A large number of companies are expected to fail to embrace the Internet of Things, but for innovative businesses it offers a new competitive advantage
Smart Garbage cans that alert when they need to be emptied, fully automatic hydroponic systems that attend to all of your plants’ needs 24/7, and electronic forks that help users monitor and track their eating habits. These are just a few of the thousands of innovative new products that are made possible by the Internet of Things.
The Internet of Things (IoT) is the network of physical objects, embedded with sensors and connectivity, that can collect and exchange data. Research firm Gartner predicts that there will be about 50 billion devices connected to the internet by 2020.
However, adjusting to this change may prove difficult for a large number of companies. Indeed, IT company Cisco predicts half of Fortune 500 companies will fail to embrace the IoT in the next five years. This could have dire consequences, as new digital business models are the principal reason why just over 50% of Fortune 500 companies have disappeared since 2000.
Yet, in the midst of this disruption there is a great opportunity and the IoT can become the source of a new competitive advantage.
“Uses of the IoT that were previously impractical will increasingly become practical,” says W. Roy Schulte, vice president and analyst at Gartner. He adds the IoT is relevant in virtually every industry, although not in every application.
“There will be no purely ‘IoT applications’. Rather, there will be many applications that leverage the IoT in some small or large aspect of their work. As a result, business analysts and developers of information-centric processes need to have the expertise and the tools to implement IoT aspects that play a role in their systems.”
But for companies to successfully integrate the IoT into their business models, a culture of innovation at all levels is required.
Creating such an internal culture should therefore be one of companies’ top priorities, say Accenture Strategy’s Gionata Tedeschi, managing director and digital strategy lead for Europe, Africa and Latin America and managing director Amato Della Vecchia.
“The Internet of Things strongly affects how people are working and what is demanded from them. This new culture will need to be infused across the whole organisation, from generating ideas to workforce training and onboarding.”
Digital innovators – especially incumbent internet companies such as Google, Apple and Facebook – are particularly threatening as they may define the new competitive rules of the IoT economy. By leveraging their unique knowledge of customers, they could force traditional industries to follow rather than lead.
“[For traditional industries], the key will be to find the right partners to drive innovation. To face these new challenges and transform them into an opportunity, companies have to take rapid and informed action, defining a clear strategy in this market, which requires new capabilities, a technology operating model and alliances,” Tedeschi and Della Vecchia explain.
Implications for risk and insurance
The IoT will also radically change the nature of risks, as new technologies, such as drones, will present new risks. Furthermore, the assessment of existing risks will need to consider new parameters, for instance in the case of self-driving cars controlled by autonomous systems.
However, the disruptive technologies of the IoT will be an opportunity for insurers who act quickly to define new roles and create a connected offering model.
“In this environment, it is critical to be an innovator across the entire insurance value chain and to also be effective in operating across a broader partner ecosystem,” Tedeschi and Della Vecchia say.
“Additionally, the IoT can collect in real time a large amount of data to better understand any associated risks to the customer, and perhaps help prevent them from occurring.”
The Internet of Things will have a profound impact on the role of the risk and insurance manager as well. In an environment with real time data, ongoing customer interactions and customised services, the control of the risk can be improved dramatically.
But as the role of the risk and insurance manager becomes more and more strategic, new info-based processes and capabilities (such as support from data scientists) have to be in place to support the risk function, Tedeschi and Della Vecchia say.