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The IoT Can Spark Total Management Revolution: the Circular Company


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My address to PTC's LiveWorx '17 conference on how the IoT can spark a total management revolution, away from linear and hierarchical organization, to the "circular company," in which departments (and even trusted outsiders) collaborate in real-time around a shared IoT data base

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The IoT Can Spark Total Management Revolution: the Circular Company

 FOR MANAGEMENT REVOLUTION W. David Stephenson Stephenson Strategies Welcome! Before we begin, I want to clarify something. I’m well aware that this is the next-to-last presentation between you and the cool party on the Lawn, so I want to make certain you really want to at this particular presentation. I WON’T deal with a particular technical aspect of Thingworx, but rather a high level, and hopefully eye-opening, discussion of radical management reform through the IoT. So if that’s not what you’re interested in, feel free to leave —no apologies needed!
  2. 2. # L I V E W O R X 2 KEY POINTS 1. Radical management change 2. Major shift in management thinking 3. Results: efficiency & precision, AND creativity, revenue streams, customer loyalty 4. Total transformation! The key points I’ll make are: •The IoT can be the platform for dramatic management change that was impossible in the past. •Making this change requires an extraordinary shift in management thinking: from hierarchy to collaboration. •The results will be worth the effort: not only more efficiency & precision, but also new creativity, revenue streams, & customer loyalty. •In short, it will allow total transformation!
  3. 3. # L I V E W O R X IOT: TOTAL REVOLUTION! 3 Most presentations this week have focused on how the Internet of Things can transform how we design, build, and maintain products. After all, we have seen how dramatically the IoT can: • cut product design time • bring about unprecedented manufacturing precision • allow services to replace sales of products • and delight customers. However, I’m going to ask a big favor.
  4. 4. # L I V E W O R X 4 STEP OUTSIDE THE BOX! For 30 minutes, I’d like you to let down your guard a bit, step outside the box, and entertain the possibility that the IoT also might make possible something far more: a total revolution in how our companies are organized and run. Then, because this is such a radically new concept, I’d welcome your reactions and, I’m sure, skeptical questions!
  5. 5. # L I V E W O R X THE CIRCULAR COMPANY 5 I call it this new vision of the IoT-based enterprise the Circular Company, with real-time data at the heart of a continuous loop uniting all departments and perhaps others as well.
  6. 6. # L I V E W O R X “.. organizational issues are now center stage
 —and there is no playbook. We are just beginning the process of rewriting the organization chart …” 6 I owe this concept to PTC’s Jim Heppelmann and his co-author, Prof. Michael Porter. In their second article on the IoT for the Harvard Business Review, they speculated that: “For companies grappling with the transition [to the IoT], organizational issues are now center stage—and there is no playbook. We are just beginning the process of rewriting the organization chart that has been in place for decades.” Heppelman and Porter’s challenge to rewrite the org chart really got me thinking. I instinctively thought that it could lead to a fundamental change, away from hierarchy and linear processes that have dominated businesses since the birth of the Industrial Age.
  7. 7. # L I V E W O R X everyone needing real-time data about things to make better decisions and/or run things better, can share it instantly. 7 That’s because of a profound change that the IoT allows which tends to be obscured by our understandable focus on cool IoT devices and processes. I’d ask you to concentrate hard on this, because I think it really is the most important thing about the IoT: With the IoT, everyone who needs instant access to real-time data about things to make 
 better decisions and/or do their job more efficiently, can share— and that verb is crucial
 — share — that data immediately. Think of how amazing that is: today, we can’t just share data quickly, or just within our departments, but with everyone, and instantly. I’ve tried to come up with a way of getting us to realize exactly how different that is from the old limits that inevitably constrained our visions about how to manage and how to share information, and why the old linear and hierarchical organizations and processes that were a practical way to deal with those past limits are now impediments to real change.
  8. 8. # L I V E W O R X COLLECTIVE BLINDNESS 8 I call the old reality Collective Blindness
 It was a universal malady that meant that we could only see things’ surfaces, not inside them. For millennia, we just came up with coping mechanisms to work around this inability to see inside things. In a way, Collective Blindness really was real, because vast areas of our lives and work were unknowable in the past.
  9. 9. # L I V E W O R X 9 • tell if machine was going to fail • optimize assembly lines • predict traffic • predict when parts were needed • tell how customers used our products WE COULDN’T — Consider how Collective Blindness seriously limited our business horizons — and day-to-day operations. • We couldn’t tell when a key piece of machinery was going to fail because of metal fatigue. • We couldn’t tell how efficiently an entire assembly line was operating, or how to fully optimize its performance. • We couldn’t tell whether a delivery truck would be stuck in traffic. • We couldn’t tell exactly when we’d need a parts shipment from a supplier, nor would the supplier know exactly when to do a new production run to be ready. • We couldn’t tell how customers actually used our products. Sometimes that had disastrous effects. In particular, I’m reminded of a story I read back in the 1970s. There was a great new car design. The car entered production, and sales and everything was going great. Then the first customer brought one in to the dealership for an oil change: the mechanic slid underneath and came out immediately. Guess what? To do the simplest of all car maintenance, he’d have to drop the entire engine, because no one in the design process had remembered to get input from someone who’d actually have to maintain it!
  10. 10. # L I V E W O R X 10 HIERARCHY Source: China Tour Guide We created work arounds to cope with this lack of information due to Collective Blindness. First, we created hierarchies. Based on the only two models available at the time, the army and the Roman Catholic Church, those at the top clearly controlled the data flow, parceling it out only when and where they thought it was needed.
  11. 11. # L I V E W O R X 11 LINEAR PROCESSES Source: Pinterest Second, since communications were largely limited to ink on paper, access to that data was usually sequential: one department handled it, then passed it on to another, and that led to errors — just like the old Telephone parlor game.
  12. 12. # L I V E W O R X “.. scientists adopt new instruments .. look in new places… more important … scientists see new and different things when looking with familiar instruments in places they have looked before.— Thomas S. Kuhn 12 But the IoT lifts those limits, lets us see inside of things literally or figuratively, and dissolves Collective Blindness once and for all — provided we’re open to the change. When something such as this unprecedented ability to see inside things happens, everything changes. Everything! As Thomas Kuhn, who coined the term paradigm shift, wrote in The Structure of Scientific Revolutions, “Led by a new paradigm, scientists adopt new instruments and look in new places. even more important, during revolutions, scientists see new and different things when looking with familiar instruments in places they have looked before. It is rather as if the professional community had been suddenly transported to another planet where familiar objects are seen in a different light and are joined by unfamiliar ones as well.” The same can be true for businesses that embrace the IoT.
  13. 13. # L I V E W O R X 13 EVERYONE SHARING REAL-TIME DATA Today, in the early stages of the IoT, it is possible — if senior management choses to make it available — for everyone who needs it – not only all departments within the company, but even your supply chain, your distribution network, your retail partners, and, yes, even your customers and competitors — to share that real-time data, and to do so instantly, for mutual benefit! As I said before, think of a circular organization revolving around a real-time hub of IoT data that’s instantly available to all. Could Thingworx be the platform for a total revolution, not only in what we make, but how we make, sell, and use it? So what would be possible if we embrace this vision of a circular company rotating around shared real-time data?
  14. 14. # L I V E W O R X 14 99.9988% UNPRECEDENTED PRECISION Source: Siemens New procedures, especially M2M ones, can be created, where action within one area or machine automatically triggers an actuator adjusting a subsequent one, without requiring human intervention. The continuous real-time data flow results in continuous fine-tuning, leading to astounding results such as Siemens’s “factory of the future” quality rate of 99.9988%.
  15. 15. # L I V E W O R X 15 MAGIC OF COLLABORATION Source: ClixmarketingSource: Clixmarketing When that instant sharing of real-time data happens, and in more than one department at the same time, all sorts of revolutionary changes with bottom-line benefits will be possible in every aspect of strategy and operations: Every department can figuratively sit at the same circular table (especially if there’s a new kind of communal dashboard), simultaneously considering issues that affect all of them, instead of sequentially. Not only can this eliminate problems due to one department’s ignorance of the realities of another’s needs, which leads them to take an action that must be undone later, but they can also benefit from the synergies possible when there’s a true dialectic. 
 I want to dwell a little more on this point, because I think it’s the most important aspect — although hard to quantify — about what happens when you bring diverse areas of expertise and diverse human beings with different interests, life histories, and priorities together. It isn’t automatic, but done right — and I think the new sharing technologies encourage this — something almost magical can emerge from a collaborative process that is based on “ground truth” — in this case, real-time IoT data — shared by all participants. A synthesis evolves that no single department or person, no matter how talented, could have created working in isolation. I ask, seriously, if Thingworx might eventually evolve into the desktop that would allow everyone in such a company to work collaboratively. Think about that!
  16. 16. # L I V E W O R X 16 HOW THINGS REALLY WORK Source: PTC With the circular company, product designers will no longer act in the dark. They will have real-time information from the field, using tools such as Vuforia, about how products actually work (or don’t), allowing for more frequent and targeted upgrades that really meet customers’ needs and fix known problems. Companies can upgrade products in a fraction of the time previously because of this real-time data about how products work in the field. Products may paradoxically become more durable, yet may increase customer satisfaction because of these improvements. 

  17. 17. # L I V E W O R X 17 TRANSFORM DESIGN PROCESS Source: PTC The design process will be transformed. Picture an immersive design review where you could experience your design in the real world, one where a single click summoned a 3D representation of your product. PTC has integrated Creo with Vuforia. With a few clicks, you can author and publish an AR experience right from Creo, so everyone involved can visualize what the product will be like and how it will function. The Creo Collaboration Extensions enable organizations to collaborate early and often with internal stakeholders, suppliers, or development partners using different CAD platforms.
  18. 18. # L I V E W O R X 18 CLOSE THE LOOP Source: PTC By instantly sharing real-time data we will put an end to linear processes that just sort of peter out. Instead, as the predictive maintenance model shows, we will close the loop. Data will flow continuously from the products back to the control center, where that data will be used to fine tune the processes, flag problems in time for predictive maintenance, and continue the loop.
  19. 19. # L I V E W O R X 19 DATA-CENTRIC COLLABORATION Source: Apple HomeKit Writ large, this kind of data-centric collaboration can even lead to profitable synergies with competitors: an app may trigger actions by your smart home device and your competitor’s. A new virtual service emerges, and both of your products become more valuable than each would be in isolation.
  20. 20. # L I V E W O R X 20 EMPOWERED USERS Source: IFTTT Even better, with crowd-sourced services such as IFTTT, it may be ordinary consumers, who, because of a particular need or insight, create these synergistic actions – ones that your companies’ engineers never would have thought of on their own. Your company may become more attractive to talented millennials. A study by the Intelligence Group found that 88% of them prefer a collaborative work environment.
  21. 21. # L I V E W O R X DEMOCRATIZE DATA! 21 Heppelmann and Porter are far smarter than me, but I think there’s a chance they’re so firmly rooted in the current organizational paradigm that their vision of the IoT transformation possibilities may be limited.. For example, they recommend creation of new groups, such as unified data organizations, within companies to deal with the new real-time data flow and its potential. I understand the need for each of these functions, especially for the new role of data scientist, but I don’t buy the need to create new departments for each, right at a time when real-time collaboration can reduce the need for different departments. SCROLL Instead, we must democratize data, making it directly available to those who need it, when they need it.
  22. 22. # L I V E W O R X 22 FEW PRECEDENTS Source: Infinitive So how might we re-structure companies to fully capitalize on this new ability to instantly share real-time data — to complete the circular company revolution? We only have a few precedents for distributed, egalitarian organization. One would be Toyota’s kanban approach, which streamlined the supply chain process, and led to what I’d call “kinda just-in-time” supply chains (because it was still just a manual process), and Toyota’s kaizen continuous improvement program, which even empowers every assembly line employee to stop the production line in case of an error.
  23. 23. # L I V E W O R X 23 FEW PRECEDENTS! Source: Dan Nuyen To my knowledge, the only other current organizational structure approaching the circular company one is W.L. Gore, which has been run under a unique “lattice” model since it was founded in 1958, The hallmarks of the lattice are that it: • has no hierarchy • gives workers the freedom to decide and a commitment to deliver on promises • has no formal leadership and no formal titles • fosters natural leadership: others’ willingness to follow someone determines if s/he is really a leader. • Now, I’m not arguing at this point that there’s no room for hierarchy of any kind: there still must be accountability, especially in large, complex organizations with many workers. However, I do suspect that we can radically flatten hierarchy and that some sort of real-time, digitally-based accountability may soon replace traditional reporting requirements. I invite you to chime in during our q & about how we might handle accountability and reporting relationships in a circular organization.
 SHARE DATA, DON’T HOARD IT! 24 Remember how we stepped outside the box earlier? Here’s where that’s tested! I won’t minimize the difficulty of such a profound shift. In large part this is due to the ingrained habits of the era of Collective Blindness. It will require not just IoT technology to go beyond them, but also new attitudes. The first attitudinal shift is at the heart of the IoT data-centric organization: sharing the data rather than hoarding it. In many ways it’s the most difficult transitions, because it is so ingrained in us from the old era of limited and difficult-to-share data. One day in 1789, a young man with few possessions sailed from England to the New World. Few possessions in his hands, that is. In his head, he held the plans for Arkwright's famous woolen mill. It was illegal to take factory plans from the country at the time because they gave England such an economic advantage, but no one knew what was stored in young Samuel Slater's memory, and when he arrived in Pawtucket, Rhode Island he used that knowledge to build America's first woolen mill, becoming the father of America’s industrial revolution. For the longest time, the kind of proprietary knowledge possessed by the British mill owners was the way to profit: in a zero-sum game, if you had knowledge that I didn't, you were a winner and I was a loser. For the longest time, hoarding data made sense, because it was hard to gather & share data. But now, as I said above, that data is everywhere and in real-time. We must shift to sharing data — and from now on, management must justify limiting data sharing, rather than the other way around.
 CLOSE LOOPS 25 The next, and closely-related attitudinal shift we must make if we are to shift to the circular company is to get rid of the old linear flow of information, and instead substitute circular, closed-loop processes in which the data flow leads to analysis, which in turn leads to fine-tuning of the process or other feedback that allows for continuous improvement. The loops must be never ending and self-regulating. For example, the difficulty in the past of gathering information about how cars were actually driven meant that auto manufacturers operated in a vacuum about what improvements were needed. Even worse, the difficulty of gathering information about the cars’ performance meant that customer opinion, a potentially important source of data, was skewed: it was so difficult to submit criticisms and suggestions that those who were either wildly in love with the car or who hated it were willing to make the effort required, leaving out the opinions of the vast majority of users who weren’t at either extreme. By real-time flow of data from its cars (“iPhones on wheels, as some company wags put it because of their extensive instrumentation), Tesla can get a much better picture of actual driver experience. According to GE’s Vice President and Global Technology Director William Ruh, the feedback loop from the company’s many sensor-laden products, from jet turbines to medical imaging devices , has reduced the time it takes for them to design upgrades: “G.E. is adopting practices like SCROLL releasing stripped-down products quickly, monitoring usage and rapidly changing designs depending on how things are used by customers. These approaches follow the ‘lean start-up’ style at many software-intensive Internet companies. We’re getting these offerings done in three, six, nine months,’ (Ruh) said. ‘It used to take three years.’ One major benefit of the circular data flow is that it increases accountability. In the past, a department that was involved in the early phases of a project often didn’t receive objective feedback on how the project actually unfolded, minimizing their responsibility for the outcome. Now, with the IoT, everyone involved with a project is literally “in the loop,” and both has a role in deciding the course of action and has instant access to the data about how it actually operates, so they see the SCROLL consequences and can also be held accountable.
  26. 26. # L I V E W O R X ACCOUNTABILITY 26 One major benefit of the circular data flow is that it increases accountability. In the past, a department that was involved in the early phases of a project often didn’t receive objective feedback on how the project actually unfolded, minimizing their responsibility for the outcome. Now, with the IoT, everyone involved with a project is literally “in the loop,” and both has a role in deciding the course of action and has instant access to the data about how it actually operates, so they see the consequences and can also be held accountable.
 RETHINK PRODUCTS 27 The final attitudinal shift we must make to be able to make the shift to the circular company is that we must rethink the role of products. Products gain new stature with the Internet of Things. This is largely because of the fact that the ability to monitor them constantly mean we’re no longer clueless about how products actually work after they leave the factory floor. Products remain a dynamic part of daily operations, rather than an end product that’s a mystery. With the IoT and circular company, products become players. Perhaps the most significant example of this transition is that IoT-enabled products improve product reliability, both for the end user and the manufacturer. We can now do “predictive maintenance,” intervening at the first signs of metal fatigue, decreased performance or other metrics. Instead of finding out only after the product has failed, sometimes catastrophically, a jet turbine can be fixed the next time the plane lands, minimizing cost and inconvenience. In some cases, products redesigned around the IoT can actually be repaired, and even upgraded, remotely, because of two-way communication. In early 2014, GM and Tesla both faced product recalls. The GM one was terribly handled, costing people their jobs, millions of dollars in service work, and, of course the lives of the poor car owners who were killed by the faulty ignition systems that triggered it. Tesla’s situation never escalated to the recall level: there was a problem SCROLL with the suspension that could under some circumstances cause a fire. However, Tesla responded simply by sending out a software patch that was automatically installed in every Tesla one night while the owners slept. Instead of having to offer financial bribes to get owners to come in for the necessary repairs as is often the case with a recall, 100% of the Teslas were fixed. Sometimes, customers actually play the final role in an IoT product’s design: car companies allow drivers to make push-button changes in the performance characteristics – one engine can be used in various ways. Similarly, this shift to being able to constantly monitor the product’s status can also allow a significant change in pricing and marketing. No industry has been affected as much by this shift as the jet turbine one. Rolls-Royce’s engine sales have declined significantly in recent years, but they’re not complaining. They are ASXROLL instead “selling thrust” under the TotalCare program– charging the customer based on the amount of time the engine is actually in the air and working. As part of the new deal, Rolls also monitors the engine’s operation on a real-time basis to allow for the predictive maintenance, and the airline can also, for an additional fee, receive the real-time data so that it can mash it up with atmospheric data, fuel consumption and other factors to maximize operating efficiency. Everyone wins.
  28. 28. # L I V E W O R X 28 REVOLUTION INEVITABLE? Source: TEDed In conclusion, despite the years of ingrained habits and difficulty to make the shifts to sharing data, closing loops, and and rethinking products and their roles, I believe there is a certain inevitability to the eventual triumph of the circular company. After all, unlike the artificial constructs of hierarchy and linear processes, circular approaches are hard-wired into our DNA. We’re part of nature. As Gil Friend has written, “Nature’s ecosystems have 3.85 billion years of experience in creating efficient, adaptive, resilient, sustainable systems.” Nature makes its products out of locally available, renewable materials, at ambient temperatures, and, closing the circle, uses its wastes to fertilize new growth. It uses data about what work and what doesn’t to modify and improve its products: that’s called evolution. This model, aligned to nature, is particularly appropriate to the challenges we face with global warming and other environmental dangers. As Apple, the world’s most profitable company, and the world’s leading environmental citizen, has shown, you can and must be both. SCROLL I only ask you to seriously consider this possibility and to engage in dialogue about what we can do collaboratively to make it a reality. Will the Circular Company be coming soon, or will the impediments of old ways of thinking be too great to overcome? Your actions will decide, and I only ask you to join me in exploring the possibility.
  29. 29. # L I V E W O R X FOR MORE: W. DAVID STEPHENSON STEPHENSON STRATEGIES508 740-8918 D.STEPHENSON@STEPHENSONSTRATEGIES.COM @DATA4ALL 29 Feel free to contact me for further information!