Internet of things

Unlocking the potential of the Internet of Things
McKinsey Global Institute, June 2015

The Internet of Things: How the Next Evolution of the Internet is Changing Everything
Cisco, April 2011

Six trends combining people and digital technology: The Connected Industrial Workforce is born
Accenture, 2016

The so-called internet of things (IoT) typifies the latter. It refers to objects that have embedded technology that allows them to send and receive data via the internet and connect with other devices. That data is used to optimise products, services and operations.

The impact of the IoT could phenomenal. McKinsey & Co last year estimated the IoT would have a potential economic impact of US$3.9 trillion to US$11.1 trillion a year in 2025. The wide divergence in McKinsey’s low and high estimates shows the trend’s unpredictability.

For context, the IoT’s economic impact will be more than three times the size of Australia’s economy in a single year by 2025 (using McKinsey’s low estimate); or worth around 11 per cent of the global economy within a decade (using the high estimate).

This trend is snowballing. Ten million hardware devices in 1980 grew to 100 million in 1990 as people bought a personal computer, and a billion in 2000 as the internet took off. By 2010, there were an estimated 10 billion, as mobile devices mushroomed.

Cisco estimates 50 billion hardware devices across personal and industrial applications by 2020 as the IoT takes hold – about 6.5 connected devices per person, on average, on the planet.

Working with advanced technology will be the norm for more employees. Collaborative robots (cobots) that do advanced tasks and interact with human managers in shared workspaces will become prevalent in the workforce. About 85 per cent of managers expect human-machine-centre environments to be commonplace by 2020, according to a recent Accenture survey of 500 executives worldwide.

Many survey respondents saw the “connected industrial workforce” as critical to strategy. They expected their organisation to boost its investment in augmented reality devices, such as helmets and smart glasses, to allow cobots to take on more advanced tasks and boost productivity.

The IoT, of course, is prone to hype and overestimation. Some forecasters have begun to lower their estimated number of connected devices. Technology researcher, Gartner, last year described the IoT as one of the most “overhyped” technologies (along with self-driving cars). It said the IoT would not reach mainstream adoption for at least five to 10 years and described its current position in the technology landscape as at the “peak of inflated expectations”.

But even at McKinsey’s low estimates, the IoT will reshape much of industry.

IoT’s far-reaching effects

The IoT has many applications. More factories, for example, will use connected devices to optimise production, predict maintenance and make greater use of cobots. Retailers will use the IoT to optimise supply chains, store layouts and redefine customer relationships.

The health industry will be transformed as technology is embedded into consumer devices to monitor and manage illness and improve wellness. The boom in fitness trackers, some of which measure steps and heart-rates, is just the start. In time, smartphone devices, smart clothing and other technology will monitor patient health autonomously and alert medical professionals when needed, potentially saving the healthcare system billions of dollars.

Cities will use connected devices to better control traffic, improve public safety and wellbeing, reduce their environment footprint and better manage resources. Smart, connected homes will use the IoT to optimise energy usage, improve security and reduce chores. It is already happening as new home devices, such as heating/cooling systems, are connected via the internet, and accessible via smartphones remotely.

Autonomous cars are another vision of IoT in practice. It is unclear when self-driving cars will go mainstream, particularly if vehicle manufacturers focus more on incorporating technology into existing cars to create a hybrid where people and technology share the driving.

But the prospects of autonomous cars being connected to road technology and other databases could revolutionise energy usage, road safety, car maintenance and insurance. More mining companies are already using remote-controlled, autonomous vehicles to improve productivity.

In terms of IoT penetration, it is likely that manufacturing will generate the biggest economic benefit from connected devices and be an early adopter. The public sector, health and retail industries will be other large beneficiaries of IoT, predicts McKinsey.

Perhaps the biggest winners will be organisations that provide technology and networks to connect devices.

Boards should act now

If Gartner is right, boards have time to act to ensure their organisation is prepared to harness the benefits of a trend that could take up to a decade to go mainstream. Those that have not already should start thinking about the IoT now because it will require vastly different resources and thinking within organisations.

The first priority is ensuring the board has sufficient technology skills to govern through technological change. Some Australian boards have recruited non-executive directors with deep technology management skills; others are forming advisory panels that feature technology experts, to advise the main board on technological trends such as IoT.

More Australian boards, particularly those of large listed companies, are visiting technology clusters such as Silicon Valley, to hear from leading experts. Or they are arranging for experts, local and offshore, to present to them on technology trends. More directors, anecdotally, are taking technology courses as part of their professional development.

Establishing formal technology committees is another option. Accenture late last year said banks, for example, should be considering forming technology committees, after its survey showed only 6 per cent of board directors and 3 per cent of CEOs of leading banks – an industry facing significant disruption from fintech start-ups – have professional technology experience.

A technology committee, alongside audit, remuneration, nomination or risk-management, makes sense for larger organisations more likely to be affected sooner by the IoT and other technological changes. But technology will affect many aspects of governance and cut across so many committees, that limiting its analysis to one committee could be too restrictive.

These initiatives, while important, will not be enough. Nobody knows for sure how the IoT will unfold or how quickly it will go mainstream. One certainty is that boards, and most in business for that matter, will struggle to keep up with IoT adoption rates and lag well behind the trend.

Rather than attempt to predict the future, boards should test whether their organisation can adapt to technological disruption from IoT. They must know the executive team is abreast of IoT trends and has the right people – and the right succession planning – to harness technology.

Information technology systems will need greater capabilities in “big data” as the IoT revolutionises the amount of data captured and analysed from connected industrial and personal devices.

Depending on their industry, boards should test whether their organisation has the right capabilities to analyse big data, incorporate it into more decision-making, and if its recruitment strategies are planning for a future where blue-collar and white-collar staff work closer with technology, such as software algorithms, that guide decisions or make them outright.

Most of all, boards must know that their organisation’s culture is adaptable, capable of continuous change, and encourages innovation and self-learning. A culture that allows people to make mistakes quickly, cheaply and ethically as they try things, and test ideas through experiments in a rapidly evolving IoT space.

It is no hyperbole to suggest that the IoT, when it arrives in full force in the next 10 to 20 years, could spark the fourth industrial revolution. And that boards that are not considering this trend could end up governing organisations that are made redundant by technology.