The Internet of things, or IoT, is about to hit a tipping point. According to Gartner, 4.9 billion connected things will be in use in 2015, up 30% from 2014, and that number will reach 25 billion by 2020.
Just what is the IoT? Does it matter and as a corporate director, should you care?
The Internet of Things is merely the expression used to signify that now not only people can be connected to the internet but “things”, autonomous devices with intelligent sensors, can also be connected. These objects are able to send subsets of relevant data about the “things” to which they are connected and this data is used by companies to offer new products or services to consumers. Some examples include Fitbit, which collects exercise training data, and Nest, which collects home energy data. IoT is also being applied to industrial technology, as in microchips on the Siemens production floor. For a corporate directors, what is really important to understand is not the technology side of IoT, but the new business models it enables. These business models leverage data from objects and consumers and uses cloud computing to offer products and services that change the playing field of traditional companies. Think about what information technology did to traditional businesses by creating a new digital economy, new markets and new industries. IoT will have that same impact on current businesses, possibly on an even larger scale.
IoT is already here and has started revolutionizing industries that had already been transformed previously by IT, such as the car rental industry. Zipcar is an excellent example of a new business model created with IoT. Zipcars uses information from sensors in cars (mileage, location, fuel, servicing needs), from smartphones (customer identification, location, payment), and from central databases (remote dispatchers) to offer car sharing services that replace car rental and even car ownership. This new model uses much less hard infrastructure and utilizes collected data to enable a new business that is changing how car rental and car manufacturers develop their own strategies. And Zipcar is only the beginning of this industry’s shift, more changes are coming.
As a corporate director, you have to start gathering information about and developing an understanding of IoT technologies and business models because it will impact your role on the board on many levels.
1. Strategic planning
IoT will change many of the underlying assumptions of your strategic plans. Opportunities and threats will appear. New competitors will scale up rapidly at lower cost than legacy businesses and new business models that you never thought could ever succeed will appear. Customers will expect different value propositions. And new partnerships will be required, for example, between smart energy management companies and utilities. Digital infrastructure will need to be upgraded integrating more vendors, cloud computing, big data, mobile capacity, and analytics. Manufacturing IoT will impact margins. At the same time, new partners that are enablers, engagers, and enhancers will want to work with you. New products and services will become possible and threaten your existing revenues, and you will need to develop the capacity to analyze and use IoT data. The board has to start taking these strategic changes in consideration.
2. Risk evaluation and mitigation
Of course, relying on more and more data sources and partners to offer product and services will change your risk assessment. In general, cyber security will have to be increased to ensure the security of all data and its transmission, for example, ensuring that the data from your company’s baby monitor does not fall into outside hands. Reputational risk will be compounded by the nature of the data consumers share with you. Vendor risks will need to be thoroughly assessed as you rely on IoT partners to gather, analyze, transport and store data. Legacy infrastructure must be protected so that it does not become a vulnerable entry point into your network, even if you only use it as part of the backbone of your existing business. Sensors connected to things or people could result in bodily harm or property damages leading to new risks that need to be insured. The board risk oversight role is broadened by IoT.
3. C-Suite hiring and succession planning
IoT will require savvy business leaders that can focus on achieving revenue gains from IoT by increasing production, lowering margins, introducing hybrid business models, and by building business relationships with other IoT vendors, some of which may have very different cultures. Many current leaders do not understand the benefits, business models, and implications of IoT. Accenture reports that only 7% have a “comprehensive strategy with investments to match”. Digital business and the Internet of Things also demand a new level of excellence in enterprise architecture principles and practices, new products and services development, data analysis, and technology infrastructure. Corporate directors have to keep this future in mind when hiring at the C-suite level.
4. Talent management
Not only is expertise required at the top to handle IoT, it is also required throughout the company. Talent with experience in IoT is even scarcer in the market than in mobile programming. Your company has to understand the skills and job mix needed in the IoT future and develop a plan to be ready to meet those needs. This plan will need to include the design and prototyping of new products and services, their management once implemented, and the analysis of the resulting wealth of data. Your company talent management plan may also need to foster more opportunities for people in your company to experiment and rapidly learn what works and what doesn’t in the world of IoT. Members of the HR committee need to start a discussion on the possible impacts of IoT on talent.
5. Legal and regulatory
The regulatory and legal framework to support IoT is in the very first stages of development and is almost non-existent. POLITICO reports that the US government is not keeping up with IoT and this implies that many other governments are not either. But with its potential to reach deep into citizens’ daily lives much more directly than the Internet, sooner or later a compliance and legal framework will emerge. In the meantime, as a corporate director, you will need to ensure that your company self-regulates and adopts its own regulatory framework heavily biased toward data minimisation, opt-in and opt-out, privacy and security, and where notifying users of a data breach is a certainty.
These are some of the impacts IoT will have on the governance of your organization. As it gains more and more momentum, there will be other impacts that have not yet been envisioned. I hope I’ve convinced you that an awareness of the IoT, its progress, and the new products and business models it enables is a must for a corporate director. The sooner you become interested and invested in this new domain, the better for your board. It is easier to learn to swim in the shallows, than to get pulled into a riptide.