The Internet of Things: Challenges and Opportunities

It’s becoming increasingly clear that the Internet of Things—the broad term used to describe the growing global network of everyday objects connected to the Internet by sensors and other technology—is poised to dramatically disrupt almost everything about the way we live, including the way we do business. As such, it’s a vitally important concept for business leaders and senior executives to understand, and quickly, too. Like other digitally disruptive powers, the Internet of Things (IoT) presents established businesses with a unique set of challenges and opportunities, but the rapid rate at which technology changes and evolves today means that executives don’t have the luxury of time when it comes to considering—and dealing with—the implications of this burgeoning global trend.

To help business leaders navigate what the IoT means for their enterprises, a recent McKinsey Quarterly article identifies six key things (three opportunities and three challenges) that executives need to know about the IoT’s impact.

Opportunities:

business 2 businessGlobal B2B value—While consumer applications like smart homes or wearable fitness devices have been the focus of most media coverage, business executives must not overlook the vast potential that the IoT can have for B2B applications. In fact, of the value expected to flow from the IoT over the next decade, McKinsey estimates that as much as 70 percent could be from the B2B sphere. Worldwide IoT deployments in fields such as manufacturing, agriculture, mining, construction, oil and gas, and health care could create over $11 trillion per year in global economic value.

Operations optimization—The IoT has huge potential to provide business value through the optimization of operational processes. The constant flow of data that can be delivered through IoT sensors attached to everything from manufacturing equipment to supply chain items can drive better business decisions, leading to optimized, predictive operations and, consequently, significant amounts of incremental value. For example, some auto parts suppliers are using cameras to measure how many components production line iBins are holding; when the containers need to be refilled, supply orders are automatically placed by a digital inventory management system, thus ensuring a constant supply and avoiding unanticipated downtime.

Innovative business modelsA great deal of research has focused on the success that comes when businesses go beyond simply making use of new technologies to actually integrate those technologies in a way that fundamentally transforms how their business works. When it comes to the IoT, therefore, a shift in business models is one of the biggest potential opportunities. Industries that were once based on the sale of goods, for example, are now transformed into service industries thanks to the power of IoT data and connectivity. The way that traditional vehicle sales and distribution is being disrupted by the model of transportation as a service, which leverages mobile apps and geolocation devices, is only one illustration of how these business models—unthinkable even just a decade ago—are proliferating across virtually all industries and settings.

Challenges:

Organizational alignment—The IoT is expected to dramatically shake up the organizational culture in most established industries. A significant element of this is the increasing centrality of the IT function. Once responsible for only computers, networks, and mobile devices, IT will now need to be tightly aligned with operational leadership to properly manage the sophisticated data integration that doing business in an IoT context demands. Similarly, the enterprise-wide deployment of IoT applications and functions means that previously siloed departments or business units will become increasingly linked, and executive decision makers will find their choices more and more informed, and indeed sometimes dictated, by analytics experts and data scientists.

Interoperability and analytics hurdles—Interoperability will be a key aspect of effective IoT data use. McKinsey estimates that close to 40 percent of potential IoT value to businesses will require IoT systems to communicate with each other and share and integrate data; at present, however, IoT interoperability is quite limited in most businesses, with IoT devices typically connecting back to a centralized source from which performance and other factors are optimized individually. Added to increasing interoperability capacity is the growing challenge of analyzing all the data that these connected systems will produce; again, however, most current analytics tools are not yet designed to analyze multiple data streams in real time, leaving a software gap that critically needs to be filled.

Security—It almost goes without saying that cybersecurity is one of the main concerns associated with digital disruption, and yet the potential for systemic breaches when millions of IoT sensors and communications devices are connected to each other and to the Internet is so great that businesses cannot afford to be cavalier about it. Vendors will certainly be expected to help mitigate some of these risks, but a new strategic approach, dubbed “digital resilience” by McKinsey, is necessary, and businesses must get used to embedding tailored new protective methods into all aspects of their technology architectures, business processes, and customer interactions.

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