Information technology has dramatically changed the way we work and play in a mere two or three decades. That said, the IT revolution is really just beginning, and the next phase of connectivity is already becoming a part of our lives today. The Internet of Things is turning the Internet into much more than just a useful place to get information or communicate with others, with the IoT it is becoming a command-and-control network for practically all aspects of our daily lives.
The IoT connects “things” to the Internet. This means a “dumb” coffeepot, refrigerator, washing machine, light bulb or alarm system can become “smart” and be programmed to perform a variety of tasks that save time and money or increase safety. Global management consulting firm McKinsey & Company recently published an article titled An executive’s guide to the Internet of Things. In the article, authors Jacques Bughin, Michael Chui, and James Manyika argue that the Internet of Things offers three overlapping opportunities for businesses: expanding “pools of value” in global B2B markets, creating new methods for operational excellence and innovative new business models.
B2B applications for the Internet of Things
Media coverage of the IoT to date has typically focused on consumer applications, including wearable health and fitness devices, and various “smart home” devices. Bughin, Chui and Manyika, however, argue that “the more visible manifestations of IoT’s power shouldn’t distract executives from a core fact: business-to-business applications will account for nearly 70 percent of the value that we estimate will flow from IoT in the next ten years.”
They go on to say that the Internet of Things could lead to as much as $11.1 trillion a year worldwide in economic value in nine different physical settings. In fact, close to $5 billion of this value will be produced from in B2B settings. The Internet of Things is expected to have a notable impact in manufacturing, agriculture and healthcare work environments, and work sites across mining, oil and gas and construction, and, of course, in offices.
Improving operations with the IoT
The McKinsey & Company analysts emphasize that investment in IoT hardware (including sensors embedded in equipment and products to electronically tagged items in the supply chain) is just the beginning of the value equation.
Bughin, Chui and Manyika note: “The biggest competitive gains come when IoT data inform decisions. Our work shows that most of the new business value will arise from optimizing operations. For example, in factories, sensors will make processes more efficient, providing a constant flow of data to optimize workflows and staffing:
- Sensor data that are used to predict when equipment is wearing down or needs repair can reduce maintenance costs by as much as 40 percent and cut unplanned downtime in half.
- Inventory management could change radically, as well. At auto-parts supplier Wurth USA, cameras measure the number of components in iBins along production lines, and an inventory-management system automatically places supply orders to refill the containers.
- In mining, self-driving vehicles promise to raise productivity by 25 percent and output by 5 percent or more. They could also cut health and safety costs as much as 20 percent by reducing the number of workplace accidents.”
Also keep in mind that IoT systems can minimize guesswork (which saves time and money) in product development by collecting a variety of data about how products are working and how they are actually used.
Innovative business models
The Internet of Things will also lead to innovation, especially in terms of new business models that may shift competitive dynamics within industries. For example, using IoT data and connectivity has revolutionized the sales of industrial machinery and other goods into a service model. Among the pioneers of this new service model trend were jet-engine manufacturers that shifted their business model to selling thrust and related services rather than actual engines. Service-based models are are now found in a variety of industries. Of note, transportation as a service, Uber. Lyft and others, powered by apps and geolocation devices, is threatening vehicle sales and traditional distribution models. By the same token, manufacturers of laser printers and copiers with IoT capabilities are also becoming service businesses.
These new service-based business models depend on the Internet of Things. The IoT provides the ability to track how physical assets are actually used, and makes it possible for businesses to accurately price and charge for use. Furthermore, the data from all these connected assets permit a provider/manufacturer to operate equipment more efficiently than its customers, since customers only have a limited “in-house” view of their own equipment. In addition, analysis of IoT data allows for condition-based predictive maintenance, which can dramatically reduce unplanned downtime.