Internet of things by Institute for Competitiveness

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Internet of Things THE INDIAN CONTEXT WHITEPAPER

Internet of Things - The Indian Context

Internet of Things The Indian Context

Authors

Amit Kapoor Honorary Chairman Institute For Competitiveness, India

Sankalp Sharma Senior Researcher Institute for Competitiveness, India

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Internet of Things - The Indian Context

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1. Introduction to the era of IT & IoT with smart devices: From times immemorial Information has been a critical element in understanding any society. Its production, transmission and distribution has lead to human progress. The earliest of organizing information can be found in the form of pictorial representations in caves.1 Then came the Sumerians and the Egyptians with their clay tables and papyrus scrolls. The language was mostly a pictorial representation of characters with some 700 characters called hieroglyphs.2 Post this in the middle ages from 5th century onwards the scripts were copied by scribes and were often ornamentally decorated.3 Then came the printing press revolution with Johann Gutenberg printing the Bible in his printing press in Mainz in Germany in 1454 or 1455.4,5 In the latter part of the 18th century a lot of innovations took place which lead to fundamentally newer ways of doing things. This lead to another type of revolution with telegraph, newspapers, photography, one which lead large amount of people to be within the reach of information. The process continued to evolve and with greater and cheaper access, entertainment became possible with the advent of movies, songs, and popular cinema in the second half of 20th century. In the 1950-60’s information became greatly available to masses and the homes became the centerpiece of Information access to people. Post this in the 1980’s, the personal computer revolution reshaped the way in which people viewed and received information and communicated with each other. During the early part of 2000’s a mobile, smartphone and a tablet revolution disrupted the personal computer revolution.6 The IT revolution for organizations within the broader information revolution started around the 1970’s with processes being automated within the enterprises. Since then there have been a significant shift in the way organizations perceive the role of information for their operations. For businesses, the shift has included coordination and collaboration within different operations of the organization along the value chain and also how a business interacts with its environment namely its suppliers, competitors, customers, new products and services and new

entrants. IT has also made processes far more efficient and human resources far more more productive as well as dramatically reduced the transaction costs for consumers. During the early years it also lead to a proliferation of companies trying to come up with different businesses around the very concept of access to the internet. These included personal computer manufacturers like Apple and Microsoft, HP as well as a host of software and service providers. With the internet gaining momentum, a large number of businesses started operations around the very concept of Internet and what it could do to revolutionize the way people lived in society. E- Commerce businesses like Amazon, Dell etc. offered purchases over the internet and built around the very concept of internet. Altavista and Google were search engines offering information services to consumers and charging advertisers for the same. Similarly webmail services of players like Yahoo, Gmail, Outlook, etc. have challenged and replaced ‘snail’ mail companies. Most recently Facebook and Twitter offer examples of network businesses built around the internet. With convergence of technologies7 the access to online businesses has become more pervasive. India has been a little late in catching the internet business bandwagon. It is because internet penetration levels were low in India.8 With greater telecommunication convergence and the advent of mobile telephony the mobile and internet penetration has risen. It is only post 2000’s that mobile telephony took off in a big way in India. IT has also lead to a fundamental relook at business models of organizations specifically enterprises. In various industries transformations are being witnessed. These include the automotive industry where the industry has become much more global with greater use of IT and automation in the production processes. Similarly, in the healthcare industry the hospital infrastructure and how it connects with the overall healthcare delivery process has undergone a massive change in India. It has also made access possible with telemedicine, etc. In the apparel and retail Industry level too the industry there seems to witness two distinct trends. On the one hand inventory control and store management has seen a pervasive use of IT for inventory control

1 The oldest of these are probably in Indonesia or Spain. http://www.nytimes.com/2014/10/09/science/ancient-indonesian-find-may-rival-oldest-known-cave-art.html?_r=0 2 http://www.hrc.utexas.edu/educator/modules/gutenberg/books/early/ 3 http://www.hrc.utexas.edu/educator/modules/gutenberg/books/before/ 4 To read more about the remarkable innovation http://www.hrc.utexas.edu/exhibitions/permanent/gutenbergbible/ 5 It has been estimated that there were perhaps 30,000 books in all of Europe before Gutenberg printed his Bible; less than 50 years later, there were as many as 10 to 12 million books. http://www.hrc.utexas.edu/educator/modules/gutenberg/books/legacy/ 6 This is what is described by Irving Fang, in his classic text ‘A History of Mass Communication: Six Information Revolutions. https://www.academia.edu/5051168/A_ History_of_Mass_Communication_Six_Information_Revolutions 7 Convergence of digital technologies refers to dissolution of boundaries between telecom, Internet and other platforms like TV. 8 At present one in every four persons has access to Internet.

Internet of Things - The Indian Context

Figure 1: The DIKW Pyramid. Source: IBM (2010) and management while on the other hand the Industry is also witnessing newer business models with the elimination of the store per say and delivery to households. In the aviation sector, which is a capital intensive sector the role of IT has greatly enhanced the management of systems that both the pilots use as well as improved the overall efficiency of the on ground operations. It is especially important for the aviation Industry that has a low profitability amongst Industries.

The Internet of Things9 However these are transformations that have taken place in the industries till now. Over the

next 10 or 15 years the change according to many people is going to take place in the space called as the ‘Internet of Things’ or IoT. A very simple way to look at this is that the way humans are connected to the internet, smart devices can also be connected to the Internet. The term ‘Internet of Things’10 was coined by British Entrepreneur Kevin Ashton in 1999 to describe how connected things could transform the future. The idea was that devices connected to the Internet would lead to a productivity revolution of sorts with time and cost savings. Since then a large number of businesses have seen potential in the Idea and quite a number of them believe that the Idea would be revolutionary. Gartner defines IoT as ‘the network of dedicated physical objects (things) that contain embedded technology to sense or interact with their internal state or external environment.’11 The IoT is a product connected to a network12. The term is also often thought of as M2M (machine to machine) communication vis-àvis a M2H (machine to human) or H2M (human to machine) communication that we see these days. It would enable the future to be of smart and connected products. The connected things are part physical and part digital and the technology stack has technologies for communications and storage as well as processing of information. The basic pyramid of DIKW describe how streams of data that are expected to drive decision making can be processed into information and how that information can be converted to Knowledge and wisdom for smart controlled decision making or assistance in decision making.13 The applications are presently being explored in a distinct variety of industries and products such as wearable devices, automotive, healthcare and consumer durables segments according to players such as Goldman Sachs14. The future seems to offer immense benefits to humanity.

Figure 2: The IoT landscape and its impact sectors. Source: HBR, October 201415

Some authors16 also tend to describe the emerging IoT phenomenon in terms of a third Industrial revolution with a revamp of the existing economic system. According to Jeremy Rifkin, author of the Book ‘The Third Industrial Revolution’, IoT is just not about technology, it is as profound an idea as socialism or capitalism is. He mentions the ‘zero marginal cost’ to be the driving force behind revolutionary change in people’s lives today. Capitalism and socialism

9 https://www.youtube.com/watch?v=3xOK2aJ-0Js 10 http://www.theguardian.com/media-network/2015/mar/31/the-internet-of-things-is-revolutionising-our-lives-but-standards-are-a-must 11 http://www.gartner.com/newsroom/id/2905717 12 https://www.youtube.com/watch?v=l_LT_ZKlVQw 13 http://interactivemultimediatechnology.blogspot.in/2010/03/data-information-knowledge-wisdom-ibms.html 14 https://hbr.org/2014/10/the-sectors-where-the-internet-of-things-really-matters/ 15 ibid. 16 Most notably Jeremy Rifkin https://www.youtube.com/watch?v=3xOK2aJ-0Js

WHITEPAPER being replaced by near zero marginal costs. A near zero marginal cost17 means a very low cost of producing an addition good or services. Several industries have been disrupted because of this phenomenon. For example ‘the ideas industry’ meaning- the additional cost of producing a pdf file for free circulation. Initially this was thought to be good. But overtime the ‘freemium’ to premium transition that like businesses like media and content generators expected did not happen. Very few people bought the expensive goods and services offered over the internet. It disrupted the content industry, newspaper, magazine, music, content and publishing industry. It was thought that this would not pass on from the digital industry to real industries. But increasingly this is coming to be true. Increasingly over the next decade the boundaries between physical and digital would blur and this will lead to massive amount of disruption in the businesses.

that has the capability individually to better efficiencies in the operation of a house. The house would further be connected to power grids and to a locality and to a city. The efficiency would be brought in just not for a house but optimized for the whole city. The applications could be used for traffic flows, power requirement optimization, etc. The Economist Intelligence Unit’s Internet of Things Business Index18 was done in June 2013 and took a sample of 779 executives from across the world to see the impact that IoT was having on business operations both within and outside of the firm. An astounding 76 responded that they were using IoT internally within the firm. An astounding 76% also responded that they were using IoT externally in the goods and services. The results revealed

According to Rifkin historically speaking there are three systems that have a profound impact on the way people live their lives. These systems are ‘Communications, Energy and Mobility’. During the first industrial revolution the technology for these systems were steam Figure 3: The Internet of Things Business Index. powered printing and Source: The Economist Intelligence Unit 201320 later telegraph for communication, coal that in most of the regions and industries IoT and steam power for energy and locomotives and railroads for mobility. During the second Industrial was found to be in the research stage. It was true for both operations within the value chain of revolution somewhere in the 20th centurythe firm as well as for the products and services telephone, radio and television were used for that the businesses were offering. Over the next communication, centralized electricity came to be decade or so the potential for the sector is huge used for energy and oil and Internal combustion if investments see the light of the day. Most engine became the predominant technologies for executives (close to 30%) also saw unlocking mobility. During the 21st century internet is being of new revenue opportunities from existing and will continue to be used for communication, products/services as a major benefit of IoT. Also distributed renewable energy will be used for executives thought that the biggest impact of IoT energy needs and driverless and automated is in the improvement in customer service and drones and cars will be used for mobility. Already support followed by bettering the product or some of this is visible both in the developing and service being offered. Research on IoT can also the developed countries. boost SME competitiveness as expressed in a recent book on IoT.19 Often the IoT is talked of as a ‘system of systems’ 17 https://www.youtube.com/watch?v=3xOK2aJ-0Js 18 The whole report can be assessed from file:///Users/SankalpSharma/Downloads/EIU%20Internet%20Business%20Index%20WEB%20(1).pdf 19 http://www.internet-of-things-research.eu/pdf/Converging_Technologies_for_Smart_Environments_and_Integrated_Ecosystems_IERC_Book_Open_Access_2013.pdf 20 ibid.

Internet of Things - The Indian Context

Figure 4: Measure of Digital Connectedness- Number of Internet users per 100 people Source: World Bank 201523

Figure 5: Internet Users per 100 people in 2014. Source: World Bank 2015

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2. Measures of How Connected we are? With the advent of the digital age we have been somewhat greatly connected. It is because with the click of a button we can communicate with people elsewhere. In India roughly one in ever 5 people use the Internet. The Industry Body IAMAI21 recently made a statement that India has 350 million Internet users. Access to Internet is one of the fundamental things that is connecting people over the net. There are social networks like Facebook and LinkedIn where people are constantly connected with other people over the Internet. The proliferation of mobile devices has enabled people to connect with other people remotely not physically but virtually. All this shows that Internet has indeed brought about a fundamental transformation in how people connect with other people. The internet penetration is higher in developed countries as compared to developing countries and this has brought about a profound revolution in the way people not only connect to other people but in their overall behavior as well. The businesses too have seen this transformation and try to offer goods and services over the Internet. The physical world has thus seen greater digitization and this has a profound bearing on businesses, government as well as the consumers. Over the next few decades a similar transformation is being envisaged when ‘things’ rather than people connect to the Internet. The physical and digital part of the ‘things’ enables

Figure 7: Total Spending on IoT Source: Gartner (2014)24 them to scan its immediate environment for data. This data could be stored and analyzed with the help of software to cull meaningful information and provide feedback or enable decision-making basis the data. A simple example could be suggesting / altering the temperature of a room by an AC, which already knows the historical temperatures being maintained in a room. Over the next few years Gartner expects to see the number of connected things to rise from roughly 4.9 billion in 2015 to 20 billion in 2020.22 Gartner also expects the service spending to go up from the present USD 69.5 billion in 2015 to USD 263 billion by 2020.

3. Developing country perspective on IT and IoT: Figure 6: Number of Smart connected devices in different verticals. Source: Gartner (2014)25

The main policy governing the IT and ITeS sector in India at present is the National Policy on Information Technology 2012. The main thrust of the policy is to increase revenues from 100 Billion

21 IAMAI is an acronym for the Internet and Mobile Association of India. http://indianexpress.com/article/technology/tech-news-technology/india-now-has-over-350million-internet-users-iamai/ 22 Some estimates by Federal Trade Commission suggest in 2020 the number of connected devices would be 25 billion. https://www.ftc.gov/system/files/documents/reports/ federal-trade-commission-staff-report-november-2013-workshop-entitled-internet-things-privacy/150127iotrpt.pdf 23 Supranational bodies in the diagram are marked in band lines while countries and nations are marked in dotted lines. Data accessed on 24th August 2015 from World Bank datasets. 24 For details kindly see- http://www.gartner.com/newsroom/id/2905717 25 ibid.

Internet of Things - The Indian Context USD at present to 300 billion USD by 2020.26 India has also come up with a revised draft policy on the IoT27, which is there in the public domain. The policy seeks to create an IoT industry in India of USD 15 billion by 2020. The broad contours of the policy are mentioned below. As per a Gartner Report the total revenue generated from IoT industry would be USD 260 billion and the connected devices would be 20 billion by 2020 globally. It has been assumed that India would have a share of 5-6% of global IoT industry. The policy also seeks to undertake capacity development (Human & Technology) for IoT specific skill- sets for domestic and international markets and undertake R and D for assisting technologies. The approach comprises of five vertical pillars (Demonstration Centres, Capacity Building & Incubation, R&D and Innovation, Incentives and Engagements, Human Resource Development) and two horizontal supports (Standards & Governance structure). The domain specific applications are expected to work in the following segments: • • • • • • • • •

SMART CITY SMART WATER SMART ENVIRONMENT SMART HEALTH SMART WASTE MANAGEMENT SMART AGRICULTURE SMART SAFETY SMART SUPPLY CHAIN & LOGISTICS SMART MANUFACTURING / INDUSTRIAL IOT

It is instructive to see that the union government of India in the case has been proactive to look

at the opportunity of IoT and build a systematic plan for its implementation. However detailing on the broad policy contours could be the next step for bettering the policy outcomes for IoT and its evolution in the country.

4. How IT and IoT is reshaping the industrial landscape: The Internet has been the story of remarkable transformation that has happened over the past 50 years or so. Porter (2015) describes three stages of IT integration and transformation. Chronologically speaking the first wave of IT started when processes started becoming automated within enterprises. The product and data in phase one were mostly in manual and physical form. The second stage saw increasing digitization of products and processes became all the more automated. Data became computerized and databases were used for sharing of data and Information. This phase also saw proliferation of Internet and access through the desktop as well as later laptops in the most developed countries and some of the developing countries. Phase three has seen the proliferation if the laptops and decline of desktops as devices like smartphones and tablets became more pervasive. This phase is ongoing and saw complete value chain integration in processes as well as well as now ever product with a unique IP address has the potential to identify location and help in smart logistics and tracking. The IT industry at present in India is one of the few industries that has emerged as being globally competitive.

Figure 8: Seven Pillars of the draft IoT Policy in India. Source: Draft IoT Policy 26 For details kindly see: http://deity.gov.in/sites/upload_files/dit/files/National_20IT_20Policyt%20_20(1).pdf 27 For details kindly see: http://deity.gov.in/sites/upload_files/dit/files/Revised-Draft-IoT-Policy_0.pdf

WHITEPAPER According to NASSCOM28 its total value was more than 100 Billion USD. Over the next few decades

IoT as a segment has potential and if India is able to foster the ecosystem and capture 5-6% of the

Figure 9: The three waves of IT transformation. Source: Authorsâ&#x20AC;&#x2122; Analysis and Michael E. Porter (2015)29

Figure 10: Impact of IT and IoT on the Industry Structure at a generic level Source: Michael E. Porter & Institute For Competitiveness Analysis 28 NASSCOM is an industry body specific to the IT-BPO Industry in India. http://www.nasscom.in/indian-itbpo-industry 29 Talk by Michael Porter & Jim Heppelmann: how IoT changes competition and companies: Liveworks 2015 https://www.youtube.com/watch?v=S2ZtsQfiPH4

Internet of Things - The Indian Context market as envisaged in the draft IoT policy.

5. Impact of IT on Industry structure at a generic level Using Porter’s five forces model we can easily see that the impact of IT has been significant on the industry structure. At a generic level IT has reduced entry barriers to business as well as Internet has created a level playing field for competitors. This has created significant rivalry in some businesses like retail etc. Similarly, the suppliers have a greater choice to sell to sellers over the internet. Thus their bargaining power has also increased. With respect to the substitute products product/services sold over the internet act as substitutes to conventional products. Thus internet has reduced the barrier to alternative products and services. Finally on the consumer side too the IT and Internet has reduced access made purchasing easier and streamlined processes making for greater choice. At the level of the firm the IT and IoT revolution is having a profound Impact30. It is because the transformation inside the new business firm is very visible. The diagram mentions the older functions in a different colour precisely for this

reason. There is a new role that is to be created which takes care of the data that a firm now has access to due to producing more smart connected products. It is the newest C in the ‘CXO’ list. It is called as the ‘Chief Data Officer’. The role will require management of vast streams of data and analyzing the raw data with analytics. The IT and R&D will very closely related and will work in tandem to develop prototypes. Two new functions according to Porter and Heppelmann (2015) are bound to appear. These are the ‘Development Operations’ function and the ‘Customer Success Management’ functions. The ‘Development Operation’ functions will draw people from traditional product development roles namely and merge it with operational roles namely IT, manufacturing as well as service and support functions. These teams will work collaboratively to develop products that have the functionalities of all the smart connected products. Similarly, the marketing, sales and support functions within the organization will be used to achieve ‘Customer Success Management’. This function will ensure that the customer draws maximum value from the utilization of the product. Overall the internal organizational structures will see a profound shift once products that are being manufactured by companies become ‘smart’. The shift will change

Figure 11: The Impact of the ongoing revolution the Organizational Structure of a firm Source: Michael E. Porter and James E. Heppelmann 30 The most recent paper of Michael Porter & Jim Heppelmann talks about these profound industry changes. Kindly see: https://hbr.org/2015/10/how-smart-connectedproducts-are-transforming-companies 31 For more details kindly see https://hbr.org/2015/10/how-smart-connected-products-are-transforming-companies

WHITEPAPER both how the internal structure of companies is organized as well as how the externally the companies interact with customers. It will change not only how companies operate but also how they fundamentally organize to produce goods and services within the society..

6. Industrial value chain and Industry analysis of select industries in a developing economy like India with examples of how IT is having an impact on the sameAutomotive Industry: The automobile industry is one of the few Industries in which is globally competitive. The industry broadly speaking has 4 major segments namely passenger vehicles, commercial vehicles, two wheelers and three wheelers. The two-wheeler segment has maximum units of production (18.5 million units in 2015E), followed by passenger vehicles at (3.2 million units in 2015E) and three wheelers at (0.9 million units in 2015E) and commercial vehicles (0.7 million Units in 2015E)32. The companies have global scale and the sector has seen improvements post the de-licensing in 1993. A lot of companies entered in the 1990â&#x20AC;&#x2122;s through JVâ&#x20AC;&#x2122;s. Now the next way of

electric cars and driverless cars are going to drive the ecosystem. The entry of hybrid versions has made the industry more environmentally friendly. Cars are becoming more connected with newer model, driven by infotainment, navigation, safety, diagnostics, and fleet management, etc. The scope of a driverless car presently being tested would alter the value deliver to the consumer significantly. The car could if launched help prevent deaths of 1m people globally each year who die in car accidents.33 The present efforts are being led by Sebastian Thrun at Google.34 The major change is expected to be in the product and not just the value chain, which was earlier, the focus of most of changes happening in the Industry. However, concerns remain with respect to the safety and takeover of car controls means very little control in the hands of the passengers.

Strategy Analysis for Automotive Industry: Mahindra35 Mahindra is one of the oldest players in the automotive segment in India. It has seen a lot of activity especially after India liberalized its automobile segment. A lot of strategic choices that the company has made have helped it to emerge a pre-eminent player in the automotive segment. The company has seen both organic and inorganic growth over the years and has

Figure 12: Value Chain of the Automotive Industry and impact of IT on the same Source: Michael E. Porter & Institute For Competitiveness Analysis 32 Kindly see http://www.ibef.org/download/Automobile-August-2015.pdf 33 http://www.economist.com/news/technology-quarterly/21662654-sebastian-thrun-pioneer-googles-autonomous-cars-wants-teach-people-how 34 ibid. 35 Information on the company taken from company website at http://www.mahindra.com/mobility and http://www.ibef.org/industry/india-automobiles/showcase

Internet of Things - The Indian Context

Figure 13: Industry Structure and Analysis of the Automotive Industry Source: Michael E. Porter & Institute For Competitiveness Analysis Segmenting Strategically

Exploiting Tradeoffs

• Positioning Adopted: Needs Based • Started operating as India’s leading Utility Vehicle Company in 1945. • • Increased focus on Consumer and Retail Segment of mobility business over the years from • the farm side. • Forward and backward integration • Into various other products around the core utility vehicles business, e.g., finance and IT. • Caters to wide variety of consumers in the automotive and allied spaces.

Not getting into segments where it lacks considerable experience small cars segments. Focusing on SUV and Farm equipment’s over the years has reaped rich dividends. Diversification has been part of the overall strategy.

Leveraging Unique Activities

Capitalizing on Industry Dynamics

•

• •

Expertise in superior engine design and performance. Pioneering in the new electric vehicle model delivery by acquiring majority stake in Reva Electric Vehicles. Leveraging domain expertise of generations in automotive business.

•

The company has been ahead of the industry learning curve. The company is focusing on increasing its portfolio of product offerings in various automotive categories while maintaining is preeminent position in SUV and farm segments. The company is leveraging knowledge of IT and technology to create disruptive business models for future better hybrid variants.

Figure 14: Strategy Analysis of an Enterprise in the Automotive Sector: Mahindra Ltd. Source: Michael E. Porter & Institute For Competitiveness Analysis

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Figure 15: Value Chain of the Retail and Apparel Industry and impact of IT on the same Source: Michael E. Porter & Institute For Competitiveness Analysis been put a great strategy in place. The experience and expertise of engine design coupled with understanding of unique customer needs has been the overarching strategy put in place by the leadership team in Mahindra.

Retail and Apparel Industry: The retail market in India gained momentum in the 1990â&#x20AC;&#x2122;s with pure play retailers realizing the potential of the Indian retail Industry. Investments

Figure 16: Industry Structure and Analysis of the Retail and Apparel Industry Source: Michael E. Porter & Institute For Competitiveness Analysis

Internet of Things - The Indian Context in retail in the later part of 1990’s and 2000’s consolidating the presence of the industry. FDI is single brand retail is now 100 percent while it is 51 percent in multi-brand retail. There are several formats of retail in India like departmental stores, hypermarkets, supermarkets, specialty stores and cash and carry stores. Recently the e-retail segment has also seen a considerable rise with greater Internet penetration as well as investors’ backing the online retail players like Amazon, Flipkart and Snapdeal.36 However still a bulk (92%) of the total retail is unorganized. Apparel is the second largest category within the organized retail segment with 8% of the market share behind grocery that accounts for 69% of the total organized retail segment. India has a long history of textile production. There were around 420 mills37 even in pre-independence India. At present Indian textile Industry is one of the most competitive industries of India globally with India being the second largest exporter of

textiles38 and clothing in the world. Retail and apparel Industry has seen increasing penetration and automation with increasing usage of online systems. The potential for impact of the IoT in the space is immense. At present a number of stores, like Wal-Mart internationally, have started using RFID tags to enable employees to quickly check the stock by scanning items on shelves, and to track products more easily from manufacturing to the final delivery.39 These changes will have profound impact in the way retail is organized and with much better inventory controls in the years to come.

Strategy Analysis for Retail and Apparel Industry: Flipkart Flipkart is a new but a very dynamic player in the fast expanding e-retail industry in India. Its analysis reveals the usage of IT to reconfigure business models.

Segmenting Strategically

Exploiting Tradeoffs

Positioning Adopted: Needs Based • Started operating as India’s leading e-retailer. • Positioning largely for only online consumers with physical and logistical connectivity. • Offers consumer the benefit of cheaper costs with convenience to purchase. • Information access and user interface • are of critical importance in the business. • Customer acquisition has prompted a large number of PE investments in the sector.

•

Leveraging Unique Activities

Capitalizing on Industry Dynamics42

• • •

• •

Differentiation is very minimal on the inter• face as compared to other players like Snapdeal and Amazon India. Tying up with logistics partners as well as with • 30,000 businesses41 is part of the expansion strategy. • Human resources and vendor as well as financial relationships remain critical for the business.

Has stayed away from getting into the physical retail format. Only now is it venturing into it and that too very cautiously.40 Also click and collect in addition to click and delivery model for engagement. The company is focusing on its core business model that is enabled by an increase in the online penetration in India. Has leveraged the positive word of mouth in the segment for expansions and customer acquisition.

Has been ahead of the industry curve in recognizing the potential that online retail offers in an almost un-penetrated market. The company is looking for strengthening its customer acquisition base with acquisitions of firms like Myntra, etc.43 The industry is fast becoming the de-fecto mode of shopping for consumers with Internet access.

Figure 17: Strategy Analysis of an Enterprise in the Apparel and Retail sector: Flipkart Source: Michael E. Porter & Institute For Competitiveness Analysis 36 For a detailed view of the e-retail segment. Kindly see http://www.livemint.com/Opinion/z8otItpK1KTJtAK6UbvXeJ/Have-online-retailers-come-of-age.html 37 Kindly see http://www.ibef.org/download/Textiles-and-Apparel-August-2015.pdf 38 Kindly see p10, http://www.ibef.org/download/Textiles-and-Apparel-August-2015.pdf 39 Kindly see http://www.bbc.com/news/business-15004063 40 http://www.livemint.com/Companies/3UVCMKpuBIzh3s6NX76BwO/Flipkart-opens-20-stores-across-India.html 41 Kindly see https://seller.flipkart.com/ 42 Kindly see http://www2.deloitte.com/content/dam/Deloitte/in/Documents/consumer-business/in-cb-online-retail-in-india-clicking-towards-growth-noexp.pdf 43 Kindly see http://timesofindia.indiatimes.com/tech/tech-news/Flipkart-acquires-Myntra/articleshow/35472797.cms

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Healthcare Industry: The healthcare industry in India is expected to be among the top three markets in the world by 2020. It is at present the sixth largest in the world.44 At present the number of Hospitals as well as the number of medical professionals are simply unable to take care of the vast population that India has. Broadly speaking there are six verticals under the healthcare sector. These include Hospitals, Pharmaceuticals, Diagnostics, Medical equipment and supplies, Medical Insurance and Telemedicine. The segment has seen a proliferation of the private healthcare providers in the absence of the public healthcare segment. The telemedicine segment is expected to be valued at $18.7 million 201745. Mobile healthcare over the smart devices is another segment that is expected to see future growth. The IT sector has already seen a lot of involvement in the hospital and medical care segment and going ahead a lot of change is expected in the healthcare delivery especially with telemedicine and mobile phone

usage going up in rural areas. The promise is connecting people that previously could not avail healthcare facilities. The value chain and the value delivery are expected to change significantly with connected products that could monitor health constantly. A very basic thing is apps helping people keep a track of their daily walking habits. These could help better monitoring and move towards better-targeted preventive healthcare.

Strategy Analysis for Healthcare Industry: Fortis Healthcare46 Fortis Healthcare is one of the largest private healthcare concerns with its business largely in India. The company has pursued growth through the organic and inorganic routes. The company core business around patient diagnosis and care is being augmented with using telemedicine as well as using ERP systems for gaining competitive advantage over other healthcare providers with similar operations. The focus on technological innovation with automation along with manual specialization is seen to be major trends in the industry.

Figure 18: Value Chain of the Healthcare Industry and impact of IT on the same Source: Michael E. Porter & Institute For Competitiveness Analysis

44 Kindly see p. 3 http://www.ibef.org/download/Healthcare-August-2015.pdf 45 Kindly see p. 13 http://www.ibef.org/download/Healthcare-August-2015.pdf 46 For Details kindly see http://www.fortishealthcare.com/india/hospitals-in-delhi-ncr

Internet of Things - The Indian Context

Figure 19: Industry Structure and Analysis of the Healthcare Industry Source: Michael E. Porter & Institute For Competitiveness Analysis Segmenting Strategically

Exploiting Tradeoffs

Positioning Adopted: Needs Based • • The company operates mainly hospitals, diagnostics and day care specialty facilities. • • The company is one of the largest private healthcare providers with a capacity of 10000 beds.47 • • Offers services in India, Dubai, Mauritius and Sri Lanka with 54 healthcare facilities.

Not getting other related businesses like life insurance, etc. Focusing on core idea of patient care and betterment of society amidst an increasing disease burden. Keeping the inorganic expansion through acquisitions (like Wockhardt Hospitals in 2009)48 as part of overall strategy.

Leveraging Unique Activities

Capitalizing on Industry Dynamics

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Company planning to launch F1 a unique ERP platform that will provide a single view of the organization.49 Great talent of trained professionals (6,100 employees including 700 faculty members (Doctors and Scientists). Some hospitals have launched telemedicine facilities for rural access.50 Technology for core functions and operations is becoming a reality.

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The company has expanded along with the industry expansion in the healthcare space. India’s ever increasing disease burden and low cost of healthcare make it all the more attractive to people coming for medical tourism. Greenfield and brownfield expansions are part of the overall strategy.

Figure 20: Strategy Analysis of an Enterprise in the Healthcare Sector: Fortis Healthcare Source: Michael E. Porter & Institute For Competitiveness Analysis 47 Kindly see http://www.ibef.org/download/Healthcare-August-2015.pdf 48 Kindly see http://archivehealthcare.financialexpress.com/201001/market17.shtml 49 Kindly see Pp. 6, http://cdn.fortishealthcare.com/pdf/Fortis-Healthcare-Limited-Annual-Report-2014-15.pdf 50 Kindly see Pp. 35, http://cdn.fortishealthcare.com/pdf/Fortis-Healthcare-Limited-Annual-Report-2014-15.pdf

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Aviation Industry: The civil aviation industry in India is the ninth largest aviation market in the world and is expected to become the third largest aviation market by 2020. At present 6 major airline carriers operate in the Indian Industry. Out of these five of the carriers are private (Jetlite, GoAir, SpiceJet, Jet Airways and Indigo) and one is a public sector enterprise (Air India). The maximum market share in April 2015 was for Indigo with approximately 36%51 of the total market. The business is about movement of goods and people from one place to another. PLF’s (Passenger Load Factors) play an important role in productivity of carriers. The PLF for all Indian airlines vary from 75% to 90% at present.52 The three major segments of civil aviation sector are – Airports infrastructure, Airline operation & on-ground services and MRO53 services. In all these services better Automation and IT has enabled optimized solutions and better

efficiencies for operations. Recently the IoT revolution could have a significant impact on Aviation Industry with sensors being placed in engines which could stream and analyze information mid air and take decisions mid air pertaining to fuel etc.54 Such optimization could lead to efficiency gains as well as theoretically has the possibility of reducing accidents thus making travel safer. At present GE’s Flight Efficiency Services are helping airlines find efficiencies that can reduce up to 2 percent of their annual fuel bills.55

Strategy Analysis for Aviation Industry: Indigo Airlines56 Indigo Airlines started operation is 2006 and seen a meteoric rise in the largely unprofitable and hostile industry. The success has been driven by the focus on cost rationalization as well as the fact that the company has opted for a single variety of aircraft with a focus low cost and hassle free travel within the segment.

Figure 21: Value Chain of the Healthcare Industry and impact of IT on the same Source: Michael E. Porter & Institute For Competitiveness Analysis

51 http://www.ibef.org/download/Airports-August-2015.pdf 52 ibid. 53 MRO stands for Maintenance, Repair and Overhaul. 54 Kindly see. http://www.forbes.com/sites/ptc/2014/09/29/where-will-you-buy-the-internet-of-things/ 55 ibid. 56 Kindly see https://content.goindigo.in/Information/IndigoExperience#page4

Internet of Things - The Indian Context

Figure 22: Industry Structure and Analysis of the Aviation Industry Source: Michael E. Porter & Institute For Competitiveness Analysis Segmenting Strategically

Exploiting Tradeoffs

Positioning Adopted: Needs Based • Started commercial operations in August 2006 with a single aircraft, and has grown our fleet to 97 aircraft. • The position adopted is low cost hassle free travel with no frills in the airline space. • Focus on is on reliability and quality service.

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Not getting into the luxury travel airline space. Single kind of aircraft makes the overall experience predictable and on expected lines for passengers. Focusing on time departures and arrivals and other aspects of customer services. IT comes as handy for tickets, online check-in etc. So far has stayed away from the international circuit that could spurn the next round of growth.

Leveraging Unique Activities

Capitalizing on Industry Dynamics

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Young fleet with have a young fleet and the average age of aircraft being 3.26 years57 Largest airline by number of passengers carried MRO services for the company are surprisingly efficient.58

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Company has been able to keep profitability up with great operational efficiency. The company is looking to expand to other underserved domestic routes. The efficient in-house operations have enabled low costs and ability to take on competition. Efficiency is also achieved through usage of IT for better operations.

Figure 23: Strategy Analysis of an Enterprise in the Aviation Sector: Indigo Airlines Source: Michael E. Porter & Institute For Competitiveness Analysis 57 Kindly see https://content.goindigo.in/Corporate/About 58 Kindly see http://www.livemint.com/Companies/h5f7mFrIdZciR8bAfeVcbO/IPO-papers-throw-light-on-where-IndiGo-gets-its-edge.html

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7. Findings and Challenges The findings suggest that there is a strong presence of IT and coming in of IoT across various Industry segments. Growing usage of IT for operations and in some has altered their business models to serve consumer needs. These include players in the Internet businesses like online retail and well as in a few cases of reaching out to people in rural heartland where access to immediate healthcare is difficult. Over the next few years as technology is tested in the developed parts of the world it is expected that there is a significant growth in the IoT segment as well in the developing part as well. The segment is expected to bring in a lot of efficiency to operations in different sectors from aviation to preventive healthcare to inventory management in Retail and apparel businesses. The potential savings in terms of time and costs over the lifecycle of the products is nothing short of revolutionary. Despite this there are some concerns and challenges with respect to IoT at present that deserve attention. These include concerns and challenges like: 1. What language do the devices use to communicate with each other?59 This is a major problem but engineers are working to come to a common language standard for many of the appliance and products that are expected to be connected to the Internet. 2. Privacy and security challenge - These concern the challenges similar to digital theft. Only in this case the damages could be catastrophic. It is because if a driverless car or a medical dosage60 device or a autopilot are hacked these could result in loss of life of the person concerned. Therefore the security aspect is of paramount importance in the case of IoT products. 3. Skills based Human Resource Problem According to Porter (2014) et. al, the challenge is also with respect to human resources. It is because very few people in the developed markets are having the skillset required to operate these part physical and part digital transformation. It is because product manufacturers were typically not remotely aware of the IT functionality of products. Suddenly IT is at the center of the product design. This throws up unique challenges and a multidisciplinary and integrative approach to both product design and service delivery will truly help. 4. Long term meaningful investment in the sector - Another major challenge is with respect to long term meaningful investment in the sector.

It is because the IoT is at an experimental stage and returns are not many as yet and therefore it is pertinent for businesses to see the impact in the years to come. Also most businesses are not very good at adapting to disruptive changes that could change the way they do business. It is another major challenge for the adoption of IoT. 5. IPV4 and IPV6 and the getting on the Internet - With considerable movement to IPV6 which is the most recent version of the Internet Protocol (IP) the problem of IPV4 limit exhaustion is mostly tackled now. With the proliferation of IoT devices and products it was anticipated that a lot of IP addresses would be required. The IPV6 has capacity for handling most of these now. 6. Job Losses due to industrial automation: Several businesses could be impacted adversely and this problem would be acute in labour intensive and surplus nations like India.

8. Integrated approach to understanding IT and IoT. Is the Industry really doing it? In spite of having a strong ecosystem of the IT industry very few players are actually looking at the IT/ IoT to bolster businesses. The small and medium sector enterprises have traditionally lacked the skill set and inclination to develop an IT ecosystem barring few clusters in places where IT has seen a proliferation. Some of the big family run Industrial businesses too have had a limited view of what IT and IoT could do to their business. It could start from a very basic improvement in their internal processes and at one end of the spectrum to enabling an advanced business model reconfiguration at another end. It could also change the value proposition and make the business much more adept in handling customer requests and reshaping their needs. In the case of IoT advanced functionality and smart analytics enables products to be parts of bigger systems. A smart house can be part of a smart locality can be part of a smart city. Over the next few yearsâ&#x20AC;&#x2122; functionality of IoT could enable the following four basic features- Monitoring, Control, Optimization and even autonomy61. At basic level products, which businesses make, could be monitored all the time for understanding what is happening with the product. Similarly the control of the product can be separated from the physicality of the product. The controlling can also be done remotely now. Also, products can be optimized

59 http://www.economist.com/news/technology-quarterly/21615067-more-and-more-devices-are-becoming-connected-will-they-speak-same 60 http://www.economist.com/news/science-and-technology/21657766-nascent-internet-things-security-last-thing-peoples 61 These are all stages described by Michael E Porter and Jim Heppleman in a recent video of theirs. https://www.youtube.com/watch?v=S2ZtsQfiPH4

Internet of Things - The Indian Context

Figure 24: Functionality and benefits of an Integrated approach to IoT Source: Michael E. Porter now far more than they could be based on real time data. The final stage is the ability of the product to operate on its own like a driverless car or product that can decide what they can do.

A theoretical model of how businesses can create value with new data: Data is critical for making decisions that impact the performance of any firm. At present broadly speaking there are two types of data available with companies to make decisions. These are data pertaining to the external environment of the firm and data available within the firm on

products. Internally using these and applying tools and techniques can help to generate greater insights and enhance the performance of the firm. It is recent model62 smart connected products are expected to have data both pertaining to the product as well as continuous data pertaining to its environment as it is being used. It forms the basis of a data lake, which has aggregated data in multiple formats. This data can then be used and analysis performed on it using various levels of business analytics depending on requirements, It can generate deeper level insights for all the major stakeholders concerned with sustainable competitive advantage of the firm.

Figure 25: Value Creation Using Data in a Firm. Source: Michael E. Porter and Jim Heppelmann63 62 Michael E Porter and Jim Heppleman https://hbr.org/2015/10/how-smart-connected-products-are-transforming-companies 63 ibid.

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9. Recommendations and the way forward IT has come a long way and has provided a lot of benefits to businesses and consumers using IT. Ease of access and, optimization of processes, business efficiency are some of the benefits due to which IT has gained prominence. Over the next few yearsâ&#x20AC;&#x2122; different stakeholder groups will have to address unique concerns: Governments: The government will have to have legislation pertaining to IoT industry and the regulation as well. The goal should be to track the developments in the sector globally and make policies according to the desired objectives to be achieved by India in the coming years pertaining to IT and IoT. The role of the government is also to raise awareness among other policymakers and consumers.

Companies: To effectively understand the business transformation early on and prepare and brace the company for leveraging the benefits of IoT. They should ideally look for opportunities that can have a transformative impact on their businesses. For Technologists and Technology Providers: These have to address challenges pertaining to the security, privacy, common standards, business usage of IoT specific to the industry. These will also have to work with companies in making them understand the opportunities and risks of the unique sector. The next wave of transformation will only happen when all the stakeholders work towards making IT and IoT the next form of revolutionary change that will help Indian IT industry to innovate further.

Internet of Things - The Indian Context

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Institute for Competitiveness

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Institute for Competitiveness, India is an independent, international initiative centered in India, dedicated to enlarging and disseminating the body of research and knowledge on competition and strategy, pioneered over the last 25 years by Professor M.E. Porter of the Institute for Strategy and Competitiveness, Harvard Business School (ISC, HBS), USA. Institute for Competitiveness, India works in affiliation with ISC, HBS, USA to offer academic & executive courses, conduct indigenous research and provide advisory services to corporate and Government within the country. The institute studies competition and its implications for company strategy; the competitiveness of nations, regions & cities; suggests and provides solutions for social problems, Institute for Competitiveness, India brings out India City Competitiveness Report, India State Competitiveness Report, India Economic Quarterly, Journal of Competitiveness and funds academic research in the area of strategy & competitiveness.