Internet of Things Creates New Opportunities for C-Suite Executives
By Renee Baker Arrington, Senior Vice President & CIO Practice Leader
In our recent Q1 2015 Spotlight Series breakfast, The Digital Business Dream Team, we discussed how chief information officers and chief marketing officers are increasingly collaborating in digital business. A significant catalyst of this collaboration has been the emergence of the Internet of Things (IoT).
From GPS devices in truck fleets and aircraft black boxes, to wearable medical devices and remote-controlled smart homes, the IoT is creating a technological revolution. More than 10 billion “things” are currently connected to communicate with each other to make our lives and businesses more efficient. However, with this efficiency comes inherent risk. Senior executives need to understand the new opportunities and challenges the IoT represents.
“Companies are at differing stages along their IoT path, but the majority do not have a strategy in place yet,” according to Jeremy Schneider, a partner with McKinsey & Company and keynote speaker at the December 2014 joint technology session of the Society for Information Management Dallas/Fort Worth and Financial Executives International Dallas.
While the majority of media attention around the IoT has been about personal wearables and connected smart homes, in reality, more than 70 percent of the value lies in enterprise and industry applications. Schneider called the IoT a vast industrial ecosystem that includes sensors and other devices with online connections to powerful data-collection and analytic systems. Contrary to budgetary concerns, it is not typically a capital-intensive undertaking.
“Most IoT business cases are driven by cost savings, and capital investment is relatively limited,” Schneider said. “But there is extensive value to be captured by enterprises and their end users.”
The Internet of Things Technology Revolution
By 2020, nearly 50 billion connected endpoints will be used to create almost $15 trillion[i] in value for a wide range of purposes. Though estimates of the exponential rise in connected devices vary[ii] the IoT offers myriad opportunities to improve industry, such as:
- Tracking of consumer behavior, such as in-store apps that analyze customer traffic flow and purchasing decisions
- Optimized manufacturing, warehousing, distribution and retail processes to maximize productivity and minimize waste
- Optimized usage of resources, such as energy, inventory and fleet assets
- Enhanced situational awareness, such as warning systems for vehicles
- Enhanced decision-making, such as medical devices that alert doctors to changes in a patient’s condition
- Autonomous systems, such as self-parking and self-driving vehicles
As the IoT technological revolution evolves, it will be interesting to watch the biggest winners emerge, as did the telecoms in the ’80s (AT&T, MCI, Sprint), PC manufacturers in the ’90s (Microsoft, IBM, HP), the web companies in the 2000s (Google, Yahoo, Amazon), and today’s smart phone makers and carriers (Apple, AT&T, Verizon). –Jeremy Schneider, Partner, McKinsey & Company
Because the IoT can enable new ways to do business and manage risks, CIOs, chief technology officers, chief financial officers, senior risk managers and other C-suite executives need to pay close attention to this dynamic sector. For instance, there may be new ways to deploy sensors and monitors in tandem with mobile devices and applications, or to feed the growing volume of big data into a cloud computing or virtual network infrastructure.
Addressing the Challenges
For organizations to capitalize on the numerous potential benefits of the IoT, they must also address the challenges and risks.
For example, mobile devices with GPS locators and other types of sensors can be used for tracking consumer behavior, including buying habits and patterns. However, an IoT strategy designed to capture and analyze those data must also have safeguards in place that protect individual privacy. Applications might need to strip out any consumer-specific information before uploading the data.
An even higher standard of privacy applies to patients whose wearables or medical sensors upload health-related information to physicians, hospitals, pharmacies and other providers. Under federal law, those IoT “conversations,” including potentially life-saving medical alerts and prescription reminders, must be transmitted under very specific parameters.
Individual privacy is not a concern for sensors embedded into products or packaging for inventory control, nor for devices placed on delivery trucks or other vehicles to track those mobile assets. However, those devices, applications and networks also need to be secured against hackers or thieves who could falsify IoT transmissions to disguise a theft.
Another significant challenge is building a database and network powerful enough to accommodate a substantial upsurge in machine-to-machine data. Fortunately, the advent of virtual networks and cloud computing have lowered the cost of data storage. A bigger issue is the development of effective Big Data business intelligence and analytics tools to capture the significant information that may not be readily apparent in the vast flood of new IoT-generated data.
Finally, organizations striving to harness the power of the IoT will need to invest in their human resources, bringing aboard technology and marketing professionals at every level – including the C-suite – with the imagination and experience to develop effective strategies. Having the right people in place is critical to using this fast-moving technology to advance the company’s vision and business goals.
Exploring the Options
In considering how IoT strategies could deliver new operational and financial benefits to an organization, there are many practical factors to address. Companies that are in the preliminary stages of exploring IoT solutions might form a multidisciplinary task force, which could also include customers and partners, to consider such questions as:
- Where do we lack information about our markets, customers, people, assets or operations?
- Would deploying sensors or other devices help fill those information gaps and enable our company to make better decisions?
- Are there ways to use the IoT to develop new service models for our customers?
- Could we develop a more dynamic pricing model with access to real-time information?
- Would more customer data help us refine our products and services to meet changing needs?
- Can sensors and devices help us lower costs of energy, raw materials and labor?
- Would the IoT help us improve safety in our facilities and reduce risks to our employees and customers?
- Where will a new IoT strategy deliver the largest potential return on investment?
Organizations in virtually every industry need to ask these kinds of questions. With profit potential increasing exponentially, they may find themselves racing to catch up to the competition in this fast-moving technology revolution.
[ii] Postscapes’ Internet of Things Market Forecast 2014