Case series: Industrial IoT in action

In this article series, we present five case studies of how companies with different value chain roles managed the competition over new value enabled by the industrial internet of things (IIoT) in their industries. The cases illustrate different viewpoints on the challenges in claiming a fair share of value pools from digital-driven and data-based services. These value pools are often focused on optimization and maintenance of industrial equipment. Some companies call it digital or connected solutions, some data-driven business, others servitization or X-as-a-Service.

In this case (#4 of 5 in the article series), we get to know Comet – a component provider in the resources & materials industry – and how they entered data-centric services market.

“In most industrial sectors we see players with different roles in the value chain competing for the same data-based and service-oriented value pools, which creates a lot of friction.”

Strategic transition with the Data Analytics Initiative

Comet, a leading connector company, was embarking upon a transformative digital journey, leveraging their established expertise in connector technology to enter the data-centric services market. Comet’s “Data Analytics Initiative” envisioned their connectors as more than mere physical devices; they saw them as potential intelligent nodes capable of harvesting valuable data from industrial systems, enabling value-added services.

Comet's move was largely motivated by the continuous pressure on their profit margins over the years. Despite connectors’ universality and utility in various industries, the commoditization of these products has led to decreased margins. Comet's leadership recognized that a digital business journey was needed to create new value propositions, differentiate from competitors, and unlock new revenue streams.

The Data Analytics Initiative was bold: it imagined connectors infused with analytics and AI capabilities, collecting data from customers’ operations, enabling new system optimization and predictive maintenance services based on aggregated information. A key aspect of Comet's differentiation was the ability to provide insights extending beyond specific equipment, allowing analyses across a customer's entire ecosystem. So despite being a component manufacturer, Comet could take a full system perspective.

Positioning to address industry frictions

The journey to becoming a data-centric service provider was filled with intricate challenges, pushing Comet to reevaluate their product development and customer relations. A 'target value' analysis initiated the process, revealing unmet customer needs. The analysis focused on identifying perceived pain points and unexploited gains addressable when data is made available. The analysis identified the Resources & Materials sector as the most attractive target for tailored digital services.

The next ‘position for value’ phase involved a detailed analysis of Comet's potential roles and position within the Resources & Materials industry value chain. This step set out Comet's 'where-to-play' and 'how-to-win' directions by determining where Comet could best leverage its strengths. It also considered the dynamics with other value chain players and anticipated potential industry frictions:

• Right to play in analytics – not only generate but make use of data: The Data Analytics Initiative transitioned Comet from an arm's length component provider to a trusted custodian of sensitive operator data. Comet had to navigate security and privacy concerns to gain trust and earn the right to access and analyze customer data. While also proving it could offer superior value compared to Equipment and Platform players that have more natural data analytics roles in the industry.

• Disintermediating Equipment providers and Integrators (risk of counter-reactions): Comet's services will disrupt existing revenue streams and override traditional relationships between tier-1 suppliers, OEMs and Operators. Posing a risk of resistance from incumbent players with strong competitive muscles, that also can be Comet customers.
• Compete on system-level against large digital players and hyperscalers: System-level service offerings places Comet in direct competition with companies with strong digital capabilities. Competing with these digital incumbents is a major undertaking, demanding significant investments, competing for scarce talent, and overcoming economies of scale.

Service development to create value, IP development to capture it

To mitigate these frictions, Comet set forth on a dual-path strategy, focusing on both creating and capturing value. To create value, Comet took a service evolution approach. Starting small, by building a prototype minimum viable product (MVP) and testing it with customers to see if the smart connector-based services addressed the selected customers use cases and targeted value. This initial offering would serve as a foundation for gradually expanding the services, taking on more responsibility for the customer's operations, and capturing a larger share of the value pool.

The second path emerged from realizing that the initiative's success hinged on controlling the value created. This mandated business-outcome focused intellectual property efforts, run as an integrated part of the service development. The goal was to ensure that Comet could retain the profits generated by their service innovations, rather than seeing it captured by others. Working in a multi-modal way, Comet planned to utilize patents for technical innovations, smart contractual structures to secure relationships and ensure data access, and IT solutions to secure data integrity and implementing contractual obligations.

Looking ahead

As Comet advances its Data Analytics Initiative, the long-term realization of scaling revenue and profits from these new services remains to be seen. Comet is well-positioned to address key frictions, and may be able to redefine their role as a component manufacturer, turning everyday connections into sources of powerful and actionable intelligence.

Note: While Konsert has an established relationship with Comet, we did not directly engage in a consulting capacity for the specific Data Analytics Initiative.