Technology researcher Gartner projects there will be 25 billion “connected things” by the end of the decade. Everything is getting online—from jet engines to farming and industrial equipment to the cars we drive—and the transformative effects on the business world as we know it have already started. Tata Consulting Services’ 2015 Global Trend Study focused in on this new wave of transformative tech, the Internet of Things (IoT). We spoke to Dr. Satya Ramaswamy, VP and Global Head of TCS Digital Enterprise about what it could mean for your business in the future or even right now (whether you know it or not.)
Consulting: Why was IoT the topic for this year’s Global Trend Study?
Ramaswamy: We pick the topic of the study based on the trends we’re seeing in our client work, based on which technologies are getting attention from customers. This year we were beginning to see an upsurge of interest in Internet of Things across multiple industry verticals. We found manufacturing was leading the pack among industries with substantial IoT initiatives. Manufacturing is not traditionally at the forefront of adoption of digital in other areas, but IoT is something that really applies to the very core of their business, so it’s interesting to see that traction.
Consulting: What were some of the key findings?
Ramaswamy: The impact on the revenue was very interesting. Over the last 10-15 years companies were focused on reducing costs. But now most of the cost levers have been identified and applied. Since cost can only get you so far, increasing revenue is once again becoming the most important strategic objective for many companies. If you reduce the costs as low as they can and you don’t also have a way to increase the revenue you get caught up in what we call the ‘value boundary’. In this study it was interesting, and we’re seeing this in our client work as well, 80 percent of companies that had IoT initiatives actually had a revenue increase in the areas where they use IoT. The average increase was more than 15 percent, with the companies at the top increasing revenue as much as 30 percent. That’s pretty spectacular
Consulting: What challenges can IoT implementations bring to an organization?
Ramaswamy: The most important issues needed to succeed in the IoT space are the cultural and the organizational rather than technological. IoT can bring about substantial change in the business and all the different business models, to the workplace, etc. IoT gives you a very real picture of what is happening with your products and services on the ground. Many times what happens is what the company thought the product is doing in the field is very different from what is actually happening. How do you handle that? So things of that nature are mainly cultural. Also because of the significant impact of IoT initiatives, they require sponsorship from the very top of the organization.
Consulting: How will IoT be a disruptive force?
Ramaswamy: IoT is helping companies create something fundamentally new in terms of business model, product and services, customer segments, channels, business processes and workspaces. Take the manufacturing business model for example. Traditionally if with high-value items; jet engines, or maybe a wind turbine, things like that, the business model has been based on capex—I pay you $20-$30 million and you give me the jet engine in return. I walk away, put the jet engine on my plane and start using it. But that’s not the most effective model for the customer or the supplier. Now they can implement sensors in all this machinery and get the data in almost real time and put it through a big data system. This creates a digital ‘twin’ of the machinery that is out there. Once you do that you don’t necessarily have to use the capex model. Since you can now monitor it all the time you can look at a very different type of business model. For example some of the jet engine manufacturers are talking about Thrust as a Service. The engines create a certain amount of thrust and you can actually measure it and charge the airline based on how much thrust is being generated. Many manufacturing companies are creating entirely new services that never existed before in terms of monitoring, doing predictive maintenance and other things it never had before.
Consulting: How high is the barrier to entry for SMBs?
Ramaswamy: IoT is both an opportunity and a threat for small- and medium-sized businesses. The opportunity here is that it’s not prohibitively costly. Connectivity and the sensors have become cheap and many of the IoT platforms out there are all cloud-based. So you don’t need a lot of infrastructure to get an IoT program up and running because you introduced those sensors into existing products or services and use those cloud-based platforms to analyze the data and that’s an opportunity. All enterprises are looking to increase revenue and clearly SMBs can and should jump on the bandwagon. The threat part comes because IoT levels the playing field in terms of a company’s agility. Traditionally the great strengths of SMBs are they are more agile than big companies and that they’re closer to the customer. Now with IoT big companies get the same advantages.