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11 things IT leaders need to know about the internet of things

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The Internet of Things (IoT) is the next phase in the evolution of the Internet. More than 100 devices connect to the Internet every second. By 2020, Cisco estimates that number to be more than 250 per second. Morgan Stanley projects the Internet will be loaded with 75 billion devices by the end of the decade. This document discusses WGroup's perspective on what 11 things IT leaders need to know about IoT.

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11 things IT leaders need to know about the internet of things

  1. 1. Drive Your Business 11 Things IT Leaders Need to Know About the Internet of Things
  2. 2. 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. 3. 3 ©2015 WGroup. ThinkWGroup.com Introduction More 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. 4. 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. 5. 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. 6. 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. 7. 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. 8. 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. 9. 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. 10. 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. 11. 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. 12. 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. 13. 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. 14. 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. 15. 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 manufacturing Because 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. 16. 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. 17. 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. 18. 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. 19. 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
  20. 20. 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

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