It may be difficult for business leaders whose performance is measured in revenue generation or cost reduction to become excited about the amount of data produced by a device. However, you might be familiar with the business model ‘product as a service’ with the user paying for the outcome rather than the physical item. Data generated by IoT makes this 21st century model a reality in untold and hitherto impossible applications, giving businesses the opportunity to deliver optimal performance and competitive advantage through analytics.
Power by the hour: the value of a data backed service
The idea of an outcome of a product being a primary focus can be traced as far back as the 1960s when Rolls-Royce pioneered ‘Power by the Hour’ for their jet engines. This involved incentives for both the operator and manufacturer as opposed to the traditional capital purchase, rent or lease models. The incentives focused on reliability of service, reduced capital expense, accurate cost projection for the operator, stable revenue projection, and reduced risk of product commoditisation for the manufacturer.
In 2003 Rolls-Royce continued this way of working, operating a similar model that recognised the value of the outcome of a product for the US Navy. Acting as the sole provider of logistics support meant they provided all the engine maintenance, support, troubleshooting, parts supply and logistics support for the aircraft at three US naval air stations. In return Rolls Royce received a fixed price for each hour the engines were in the air. Before the initiative, aircraft were out of action for nearly one third of the time. Rolls-Royce guaranteed a ready-for-issue engine availability rate of 80 percent. In fact the RFI in the first year was 85 percent and the average time between engine removals had increased from 700 hours to over 900 hours.
Rolls-Royce has therefore evolved it’s offering, shifting their focus to how they use data to impact outcome. By monitoring their engines using IoT they’re able to gather data that enables them to understand exactly how their products behave to optimise performance and drive profitable outcomes, whilst using predictive analytics to develop a new generation of engines.
Furthermore, with IoT technology allowing Rolls-Royce engineers to track and analyse engine performance mid-flight, the company is better placed to identify underperforming components. This allows the team to implement proactive maintenance strategies, not only reducing the frequency of unexpected faults but also improving engine efficiency and lowering fuel consumption. It is estimated a 1% reduction in fuel usage translates to US$250,000/plane/year. Applying this to a fleet of 830 planes sees a potential saving of ~US$210M per year. For Rolls-Royce, predicative maintenance also has the added benefit of allowing them to carry lower inventory.
Now called ‘CorporateCare’, this way of working is responsible for more than 50% of their revenues, making it a company no longer selling engines, but delivering ‘Total Care’ that improves their customers operations.
Big Data on a small scale
This pivotal change to the delivery of product as a service underpins many IoT projects—big and small.
Smaller companies can use big data to optimise performance and drive profitable outcomes for themselves through great user experiences. Earlier this year, a well known brand of coffee machine launched ‘“Their Brand” as a service, guaranteeing the Barista 24/7 coffee and removing the significant hurdle of capital purchase. This was primarily made possible through IoT enabled machines that would collect data such as the number of coffee cycles performed, system faults, or the need to carry out preventive maintenance. The Barista can therefore focus completely on what his customers want—excellent service and excellent coffee.
Regardless of the details, organisations, big and small, should consider continuous monitoring of assets to enable new revenue opportunities and pricing strategies based on performance and pay-per-use models instead of purchases. Your customer might need compressed air, forklift capacity, office printing—anything currently delivered as a product can be adapted to this data based model. The winners tomorrow will be those who grasp and execute on using the data to optimise their performance.
We can get you set up with IoT connectivity, devices, and solutions, all with actionable analytics to help you develop your product as a service. You can get in touch with us here or call our team on 0800 470 4070.