capturing value from iot - tomas nauclér

Capturing Value from IoT

P&L benefits tomorrow while

innovating the future

Helsinki, Finland

June 1, 2016

CONFIDENTIAL AND PROPRIETARY

Any use of this material without specific permission of McKinsey & Company is strictly prohibited

McKinsey & Company 2|

IOT – The value is there

Capturing the value – Tomorrows

P&L and Innovating the future

How to get started – What you need

to think about today


Internet

Simplest definition of Internet of Things (IoT)Aka: simplest architecture diagram in the world

Observing the

physical world

Changing the

physical world

AnalysisAggregation

Visualization &

Decisions

Closed-loop

actuation

Enablers▪ Lower cost to drive ubiquity

(incl. sensor integration)

▪ Segmentation (ultra low

power vs. dist compute)

▪ Low power, optimal

computing

▪ Lower cost, low power networking

▪ Data integration and management

▪ Data validation tools and services

▪ Building data management capability in

the workforce

▪ Domain specific expertise in model design

▪ Rapid translation of

models to prediction

in workflow

▪ Domain specific

visualization tools

Networked data

sources

Sensors

Discovery and ID


IoT hype?

SOURCE: Google Trends; McKinsey; Web search


“You can see the computer age everywhere but in the productivity statistics.”

Robert Solow (1987)

SOURCE: MIT News Office; New York Times Book Review


IoT can enable 3.9 – 11.1 Trillion in value in 2025

Worksites

0.6–0.9Outside

Cities 0.9–1.7

Vehicles 0.2–0.7

1.2–3.7

0.2–0.9

Factories

Offices 0.2–0.7

Retail 0.4–1.2

Homes 0.2–0.3

Human 0.2–1.6

Low estimate High estimate

SOURCE: McKinsey Global Institute

Settings Potential value in 2025

Total 3.9–11.5


1 Includes sized applications only; includes consumer surplus 2 Potential economic benefit as a % of global vertical value add; Represents a rough measure of

potential disruptions of each industry which would include share shifts and transfer to consumer surplus; thus does not represent industry growth

IoT offers large potential across most verticals

0.1-0.3

0.5-0.8

0.3-0.8

3.9-11.1

0.1-0.5

0.5-2.2

0.3-0.6

0.3-0.9

0.2-0.4

0.1-0.4

0.6-1.5

0.1-0.2

0.3-1.2

0.2-0.5

0.4-0.8

SOURCE: IHS, Mckinsey Analysis

1.2

2.5

2.6

3.3

4.4

4.7

5.1

5.8

6.2

6.5

13.4

14.3Public sector and utilities

94.7Total

Oil & Gas

Advanced Electronics

Aerospace & Defence

TTL

TMT

Agriculture and chemicals

Healthcare and PMP

Banking and insurance

Consumer Goods

Automotive & Assembly

Mining

11.5

Retail 13.0

Infrastructure

5%

3%

7%

6%

3%

35%

8%

15%

17%

8%

46%

45%

21%

24%

12%

Potential Economic Benefit for IOT1

2025 USD Trillions

Global Vertical Value Add2025 USD Trillions

Percent of Total Industry2

Percent


30% 70%


B2C vs B2B value potential


38%

11.5

62%


Interoperability required to unlock 40% of potential IoT value

Potential

economic impact

of IoT, USD trillion

Percent of

additional

value

36

43

57

56

44

20

29

17

30

Interoperability value by setting

Office

0,3

0,4

Outside

Home

Factory

0

Retail

City

0,1

0,3

Agriculture

Vehicle

1,3

0,7

0,5

0,7

Worksite


Interoperability



Use case types


Operations

optimization

11.1

14

7

3

39

20

5

5

2

2

2

1

% of total

Total 100

Inventory management

Safety & security 0.6

Autonomous vehicles

Energy management

0.6

2.3

4.3

0.4

Human productivity 0.8

0.1

0.2

0.2

Sales enablement

Product development

Environmental management 0.2

Health management

Other operations optimization

Condition based maintenance 1.6


Business model innovations: Anything as a Service

SOURCE: Web search; McKinsey Global Institute


Provide solutions

across value chainDeployed at

scaleStrategy in place,

in exploratory

stage

Have not

formalized a

strategy yet

Companies are at differing stages along their IoT path; majority do not have a strategy in place yet

Increasing connectedness

40% 38% 19% 3%


Capturing value from IoT – Two extreme questions

How to transform my core processes with P&L effects

within 12-18 months?

How to innovate and transform my overall business

and business model to win in the future?

McKinsey & Company 16|SOURCE: McKinsey

Most existing IoT data is not used…and even then only for anomaly detection and real-time control

Comment

<1% tags used for

decision making

No interface in place to enable real time

analytics to «reach» off shoreDeployment

Schedule predominantly based on OEM

recommended maintenance intervals

People &

processes

Reporting limited to a few KPIs which are

monitored in retrospectAnalytics

Data can not be access real time,

enabling only “ad hoc” analysis

Data

Management

Only ~1% can be streamed on shore for

day to day useInfrastructure

~40% of all data is never stored –

remainder is stored locally off shore

Data

capture

>1%

0%

1%

1%

40%

100%

~30,000 tags measured


Innovating the Future: Huge sources of waste in the heavy truck industry

5–10% of fuel is

used to move goods

Road reaches peak throughput only

5% of the time...and even then, it is only

10% covered with vehicles

Used ~25% of the

time over the life cycle

Sources of waste

include

loading/unloading,

traffic jams, parking

time, repairs

<30%

~15 m

~60% of total length

theoretically available for

more cargo

~3 m

50% fill rate of available

load capacity

~7% of all accidents

in Europe involve trucks

17% for fatal

accidents

Truck losses

Driving losses

Moving base load

~10%

~5%

~55%

20-25%


MACS: Heavy transport cost reduced by >5 times

CONNECTED

AUTONOMOUS

SHARED

MODULAR

Autonomous

maintenance

and loading/

unloading

Reroute

around

congestion

Modular

super-

structure

Increased

efficiency

and fill-rate

Real-time load sensors

On-route rerouting for

yield optimization

Autonomous onhooking

Platooning


RFID-port detecting

material inflow to

construction site feeding

information to application

RFID/barcode scanner

verifying materials

delivered to site through

application platform

Data from construction

site is available for all

stakeholders of value

chain

Transport/construction: Cockpit for E2E material handling could reduce construction costs significantly

4

1

3

2

End-user receives on-

demand information on

the status of project

Manufacturer and

transportation company

interchange information

with data integration

platform to optimize

overall process

Equipment automatically

sending information on

equipment condition and

handled products to on-

site IT system

6

5

1

2

3

4

5

6


Machining – different long term visions and strategies


Starting with small scale pilots to learn - example

Manufacturing method optimizer

1

Should cost estimation

2

Manufacturing services market place

3


..for significant value capture opportunity

Supply/demand

match

Time tomarket

Resource/process

Asset utilization

Labor

Inventories

Quality

Service/aftersales

VALUE

DRIVERS

10-40% reduction of

maintenance costs1

20-50%

reduction in time

to market1

Forecasting

accuracy increased

to 85+%3

Costs for quality

reduced by 10-20%6

Productivity increase

by 3-5%5

30-50% reduction of

total machine

downtime2

45-55% increase of productivity in

technical professions through

automation of knowledge work4

Costs of inventory holding decreased by 20-50%3

McKinsey & Company 24|SOURCE: McKinsey Global Institute

Enablers for IoT scale up

Software architecture

Capability build up and

resource allocation

Privacy, confidentiality

and cybersecurity

Business organization

and culture M&A and partnerships Pilots starting small


Example: Starting with small scale pilots to learn

… to screens/

clickable prototypes ...

… to rough

wireframes:

… to hand-drawn

screens

From customer

journeys…

Customer

testing

Customer

testing

…resulting in

a functioning

prototype

and MVPCustomer

testing

Customer

testing

Refine based on feedback

ACTIVITY Prototype Validate CreateFrameConnect Deliver

11-13 14-168-105-71-4 17-18WEEK

Capturing Value from IoT

P&L benefits tomorrow while

innovating the future

Helsinki, Finland

June 1, 2016

CONFIDENTIAL AND PROPRIETARY

Any use of this material without specific permission of McKinsey & Company is strictly prohibited

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