Unlocking the Internet of Things: Why scale is the smart route to high value

The Internet of Things is a genuinely ground-breaking technology innovation: smart devices have the potential to reshape the way that organizations work. Leading innovators recognize this. Microsoft, for instance, has recently announced that it will invest over $5 billion in the IoT over the next four years.

This investment reflects the huge potential of the technology. Harley Davidson, the leading global motorcycle manufacturer, invested in a fully IoT-enabled plant, connecting key processes and devices in their production process on a single network. The impact was significant:

• Operating costs dropped by $200 million
• Downtime was reduced and production efficiency went up
• The build-to-order cycle was reduced by a factor of 36
• Profitability grew by 3%.

While Harley Davidson drove significant value, many organizations do not. A large part of the IoT’s value lies in taking deployments to scale. That is proving to be a challenge for many organizations, as our latest research shows. Looking at efforts to optimize internal operations, we found that, on average, just 36% of organizations implement the IoT at scale (see Figure 1). Many organizations are yet to get beyond deployment at one or two sites, let alone large-scale adoption across business units, functions, or geographies.

So, why are organizations struggling to move beyond pilots? The challenges are a mix of the old (such as lack of skills) and the new (such as cyber threats). Examples include:

• Lack of structured data or analytics capabilities: When we look at the firms that are finding their IoT implementation challenging, 60% say that their current analytics capabilities are not ready to take advantage of the data generated.
• The absence of uniform standards and protocols: More than half of the organizations we surveyed cite uncertain standards as a significant challenge. There have been some recent collaborative efforts to define unified protocols for data sharing, networks, and interoperability by a handful of alliances for IoT standards. However, it will take several years for different standards to be consolidated and provide a globally consistent backbone.
• Connectivity: this continues to be a challenge for planning, deployment and scaling-up and is magnified as organizations move from proof-of-concept to full scale.
• Security threats and privacy concerns: In our survey, 62% of the organizations that are struggling to scale up IoT applications cited cybersecurity and data privacy threats as a top concern.

Focusing on high-value use cases

Once organizations have overcome these challenges, they need to focus on those use cases that can deliver a value return and competitive advantage. Our analysis assesses IoT use cases by value and payback period, pointing to those cases that have high potential, as Figure 2 shows.

Royal Dutch Shell provides an instructive example of a high-potential use case in action. This leading oil & gas company realized a $1 million return on a $87,000 investment in a remote IoT-based asset monitoring and maintenance solution. The company installed sensors in 80 oil fields in West Africa, which produce upwards of 600,000 barrels of oil per day. The oil wells are in difficult terrain, and the sensors made remote monitoring of output and performance possible. Royal Dutch Shell reported immediate cost savings from reduced site visits for equipment maintenance and reduced downtime.

Another example comes from Hershey’s, the chocolate-manufacturing major. The company added IoT sensors to its candy-making manufacturing facilities to improve production efficiency. The implementation required retrofitting of sensors on each candy holding tank to assess the temperature. Using approximately 60 million data points from the sensors, the company was able adjust the size of its products to stay within legal sizing guidelines. Overall, every 1% adjustment downward in size to bring the products closer to the precise weight results in $500,000 in savings in a 14,000-gallon batch.

Such results do not come by chance. They are the result of a well-thought-out IoT strategy and a structured approach to scaling IoT deployments. To learn more about how organizations can realize the potential of the IoT, read our latest research – “Unlocking the Business Value of IoT in Operations.”

Subrahmanyam KVJ

I help clients across sectors understand the disruptive impact of digital technologies and rapidly evolving consumer behaviors.