Internet of Things Report

THE INTERNET
OF THINGS
DISRUPTING TRADITIONAL BUSINESS MODELS
EXECUTIVE SUMMARY
With the Internet of Things, or IoT, were 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: theyve 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?
Copyright 2015 Oliver Wyman. All rights reserved.

THE INTERNET OF THINGS\\CONTENTS
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

DISRUPTING
TRADITIONAL
BUSINESS MODELS
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, were
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 were 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
Copyright 2015 Oliver Wyman. All rights reserved. 5

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. Moores 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 already available. Sensors the size of a grain
by five
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 Ocan (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 Amazons 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.

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 LOral, 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. Carrefours C-O (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 (2012-2020)
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. Didnt 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 wont 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 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
Theres no need to panic but the risks mustnt their grip on the car insurance customer
be underestimated either. We dont 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 GEs IoT appliance
BECOMING SECONDARY platform. With Amazons 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 isnt what we mean. Were 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, Amazons 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 UBER-TYPE SERVICE AND
REPLACE YOUR SUPERMARKET
Smart homes equipped with devices allowing Amazon to
detect whats 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 lions 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 CafWell 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 DOCTORS 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 doctors 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

IMPACT 2
ECOSYSTEM
INTEGRATORS WILL
CAPTURE VALUE
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 WONT 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 cant 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
Internet
Battery number 65% of the time, and your contact
data list 35% of the time (see Exhibit 8). Many
Android applications dont 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 dont 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. Apples 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
COLLECT AGGREGATE ANALYSE
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
ORANGE
Within the residential and mobility sphere,
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 lions 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 wont
want to juggle ten different ecosystems,
but two or three at most. In the retail
Philips market, this requires the creation of
APPLE
trustworthy ecosystems aggregating the
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, Oranges 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 Mdric, 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 dont 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 dont 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

and manage infrastructures remotely help
IOT SUPPORTS SIX
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. Redbirds 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. Oranges 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
tomorrows 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 industrys 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 customers 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 users 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.

IMPACT 4
NEW BALANCE
IN CUSTOMER
RELATIONSHIPS
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 LOreal 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
relationship with them.
IOT REINFORCES
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, Macys, 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.
Companies like Danone, Evian, LOral,

B2B TO B2B2C
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 isnt 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 doesnt 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 PROVIDE KEY DATA CREATE NEW CUSTOMER

RELATIONSHIP WITH IN REAL TIME CONTACT OPPORTUNITIES
THE CUSTOMER
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
JLRs 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
SMART UTILITIES
AIR TRANSPORT
TELECOM AND
TECHNOLOGY
SUPPLY CHAIN
CONNECTED
INDUSTRIAL
INSURANCE
High
INTERNET
BUILDING
HEALTH
RETAIL
Average
Limited
Productivity and costs
Differentiated Risk of disruption/risks
customer service
Innovative services High
Revenues
Average
Risk of disruption
Limited
Source Oliver Wyman

HOW CAN YOU MAKE

INROADS INTO SUCH
A VAST SUBJECT?
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.
Virtualisation and increasing disconnection

BUILD AN OPEN
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 tomorrows 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

IoT strategy while remaining closed. They
ADOPT A EUROPEAN
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
dominant de facto platforms.
Only open-system
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.

IOT
SCENARIOS
IN NINE
INDUSTRIES
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 Hancocks 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
new relevant data and ultimately extract the
and casualty (P&C) insurance is intelligence required to feed their business
priced, distributed, and serviced; models in real time. An additional threat to
insurers is posed by the emergence of a new
it could shift the business model 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. Friedmans 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 wouldnt 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

IOT
WHO FINANCE
Mercedes MANUFACTURERS
THE ASSET
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 offerings?
Which actors would be the best possible distribution
Alibaba Amazon Apple partners for insurers?
COMPANIES British Gas Volia
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, DEPLOY NEW
better assessment of the NON-INSURANCE SERVICES
cost of loss
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 and services
New players have 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
Difficulty Low Medium Medium High

Value creation model
Services
Services
Services
Services
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,
Hot data collection How can we avoid losing the
capitalise on the intelligence of current
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
business model to a data-driven services business model?
with an insurance inside archetype,
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 sufficient 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 isnt over yet.
How can we retain client access or,
Client access Although the battle is raging in all of these
at least, not lose it completely?
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.

HEALTH
HEALTHCARE IS POISED
FOR TECHNOLOGY-
LED TRANSFORMATION
ANDREW CHADWICK-JONES

THE INTERNET OF THINGS\\IOT SCENARIOS IN NINE INDUSTRIES Health
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 industrys 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
NUMBER OF ROUNDS OVER $2 MM
to its network of websites. Jawbones Up
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 were
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 populations
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 peoples 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 IBMs
HEALTHY LIVING Watson computing system for personalised
VALUE
Steps or activity advice on health and wellness. Welltoks
Sleep
Nutrition integrated CafWell 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
Blood pressure EXPENSES AND
With its Watson partnership, it is creating
Heart function BUDGET VALUES CafWell Concierge, delivering a uniquely
Blood oxygen Affordability
Deductible status personalised experience and advice based
Exposure
Pharmacy costs
on the information gathered by Welltok
Reward opportunities and processed by Watsons big-data
SUMMARY computing capability.
HEART RATE BLOOD PRESSURE
120 SYSTOLIC
mmHg
80 DIASTOLE
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 thats ripe for disruption and big enough to
warrant Apples 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, wed 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 dont 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 its 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 didnt we think to demand more? advantage, then fail to fully capture
the value.
IMPLICATIONS Unlocking the incumbents 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 incumbents 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
CA ECO
RE SY
DA ND
3
DE ST
HEALTH PLAN 1.5
LIV EM
G A
TA
BI CH.
ER
Coaching
TE
Y
E-health/
Network model: web-based Medication
performance-based
services management
Exchange based
decision tools
1 HEALTH PLAN 1.0

Value based
benefits and
rewards
Weight
management
Monitoring
Network model:
broad or narrow
Health and
pharmacy
benefits Home Lifestyle/
My personal
budget and services wellness
TS H
risk tolerance
KE LT
HE EC
AR HEA
Convenience
AL OSY
TH S
E M ER
clinics
Y L TEM
LU M
VA SU
IV
IN
N
CO
G
PATIENT CENTRED
CARE MODELS
HEALTH MARKET 2.0
PPOS AND NARROW NETWORKS
4 HEALTH PLAN 2.0

SMAR
SHOP T
PING
TOOL
2 HEALTH PLAN 1.5

Exchange based
decision tools
Network model:
performance-based
Value based Networks and

care models
benefits and Benefits

configuration
rewards Personal
engagement
level
Convenient
Care
Configurable Retail Healthy

benefits Living Services Acute and
and network TRANSPARENT
CONSUMER Complex Care
MARKETS Services
In plan year Surgical and Major Diseases

(and network) Diagnostic and Conditions
PPOS AND HIGH marketplace Procedures
PERFORMANCE NETWORKS
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 wont 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 ITS NOT A LEVEL medical home strategy?
PLAYING FIELD
DONT 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 dont 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.

AIR TRANSPORT
STEP UP THE PACE OF

GROWTH IN THE ALREADY
FLOURISHING AIR
TRAVEL INDUSTRY
SBASTIEN MAIRE

THE INTERNET OF THINGS\\IOT SCENARIOS IN NINE INDUSTRIES Air transport
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 tomorrows 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 todays 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
GEs 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 Thals, Zodiac Aerospace, Honeywell, and
UTC should consider creating partnerships
Todays 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

RETAIL
TECHNOLOGICAL
EVOLUTION,
BEHAVIOURAL
REVOLUTION
XAVIER MUSSARD

THE INTERNET OF THINGS\\IOT SCENARIOS IN NINE INDUSTRIES Retail
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
Uber delivers these groceries right to your
IOT ENABLES
door. And Fast Moving Consumer Goods DIFFERENTIATED
(FMCG) brands such as LOral and P&G know CUSTOMER
more about their customers than Walmart
or Carrefour, so they can make customised
EXPERIENCE
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, Apples 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 Macys, 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.
LOrals 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 users 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 Electrics 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
brands 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 customers 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 LOral moisturiser). The order is
automating the preparation of shopping lists then delivered to the customer, who doesnt
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.

INDUSTRIAL INTERNET
A FOURTH INDUSTRIAL
REVOLUTION?
GUILLAUME THIBAULT
XAVIER RUAUX

THE INTERNET OF THINGS\\IOT SCENARIOS IN NINE INDUSTRIES Industrial Internet
FROM TRANSACTION- tracks flight operations online and corrects

bugs remotely.
BASED TO
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.

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
and will be able to interact with owners by sending them
Academy of Engineering Sciences
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
Taleris, its joint venture with Accenture.
Cisco, DAP) and major federations
like Bitkom (high technologies),
VDMA (machine tools) and ZVEI
(electro-industry). Its purpose is A NEW OPERATIONAL
to take advantage of the countrys MODEL
relative advantage in the field of INDUSTRY 4.0
integrated software systems to break
Product networking constitutes the real IoT revolution.
IoT down for industrial processes.
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,
production, and customers from end to end and opening
and production software (SAP and
the door to a potential fourth industrial revolution.
Huawei). According to estimates,
the program could generate annual In the customers 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.

SAP-FESTO At the factory, completely automated production will
be enabled by a new generation of production lines and
CONSORTIUM smart robots, such as KUKAs 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
in terms of rate, quality, labelling, packaging, signage,
to build automated production lines.
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
lines that can manufacture remote control units or cell
which is communicated to all
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
widespread in industrial processes, is expected to
have this type of production line, this
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 Europes competitive
standing andSource:
driveFesto
theAG,reindustrialisation
SAP of the continent.

A SIZEABLE CHALLENGE
FOR INCUMBENTS
The prospects offered by IoT represent a considerable
challenge for traditional manufacturers. The obstacles
they face are simultaneously strategic, technical,
and human.
IOT IN INDUSTRY
DRIVERS OF VALUE CREATION
6 1 2
REDUCED CONSUMPTION,
AUTOMATION AND FLEXIBILITY,
OPTIMISED SUPPLY CHAIN
20-40% POTENTIAL
PRODUCTIVITY GAINS
Industrial Internet
Above all, the challenge of IoT is transformational.

European corporations inherited organisations that Suppliers Factory
were structured to standardise processes, reduce risk,

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
15-30% 40-70%
open-innovation service culture? How can we get away Logistics
from and stop trying to optimise a marketing approach
that is often product-centred when what is required is an SHARE OF SERVICES New offerings REDUCED RATE
IN REVENUES Sales initiatives Inventory OF UNAVAILABILITY
approach focused on customer needs?
The technology issues that internal teams are ill-

prepared to resolve range from the links with existing
Customer Connected
systems to the modelling of cyber-physical systems, not 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
professional tools and enterprise resource planning +10-30%
RETENTION OF EXISTING
CRM and
marketing
campaigns
100%
DIGITAL CUSTOMER DATA
Local aggregator
(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
5 4 3
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
spare parts). Source Oliver Wyman

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
advantage of scale effects linked to network economics.
Rather than replace an entire part
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
prospect of developing low-cost operators, which play
production system.
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, its 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.

THE INTERNET OF THINGS\\IOT SCENARIOS IN NINE INDUSTRIES Industrial Internet
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 wont 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 companys 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

SMART BUILDINGS
WHAT ARE THE IMPACTS?

WHAT ARE THE STAKES?
DAVID KAUFMANN

THE INTERNET OF THINGS\\IOT SCENARIOS IN NINE INDUSTRIES Smart buildings
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 homes 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 WHATS ALL THE
trace the movement of each passengers 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
linked to the immediate environment of
WHAT DOES IOT
the occupants (heating and cooling, water, HAVE IN STORE
lighting, and so on); security and access; FOR CONNECTED
piloting of equipment (such as infotainment
in the home, professional materials at work,
BUILDINGS?
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
comfort of employees reduces sick leave and
HOW WILL THE
increases productivity. CONNECTED
BUILDING MARKET
For very specific connected buildings, such
as shopping malls, the impact will also be
EVOLVE IN THE
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

of arrival of the occupant.
STAKES FOR
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. Lets not forget SmartThings,
of competitors. The risk may be even acquired by Samsung in late 2014, AT&Ts
more acute if the value created is not Digital Life, ARCHOS Smart Home, Staples
completely additional and if the value of Connect, Ciscos Smart+Connected,
the goods or service previously provided Castoramas Blyss integrated home
declines simultaneously. To capture automation solution, Legrands My Home,
value migrations, all construction market Somfys TaHomA interface, SFRs Home and
players in the broadest sense are currently Oranges 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 Volia 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
offering and price).
migration zones
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
being used at the most convenient time.
SMART ELECTRICITY
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 werent
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 Energies Tribu additional services to operators and to
and EDFs 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
opportunities to generate additional income
HOW CAN YOU
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
PRODUCE EDF
POWER Google
E-on
MANAGE ERDF UK Power

NETWORK Networks
DISTRIBUTE Eni
npower
POWER Just Energy
MANUFACTURE
EQUIPMENT ABB Cisco
INSTALL
MAINTAIN Honeywell Cisco
IoT supply chain
components
PROVIDE Lora
CONNECTIVITY IBM
Sigfox Traditional
supply chain
COLLECT General Desired supply

DATA Telefonica Oracle
Electric chain control
Potential/current
ANALYZE Schneider strategic move
DATA Verizon IBM
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).

TELECOMMUNICATIONS
BEYOND CONNECTIVITY?
EMMANUEL AMIOT
LUIS BAENA
EMMANUELLE BERSIER
LAURENT GUERRY
JAN KRAL

THE INTERNET OF THINGS\\IOT SCENARIOS IN NINE INDUSTRIES Telecommunications
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 dont 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
A SEAMLESS EXPERIENCE
CREATE AN AUTONOMOUS
ECOSYSTEM AROUND THE HUB
OPPORTUNITIES
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 dont like to rock measured so that a family of five wont 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 SEBs 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 offer 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-

added services and sophisticated end-to-
UNDERSTAND ECOSYSTEM DYNAMICS
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&Ts 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
future of innovative business models.
IOT LANDSCAPE?
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.

SUPPLY CHAIN
WHY AND HOW TO DEPLOY

NEW SOLUTIONS
DAVID KAUFMANN

THE INTERNET OF THINGS\\IOT SCENARIOS IN NINE INDUSTRIES Supply chain
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 organisations 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 giants 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,
Swisslogs SmartLIFT technology and stocks, and capacity. This in turn makes it
Toyotas 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 Costs
Operators
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 were 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 dont
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
is considered increasingly and rightly
WHICH INNOVATION
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 cant 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 wont 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

LEAD AUTHOR
COMMUNICATIONS, MEDIA, TECHNOLOGY & DIGITAL

EMMANUEL AMIOT
emmanuel.amiot@oliverwyman.com
CONTRIBUTORS
AEROSPACE & DEFENSE HEALTH

SBASTIEN MAIRE ANDREW CHADWICK-JONES
sebastien.maire@oliverwyman.com andrew.chadwickjones@oliverwyman.com
COMMUNICATIONS, MEDIA & TECHNOLOGY INDUSTRIAL PRODUCTS

LUIS BAENA DAVID KAUFMANN
luis.baena@oliverwyman.com david.kaufmann@oliverwyman.com
EMMANUELLE BERSIER XAVIER RUAUX
emmanuelle.bersier@oliverwyman.com xavier.ruaux@oliverwyman.com
GUNESH DWARIKA GUILLAUME THIBAULT
gunesh.dwarika@oliverwyman.com guillaume.thibault@oliverwyman.com
JAN KRAL
jan.kral@oliverwyman.com RETAIL
XAVIER MUSSARD
FINANCIAL SERVICES xavier.mussard@oliverwyman.com
DAVID GIBLAS
david.giblas@oliverwyman.com VALUE SOURCING & SUPPLY CHAIN
THIERRY MENNESSON LAURENT GUERRY
thierry.mennesson@oliverwyman.com laurent.guerry@oliverwyman.com
MARKETING
CAROLE BOUCHARD
carole.bouchard@oliverwyman.com
DESIGN
ADRIEN SLIMANI
adrien.slimani@oliverwyman.com
ABOUT OLIVER WYMAN
Oliver Wyman is a global leader in management consulting. With offices in 50+ cities across 26 countries,
OliverWyman combines deep industry knowledge with specialized expertise in strategy, operations, risk
management, and organization transformation. The firms 3,700 professionals help clients optimize their
business, improve their operations and risk profile, and accelerate their organizational performance to seize
themost 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
$11billion, 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.
www.oliverwyman.com

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THE INTERNET

Copyright 2015 Oliver Wyman. All rights reserved.

DISRUPTING TRADITIONAL BUSINESS MODELS

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

IOT SCENARIOS IN NINE INDUSTRIES

82 UTILITIES AND SMART GRIDS

101 SUPPLY CHAIN

Copyright 2015 Oliver Wyman. All rights reserved.

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

Source: Oliver Wyman

Copyright 2015 Oliver Wyman. All rights reserved. 5

Miniaturisation of all of these components.

Computers the size of a grain Development of the cloud. Cloud

Copyright 2015 Oliver Wyman. All rights reserved. 6

MORE THAN reality, and smart lighting varies according

Copyright 2015 Oliver Wyman. All rights reserved. 7

Copyright 2015 Oliver Wyman. All rights reserved. 8

Exhibit 3: IoT trends

NUMBER OF CONNECTED OBJECTS

Copyright 2015 Oliver Wyman. All rights reserved. 9

The real question is about the allocation IMPACT 2

Copyright 2015 Oliver Wyman. All rights reserved. 10

Copyright 2015 Oliver Wyman. All rights reserved. 12

Source Oliver Wyman

RETAIL include ChillHub, whose connected fridge is

Copyright 2015 Oliver Wyman. All rights reserved. 13

Dash Amazon Amazon Amazon

AMAZON (OR WALMART?)

Copyright 2015 Oliver Wyman. All rights reserved. 14

HEALTH Apple on health and recruited numerous

Exhibit 6: IBM could conduct patient check-ups

SYMPTOMS IBM DIAGNOSIS

Source Oliver Wyman

Copyright 2015 Oliver Wyman. All rights reserved. 15

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

Renewable energy sources

Long-lasting electrical autonomy with

Communicating with Whirlpool

A single hub to control

Source Oliver Wyman

Copyright 2015 Oliver Wyman. All rights reserved. 16

Copyright 2015 Oliver Wyman. All rights reserved. 17

Exhibit 8: Percentage of applications requesting data

To use Facebook Messenger, for example,

Most consumers are willing to share their

Copyright 2015 Oliver Wyman. All rights reserved. 18

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

Source Oliver Wyman

Copyright 2015 Oliver Wyman. All rights reserved. 19

getting established (think of Google, Apple,

and the same thing Big names joined the Nest/Dropcam

Copyright 2015 Oliver Wyman. All rights reserved. 20

Copyright 2015 Oliver Wyman. All rights reserved. 21

VALUE IS SHIFTING TOWARD Today, companies cannot get around

Copyright 2015 Oliver Wyman. All rights reserved. 22

Copyright 2015 Oliver Wyman. All rights reserved. 24

In water and electricity, IoT solutions to track

Exhibit 11: Six service patterns accelerated by IoT and data

REINFORCED PRODUCT TO SERVICE NEW SERVICES

Terraillon SEB Schneider Biotronik ThyssenKrupp Orange

SERVICE WITH NO OBJECT PRODUCT AND SERVICE AS A INFINITELY

AutoGrid OPower DriveNow Smoove

Drives players to move from their initial positions

Copyright 2015 Oliver Wyman. All rights reserved. 25