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The Trouble with Analog Thinking in a Digital World

You hear a lot these days about the Internet of Things (IoT) and how a digital transformation is changing the world all around us. So I wasn’t surprised when the topic of SAP Radio’s show, Meet the Visionary Game-Changers, was the Internet of Things: Reimagining Your Business Models.IoT Graphic.jpg

Host Bonnie D. Graham and her guests – Dr. Miroslaw Ryba, the Executive Director of the EMEIA Advisory Center at EY, and Kai Goerlich, a Research Director in digital futures with SAP marketing – had some pretty strong opinions on the subject.

But their viewpoints weren’t always what I expected to hear. Listening to the show live, I found myself asking, “So is this digital transformation a full-blown revolution, or are we still waiting for another shoe to drop?”

It’s a question that is particularly relevant to the business world.

Literally Billions and Billions

“The digital economy is creating billions – that’s billions with a ‘B’ – of connections between businesses, people, devices, and data,” said Graham as she kicked off the program, “and tenfold growth is expected by the year 2030.”

There’s no argument – these are big numbers. But the panelists were soon looking beyond the statistics to understand what this era of hyperconnectivity really means. Where is the true value?

According to both panelists, the business value lies in a combination of technologies.

“Digital transformation is hype until IoT comes along and translates it into real solutions,” said Miroslaw Ryba. “IoT is the foundation of this digital change.” In fact, Ryba calls IoT the “gravity” of the digital universe.

Kai Goerlich took this thought one step further.

“With IoT we have sensors and interactive devices,” Goerlich noted, “but without analytic capabilities, all we have is a simple sensor. Connectivity and data crunching make the difference.”

Spotting the Opportunities

In spite of the growing ubiquity of sensors and connected data, both Goerlich and Ryba pointed out that much of the business world still has a way to go in fully embracing the potential of a digital economy.

“It’s a valid argument that business is being driven by digitalization,” said Goerlich. “But if you look at heavy industries like manufacturing or oil and gas, you see many parts of the business world that are still based on physical effort.”

Ryba concurred. “Digitalization is everywhere,” he said, “We just need to spot the opportunities where it can bring additional value.”

And many believe that significant business opportunities do exist in areas such as reduced operating costs, increased productivity, and more expansive business models.

A McKinsey & Company report released last summer, for example, cites the specific example of how sensors used to continuously monitor machine performance can predict potential breakdowns and optimize maintenance schedules. The application of this technology alone could “reduce maintenance costs by up to 25%, cut unplanned outages by up to 50%, and extend the lives of machines by years.”

The report looked at more than 150 specific IoT applications and estimated a total economic impact of up to US$11.1 trillion per year by 2025 – and more than two-thirds of that value is expected to be generated in business-to-business settings.

Business Needs a Shift in Thinking

With all the buzz around concepts like smart houses and connected cars, there appear to be plenty of IoT applications centered on the consumer space. But the panelists believe we need more big ideas that will leverage IoT technology to solve serious business issues.

“That’s something which is missing,” said Ryba. “Every day we discover new use cases, but we still lack sound business models for the use of IoT.”

So perhaps there is another change that must take place before the digital revolution can reach its full potential in the business world.

Goerlich observed that the world has been thinking in terms of analog business models for hundreds of years.

“We still are,” Goerlich said. “That’s the problem.”

Please join me on Twitter at @JohnGWard3, and be sure to listen to the podcast to hear the radio show in its entirety.

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