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The Opportunities and Challenges of IoT Part 1 – Opportunities

The Internet of Things (IoT) changes the game’s rules of technology and business. By giving information systems the ability to detect, communicate and process data, IoT has made production and distribution more efficient and boost innovation.

The media create a buzz about the craze for sports bracelets and home automation, but the real potential for business is elsewhere. The studies McKinsey Global Institute shows that the operational performance and greater market penetration through the IoT will create immense value in many industries.

1.Create the overall value in B2B

To make the IoT more understandable to the general public, the media are enthusiastic about the release of various “wearables” (activity trackers, clocks connected etc.) and equipment for the connected home. It is true that these areas carry with them significant value. However, we must not forget the essential – In the next 10 years, 70% of the value will come from applications in the B2B, that is to say, IoT will bring significant impact in manufacturing , agriculture and even health facilities, raw materials extraction (mining, gas, oil), construction and finally, in the offices.

The potential of the IoT is global. Emerging markets with their intensive manufacturing production will be the first to adopt it. Over one-third of the world’s estimated value will probably be generated in developing economies. These countries have less than legacy technologies, their economies will skip steps. Quantitatively, the deployment of IoT (factories, mining, oil and gas, construction) could exceed that in post-industrial economies.

2.Improve operations

The investment in the hardware of the IoT is only a starting point in the value chain creation. Most of the gains in competitiveness will be achieved elsewhere – IoT will provide a steady flow of essential data in decision making and that will optimize operations, the organization of work and staff allocation.

Inventory management will be radically transformed – the cameras installed on the production line will measure the amounts of the remaining components and the system will automatically control the necessary quantities.

Using the vehicle without a driver in mining, for example, promises to increase productivity, and reduce the number of work accidents that result in medical expenses and insurance.

IoT systems will centralize all data concerning the operation and the actual use of the equipment. These data will be more accurate than information gathered from consumers or in studies. Manufacturers will be able to understand what features of their products are more or less frequently, in order to change the design to make them more functional. Moreover, improving the iterative loop (e.g., the updated line of connected products) will make the whole more robust and relevant. Thus, instead of depreciate, the object will continue to appreciate in value.

Currently most of the data generated by the IoT sensors is not exploited, yet these data are an important source of additional value.

3.Create innovative business models

The IoT may lead to the creation of new business models that would change the situation in various industry sectors. For example, the use of connectivity and IoT data can transform the sale of industrial equipment in service properties.

Aircraft engine manufacturers were the first to move from selling physical equipment into services. Now these models spread to other industrial sectors. Services, appeared in the transport through the applications and geolocation, disrupt car sales and traditional distribution. Manufacturers of laser printers, also featuring IoT capabilities become service providers.

The ways of creating new economic models are multiple. First, how and when the equipment is used enables manufacturers to optimize and monetize a new use-consumption. Second, all data obtained through these objects helps the supplier to improve performance in the management and use of its equipment.  For example, the analysis of data from the IoT would help improve maintenance planning, reduce downtime, and anticipate peak usage.

This change of business model will encourage companies to improve their service offering. Product development is transformed into development department, where value is co-created with the customer. It is not enough to focus on product characteristics for which customers will pay the most. It will be vital to understand what results are expected by customers to extend the offer more effectively.

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