How IoT is Transforming Business Models

This blog series addresses the elements of an Internet of Things (IoT) strategy. I discuss topics such as the importance and status of the IoT across industries, transformation of business models, Design Thinking, and people as the main driver of the IoT.

When I look at the current groundbreaking success of modern business models, I expect a surge of transformed billing models and contracts, as well as an enhanced focus on value-added selling in coming years. But how should a company quickly make these transformations? I asked some of our global IoT Architects for their observations and opinions.

The Outside-in Approach versus the Inside-out Approach

When I look at various regions around the globe, I see different planning philosophies. In the United States, the outside-in approach is often applied, whereas in Europe the inside-out approach is quite common.

The inside-out approach is characterized by first implementing all the processes and then planning how to market them. Everything is well-integrated and running smoothly. But do we have the time to take this approach? And does it really address 100% of customer needs?

In contrast, an outside-in approach means that we first start to add innovations such as digital services or a new billing model to a classic product, and then integrate the underlying processes as soon as the innovation shows success on the market. In my opinion, the biggest benefit of this approach is its agility. Companies that apply this outside-in approach have the ability to disrupt markets rather than falling victim to attacks. On the downside, you must accept that many new ideas will fail, and you will have many more pilots than successes. When we look at disruptive business models that have appeared in recent years, we see that all were new to their industries, and most were startups. But we should also keep in mind the thousands of startups that have failed.

The Deep Interconnection Between the Internet of Things and the Transformation of Business Models

The transformation of business models is enabled by the Internet of Things. This must be considered in the IoT strategy, and depending on the approach, can either be an element or the objective of the strategy. The goal of the inside-out approach is to transform the business model through the IoT, while the key objective of the outside-in approach is to satisfy changing customer needs. In this case, the transformation of your business model could be an element of an IoT strategy.

The outside-in approach focuses on customer needs, and the challenge is to gather new and innovative ideas for satisfying these needs. This is why my next blog post will deal with the Design Thinking method as the key to an outside-the-box perspective.

Mark Albrecht,

Vice President Global Business Solutions
itelligence AG