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The Internet of Things: Impact and Applications in the High-Tech IndustryTo make good on the abundance of opportunities that accompany the IoT, high-technology companies must retool how they spec, design and deliver their products and services, and find new partners that can turn IP addressability and awareness into business advantage.
Overview: IP Addressability Everywhere Defining IoT
The IoT is a global system of IP-connected sensors, actuators, networks, machines and devices. It is made possible by the development and proliferation of Internet Protocol (IP) addressable devices connected to the Web. It represents a dramatic leap in the Internet’s development, as connections move beyond computing devices to power billions of everyday devices, from parking meters to home thermostats.2
IoT architecture can be represented by four systems (see Figure 1, next page):3
1. Things: These are defined as uniquely identifiable nodes, primarily sensors that communicate without human interaction using IP connectivity.4 There are millions of IP addressable “things” around us already – from RFID tags to fitness bands – and their numbers are expected to rise exponentially as sensors become cheaper, smaller and more power-efficient. Morgan Stanley estimates that this number could be as high as 50 billion by 2020, which translates to approximately 6.4 devices for
Executive Summary The Internet of Things (IoT) is quickly going mainstream. In fact, by 2020 there will be nearly 50 billion Internet addressable and aware devices — which translates into a $14.4 trillion business opportunity, according to networking vendor Cisco Systems, Inc. 1 However, along with vast opportunity comes massive hype about how the IoT is going to impact various industries and change the way business is done.
Given its core IP, it comes as no surprise that high technology is on the cusp of this mega-trend. Across the industry, the IoT is creating opportunity for newer models, channels and ways of delivering adjacent services to end customers, meeting their evolving needs for more personalized products. To take advantage of the proliferating IoT, high-technology vendors must first define pertinent business cases that not only anticipate customer requirements but enable them to outmaneuver the competition. This white paper helps to do this by cutting through the technological maze to identify potential use cases and key capabilities that will ensure IoT implementation is smooth and seamless.
cognizant 20-20 insights | march 2015
• Cognizant 20-20 Insights
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every one of the 8 billion human beings who are expected to be on the Earth at that time.5
2. Gateways: These act as intermediaries between things and the cloud to provide the needed Internet connectivity, security and manageability.
3. Network infrastructure: This is comprised of routers, aggregators, gateways, repeaters and other devices that control data flow. They also connect to the telecom and cable networks (3G, 4G/LTE) operated by service providers.
4. Cloud infrastructure: Cloud infrastructure contains large pools of virtualized servers and storage that are networked together. Supporting the IoT, this infrastructure runs applications that analyze data from devices and sensors in order to generate actionable information used for services and decision-making.
Defining the Opportunity for High-Tech Companies
IoT adoption is fueled by a combination of forces, including the exponential growth of connected devices, a confluence of low-cost technologies
(things, gateways, big data and computing power), pervasive connectivity and massive volumes of data. Estimates of the future market size of the IoT vary, but most experts agree that it will dwarf any other market. A recent GE and World Bank study predicts that the IoT opportunity could be as big as $32 trillion, or 46% of the size of global economy today.6 This, in turn, will drive the next wave of growth for all segments of the high-tech industry, beyond mobile devices, such as the semiconductor space where new IoT chip opportunities could power the industry across the $400 billion mark by 2020 (see Figure 2).7
The IoT’s Impact on the High-Tech Industry
High-tech companies will be both producers and consumers of IoT products and services. Market leaders will harness IoT value to either increase sales by delivering more personalized and curated offerings, or decrease input costs by optimizing operations, or both. The IoT represents an opportunity to reshape competition within the industry and expand industry boundaries. It can shift the base of competition from discrete products to highly-customized product systems containing closely related products to software-enabled services based on machine-to-machine communications (see Figure 3, next page).
It is important to note that high-tech companies will find it hard to realize the full potential of the IoT on their own. To deliver compelling consumer experiences across a heterogeneous ecosystem of things, high-tech companies will need to collaborate to establish industry standards.
IoT Topology
Figure 1
Services-creation and solutions layer
Things Gateway Network and cloud
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Framing the IoT Opportunity for High Tech
Figure 2
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Bringing the industry to over $400Bn... ...and doubling IP device volumes
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For example, Ford is working to create compatibility standards for in-case entertainment systems through its 2013 acquisition of Livio and through the sharing of its Smart Device API.8
The Dynamic High-Tech Industry The IoT is expected to drive significant changes in the high-tech value chain (see Figure 4). To take advantage of the proliferating IoT, high-technology vendors must first define pertinent
business cases that not only cut costs but also create new revenue streams by anticipating customer requirements in order to outmaneuver the competition.
How the IoT Can Increase Sales The IoT can help high-tech companies boost sales by creating opportunity for newer models and channels and ways of delivering adjacent services to end customers, meeting their evolving
IoT Use Cases in the High-Tech Industry
Figure 4
Distributors End Users
Yield Management
Semiconductors Distributors OEMsSegment
Solution Sales
Integrated ChipManufacturers
Fabless ChipManufacturers
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ContractManufacturers
IncreaseSales
ProductMonetization
Near-shoring ContextualOfferings
Creating new recurring revenue streams by adopting the servicesmodel.
Shifting production closer to demand to enable personalization.
Moving beyond traditional physical sales to consultative selling.
Leveraging consumer code halos to enable personalized experiences.
Improve Operations
Proactive Maintenance
Counterfeit Detection
ManufacturerPartnering
Improving yield by dynamically altering process parameters at fabs.
Monitoring equipment performance levels to identify maintenance requirements.
Tagging and tracking electronic components through supply chain to identify fakes.
Sharing real-time usage data with suppliers to unlock innovation.
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needs for more personalized products. In this section, we will explore potential use cases that can help players across the different high-tech subsegments increase revenue and create differentiated value propositions.
Semiconductors: New Approaches to Monetization
Similar to traditional software vendors, semiconductor vendors can monetize IoT products by adopting new licensing and entitlement management systems that control access to the Internet-connected device, its functions and its features. Licensing and entitlement management also offers more flexible pricing and packaging, enabling the manufacturer to bundle product features and capabilities, ensure payment, provide upgrade paths and create new revenue streams.
To accommodate the business opportunities opened by the connected devices, semiconductor companies will need to develop a road map (see Figure 5) for high-level business transformation strategies that include:
• Adapting CRM/ERP/IT systems to accommodate and manage the new licenses and entitlements.
• Cloud delivery.
• Customer support (with the new model).
• Sales process (move from selling boxes to solutions).
• Revenue allocation, recognition, deferrals, etc.
Contract Manufacturers: Overhauling the Operating Model
Traditionally, original design manufacturers (ODMs) and electronic manufacturing services (EMS) vendors have manufactured high-tech products in low-cost geographies and shipped finished goods to customers across the globe. This operating model, though efficient for long-established product categories such as desktop computers and servers, has led to increased price competition with low-cost, second-tier Asian manufacturers and reduced industry profitability.
However with the advent of the IoT, contract manufacturers must adjust their client/product base as IoT devices have a much shorter life span, require personalization and respond to demand that is often unknown.
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To address this supply-chain challenge, ODM and EMS companies can move production closer to demand. This trend, known as near-shoring, involves splitting the production process and moving the last step of product integration and packaging to locations such as Mexico (for the U.S.) and Eastern Europe (for Western Europe). Near-shoring also optimizes last-mile customization; for instance, enabling IoT devices such as wearables to be customized to users’ tastes and preferences. This would enable contract manufacturers to create a differentiated offering (from second-tier vendors), tailored to IoT demand, and improve long-term profitability. Distributors: An Evolving Value Chain
The IoT can help electronic component distribu-tors reinvent their existing business models and break through into adjacent markets. Customers of these companies are looking for guidance in areas such as connectivity, cloud operations and potential business models. Oftentimes, this can translate into service and consulting opportunities for traditional hardware distribu-tors. For example, Arrow Electronics, a leading component distributor, has been able to increase its component sales through solution selling – offering the nuts and bolts of the IoT system,
from the device to the control, storage and analysis modules.
OEMs: Altering Commercial Practices
Device manufacturers such as Apple (e.g., iBeacon) are implementing Bluetooth low-energy (BLE) wireless technology to create a streamlined platform for sharing location-based information and services. When used in a retail environment (such as a supermarket), this particular application of the IoT has the potential to dramatically personalize users’ shopping experiences. Whenever a user carrying a smartphone walks into a store, apps installed on the consumer’s smartphone “listen” for nearby sensors. When an app “hears” a sensor, it communicates the relevant data (UUID, major, minor) to its server, which then triggers an action. This could be something as simple as a push message (“Welcome to Target! Check out Doritos on aisle 3!”), or it could include targeted advertisements and special offers (see Figure 6).
Other potential applications for wireless transmitters include mobile payments – where digital wallets can be enabled, based on the shopper’s location, and complete the transaction
Enabling Contextual Offerings Using IoT
Figure 6
Transmitter connects with buyer’s social network
Customer shopping at favorite store
Internet of Things
Device does the following:Provides in-store guidanceProduct locator facilityGathers customer buying detailsShopping behavior
• Maps users on this social network to the store.
• Identify their buying behavior, habits, history.
• Previous purchases at store.• Identify non-visitors of store.• Finds stores from where they currently
purchase.• Monitor their social profiles and map
interests.
An
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• Identify which stores are being visited most by friends.
• Ratings, likes, dislikes, comments, feedback of social friends for stores.
• Map best store to shop at based on shopping habits.
• Relevant discounts, offers, loyalty programs available.
• New products, alternatives, complementary products available at these stores.
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Yield Management Using IoT
Figure 7
Semiconductor Fab
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Electrical/metrology performance of thewafer
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ICManufacturing
Assembly Final Test
Packaging &performance
Functional testing
Performance testing
Service to manageyield drops
Closed feedback loop
without the need for the shopper to take out cash or credit cards. Merchants can leverage this technology as well to drive shopper analytics inside and outside their stores. Smart solutions can also be implemented beyond retail, including airports, concert venues and theme parks.
Improve Operations The high-tech industry’s operational model is particularly well-suited for IoT applications due to its globalized supply chain, distributed manufacturing, connectivity-enabled products and intense competition. In this section, we will look at some potential IoT use cases that can improve operations and cut costs across the different high-tech subsegments.
Semiconductors: Yield Management
It is critical for semiconductor fabs to maintain high yields as the production process is highly capital-intensive (with setup costs ranging from $2-4 billion), involves a large number of processing steps (>150), has long production cycle times (>6 weeks) and uses expensive raw materials (with individual wafers costing up to thousands of dollars). However, they have struggled with low yields as long process and testing times in semiconductor manufacturing make it difficult to implement real-time statistical process control.
The IoT makes it possible to deploy sensors to record yields and settings at different production steps, which then, combined with analytics, can help the yield application to keep up with the incoming data and lower the reaction time between detecting an actionable event and making decisions to adjust the manufacturing or test process (see Figure 7). In the long term, IoT-driven yield models, linked with statistical process control methods, ensure process improvements as process engineers can quantify their own process sector’s influence on test yields instead of waiting for months to get the final test results.
Contract Manufacturers: Proactive Maintenance
Surface mount technology (SMT) production lines and wave solder machines are a major capital expenditure for high-tech manufacturers such as EMS, ODM and OEM companies. Even a single fault in one machine in an SMT production line can cause significant production delays and repair expenditures. Traditional preventive maintenance approaches are inefficient in predicting and averting breakdowns as they do not properly account for the progressive degradation of the production asset.
IoT-driven predictive maintenance uses sensors placed in the different parts of the machine to provide continuous visibility into the machine and
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its operating conditions (see Figure 8). This data can be analyzed in real time and alarms can be triggered whenever the data falls outside standard operating limits, indicating that the machine needs maintenance. Moreover, the sensor data can be distilled with predictive analytics tools to suggest a more appropriate maintenance schedule that maps with the anticipated deterioration of the machine. Over the long term, companies can align their repair resources – human, cash and spares – to a place where they’d be in sync with the manufacturing footprint and increase throughput by reducing downtime.
Distributors: Counterfeit Detection
Fake components are a major headache for electronic component manufacturers, distributors, OEMs and consumers. Such components, when sold as genuine products, can cause product performance issues and raise warranty costs. In some cases, such as medical and automotive applications, they can pose a very real threat to the health and safety of the user. Efforts to counter the counterfeit menace have met with only limited success as the globalized supply chain of high-tech companies provides ample avenues for injecting fake components in the distribution chain.
The anti-counterfeiting approach for the pharmaceuticals industry, suggested by A. Ilic, M. Lehtonen, F. Michahelles and E. Fleisch, can be used for electronic components using IoT (see Figure 9, next page).10 A component manufacturer can insert sensors in individual parts/packages
at the manufacturing site. These products are then shipped, through multiple points, to an EMS, ODM or OEM manufacturing facility and are authenticated at every step. An alert is triggered to the component manufacturer/distributor whenever a counterfeit product is detected. Thus, by linking physical products with digital identities through IoT sensors, component distributors can prevent counterfeit products from entering the distribution channel. In the long term, the awareness of counterfeits and the knowledge about items’ most recent locations can be used to effectively deter counterfeiting.
OEMs: Manufacturer Partnering Leading high-tech OEMs are increasingly leveraging their suppliers’ expertise in product design to improve quality and reduce costs. These collaborations – formalized through manufac-turer partnership programs – are fast becoming hotbeds of innovation. However, these programs suffer from a flaw: suppliers have no access to real-time product usage information and, by extension, insights into customer preferences and needs. There are also other challenges such as:
• Most product usage data, if recorded, lies unused with the OEM.
• There are security concerns and classification issues with sharing raw, unstructured data with the suppliers.
• The amount of data is voluminous and post-processing is extremely complex and time-consuming.
Proactive Maintenance Using IoT
Figure 89
Traditional SMT*/Wave Solder Maintenance Scheduling
Proactive SMT/Wave Solder Maintenance Using IoT
Legend
Asset put in life
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Asset failure
Error detection
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Asset sensor data
EMS/ODM/OEM Manufacturing Plant
* SMT: Surface Mount Technology
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• If post-processing takes too long the date is often rendered meaningless as product lifecycles contract.
Researchers from the Eindhoven University of Technology have suggested one possible IoT solution, in their paper “Improving Product Usage Monitoring and Analysis with Semantic Concepts,” to automate the process of usage data collection and standardize relevant data available
to both OEMs and suppliers.11 This can be done by incorporating an IoT sensor in the product itself. The sensor needs to be complemented with a predefined observation specification to ensure that recorded data is relevant, accurate and formatted appropriately. Once implemented, the preprocessed data can be shared with corresponding suppliers that, in turn, can use it to understand user preferences and incorporate them into the design.
Manufacturer Partnering Using IoT
Figure 10
Source: “Improving Product Usage Monitoring and Analysis with Semantic Concepts,” Eindhoven University of Technology
ObservationSpecification Observation Data Analysis
ObservationAuthoringEnviroment
Specify Observe Analyze
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supplier 1
supplier 2
Service tocollect &classify usagedata by supplier
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Figure 9
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A Consultative Approach
Our IoT approach is to help high-tech companies understand the impact that IP-connected devices can have in their business, choose the right tools and operate these tools efficiently to extract maximum value. Our service offerings cover the end-to-end IoT future state development cycle including:
• Building a roadmap for an IoT-enabled future.
• Developing the IoT-enabled future solution.
• Supporting the operating model of an IoT-enabled future state.
Building a Road Map for an IoT-Enabled Future
As the first step, it’s critical to create an IoT road map for the short- and long-term horizons. We work with clients to explore IoT use cases so they can determine where sensors will have maximum impact in their businesses and value streams. For example, an EMS manufacturer that operates in a low-margin, highly-commoditized market can potentially leverage IoT to improve asset utilization in the short term and create differentiation in the medium term (see Figure 11).
Developing the IoT-Enabled Future Solution
After determining usage models and exploring IoT architectures, it’s time to invest in the technology and partners that can build out specific use cases and then build and deliver value. We help clients evaluate IoT platforms as an extension of the work performed by their IT departments. As a part of our consulting methodology, we bring multiple perspectives to the research table like analyzing industry research and drawing from our past experiences.
Supporting the Operating Model of the IoT-Enabled Future State
The final piece of the puzzle is to define and execute the operating models of the IoT solution. Our breadth of expertise can help clients quicken their go-to-market cycle, execute at scale and incorporate client feedback. For example, our subscription enablement teams have been helping high-tech companies rapidly experiment with subscription offerings, identify plans that work and quickly deploy them across different geographies.
Figure 11
List of Potential IoT Use Cases for an EMS Vendor
Prioritized List of IoT Use Cases for an EMS Vendor
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• Product to Service• Licensing & Pay-as
You-Go• Near-shoring• Contextual Offerings• Personalization
• Solution Selling• Digital Content
Delivery• Umbrella Services
• Product to Service• Near-shoring
• Solution Selling
• Yield Management• Predictive Mainte-
nance
• Counterfeit Detection• Yield Management• Predictive
Maintenance
• Manufacturer Partnering
• Counterfeit Detection• Remote Operations
2 4
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Prioritizing IoT Use Cases
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Footnotes1 “Embracing the Internet of Everything to Capture Your Share of $14.4 Trillion,” Cisco, February 2013,
www.cisco.com/web/about/ac79/docs/innov/IoE_Economy.pdf.
2 Postscapes infographic, http://postscapes.com/what-exactly-is-the-internet-of-things-infographic.
3 www.intel.com/content/dam/www/public/us/en/documents/white-papers/ developing-solutions-for-iot.pdf.
4 “Internet of Things in Manufacturing: Driving Revenue and Improving Operations,” Robert Parker, September 2014.
5 www.morganstanley.com/articles/internet-of-things-opportunities-for-investors/.
6 “Industrial Internet: Pushing the Boundaries of Minds and Machines,” Peter C. Evans and Marco Annunziata, General Electric, November 2012.
7 “NXP and the Internet of Things (‘IoT’)”, Andrew C. Russell, NXP Corporation.
8 http://techcrunch.com/2013/09/26/ford-buys-automotive-app-maker-livio-radio-for-less-than-10m/, Matt Burns, September 2013.
9 http://blog.bosch-si.com/categories/manufacturing/2013/02/iot-and-predictive-maintenance, Steve Hilton, February 2013.
10 “Synchronized Secrets Approach for RFID-enabled Anti-Counterfeiting,” by A. Ilic, M. Lehtonen, F. Michahelles, E. Fleisch, May 2013.
11 “Improving Product Usage Monitoring and Analysis with Semantic Concepts,” Mathias Funk, Anne Rozinat, Ana Karla Alves de Medeiros, Piet van der Putten, Henk Corporaal and Wil van der Aalst, Eindhoven University of Technology, 2013.
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About Cognizant
Cognizant (NASDAQ: CTSH) is a leading provider of information technology, consulting, and business process outsourcing services, dedicated to helping the world's leading companies build stronger businesses. Headquartered in Teaneck, New Jersey (U.S.), Cognizant combines a passion for client satisfaction, technology innovation, deep industry and business process expertise, and a global, collaborative workforce that embodies the future of work. With over 75 development and delivery centers worldwide and approximately 211,500 employees as of December 31, 2014, Cognizant is a member of the NASDAQ-100, the S&P 500, the Forbes Global 2000, and the Fortune 500 and is ranked among the top performing and fastest growing companies in the world.
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About the AuthorsDipesh Biswas is a Senior Director within Cognizant Business Consulting’s High-Technology Consulting Practice. He has 29-plus years of business and IT consulting experience, the last 20 years of which have been spent in Silicon Valley. Dipesh has served the high-tech sector for the last eight years, focusing exclusively on helping these companies transform their business models and leverage SMAC technologies. He can be reached at [email protected].
Raghu Ramamurthy is a Director within Cognizant Business Consulting’s High-Technology Consulting Practice. He has 14-plus years of experience in various areas of supply chain management and has worked on business transformation initiatives for clients across the U.S., Europe and APAC. Raghu’s key areas of expertise include supply chain planning optimization, business process harmonization and IT road map development. He holds a master’s degree in management from the Indian Institute of Management, Lucknow. Raghu can be reached at [email protected].
Stephen Pradeep Edward is a Senior Manager within Cognizant Business Consulting’s High-Technology Consulting Practice. He has 15-plus years of experience and has worked extensively in executing various supply chain consulting projects and programs for numerous high technology companies, ranging from OEMs to equipment manufacturers. Stephen’s experience spans package implementation and developing custom service offerings for the high-tech segment. He can be reached at [email protected].
Aditya Dixit is a Senior Consultant within Cognizant Business Consulting’s High-Technology Consulting Practice. He has worked across diverse consulting engagements with leading high-tech and semiconductor companies. Aditya’s key areas of expertise include supply chain management, trade compliance, business strategy and program management. He can be reached at [email protected].
