IoT Leaders: How IoT is Driving Agility and Disruption

Podcasts

Have you ever thought about what would happen if the strength of a big company combined with the agility and focus of a startup?

In this episode of IoT Leaders, Nick talks with Peter Van Der Fluit, Principal Consultant at The Chasm Group, about helping technology-based companies achieve market-leading positions through a variety of channels.

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Intro (00:01):
You’re listening to IoT Leaders, a podcast from Eseye that shares real IoT stories from the field about digital transformation swings and misses, lessons learned, and innovation strategies that work. In each episode, you’ll hear our conversations with top digitization leaders on how IoT is changing the world for the better. Let IoT leaders be your guide to IoT digital transformation and innovation. Let’s get into the show.

Nick Earle (00:30):
Welcome to the IoT Leaders podcast, with me your host, Nick Earle, CEO of Eseye.

Nick Earle (00:36):
On today’s podcast, I’m delighted to be joined by Peter van der Fluit who is principal consultant at The Chasm Group. Peter, welcome.

Peter Van Der Fluit (00:45):
Thank you, Nick, and it’s great to be here with you.

Nick Earle (00:49):
Now, for our listeners, some of them will know what The Chasm Group is, and some of them will be scratching their heads right now, thinking, what is The Chasm Group? Can you just tell me a little bit more about what it is, and what you do?

Peter Van Der Fluit (01:01):
Yeah. Nick, Chasm Group is possibly well-known in a small group of high tech entrepreneurs who are working with disruptive innovation. The company is actually founded by Geoffrey Moore, who is the author of the book called Crossing the Chasm, hence, the name Chasm Group. Crossing the Chasm is kind of the marketing bible for high-tech entrepreneurs who are focusing on disruptive innovation. And what Geoffrey did, he codified what it takes to actually go from a startup to a successful scale-up by crossing the chasm, and obtaining niche market leadership.

Nick Earle (01:35):
That’s right. And I’ve certainly been in IoT for, ooh… I’m ashamed to admit it, but 40 years, and it’s been my bible throughout that journey. So, I’m very familiar with it, and it’s extremely effective. But a lot of people won’t know and will find your intro fascinating. So, perhaps can you just briefly explain in a bit more detail the whole concept of the chasm, which is central to everything that you do?

Peter Van Der Fluit (01:59):
Yes. Actually, the origins of the chasm goes back to how innovation gets adopted, which was a word from Kenneth Rogers back in the, I think, even the ’50s or ’60s from last century. What he discovered was that there are different personas adopting innovation, and this is the kind of the famous five personas with the early adopters to the late adopters. You can derive from that the s-curve. So, the s-curve is actually the curve which investors and company founders are interested in, because it only takes off once early majority of customers start adopting. And what Geoffrey discovered was that, actually, pre-chasm, you have the visionaries and the techies buying, the post-chasm, it is the early majority customers buying, and that causes the steep growth and companies to take off.

Peter Van Der Fluit (02:57):
Now, a lot of companies are actually confusing early customers with early majority customers, and they keep approaching them the same way. If you do that, you actually end up in the chasm, you get stuck, and you will never turn from a startup in the scale. And that, of course, is detrimental to any startup because your dream will not be come to fruition. Investors will not actually… Basically, might lose their investment or equity get diluted to an unacceptable level.

Peter Van Der Fluit (03:32):
So what Geoffrey, working originally in the Silicon Valley with a lot of startups, discovered was, well, if we create a playbook of how you cross that chasm, and that’s basically by designing a go-to market strategy around niche market leadership, you can actually overcome this chasm problem, and hence, do a lot of good, not only for the founders, but also, for the shareholders.

Nick Earle (03:55):
And in the context of IoT, I think we are absolutely at that point as an industry. I mean, I talked about it in the last podcast with our guest from Telus in the module space. For years and years and years, since 2011, lots of big companies were predicting that by 2020, we’d have 50 billion IoT things connected. Actually, here we are in 2020, and so, we’re in a unique position, we can look back and the answer is 11 billion. Not including cell phones, but they were talking about things. And when you look at those 11 billion, you click it down, it’s a lot of experimentation. It’s some early innovators, but we really haven’t hit the mainstream adoption on IoT. 80% of all the things in the world are still not smart, they’re dumb.

Nick Earle (04:44):
And so, I think Peter, being, seen your view on this, I think that means that we are perched on one end of the chasm. We are staring at the chasm, and I think the challenge for all of us in IoT is to cross that chasm, so we can truly get to that 50 billion and realize the business potential of IoT. Would you agree that that’s where we are?

Peter Van Der Fluit (05:05):
Yes, absolutely. And I think what’s behind here is a couple of concepts. So, you cross the chasm, basically, going from what we call techie bias and visionary bias to the pragmatic buyer. Techie bias always like to experiment with new technologies, right? Hence, that a lot of IoT projects are kind of done with what I call the product developers, prototyping, experimenting and saying, “Hey, is this technology something I can do with?” Right? Now, a techy needs to find a visionary buyer, the visionary actually is in there to build a competitive advantage. They want to be the first in the industry. They lose interest, basically, if a lot of people do it. And you see some of these IoT initiatives where a visionary buyer basically say “Okay, let’s do a project. Let’s roll this out and see what this can mean,” right?

Peter Van Der Fluit (06:07):
Now, when IoT basically is in the chasm, it could be that there are a lot of vitamin pill experiments. Vitamin pill, I’m meaning, there’s not really a compelling reason to do something for a pragmatic buyer. The pragmatic buyer only engages when something is what we call a pain pill, right? It needs to deliver direct business outcomes, business benefits. So, the trick is to experiment lots in these early phase in the market, and then, pick a use case which really you can take across the chasm. So, it has to be a pain pill, it has to address a business need, but more than that, it also, you have to create what we call an all offer. It needs to be complete.

Peter Van Der Fluit (06:52):
Visionaries are okay with projects, pragmatists like to make sure you have a complete solution that works. And not only that, pragmatists also like you to show some other pragmatists who actually have used, are using it and have obtained critical business outcomes with it. And that’s, of course, a little bit of a catch 22 of how you do this. In the IoT world, you see vitamin pills. Now, examples would be connected shavers or toothbrushes, which are internet-enabled, right? But you also have bank bill IoT solutions, a lot of the IoT-enabled devices. For example, vehicles, drones, containers, but other devices which are IoT-enabled.

Peter Van Der Fluit (07:42):
I’ve worked three years at GE Digital where we developed an IoT strategy. We called it industrial internet because we were not interested in consumer IoT things, but more, industrial IoTs. And we looked at two access. We looked at asset optimization and operations optimization. In asset optimization, the key thing was how can I make dumb machine smart, so that I have less downtime, or no implant downtime. And operations optimization was how can I make assets smart, so I can increase the throughput through a hospital network. I can increase the throughput through a railroad network, or I can increase the throughput of a wind energy park.

Peter Van Der Fluit (08:27):
And those things actually have to… Demonstratable results. So, those were niche applications, use cases, which you can put across the chasm, solving a key problem, creating a whole offer around this one. And I think we are right at that moment where you do see some of these examples, and then, will take off. I think Eseye, you have a project with Costa Coffee, right?

Nick Earle (08:52):
Yeah.

Peter Van Der Fluit (08:54):
Vending machines which are IoT-enabled. You clearly can make a business case to a vendor machine owner that they actually can increase the revenues because they know that the machine is always on. So, the downtime will be less.

Nick Earle (09:08):
I totally agree with you. And it’s not just that. I mean, in the case of Costa Express, the vending machine, the ROI isn’t the ability to serve a cup of coffee from a machine. I mean, that’s what all vending machines do. But what you’re talking about is that as you cross the chasm, the business justification gets unlocked. The budget gets unlocked. But the budget comes from a cross-functional process optimization. And it also comes from the ability to competitively disrupt. So, it could be simplification of the supply chain, because they have one, coffee machine, they can put anywhere in the world. So, it’s one product SKUs. They save money in the supply chain. But actually, the business model disruption is that the Costa Express coffee machines are never in a Costa shop. They’re actually in somebody else’s premise.

Nick Earle (09:56):
So, what they’re disrupting next generation retail is the fact that you don’t need a shop to sell a coffee, you just need a smart machine. And I think in the post-COVID world, with the supply chain… The financial pressure to optimize manufacturing, supply chain, distribution, warranty claims, and the next generation disruptive business model leapfrog that people are doing, we’re going to see more and more of those.

Nick Earle (10:23):
When I talk to customers, Peter, and that leads me to my next question, they’ve got plenty of ideas. Everyone says, “Oh, I’ve got this great disruptive idea. I can leapfrog. I can save my company money.” So, there’s no shortage of ideas, but often, it’s the small companies, it’s the startups that seemed to be the most nimble. The startups always, the little guys always eat the big guys. You mentioned Silicon Valley. What about the big guys? How does a big company go about a structured process for innovation? Because it seems like the big guys, despite all of their assets, this is really difficult for them. Isn’t it?

Peter Van Der Fluit (11:01):
Yeah. That’s a great question. Right? And of course, there are some people, academics who claim established companies cannot innovate, right, or cannot disrupt. Which is, of course, nonsense. You and I know that. I mean, you only have to look at Apple, which disrupted multiple times, right, categories like the music industry, the phone, mobile phone industry, et cetera. So, big companies, actually, if they combine the smart things which startups can do with the strengths an established company has, which startups don’t, for example, access to customers, access to cheap capital, and all the things, and talent, you actually can significantly disrupt as a large player and make markets.

Peter Van Der Fluit (11:50):
Now, there is, however, a trick to that. The latest book, which Geoffrey wrote is called Zone To Win, and the insight here of that book is basically that established organizations should zone the organization. And if you think about innovation, basically, you have disruptive innovation and continuous innovation. Now, typically, 70% of an innovation comes from continuous innovation, things about the iPhone version 10, 11, 12, et cetera. Right? Think about the next Tesla, there’s nothing disruptive about it anymore. But what these companies have to do is they have to keep walking the innovation adoption curve, right? Because the early majority we spoke about, but there’s also a late majority. So, the s-curve keeps taking off, keeps growing, and that’s all after a while, coming from continuous innovation.

Peter Van Der Fluit (12:49):
And you handle that in what we call a performance zone maxed by a productivity zone. A productivity zone is basically identifying processes and programs to make yourself more efficient and effective, hence, you will become more profitable. Performance zone is basically executing like crazy to make sure you keep adding new markets, you keep growing your revenue streams. Now, disruptive innovation, on the other hand, do not live well in those two zones. For that, you need to set up a separate zone which we call the incubation zone. And the incubation zone is what it says, you incubate ideas, you experiment with ideas. You actually play for options, right?

Peter Van Der Fluit (13:32):
Now, that by itself doesn’t give you the next booth. But what it allows you to do is, via kind of lean startup approach, fail fast, learn fast, and cheap, you identify those options which you elevate to a big bet. The big bet has to be placed in what we call a transformation zone. And this transformation zone is what most corporates do not have, or are not aware they need to have it. The transformation zone is basically make the journey between something being very small, let’s say 1% of revenues, to becoming 10% of revenues. It’s like, if you adopt an organ, you cannot throw it over the wall to the performance zone because it’s too small, right? So, the existing system will just not accept it. You need to nurture it to grow it via building niche market leadership, basically. So, you get it across the chasm. You win a couple of what we call niche market segments. And then, you can move it over to the performance zone, and start adding a new big bet into your transformation zone.

Peter Van Der Fluit (14:40):
So, my advice to established players is, it’s not only innovate using different processes, but also, zone your organization. As you can imagine, each zone comes with its own leadership styles, KPIs, measurements, funding ways, governance structure, and that’s, I think, the big contribution of the book Zone To Win, which, by the way, is really catching on fire because… Although Geoffrey is now 70-plus, I mean he’s nonstop on the road, helping executives understand this concept.

Nick Earle (15:13):
Yeah. And just the book, I must admit, I have to confess, I haven’t read it. I’ve read all the previous books by Geoffrey. So this one’s definitely on my Christmas reading list. So, let me ask you a question about it. I’ve seen many of these over my career, these innovative incubators, in-house incubators that failed, I should say, there wasn’t a transition zone. One of the reasons that they failed was that they became inherently a threat to the larger organizations.

Nick Earle (15:39):
I mean, if you just take, one of the things about IoT is that we’re going from products to service, or from CAPEX to OPEX, from fixed price to annuity. So, a lot of the innovations where you take a product and you turn it into an annuity, an experience, say pay for it as you use it, but that can actually cause a lot of problems. That when you’ve actually proved the concept, you’ve got your 1%, if you toss it over the wall, you’re tossing it into the organization that kind of doesn’t want it because it threatens all of their metrics.

Nick Earle (16:12):
It seems like CEO level support for the transition zone and giving them protected budget, and also, internal protection when people say, “What are these guys doing? They’re disrupting our big line of business that’s been our cash cow for years.” I think issues like that are really important. I’d love your views on that, because we are talking about disrupting companies, and nobody likes change and nobody likes their metric… Their metrics drive their behavior. So, the support, the top-down support from the CEO is pretty critical, isn’t it?

Peter Van Der Fluit (16:44):
Yes. It’s extremely critical. We actually call transformation zone initiatives are the CEO signature. Imagine, Nick, you get to meet, I don’t know, IBM, and pick any large company, right? Your claim to fame will not be to actually keep growing the performance zone, your claim to fame will be to build a complete new business and make sure that the company is set for the next 10 years. So, the growth engines, that’s what transformation zone initiatives are, right? New growth engines for the company. These type of growth engines, also, are much more critical to evaluation than performance zone initiatives, because they are basically are maybe all technologies, right?

Peter Van Der Fluit (17:32):
So, adding new growth engines on an ongoing basis, and typically, this might happen every two-three years, right, because the transformation zone initiative is not something you do for a year. It has to be that two, three years. You have to have patience. It requires top leadership focus, it requires protection, but it also requires putting on the best people you have, and to ensure that everyone in the company rallies behind that and does not sabotage this initiative.

Peter Van Der Fluit (18:03):
Sometimes, you have to put it in a transformation zone to protect it. And startup initiative can be added to a performance zone if the existing structures allow it and don’t work against it. But in most cases, a specific transformation zone initiative will actually be the right approach, fully-endorsed by the CEO, otherwise, it won’t work.

Nick Earle (18:26):
Let’s bring this real for our customers in the context of IoT. Across your many years of experience, and especially recently, Peter, you must have seen some pretty innovative, disruptive IoT case studies. Can you share any stories of any of those that you’ve come across recently?

Peter Van Der Fluit (18:45):
Yes. Nick, it’s a great question. Let me pick an example which combines some of these concepts we have spoken about like crossing the chasm, zoning the organization, and in particular, using an IoT example. I worked at GE Digital, and one of the projects we worked on was with the health care division or business, which, by itself, is a very large $18-billion business at that time. And they had acquired a company which measures and registers radiation. Now, radiation is, of course, highly-critical for patient safety, but what they found out was that there’s a lot of variation in how much dose patients get depending on who administers the machine, depending on the day, or the hour in which the machine is registered.

Peter Van Der Fluit (19:32):
What GE had to do was built a holistic approach for those management, which, obviously, you want to measure and register. And in order to do that, you had to IoT enable the radiation equipment. But then, you also had to network the equipment. And not only network the equipment within the hospital, but to kind of in the hospital system so that you can actually track if I’m a patient, and I go multiple times, am exposed to those in the hospital network that actually the operator will know how much I have been exposed and what’s the safe doses would be, et cetera.

Peter Van Der Fluit (20:11):
So, only by IoT enabling these machines, you actually elevate these machines from becoming silo or isolated islands, right? Operated by an expert. Creating them into a network, making them smart so that you elevate any operator to become the best operator, so to speak, using the software. That’s a small example. Now, GE was struggling because when they bought it, it was… Probably their 10, 20 customers and full in France, and what we had to do is we had to actually elevate it, create a much larger concept and create a… What we call a… Remove it from the incubation zone in a transformation zone. We built a dedicated team, a go to market. We actually appointed a high potential leader to run it, who was directly reporting to one of the CEOs in GE Healthcare, empowered, full sponsorship. We funded its milestone base, and within four years, GE actually managed to sign up 1,000 hospital networks for this dose management system.

Peter Van Der Fluit (21:20):
So clearly, you can see here, a large company can make markets. Of course, they were leveraging the strengths of the startup, as well as the strengths of the established companies because GE Healthcare, of course, had access to a lot of customers. But what the secret here was to have a dedicated team only focusing on dose, going across the company, and building a strong value proposition for the customers.

Nick Earle (21:47):
You know, I’m going to share a case study with you. One of the things I do on the podcast is I… We have 2000 customers and it puts us in a wonderful situation… where all we do is IoT. And it puts us in a wonderful situation to see some really innovative case studies. I talked on a previous podcast about the IoT-enabled diaper or nappy, which is a great example. I’m going to actually talk about a company now that I met in South Africa. You know, one thing, IoT-enabling an existing electronic product, like a machine or an instrument, but the idea of IoT enabling powdered spice. So, this blew me away.

Nick Earle (22:27):
One of the world’s largest spice companies is a family-owned company in South Africa called Freddy Hirsch. And they import spices from Indian ocean and they’d been selling spices. And they got around and they started thinking, how could we actually sell more spices in an innovative way? In fact, how can we get people to buy our spice and never buy the competitor’s? So they said, well, where’s the big growth for spices? It’s not selling bottles in supermarkets, it’s actually in sausages, flavored-sausages. So they actually started making machines for butchers to make sausages. Okay. So, they went into the sausage machine business, and then, they said, “Okay, what if we IoT enable the hopper on the machine, so that actually it could sense whether or not Freddy Hirsch spices were in the hopper versus our competitor’s spices?

Nick Earle (23:14):
So they did chemical analysis on the samples of the spices in the hopper. And then, they actually created a cellulose casing rather than a pig’s blood or intestine, whatever it is, casing for sausages, which would appeal to the vegan market, because you have like apple and chutney, whatever sausages with spices. And they actually, the cellulose casing for the sausages can react in a very favorable way with the spices to bring out the taste of the spices.

Nick Earle (23:40):
So essentially, it reminded me of HP connected ink, you know, my inkjet printer in my house, I don’t order ink anymore. It senses when I need ink in it, orders it for me. Well, the Freddy Hirsch machine, the butchers machine actually senses that it’s got the right spices in there, and automatically reorders the spices. So, here you have a family spice company in South Africa, exporting machines to butchers in North America, and actually, increasing sales of their core product by IoT enabling a piece of equipment and linking it to their spices. And you know, if a spice company… I think they are about over a hundred years old. You know, a hundred year old family-owned spice company can IoT enable and disrupt. There’s no limit to what’s out there, is it?

Peter Van Der Fluit (24:31):
No, no, there is not. I think it’s a great example, right? And you know, we will have many, many more. It’s still early days for IoT. Internet has been the internet for people, but I think the next 10, 20 years will be the internet of things. And as I said, it always takes longer because you have to experiment, you have to make sure that if you cross the chasm, that you not only focus on pain pills, but also, create whole offers so that a pragmatist is convinced it’s working, right? And that all the pragmatists can show business results with them.

Peter Van Der Fluit (25:06):
That’s a matter of time for many of those initiatives. And as to your example, this spice company can show, hey, I can do significant damage to my competition. Right? You know, the industry will follow, and they might be copied by companies in another industry or competitors of this company will say, “Hey, I need to be on board as well because the world is changing,” very much like other examples we have seen and discussed before.

Nick Earle (25:36):
And what fascinates, I think, all of us is the thought leadership that these people who are crossing the chasm, it often starts with it’s a great idea and great thought leadership. And then, they start with the idea, and then, they take it through and they actually produce something which changes the business model, which disrupts the market, disrupts their competitors. Which leads me to my last question, on this podcast, we like to bring thought leaders and visionaries to our audience. Which companies or digital thought leaders have you seen out there, and actually that you would recommend that maybe we should get on one of our future shows?

Peter Van Der Fluit (26:16):
Yeah. Yeah. I’m kind of very much interested in people like Kate Raworth with the doughnut economics, right? It’s the whole principle that growth for the sake of growth, you know, those time are a passe, right? We kind of are dealing with climate issues, we are dealing with inequality. We have the ESG standards. Kate Raworth wrote about the doughnut economics. So, it’s all about innovating to create responsible growth as I call it.

Peter Van Der Fluit (26:46):
I’m currently involved in an initiative which is sponsored by the province or kind of the state where I’m living here in the Netherlands. And they actually have gone out of… Yeah, they do something very unusual for our government. They actually engaged a design expert, Andreas F. Hoffman who founded INOMICS to actually help them build an ecosystem, bringing all these entrepreneurs together focusing on things like ESG or doughnut economics-type initiative.

Peter Van Der Fluit (27:17):
So, think about food, think about last mile delivery to kind of reduce CO2, all this type of things. And it’s now up and running for, I think, two or three years. And you see kind of the energy going in that ecosystem around entrepreneurs. Because I firmly believe, who can change the world? Those are the entrepreneurs. Whether they are startups or whether they are intrapreneurs, right? Startup-type people, entrepreneurs within established company. So, Andreas has this vision to kind of make this all work and he kind of gets everyone engaged, including myself.

Peter Van Der Fluit (27:55):
So, I help, of course, with crossing the chasm-type of concept. And there are lot of IoT examples here in it, particularly around the last mile delivery. For example, there’s a company called Avnet EasyPACK who kind of turns the old delivery of package upside down. Instead of the supplier telling you when the package arrives, right, they actually empower the buyer to tell the supplier when and where the package should be delivered, including smart places where a delivery organization can actually-

Nick Earle (28:29):
Like a lock box. It’s like a lock box.

Peter Van Der Fluit (28:32):
Yes, lock box. Exactly. Yeah. And of course, what they try to do is get the congestion out of particular cities, right? Because it’s crazy that we have all these delivery trucks running off and on.

Nick Earle (28:45):
Yes.

Peter Van Der Fluit (28:46):
And there’s no need for it, because if you think about it, and they’ve done research with a logistics company that, you know, most people might live within 500 meters distance from places which they frequent, be it at bus stops, be it kind of stores, whatever. So instead of having all the boxes delivered to your home, why not drop it to a place where you will be anyway coming or passing along your way from work or whatever.

Nick Earle (29:12):
Yeah.

Peter Van Der Fluit (29:13):
And help the environment make it more greener.

Nick Earle (29:16):
And that’s a great place to finish it. In fact, Amazon obviously doing very, very similar things with their Amazon lockers project, which is a shameless plug for Eseye. Eseye do all the connectivity globally for Amazon’s lockers. Peter, it’s been really fascinating. We could go on, but it would be a very long podcast, if we did.

Nick Earle (29:38):
So, can I just say, thank you. I think The Chasm Group, as I said, at the beginning, I’ve known The Chasm Group for many, many years, and actually, Geoffrey, I’ve met him many times, and he truly is a visionary for the whole IoT business. And if anybody hasn’t read Crossing the Chasm, and I’m sure there must be some people somewhere who haven’t read it, I would definitely encourage it, but also, the latest book, as I said, that’s on my Christmas lockdown reading list.

Nick Earle (30:05):
And so, let’s wrap it up there. Thank you for everyone for listening. Please, tune in to the next episode of IoT podcast. We will, once again, bring you some thought leaders in this space, some ideas to inspire you, and some case studies of people who really are crossing the chasm and doing this disruption Peter has been talking about. But in the meantime, Peter, thanks again. Thanks for joining me, and thanks to all of you for listening.

Outro (30:33):
Thanks for tuning in to IoT Leaders. A podcast brought to you by Eseye. Our team delivers innovative global IoT cellular connectivity solutions that just work. Helping our customers deploy differentiated experiences and disrupt their markets. Learn more at eseye.com.

Outro (30:55):
You’ve been listening to IoT Leaders. Featuring digitization leadership on the front lines of IoT. Our vision for this podcast is to be your guide to IoT and digital disruption. Helping you to plot the right route to success. We hope today’s lessons, stories, strategies, and insights have changed your vision of IoT. Let us know how we’re doing by subscribing, rating, reviewing and recommending us. Thanks for listening. Until next time.