The Internet of Things (IoT) has the potential to deliver substantial revenue gain to manufacturers, but where should you focus your efforts and what decisions are the most important?

Manufacturing companies already invest heavily in IoT initiatives, spending more than most other industries, including high-technology, energy and utilities. According to a study by Tata Consultancy Services, The Internet of Things: TCS Global Trend Study 2015 - A Manufacturing Industry Perspective, manufacturers spent an average of US$108.2 million on IoT in 2015, and they are expected to spend 11 percent more in 2018.

What’s more, they are also achieving a good return on this investment. Manufacturing firms reported a 19.7 percent revenue increase in 2014 over 2013 in the areas of the business that implemented an IoT initiative – the highest of any industry in the study. By 2018, the average anticipated impact of IoT on total revenue will be 20.4 percent, much more than the 16.3 percent which is the average impact for all industries.

Most Valuable Strategic Focus

The study also looked at which IoT strategies have the most value for manufacturers. Many companies are using IoT to monitor the flow of raw materials and finished products through their supply chain: 48 percent of manufacturers in the survey were doing this.

Beyond this, IoT deployments in the sector have focused primarily on tracking how products are performing. Just over a quarter (26.4 percent) of respondents monitored products in the field to make maintenance services more proactive. With customer-specific information and remote diagnosis capabilities, technicians can provide faster and more efficient service.

From a more macro point of view, this data can help firms identify – and fix – product problems before customers are aware of them. Plus, it can be used by the R&D team to improve existing product features.

To go further and gain a higher level of return, manufacturers will next use IoT to evolve their business models and identify and pursue new business opportunities.

Evolving Business Models

Manufacturers have embraced business model changes as a key consequence of IoT. All but 18 percent of the 140 manufacturing leaders surveyed in the study had evolved some aspect of their business model as a result of IoT work.

These changes are set to accelerate. By 2020, firms expect to use IoT to increase their service business (49.3 percent), generate more revenue from customer usage data (26.4 percent), and resupply customers directly through automated re-orders (20.7 percent).

For example, the “razor-and-blades” model, where a business offers a one-time product at low cost and earns repeat business from complementary products, takes on new meaning in the IoT era. IoT connectivity can turn almost any digital device into a service, as innovative manufactures of home printers, e-readers and wearable health tech are showing.

New Business Opportunities

Traditionally, many businesses have relied on customer surveys and feedback to discover how customers use their products. Others have trusted experience and intuition. With IoT you can finally delve more deeply into product usage and gain real insight into customers’ actual experience.

Analysing your IoT data is likely to reveal areas where customers need help or more functionality. If some customers are not using the products as you intended and designed, it could also present a different view of customer segmentation. With product monitoring data at your fingertips, you can analyse, learn and adjust accordingly.

As an example, a manufacturer could create a service that aggregates data from a plant's sensors and other devices to help the customer maximise productivity. Or you might leverage your IoT data to let you, or your customer, offer your products on a pay-by-use basis.

Automotive manufacturers are taking a novel approach to this opportunity. Some are now producing fully feature-loaded cars that can be turned on remotely for a finite period of time. This function stems from the enhanced understanding of usage pattern, which allows customers to pay per use for features that they would not have paid up-front for at the time of the initial product purchase.

Most Effective Operational Success Factors

But how can you make sure that you can effectively turn IoT data into business insight and improved profitability? Our study identified five operational success factors:

1. Focus on core application areas. The world of connected devices presents a vast number of possibilities for manufacturers. To avoid diluting the effectiveness of your IoT efforts, we recommend focusing on operational excellence and the customer experience.

2. Decide what data to capture from the IoT. There is no shortage of data to be had, but not all of it is created equal. The data must be relevant to the IoT initiative and your desired outcome, whether that is product improvement or better customer service.

3. Integrate the IoT data from sensors and other digital devices with your enterprise systems. Connecting the IoT initiative to enterprise systems that support management decisions will help executives gain a deeper understanding of the business.

4. Support cultural change. You will need to empower managers and workers to change the way they think about customers, products and processes. The insights provided by IoT-based systems will reveal the truth about product usage, but they will not benefit the business unless your team is able to use them to guide decisions and change the way things are done. Support from the C-suite is mandatory for the cultural change necessary to get the most from IoT.

5. Determine what technologies and capabilities to develop internally and which you will need external support for. IoT deployments are complex, requiring expertise in hardware, software, networking and analytics, among other disciplines. It makes sense to develop internal talent where it will deliver the most value, and to look for competent partners and solutions providers for the rest.

With the potential to help firms improve their competitiveness, IoT-driven opportunities are exploding in the manufacturing sector. Now is the ideal time for you to take advantage of the technology to enhance the customer experience and improve operations.