Connecting Design to IoT Business Innovation
Deploying the Internet of Things (IoT) can fundamentally transform a business model.
I was recently asked “What role will the Human-Computer Interaction (HCI) designer play when all of these ‘things’ are connected to a network and communicating directly with one another?” An interesting question, coming from a student nearing the completion of their studies in HCI design and interested in pursuing a career in product design following graduation. Anxieties associated with the long term relevance of specific job skills and selecting the right career path is nothing new. However, these feelings might be amplified when it comes to the role of human-computer interaction at the dawn of broad IoT ecosystem deployments. Visions of a massive, fully autonomous “networks of things” interacting on a hands-off 24/7 basis can be a bit ominous.
These perceptions may be due to the fact that so much attention has been focused on the launch of low-cost sensors, communication interfaces, cloud computing, machine learning algorithms, and data privacy and security. While these technical building blocks must be considered when deploying an efficient and effective IoT ecosystem, the actual business and social benefits of internet connected products and services is not found in the underlying technologies, but in the brilliance of defining the system’s deliverables, in terms of problems solved and benefits delivered. Creating a customer-centered system specification and innovative business model design is not only the most important step in the process, it’s at the core of human-centered design practices. This is good news for our aspiring design student.
Historically, the front end of the product development process would begin with the business development organization critically analyzing an existing market, looking for new revenue opportunities and the potential profit pools captured through available technical capabilities. A product leader was then tasked with creating an initial business plan and concept specification to meet the defined market opportunity. The market research organization would then engage, conducting various surveys to refine and validate the initial plan and spec. Finally, the product team leader would issue a refined, detailed specification initiating the product development process.
A comprehensive IoT deployment is unique however, creating entirely new data-driven services and fundamentally transforming legacy business models. Such a strategic transformation requires reimagining the traditional front-end business creation process. This is where HCI designers and their human-centered design and design thinking methodologies come into play. By tapping into these innovation-oriented methods at the front end of business development, legacy businesses will be prepared to compete successfully in the connected machine age. For those organizations with design resources currently in place, this simply means realigning their activities, effectively moving them up from their traditional roles downstream in the stage-gate product development process. The design team becomes an essential part of the “fuzzy front end” of this reimagined front-end business development process.
Initial Market Assessment
The new process begins with the initial market assessment. The focus here is on a tightly-defined customer value proposition. This value prop-first approach aligns a targeted customer’s needs and adjacent benefits with a product and service offer with sufficiently unique features to provide a clear advantage over the competition. The concept development phase replaces the traditional single viewpoint with team-based collaboration, employing the types of ideation techniques designers’ traditionally use to create multiple concepts for consideration. These concepts then take material shape through rapid prototyping techniques, coupled with quick, iterative testing and validation methodologies. This highly iterative research phase replaces more rigid forms of research, bringing increased clarity and confidence in the final product specification. Such concept testing also uncovers the key resources that will be needed to activate a new services based business model. The end result is a business model design with a targeted customer value proposition, identified key dependencies and resources, and a monetization plan to capture the full value of the IoT deployment.
Looking at this service-design process in detail, we’ll start with the fundamental core of the model, the value proposition. There are many ways to identify an unmet customer need through a number of qualitative and quantitative research techniques. Ethnographic (observational) research and participatory design techniques have gained in popularity in over the last decade or so. While these techniques are effective in many cases, there are a number of other methods available. An excellent compilation of these techniques can be found in “101 Design Methods,” written by Vijay Kumar, a professor at the Illinois Institute of Technology’s Institute of Design in Chicago. It’s also an excellent source for understanding the entire human-centered design process and its role in driving innovation when read as a whole.
Once a specific customer segment and their attendant needs are identified, an excellent tool for creating a detailed customer value proposition is the “Value Proposition Design” handbook by Alex Osterwalder. This book is a concise and clear way to articulate customer needs and align products and services to meet those needs. The value proposition canvas’s graphical presentation also aids in the ideation processes, providing a visual framework to categorize and prioritize new product and service concepts. There are a number of excellent how-to books written on brainstorming and ideation techniques so we won’t go into detail here.
The next phase of the process is visualizing the concepts that emerge from the ideation sessions.
Concept prototyping tools continue to advance in terms of sophistication and cycle-time reduction. Whether it’s hand fabrication or additive manufacturing, the method chosen should be based strictly on the type of feedback the team seeks, and delivered in the shortest amount of time. Low fidelity prototypes are just as acceptable as fully finished samples if the information contained within the rough prototype elicits the needed feedback from the customer. The prototype is simply a mechanism to facilitate discovery and learning through a rapid, iterative test and learn process. The thought leader in articulating the methods and benefits of this iterative test and learn process is Eric Reis. His book “Lean Startup” is an excellent treatise on the “build, test, learn” process. An early advocate of the “build, test, learn” methodology is Local Motors (localmotors.com). Through their online community of designers and inventors, they create concepts centered on agreed-to market opportunities then quickly prototype and refine their ideas in 3D. Small manufacturing lots provide the flexibility to adapt and refine designs based on community and customer feedback.
A similar process has been applied to the home appliance market through FirstBuild (firstbuild.com), a partnership between Local Motors and GE Appliances launched in 2014. FirstBuild is staffed by a team of engineers and designers from GE Appliances, and connects to a global, online network of enthusiasts that propose and collaborate on ideas of interest to the community. This network of first-movers or “lead-users” can quickly turn ideas into prototypes for evaluation and feedback with its community members.
Once an idea advances past the evaluation phase, a micro-factory within FirstBuild can manufacture products in small batches and are saleable to the public through any number of distribution methods. Data gathered throughout the process forms the basis for a business decision to either commit product development resources to enter the market under the GE brand, or through other partner relationships. This same “build, test, learn” approach continues to gain momentum, and will soon be applied specifically to IoT products and services with the launch of the Indiana IoT Lab located in the Indianapolis suburb of Fishers in early 2018. This collaborative, member-based work environment is designed to link industry, academia, and entrepreneurs focused on IoT concept development similar to what Local Motors has done for transportation and FirstBuild in home appliances.
The Design of Business Model
Completing this front-end process is the design of the business model itself. An IoT ecosystem is inherently a services based business, and for many legacy hardware-based businesses will require entirely new organizational activities and resources. This applies to those businesses that currently count service, maintenance and consumables within their business as well. Identifying the proper resources to deliver on the core value proposition comes from a well-designed business model. A comprehensive business model will not only identify these resources and activities, it includes a high-level implementation plan. This might take the form of realigning existing resources, establishing new business partnerships, making acquisitions, or entering into licensing agreements.
An excellent guide for the business model design process is “Business Model Generation,” also by Alex Osterwalder. It’s unique in its approach to the subject as it applies human-centered design techniques and design thinking tools to business model design. These techniques are valuable for capturing the broad range of resources and interdependencies associated with a complex IoT ecosystem. The unique visual depiction of the business model—described as a “canvas” in “Business Model Generation”—also serves as an aid in understanding the dynamics of a services business.
Given the fundamentally transformative nature of IoT systems, the traditional approach to front-end business development must give way to new ways of thinking. The tools and techniques we’ve highlighted to drive such a transformation have been in place within the industrial design, user interface design and user experience design organizations for a number of years. By applying these tools and methods at the very definition phase of an IoT system, the promise of new businesses and business models in the connected product and service era can be realized.