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2016 REPORT

The ‘Internet of Things’: an opportunity or threat to sustainable value for the FMCG sector?

A workshop hosted by Cambridge Consultants The ‘Internet of Things’ (IoT) and the move towards digitisation are the focus of a lot of attention – and have been for some years. The ability to directly monitor, interact with and manage the objects around us makes it possible to perform data-driven decision making which will increase efficiency, provide new products and services, and create new business models – fundamentally shifting the way organisations interact with their customers.

Sectors such as healthcare, sports & fitness, home automation and enterprise have been experimenting with ideas for IoT applications and gaining understanding of how to add value to their products and offerings for some time. However, the fast-moving consumer goods (FMCG) sector is only just starting to explore and experiment in this space, not least because of the relative cost of the technology versus that of the FMCG items themselves. However, the technology – and consumer expectations – are now at a point where FMCG companies need to start seriously exploring the opportunities that the IoT represents.

Given the unique challenges the FMCG sector faces in leveraging the IoT, Cambridge Consultants hosted a workshop with a cross-section of multinational FMCG companies to debate how to approach extracting value from the IoT. The participants included senior managers and directors from food & beverage, personal care and homecare brands. They had a wide range of expertise – from strategy, commercial and marketing to research and development (R&D) – to ensure insights were gathered from all corners of the FMCG sector.

We are grateful to the participants for their willingness to invest the time to attend and to share their insights and opinions freely. This report attempts to summarise the combined thoughts that were formulated during the event, whilst adding insight from Cambridge Consultants’ experience and expertise across a wide range of technologies and industry sectors. It offers a unique look into the future of this industry, as seen through the eyes of some of its leading authorities, and suggests directions that brands should take to embrace it.

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The ‘Internet of Things’: an opportunity or threat to sustainable value for the FMCG sector? REPORT

Participants

Stefan Biel Fontem Ventures

Bart Carpentier AB-InBev

Rob Chatfield Unilever R&D

Andrew Davis Diageo

Heiner Gers-Barlag Beiersdorf

Toshinobu Hasegawa Suntory System Technology

Gordon Morrin Kerry Foods

Akiyoshi Ohira Hitachi, Research & Development Group

Bekir Ozyurt Beko R&D Centre

Chris Padain Reckitt Benckiser

Dips Patel (ex Speedo) A. Mistry

Richard Redman Barclays Corporate Banking

Yuichi Suzuki Suntory Holdings

Preethi Vijayakumar Mondelez International

Alannah Warner Unilever

Hosts

Sajith Wimalaratne

Edward Brunner

Ruth Thomson

Vaishali Kamat

Mark Harrison

Amy King

Antonia Bevan

Patrick Pordage

Darina Cotterill

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The ‘Internet of Things’: an opportunity or threat to sustainable value for the FMCG sector?REPORT

Summary

The IoT is a powerful, unstoppable, world-changing force that is already here. Launching an IoT application for existing business is quickly becoming an imperative across all industries and around the world. Some might say that connected services are not just forward-looking business opportunities: they are fundamental to how FMCG organisations do business in the future if they want to survive. Companies can’t afford to sit back and wait.

The IoT is relatively new territory for the FMCG sector and the pace of innovation is much faster than traditional product development and life cycles. Now is the time to learn from other industries, and the handful of FMCG IoT experiments that have emerged recently. The IoT promises to drive tremendous innovation and economic growth – but it won’t be a case of just delivering billions of connected things. It will be about how the IoT transforms organisations

into service businesses, and the amazing array of new innovations, experiences and benefits that will result.

Currently most FMCG organisations are not structured in a way that allows them to be as agile and fast thinking as is needed in this digital environment. The FMCG sector is relatively risk averse and – given that IoT technology is new and so different – there has been hesitance on the part of senior management to commit investment and resources to do it justice. This, however, is changing, with many senior managers now creating IoT targets for their R&D and innovation teams – and making clear public statements about the percentage of products and revenue that will be connected in the next few years. Whilst it is very different from business as usual, there are many ways that FMCG companies can start investigating, experimenting and deploying IoT services – which we will share in this report.

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Introduction

One of the hottest technology topics in recent years has been that ‘everything is connected’. We’re increasingly seeing different parts of our lives interconnected, with giants like Apple and Google knowing our every move and Facebook knowing us better than our close friends. The term IoT has been used as a buzzword, and everybody has different definitions and views on what it means – from general connectivity to analysis of data collected to provide actionable information or intelligent control. Whatever your definition, the promise of the IoT is that it provides the opportunity to further enhance and differentiate products, to move from product to service-based offerings and business models, and to make it easier for consumers to engage with brands. However, the FMCG sector is yet to fully embrace this technology, despite it being available for many years. Our workshop brought FMCG sector experts together to collectively understand the challenges the sector faces in embracing the IoT, learn how the different categories within the sector have engaged with the technology to date and discuss ways organisations can change to adopt it.

Why should companies care about the IoT?The IoT is already being used in many industries and, in many instances, is fundamentally changing the business landscape. The effects can be seen in services from early-stage companies such as Uber and Deliveroo – which use technology to challenge staffing conventions and make services easier to access and more convenient for consumers – or established blue-chip organisations such as GE, which has added sensing and connectivity to its jet engines to improve efficiency, reduce downtime and sell thrust rather than engines to its customers. IoT technology is disrupting established business models – so it’s a threat but also an opportunity that the FMCG sector must do something about.

We’re seeing experiments in FMCG, with examples such as Amazon Dash changing the way consumers purchase products and engage with brands. Dash adds convenience for consumers and simplifies the route to fulfilment. In theory, it could potentially differentiate a brand and drive loyalty through convenience. Until multiple brands also have Dash buttons, of course, or until it evolves to be not brand led but product led, and the system selects whichever is cheapest at the time – driving loyalty to Amazon and not the FMCG brand. So, FMCG companies can’t rely on others within the supply chain to do this for them – they need to have their own plan.

“It is much better to be creating the disruptive than having it done to us as the organisation”

With the growing interest in the IoT and its application, companies are trying to understand what value it could bring to their organisations, and many FMCG companies already have a digital team in place. Whilst these digital teams have been around for a few years, much of the early focus has been on digital marketing and social media, and there has been a recent increase in urgency – driven from senior management – that they need to fully engage with the IoT. They are asking questions such as: “How can we create value from the IoT?

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How do we improve our consumers’ experience through the IoT? Can we use the IoT to increase consumer loyalty? Do I need to offer a service? How do I do this? Is this an opportunity for a new revenue stream?” Or simply: “How can we use the IoT to sell more products?” Any FMCG company which does not start asking these questions and move beyond digital marketing and social media will run the risk of being left behind.

As with any business proposition, money is important. Market trends and business insight estimate that the IoT will generate more than $20 trillion of economic value from revenue. Businesses are predicting over 50 billion connected devices by 2020 – less than four years away! Whilst the cost of the technology clearly needs to be considered, there are potentially higher margins to be achieved through moving towards more service-based offerings and business models. And, given the inevitability of the IoT in the industry, those who do not take it up will surely lose market share and/or see reduced margins.

Target consumers and their demands

Understanding consumer needs has always been at the heart of FMCG brands. However, there could be a difference in categorisation for consumer needs in relation to the IoT, and different ways of exploring and understanding them. It is therefore important to identify the target audience and understand its demands and needs for digital marketing, products and services.

There is the traditional lumping together of generations into digestible groups, such as the Baby Boomers (born between 1946 and 1964); Generation X (1965-1980); Millennials (1980-1995); and Generation Z (born mid or late 1990s). Many organisations in the FMCG sector are already concentrating their efforts on trying to understand the needs of these different consumers. Whilst it is always dangerous to generalise, an underlying trend is that Millennials and Generation Zs are technology savvy, constantly living in social media, inherently trustful of the security of the internet and not too worried about privacy. This may be because they don’t understand – or have no reason to believe – their data will be misused as they have grown up with their lives broadcast over the internet through social media. But it is true, nonetheless. Older generations are less likely to fully engage in the technology – they will be far more concerned about security and privacy, and slower to change their behaviour.

“Millennials are estimated to be 50% of the workforce in five years’ time but we mustn’t forget about the silver surfers”

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Understanding consumer demands has become harder – performing interviews and insight studies still leaves gaps in identifying the opportunities that brands have within the IoT space. This is largely due to the rate of change that the digital world works at, compared with physical products – the opportunities are constantly evolving, which makes it hard to react fast enough to fill the opportunity.

But it is also because getting consumer insight in this area is challenging – different approaches are needed and, because the possibilities are so new and diverse, framing the studies can be much harder.

Whilst Millenials and Generation Zs are really important and are obvious adopters for IoT functionality now and in the future, we cannot forget the other generations. The functionality and offerings that are created through this enabling technology have to be accessible to all – or at least not a barrier. There are examples in the medical world where new connected devices have been launched and require a smartphone to use them – but a significant proportion of the target users do not have smartphones.

“Consumers today don’t tell us what they want – the challenge is to know what they want. We have limited ways of accessing that information”

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The service economy

An interesting observation is how loyalty is shifting away from products and towards services. It can be seen in the way we now consume music and video, the domination of services such as Facebook or the automated delivery of produce from Hello Fresh. It often feels like most of us are surgically attached to our smartphones. But it’s not the physical device itself that we care about – it’s the services it gives us access to. Consumers are looking beyond the product and more to the result and the experience it brings.

One of the things that services bring is helping to make consumers’ lives ‘seamless’ and more convenient. More and more is now available to consumers on demand within minutes or hours, be that loans, grocery deliveries or entertainment, and consumers’ expectations are constantly growing. Having information and the ability to control things at their fingertips is becoming ubiquitous and so FMCG companies need to meet this expectation.

As ever, brands are under increasing pressure to deliver superior products and consumer experiences to differentiate themselves. The new-generation consumers are more demanding and more easily disappointed. Consumers are interested in service offerings and the experience around the product rather than the product itself. The challenge is that the rate of change, development and evolution in the digital world is much faster than the physical product. The offering (i.e. product, experience and service) needs to constantly evolve through learning, iteration and the addition of new functionality to remain differentiated. And this is a radically different mindset from most FMCG organisations, which plan their developments on an annual cycle and have traditional development processes. Adoption of a more agile and iterative approach is vital to keep up with the pace of change – and this is likely to mean organisational change.

“Anything that can make my life easy is good because we are all lazy”

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Opportunities for the FMCG sector

Clearly the hard part for FMCG companies in adopting IoT technologies is knowing how to create relevant value from them. Everyone is searching for the killer application – there are lots of examples from FMCG and other sectors of IoT-related products and functions that are just gimmicks. It is also challenging to perform reliable return-on-investment calculations, largely because the ideas are so different from business as usual and it is difficult to predict how they will be accepted by consumers. However, there are clearly multiple opportunities for FMCG brands within the IoT space.

“When customers are disloyal, they are really saying that the product or the services are not relevant enough for them to remain loyal”

Connect directly with consumers

The IoT is already beginning to change how consumers shop – and how consumers and the FMCG companies do business. The FMCG sector is an industry that has never before had end-to-end engagement with its customers. Traditionally, once a consumer purchases a product from the supermarket, brands have no means of tracking individual consumer experiences and how they behave with the product – other than consumer research and insight trials, which are only ever a sample of the population and where it is hard not to disturb consumers’ usual routines or habits. The IoT enables inert items to become vessels of ongoing, real-time communication with consumers. This means brands

can maintain direct relationships with their product users, offering tailored experiences as well as an additional service element to otherwise static items. For example, there are now personal care connected devices that can treat wrinkles, stretch marks or blemishes – with an app tracking usage (with the user’s permission) and sending the data back to the manufacturer to build their understanding of how well their product is working. The user will, in return, get recommendations for better skincare – and the brands can use the data for product development and marketing. The data can help them improve their products, provide more relevant ranges and understand how their products function in the real world.

“Currently the brands don’t know how the consumer engages with their products”

Communicate your brand story

The big brands are just as passionate as smaller companies but it is often not seen or believed by consumers – the master brewer of a multinational brewery, for example, takes as much pride in their beer as a craft brewer in their garage. The IoT could provide an opportunity to tell people a richer story behind a brand, and make them aware of things they didn’t know. All companies have good traceability procedures in place – knowing where ingredients have come from and the conditions of the production process. However, this is often disparate information and so is difficult to collate centrally – connected systems and sensors can obviously help do this, and many companies are doing so already to improve production efficiency and identify any issues much faster than they have before. But that could be taken a step further by using IoT platforms to communicate that information and story to the consumer, be that through putting real-time data on a website or using consumer-facing IoT to push that

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message to them – or at least make it more accessible than having to look up a website. For example, Waitrose Indian ready meals are handmade but that story is simply not accessible – why can’t the microwave that is heating it up tell the story of where the food has come from, who has made it and the care that has been taken? There is a lot of untapped value and differentiation in this approach.

The IoT can help you tell your stories by providing the necessary communication channel. The personality of a brand is about cutting though noise because everyone is going through the same channels, even if those channels have been changing with the rise of internet shopping. But in an IoT world, it is about reinforcing the brand and the story

over time. This also allows the brand to maintain a dialogue with the consumer and decide what that dialogue consists of – as well as making it much easier for the consumer to talk to the brand. That way the consumer can feel a loyalty to the brand, and the brand can learn so much more about its consumers. Going direct to the consumer in this way gives brands much more control and diminishes the power that the supermarkets and online retailers have – this has significant value not just in telling the brand story but also in building loyalty and engaging better with the consumer.

“The IoT may bridge the gap between the small producer and the mass producer”

The currency of loyalty

The FMCG sector has always recognised the importance of loyalty – for decades, significant effort has gone into building consumer loyalty and trust to increase the odds that YOUR product is picked from the shelves. But the way consumers buy products is changing, and the next-generation consumer is much more fickle, with a far greater ability to compare


functionality and price. So embracing the IoT is a great way to show differentiation, add convenience and build up a closer relationship with the consumer to combat this.

A brand with a strong purpose is attractive to the next-generation consumer. The consumer expects brands to be inspiring – a vision that is not driven by money or profit. Brands nowadays can find it difficult to differentiate at a product level. For example, there are so many laundry powder products available for consumers on the supermarket shelves – each one stating they have cutting-edge technology to remove stains, increase whitening and improve efficiency. But many consumers see them as just another laundry powder, so the dominant purchasing decision is based on who is offering the best deal at the time of purchase. However, if a brand finds a way to offer a service around the product – effectively sell more convenient access to laundry powder or even a laundry service itself – then consumers could decide to choose that brand rather than others that don’t offer that convenience. Through this service offering around the product, consumers’ behaviour can be changed and the brand can be kept at the forefront of their minds.

Alternate revenue streams

The FMCG sector is used to thinking about selling units of products – numbers of lipsticks, boxes of cereal, hectolitres of beer. Could this status quo be challenged? Could you attribute value to a different type of ‘unit’? Can you challenge the unit of value? Thinking more broadly than the product value – and the value that your brand can bring to consumers’ lives – will open up more opportunities to make money.

Beyond the hype of the IoT is a very real opportunity for brands to leverage the technology to create new business models that shift focus from standalone products to service-based offerings, resulting in better engagement with customers and fuelling additional revenue streams. These alternative revenue streams could include service revenue, hardware revenue, data revenue and ecosystem revenue.

Hardware revenue is the most familiar monetisation model, where FMCG companies could add a form of connectivity to an existing product or create a device that complements a consumable. Examples include L’Oréal’s My UV Patch – a skin sensor designed to monitor UV exposure and help consumers educate themselves about sun protection. Consumers are able to take a photo of the patch and upload it to the My UV Patch mobile app, which analyses the varying photosensitive dye squares to determine the amount of UV exposure the wearer has received. By offering this simple, complementary product and service, L’Oreal has not only enhanced its brand and helped its consumers to get the most out of its core sunscreen products but also created an additional revenue stream.

Service revenue can offer brands a recurring revenue stream from a subscription-based service attached to a traditional product. This reliable source of income allows for better planning and forecasting, as well as more loyalty towards the brand. For an organisation to generate service revenue around a product is not an easy task. An example is Volkswagen’s Car-Net service, which offers security features, maintenance assistance and other functionality through a subscription service.

Revenue from data can come from analysis of any data collected (with permission from the user) and the sale of parts of it to third parties. Information that is extracted from data will be valuable to multiple organisations and therefore can be monetised. For example, Michelin Solutions is a new part of Michelin (traditionally a manufacturer of vehicle tyres)

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which packages insight generated from sensors embedded inside vehicles and uses it to help fleet customers improve efficiency and reduce their carbon footprint.

Organisations could create an ecosystem around a product offering (e.g. homecare). Since the IoT thrives on connected ecosystems, the bigger the ecosystem offering, the greater the value generated for the stakeholders involved. The organisation which offers the ecosystem (the promoter) enables companies to provide a platform to third parties such as hardware, software and service developers. These platform users pay the promoter for listing their products on the ecosystem and the promoter can also get a share when a consumer purchases a product from a platform user. For example, SmartThings is an IoT start-up that is now part of Samsung. It offers a centralised hub and a number of IoT devices for home automation – and allows third parties to develop products on its ecosystem, based on standard design guidelines. An ecosystem that an FMCG company creates – across multiple brands and product categories – could be bought into by appliance companies, service companies and retailers alike. Maximising the size of the ecosystem may mean needing to partner or create an open platform for other companies (and potentially competitors) to use. Whilst this, of course, presents its own challenges, being the platform owner or pioneer can put you at a significant advantage, whilst using others to help grow the platform and make it ever more accessible to consumers.

Challenges

The FMCG sector has been slower to embrace IoT applications than some other industries. This could be because, with the opportunities it provides, implementing IoT in FMCG comes with its own unique challenges. However, any company that is looking into implementing IoT applications in its organisation needs to be thinking how it could handle changing its business model and its organisational structure. For an organisation that has been focused on products in an established supply chain, these challenges could be daunting. The skills and competencies needed are either not there or not deployed in a way that is focused on creating IoT-related products and services.

Creating a vision

The vision for dramatically changing the business and doing something radically different could come from any part of the organisation. But it needs to be supported by visionary senior management with the ambition to challenge convention and the willingness to invest in experimenting.

There have been limited applications around the IoT from the FMCG sector. However, within the last year, more and more senior leadership teams in FMCG companies have been putting effort behind this and are driving the initiative forward. The management teams currently understand the

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big picture around the IoT and its applications but they are struggling to identify the ‘killer’ consumer need.

Striking the right balance between being pushy and offering a service is important – consumers need to feel like they are in control and making the decisions rather than something being forced upon them. One way to strike a balance would be to give consumers a communication channel to discuss and express their views of a product. This way, the brand provides a communication platform that can be used to improve products and services in the future.

“Management sees a big change is coming so is open to it but no one really has the breakthrough idea yet”

Many implementations of the IoT in consumer and FMCG applications have often been gimmicky – far more of a technology push, providing a feature for the sake of it rather than something considered. Having the killer concept or inspirational idea is, of course, key – and this can come through an analytical approach to understanding needs, and generating ideas through an innovation process, as well as experimenting and learning as you go. But what is common to analytical and experimental approaches is the need for vision from the top.

Required new technology skills

Companies not only need to create a vision – they also need to know how IoT systems work and have the skills to build and deploy them. Organisations need to look into skillsets that are able to offer connectivity services and devices associated with the IoT. Product managers now need to understand and address the needs of the new generation of customers and their demands. Of course, much of this can be outsourced, particularly in the short term, but understanding the potential and having the vision of how to embrace it is important.

Data handling and making sense out of data

Consumers generate increasingly huge amounts of data from everything they do – exercising, driving, online shopping, going to the doctor’s and even brushing their teeth. Big data is set to offer companies tremendous insight. But with petabytes of data pouring into organisations, traditional architectures and infrastructures are not up to the challenge. Most FMCG sectors currently don’t have the data-centre infrastructure required to extract real-time insight from real-time data. There is a need for companies to look into new strategies and infrastructure to handle this data and extract value from it.

The data by itself is meaningless, unless it generates actionable information through clever algorithms. Current research in data analytics is aimed at developing new algorithms and software tools that help to turn the hidden information of raw data into explicit, interesting and actionable information. This also needs to be represented in a way that can be understood – such as high-level abstractions and user-friendly visualisations – and must be able to provide benefits to individuals, societies and governments.

“Data is always behind the time and is always retrospective so it’s always out of date”

Companies should look into the five Vs (volume, variety, velocity, veracity and value) model which says big data management is a result of all five properties, rather than just volume alone.

Volume

Variety

Velocity

Value

Veracity

“Customers now expect to be informed about issues in real time”

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But it is not necessary to have an established IoT ecosystem to start this – all FMCG companies have a lot of data they could use to greater effect than they do already through more sophisticated data analytics. Using this data to understand interesting and less obvious trends, and investigate ‘what if’ scenarios, can help in identifying opportunities within the IoT and suggest how having more data could help even further with product and service evolution. Furthermore, there is

additional data that is collected by parallel organisations that FMCG companies may be able to tap into and extract valuable information from. For example, sports and fitness devices and services (such as FitBit and Withings) have a lot of data on the exercise regimes and general condition of consumers. This data could be valuable for an FMCG company that is trying to offer personalised diet products and regimes to those individuals. The food brand wouldn’t need to develop systems itself, which could be a significant investment and a barrier to entry for a diet offering – the data needed could be accessed through partners. This is a significant change of mindset that needs to be embraced by FMCG organisations in order to make their IoT implementations a success and reduce the barriers to entry.

Ownership of any data collected is always a hot topic – whether that’s the consumer wanting to believe they own their own data, the brand thinking they need to own the data or any service providers or partners contractually owning the data. The key point is planning and understanding what value each stakeholder wants to extract from the data, and what resolution of the data they need. It is not necessary for a brand wanting to know broad trends of different categories of consumers to have all the raw data – this information can be extracted from higher-level data. A strategy is needed, looking at what information is needed now and will be needed in the future, and agreeing with all stakeholders involved in the ecosystem who is able to do what with what data.

Securing data and ensuring privacy

The billions of devices that could potentially be collecting trillions of data points should – and must – be protected. Protecting internet-connected devices from security threats, as well as dealing with data-privacy risks, are key challenges for an organisation in this space. Attacks can happen at multiple levels. They may be targeted at a device level or via communication networks. It is advisable, when implementing an IoT application, that organisations spend time at the start thinking about data security and privacy. This way, the correct layers of security can be applied to future proof any further development.

‘The next-generation consumers think privacy is a thing of yesterday’s world’

Whilst younger generations are less concerned about data security and privacy, breaches can cause significant damage to a brand’s reputation. Consideration needs to be given to how the data is anonymised whilst remaining useful to the brand and the consumer – as well as the protection levels, given the potential value of the data to adversaries versus the potential inconvenience additional protection measures may involve.

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Coping with changing business culture

The FMCG sector can lack some of the integral skills needed to operate as a service-based organisation. These include evolving a new organisational structure, developing marketing strategies, customer support capabilities and allocating responsibility for tasks. Organisations need to bring in skillsets that are able to offer connectivity services. For example, traditional project groups may lack the skillset to carry out projects in the IoT space. In addition, consumers are demanding faster response times from organisations for their requests – so companies also need to think about customer support infrastructure.

The FMCG sector has been predominately focused (for a good reason) on a traditional product cycle. In this approach, companies can afford to spend time doing the detailed consumer and market research, and have strategies in place for ‘getting it right first time’, whilst fitting in with their annual planning process. However, with the speed at which consumers and market needs are changing, the FMCG sector doesn’t have time to go at that year-long pace of change. Therefore companies need to move quickly and experiment with ideas. FMCG companies almost need to behave like start-ups when exploring IoT solutions so they can be agile and flexible to make quick decisions. Some FMCG companies already have ‘start-up-like’ segments within their organisations to run quick projects on IoT-based ideas – and more need to follow suit.

New competitive threats

External factors can be a significant disruptor in any industry – just look at the impact the craft beer trend has had in the beer industry (and the resulting market share microbreweries now have). And the IoT is certainly a threat for the FMCG sector.

Start-ups are being very disruptive. Their appetite for risk and trying different things is much higher than big established organisations and – whilst there is an inherent high failure rate in start-ups – the speed with which we see new ideas come through crowdfunding sites and in purely digital/web-based form means there will always be some good ideas that become successful. Acceptance of failure is always important in innovation, and especially so in finding the killer idea in the IoT – the need to experiment and fail fast is key. But it is not just start-ups that should be considered as threats – large and well-established organisations could have a dramatic impact on the sector. We’ve already mentioned how Amazon is changing the way consumers can get access to your products (with good but also potentially bad effects on your brand). In other sectors, similar technology has seen companies change the shape of their business significantly – Apple moving from just hardware to also service models, BT changing from a phone line supplier to a media organisation. Given the rise of service over product, there are many companies that could move into the FMCG space and become disruptive.

How to proceed – what’s next?

The IoT is inherently more complex than traditional product offerings – it’s an integration of several things requiring a much wider range of skills and capabilities than any one company has. It requires end-to-end thinking for a business and advanced integration skills. As organisations begin to build their IoT solutions, companies could broadly take a few approaches.

Plan

It is, of course, possible to be strategic and analytical, even in this new and complex environment. Understanding the needs of the consumer and your business, the trends in the market and technologies can all be used in an innovation to identify and create new offerings. These offerings can be assessed, prioritised and built into development and evolution roadmaps over years and decades. This may sound like a familiar innovation process, and it largely is – but a crucial difference is the importance of testing, iterating and changing direction quickly and often, and going through this process numerous times (and learning every time). This difference needs to be built into the strategy to make sure it does not revert to the more ingrained and traditional development process – because with that comes the risk of you being overtaken by your competitors or by threats outside your current industry.

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Experiment

Starting small and experimenting with small evolutionary ideas or new pieces of technology is a completely valid way to get started in the IoT. Of course, there is an element of trial and error involved and a high risk of failure – which all brands wish to and need to minimise – but at least starting to try things will build up understanding of what works and what potential value there could be in different ideas. Trials of such ideas and technology can be performed in anything from internal tests with colleagues to consumer trials in small focused geographical regions – and the branding on these trials does not have to be real, it could be a different branding or unbranded to minimise the risk of damage to the brand. There is a lot that can be learnt from just trialling the functionality without the brand. Digital-only options (such as apps, and using devices and technologies that consumers already have) is a quick way to start and learn but developing technology prototypes and devices can provide more direct and insightful information. Whatever the direction taken, having the mindset to experiment, succeed, fail fast and learn is very valuable.

Another ‘safe’ way to experiment and help your organisation learn about IoT technology, whilst also getting real business benefit, is to incorporate IoT systems into consumer trial methodology. Adding sensors and communications into actual products clearly has serious investment implications that won’t be taken lightly but incorporating technology into trial products has a significantly lower barrier. The unit cost is no longer important, and the technology can enable you to capture a much more accurate understanding of what the trial participant actually does with the product in their home. The technology can unobtrusively gather data on usage patterns, etc. – helping you to gather consumer insights more efficiently, whilst also helping you to learn about IoT technology.

Partner

A serious option to consider for FMCG is to partner with others in the supply chain. Companies could look to organisations such as Amazon and Google, which are already investing significant amounts in IoT systems, and become part of ecosystems such as the Dash button. Of course, there are always challenges

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associated with such large and powerful organisations, especially when your competitors are doing the same.

Given that ecosystems are such an important part of the IoT, FMCG companies partnering with appliance companies is an obvious route forward. This provides an existing supply chain of consumer electronics (a very different thing to develop, manufacture and distribute from consumer goods) and also the ability to spread the cost and functionality to other parts of the ecosystem. Defining a strategy at the start of these engagements is important, and there are often conflicting requirements between consumer goods and appliance companies – creating a prototype ecosystem before reaching out to potential appliance and device companies can keep the FMCG company in control and make the roles and benefits clear from the start.

Moving to the IoT will mean FMCG companies need new supply chain options and relationships, which provides further opportunities for partnering. This could bring access to

components/materials as well as skills. For example, consider New Balance’s relationship with Intel, and Novartis’s agreement with Google to develop smart contact lenses to help diabetics track their blood glucose levels.

A final partnering option is to look to companies less directly connected to the FMCG world. That could be companies that have devices that could inform or be leveraged to make an ecosystem (such as fitness devices in relation to nutrition products), appliance companies which already have connected and intelligent appliances or companies that provide IoT services (such as data analytics companies). This does require an initial vision or idea to know who to approach and what opportunities/needs there are to start the engagement.

Start-ups

Start-ups and entrepreneurs are effectively doing a lot of the hard work of coming up with bright ideas (and less bright ideas!) in the IoT space already. Studying them to see what looks different and interesting, what works and what fails, and what the different benefits are (for consumers and companies alike) is a great starting point.

But more than that, investing in or partnering with these early-stage companies is a relatively easy way to get into the IoT world – by either integrating their teams but keeping their start-up mentality or leaving them independent and able to grow with your investment, you can learn a lot, and potentially come up with some fantastic new offerings. For example, in the sporting world, Under Armour purchased Endomondo and MyFitnessPal in early 2015. In the medical world, Proteus Digital Health is a company backed by Novartis. If nothing else, engaging with the start-up community and learning how it thinks, learns and evolves is a very healthy thing for many giant FMCG companies to do.

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Conclusion

The IoT promises a revolutionised, fully interconnected, smart world. It is already starting to take shape – and it is here to stay. For the FMCG sector, implementing IoT applications is no longer a ‘nice to have’ but a ‘must have’ and it is vital for the sector to remain competitive and to keep up with the ever-evolving needs of the consumer. Whilst there are challenges to overcome, there are plenty of opportunities, not least to connect more directly with consumers to say more about a brand and learn more about the consumer – but also to make money in different ways by moving to service business models and getting revenue from the data you collect. But to make the most of these ubiquitous enabling technologies, organisations need to embrace a more agile approach to development:

� Senior management of FMCG companies needs to drive initiatives behind implementing IoT applications – without backing and vision from the top, your innovation and development teams will not be able to leverage the full potential of the IoT.

� The FMCG sector should be investigating and partnering with dynamic start-ups and established companies who have bright ideas in the IoT space. The sector should also be learning from industries such as healthcare, and sports and fitness, that are more established in the IoT world – to understand how they have done it.

� FMCG companies should be experimenting with top-level ideas and technologies to learn about what works and about the different ways it is possible to make money. And, whilst experimenting and learning quickly is important, organisations should also develop a cohesive strategy of how they will build their IoT offerings and platforms, and how they will make money from them.

� The FMCG sector needs to change from a traditional product development process and planning mentality to one that is more swift, agile and builds on the distributed and shared approach of the internet and the IoT.

For further information or to discuss your comments, please contact:

Sajith Wimalaratne, Workshop Leader [email protected]

About Cambridge ConsultantsCambridge Consultants is a world-class supplier of innovative product development engineering and technology consulting. We work with companies globally to help them manage the business impact of the changing technology landscape.

With a team of more than 700 staff in the UK, the USA, Singapore, Japan and India, we have all the in-house skills needed to help you – from creating innovative concepts right the way through to taking your product into manufacturing. Most of our projects deliver prototype hardware or software and trials production batches. Equally, our technology consultants can help you to maximise your product portfolio and technology roadmap.

We’re not content just to create ‘me-too’ products that make incremental change; we specialise in helping companies achieve the seemingly impossible. We work with some of the world’s largest blue-chip companies as well as with some of the smallest, innovative start-ups who want to change the status quo fast.

Cambridge Consultants is part of the Altran group, a global leader in innovation. www.Altran.com

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