The more things change: value creation, value capture, and the Internet of Things (IoT)

Most “things,” from alarm clocks to Zambonis, the human body included, have long operated largely “dark,” with their location, position, and functional state unknown or even unknowable. No longer, thanks to the Internet of Things (IoT), a suite of technologies and associated business processes that allow us to track and count, observe and identify, evaluate and act in circumstances heretofore effectively invisible and beyond reach.

In relaxing many of the constraints that have traditionally defined fundamental business processes, the IoT demands that we revisit the two defining questions of strategy: how to create value, and how to capture it.

We have concluded that how companies create value has changed profoundly. A tennis player no longer values her racquet solely in terms of the stiffness of the frame, the string tension, and its weight and balance, but also—in the case of Babolat’s Play and Connect racquet—as a source of information about her tennis stroke and how to improve it. In other words, it is not merely the features of a product or service that create differentiated value—it is information about that product or service. And information, we argue, creates value very differently than do products or services.

How companies capture value remains largely the same, a function of competitive position and competitive advantage. Companies that control the flow of information in the value creation process enjoy competitive positions that are likelier to afford better opportunities to capture value from other participants in their ecosystem. In other words, they know where to play. Companies that differentiate the way in which they control the flow of information from other companies with similar positions enjoy a competitive advantage. In other words, they know how to win.

IoT technology is creating opportunities in unexpected places and ways, including Internet-connected wearable fitness monitors, insurance policies, pill bottles that know when you’ve opened them, retail supply chains, and, yes, tennis racquets. We hope you will agree that embracing the new challenges of information-based value creation without abandoning the time-tested tools of value capture—where to play, and how to win—is a powerful first step in creating an effective IoT strategy for your organization.

The article was originally published on Deloitte Review Issue 17, a publication from Deloitte Insights.