Drive Smart Outcomes with Smart Services
New Business Model
Entirely new business models are emerging where the customer pays for these actionable insights—the outcomes—rather than for a product or service. One company that is embracing this trend is General Electric. GE Digital is working on technology solutions that analyze streams of data collected from sensors attached to industrial equipment. Customers take advantage of algorithms that understand and explain the performance of their assets and operations, and then take automated actions that optimize that performance and improve productivity.
Estimated annual savings by GE for airlines customer (on average) of jet fuel
For example, GE estimates that its airline customers can save, on average, $7 million worth of jet fuel annually because the information it provides makes jet engines more efficient. GE’s Predix machine learning platform determined that washing these engines more frequently in hot climates reduces maintenance and increases their lifespan. The company believes it can move to outcome-based pricing for such services and away from today’s break-fix business model. Moreover, if GE can keep a customer’s equipment running at a certain agreed upon threshold—providing a smart outcome— that customer would be willing to pay GE a bonus. GE would benefit from outcome-based pricing even if the company doesn’t make the equipment it monitors.
At the heart of the outcomes economy are digital services that define the relationship between people and machines. Wearable devices, for example, help workers in hazardous locations understand and monitor their surroundings to keep them safe. Artificial and virtual reality bring new standard for gaming and productivity. And heads-up displays (HUDs) minimize driver distractions with actionable information on the windscreen. Now voice control is becoming a preferred interface.
These types of digital services must be engineered with people and outcomes in mind. The service design must be inspired by the human experience and in the context of the user’s environment and needs. To achieve this, technology leaders must embrace two phase shifts in their product development: pervasive platform thinking and human-centered design.
Pervasive platform thinking
AT&T, BMW, GE, IKEA, Intel and other digitally durable companies know they must turn products into digital platforms. These platforms combine hardware, software, connectivity and intelligence, and they are connected through open and extensible application programming interfaces (APIs). Although APIs are nothing new, they are now a must-have for an R&D roadmap that can anticipate the future sources of value in a digital eco-system.
For example, Honeywell recently introduced an API program that enables its connected products to talk to other IoT devices and the cloud. Intel’s RealSense developer library for visual analytics enables the underlying chip to become the platform on which developers build applications. Similarly, Apple’s HomeKit for smart home application developers has been gaining adherents among chip companies such as Broadcom and MediaTek, both of which have released software development kits for their hardware platforms that are compliant with HomeKit. GE, too, has introduced IoT-enabled LED bulbs that are HomeKit compatible.
Of course, APIs must be locked down with strong authentication and encryption. There are growing examples of connected products becoming a window of opportunity for adversaries that find their way into a home camera, an assembly line or a car’s power train. Any company that wants to succeed in the Internet of Things should see itself as a leader in three security & privacy capabilities: digital trust, safety standards, cyber-physical security-all in the context of hyper-scale connectivity.
Design inspired by the human experience
Hardware and software are the building blocks of IoT, but good design is the differentiator that delivers a compelling user experience. Good design resonates with customers on a very fundamental level—it’s about personalization, simplicity and intuitive interactions. If it’s done well, design will drive both customer engagement and sustainable growth. Good design puts humans at the center of the product development process and starts by an immersive assessment of the ecosystem’s people, processes, culture and technologies to support customer engagement.
Over the last 10 years, design-led companies have maintained a significant stock market advantage, outperforming the S&P by 219% in 2014, according to an annual report by the Design Management Institute. The report also noted the emergence of a new set of potential design leaders, including Amazon, GE, Google, Honeywell and SAP.
Honeywell, for example, collaborated with third-party design firms to develop Lyric, a connected temperature control system that competes against Google’s Nest automatic thermostat. Lyric connects to a user’s smartphone and uses geofencing to automatically set the home’s temperature. By tracking the phone’s location, Lyric knows when to turn down the heating or cooling; it then brings the home back to a set temperature when the user returns. The display turns on when Lyric’s proximity sensor detects the user’s approach, showing the current temperature and the pre-set temperature. It casts a blue glow when cooling, an orange glow when heating and a green glow when in energy saving mode.
A key challenge for R&D leaders is to find ways to mesh the user experience with engineering know-how.
“At the heart of the outcomes economy are smart services that enhance the relationship between people and machines”
- Put the user experience at the center of the product development life cycle.
- Expect no dominant IoT architecture for engineering IoT products and services.
- Get ahead of cyber-physical threats and build digital trust into connected products and smart services.