.0 could hence generate productivity gains of 20% to 40%. Combined with the trend toward higher wages in emerging countries and transportation costs, these transformations could restore Europe’s competitive standing andSource: drive Festo the AG, reindustrialisation SAP of the continent.

A SIZEABLE CHALLENGE IOT IN INDUSTRY FOR INCUMBENTS REDUCED CONSUMPTION, DRIVERS OF VALUE CREATION AUTOMATION AND FLEXIBILITY, OPTIMISED SUPPLY CHAIN The prospects offered by IoT represent a considerable challenge for traditional manufacturers. The obstacles 20 40%1 POTENTIAL they face are simultaneously strategic, technical, PRODUCTIVITY GAINS and human.

Above all, the challenge of IoT is transformational. European corporations inherited organisations that Suppliers Factory were structured to standardise processes, reduce risk, 6 2 and manage security, with a long-term perspective. Disrupting traditional patterns, IoT confronts these companies with challengers as recent as Google, Amazon, and Fab Labs1. How do we transform a culture SALES EFFICIENCY, IMPROVED TIME TO MARKET of engineering, production, and control into a digital, NEW BUSINESSES AND E TRACEABILITY open-innovation service culture? How can we get away Logistics from and stop trying to optimise a marketing approach 15 30% 40 70% that is often product-centred when what is required is an SHARE OF SERVICES New offerings REDUCED RATE IN REVENUES OF UNAVAILABILITY approach focused on customer needs? Sales initiatives Inventory

The technology issues that internal teams are ill- prepared to resolve range from the links with existing systems to the modelling of cyber-physical systems, not Customer Connected scorecard objects to mention standardisation, virtualisation, high-speed infrastructures, and cyber-security. The market has not CUSTOMER BASE OPTIMISED AND DEVELOPMENT PERSONALISED CONSUMPTION yet provided satisfactory answers to these problems. In addition, people are often focused on maintaining CRM and marketing professional tools and enterprise resource planning +10 30% campaigns 100% RETENTION OF EXISTING Local aggregator DIGITAL CUSTOMER DATA (ERP) in good working order, even though these systems CUSTOMER BASE data are often cumbersome and difficult to modify. Production cockpit

Finally, incumbent manufacturers encounter human issues when seeking to recruit people with new skills (in digital marketing or data mining, for example), to work transversally (across marketing, R&D, and IT) and Data mining overcome reticence, review existing roadmaps, develop risk taking, and encourage test-and-learn approaches. DEMAND FORECASTS AND ASSET OPTIMISATION 10 20% AUTOMATED ORDERING

1 Shared production workshops, or Fab Labs, provide entrepreneurs, craftspeople, and private individuals with all sorts of tools, specifically computer-assisted machine tools, to design and make objects (prototypes, limited series, or 5 3 spare parts). Source Oliver Wyman Copyright © 2015 Oliver Wyman. All rights reserved. 4 72 A NEW SPARE MAIN RISKS OF NOT TAKING PARTS STRATEGY A PRE-EMPTIVE POSITION FOR SIEMENS Under these circumstances, why not wait and let start- Siemens uses Selective Laser ups find their position before imitating them – or even Sintering (SLS) technology to repair acquiring them? We believe that inaction is much riskier its customers’ gas turbine blades. than anticipation. The first movers will be able to take Rather than replace an entire part advantage of scale effects linked to network economics. On the other hand, the development of connected (such as the burner), Siemens simply products will probably accelerate the commoditisation removes the damaged part then of products that fail to turn the corner in time. uses SLS to 3D print the replacement part using more resistant materials, If nothing is done, IoT is likely to fragment and called superalloys. This technology reintermediate the value chain, with the rise of reduces turnaround time from 44 to new competition. four weeks and cuts maintenance R&D. 3D printing lowers entry barriers by making costs. The new process also helped product innovation faster and more economical (by 30% Siemens redefine its spare parts to 50% for Solomon, for example). The development of replacement business model from Fab Labs exposes the laboratories of large corporations a centralised system with a single to new competition by nimbler local entrepreneurs. storage space and very high volumes to a decentralised, on-demand Production. The Factory of the Future offers the production system. prospect of developing low-cost operators, which play on the complete digitalisation of their production and distribution processes to compete with incumbent players whose production units cost too much to modernise.

Customer relationship. Unless adequate in-house skills are developed, the customer relationship risks being gradually outsourced, and precious data aggregated and analysed by specialised big data players (like Google). To avoid this, it’s a good idea to imitate Apple, which succeeded in keeping complete control of the customer data collected on its terminals, in order to monetise them to third parties.

Aftersales services. In many industries, the sale of spare parts is a lucrative and tightly controlled business (50% to 80% in the aircraft industry). In this respect, 3D printing offers local players the opportunity to provide parts within much more attractive costings and timeframes.

LAUNCHING IOT with standard tools paid according to use, and moving forward step by step in test-and- PROJECTS: THREE learn mode. Concerning the content, short- KEYS TO SUCCESS term optimisation projects with an impact on revenues (predictive maintenance, new START AGAIN FROM A products, and so on) could be conducted CUSTOMER PERSPECTIVE alongside longer-term projects with an impact on operational effectiveness From conversations with our clients, we (including automation of production and understand there is an extremely strong connected logistics). temptation to initiate IoT projects with the question “To what objects could we ADOPT NEW add sensors?” before wondering “What OPERATING PRACTICES could we do with the collected data?” This type of approach won’t build a business In addition to revisiting the vision for that is sufficiently robust to justify the 2025 in the light of Industry 4.0, a major required investments. transformation in operating process is required to instil an entrepreneurial spirit, The problem must be put differently: “What agility, and speed of execution. new services would bring value to our customers?” A good starting point can be Industrial divisions will have to open up to the organisation of discussion forums with the outside world to assemble consortia sales teams and customers. The latter will with technological leaders and take part in advance expectations usually discredited or smart manufacturing. This is what Siemens considered to be foreign to the company’s did with McAfee for data security, and Festor business model: new or personalised with SAP to automate production. Human services, mobility, ergonomics, payment by resource models will have to support the use, and so on. development of internal entrepreneurship, risk-taking, and transversal and project- This preliminary work will pave the way for oriented work approaches with better thinking about new offers and ultimately for knowledge sharing. A certain number of repositioning the company strategy from large business organisations will become the viewpoint of solutions. Simultaneously flatter, more networked, and more analysing the portfolio of internal assets and supportive of intrapreneurial initiatives. technical opportunities will make it possible to imagine potential digitalisation scenarios.

TAKE ONE STEP AT A TIME

Integrating IoT opportunities into current business models will take time and a certain number of iterations; hence the importance of taking the first steps quickly. Moreover, we recommend adopting a flexible and modular approach in a pilot environment, working

DAVID KAUFMANN

In a connected office, the security system Buildings are no longer defined exclusively recognises employees who have just by the materials that compose them but also entered the building and it starts heating by the possibilities they offer. They must not or air-conditioning their work area or the only shelter and protect but also make their conference room they have reserved. At occupants’ lives easier, preserve their health, home, smart appliances use the energy respect the environment, melt seamlessly provided by new-generation batteries, into the cityscape, and be used as interfaces stored from the previous night after being with new web technologies, including obtained from the network at the lowest IoT sensors. We should add that these possible price or produced by the home’s multifunctional buildings also need to be own solar panels. In shopping malls, increasingly modular. While they used to be beacons recognise the individual who built to last, they are now designed to evolve. approaches them and offer personalised recommendations or promotions. Airports WHAT’S ALL THE trace the movement of each passenger’s FUSS ABOUT? bags in real time and notify passengers of estimated waiting time as soon as they The IoT revolution in construction and debark from the aircraft. the transition to connected buildings is part of a much broader revolution in This was the vision of the near future for housing, which is decreasingly static and real estate and construction industries in increasingly dynamic. Still in its infancy, the the age of the Internet of Things (IoT). And connected building market is fast becoming now the vision is becoming reality. A visit democratised and raises strategic issues. to the most modern buildings is enough to It consequently comes as no surprise be convinced that the building market is that a growing number of players are undergoing a substantial transformation. vying for a position to benefit from this Whereas real estate has always represented potential windfall. the core value, this value now appears to be migrating to new components.

THE SMART BUILDING

“Smart building” features vary by segment (such as individual or collective housing, shopping malls, hospitals, airports, schools, and prisons).

SECURITY AND ACCESS

HEALTH ENERGY AND UTILITIES HOME EQUIPMENT PEOPLE TRACKING Air quality, Air-conditioning, heating, “Infotainment”, work systems, Flow management, specific types lighting, water physical comfort and hygiene direct marketing of tracking

“SMART GRID” CONNECTIONS AND THE “SMART CITY”

There are, primarily, three factors dedicated to tracking patient activity and that explain the interest in connected alerts concerning disease-causing agents; buildings. Mentalities have changed police stations and prisons will need due to the importance of the stakes and equipment related mainly to security; while regulatory constraints (buildings account shopping malls and airports will stress for 40% of total energy consumption and security but also geolocalised or even almost as much CO2 emissions). The individualised advertising, and the need to rising penetration rate of smartphones direct passengers and customers on site. facilitates connectivity and management of IoT throughout the home. The cost of Smart facility management has existed for various sensors is dropping as the speed a number of years without any mention of of processing corresponding data rises (a connected buildings as we define them here. sensor costs €0.5 today on average, which Indeed, the five areas of activity described is a drop of approximately 50% in ten years). above generally function singly in a non- The arrival on this market of giants Google integrated manner (lighting, alarm systems, (which acquired Nest for $3.2 BN in February and sound systems, for example, have been 2014) and Apple (with the announcement of separate). The suggested solutions thus HomeKit in June 2014) have confirmed and did not always exploit all of the possibilities accelerated this trend. offered by technology. This is no longer true for the most recent systems, which, instead of WHAT DO WE MEAN BY regulating activities with static programming, “CONNECTED BUILDINGS”? take real user needs into account and even possess the capacity to learn. A connected building refers to five complementary areas of activity, shown in Exhibit 1: energy and related services WHAT DOES IOT linked to the immediate environment of the occupants (heating and cooling, water, HAVE IN STORE lighting, and so on); security and access; FOR CONNECTED piloting of equipment (such as infotainment BUILDINGS? in the home, professional materials at work, and devices supporting physical comfort and Energy costs are incontestably on the front hygiene); people tracking (including flow line in the IoT revolution in construction, management and direct marketing); and with total expected impacts of about 40% on finally, health (air quality, specific movement buildings that are equipped with the latest sensors, and so on). technologies. Personalised systems are the key to maximise savings. A lighting system It should be noted that the concept of the that adjusts lighting according to time of connected building is dependent on the day or human presence is estimated to save specific needs of each building, based approximately 15% additionally. Likewise, on its function. This confers a variable using a smart thermostat like the one importance to each of the areas cited above. produced by Nest would make it possible to For example, hospitals will require systems cut an energy bill by 10% to 15% more.

The promises of IoT are not restricted thanks to instantaneous information on to energy. IoT will improve the general site and according to the type of need. The physical comfort of users: fresh air, tracked energy consumption of buildings could health, lighting adapted to their activities, also be modulated according to peaks of greater security, improved for example by consumption in the city as a whole. directing occupants dynamically in case of fire. Dedicated business systems suggest, moreover, that improving the physical HOW WILL THE comfort of employees reduces sick leave and increases productivity. CONNECTED BUILDING MARKET For very specific connected buildings, such EVOLVE IN THE as shopping malls, the impact will also be measurable in revenue terms, in particular MEDIUM TERM? through inexpensive and highly effective advertisements targeted in real time. The connected building market is currently going through a transition. Five to ten years We must not forget, however, that the from now, we expect a gradual lowering of principal impact of a building is social. All of the barriers to the establishment of a fully these effects, although enormous, often go integrated and optimised environment unnoticed because they are not immediately enabling greater penetration of IoT solutions visible. What could be said, for instance, of into urban life. A number of obstacles to the completely new savings that IoT could development will gradually be lifted. generate if connected buildings helped the elderly to remain at home, if only for one or Initially, communication protocols two more years? between connected objects will slowly be standardised, then interfaces will become Reasoning on the scale of a building – even more ergonomic to culminate in a simple and a connected one – is insufficient, however, effective all-in-one piloting system, covering because it is our whole urban lifestyle all areas of connected building activity. that is changing through IoT. The move Capacity analysis will rise significantly, toward smart cities is under way, with and the security and trust aspect will different “islands” – homes, vehicles, roads, be reinforced, little by little, through buildings – that will be interconnected agreements on the use of personal data and tomorrow to amplify the effects of protection of systems against intrusions. this transformation.

In the context of urban growth, IoT will be an essential component, for example, in combating traffic congestion and managing parking spaces by directing vehicles. IoT will also be able to accelerate the deployment of police, firefighting, and emergency services

WHAT ARE THE of the home according to the estimated time STAKES FOR of arrival of the occupant. CONSTRUCTION The aim is to centralise the various services PLAYERS TODAY? so that they can be managed from a single central cockpit – where construction and While IoT is triggering a major real estate players can capture real value. transformation of the smart building The Bouygues Construction Energy-Pass market, we are witnessing a migration tool is a case in point, making it possible of value toward specific new segments. to track electrical energy and thermal This transformation represents both consumption. Apple has HomeKit, and an opportunity and a risk, namely the the Google Nest Works network partners opportunity to collect this new value or with brands like Whirlpool, Mercedes, the risk of seeing it fall into the hands and Philips. Let’s not forget SmartThings, of competitors. The risk may be even acquired by Samsung in late 2014, AT&T’s more acute if the value created is not Digital Life, ARCHOS’ Smart Home, Staples’ completely additional and if the value of Connect, Cisco’s Smart+Connected, the goods or service previously provided Castorama’s Blyss integrated home declines simultaneously. To capture automation solution, Legrand’s My Home, value migrations, all construction market Somfy’s TaHomA interface, SFR’s Home and players in the broadest sense are currently Orange’s Smart Home, not to mention the investing in the connected building, from facility management systems of Schneider property developers to manufacturers Electric and ABB. The offer is plentiful, and of objects for the home, not to mention it is still difficult at the moment for potential public service network operators and customers to have a simple and clear vision major telephony and internet players. of proposed options.

Four areas of value migration in particular Analysis and optimisation systems enabling are highly likely to be targeted for the the processing of collected data form the growth and risk management strategies of second strategic dimension of the IoT these players. revolution. Sensors installed in connected buildings generate a profusion of data that A first target would be the hubs allowing can prove highly valuable if sorted with an integrated management of all connected adapted analysis tool. Various companies objects in a building. Many players want to have been created to address this promising build simple and effective hubs, more or less niche, such as the French Fludia, Effineo, and open and complete, to overcome current Actility, or the American Bidgely. It is also silos. Security and lighting, for example, still important to note the investments made too often function with separate proprietary by companies like Ondeo (a subsidiary of applications. The goal of these players is to Suez Environnement) in smart water, Edelia offer innovative solutions by interconnecting (a subsidiary of EDF) in the optimisation various objects that were previously of resource and energy consumption, and unlinked. For instance, Nest is planning to m2ocity (a joint venture of Véolia Eau and use its agreement with Mercedes-Benz to Orange) in the analysis of gas and water enable a gradual increase in the temperature meter readings.

We generally believe that decision-making software will gradually replace the equipment at the heart of the system. Service will be increasingly responsible for adding value in the future, while the equipment will probably be provided free of charge rather than sold to users.

Less visible, the digital revolution that manufacturers are experiencing and to which they must adapt goes beyond IoT. New technologies are on the way to transform the construction industry profoundly, from initial contact with the customer until final delivery, including facility management and operation, and even the end of the product life cycle. It is no longer a matter of experiencing each step of the process separately, but of integrating all processes into a centralised digital model.

Significant gains are expected in terms of cost, quality, and cycle time (including Growth strategies increased precision, more effective execution, and faster time-to-market) but also in specifically target four terms of revenues (with better customer communication, greater simulation and high-potential value display capacity, and more transparent migration zones offering and price). IoT will also play an increasingly important part in construction processes by optimising, for example, construction site logistics and energy management, predictive equipment maintenance, various materials and wiring tests, as well as security management.

At a time when the IoT market in the construction industry is being structured, the essential issue for companies is to get themselves in battle order – quickly, given the speed of technological changes and competitor initiatives – so they can capitalise on the migration of underlying value while managing the risks. This will require determining the market environment precisely (its growing segments and competition) and redefining the strategic plan clearly (including its objectives and positioning) before defining the methods to deploy it (such as partnerships to be signed, potential acquisitions, which skills and tools to acquire, and the necessary organisational adaptations).

UTILITIES AND SMART GRIDS A NEW WORLD

GUNESH DWARIKA JAN KRAL THE INTERNET OF THINGS\\IOT SCENARIOS IN NINE INDUSTRIES Utilities and smart grids

Think of a world where Google becomes market (electrical power, water, and gas) in the key player in energy services in both two ways. On one hand, smart meters and the residential and business markets. numerous sensors throughout the home Positioning itself as a direct intermediary enable managed resource utilisation and between a local energy supplier and the end responsible energy consumption. On the customer, it would rely on its data centres other hand, more flexible transmission and and machine learning algorithms to predict distribution infrastructures (smart grids) individual demand, and thus predict needs also emerge. in advance. It would use its own production, distribution, and energy storage capacities All value chain players benefit from these or, in certain cases, those of its partners, to innovations, including producers or reduce the energy bill of its customers in an distributors of energy or water, equipment entirely new way. manufacturers, support service providers, or data analysis experts. But the distribution of In this world, energy would be produced the total value created, which will determine by a multitude of decentralised producers, the winners and losers, is not yet complete. potentially including private individuals. It would be bought at the best possible price, then stored in new generation batteries before SMART ELECTRICITY being used at the most convenient time. The price of energy would therefore evolve METERS AS constantly according to the fluctuation of A CORNERSTONE supply and demand. The first building blocks of this not-so-futuristic smart utilities vision are Connected power infrastructures weren’t already being established in some countries. invented yesterday, and examples abound in Italy, Sweden, Canada, or Australia. But GAFA (Google, Apple, Facebook, Amazon) a recent European directive requires the have relied on machine learning for several penetration rate of smart meters to reach years to optimise the energy consumption of at least 80% by 2020. Combined with their data centres. Energy storage solutions new consumer expectations concerning are becoming increasingly reliable and offer environmental responsibility, the regulation industrial-scale potential. Operators are is reviving debate throughout Europe. innovating with peak and off-peak pricing offers, which already exist in Sweden, Italy, The implementation of advanced metering France and other markets. infrastructure (AMI) is the first step toward innovative services for consumers and Technological innovations and professions optimised operations for energy players related to the Internet of Things (IoT) are (see Exhibit 1). gradually transforming the public utilities

Exhibit 1: Smart grid applications

POWER MANAGEMENT NETWORK MANAGEMENT, ADVANCED POWER SUPPLY NETWORK VOLTAGE METERING AND DEMAND HIGH AND LOW INFRASTRUCTURE

Source Oliver Wyman

Residential water, gas, and electricity peak hours). In a similar vein, the British measurement points bring consumers regulator Ofgem requires that, from 2018, closer to the distributor or producer, consumers are able to switch suppliers in with an almost immediate relationship. less than 24 hours. Consumers gain a more detailed and reliable view of their consumption and the The management of remote meters will option of receiving alerts if they exceed make it possible for consumers to change a defined threshold. They are given an their options or switch operators more opportunity to play an active role in easily. With meters managed remotely, managing their budget, through services the time required to transfer to a different such as demand response, or to switch energy company could be reduced from operators. For example, the American start- a few days to a few hours because a up Ohmconnect sends text messages to its technician no longer needs to intervene. customers during periods of peak energy Anticipating this change, the European demand to allow them to reduce their Regional Development Fund (ERDF) consumption in real time and save money. launched a “technician 3.0” contest for start-ups and small and medium-sized Constrained by a strict smart meter enterprises, inviting them to rethink the deployment calendar, the electric power profession of technician. community has gained an edge on gas and water players. In this market, IoT will Transmitting customer data by smart probably reshuffle the cards while shifting meters creates new opportunities for the allocation of market share in favour of innovation and personalised services. In an operators through a process of contract environment where consumers are often cancellation, more fluid subscription, and faced with an offering that is difficult to more competitive offers (off-peak hours or decipher, new players could take better

advantage of the range of possibilities than In addition to customer acquisition the incumbents. Regulation authorities in opportunities, operators will be able to some countries have provided for third- optimise their customer mix and margins party players, such as the comparison through individual offerings. For example, engine uSwitch in the UK, to have access low-margin customers – whose consumption to customer data and all market offers to takes place almost exclusively during peak facilitate consumer choice. hours – will get less attractive rebates. These new pricing models will require skills that In this context, incumbent players must many industry players do not yet possess, expand their portfolio of services based such as the ability to aggregate and analyse on more precise customer knowledge and huge volumes of data. The survival of advanced features in order to differentiate incumbents will therefore depend on their themselves and maintain their market share. ability to deploy these skills, either in-house IoT will accelerate the penetration of offers or through targeted acquisitions or alliances. with dynamic pricing and consulting services, enabling customers to smooth out variations By proposing new services and extended in their electricity consumption and, home automation packages to consumers, ultimately, reduce the final bill. Customers and enabling operators to market products in Sweden have had access to dynamic outside their core business, IoT will disrupt pricing since 2012 and can adjust their usage the traditional business model and challenge according to their choices. In France for the established position of more than one example, ENGIE (GDF Suez) says customers industry player. who subscribe to its DolceWeekend tariff could make savings ranging from €60 to €130, based on an annual bill of €1,500. THE SMART GRID Electrical power operators should also ACCELERATING supplement their offering with enriched DECENTRALISED services, or even with other products that, PRODUCTION AND although previously unknown in the energy PREDICTIVE MAINTENANCE market, customers recognise as credible. This could involve, for example, supplying services IoT represents a unique opportunity for to manage home electrical appliances or distributors and producers to propose selling insurance. Direct Energie’s Tribu additional services to operators and to and EDF’s e.quilibre allow customers to realise major productivity gains. Distributors compare their consumption with that of other are gradually investing not just in smart households and integrate information from meters but also in solutions designed to their home appliances. We expect prepaid reinforce the connectivity of equipment for offerings to emerge on some markets, with transmission and distribution networks. the objective of giving customers more These investments will considerably control over their energy bill. optimise network management.

A transparent view of demand gives directives. In other words, distributors will distributors the ability to significantly have to be even more robust and flexible if improve monitoring and to manage the they are to master the growing complexity of network more effectively. This means they supply and the announced diversification of can better plan network maintenance and production equipment. limit unnecessary systems intervention. Some start-ups, like UPETEC, a software IoT will help to optimise the scale of the publisher specialising in predictive production equipment of the industry as a maintenance, report cost savings of around whole. The corresponding gain will lighten 30% for distributors such as ERDF. consumer energy bills and make society more environmentally responsible. The Distributors will also be able to pool features British government, for example, estimates like billing or managing geographical that introducing new technologies will customer information on behalf of several generate a net value of £6.7 BN by 2030 in operators, and hence diversify their revenues the UK. The core of this new model relies on while lowering operator costs substantially. data and, consequently, on analytical skills, The most important changes will probably including for distributors. The latter are come from producers, who will be faced thus torn between the need to understand with competition from alternative producers a customer view of the network and the and storage players, particularly in the difficulty in accessing data in countries that electricity network. have complex legal frameworks.

IoT makes electricity supply more flexible and The issue is a major one for power helps small producers of alternative sources distributors, which must find reliable of energy sell their offering more effectively. partners who can help make their network Storing energy in off-peak periods and using renovation investments profitable. The need it at predefined times allows these producers for analytical skills is an opportunity for web to more easily smooth out variations in power and cloud computing players who have consumption by distributors. experience in processing huge volumes of data in real time: experience which can be The greater variety of production methods applied to the utilities industry. will call for new regulation and control

PREDICTIVE When incidents occur (leaks, theft, natural catastrophe, and so on), it is now possible MAINTENANCE AS AN to pinpoint their location more quickly and END IN ITSELF, NOT thus shorten the time required to intervene. JUST FOR READING The use of drones in maintenance and surveillance solutions is currently being WATER AND GAS studied, in particular for gas distribution METERS REMOTELY networks. Investments are being made in projects like GDF Suez New Ventures’ The penetration of smart meters is currently Redbird and in partnerships such as the less advanced in water and gas. As with Veolia and Orange m2ocity project. electricity, smart meters will support a more active market with easier and faster cancellation and activation processes. The HOW CAN YOU opportunities to generate additional income from services and innovative customer TACKLE SUCH A offers have not yet been clearly identified. COMPLEX SUBJECT? In addition, ecosystems are structured in very different ways in different countries. For In a new era of IoT, the power industry is still example, electricity and gas meters should in its infancy. Operators will face competition be deployed together in the UK and Ireland, from digital players such as Google or IBM. while France chose combined gas and water Incumbent local or regional players like meter deployment. EDF and British Gas will be confronted with alternative energy producers. For these Pilot tests and alliances are proliferating to incumbents, IoT represents a triple threat: seize opportunities to optimise operational 1. Customer relationships will be costs and future investments. Water and intermediated by digital players such gas operators are working to find a business as Ecoisme or Nest (Google), which are model able to reduce the operating cost in a better position to meet customer of, for example, controlling water quality expectations with relevant offers (for or precisely tracking network yield by example in production, distribution, measuring flow at various points. usage, management, and support)

Exhibit 2: A value chain undergoing major transformation

Equipment Connectivity Digital PLAYERS Power producers Power distributers manufacturers suppliers players EDF PRODUCE Google POWER E-on

MANAGE ERDF UK Power NETWORK Networks

Eni DISTRIBUTE npower POWER Just Energy

MANUFACTURE ABB Cisco EQUIPMENT

INSTALL Honeywell Cisco MAINTAIN IoT supply chain components Lora PROVIDE IBM CONNECTIVITY Sigfox Traditional supply chain

General COLLECT Telefonica Oracle Desired supply DATA Electric chain control

Potential/current Schneider ANALYZE Verizon IBM strategic move DATA Electric

Non-core business PROVIDE VALUE ADDED Siemens AT&T Google SERVICES Core business

Source AT&T Smart Grid Solutions, Telefonica Smart Utilities Solutions, IBM Smart Grid, Cisco FAN Solutions, companies websites, GE, Schneider, Siemens

2. There will be less direct revenue To transition successfully toward the world from power consumption following a of IoT, incumbent industry players must take bitter commercial battle, so the need to action on several levels: generate income from analysis, support, and assistance services will be even •• Commercialise new dynamically priced more pressing offerings to differentiate themselves and 3. A share of the production market will attract high value-added customers with be lost, specifically for peak periods, precise knowledge of consumers and negatively affecting the profitability of the market long-term investments in calibrated •• Propose new services beyond their production equipment (which can be 20 core activity, for example security to 30 years for a power plant). or insurance services for operators, or invoicing and analytical services Innovation in services will come from for distributors collecting and processing data in real time •• Use IoT technologies to optimise using smart meters or networks, or both. operational costs (such as payroll, Players that possess the required analytical subcontracting, and investment) skills, and obtain a power distribution with predictive maintenance, remote operations, and more effective licence, could potentially be formidable network regulation competitors, able to disrupt traditional •• Build partnerships to integrate markets with packaged solutions. Google is analytical skills quickly, and anticipate in this category. With Nest, Google Energy, the required organisational changes to and teams working on new gen storage support this transition (such as moving solutions, this giant can play a key role in the toward more qualified labour able to world of electrical power for a long time to focus exclusively on increasingly complex come (see Exhibit 2). network interventions).

EMMANUEL AMIOT LUIS BAENA EMMANUELLE BERSIER LAURENT GUERRY JAN KRAL

Telecommunications (telecom) players enjoy B2B. A first issue for operators is to position a central role in the world of the Internet themselves beyond connectivity and of Things (IoT), where they provide the security, by offering new value-added fundamentals to individuals, households, and services and end-to-end solutions (design, companies, namely security and connectivity integration, maintenance, and so on). solutions. These players are thus in an To reach these value layers, adequate excellent position to become the facilitators knowledge of the relevant verticals or or enablers of the connected experience, in sectors is critical, and there appears to be both business-to-business (B2B) solutions three ways for operators to obtain it: and retail services. •• Acquire a thorough understanding of targeted verticals, using internal teams Some may regard IoT as simply another and skills (with a detailed understanding version of machine-to-machine (M2M), of the industry, processes, and specific a sort of M2M 2.0. IoT, however, goes legal constraints for each market) well beyond M2M. Telecom operators •• Establish partnerships to acquire such as AT&T have understood this this understanding clearly and present their M2M and IoT •• Establish platforms allowing trade players solutions separately. to develop their own applications.

IoT enables all companies and industries A second issue is how to transform this data to transform existing business models and into relevant, usable information. develop a more powerful value proposition based on service and an unprecedented If operators don’t manage to grab this wealth of data generated and collected by opportunity, other players will seize it, connected objects and digital sensors. potentially relegating operators to the role of connectivity provider. Is it really so unlikely Companies in all industries need support that vertical players (such as industrial from technological partners to build specialists like Siemens or GE) become innovative services around IoT. The issue holistic IoT solution providers limiting the for telecom operators is how to seize the role of telecom operators to wholesale opportunities offered by IoT to expand their connectivity? GE, with its Predix data positioning beyond connectivity solutions. collection and analysis platform for industrial The additional revenue potential, particularly internet applications, is only one example in B2B, is significant. among many of industrial players now taking a position in the IoT value chain. B2C. The key question for telecom operators is how to define their positioning in the home, In the past, telecom operators have been car, and mobile ecosystems. The connected threatened by over-the-top (OTT) services. home is nothing new. Can operators position How can they prevent a recurrence of the themselves as major players in the smart OTT scenario? home? Can they establish a strategy to combine different ecosystems? Or is their legitimacy restricted to only a few?

Exhibit 1: Different connected hub strategies SEIZE B2C

BECOME AN ENABLER OF CREATE AN AUTONOMOUS OPPORTUNITIES A SEAMLESS EXPERIENCE ECOSYSTEM AROUND THE HUB E.G. APPLE E.G. ORANGE HOMELIVE Under these conditions, how should operators approach the IoT opportunity? The objective for the B2C segment is to define its positioning within several adjacent ecosystems: the individual (through portable technologies, or wearables), the home, and the connected car. INTEGRATE INTO MANY DIFFERENT ECOSYSTEMS WITHOUT TRYING TO FORM A HUB For example, the connected home is E.G. PHILIPS attracting players from all sides to develop services: telecom operators (such as AT&T with its Digital Life home automation solution, and Orange Homelive), manufacturers of household appliances (GE, Honeywell, Philips, and LG for instance), high-tech Source Oliver Wyman giants (Google with the Nest intelligent thermostat, plus Apple and its HomeKit to Exhibit 2: IoT chain of control create devices that can be controlled with an iPhone), traditional and online retailers (like CONTROLLING DEVICE THE HUB Amazon and Home Depot), insurers (such TRANSMISSION as Allianz and Axa), and power distributors (for example, British Gas). This is also true for connected car ecosystems, where new platforms are coming on the market (take HomeKit and CarPlay from Apple for instance) and new partnerships are being created (Nest with Mercedes-Benz and Whirlpool, Android THE CONNECTED OBJECT Auto with BMW, and Audi with VW). EXECUTION Behind this proliferation of players with more or less clearly defined approaches, it is possible to observe a certain strategic convergence toward hubs ensuring intelligent interactions among objects, regardless of manufacturer (see Exhibit 1). Source Oliver Wyman Hubs enable different objects to communicate and interact together. Although some problems must still be worked out (including certifying objects and making sure that everything works intuitively, in a “plug and play” manner), the progress is very real. Convergence toward an IoT world is starting (see Exhibit 2).

Controlling a hub means controlling access The customer experience integration layer to customer data, which is essential to create (for example, Wink integrates different new innovative and personalised services, ecosystems in its application). True ensure customer satisfaction, and reinforce value can be created by saving customers the customer relationship. the trouble of having to juggle different applications (such as a Philips application CONVERGENCE TOWARD A for lighting or a Somfy application for blinds UNIQUE VALUE PROPOSITION and shutters). This integration could be proposed by the most attractive underlying The smart home offering is converging to ecosystem (telecom operator, Nest, and so a unique ideal value proposition, in which on) or by an OTT player with no hub control solutions must be easy to install, understand (Wink, for example). and use; innovative and diversified in terms of choices (for example, in brands and types Underlying ecosystems. For the underlying of devices); perfectly integrated; safe; and ecosystems, players must choose their affordable. The main contenders will be able battles according to the business model they to capture market share either based on their want to build. Even the high-tech giants, existing customer base (such as Samsung, whether building omnipresent ecosystems Belgacom, Apple, and Home Depot) or by (like Apple) or redrawing the lines in entire differentiating themselves with a superior industries (like Google), will have to choose product (like Google or Wink). their battles.

The connected home market is thus For instance, Google is positioning itself as expected to be captured by several players a power optimisation facilitator and enabler rather than dominated by a single one. with a whole energy arsenal (including However, if various ecosystems or hubs Nest platform, power distribution licence, are not sufficiently attractive (in terms of and new-generation batteries) but also as a customer experience or usage), a scenario security and remote surveillance provider in which a single powerful ecosystem with its cameras. Other domains could be dominates and becomes a de facto standard explored by Google to reinforce its ability to is also possible. collect relevant data for its current business model. Amazon wants to be the premier The diversity of objects, usages, and players household supplier of consumer goods makes it difficult to guess if there will be one and support services. Some operators are or several winners in the connected home, offering integrated automation, security, and or if there will be one hub or as many hubs infotainment solutions. as usage situations (kitchen hub, home automation hub, power hub, and so on). It We are thus witnessing the emergence of is also difficult to predict the importance of a number of specialised ecosystems. The mobility for these hubs. reason is simple: to create real value for the customer, the home must be not only MANY OVERLAPPING intelligent but also useful. However, this ECOSYSTEMS requires making home management simple and natural. The complexity of integrating all Will some players have the potential to cover of the complex connected home services into all intelligent home services? To answer this a single platform is leading to the creation of question, we need to distinguish two elements. many overlapping ecosystems. The real value

A REVOLUTION FOR THE HOUSEHOLD APPLIANCE INDUSTRY?

Household appliances don’t like to rock measured so that a family of five won’t •• Face newcomers by reinforcing the boat, and there are few breakthrough receive the same parameter settings as a strategic control points (brands, technical innovations in this industry. single person. products, services, and so on) which In large appliances, induction cookers will vary from one market to another were invented over twenty years ago, Optimised after-sale service. •• Radically rethink product and in small appliances, revolutionary Real-time analysis of household development processes by adopting products like SEB’s Actifry remain the appliances in operation will also enable an intrapreneurial organisation, exception. Functional innovations manufacturers to detect weak signals but compatible with the constraints of dealing with dozens of diverse like the bread machine are much and propose preventive interventions. markets and millions of end more frequent, particularly in small In the event of breakdown, remote customers (standards, uses, sales household appliances. diagnosis will make it possible to channels, and so on) prepare interventions, and in particular •• Get geared up to collect, enrich, But IoT will change the game to guarantee the availability of spare organise, and analyse data, which dramatically. Beyond the buzz created parts required: it is estimated that 40% will be the source of all the new by the rise of new players (Withings), of maintenance activities could thus be value created. This is a particularly connected products (Cookeo) or carried out remotely. delicate issue, because companies the commercialisation of the first must form the right partnerships, intelligent refrigerators (Samsung), Interoperability. Household appliances make concessions while keeping the real effects on the market are still will be gradually attached to the sphere key information, and in very anecdotal – for now. But the industry of the connected home and to sub- different commercial and regulatory will be transformed in the years to come. spheres like the connected kitchen environments from one region These transformations will manifest or bathroom. Interconnected objects to another. themselves in several ways: within the same sphere or sub-sphere will foster the emergence of hitherto Among the partners on whom Functional product extensions. unsuspected uses. New constraints will the manufacturers of household Products are becoming smarter and offer also emerge for manufacturers, such appliances can rely, we feel that more features with new sensors. They are as the need to share data with other telecommunications operators could communicating with the outside world players, including direct competitors. be the right allies. Indeed, they are and can receive information, from a in a good position to provide the smartphone for example. These changes will generate enormous required platforms and technical know- value for industry players, as direct links how – without representing a threat – by Development of services. Value-added are established with consumers, whose connecting products; collecting, storing, services are offered that change how satisfaction will rise and whose usage and analysing data; and even possibly products are used or improve the user habits will be better known to suppliers. participating in marketing. experience, like the Terraillon bathroom scale which offers healthcare coaching In order to capture this value, advice. The challenge will be to monetise the latter must address many these services when moving away from challenges, however: free-of-charge or freemium models. •• Imagine and develop new uses linked to connectivity, but also Product updates. Tesla Motors blew design new ways of marketing them the automobile community away by and fostering their adoption proposing regular software updates •• Build innovative business models for the S model to optimise car induced by IoT: transfer of pricing performance. Dishwashers able to from objects to services, payment optimise water or power consumption or based on usage, and so on rectify design defects are about to arrive •• Rethink relationships with distributor on the market. Soon, actual usage will be clients with a win-win mindset

resides in the customer experience and in They also have the ability to combine new getting rid of those little day-to-day hassles to offerings into triple- and quadruple-play improve the quality of life (health, child safety, deals to offer one-stop-shop solutions. For energy costs, and so on). To do this, know- example, Orange offers a pack of connected how and skills in several domains must be devices, a platform and an app to manage combined – power production, distribution them, as well as a support service. Other and storage by programming household operators can position themselves credibly devices, household inventory logistics, and in the sphere of personal data protection and tracking (like Amazon). In our view, the future connected home security, and offer excellent will see specialised players coexisting in the customer service and an extensive distribution connected home. network, with seasoned teams on the ground.

WHAT ROLE FOR Telecom operators have different means to TELECOM OPERATORS? succeed. They can target customers who want easy installation and support services; expand Telecom operators are well placed to offer their offering by taking inspiration from solutions that meet customer security, SmartThings’ Smart, Smarter, and Smartest automation, communication, and infotainment packs; open their platforms to third parties; needs. Compared to Wink or SmartThings give developers access to their application hubs, AT&T and Orange solutions must programming interfaces (APIs); and form continue to expand their range of compatible partnerships with equipment manufacturers. devices. The same applies to Nest and Apple. (See Exhibit 3.) AT&T has clearly understood this and recently opened its Digital Life Consequently, communications operators platform to developers and selected partners. today have the opportunity to reinforce While keeping control of customer data (and their existing edge, in terms of the customer thus control of the customer relationship), relationship and customers’ trust and to AT&T can therefore remain competitive expand their position in the connected home. against new home automation players.

Exhibit 3: Hub suppliers vs. telecom operators

SUPPLIERS OF “HUB” WINK/SMARTTHINGS TELECOM OPERATORS AT&T DIGITAL LIFE/ORANGE HOMELIVE

CONVERGENCE

• Higher initial costs ($80-$300) but generally Hub suppliers sell their • Little or no initial cost, but customers must less expensive than with an operator products in packs (e.g. pay for a 12-24 month contract • No contract or commitment; customers are Homelive) to make the • Customers contractually committed for a free to switch and have the most recent product easier to install speciﬁc period with no option to leave or gadgets in their ecosystem and manage (e.g. Wink) replace products with newer versions • A wide choice of connected objects and Telecom operators are • Relatively limited choice of connected brands (multiple partners) opening their platforms object types, brands, and designs • A central management app available with to third parties (e.g. • A central management app is provided, but multiple scenarios (open APIs) AT&T) to expand the few available scenarios (currently) • Little support for installation, potential choice of available • Turnkey solutions oer a better guarantee of integration problems brands and connected trouble-free operation objects • No additional services (e.g. help line for • Added-value services are often included in emergencies) … even if they target the contract or available on top different segments

Source Oliver Wyman, Wink, Smart Things, Orange, AT&T

B2B OPPORTUNITIES Businesses increasingly demand new value- UNDERSTAND ECOSYSTEM DYNAMICS added services and sophisticated end-to- IoT and connected objects offer telecom end solutions, such as efficient patient pool The IoT ecosystem includes a set of links between connected players a vast range of opportunities on management in hospitals and healthcare devices. Exhibit 4 illustrates the most important links of the the B2B market, but also risks. Companies centres. Operators who want to take connected ecosystem. across the globe need new connectivity advantage of the B2B opportunities offered solutions, for instance, to enable the by connected objects must now define their remote surveillance of patient health or game strategy and determine the roles they power service infrastructures in the home. want to adopt in each case.

Exhibit 4 IOT VALUE CHAIN

CONNECTED DEVICES CONNECTIVITY ACCESS TO SERVICES DATA COLLECTION DATA ANALYSIS ENHANCEMENT OF VALUE ADDED PRODUCTS AND SERVICES They include intelligent devices, Telecom and safety capacities Platforms of connected objects are A variety of data collection, storage, The providers of model definition objects, and sensors; autonomous required to connect devices to the supported by a set of technical solutions, and integration solutions providers, and analysis solutions are often The ecosystem finishing line includes connected devices enabling, for network; central connectivity a nourishing environment for business ranging from small specialised firms to small specialised structures the production of high-value-added example, intelligent meters to be read platform and communication development, and a commercialisation integrated players such as technology products and services remotely or street lighting to be equipment to aggregate the flow of space; in favourable markets, developers suppliers or telecom operators controlled with intelligent sensors data collected from different devices can meet the specific needs of users

Source Oliver Wyman

Until now, no agent has successfully The horizontals serve as the foundation for established an end-to-end presence this IoT structure: connectivity and security; connecting all of these links. In the current connected object markets or platforms; data status quo, telecom operators, because aggregation and analysis; and application they control a portion of connectivity, are development and systems integration. Upon very well positioned to establish a foothold this foundation are the verticals, whose in each of them. However, players outside object, nature, industry, and level of maturity the telecoms industry are starting to expand with regard to connected objects are highly into this field with their own connectivity variable. The verticals range from the car and resale solutions or through partnerships manufacturing to sectors more closely linked with telecom operators. Google is investing to connected objects, such as intelligent in Project Fi and plans to serve as a mobile cities and residential utilities (water, power, virtual network operator (MVNO) in the and so on). United States. GE has relied on AT&T connectivity services since 2013 to offer Telecom operators must be careful in its customers one-stop-shop solutions for choosing the strategic positions to occupy connected objects. in this structure. Although it is easier to bet on the lowest levels of the structure Value is increasingly created by fully (connectivity and security), they must still be exploiting the data generated by connected selective if they want to play a pivotal role as devices. The players who capitalise on this integrated vertical players. The higher they asset will reap the benefits by designing rise in the structure, the harder it will be for innovative products and services whose them to succeed. added value is optimised for specific customer segments according to their Indeed, at the higher levels, there are needs. These targeted solutions in turn incumbent or emerging players that have reinforce the customer relationship and specific expertise which telecom operators enable the collection of more data. For do not yet possess. example, rather than just selling a product, ThyssenKrupp Elevators uses connected What are the options for telecom operators, sensors to offer advanced operational layer by layer? optimisation, preventive maintenance, and elevator surveillance services directly linked Connectivity and security are the bread to elevator usage. and butter of telecom operators. They can be delivered using their principal strategic asset (the 3G or 4G mobile network) by adapting CHOOSE THE it to the needs of IoT (by developing a specific core network, upgrading the RIGHT STRATEGY RAN, or complementing it with the mesh network, and so on). These networks are The ecosystem can be structured supplemented by new alternatives, such as horizontally by IoT activity and vertically SIGFOX, or technologies like LoRa enabling by industry, as illustrated in Exhibit 5. high-quality connectivity at low cost, Depending on the selected strategy, each even for high data volumes. Companies player takes its position in a well- like Actility allow operators to adapt their defined segment. network for IoT.

With an exponential increase in the number Other major telecom players have invested of the connected devices and recent in developing IoT platforms. Telefonica hacking incidents (Target, Home Depot, and introduced a platform called Thinking Things Anthem, to cite just a few recent examples), to facilitate the creation of new products security is becoming a paramount concern or services connected by multiple players, for businesses. Telecom operators can as did the Canadian TELUS. Outside the cash in on their credibility in the domain of telecoms sector, new players specialised in cyber-security by offering reliable end-to- these IoT platforms are booming, like PTC end solutions. Singtel managed to build with ThingWorx or Jasper with its end-to-end its legitimacy through a set of acquisitions, connected object platform. including Trustwave, and by investing in start-ups. Similar examples abound. Aggregation and data storage. Operators can provide either data aggregation Operators can also play a role in providing platforms for specific industries, such as access to platforms or markets. For instance, AT&T’s ForHealth solution, or data platforms Deutsche Telekom launched a marketplace, cutting across the verticals, such as while developing its business in some verticals. Datavenue launched by Orange. Datavenue

Exhibit 5: IoT ecosystem structure

FIT WITH OTHER TELECOM OPERATOR BUSINESSES

CONNECTED MANU AUTOMOTIVE SMART CITIES HEALTH HOME RETAIL FACTURING

APPLICATIONS DEVELOPMENT AND SYSTEMS INTEGRATION

DATA ANALYSIS

DATA AGGREGATION

CONNECTED OBJECT MARKETS AND PLATFORMS

CONNECTIVITY AND SECURITY

Source Oliver Wyman

integrates open data like publicly available In this domain, communications operators information and statistics with data from are in an excellent position to become companies (banks, media, and service IoT enablers, allowing their customers to providers) and accessible customer data, in differentiate themselves with IoT, optimise an anonymous and protected manner, for their operational performance and costs, developers and other commercial players. reinforce their customer relationships, and develop new sources of growth. Their The data analysis layer is currently customers are not necessarily equipped dominated by a set of players of various to manage the requisite equipment, sizes whose specific expertise enables them device platforms, data collection, to offer analysis solutions to companies in process integration systems, and so on. search of new revenue sources. Ranging In a word, IoT is a major growth driver from auto insurance (Treasure Data, Cobra, for communications operators, which and SAS) to intelligent network management have a unique opportunity to position (Cisco, Oracle, and IBM for instance), these themselves as service engines and play players will capture a large share of the value a driving role in the transformation of created by connected objects. their customers.

In order to materialise the potential of IoT, At the same time, players outside telecoms, companies must make sure that the data such as GE with its Predix platform and and the intelligence obtained are used in Schneider Electric with its Wonderware their traditional processes, such as customer system platform, are gaining ground relationship management (CRM) and supply in integration and software. These chain management. The integration layer, companies and many others, including the natural market of software development, Cisco and IBM, aim to create platforms is hence becoming an opportunity for that will compete directly with operators IoT enablers. in conquering this domain.

HOW SHOULD Start with the customer. Identify what B2C and B2B customers really value and which OPERATORS services could effectively meet their needs. NAVIGATE THROUGH Starting with available data, rather than the THE FLOURISHING customer, is tantamount to mortgaging the IOT LANDSCAPE? future of innovative business models. Build an ecosystem. Design a rich, To move forward on such a complex subject well-integrated ecosystem offering and transition successfully to IoT, operators many advantages in terms of improving must advance simultaneously on five fronts: customer choice in connected objects and corresponding services, gathering more data Choose the right battles. Select a small to analyse, getting better acquainted with number of the most promising domains or customers, creating new customised service verticals, define value adding use cases, and options, and reinforcing customer loyalty in design technical solutions. It will nonetheless the process. be necessary to make some bets, including during the investment phase, and accept Develop partnerships. Build a relevant that some will fail. The value of IoT will network and clearly define the role of each essentially be found outside connectivity, network partner (as integrator, specialised in applications, service, and end-to-end service provider, enabler, and so on). solutions. Several options can be used to get there, including strong internal development Adapt your organisation. Clearly define of certain verticals, partnerships, horizontal who will be in charge of the IoT strategy. platforms, and outsourcing the development of trade applications to external developers and third parties.

DAVID KAUFMANN

The Internet of Things (IoT) intrinsically has These companies specifically propose to vast potential for the supply chain. From the track vehicle fleets (including their position, supplier to the customer, from components speed, distance covered, and history) and to the finished product, and from the factory manage them in real time (taking account to the warehouse, the supply chain is the of traffic, accidents, various emergencies, backbone of the company or the very nerve and so on). This concept of instantaneous centre controlling the flow of processes information is naturally not limited to and data. shipping; it can potentially cover the entire range of relevant information at any step in As our interviews with clients have shown, the supply chain. most large corporations in a wide range of industries understand the importance Combining this new concept of of IoT for the supply chain and would like instantaneous information with the rising to take advantage of these opportunities. volume of available data is what will enable The speed of this realisation is accelerating IoT to attain its full impact. as IoT technologies are becoming more widespread and as some competitors are SHIPPING already making a move, if only in part. The fact remains, however, that companies often It is no longer just a matter of geolocation hesitate to deploy the required roadmap in real time (something that has existed because it appears confusing to them. It for many years) but also of transmitting also necessitates profound and lasting real-time information concerning specific transformation of the entire organisation’s constraints (like temperature, humidity, and supply function. verification when a package is opened), utilisation of truck capacity, or even driver fatigue. The Driver Security Solution HOW DOES IOT (DSS) system deployed by the Caterpillar equipment supplier, for instance, uses TRANSFORM THE technology to track drivers’ faces and eye SUPPLY CHAIN? movements to assess their level of fatigue.

The IoT supply chain revolution is IoT also impacts on delivery to the last principally concerned with two dimensions: mile. It can be used to track orders as they instantaneous information and the rising arrive in real time or geolocate connected volume of available data. drivers to determine their availability in the vicinity and turn them into potential delivery The supply function has already learned people (UberEATS). The Israeli start-up Olsi how to manage constraints with thorough launched Postybell, a small sensor that can planning processes and sophisticated be put in mailboxes to notify users at any predictive models over time. Today, IoT distance on their smartphone when their sensors enable information to be gathered mail arrives. In the future, there is nothing to instantaneously. Data has become prevent these sensors from tracking things available in real time and thus enables like humidity in the mailbox. almost immediate responsiveness. Various companies have made inroads in this market, such as the English Masternaut and the American Vnomics.

WAREHOUSES examples of this transformation. What is more, operators can also be connected to With continuous flows of products and track their movements and alert them to materials, warehouses will also be a core risks such as collision. part of the IoT revolution. This revolution starts with forecasting the arrival time of BUILDINGS trucks and automatically scanning tagged products when they arrive, using passive or IoT also contributes to a very significant active radio-frequency identification (RFID) advance in the optimisation of facility and technologies, for example, depending on the equipment management. Indeed, the desired service. These technologies, more starting and operating intensity settings efficient than bar codes, no longer require of systems (heating, ventilation, air- individual and directional scanning. conditioning, lighting, and so on) will be increasingly correlated with actual site Cameras can also be used to verify the activity and the need for machines and absence of damage, manage inventory, operators, rather than being controlled by and check compliance with certain storage pre-programmed time cycles. conditions in real time. Alarm systems will automatically be triggered if predefined We should also mention the impact of IoT environmental thresholds are surpassed on logistics maintenance operations, which or when products are too heavy, badly will use new technologies to move gradually positioned, or about to fall. from programmed to predictive activity based on the actual state of the particular All of this is done today at a constantly item. Volvo Trucks and ThyssenKrupp Grain rising level of granularity. Identification elevators, for example, are placing heavy and tracking can be conducted on a level bets on the potential of this transformation. as detailed as the individual product In addition to optimising maintenance plans, and at increasingly affordable prices, the many sensors placed in buildings provide sometimes just a few cents. Focused manufacturers with invaluable information on this segment, the Norwegian Thin concerning the use of their equipment and Film Electronics produces tags that can the real needs of their customers. simultaneously define a product and collect a certain number of external data, such AUTOMATION as temperature. At the final stage of automation, IoT can A key piece of warehouse equipment, also facilitate automated paths, ceilings, the forklift is also undergoing a major potential hazards, mapping and navigation. transformation with IoT. Industry giants Take, for instance, Kiva Systems, which such as Toyota, Jungheinrich, and Fenwick was acquired in 2012 for $775 MM by Linde, as well as logistics automation Amazon and whose robots currently specialists like Swisslog, are using IoT to automate picking operations in the internet raise the intelligence of forklifts (to include giant’s warehouses. location tracking, speed adapted to ground conditions, analysis of usage data, accident IoT also optimises planning by offering reporting, and battery charge tracking). greater transparency concerning demand, Swisslog’s SmartLIFT technology and stocks, and capacity. This in turn makes it Toyota’s T-Matics piloting tool are just two possible to move from a forecasting and

estimation-based system, often relying on supply chain value toward data collection, the past, to real-time responses with no aggregation, and analysis activities, which are distortion. In the future, planning will be key to establishing innovative new services. aided, thanks to IoT, by systems facilitating the interconnection of various data-producing COSTS functions within the organisation (such as supply chain, production, purchasing, sales, Shipping productivity is generating the first marketing, and finance). Links are created cost improvements. Truck fleet management throughout the supply chain from end to solutions are resulting in substantial fuel end, between the company and the entire savings, around 10%. Added to this are ecosystem of suppliers and customers. better fleet usage, more efficient truck capacity usage, and fewer miles travelled empty. IoT also helps to automate shipping- WHAT ARE related administrative procedures, leading to considerable savings. More transparent THE IMPACTS? planning and improved tracking of product quality help to reduce the need to manage This overview illustrates the importance of the costly product returns. Operational changes induced by IoT in the supply chain productivity is improved due to the time (see Exhibit 1). Observed impacts include saved on low value-added tasks (like finding the cost and level of inventory as well as the inventory or counting stock keeping units) rate of service and revenues of the company. and by optimising the itineraries that IoT also contributes to the migration of operators and forklifts follow.

Exhibit 1: IoT in the supply chain

IOT DOMAINS IMPACTS

WAREHOUSES Responsiveness FACTORIES INSTANTANEOUS INFORMATION PROVIDED Agility THAT DATA IS ANALYSED EFFICIENTLY SHIPPING Adaptability to needs

INCREASED DATA Service rate “END TO END” AVAILABILITY SUPPLIERS AND CUSTOMERS Green

Supplier customer Inventory Operators Costs Planners Machines Upstream to Energy Equipment TRANSPARENCY downstream Transportation Productivity Vehicles Security Buildings Asset usage Quality

Source Oliver Wyman

A powerful platform for managing IoT of service companies, efficient predictive data can offer real insight to facilitate the maintenance on equipment under contract optimisation of flows, the elimination has a similar effect on revenues, by reducing of conflicts and inefficiencies, and the the downtime of customer assets. automation of certain tasks. Bobcat, which deploys the SmartLIFT solution, reports It is possible to imagine the emergence that the productivity of its forklifts rose by of a new range of offerings based on the 25% to 30% with return on investment in potential to provide customers with higher an estimated 18 months. The Kiva Systems added value. This is particularly relevant robots used at Amazon are reported to to the retail world, as IoT will revolutionise reduce the cost of processing orders by direct contact with customers at the time of approximately 30%. purchase, while making it easier to get to the cash register and make payment. There is a cost impact not only in productivity but also in improved security and risk Whether we’re talking about optimising management (through fewer accidents and operations or establishing new services, IoT less theft) and quality (by real-time tracking is accelerating the migration of value in the of delivery temperature and other data). supply chain toward the players who collect, The US firm Crown indicates that its InfoLink aggregate, and analyse data. As an example, fleet management tools have reduced fleet tracking solution providers such as forklift accidents at its client Yamaha Masternaut and Vnomics allow logistics Motorcycles by 30%. players to improve their performance and thus offer end customers higher-quality STOCK MANAGEMENT service. However, the value generated by IoT is collected by Masternaut and Vnomics. Having a precise and shared vision of inventory levels in real time at suppliers and So the emergence of new IoT technologies customers and within the company makes represents a risk of commoditisation for it possible to reduce strategic stock levels incumbent players, some of which don’t significantly and align them more effectively make much use of available data to improve with actual needs. Increased transparency their customer proposition. It is becoming of this type, combined with information critical for major supply chain players to concerning expiration dates, for example, keep control over key data and build a could also substantially reduce waste. strategy aimed at monetising it by providing better service than their competitors. REVENUES More than a cost centre, the supply chain WHICH INNOVATION is considered increasingly – and rightly so – as a company profit centre. For APPROACH? instance, better flow management with IoT is translated into optimised service Although the IoT opportunity appears rates on priority segments for customers significant for the supply function and the and expanded sales. For a certain number company in general, it is advisable not

to neglect some essential aspects when to IoT and then were forced to solve the undertaking IoT projects. resulting problems with a costly step backwards. Obstacles have included a Initially, the most important objectives must proliferation of IT systems that can’t mutually be clearly defined, before even starting to communicate and the extreme complexity of identify the IoT systems that could be used to unshared processes. address these expectations. There are many potential suppliers and technologies on the Finally, deploying solutions based on IoT market. Sufficient time must be taken to make means designing a real organisational a detailed assessment of existing offerings, transformation programme. While it is without hesitating to invite some suppliers to possible – and even advisable – to carry present their services directly if relevant. out pilot tests at a particular facility, for example, the entire organisation must At this stage, we strongly advise our clients eventually evolve. to emphasise the cross-company aspect of solutions. Will we be able to interconnect The supply function can spearhead this different company departments easily? Will effort because technology management is it be possible to interface with suppliers destined to become a new component of and customers as well? Without losing sight its value proposition. But the project must of the performance of analysis platforms, not be restricted to the supply chain at the what types of information will we be able risk of greatly damaging implementation to read? Will the analysis tool be modular and missing out on the majority of potential and evolutionary? improvements. More than a bunch of sensors, IoT represents a new way to think IoT will provide an impressive volume of about flows from the supplier to the end data. But without an efficient, adaptable, customer. As a consequence, not just evolutionary, and ergonomic platform and the supply chain but also production, without expert resources to analyse the purchasing, sales, marketing, and finance collected data, it won’t be of much use. will have to be active stakeholders in the Potential security issues should not be transformation, each function being involved neglected, either, because it is important to according to its responsibilities. ensure impermeability of the data flows to prevent hacking. Starting an IoT project also requires answers to a number of unavoidable strategic Solid fundamentals are necessary to deploy questions. What partnerships or alliances IoT in the supply chain. IT systems and will we need? How can we transform the processes must be ready to accommodate organisational system (including objectives, this change. More precisely, it is important performance metrics, structures, processes, to make sure that the system infrastructure and tools)? How can we support the is organised to process the new data and change (through project management, that the processes are simple, clear, and communication, or training)? These shared to ensure that the changes are questions concern all company functions integrated effectively. We have encountered and, ultimately, senior management. companies who tried to switch too quickly

COMMUNICATIONS, MEDIA, TECHNOLOGY & DIGITAL EMMANUEL AMIOT [email protected]

CONTRIBUTORS

AEROSPACE & DEFENSE HEALTH SÉBASTIEN MAIRE ANDREW CHADWICK-JONES [email protected] [email protected]

COMMUNICATIONS, MEDIA & TECHNOLOGY INDUSTRIAL PRODUCTS LUIS BAENA DAVID KAUFMANN [email protected] [email protected] EMMANUELLE BERSIER XAVIER RUAUX [email protected] [email protected] GUNESH DWARIKA GUILLAUME THIBAULT [email protected] [email protected] JAN KRAL [email protected] RETAIL XAVIER MUSSARD FINANCIAL SERVICES [email protected] DAVID GIBLAS [email protected] VALUE SOURCING & SUPPLY CHAIN THIERRY MENNESSON LAURENT GUERRY [email protected] [email protected]

MARKETING CAROLE BOUCHARD [email protected]

DESIGN ADRIEN SLIMANI [email protected] ABOUT OLIVER WYMAN Oliver Wyman is a global leader in management consulting. With offices in 50+ cities across 26 countries, Oliver Wyman combines deep industry knowledge with specialized expertise in strategy, operations, risk management, and organization transformation. The firm’s 3,700 professionals help clients optimize their business, improve their operations and risk profile, and accelerate their organizational performance to seize the most attractive opportunities. Oliver Wyman is a wholly owned subsidiary of Marsh & McLennan Companies [NYSE: MMC], a global team of professional services companies offering clients advice and solutions in the areas of risk, strategy, and human capital. With over 53,000 employees worldwide and annual revenue exceeding $11 billion, Marsh & McLennan Companies is also the parent company of Marsh, a global leader in insurance broking and risk management; Guy Carpenter, a global leader in providing risk and reinsurance intermediary services; and Mercer, a global leader in talent, health, retirement, and investment consulting. For more information, visit www.oliverwyman.com. Follow Oliver Wyman on Twitter @ OliverWyman. THE INTERNET OF THINGS

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