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McKinsey Quarterly - The Internet of Things

McKinsey Quarterly - The Internet of Things

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Published by: fnetolab on Jul 24, 2011
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07/24/2011

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 Artwork by Harry Campbell
 
Michael Chui, Markus Löfer, and Roger Roberts
Michael Chui
is asenior ellow withthe McKinsey GlobalInstitute,
MarkusLöfer
is a principal inMcKinsey’s Stuttgartofce, and
RogerRoberts
is a principal inthe Silicon Valley ofce.
1
In most organizations,
information travels along familiar routes.Proprietary information is lodged in databases and analyzed inreports and then rises up the management chain. Information alsooriginates externally—gathered from public sources, harvested fromthe Internet, or purchased from information suppliers.But the predictable pathways of information are changing: thephysical world itself is becoming a type of information system.In what’s called the Internet of Things, sensors and actuatorsembedded in physical objects—from roadways to pacemakers—arelinked through wired and wireless networks, often using the sameInternet Protocol (IP) that connects the Internet. These networks
churn out huge volumes of data that ow to computers for analysis.
 When objects can both sense the environment and communicate,they become tools for understanding complexity and respondingto it swiftly. What’s revolutionary in all this is that these physicalinformation systems are now beginning to be deployed, and some of them even work largely without human intervention.Pill-shaped microcameras already traverse the human digestive tractand send back thousands of images to pinpoint sources of illness.Precision farming equipment with wireless links to data collectedfrom remote satellites and ground sensors can take into account
crop conditions and adjust the way each individual part of a eld is
More objects are becoming embedded with sensorsand gaining the ability to communicate. The resultinginormation networks promise to create new businessmodels, improve business processes, and reducecosts and risks.
The Internet o Things
 
2
farmed—for instance, by spreading extra fertilizer on areas that needmore nutrients. Billboards in Japan peer back at passersby, assessing
how they t consumer proles, and instantly change displayed
messages based on those assessments. Yes, there are traces of futurism in some of this and early warningsfor companies too. Business models based on today’s largely staticinformation architectures face challenges as new ways of creating value arise. When a customer’s buying preferences are sensed in real
time at a specic location, dynamic pricing may increase the odds
of a purchase. Knowing how often or intensively a product is usedcan create additional options—usage fees rather than outright sale,for example. Manufacturing processes studded with a multitude of 
sensors can be controlled more precisely, raising efciency. And when
operating environments are monitored continuously for hazards or when objects can take corrective action to avoid damage, risks andcosts diminish. Companies that take advantage of these capabilitiesstand to gain against competitors that don’t.The widespread adoption of the Internet of Things will take time, butthe time line is advancing thanks to improvements in underlying
technologies. Advances in wireless networking technology and the
greater standardization of communications protocols make it possibleto collect data from these sensors almost anywhere at any time. Ever-smaller silicon chips for this purpose are gaining new capabilities, while costs, following the pattern of Moore’s Law, are falling. Massiveincreases in storage and computing power, some of it available viacloud computing, make number crunching possible at very large scaleand at declining cost.
Monitoring the behavioro persons, things, or datathrough space and time.
Examples:
Presence-based advertisingand payments based on locations o consumersInventory and supply chainmonitoring and management
Putting the Internet o Things to work:
Inormation and analysisTracking behavior
 eI  n t  en e t  oi  n g s

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