DIGITAL PRODUCT IT

A New
Responsibility
for
Manufacturers
on the IoT
Journey

Vishnu Andhare and Christian Decker

ISG WHITE PAPER © 2020 Information Services Group, Inc. All Rights Reserved
 INTRODUCTION

As manufacturing companies become digital enterprises, their capabilities typically

mature, moving from traditional stand-alone products, to connected products, to products

or offerings packaged “as a service.” With the help of digital technologies like the internet

of things (IoT), cloud and edge computing and advanced data analytics, enterprises are

improving their business operations and creating new digital products and services to

drive new business models. Manufacturing enterprises know they must take advantage of

emerging technologies like IoT, but some are still struggling to find and capture the value

IoT offers. In fact, many manufacturing organizations trying to apply IoT are stuck in the

early phase, still trying to align their business, technology and partner ecosystems.

A company is A company is an organism in which optimizing only certain parts can sub-optimize the

an organism in whole. It is no surprise that approximately 30 to 40 percent of IoT pilots fail to become

which optimizing enterprise-wide solutions. Most often, these pilot projects fail to secure the right
only certain parts resources, get de-prioritized (read: shelved) or are compromised by an enterprise trying to
can sub-optimize make a forward-looking solution align with an outdated organizational way of working.
the whole.
Tech entrepreneur and investor Chris Dixon uses the term “full-stack start-ups” to define

companies that care about every aspect of their product/service and become good at

many different things besides software. This allows them to create something out of all

those interlocking pieces that is extremely hard for competitors to replicate.

IoT Vision

IoT-business Aspects IoT-technology Aspects IoT-ecosystem Aspects

Connect people, not just things Create cloud-native apps, Define your niche in the
even outside the data center ecosystem; don’t do it all alone

Figure 1: Key “interlocking pieces” to create a unique and sustainable value from IoT Initiatives

A New Responsibility for Manufacturers on the IoT Journey

ISG WHITE PAPER © 2020 Information Services Group, Inc. All Rights Reserved 2
 Let’s extend the analogy to ask, “what’s the secret sauce to get unstuck from the pilot

stage and realize full value from IoT initiatives?” The answer lies in simultaneously

considering business aspects, technology aspects and ecosystem aspects for an IoT

initiative. It is in this context that some successful companies have created a new

responsibility around “digital product IT” to bring together the three “interlocking pieces”

creating a unique advantage that competitors will struggle to replicate.

This paper focuses mainly on the need for such a function or responsibility, which is based

on the key challenges in each of the above three aspects. The modality for structuring this

function in the manufacturing enterprise varies from organization to organization.

The challenge is
all IoT products Key Challenges in Creating Unique and Sustainable
are complex IoT Initiatives
multi-disciplinary
A. IoT–business Aspects
“systems”
involving multiple Creating a Common Definition for an IoT Product, Business Case and Success
applications,
Enterprises often ask, “Can you give us a set of KPIs to measure performance and financial
hardware
aspects of my IoT product?” The challenge is all IoT products are complex multi-disciplinary
and software
“systems” involving multiple applications, hardware and software components, networks
components,
networks and and infrastructure backend – from the cloud on one end to the edge on the other. Defining

infrastructure the landscape of an IoT product can be like the proverbial blind man with the elephant,
backend – from with participants from the enterprise’s business and technology organizations and partner
the cloud on one ecosystem each perceiving only a limited part of the full system.
end to the edge
on the other. Yesterday Today

Smart product
Client Traditional Client Traditional Connected
deployed in
Value Product Value Product Product
smart context

Connectivity Data-enabled
services

⬤ Typically siloed engineering, IT and ⬤ Multi-functional alignment: software, cloud and IT become an integral part of product
product support. development and operations.
⬤ One time dominant revenue. ⬤ Recurring revenue stream, enabled by post-sale digital services.

Figure 2: Expanded definition of an IoT product

A New Responsibility for Manufacturers on the IoT Journey

ISG WHITE PAPER © 2020 Information Services Group, Inc. All Rights Reserved 3
Traditionally, each part of an enterprise has its own strengths and weaknesses. The

operations technology (OT) team does not always have the IT expertise it needs to deploy

and remotely manage applications across the globe at distributed scale and security. And a

traditional IT team does not always have the domain know-how it needs to build, test and

innovate new apps to improve the business. As a result, some gaps may be exposed in the

end-to-end value stream of the IoT product, which are either left unoptimized or have no

clear ownership for the outcomes/KPIs.

A partial or incomplete definition of an IoT product can keep an enterprise from accurately

calculating the total cost of ownership (TCO) of the product. For example, as software

becomes a key differentiator, manufacturers are “unbundling” applications and functional

software from the hardware with the goal of exerting more control over software domains.

However, software follows continuous development approaches and can have a life of 10

to 15 years. Considering only development investments in the IoT business case without

considering the very real, ongoing costs involved in running, supporting and operating the

product post-production can derail the TCO budgets.

Building System-level Solution Integration and Managing Interdependencies

Apart from the cost mentioned above, agility is a key focus area in IoT. Reducing

interdependencies across teams and simultaneously making relevant information available

to the stakeholders can have a major impact on agility. Now, consider these aspects with

respect to IoT products, which, by definition, are multi-disciplinary involving business, IT,

operations and ecosystem partners in development and delivery.

When it comes to reducing interdependencies, crosslinking product development,

production and operations domains with that of IT can be complex. Traditionally, these

domains have used different development processes, which can create roadblocks to

Agile delivery.

A New Responsibility for Manufacturers on the IoT Journey

ISG WHITE PAPER © 2020 Information Services Group, Inc. All Rights Reserved 4
 The new “IoT product”

Business
System Architecture, Production/ Operations, Maintenance
Model/Product Data Strategy
Engineering and Development Deployment and Support
Management

A digital backbone with platforms, tools and services that are secure, flexible and automated.

Network Storage Compute

Synchronized processes over the end-to-end product lifecycle, e.g., integrating model-based systems
engineering (MBSE) and digital twins with traditional agile methods.

The solution Figure 3: IoT products are complex multi-disciplinary systems, involving multiple stakeholders
is not to shift
Consider a typical manufacturing organization:
every team to
Agile methods ⬤ Mechanical development follows a stage-gate-driven waterfall process with tools such
but to evaluate as product lifecycle management (PLM) and team data management.
if Agile is right ⬤ Embedded systems engineers follow hybrid or partially Agile processes with a specific
in the specific electrical/electronic (E/E) tool chain.
context and, if ⬤ Mobile app development follows fully Agile methods and tools with
so, to adopt it continuous integration.
with necessary
⬤ Production (shopfloor) engineers follow ISA 95 standards with manufacturing execution
modifications. systems (MES) tools.

⬤ IT back-end systems follow hybrid or partially Agile processes with their own custom-
designed tools.

The solution is not to shift every team to Agile methods but to evaluate if Agile is right

in the specific context and, if so, to adopt it with necessary modifications. For example,

integrating methods such as model-based system engineering (MBSE) and digital twins

with Agile methods can provide a “single source of truth,” ensuring that cross-functional

decisions are made with the big picture in mind.

B. IoT-technology Aspects

Optimizing the Cloud-edge Continuum

The IT architecture for most manufacturing enterprises was designed many years ago and

does not meet today’s business challenges when it comes to the distributed computing

requirements of IoT systems.

A New Responsibility for Manufacturers on the IoT Journey

ISG WHITE PAPER © 2020 Information Services Group, Inc. All Rights Reserved 5
Enterprises using “cloud only” solutions face challenges in terms of latency, bandwidth

usage for data transfer and upgrades to networking infrastructure. And “edge only”

solutions can be complex to execute, as the devices at the edge vary in hardware and

connectivity capability, and the legacy technology architectures at the edge hinder security

and scalability, with each device needing to be customized.

Tomorrow’s IoT architecture will likely use a mix of cloud and edge computing. Future

industrial IoT products will require automatic remote updating of the software stack – from

the application at the top to the underlying operating systems – at a large scale and over

a long lifecycle. These products will include a diverse set of assets, gateways, protocols,

applications and legacy technologies at the edge. Sound familiar? Similar challenges

once existed in data centers, but, thankfully, cloud technologies have made tremendous

progress in addressing them.

REPRESENTATIVE ONLY, NOT EXHAUSTIVE

Cloud/backend Platform
IoT use case System Considerations Edge Considerations
Considerations

What is the update frequency Can the data be processed and/or

(every mSec, Sec, or event-based…)? stored cost-effectively within the
vehicle vs. remotely?
What availability, reliability and
latency do we need? Do we need fixed capacity vs. pay-as-
Is the data’s value time-sensitive?
you-go (e.g., flexible/linear scalability
Connected Car
for different data volumes and very
What is the data transport capacity Is the data valuable to OEM? If not, large scale of connections)?
(TB or PB/week)? potentially discard.

… …

Impact on overall cost of the use case

Figure 4: System and cost considerations for IoT use cases need to be optimized for cloud-edge

Addressing challenges at the edge – including, even inside embedded systems – is

where IoT system developers will have to make effective use of cloud principles, such as

containers, orchestration software and DevOps, for a purpose-built edge orchestration

solution. In some cases, replicating the flexibility and reliability of the cloud at the edge

also may require virtualization to decouple software from hardware.

A New Responsibility for Manufacturers on the IoT Journey

ISG WHITE PAPER © 2020 Information Services Group, Inc. All Rights Reserved 6
 Choosing IT Infrastructure that is Equipped to Handle IoT Data

Data-driven insights are well recognized to be at the heart of every successful IoT project,

as the value in IoT moves from software based purely on code to systems that combine

code and data to deliver value. However, legacy architectures may not be equipped to

handle this change. When IT departments are running a race against time to set up a

modern data infrastructure for IoT, they often use a motley combination of old and new

solutions by accident, and not by design. The old and new solutions are driven by two

types of data use case, including:

1. Business intelligence/dashboarding (old solutions, internal facing): Typically, these are

Data-driven data warehouses with “locked data,” i.e., structured data stored in predetermined and
constrained formats to serve specific, predefined applications
insights are well
recognized to be 2. Customer-facing products and advanced applications (new solutions, external facing):
at the heart of Typically, these are data lakes/databuses with “open (fluid) data” that enable users
every successful to run semantic queries and combine diverse data sets in unique ways to power any
IoT project, as application regardless of the source of data.
the value in IoT
A wrong choice of the data infrastructure made here may mean that the requirements of
moves from
distributed IoT systems are not met – one of the reasons why many organizations have not
software based
been able to go beyond simple use cases such as remote asset monitoring and diagnostics.
purely on code
to systems that
C. IoT-ecosystem Aspects
combine code
and data to Standardizing IoT Services for Plug-and-play Reuse
deliver value.
Rolls-Royce introduced the product-as-a-service business model when it started

maintaining and replacing jet engines for a fixed cost per flying hour, calling it “power

by the hour.” As IoT matures, product-as-a-service is poised to become more common.

Viewing this in the context of IoT sourcing, we might think of the as-a-service revolution

on enterprise IT’s “back end” – including infrastructure-as-a-service (IaaS), platform-as-

a-service (PaaS) and software-as-a-service (SaaS) – as reappearing at the “front end”

for managing globally distributed IoT products. This will shift IoT sourcing to a managed

services model, giving enterprises the option of buying IoT-as-a-service and allowing them

to operate it as an operational expense rather than as a capital investment.

A New Responsibility for Manufacturers on the IoT Journey

ISG WHITE PAPER © 2020 Information Services Group, Inc. All Rights Reserved 7
 This is where a standardized IoT service catalog across various lifecycle phases of the IoT

product – including design, build, run and optimize – can help enterprises reuse, scale

and optimize IoT investments. Standardized and modularized IoT services also improve

speed by maximizing reuse and preventing individual IoT devices from turning into custom

implementation projects that require re-engineering.

Standardized definitions of IoT services also help enterprises benchmark performance,

innovation and financial KPIs across various ecosystem providers, as they enable

comparison of best-in-class IoT services sourced from multiple ecosystem partners.

Designing Ecosystem Partner Contracts

Standardized
and modularized In IoT, there is a lot of talk about the importance of ecosystems, and most
IoT services also manufacturers agree that their business will be shaped by new opportunities
improve speed by emerging from services exchanged within an ecosystem. However, engagements that
maximizing reuse
involve shared risk, shared incentives and mutual benefit present enormous challenges
and preventing
to manufacturers that have built monolithic businesses based on closed, proprietary
individual
“command and control” approaches.
IoT devices
from turning
Challenges in the “value exchange” between enterprises and ecosystem partners can be
into custom
addressed with two important principles:
implementation
projects ⬤ Outcome-oriented approach to sourcing IoT: Goal-driven problem-solving through

that require a prescriptive RFP is not always the best way to manage innovation. Instead, it is a
discovery process that can happen as you come to understand the ecosystem. We
re-engineering.
have entered a phase in which ideas can emerge from anywhere in the world; no single
company should look to innovate on its own. A sourcing approach for IoT should allow
an iterative process for tendering end-to-end business and technical services, with an
“outcome oriented” approach that prescribes the “what” of the desired end state rather
than the “how” of service delivery.

A New Responsibility for Manufacturers on the IoT Journey

ISG WHITE PAPER © 2020 Information Services Group, Inc. All Rights Reserved 8
⬤ Flexible contracts for Agile services: The digital landscape is evolving quickly, and
large-scale digital programs built on upfront investments with three-to-five-year
timeframes are failing. In other words, if what you seek with your IoT initiative is not
long-term project goals but short/medium-term “minimum viable products,” then
contracts with providers should reflect that. Contracts for Agile services should include
1) a lean and modular contract structure to allow for a swift contract negotiation
process with clear separation between various contracts, and 2) the providers to
adapt to the complexity and timelines of the task at hand – for example, by estimating
the burn rate per sprint or per release. The contracts should have the flexibility to
be changed or terminated once the sprint is complete but retain the full value of the
services delivered until then.

Conclusion

Different manufacturers will take different approaches on their IoT journey, but

considering the business, technology and ecosystem challenges equally and

simultaneously is the only way to create a durable competitive advantage for an IoT

initiative. The current IoT challenges span multiple facets of the organization and even

beyond. Considering that many manufacturing organizations are divided into siloes, there

may not be a magic bullet to solve these challenges.

New dedicated functions such as “digital product IT” could be an important step toward

defining and addressing these challenges. The task, after all, is to acknowledge that IT and

OT (aka “business functions”) have walked in the other’s path in the past, at least partially.

Hence, each can learn from the other to build the “interlocking pieces” that are hard for

competitors to emulate.

A New Responsibility for Manufacturers on the IoT Journey

ISG WHITE PAPER © 2020 Information Services Group, Inc. All Rights Reserved 9
ABOUT THE AUTHOR

Digital Product IT
A New Responsibility for Manufacturers on the IoT Journey

VISHNU ANDHARE

As an advisor at ISG’s Smart Manufacturing practice, Vishnu helps enterprises to drive

“full-stack” IoT transformation, bridging IT and OT worlds and covering business,

technology and ecosystem aspects. This includes custom market research, collaborative

solution shaping & service design, ecosystem development and designing new “operating

model” for the software-driven world.

A New Responsibility for Manufacturers on the IoT Journey

ISG WHITE PAPER © 2020 Information Services Group, Inc. All Rights Reserved 10
ABOUT THE AUTHOR

Digital Product IT
A New Responsibility for Manufacturers on the IoT Journey

CHRISTIAN DECKER

Christian Decker is Partner at ISG, leading the Smart Manufacturing vertical in EMEA. He

has sound technical and business skills to offer, bringing to ISG client projects a wealth

of professional. He has gained his experience over a period of more than 17 years as an

IT Product Manager, Service Manager, Team Manager and Management Consultant. His

expertise encompasses Portfolio-Management, IT Sourcing Strategy, IT Infrastructure

Outsourcing, Service Design and Product-Management, Transition Management as well as

IT Service and Cost controlling, P&L responsibility and Benchmarking.

A New Responsibility for Manufacturers on the IoT Journey

ISG WHITE PAPER © 2020 Information Services Group, Inc. All Rights Reserved 11
ABOUT ISG

ISG (Information Services Group) (Nasdaq: III) is a leading global technology research and

advisory firm. A trusted business partner to more than 700 clients, including more than 75

of the top 100 enterprises in the world, ISG is committed to helping corporations, public

sector organizations, and service and technology providers achieve operational excellence

and faster growth. The firm specializes in digital transformation services, including

automation, cloud and data analytics; sourcing advisory; managed governance and risk

services; network carrier services; strategy and operations design; change management;

market intelligence and technology research and analysis. Founded in 2006, and based

in Stamford, Conn., ISG employs more than 1,300 digital-ready professionals operating

in more than 20 countries—a global team known for its innovative thinking, market

influence, deep industry and technology expertise, and world-class research and analytical

capabilities based on the industry’s most comprehensive marketplace data.

www.isg-one.com

Let’s connect NOW…

A New Responsibility for Manufacturers on the IoT Journey

ISG WHITE PAPER © 2020 Information Services Group, Inc. All Rights Reserved 12