Chris Middleton looks at a new report from McKinsey that sets out the economic prize of the IoT and how to clinch it, while avoiding the common pitfalls.

By 2030, the Internet of Things (IoT) could unlock up to $12.6 trillion in global economic value – equal to over half the value of the US economy ($22.6 trillion). That’s according to a new report from consultants McKinsey, which sets out the steps leaders can take towards successfully adopting connected systems.

The Internet of Things: Catching up to an Accelerating Opportunity updates the company’s 2015 forecast and finds that while growth is not as stellar as its previous report predicted, the IoT could enable gains of between $5.5 trillion and $12.6 trillion globally by the start of the next decade.

The total value captured by 2020, $1.6 trillion, was at the lower end of analysts’ 2015 forecasts.

One of the reasons for the breadth of McKinsey’s new forecast is that many leaders wrongly see the IoT purely as a technology challenge, creating unnecessary headwinds for transformation programmes in terms of change management, real-world implementation costs, and skills/talent.

As a result, many organisations fail to benefit. “While the potential economic value of IoT is considerable, capturing it has proved challenging, particularly in B2B settings. Many enterprises have struggled to transition from pilots to capture value at scale successfully,” says the report.

This echoes the findings of a 2019 Capgemini report on smart factories, which found that only 14 percent of programmes succeed, because business and technology leaders underestimate the skills, business, transformation, and scaling challenges, including the security risks of putting legacy systems online.

According to McKinsey, smart factories will account for 26 percent of the total value of IoT implementations by 2030. Healthcare will be the runner-up, with 10-14 percent of added value (via smart, connected devices, health appliances, and new data-centric care systems).

“The greatest potential for value creation in the factory setting will be optimising operations in manufacturing – making the day-to-day management of assets and people more efficient,” continues the report.

“Overall, operation-management applications in manufacturing could account for around 32 to 39 percent of the total potential IoT economic value created in the factory setting, or around $0.5 trillion to $1.3 trillion, by 2030.”

B2B applications are where the majority of IoT value can be created – nearly two-thirds (65 percent) of the predicted total, says McKinsey. But the report’s authors acknowledge that consumer applications are growing faster than expected, via the popularity of smart-home devices from the likes of Amazon, Google, Apple, and others.

Autonomous vehicles (which, in McKinsey’s definition include vehicles with Level-2 driver assistance technology) will be the fastest-growing IoT-value cluster over the next decade, with a predicted compound annual growth rate (CAGR) of up to 37 percent.

While the developed world is expected to account for around 55 percent of estimated IoT gains by 2030, the “real growth story” will be China, which has become a global force in the IoT, says the report.

“China could be responsible for around 26 percent of the estimated economic value of IoT globally by 2030, slightly above its forecast 20 percent share of the global economy and greater than the estimated IoT economic value from all emerging markets – 19 percent of the total.

“We estimate that China’s share of IoT economic value from factories could be higher than either developed or emerging markets by 2030. Today, China is estimated to have a significant share of the IoT-device installed base at around 32 percent, triple the estimated share of the emerging markets.”

Headwinds and tailwinds

So, analysts’ broad predictions aside, what are the headwinds and tailwinds that either hold users back or accelerate payback from IoT programmes?

According to McKinsey, tailwinds include more organisations seeing the value of IoT deployments within digital transformation programmes, “remarkable” advances in affordable technology – particularly in sensors, batteries, chips, and data analytics – and the spread of 4G and 5G networks.

However, the news is “not all favourable” for at-scale adoption of IoT solutions, warns the report. Five factors are listed as headwinds:

  • Underestimating the change-management challenge in terms of governance, skills, organisational behaviour, systems, and processes.
  • The lack of interoperability in an environment often characterised by ‘walled garden’ ecosystems.
  • The cost and complexity of installing IoT solutions at scale, especially when custom solutions are required, or old devices need to be retrofitted.
  • The cybersecurity challenges of exposed endpoints, including devices that were not designed to be connected to the internet. “Prioritising cybersecurity from the beginning and starting with the hardware layer is critical to developing end-to-end security,” it says.
  • The growing popularity of privacy regulations, which makes organisations nervous about sharing data.

Seven steps to success

So how can business and IT leaders avoid the pitfalls and make a success of their IoT programmes? Organisations that have succeeded in deploying systems at scale typically take seven key steps, says the report:

  • Be clear who ‘owns’ the IoT in the organisation.
  • Design for scale from the outset and ground your project in business outcomes.
  • Don’t ‘dip your toe in the water’, as each use case may be different. Adopting a more widespread approach forces change on the organisation, claims McKinsey – a high-risk strategy if the other steps aren’t taken.
  • Invest in technical talent.
  • Change the entire organisation, not just the IT function.
  • Push for interoperability.
  • Proactively shape your environment: companies should diligently build and control their IoT ecosystems, says the report.

In related news, according to an announcement from Huawei this week, fellow electronics giant Haier has, with support from Huawei and China Mobile, successfully combined IoT, mobile edge, AI, machine vision, and 5G solutions in its factories in Qingdao, China.

Huawei is to help Haier roll out smart, connected systems across 100 more factories worldwide over the next five years, with a vision of also creating digital twins of the facilities to enable predictive maintenance.