Internet of Things: Another Spending Spree for the CFO to Manage

The term ‘Internet of Things’ is being increasingly thrown around, mainly by technology vendors and governments seeking to promote the use of IT. But what does this term mean, particularly for the business? Do enterprises stand to benefit from having an Internet of Things deployment, if such a thing exists?

Simply put, the Internet of Things (IoT, in industry-speak), refers to the potential of deriving benefits from data generated by the billions of devices with network connectivity that are in use today. Such devices could range from mobile phones to smart fridges to smart temperature-sensing thermostats, just to name a few.

If this forecast pans out, CFOs will be fielding requests from lines of business to allocate spending on IoT

By 2020, predicts technology market research organization IDC, “IoT will change everything.” The companies in Asia Pacific that are likely to be at the forefront are those in communications and media, consumer and recreation, logistics, natural resources and utilities.

If this forecast pans out, CFOs will be fielding requests from lines of business to allocate spending on IoT. At this early stage, it is useful for finance and other parts of the company to understand what the Internet of Things is, to help determine whether the organization should deploy a solution or not.

IoT Deployments

Several Internet of Things deployments already exist today. Take the Philips Hue, a connected light bulb whose color can be changed via a wireless mobile app. There is also the Nest Learning Thermostat, a device that learns a user's domestic schedule and programs itself to lower heating and cooling bills.

On a larger scale, sensors were distributed across Google’s facility in the United States to measure air pressure, ambient temperature and noise levels, among other factors. Data generated from these sensors was analyzed and used to predict crowd patterns in real-time so conference capacity could be adequately catered to.

The Internet of Things is closely tied with technologies such as the cloud, analytics and big data. The examples above were all made possible through cloud and analytics – the Philips Hue uses Google’s cloud-based app engine on its backend while Nest arrives at a user’s ideal home temperature via a cloud-based analytics engine.

In the third case, data from the distributed sensors was both stored and analyzed in the cloud.

In the Enterprise

We live in an age where technology plays a major role in an organization’s well-being. Lag behind and your competitors will pass you by, resulting in frustrated customers and a less than ideal bottom line.

But what significance does the Internet of Things hold for the enterprise? The answer is: a fair bit, depending on the industry the enterprise operates in. And some enterprises are making tentative steps toward capitalizing on the Internet of Things.

Oil giant Shell claims to be the first in the oil and gas sector to innovate via the Internet of Things. The Dutch company utilizes technology from Cisco to perform real-time monitoring so information about a potential drilling point can be sent instantly back to the office for analysis.

Shell CIO Alan Matula says the company was able to automate the actual drilling going on with speed and accuracy. With the help of IoT technology, remote command centers could quickly analyze and control drill bits on the rig.

There are other examples and the Internet of Things looks set to push enterprises to evaluate just how they use technology.

The Internet of Pigs

General Alert, a UK technology company that works with sensors and monitoring technology on farms, is working with IoT firm 1248 toward improving the welfare of pigs, poultry and other livestock by providing early warning of transmitted diseases.

General Alert will enter data from its multiple sensors – such as temperature, drinking water flow, animal feed rate, humidity, CO2 concentration, ammonia and pH levels – into 1248’s new Geras IoT database. Data from RFID (radio-frequency identification) and temperature tags planted in pigs will also be included.

CFOs should also take note that the concept is still very much in its infancy. In particular, challenges around interoperability abound. 

The sensors collect thousands or millions of readings via the mobile phone network or the Internet, which need to be stored and analyzed in order to be useful.

General Alert claims this will be the first time agricultural environments and the behavior of animals have been measured in such detail. The aim is to manage the health and well-being of livestock, improve productivity and avoid financial loss. For example, a change in animal drinking behavior could indicate illness or stress that could be resolved quickly once detected.

Four Layers of Spending

SAP, the global software giant, claims that the Internet of Things can allow companies to understand in real time what customers are doing with their products. In turn, this can have a significant effect on augmenting a company’s product development lifecycle, helping enterprises stay competitive while enjoying cost savings.

The Internet of Things is just the beginning but the concept signifies numerous possibilities for the enterprise no matter what the industry is. What are the factors that comprise Internet of Things deployments and what are the implications on capex and opex from the point of view of the CFO?

There are four layers behind the Internet of Things, says Kathikeyan Rajesekharan, Technical Architect, Cloud Platform Asia at Google: 

  • The sensing layer, where the sensors reside and collect data (e.g., the RFID tags in pigs)
  • The connectivity layer, which transmits the data collected by the sensors (e.g., the mobile phone network)
  • The services layer, which includes a core set of services to build Internet of Things applications (e.g., 1248’s Geras IoT database)
  • The application layer, where applications such as the analytics software resides. Often, the analysis of data is conducted in the cloud

CFO and CIO

Determining the appropriate level of investment required for an Internet of Things deployment requires close cooperation between the CFO and CIO.

Areas that need to be considered include:

  • What does the company hope to achieve from an Internet of Things deployment?
  • Which sensing and monitoring instruments would suit the company’s needs best?
  • Which analytics applications would be the most appropriate and would it be more cost-effective to tap cloud-based analytics, perhaps on a Software-as-a-Service platform?
  • If cloud computing is chosen, would more investment need to be made towards an enterprise’s connectivity and bandwidth as well as security?

The Internet of Things and the connected enterprise may sound like an enticing offering but CFOs should also take note that the concept is still very much in its infancy. In particular, challenges around interoperability abound. Currently, the industry lacks standardization which means it has not yet been established as to which parties should take responsibility for device compatibility.

Gartner Vice President Hung LeHong is of the opinion that it will be a long time before universal compatibility is ever reached, due to the large variety of vendors involved, from telecommunications firms to cloud providers to application providers to sensing device vendors.

Security is also a concern, especially when critical industries such as oil and gas are involved. Shell is apparently confident in the security layers of its IoT solution for rigs. Time will tell whether its confidence – and those of other pioneers – is not misplaced.

About the Author

Melissa Chua is Contributing Editor at CFO Innovation based in Singapore

Photo credit: Shutterstock

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