In 2015 the World Economic Forum produced a report concluding that the IoT's impact would be: "incremental in the near-term, but transformative over the long-term". Strikingly, that report measured the "long term" in years rather than decades. It sketched a fairly rapid transition from an investment case focusing on operational efficiency to one based on serving first an "outcome economy" and ultimately an autonomous "pull economy". The report predicted:
The outcome economy will be built on the automated quantification capabilities of the Industrial Internet. The large-scale shift from selling products or services to selling measurable outcomes is a significant change that will redefine the base of competition and industry structures. Delivering outcomes will require companies to forge new ecosystem partnerships centred on customer needs rather than individual products or services.
From there, the implications become even more seismic:
As the industrial internet becomes more ingrained in every industry, it will ultimately lead to a pull-based economy characterised by real-time demand-sensing and highly automated, flexible production and fulfilment networks
As with many aspects of the IoT, reasonable surmise is coupled with a temptation to overstate the actual pace of change. The IoT is undoubtedly a disruptive force in manufacturing, but rumours of the death of "traditional" manufacturing have quite possibly been exaggerated. Developments in 3D printing promise significantly improved prototyping and allow greater customisation, but they cannot yet match the speed and economies of scale achievable through large-scale production.
So, at what may be a transitional stage in manufacturing, what are the key drivers for investment in the IoT?
Operational efficiencies – a defensive case?
From an operational perspective the IoT offers significant benefits. Real-time monitoring of production lines or chemical pipelines, coupled with predictive analytics can produce immediately measurable efficiency gains in terms of increased uptime and asset utilisation. Those gains can be secured through predictive maintenance and remote management, allowing direct access to previously inaccessible or difficult to reach parts of a system.
At this stage, therefore, IoT investment looks more to cost savings or revenue enhancement than to any more fundamental shift in the business. It is about business as usual, but better.
Compliance – a defensive case?
IoT devices and connectivity also provide potentially powerful compliance tools. Laws with global reach increasingly require businesses to take responsibility for their supply chains. Examples include the UK's Modern Slavery Act 2015, s 54 of which requires a commercial organisation with a worldwide turnover of at least £36 million to prepare and publish for each financial year a statement of the steps it has taken to ensure that slavery or human trafficking is not taking place in its own business or in its supply chain, or a statement that it has taken no such steps.
For manufacturers, IoT monitoring and verification of raw materials and commodities from extraction, quarrying or of components from manufacture and shipping allows verifiable tracing back to source. This data can be extremely effective as evidence of compliance. For example, manufacturers of LED lighting might use IoT data to demonstrate that rare earths used in their processes are not "conflict minerals" potentially involving forced labour or breach of economic sanctions affecting areas such as the DRC. It can also materially help businesses to prove compliance with "ethical sourcing" laws designed to prevent illegal logging, such as the EU's Timber Regulation, the US' updated Lacey Act or Australia's Illegal Logging Prohibition Act. Verified sourcing can also be a powerful tool for any business involved with products that feature on the US Department of Labor's TVPRA list of goods produced by child labour or forced labour. High-risk areas include manufacturing (including apparel) which accounts for 42 of the 136 products on the list, and mining/quarrying which accounts for a further 29 products. Combining IoT data with automated compliance checklists could therefore allow businesses to demonstrate compliance, minimising the risk of sanctions, regulatory intervention or reputational damage.
Outcome economy and pull-based economy – a survival case?
The argument shifts up several gears when looking to the medium or "long-term". On those timelines, the IoT is about far more than operational efficiencies or compliance. It is about using the vast array of data sets made available by IoT connected equipment and objects to generate detailed customer insights, to develop new products and services and, ultimately, to effect a decisive move into a "pull-based" economy.
That shift cannot be made by businesses acting in isolation. It requires the formation of new business relationships, methods and channels, adding up to new connected "ecosystems" coalescing around software platforms that blur traditional industry boundaries.
With that more radical shift comes significant new legal and organisational challenges. They include:
- Finding the appropriate business structures for collaboration. These could be "traditional" corporate or contractual joint ventures or perhaps even newly-conceived forms such as "decentralised autonomous organisations", operating across borders
- Finding the limits of information sharing and confidentiality. What information must be shared? What information might usefully be shared? How can information be protected and any unauthorised use prevented in a business relationship that is unlikely to recognise either geographical or jurisdictional borders?
- Navigating complex and possibly conflicting regulatory regimes – for example laws governing data transfers and processing
- Identifying and satisfactorily guarding against or mitigating security risks. The October 2016 cyber-attack that temporarily brought down twitter and amazon, along with internet access along the USA's eastern seaboard, has brought renewed focus both on the need for IoT security and on the risk of liability attaching to businesses that fail to secure their connected equipment.
In this scenario, IoT investment is no longer about "business as usual, but better". Rather, it requires businesses to take a leap – not of faith, but of well-advised and properly-informed intelligence.