Wireless Noodle Episode 27: To spin or not to spin?

This week's episode examines whether it makes sense for communications service providers to spin out their IoT business units, a look at benchmarking of digital transformation service providers, and a little more on our recent work on sustainability.

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An approximate transcript of the podcast is available below:

Welcome to this week’s Wireless Noodle. On the agenda today is whether it makes sense for communications service providers to spin out their IoT business units, a look at benchmarking of digital transformation service providers, and a little more on our recent work on sustainability.

Should CSPs spin out their IoT units?

In recent weeks there has been some speculation that Vodafone is planning to spin out its IoT business. This is a recurring issue for Communications Service Providers: to what extent should your IoT business unit be independent from the main parent company? In a recent report we examined the approach of various operators to devolution and the extent to which there is an optimum level of independence.

Over the last decade or so we have seen a plethora of different approaches to the degree of independence afforded to a CSP’s IoT business unit. Back in the dim and distant past, there was effectively no such thing as a separate BU, and IoT (back then thought of as ‘machine-to-machine’) was generally a wholesale business supporting MVNOs or involved the sale of undifferentiated SIM cards using regular data tariffs. As such there was no IoT (or M2M) business unit, let alone an independent one. 

Over the course of the last 15 years, as CSPs became more focused on the IoT opportunity they have collectively built up dedicated IoT capabilities across sales, propositions, marketing and engineering separate from that of the main company. In some cases, CSPs have gone even further, establishing business units with separate P&L, and even independent legal entities.

There are a range of approaches, with varying degrees of independence of those various elements, all laid out in the report. 

Typically, CSPs have evolved their IoT BUs to be increasingly independent, up to a point. The benefits associated with the first steps of independence were clear, with an evident need for dedicated sales, propositions, marketing and engineering functions. This is generally a one-way street of growing sophistication of the offering, adding value and being better able to directly address the growing opportunity. All of the major CSPs went through a process of establishing some form of IoT business unit covering these areas. 

Beyond the establishment of a business unit, the benefits of financial independence and/or legal separation are moot. These elements of devolution of responsibility from the main business to the IoT business unit (or similar) have so far come with diminishing returns in terms of clear demonstrable benefit. This is best illustrated by the fact that CSPs often change direction on the subsidiarity of these higher-level functions. Whereas there are very few examples of CSPs moving responsibility for the basic technical and commercial functions back into the main business, there are several examples where CSPs have changed strategies about higher level independence. We give a few examples in the report.

One relatively new development has seen some CSPs combine their IoT units with other emerging lines of business such as data analytics, as is the case with Telefonica Tech and Telia Division X. It is too early to say whether these types of initiatives will be more successful, but we believe given the interconnectedness of IoT with other areas such as analytics, AI and edge, that they will offer some benefit. 

Full independence is fraught with challenges, not least the abandonment of a strong competitive differentiator in the ownership of the network and channels to market. We cycle through the potential advantages and disadvantages in the report. The conclusion is that the ability to be independent of the network or technology agnostic, really doesn’t deliver much of a benefit. 

Part of the problem stems from the prevailing survivorship bias in IoT. Everyone looks at the great success of the IoT unicorns and wants to emulate them. But, to be a unicorn you generally have to be able to fail. 90%+ do fail. Network operators have a built in barrier to entry (i.e. the cost of deploying a network) which means their competitive environment is not as harsh (it may not seem it though). They have a guaranteed position in the value chain and it’s not too wise to give it up.

Which vendor is best in digital transformation?

In 2021, at Transforma Insights we have undertaken some extensive research looking at the capabilities of dozens of technology vendors in supporting enterprise digital transformation. This has included digging into the capabilities of hyperscalers, consultancies, systems integrators, IT services vendors and industrial technology vendors including AWS, Microsoft, IBM, Accenture, CGI, Siemens, PTC and many many more. 

We assessed their capabilities across 11 key technology areas including AI, IoT, Product Lifecycle Management, Distributed Ledger and Edge Computing, examining hardware, software, consulting, application development and numerous other functions.

We did this as three tranches, all of which have associated reports. The first looked at Hyperscalers (I talked about this in episode 20). The second was a set of consultancies and technology vendors including Accenture, Deloitte, Fujitsu, IBM, Oracle and TCS. The third tranche was a set of what we termed ‘Industry 4.0 Digital Transformation Service Providers’ including Siemens, PTC, Rockwell Automation, GE and Bosch.  

Based on our assessment, the overall top scoring vendors in the space (with % scores compared to that hypothetical perfect vendor) are Microsoft and Siemens, tied on 52%, followed by IBM on 49%, AWS on 43% and Accenture on 36%. PTC (35%), Rockwell (33%), and TCS (32%) were the only other vendors to break the 30% barrier.

We have highly granular analysis of all the various product and service elements and we thought it was worth examining how they compare when considering those aspects separately. After all, some companies are better at building product and others are better at implementation. 

The hyperscalers (Microsoft and AWS) and the industrial-focused vendors (Siemens, PTC, Rockwell and Bosch) all score strongly on the products axis. The consultancies/SIs (e.g. Accenture, TCS and Deloitte) all score much better on the services axis. No particular surprises there given the relative focus of each of these types of vendors. IBM is the best at spanning the two.

If you want to take a look at the blended results, they’re shown a  blog post we published earlier this year. I’ll put a link on the wirelessnoodle.com website: Who are the leading vendors in Digital Transformation?.

The key thing to be aware of when considering which vendors to use for which projects is that all requirements are different. While the chart presents the overall capabilities as they stand currently, for many projects enterprises will want to use a specialist player focused on a particular part of the market such as Ansys or Dassault Systemes for Product Lifecycle Management. In our reports we dig in sufficient depth to be able to identify the best vendors for specific technology areas and for particular functions, e.g. hardware or systems integration. Each enterprise deployment is different and needs to dig into the granular analysis that is included in the reports.

It's also worth noting that the market moves fast. The hyperscalers particularly, and AWS more than the others, are rapidly evolving their offerings to challenge established players in many of the technology areas that we cover.

Saving the planet AND making money

Finally today, a last look at some of the work we did recently on sustainability, and how enterprises can use disruptive tech to meet their sustainability goals. 

Press release link to the research is provided on the wirelessnoodle.com website: New report from Transforma Insights identifies the ‘Clean Dozen’ digital transformation initiatives that will drive sustainability. 

Whilst the main aim of the report is to profile the potential sustainability benefits associated with digitally transformative solutions, it also seeks to provide insight into their business impact. Any associated benefits in terms of improved business performance or bottom-line profits of the company will help to justify the adoption of an application that has an associated sustainability benefit. Typically, reducing the wastage of resources directly reduces the cost of operations which can result in quite significant savings in some industries. 

For example, fuel costs are significant in fleet operations and electricity costs are significant in buildings and these costs can be substantially reduced through the implementation of fleet management and smart buildings solutions, respectively. DX solutions can also promote sustainability by reducing various types of losses and so decreasing the resource consumed per unit of output. For example, by increasing the yield of output in agriculture, the sustainability impact (and cost) per unit of output is lowered.

In the last few weeks I’ve talked about how the various solutions can reduce energy consumption, but it also worth highlighting how they can save costs.

Fleet management, for instance, can reduce cost by 10% and increase profitability by up to 30%. Road accidents also fall, typically by 40-50%, and speeding incidents can fall by up to 90%. 

Supply chain solutions can, according to our research, reduce shipping costs by up to 30% and inventory holding costs by up to 50%, as well as providing superior service and reducing incidents of theft.

Remote Monitoring solutions can increase uptime by 10-15%, reduce maintenance costs (through predictive maintenance) by up to 30% and speed time-to-market by up to 25%. 

Saving the planet is great. But if it also helps to make an organisation more profitable, all the better!

Next week

Just a reminder: if you’re enjoying the podcast I’d be obliged if you could leave a review. It’s much appreciated. 

And another plug – we have a stack of webinars coming up. We announced our 2022/23 series of webinars a few months ago. They’re coming up on the 26th September, looking at 5G and mobile private networks (aka private wireless). In November we’re looking at how Digital Transformation will save the planet. That’s all tied up with the Clean Dozen work I spoke about earlier. In January we’ll provide a summary of the work from our annual CSP IoT Peer Benchmarking Report, which is due out in Q4. In March we’ll delve into the opportunity associated with applied AI, and in May next year we’ll share our IoT forecasts.

Next week I’ll be talking about constrained IoT and the implications for how deployments are done. Also a bit about Sigfox and eSIM.