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The Internet of Things (IoT) enables vendors to create an entirely new line of “smart” solutions for its existing and new markets. While the decision to go “smart” is straightforward, the decision of how to do so is not. Vendors are faced with a “build, buy, partner” decision – build it themselves, buy or license it from someone, or partner with a complementary solution provider and go to market together. This article discusses some of the key considerations product managers and executives must study in order to make the most appropriate decision.

 

“Build, buy, partner” is a strategic decision

For many vendors, IoT means adding a technology layer to products that never had any before. Even for tech savvy vendors, IoT presents a whole new set of technologies that they are less familiar with. Equally important, IoT is not just technology, but includes data, security, user experience, and business/business model elements. Figure One shows an IoT product management framework developed by Daniel Elizalde of TechProductManagement. A company going “smart” has a lot of decisions to make, of which technology is just one component.

Figure One. IoT Product Management Stack.

The framework shows that the “build, buy, partner” decision is multi-dimensional. There are six decision areas, spread across components from the edge to the user applications. Each represents a different “build, buy, partner” decision point, and each takes the company down a different path. In today’s fragmented and dynamic IoT ecosystem, many companies will need to “build, buy, partner” simultaneously. For example, cybersecurity is a specialized field that many vendors cannot address on their own, and must buy or license for their solution. The actual proportion of “build, buy, partner” each vendor does varies based on their specific situations.

Build

The company creates the solution themselves with the resources they own, control or contract to. Companies who choose this option, but have limited internal expertise may contract with Original Design Manufacturers (ODM). These ODMs provide a portfolio of services, from design, prototyping, test, certification, to manufacturing.

The “Build” option enables full management oversight of the development process, the solution functionality and the intellectual property. Conversely, this option may result in a longer time to market, and require additional capital and resources beyond what is scoped.

Companies consider this approach when:

  • They have the requisite skill sets and resources to do it
  • They can do it faster, cheaper and at lower risk
  • This is a strategic competence they own or want to own
  • There is strategic knowledge or critical intellectual property to protect
  • They are fully committed throughout the company

Buy

The company procures all or part of the solution components from a 3rd party. This includes licensing technology and services. Companies may also acquire technology through mergers and acquisitions, as well as buying the rights to technology from companies willing to part with it. This option eliminates “reinventing the wheel”, enables faster time to market, maximizes resource efficiency with limited execution risk. One common variant of this approach is to buy technology platform from a vendor, and then build their specific solution components on top of that. 

The downsides of the “Buy” option include a loss of control in the development process, and limited agility to respond in a timely manner to changes in the market and customer needs.

Companies consider this approach when:

  • They don’t have the skills or resources to build, maintain and support it
  • There is some or all of a solution in the marketplace and no need to “reinvent the wheel”
  • Someone can do it faster, better and cheaper than they can
  • They want to focus their limited resources in other areas that make more sense
  • Time is critical and they want to get to market faster
  • There is a solution in the market place that gives you mostly what you want.

Partner

The company allies itself with a complementary solution or service provider to integrate and offer a joint solution. This option enables both companies to enter a market neither can alone, access to specialized knowledge neither has, and a faster time to market. This option adds additional management and solution integration complexity. For some companies, reliance on partners for some aspects of the solution may be uncomfortable due to a limited loss of control.

Companies consider this approach when:

  • Neither party has the full offering to get to market on their own.
  • Each party brings specialized knowledge or capabilities, including technology, market access, and credibility.
  • It lowers the cost, time and risk to pursue new opportunities

 

Management considerations for “build, buy, partner”

Before the company chooses a path to go “smart”, executives and managers must base their decision along three “build, buy, partner” dimensions – execution, strategy, and transformation.

Execution

The first dimension focuses on the company’s ability to execute successfully. Managers must audit and assess their capabilities and resources to answer the following questions:

  • Do I have the necessary skills in-house to successfully develop, test, support and operate an IoT enabled “smart” solution and business (Figure One)?
  • Do I have the right human, capital, financial, and management resources to do this? Is this the best use of my resources relative to other initiatives and projects?
  • What am I willing to commit, sacrifice and re-prioritize to see this through? Am I willing to redeploy top management and company resources? How long am I willing to do this?
  • How much budget and resources am I willing to commit?
  • Is there anyone that can do it better than me? Does it make sense for me to do it? What am I willing to do and not do?
  • What infrastructure (processes, policies, systems) do I have, or need to build, maintain, support and operate these new solutions?

Strategy

The second dimension relates to the company’s current and future strategic needs. These are company specific as it relates to its current situation, its customer and channel, and its position within the industry. Key considerations to be addressed include:

  • How does going “smart” align with the company’s vision and strategy? Which parts align and which doesn’t? Does the vision and strategy need to be updated to reflect the realities of going “smart”?
  • How important is time to market? Do I need or want to be a first mover? How long will it take to execute with the resources that I have?
  • Am I trying to reach existing or new markets with IoT? Do I understand their needs well enough that I can execute on meeting it?
  • Do I have any critical proprietary technology, processes, and other intellectual property that I need to protect?
  • What are the risks? How much risk am I willing to tolerate? What are the costs of those risks? How much risk can I mitigate with my current capabilities?
  • How much control do I want or need to go “smart”? What areas do I want to control myself and how? Can I afford to control those areas?
  • What is your real value to customers and your channel? Why do they buy from you, and why do they come back? What do you do well?

Transformation

The third dimension is the company’s ability to manage transformation. Going “smart” doesn’t stop with the IoT technology. The entire organization, its operations, policies, systems and business models must transform to support and operate the “smart” business. Furthermore, resellers and service channels, and suppliers and partners, are also impacted.

  • What is your corporate culture and how well does it support change? Do you have the right people to manage and sustain this change? Are you nimble and agile?
  • What degree of disruption will there be to internal processes, channels, organization readiness, and business models? How agile are your current capabilities?
  • How prepared are you to operate a “smart” business? Do you have the skills and infrastructure required? Can you support a recurring revenue business model? How willing are you to invest in order to develop and sustain these capabilities?

 

What should you do next?

Each company is unique, and its situation will dictate its response to these dimensions. There is no one “right” universal answer to the “build, buy, partner” decision. Equally important, what’s right today, may not be right tomorrow. Companies that want to go “smart” start by looking inward first and doing the following:

  • Establish a current baseline. Audit and catalog current and planned offerings, strategy, human resources and skill sets, channel and suppliers, internal operations and policies, and culture.
  • Evaluate the IoT product management stack (Figure One) against your baseline using the three “smart” dimensions. The list of questions listed are starter questions, but answering those will lead to more questions to be addressed.
  • Evaluate and assess your company’s future state capabilities against the baseline using the three “smart” dimensions. Understand where the gaps are, and the extent of those gaps.
  • Identify your risk tolerance level. Going “smart” is not without risk, especially if you have never done it before. The key is to identify what and how much risk you are willing to take. Once you do so, you can develop a risk management plan and incorporate the appropriate tactics to manage it.
  • Update your business vision and strategy as applicable.
  • Develop your “build, buy, partner” decision and strategy. This strategy must align to the broader business vision and strategy.

 

About:

Benson Chan is an innovation catalyst at Strategy of Things, helping companies transform the Internet of Things into the Innovation of Things through its innovation laboratory, research analyst, consulting and acceleration (execution) services. He has over 25 years of scaling innovative businesses and bringing innovations to market for Fortune 500 and start-up companies. Benson shares his deep experiences in strategy, business development, marketing, product management, engineering and operations management to help IoTCentral readers address strategic and practical IoT issues.

Read more…

For all the value and disruptive potential that Internet of Things (IoT) solutions provide, corporate buyers face a dilemma. Today’s IoT technologies are still immature point solutions that address emerging use cases with evolving technology standards. Buyers are concerned that what they buy today may become functionally or technologically obsolete tomorrow. Faced with this dilemma, many defer buying even if the IoT solutions they buy today offer tremendous value to their organizations.

This post describes a planning strategy called “future-proofing” that helps managers, buyers, and planners deal with obsolescence.

What causes IoT solution obsolescence?

An IoT solution, whether you buy it now or in the future, can become functionally obsolete for several reasons, as described in Figure One.  Unlike more established technologies, today’s immature and fast evolving nature of IoT solutions, amplifies the risk of early obsolescence.

For example, today there are multiple Low Power Wide Area Network (LPWAN) connectivity options – SigFox, LoRa, RPMA (by Ingenu), Symphony Link (by Link Labs), NB-IoT and LTE-M. While each option has advantages and disadvantages, a subset of these will eventually “win” out as technology standards, business models and use cases emerge.

Similarly, there are 350+ IoT platforms in the marketplace today (source: “Current state of the 360+ platforms”, IoT Analytics, June 9, 2016). While many of these platforms target specific applications and industry segments, consolidation is inevitable as there are more vendors than the market can eventually support. The major IoT platform vendors (Amazon, Microsoft, Google, IBM, GE, et al), currently on a market share land grab, will drive consolidation when they begin to acquire select vertical platforms to gain rapid access to those markets.

What is Future-Proofing?

According to Collins English Dictionary (10th edition), “future-proof” is defined as:

“protected from consequences in the future, esp. pertaining to a technology that protect it from early obsolescence”

Because of the high cost of enterprise technologies, many buyers perceive obsolescence as bad. To them, future-proofing means keeping the technology as long as possible in order to minimize costs and maximize return on investment (ROI). Their companies have standardized their business processes, policies and even their technical support on the technologies that they have bought. When a solution goes End of Life (EOL) and transitions to a newer version, it means that managers will have to recertify and retrain everyone on the “new” solution all over again. In general, transitions happen over a period of months (and sometimes years) in large global companies. During this time, multiple generations of the solution will co-exist, with each requiring different processes and policies.

In today’s fast moving IoT market, planned and unplanned obsolescence will be the norm for the foreseeable future. The traditional concept of “future-proofing” doesn’t apply, and can lead to significant, adverse business disruption.

In the era of cloud based solutions and IoT, future-proofing is not about outguessing the future, and choosing the “right” solution so as to never have to “buy” again. Nor is it overbuying technology now to avoid buying in the future. Finally, future-proofing is not about avoiding change. Future-proofing is a solution lifecycle management strategy. It is a continuous process to maximize solution flexibility and options, while making deliberate choices and managing risk.

What does a future-proof IoT infrastructure look like?

In planning the future-proofed IoT infrastructure, managers must first understand its key characteristics, and then define specific requirements for each of those characteristics. At a high level, these characteristics include:

  • Usable– the infrastructure and solutions achieve all functional needs with no loss in performance, security, service level agreements (SLA) over the desired time period.

  • Scalable – supports future needs, applications, devices

  • Supportable – resolves technical, performance, reliability, SLA issues

  • Changeable – addresses “lock-in” and facilitates migration to updated solutions on your schedule based on your needs

  • Economical – the total cost of ownership of the solution stays within forecasted ranges

A framework for future-proofing your IoT infrastructure

Change is constant and cannot be avoided. The driving principle behind future-proofing is managing change, not avoiding or preventing it. This principle recognizes that every solution has a useful functional life, and that what is functionally useful today may be obsolete and discarded tomorrow.

A properly designed future-proof plan provides the organization with options and flexibility, rather than lock-in and risk. It prevents suboptimal decision-making by managing the infrastructure on a system level, rather than at the individual component level.

Future-proofing your IoT infrastructure is a three step process (Figure Two). It is not a “once and done” exercise but must be done annually to remain relevant.

Plan and Design

The first step of the future-proofing process is to identify and place the various IoT infrastructure, systems and solutions into one of nine actionable categories. These categories are shown in Figure Three. The horizontal rows represent the “change” category, while the vertical columns represent the timeframe decision timeframe.

The actual classification of the IoT infrastructure solutions into one of the categories is determined in conjunction with IT, operations and the business units. Key considerations for determining the “future-proof category” include:

  • Usability/functionality – functional utility, compliance with standards, performance against needs, SLAs, and performance

  • Scalability – ability to meet current and future needs, anticipated change in standards

  • Support – resources, expertise, reliability

  • Ease of transition –contractual agreements, technology interdependence/dependence, specialized skills

  • Economics – maintenance costs, licensing/content/subscription fees, utilities, new replacement costs, transition costs

Source and Build

Once the proper categorization is completed, the second step is to procure the necessary solutions, whether they are hardware or software. This requires that a sourcing strategy be put into place over the desired time period. The terms sourcing and buying are sometimes used interchangeably, but they are not the same. Sourcing is about ensuring strategic access to supply while buying is more transactional. In executing the future-proofing plan, procurement managers must understand the supplier product lifecycle, and develop specific tactics.

As an example, a large global company decides to standardize around a specific IoT edge device (and specific generation) and technology for the next five years. In order to maintain access to this supply during this time period, it employs a number of tactics, including:

  • Stocking of spare units to be deployed in the future

  • Placing large “Last time” orders before that version of the solution is discontinued

  • Sourcing refurbished versions of the technology

  • Incorporating leasing as sourcing strategy

  • Negotiating contractual arrangements with the vendor to continue the solution line

Support and Monitor

The third step in the future-proofing strategy is to keep the IoT infrastructure and solutions operational over the desired time period. This is relatively easy when the solutions and technologies are being serviced and supported by the vendors. However, as vendors transition to newer technology and solution versions, buyers may find limited support and expertise. This problem is amplified the further you are from the original end-of-life date.

To keep the infrastructure and solutions fully operational during this time, companies must employ various reactive and proactive tactics. Some of these include:

  • Incorporating and installing vendor firmware updates to maximize functionality, apply bug fixes and extend useful life. Vendors may issue firmware updates on both End of Life and current generation solutions.

  • Purchase warranty and extended warranty and maintenance service contracts to assure access to support

  • Develop in-house maintenance and repair capability

  • Negotiate special one-off engineering support services with the vendor or their designated contractors

About:

Benson Chan is an innovation catalyst at Strategy of Things, helping companies transform the Internet of Things into the Innovation of Things through its innovation laboratory, research analyst, consulting and acceleration (execution) services. He has over 25 years of scaling innovative businesses and bringing innovations to market for Fortune 500 and start-up companies. Benson shares his deep experiences in strategy, business development, marketing, product management, engineering and operations management to help IoTCentral readers address strategic and practical IoT issues.

Read more…

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