The Internet of Things Gets RealBy Samuel Greengard
Only a few years ago, the Internet of things was little more than a novelty for most CIOs. The idea of connecting people, machines and other objects through sensors, microchips, smartphones, industrial machines and more seemed somewhat abstract. However, times change quickly. Today, "Business leaders are examining the technology and attempting to understand how they can use it to build a better business, improve operations and launch entirely new business models that deliver greater revenues and profits," said Joe Lamano, a principal at consulting firm PwC.
The opportunities are enormous. According to Cisco Systems, 99 percent of physical objects will eventually become part of a connected network. Meanwhile, consulting firm Gartner predicts that IoT products and service suppliers will generate incremental revenues exceeding $300 billion by 2020. It also estimates an almost 30-fold increase in the number of connected devices from 2009 to 2020, when there will likely be somewhere around 26 billion connected devices in homes and businesses. The consulting firm notes that enterprises will depend on the technology for advanced medical devices; factory automation sensors and applications in industrial robotics; sensor motes for increased agricultural yield; and automotive sensors and infrastructure monitoring systems for railway transportation, water distribution and electrical transmission.
Navigating this rapidly emerging space is no simple task. While the IoT introduces enormous opportunities, it also tosses out huge challenges. There are network issues to address, cloud integration tasks to manage, APIs to cope with, data and analytics issues to understand, and security issues to oversee. As Vernon Turner, senior vice president of research for IT research and consulting firm IDC puts it: "Enterprises will have to address every IT discipline to effectively balance the deluge of data from devices that are connected to the corporate network." This, in turn, will drive profound organizational structure changes and introduce entirely new business models.
Following a New Track
A starting point for CIOs and other business and IT leaders is to recognize that the Internet of things is incredibly disruptive. The ability to connect humans, machines and objects changes the stakes for every industry and almost every business. Historically, a company may have described itself as an apparel manufacturer or a food packager; a financial services firm or a pharmaceutical company. Today, chips, sensors, mobile apps, wireless data transfer and near real-time analytics are forcing almost every organization to evaluate–and reevaluate–the fundamental way it approaches business.
"We are seeing a lot of companies that are not traditionally technology companies or businesses that have had to build or use connected products, embed sensors and connectivity into their products. This is fundamentally redefining products, services and the overall business environment," Lamano said. Not surprisingly, this raises a number of fundamental questions: How do I identify devices on my network and connect them effectively? How do I secure all the devices and systems along with the resulting data? And how do I use this data to maximum advantage and introduce entirely new revenue streams and business models?
One company on track for the future is New York Air Brake (NYAB), a 125-year-old firm that designs and manufacturers control systems used in the railroad industry. Greg Hrebek, director of engineering, points out that the U.S. freight rail industry burned through approximately 3.6 billion gallons of fuel at a cost of about $11.5 billion in 2012. Moreover, older and less efficient equipment–some up to four decades old–makes it difficult to view accurate information about maintenance and repair demands. As a result, it's an ongoing challenge to ensure locomotives receive replacement parts and services at optimal times.
As a result, NYAB has turned to next-generation digital systems that rely on as many as 130 sensor inputs and sophisticated on board electronics–along with Wi-Fi and cellular communications–to view real-time data and analytics on a dashboard. The technology, which ties into operational analytics software from Splunk, makes it possible for railways to instantly examine what-if scenarios related to resource utilization and how it, in turn, impacts fuel consumption and other factors. This has led to a fuel reduction between 5 percent and 12 percent for railroad companies while dramatically improving the ability to detect wear and tear and use preventative maintenance capabilities. "As a result of the IoT, we have transitioned to automated and intelligent systems that are revolutionizing the industry," Hrebek said.
To be sure, the IoT fundamentally redefines business models and workflows. It requires CIOs to gain new knowledge and expertise in how to connect devices, machines and people–often through APIs and clouds–and plug in new types of software and analytics to produce useful and actionable data. But it also requires leaders to break down silos and connect enterprise thinking. Frank Gillett, vice president and principal analyst at Forrester Research, believes that CIOs and others should focus on how to move beyond basic cost savings and efficiency gains and instead reinvent the fundamental way an organization does business. For instance, this may translate into new ways to operate a business–such as introducing a pay-as-you-go model. Already, the likes of Metromile, Uber and Square are driving radical changes to business and revenue models across major industries, in some cases incorporating social media, crowdsourcing and other tools.
The changes just keep coming. The IoT is already making it possible to know the precise location of goods across a supply chain, monitor the temperature of food and pharma products, and build products–lighting systems, door locks, garage door openers, sprinkler systems and home security–that are part of the emerging smart home. It's also revolutionizing everything from medicine to financial services and introducing connected cars, smart utility grids and smart cities of the future. These changes will only accelerate in the months and years ahead, and technologies such as robotics and 3D printing will introduce additional challenges. "Together with mobile devices, particularly smartphones, the IoT is allowing businesses to retrofit existing systems and introduce entirely new capabilities," Gillett said. "It opens up incredible new opportunities."