Seemingly overnight, the internet of things (IoT) has become a technology buzzword, challenging businesses to embrace a technology in its infancy before they can firmly grasp the pitfalls and opportunities involved.
While business leaders are optimistic about the doors that IoT – the sum of smart devices that can measure and communicate data, and the technology and analysis to make the data useful – can open for cost reduction and new revenue streams, many find it difficult to get a foothold and develop a strategy. Research from Bain & Company found that only about 10% of companies have made it to extensive implementation and 20% of companies expect to do the same by 2020.
Executives in Europe are more ambitious and optimistic about their plans to deploy and integrate IoT solutions than their American peers, Bain found, particularly in industrial and commercial applications. Bain suggested this may be because European firms have clearer expectations about how IoT will change the way systems and businesses operate, and because Europeans and Americans appear to want different things out of IoT. American executives are more focused on cost reduction, Bain found, while European executives are enthusiastic about the potential to improve quality. According to Bain’s study, 27% of European executives said they are implementing or have already implemented IoT and analytics use cases, compared with 18% of US executives.
How does a business comprehend such a fast-evolving landscape? Here are some factors for CFOs to consider as they approach the IoT space.
Think up, down, and all around
Ann Bosche, partner at Bain and one of the authors of the study, said that IoT – which can come in visible forms such as wearable fitness trackers or behind-the-scenes technology such as a network of sensors tracking and communicating an array of performance indicators – presents a blind spot to most companies, whether they’re providing it or using it.
While businesses are excited about one-dimensional IoT opportunities, such as connecting hardware to the internet, Bosche found that they are struggling with the larger picture. “The misconception for CFOs of those businesses delivering IoT solutions is that they can just go forward with the traditional horizontal model, implementing IoT across business units, when actually they’ll have to provide more integrated end-to-end solutions with vendors, customers, and partners.” Smart meters, for example, have a much wider implication than optimising energy costs at home; they also provide data that can benefit energy and tech suppliers.
Open the door to ideas
In trying to understand return on investment for IoT, finance professionals are looking to vendors to help, but vendors are making their own mistakes, Bosche said. “Vendors are spreading their investment too thin,” she said, explaining that many try to serve too many industries at once. “There’s a lot of focus on consumer devices and solutions, but our view is that most of the profits in the long term will accrue to vendors that are providing solutions to enterprises and industrial clients, in segments such as software, infrastructure, or analytics.”
Following the news and IoT influencers on social media is a good first step to stay current. Bertrand Lavayssière, managing partner of global financial consultancy zeb, said many effective executives also participate in hackathons, sprint-like events where programmers and other IT specialists collaborate on concepts or projects, which provide startups with a forum and allow companies to gather intelligence on ideas in development. Businesses also can designate a “research brain” that keeps a finger on the pulse of the latest IoT advancements, Lavayssière added, and can invite innovators over, or visit them on-site, and have an informal chat, presenting the challenges the business faces and finding out what the new technology can do to address them. In the banking industry, for instance, some firms hold “IoT speed-dating” sessions, where they present a particular challenge and give invited innovators three minutes each to present their solutions.
Make IoT part of overall data strategy
Bernard Marr, author of Data Strategy: How to Profit From a World of Big Data, Analytics and the Internet of Things, said there is no such thing as a specific strategy for IoT. Instead, Marr identified four distinct areas in which data can drive business performance:
- Improve decision-making. More devices can collect more data to inform decisions.
- Better understand customers. Automobile manufacturers, for example, are getting huge insight from connected devices as to how customers are using their vehicles.
- Improve operations. Instead of a blanket rule that a machine has to be maintained every six months, it can get maintenance only when it really needs it.
- Identify new revenue streams and income opportunities. Look not only at increasing the value of your business, but also at how you might partner with others to sell the data. For example, Google didn’t buy Nest just because it produces thermostats, but also because it can sell to utility companies the insight Nest collects on how people use energy.
You should make sure you’re considering IoT from the perspective of your customers, as well. Sam Ganga, a partner at KPMG specialising in digital, mobile, and IoT, sees a great deal of IoT initiatives driven by internal signals – typically, engineers or IT staff pushing an initiative. He encouraged CFOs to make sure that the voice of the customer is folded into the strategy. If IoT is purely a data monetisation play, Ganga warned, it may be a long play. Just because a business added a great innovative feature, he said, doesn’t mean that the customer is going to pay for it.
“Four years ago,” Ganga said, “a midsized manufacturer used IoT for a significant product improvement but was caught off-guard when the customer, although happy to use it, was not prepared to pay more. Two years later, they rethought the approach and offered a premium data service that would help predict machine maintenance at a higher price, and the investment ultimately paid off. Today IoT is moving so fast businesses can no longer afford to invest first and then hope to back into a value proposition.”
Take the lead
For James Pews, vice president of finance for professional networking platform Webtalk, IoT is an opportunity for financial managers to wear a leadership hat.
“We have to make a concentrated effort to stay up to speed with the evolving technology, not just at work, but also on the personal front, keeping our own ‘technology house’ in order.” The principles that apply to investment in smart home tech, using connected devices and data to make personal life more cost-effective, more sustainable, and more productive, involve decisions that can be scaled up to larger investments for a business.
Sylvia Edwards Davis is a freelance writer based in France. To comment on this article, contact Chris Baysden, senior manager of newsletters at the AICPA.