Drive Your Business

11 Things IT Leaders Need to Know About the Internet of Things

2 ©2015 WGroup. ThinkWGroup.com

The Internet of Things (IoT) is the next phase in the evolution of the Internet.

As managing big data and extracting intelligence from

it have become practical, broadband and wireless

communications are blanketing the world. Massive clouds

of storage are readily available. Smart products and

embedded sensors addressable from the Internet are

burgeoning. All of these trends promise great opportunities

for businesses and for nearly every aspect of society.

IoT, however, presents a host of challenges ranging

from security concerns to how (and when) vendors will

standardize the way in which their devices communicate and

interoperate. This paper takes a look at challenges CIOs and

senior IT leaders are likely to face as IoT continues to grow

and to the business benefits you’ll enjoy by embracing IoT.

3 ©2015 WGroup. ThinkWGroup.com

IntroductionMore than 100 devices connect to the Internet every second. By 2020, Cisco estimates that

number to be more than 250 per second.1 Morgan Stanley projects the Internet will be loaded

with 75 billion devices by the end of the decade.2 Analyst firm IDC offers a higher estimate, some

200 billion, while Cisco estimates the IoT market at $14.4 trillion by then.3 Those connecting

devices will include sensors on “things,” people, and animals that generate terabytes of data.

The data those devices generate can only have value if it can be collected,

processed and analyzed—then used to deliver business advantage. As IoT grows,

the compute power and analytics software needed to give you information suited

for making business decisions becomes even more complex, more costly.

4 ©2015 WGroup. ThinkWGroup.com

But even more daunting than the sheer volume of data, IoT will include devices communicating

via WiFi, NFC, 3G, 4G LTE, and, a recent entry, Low Power Wide Area Networks (LPLANs) using

radio spectrum that lies in the space between TV channels.4 Other protocols like Bluetooth and

Zigbee will join Internet Protocol in feeding some of these communication channels to create entire

new webs of information.5 The IoT European Research Cluster explains the IoT and its impact:

“Internet of Things (IoT) is an integrated part of Future Internet including existing

and evolving Internet and network developments and could be conceptually

defined as a dynamic global network infrastructure with self-configuring capabilities

based on standard and interoperable communication protocols where physical and

virtual “things” have identities, physical attributes, and virtual personalities, use

intelligent interfaces, and are seamlessly integrated into the information network.

In the IoT, “smart things/objects” are expected to become active participants

in business, information and social processes where they are enabled to

interact and communicate among themselves and with the environment by

exchanging data and information “sensed” about the environment, while

reacting autonomously to the ‘real/physical world’ events and influencing it

by running processes that trigger actions and create services with or without

direct human intervention. Services will be able to interact with these “smart

things/objects” using standard interfaces that will provide the necessary link

via the Internet, to query and change their state and retrieve any information

associated with them, taking into account security and privacy issues.”5

Most of the physical world is yet to be “instrumented” and connected to the Internet. As

smart products, shipping containers that continuously report their location, and sensors

embedded in virtually any kind of device roll out, the IoT will bring dramatic change.

5 ©2015 WGroup. ThinkWGroup.com

Adapting information systems to accommodate IoT devices and their data will involve what

Forbes calls a “Big Bang Disruption.”6 However, the biggest disruption will be on business

processes, because IoT sensors and the like are only the enablers of a technology – enablers

that give you (actually, drive you to) a new way of doing business. The fact that IoT generates

enormous continuous volumes of data is what makes it so

challenging. The fact that much of it may require

attention in real time complicates matters further.

As your colleagues in marketing, engineering,

operations and finance begin making

plans to embrace some aspect of IoT, they’ll discuss

specific business problems to be resolved through IoT. For example, one goal might

be to reduce your field-service costs. Adding sensors to your products so they can self-

diagnose and “phone home” when (or before) service is needed can reduce service costs.

It also may increase customer satisfaction, customer lifetime value, and loyalty.

Beyond the software and hardware needed to receive and analyze streams of data from

thousands of self-diagnosing products, business processes will have to change. Presumably

those alerts from smart products that need attention will appear on a console or dashboard.

Who will handle dispatch? What training will they need? Can the dispatch be automated? Will

the field-service staff need something more than a cell phone to respond to the dispatch? How

will new procedures fit with the traditional process for receiving customer calls and dispatching

service personnel? What accounting steps are needed to measure success of the initiative?

Challenges

Managing change1

IoT generates enormous amounts of data – and much of it requires attention in real time.

6 ©2015 WGroup. ThinkWGroup.com

A typical manufacturing company’s basic operation looks something like this:

• Conceive a product.

• Develop and test the product.

• Buy components and raw materials, including

all the functions handled by enterprise resource

planning (ERP) systems, such as ordering,

receiving, scheduling, shipping, and supply

chain planning.

• Manufacture the product.

• Sell the product.

• Support and service customers.

• Reiterate with the next product.

Which of these will benefit the most from adding IoT to the mix? How will you prioritize

various IoT initiatives? How will you implement IoT to meet your objectives? How

will you process the flood of data it can generate? How will you use that data?

How will IoT advance the goals of the company toward greater profitability?

In almost every field, the way of doing business changes. For example, property managers

may be concerned with reducing energy costs by installing sensors in energy consuming

devices. An organization that provides medical care, may be considering how medical devices

can report their status (working, not working, pending failure, in need of recalibration, etc.)

What new job positions and training are required to monitor data from those devices?

7 ©2015 WGroup. ThinkWGroup.com

Further, because IoT will inevitably spawn changes, there will be:

• New technologies to learn, embrace and deploy

• New standards to learn

• New software suited to analyzing the IoT data streams

• New hardware, such as gateways that collect and pre-

process IoT data

• New relationships with suppliers, many of which are not

currently part of your ecosystem

• New training required to keep the staff up to date with the

impact of IoT on their daily duties, and perhaps new job

descriptions.7

Another aspect of managing change lies in recognizing that IoT is in its

infancy. Vendors of products associated with IoT, as well as data center

and cloud solutions to manage it, will rise and fall. Vendors won’t begin

to consolidate and take winning positions in the market for at least a

few years. It’s wise to connect with those segments of the market that

are relevant to your IoT initiatives rather than focusing on individual

vendors. Use the vendors you do connect with as advisors and experts,

capable of helping you understand the landscape as it changes.

8 ©2015 WGroup. ThinkWGroup.com

If you intend to manufacture products that use sensors, it’s important to understand

interoperability issues. Just as Ethernet is the standard protocol serving as the

foundation of the Internet, manufacturers of smart products must arrive at a single

standard that allows sensors and smart devices to communicate with one another.

Beyond those basics, the standards needs to address security issues.

No single standard exists, but the Open Interconnect Consortium (OIC)8 and the All Seen

Alliance9 are principal contenders.10 Both intend to offer certification of smart devices to assure

each device can communicate with other devices complying with their respective standard.

The OIC membership totals more than 100 member companies and includes the UL Verification

Lab, IBM, Honeywell International, National Instruments, Accenture, Samsung SDS, and Intel. The

All Seen Alliance claims about 180 members, including Canon, Microsoft, Panasonic, and Sony.

Device interoperability

IoT product families may use sensors that communicate with one another.

Those conversations between sensors can take place in the cloud, rather than

building out an entire infrastructure to handle the ongoing drip of data between

sensors. The cloud offers flexibility, reliability, and cost savings.

Amazon’s Web Service (AWS) is the largest cloud provider on the planet. AWS recently

announced its simply named “AWS IoT” platform. Rather than addressing standards for sensor

design, AWS IoT works with cloud services on its AWS platform, enabling sensors to exchange

data and allowing applications to communicate securely with “billions of devices.”11 With

the hockey-stick growth of AWS (81 percent over the last year) and more than one million

customers, considering its newest platform may be a wise step for companies embracing IoT.12

Using the cloud

2

3

9 ©2015 WGroup. ThinkWGroup.com

The 2015 IT Risk/Reward Barometer published by ISACA, a non-profit best practices

organization, (formerly known as the Information Systems Audit and Control

Association), addresses a number of security concerns which, somewhat surprisingly,

include consumer products that are capable of connecting to the Internet.13

Smartphones, smart watches, wristbands that monitor one’s health, and

other consumer devices are growing in popularity. Some of those

devices may be able to connect through your company’s wireless

network – perhaps not natively, but after being hacked – potentially

opening an endpoint security threat. The proliferation of connectable

devices available to consumers is only destined to increase.

As ISACA points out, “many manufacturers have left their connected

devices vulnerable to hidden, or unexpected, risks. The rush for mass

adoption may have come at the expense of thorough safeguards.” Among IT

professionals, nearly three-quarters believe security measures are not adequate to safeguard

corporate data from intrusions through IoT devices, and a similar number rate that as a “medium

to high” risk.13 Preventing damage from IoT consumer devices requires several actions.

Employees who ‘bring their own things’

• Ensure all workplace devices owned by the organization are updated

regularly with security upgrades.

• Require all devices be wirelessly connected through the workplace

guest network, rather than internal networks.

• Provide cyber security training for all employees to demonstrate their

awareness of best practices of cyber security and the different types of

counterattacks.

• Ensure that IT and security professionals are properly trained and

certified.13

4

10 ©2015 WGroup. ThinkWGroup.com

If your company intends to collect data from the smart products it sells, these issues

are more than academic. With thousands or millions of devices exchanging data with

your servers, many 24x7, the question of bandwidth and storage deserves serious

consideration. That’s true whether your servers are on-premises or in the cloud.

Your storage capacity as well as that

of the pipeline into your data center

(or your cloud services provider) are

typically provisioned for people running

applications, making asynchronous

demands on resources. Take a look at the

bandwidth you’re paying for, then do the

math to determine how IoT incoming data will impact your available storage and bandwidth.14

In a similar fashion, IoT calls for a review of your data retention and governance

policies. How much of that IoT data needs to be kept? For how long?15

Further, consider that IoT products targeted to consumers may collect personally identifiable

information (PII) as well as operational data that shows how the device is being used, its state,

and so forth. While the output of your analytics software parsing operational data is important

to marketing, engineering and other operations, the existence of PII on your servers calls for

an extra layer of security and special handling to preserve the customer’s privacy. Consider

your rules for data governance and your privacy policies (even smart TV’s come with privacy

policies today!) if you plan to store and process IoT data that can threaten the integrity of PII.

Storage, bandwidth, and data governance

With thousands – or millions – of devices exchanging data with your servers, the question of bandwidth and storage deserves serious consideration.

5

11 ©2015 WGroup. ThinkWGroup.com

Network latency checks, alerts and other traditional methods of monitoring data center

operation may need review with an eye toward data center infrastructure management

(DCIM) if IoT data will be collected at your data center. DCIM offers diverse information

about the operation of a data center, including such issues as optimizing systems

for the greatest efficiency; management of power, heating and cooling; optimizing

physical aspects (like space management); and other forward-looking topics.

Data center infrastructure management

6

12 ©2015 WGroup. ThinkWGroup.com

Durable and non-durable manufacturing accounts for about 12 percent of the national

GDP and, were it a nation, it would be the 10th largest in the world.16 IoT is already

having some of its greatest effects to date in manufacturing, so much so that the

term “IIoT” (Industrial IoT) has been coined to acknowledge its impact.

One approach to implementing IoT lies in connecting the manufacturing floor to a

corporate network. In turn, that step connects the shop floor to the larger business

and can provide global visibility into the factory. Providing sensors across the floor and

signaling devices that workers use to flag a problem lets management monitor and take

action as needed. This approach can deliver a number of positive outcomes:

Manufacturing

The financial benefits that IoT delivers

• The effectiveness of machine and equipment used in the manufacturing

process can increase. If a machine needs attention, it can be addressed

in minutes, rather than hours or days. Predictive maintenance enabled

by sensors installed in shop floor machinery adds further to minimizing

downtime.

• Management can make decisions more quickly when material supply slips,

largely eliminating work stoppages and dips in production efficiency.

• Manufacturing defects (DPMO or defects per million opportunities) can

approach and reach the Six Sigma level of only 3.4 defects per million

products. This leads to reductions in both scrap and as warranty returns.

• Inventory and its holding costs can be reduced.

• Employees become empowered to collaborate and play a role in notifying

supervisors of quality problems. Likewise, the cost of training tends to drop

as employees are focused on specific tasks driven by the overall system.

7

13 ©2015 WGroup. ThinkWGroup.com

Connecting the manufacturing operation to suppliers delivers another round of benefits.

Management can see the dependencies, the movement of materials, and process times

involved in receiving raw material when suppliers embed position-reporting devices into their

deliveries. If a manufacturer connects ERP to those suppliers, orders can be placed with

specific delivery dates, closing the loop between order and receipt and eliminating shortages.

For those manufacturers who embed sensors

in their smart products, those products can

send real-time data to report their

state (off, in use, in need of service,

etc.) as well as data unique to the

specific product. That data gives manufacturers

a direct link to every product shipped,

allowing remote visibility, and with it the potential to interact with the product and provide

maintenance and service at an optimum level. Dispatching a service person to diagnose

a home appliance breakdown, for instance, is more costly than remote diagnosis.

Customer satisfaction increases when the service person arrives on site to do the repair

with the necessary parts already in the service vehicle. Even better, if the smart product

provides information to predict the need for maintenance, quarterly and other periodic calls

for a service person to “check in” on the product can be drastically reduced or eliminated.

Smart product sensors can send real-time data to manufacturers, giving them the opportunity to provide service at an optimum level.

14 ©2015 WGroup. ThinkWGroup.com

In summary, manufacturers can also expect to achieve:

• Improved manufacturing production processes and greater

efficiency on the shop floor

• Remote management, real-time management, and more proactive

maintenance

• Improved energy management through sensors measuring power

consumption

• Comprehensive, end-to-end supply chain management

The financial impact of IoT comes from several directions.

Manufacturers may realize a 30

percent reduction in maintenance cost

through predictive maintenance, according

to a study by the Department of Energy.

Diebold, maker of banking ATM’s,

reported more than one in six problems

were solved remotely with a consequent

15 percent decrease in downtime.17

Greater efficiencies in executing

a range of business processes

reduce both COGS and SG&A.

Productivity of employees increases,

so that certain tasks may require

fewer man-hours to accomplish.

The supply chain becomes more efficient.

Time to market diminishes and innovation

ramps up. Witness Tesla’s Software Update

7, which allows certain vehicle models to

drive themselves semi-autonomously.

Customer lifetime value and market

share are both likely to increase.

15 ©2015 WGroup. ThinkWGroup.com

Smart products generate data that can reveal usage patterns. For instance, how and when do

customers use the product? What features are most popular? Least popular? What error messages

are triggered and why? IoT data can give you insights into products never before available.

They may reveal trends that lead you to selling additional services.

“Premium” software upgrades, for example, could be sold

and installed remotely. SLAs might be marketable on certain

kinds of products. For some product classes, IoT data, once

it’s anonymized, might be salable to other businesses.

With products that consume other products you might establish an

automatic resupply order for the consumable. For instance, a 3-D printer

may consume plastics, resins, metals, or ceramics. After “X” number of cycles

the printer could submit an order to deliver more material. If the resupply order

goes to another company, you may have the potential of establishing a new business relationship that

can expand your business, or perhaps you’ll find it’s possible to sell your IoT data to that supplier.

Monetizing IoT data

Beyond manufacturingBecause IoT will affect virtually every segment of U.S. business in one form

or another, estimating IoT’s financial impact is speculative. However, for most

business segments, profit opportunities exist in each of the following areas.

8

16 ©2015 WGroup. ThinkWGroup.com

When you connect your products, you also are connecting your customers to your company.

As noted above, the increased levels of service you can provide because you have a “digital

umbilical cord” can lead to increases in loyalty, customer satisfaction, and customer lifetime

value. While prospecting for new customers will always be part of the sales and marketing

process, selling more to the established base just makes sense. IoT can help you do that.

Increasing customer loyalty

Having a digital connection to the product from afar gives marketing a wealth of

information that can lead to improving products and developing new ones.

Making marketing more intelligent

Smartphones will only become more sophisticated.

Besides the millions of apps available for

consumers, manufacturers have already tapped

into the power of smartphones to offer apps

with their commercial products. For instance, a

surveillance monitoring camera can present its

view to a smartphone via WiFi. Based on use data

from embedded sensors, marketing might find the

need for a new app that alerts the user to motion or other events. Perhaps an app that

offers facial recognition would be desirable in certain security environments.

The margins on software almost always outstrip those on hardware. Once software is complete

its cost of duplication drops almost to zero. Focusing on selling apps with smart products,

or perhaps charging for upgrades and “Premium” versions, adds to the bottom line.

Increasing profit margins

10

11

9

17 ©2015 WGroup. ThinkWGroup.com

With IoT being so pervasive in its impact on business, and because it will develop in ways difficult

to predict, be sure to stay in touch with new developments. You may find these references helpful.

IDC’s paper, “Investing in an Internet of Things (IoT) Solution: Asking the Right

Questions to Minimize TCO,” provides a checklist for those moving toward IoT.18

Gigaom provides summaries of research on IoT

topics and sells full-length reports.19

451Research.com offers both complimentary reports [20] and

a subscription-basis research dashboard21 that addresses

“prevailing issues driving IT innovation,” including IoT.

Finally, from academia, visit the Harvard Business Review22

and search for “IoT” to reveal a variety of studies and papers.

Further reading

18 ©2015 WGroup. ThinkWGroup.com

References

[1] http://blogs.cisco.com/news/cisco-connections-counter

[2] http://www.businessinsider.com/75-billion-devices-will-be-

connected-to-the-internet-by-2020-2013-10

[3] http://betanews.com/2015/03/30/internet-of-things-brings-a-

sense-of-purpose-to-cloud-mobile-and-big-data/

[4] http://www.iotjournal.com/articles/view?13625/

[5] http://www.internet-of-things-research.eu/pdf/IoT_Cluster_

Strategic_Research_Agenda_2011.pdf

[6] http://www.forbes.com/sites/bigbangdisruption/2013/12/16/big-bang-

disruption-the-internet-of-things-takes-off-gradually-and-then-suddenly/

[7] http://evertiq.com/news/37861

[8] http://oic.org

[9] https://allseenalliance.org/

[10] http://www.cio.com/article/2994777/internet-of-things/iot-

standards-groups-get-ready-to-rumble-at-ces.html

[11] https://aws.amazon.com/iot/

[12] http://www.cnbc.com/2015/10/09/how-amazon-wants-to-dominate-in-enterprise-tech.html

[13] http://www.isaca.org/SiteCollectionDocuments/2015-risk-

reward-survey/2015-it-risk-reward-barometer-report.pdf

[14] http://www.gartner.com/newsroom/id/2684616

19 ©2015 WGroup. ThinkWGroup.com

[15] http://www.itbusinessedge.com/blogs/integration/five-

questions-to-help-cios-avoid-iot-data-problems.html

[16] http://www.themanufacturinginstitute.org/Research/Facts-About-Manufacturing/

Economy-and-Jobs/8th-Largest-Economy/8th-Largest-Economy.aspx

[17] http://thevarguy.com/var-guy/031615/internet-thngs-8-case-studies#slide-4-field_images-69801

[18] https://www.idc.com/prodserv/custom_solutions/download/1639.pdf

[19] http://research.gigaom.com/topic/internet-of-things/

[20] https://451research.com/internet-of-things

[21] https://451research.com/research

[22] http://hbr.org/

References

Drive Your Business

Founded in 1995, WGroup is a boutique management consulting firm that provides Strategy,

Management and Execution Services to optimize business performance, minimize cost and create

value. Our consultants have years of experience both as industry executives and trusted advisors

to help clients think through complicated and pressing challenges to drive their business forward.

Visit us at www.thinkwgroup.com or give us a call at (610) 854-2700 to learn how we can help you.

150 N Radnor Chester Road Radnor, PA 19087

610-854-2700

ThinkWGroup.com