[McKinsey] Preparing IT systems and organizations for the Internet of Things

To accommodate the development and support of smart devices, companies will need to update existing IT architectures and operating models. Here’s a potential road map.SVGZ_ex1

As the Internet of Things (IoT) gains momentum, many companies are trying to determine how best to update their existing IT architectures and operations to capitalize on this trend.

The Internet of Things refers to the networking of physical objects through the use of embedded sensors, actuators, and other devices that can collect or transmit information about the objects. Examples in the consumer market include smart watches, fitness bands, and home-security systems. Examples in the B2B market include sensor-embedded production equipment and shipping and storage containers. Such devices are networked through computer systems and generate an enormous amount of data—information that some leading-edge companies are mining for insights and opportunities that can help set them apart from competitors.

According to a recent McKinsey Global Institute report, the networking efficiencies and opportunities created by the Internet of Things may have a global economic impact of as much as $11 trillion per year by 2025 across multiple sectors.1 1.“Economic impact” is defined in the report as the collective financial and nonfinancial benefits end users may gain from the use of Internet of Things applications. The report also suggests that, although consumer applications seem to be on the leading edge of adoption, nearly 70 percent of the projected economic value will eventually come from the use of sensor technology and swarm intelligence among B2B users.2 2.For more, see “Unlocking the potential of the Internet of Things,” McKinsey Global Institute, June 2015; and Jacques Bughin, Michael Chui, and James Manyika, “An executive’s guide to the Internet of Things,” McKinsey Quarterly, August 2015.

The opportunity is huge, but there is a lot of uncertainty for companies, as there is with any emerging trend. Questions remain about how to accurately assess the business opportunities in the Internet of Things, how to build a technology stack (the layers of hardware, software applications, operating platforms, and networks that make up IT architecture) to support current and future Internet of Things applications and devices, and whether companies should invest in open or proprietary technologies.

The transition from a traditional enterprise IT architecture to one optimized for the Internet of Things will not be easy. Elements of companies’ current technology stacks may need to be redesigned so they can support billions of interdependent processing events per year from millions of products, devices, and applications. Because networked devices are always on, companies must be able to react to customer and system requests in real time; agile software development and delivery will therefore become a critical competency. Seamless connectivity will also become a must-have, as will collaboration across IT and business units, which have traditionally been siloed. Moreover, companies must be able to securely and efficiently collect, analyze, and store the data emerging from these refined IT architectures.

Our work on digital transformation with companies in a range of industries suggests there are several critical areas companies will need to focus on to address these challenges—among them, actively participating in setting industry standards, exploring modular approaches to digital application design and maintenance, altering information collection and security protocols, and reconsidering how to manage existing products alongside newer Internet of Things applications and devices, as well as how to alter existing contracting processes to account for IoT service requirements.

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