McKinsey report estimating the potential of IoT to generate $11 Trillion in value by 2025 has led to many senior business leaders across the globe investing in IoT innovation or planning to implement IoT solutions in the coming years. Many of these investments, however, failed to yield the great potential posed by IoT, and those that make it often only offer incremental change rather than true disruptive innovation.

In recent years, large companies have begun looking outside of their own stagnant innovation departments to more free-flowing, external startups - who don't have such rigidly-defined corporate structures nor practices that too often stifle creativity and innovation. This approach is a relatively new innovation model that many major players are beginning to follow. A recent Imaginatik & MassChallenge white paper, reports that 82% of corporations now agree it’s at least somewhat important to work with external startups.

Limited Scope of IoT Innovation Methodologies

Although large organizations have begun to look outside of their own corporate structures for digital innovation, we still see many organizations fail to recognize the necessity of taking an entirely new and unique approach to IoT research & development - often limiting their methods to external innovation strategies implemented for digital innovation, on the assumption that what worked for early digitalization will work for IoT. We believe these assumptions to be wrong.

Developing IoT products and services differs from traditional digital product development in at least three significant ways:

  • Cost: Building, for example, a screen based app can be achieved on a relatively low budget. IoT development, on the other hand, requires greater capital for development and funding talent across a broader tech stack. Hardware alone dramatically increases the necessity for high upfront investment.
  • Breadth of technical understanding: From hardware electronics to networking, data linking to application development - the technical aspects of IoT requires much broader knowledge than with traditional digital technologies. Closing this skills gap is an ongoing challenge for organizations planning IoT innovation.
  • Timing: IoT demands a longer development cycle and ongoing development. Adopting a lean approach to product development is of much greater complexity. Whilst software is relatively elastic and easily molded to user needs, developing hardware in an iterative way is not.

There are various models of external IoT innovation; incubators and accelerators for example, are being widely adopted as a solution to the inertia faced by larger organizations. These models differ slightly in the amount of time the corporation works with the startup. Accelerator models work to rapidly validate an idea, while incubators assist the startup for a longer period of time–up to 12 months and beyond. However promising the outcomes of these models are, certain challenges limit their innovative success. Risks include organizations working on topics not directly related to their core business, limited knowledge sharing between the startup and organization, and divergent goals of involved parties.

Company Building

Company building refers to the process by which a large company partners with a startup or much smaller business to co-develop solutions to real challenges. The key difference here is that company building seeks to build partnered ventures that are nurtured throughout the entire business lifecycle, supported by an ecosystem of specialists provided by the company builder.

In doing so, challenges that arise from incubator and accelerator models can be effectively tackled. Specific solutions are developed for specific problems as opposed to developing solutions in isolation and later attempting to find a fitting purpose. Interdisciplinary knowledge sharing is provided by the supporting ecosystem surrounding the company builder. Through co-development, both parties become shareholders which results in both the startup and the organization striving to achieve the same goals.

We believe the benefits of a company-building approach which connects startups and entrepreneurs with larger organizations is the most effective way to facilitate valuable IoT innovation. Through co-development, both the startup and the corporation benefit from from a shared venture–one with a clear use case and a smoother road to success. It allows for a rapid distillation of the most effective ideas, closing any existing skills gap, and providing a broader support network than any other popular innovation model.

IoT Analytics has researched the most effective innovation models for organizations looking to innovate with IoT. If you'd like a more in-depth understanding of the various innovation models for IoT and the benefits and drawbacks of each, find their results in a free download of the "Guide to IoT Innovation" whitepaper here.