At the annual ThingMonk event in London this week, one of the key themes that was taken from the event was how manufacturers effectively know little about becoming a software business, as they start to recognise the opportunity of the Internet of Things (IoT).
I’ve long argued that the Internet of Things is likely to be a winning market for those that already create goods for consumers, if they can successfully transition to becoming a service-orientated company. This makes far more sense to me than traditional technology companies suddenly trying to pivot and scale up to selling personal goods for users.
Manufacturers often already have the supply chain in place, the brand recognition and a reputation in their respective marketplaces. However, this doesn’t mean that suddenly connecting everything up to the Internet and tying customers to new services is easy. Far from it.
Bosch is all to aware of this. It has a long history in selling home and kitchen appliances to the mass consumer market, but since 2008 it has been working hard to shift its business model from one off sales, to selling goods that keep the customer engaged throughout a product lifecycle with Internet-enabled services.
However, this is no small task. It requires building internal technology capability, changing the company’s approach to sales and customer relationship management, as well as managing tensions between the ‘traditional’ business and the new IoT way of doing things.
I got the chance to speak to Stefan Ferber, VP of Engineering at Bosch Software Innovations, at ThingMonk, where he shed some light on what is required to take on this challenge. Ferber said:
Bosch started to engage with the Internet of Things in 2008. At that time we saw that the internet was taking over communications channels everywhere. What would happen if the embedded protocols we have for cameras, for heating systems, for cars, were replaced by TCP/IP?
We decided we didn’t want to be a tier 2/tier 3 supplier of dumb devices. We wanted to build intelligent devices. And up to today still, intelligence meaning that we put electronics and software in the device.
Our CEO made a plan that every device in the Bosch group needs internet connectivity. There’s a plan now for all of the devices. There is no excuse now for anybody - but the question is about when does it make sense?
Building the capability
Ferber explained that since the decision was made, Bosch has released a few home solutions as part of the Internet-of-Things range, and it has introduced a fleet management system for cars. As part of this, the company has had to go through a journey of learning a significant amount, not only about technology, but about its customers.
Luckily Bosch began building a technology capability internally at the turn of the millennium, where it began training up its own engineers to focus on software, as well as sourcing talent from universities. It now has over 15,000 software engineers.
The company has moved quite a lot over the past few years and with that we have learned what it means not only to be a producer, but also you serve the customer, you have a continuous relationship with your B2B and B2C customer. These are all things that are not so common to producers in that space. And also along the way you have to learn a lot about technology. You have to learn about cloud, you have to understand internet connectivity and all that’s part of that.
Building up this competence, organisational competence, like agile software development, is something we are taking on since 2008. We are still in the process of transforming the company. It’s a big company, it doesn’t happen over night. If I just compare to some other companies that come from the industry production space, we are doing pretty good. The question is whether we are fast enough for the software and internet companies, because we are now competing with companies that have never been our space before.
The whole focus shifts - the story starts when the customer for the first time is opening a box with your product in there. Then you build up a new connection, a new relationship with your customer. From there the real product story starts. For traditional companies ‘success’ meant the customer got their product, had no problem, job done. If someone is calling, you had a problem. This mindset of course takes some time to change, you need different sales people, you need a different marketing approach, you need a different call centre approach.
Understandably, this has created some challenges for Bosch. Ferber explained that there has been “tension” between the traditional business and the Internet of Things divisions. This isn’t because the traditional business is a bad business, Ferber insists there is still value there and Bosch has good people working in these areas. However, balancing investment and prioritising between the two becomes difficult. He said:
Not assuming everything that is new is the best thing to do, that’s not easy for this culture.
Getting a device online, that’s easy. But something that really helps you to improve on the shop floor, inefficiency, downtime, or having your private life improve, that’s very hard. We have invested a lot in user experience. We are on a good track there, but it’s tough for everyone in the market. Sometimes you have good ideas, but implementing this is also the next challenge. Having a good idea, but bringing this to the market, in a secure way, that’s also useable, isn’t easy.
Another theme that emerged from Thing Monk was that companies are not doing all that they can to fully secure devices that are part of the Internet-of-Things ecosystem. In fact, many are securing them very poorly. Ferber acknowledged that this is a challenge and said that a wave of innovation around ‘usable security’ is needed. He said:
You compromise on the usability if you have a secure good. So on the one you hand you know you don’t want anyone to hack the device, but on the on the other hand you’re making life for users a little bit harder. Reducing this friction means you have to compromise on security. Which is why I think this usable security, it’s a topic we will deal with for the next ten years. The password and key mechanism doesn’t really scale.
Finally, Ferber said that although the Internet of Things is an attractive proposition for Bosch from a revenues perspective - where ideally it would like to tie every Euro it makes on selling a product with an additional Euro made in services - the time and cost in creating this business shouldn’t be underestimated. For companies considering doing the same, Ferber advised:
We picked an approach where we tried to pick small companies to acquire and also tried to grow pockets of excellence ourselves. This is advisable for big companies. Then also decide which areas you want to make new business and believe you can make a difference. You cannot change everything at the same time, so rather start where people can see it working and where it fits to your DNA.
If you’re a small company, particularly in Europe, it’s more important to partner with IT companies where they can leverage both the know-how and the finance. It’s very tough for smaller companies to invest in this cloud stuff at the right scale. They don’t have enough cash to burn and it’s even tough to hire the right people when you’re competing with the larger players.
Bosch has an advantage in that it started focusing on this relatively early. But it’s clear that six years down the line, challenges persist - giving you an indication of both how hard it is to get the Internet of Things right, as well as ‘transform’ a huge business. Definitely one to watch.