CONTENTS

SPECIAL
COLLECTION

Building an IoT Strategy

i Introduction

ata S
1 Dharing and Analytics Drive Success with Internet of Things
By Stephanie Jernigan, Sam Ransbotham, and David Kiron

16 The Flood of Data From IoT Is Powering New Opportunities — for Some
By Sam Ransbotham

19 IoT Can Drive Big Savings in the Post-Sales Supply Chain

By Daniel Gettens, Francisco Jauffred, and Daniel W. Steeneck

e2
2 gua
Sradf Your Organization’s IoT Initiatives
By Sam Ransbotham

w5ThNaot Your Products Can Talk, What Will They Tell You?
2
By Suketu Gandhi and Eric Gervet
 INTRODUCTION
Connecting devices and collecting data via the internet of things (IoT) gives
companies more data than ever about how their products are being used — and could
be used. This collection of articles from MIT Sloan Management Review examines the
opportunities and risks that this rich layer of connectivity presents.

From “Data Sharing and Analytics Drive Success With IoT”:

• A global study by MIT Sloan Management Review, based on a survey of 1,480 respondents, finds
that a company’s ability to obtain business value using the connections that IoT creates depends
on that company’s willingness to share data with other organizations — including competitors.
• Managing the increasing number and depth of relationships that come with IoT projects may
seem to be as big of a challenge as managing the growing technical infrastructure that IoT
initiatives require.
• Companies with strong analytics capabilities are three times more likely to get value from IoT
initiatives than companies with weaker analytics capabilities.
• Managers do not fully appreciate the potential security risks that accompany the growth of
networks of devices.

From “The Flood of Data From IoT Is Powering New Opportunities — for
Some”:

• Sam Ransbotham, one of the coauthors of the MIT Sloan Management Review global study “Data
Sharing and Analytics Drive Success with IoT,” provides additional details not included in the
report.
• One aspect of our findings that we were unable to cover in the summary report was the
relationship between organizational experience with IoT projects and organizational data,” he
writes.
• The survey asked respondents how much experience their organizations had with IoT projects,
and the answers ranged from “none” (27%) to “actively using IoT for more than two years” (13%).
Respondents were then asked to rate the data their organizations have collected along four
dimensions: timeliness, accuracy, detail, and reliability.
• “What we found was that increased experience with IoT projects is associated with improvements
in the timeliness, detail, accuracy, and reliability of data,” writes Ransbotham. “This is certainly
comforting to those investing the time and resources in deploying these devices. A greater
volume of data from IoT devices seems inevitable. But beyond that, organizations improve over
time in their ability to get better quality data, not just greater quantities.”

From “IoT Can Drive Big Savings in the Post-Sales Supply Chain”:

• The internet of things can unleash cost savings, service improvements, and better customer
experiences — but none of that can happen unless you ensure that your IoT systems are collecting
high-quality data.
• A research project at the MIT Center for Transportation and Logistics underlines the potential
for fresh approaches. MIT CTL researchers reformulated the way a leading computer
manufacturer can generate spare parts forecasts. Simulated scenarios in the revised model — the
first to incorporate machine-failure predictability in the service supply chain — showed a
potential to reduce average inventory requirements by 5% to 7%. Inventory reductions on this
scale could translate into tens of millions of dollars in cost savings.
• When IoT sensor networks are deployed, dramatic improvements in service operations are
within reach.
• oCmpanies that fail to do the required groundwork to take advantage of the IoT-inspired
revolution in product monitoring will leave substantial cost savings and service improvements
on the table.

From “SafeguardYour Organization’s IoT Initiatives”:

• As data becomes increasingly valuable, companies need to secure their IoT-enabled devices now,
rather than waiting until hackers find a way in.
• Phishing has long been the cybercriminal’s preferred mode of stealing information. Rather than
attacking systems directly, phishing scams use social engineering to manipulate what is usually
the weakest link in any computing ecosystem: users.
• But now a new contender is challenging users for the title of weakest link — IoT devices.
Unsecured connected devices may become the preferred target of hackers, because attacks on IoT
networks could yield far better ROI than scams targeting human beings.
• The use of the term “ROI” here is important. Security is an economic problem — hackers are
economic actors who will strike at whatever target is likely to deliver the biggest payoff. The value
of data, including data available through a compromised IoT device, has increased dramatically
over the past decade. “Secret” information, such as credit card numbers, has value to attackers
because it can readily be exchanged for goods and services.

From “NowThatYour Products CanTalk,What WillTheyTellYou?”:

• To take full advantage of the opportunities presented by the internet of things, companies will
need to rethink many aspects of new product development — including the definition of a new
product.
• Many new products are part of the connected world of the IoT, and they are providing
unprecedented levels of information that companies can use to improve both the products
themselves and the customer experience.
• In particular, information from connected devices offers companies three tremendously
important core pieces of contextual information that were previously unavailable: where the
products are being used, how they are being used, and which customers are using them at any
given time.
• Now one of the keys to success is to not only build smart, connected products, but also “listen” to
them. That “listening” will change the perception of what constitutes a product; instead of just
being a physical device, a product becomes a vehicle through which companies receive valuable
information.
Data Sharing
and Analytics
Drive Success
With IoT
Connected Things Require Connected Organizations

C
ommercial laundry facilities are a fact of life in apartment buildings and college
campuses around the world. Until recently, managing such laundry facilities has
been rather straightforward for building managers and college administrators:
Approximate how many machines are needed, collect the quarters when the coin
boxes get full, and fix the machines when they break. Residents and students are
mostly satisfied if machines are available when they need them, machines don’t
eat quarters or socks, and magazines left by previous customers aren’t too crumpled or dated.

Coin-operated laundries, a $5 billion-a-year industry,1 are changing rapidly thanks in large part to
the advance of digital technology. Consider WASH Multifamily Laundry Systems, an El Segundo,
California-based laundry facilities management service provider that processes 1.7 billion quarters
a year for 75,000 locations in the U.S. and Canada.2 Its extensive network of hundreds of thousands
of interconnected washer, dryers, vending machines, and payment systems serves roughly 7 million
residents.3 These devices generate more than a stream of quarters — they generate a continuous
stream of data that is being used to create several distinct types of business value for WASH, its cus-
tomers, and its suppliers.

Working closely with manufacturers, WASH uses machine data to anticipate maintenance before
downtime occurs. Working with payment processors, WASH Laundry provides launderers with an
array of payment, coupon, and loyalty programs. And the possibilities aren’t restricted to improv-
ing operations. Working with apartment-building owners, WASH uses data from its large device
network to model and test managerial intuition about questions such as whether it is cost-effective to
switch from cash to payment cards before committing to widespread changes. What’s more, alterna-
tive pricing options become possible with device data: Colleges are working with WASH to adjust
pricing at peak periods to spread demand, reduce congestion, and improve student experience.
RESEARCH REPORT DATA SHARING AND ANALYTICS DRIVE SUCCESS WITH IOT
These new possibilities enable different and deeper
relationships with WASH’s ecosystem of suppliers
and customers. As WASH Laundry’s chief infor-
mation officer, John Buccola, points out, devices
aren’t the only things in the Internet of Things (IoT)
requiring management: “We rely heavily on our
50,000 customer partners, our payment processors,
our equipment vendors, our telecommunication
providers, and they rely on us.”
Deriving business value from the Internet of Things
is as much about managing relationships as it is about
device management. WASH exemplifies the surpris-
ingly social nature of managing connected devices,
one of the main findings of MIT Sloan Management
Review’s first annual global study and research report
on how the IoT is influencing the practice of manage-
ment (see “About the Research,” page 5). Our main
findings from this research include the following:
• The Internet of Things is not just about con-
necting things. It is also about the connections
that it creates between an organization and its
customers, suppliers, and competitors.
• Creating business value from the Internet of
Things is strongly associated with sharing data
with other organizations.
• Companies with strong analytics capabilities
are three times more likely to get value from IoT
than are those with weaker analytics capabilities.
• Unlike many IT projects, increasing the size of
IoT projects can lead to diseconomies of scale.
• General managers seem to underappreciate
potential security issues that accompany device
network growth.
Much More Than “Things”
Interconnect
The term “Internet of Things” focuses attention on
the connections between things — that is, the
sensors and devices exchanging data. However,
managing the data that flows from these devices
often means connecting in new and more complex
ways with a wide range of organizations. Managing
connected devices also means managing new kinds
of relationships with important stakeholders.
Data Flows Between Organizations
Two-thirds (66%) of the respondents to our survey
who are actively working on IoT projects collect
data from and/or send data to their customers,
suppliers, or competitors. IoT data flows through an
organization’s ecosystem in several interesting ways.
Organizations are far more likely, for example, to
share IoT data with customers than with suppliers
and competitors. In addition, sharing IoT data
tends to be a two-way street. Organizations are
as likely to send data to customers, suppliers, and
competitors as they are to receive data from them.
This exchange of device data across organizational
borders deepens existing relationships between
organizations and forges new relationships. (See
Figure 1.) (There is considerable variation in these
overall measures of data sharing; read more in
the “Industry Capabilities” sidebar, page 14, for a
description of how different industries share data.)
IoT Devices Deepen Organizational
Interdependence
Based on survey data and interviews with execu-
tives managing IoT projects, it is clear that managing
networks of connected devices is influencing rela-
tionships between an organization, its customers, and
suppliers in several ways. With connected devices,
organizations can create and satisfy new customer
preferences. WASH offers a preemptive machine
maintenance service based on large data sets col-
lected from devices used by many customers in its
network. Individual customers may not have enough
performance data from just their own machines to ac-
curately predict machine maintenance needs.
Pricing is another area where business customers
are relying more on suppliers of IoT devices. Mod-
ern payment systems allow managers to finely tune
 ABOUT THE RESEARCH

To understand the challenges and opportunities associated with the

pricing depending on any number of variables, in-
cluding location, day, time, and demand — even
weather. However, the ability to refine prices in a
laundry facility is not the same as knowing what
prices should be. Individual locations can struggle
to run pricing experiments, since all machines must
be priced the same at the same location. Random
price changes, a valuable component of experiments,
run the risk of alienating customers.
To help, WASH built an experimentation platform
that matches characteristics of a location with simi-
lar locations in its network and varies attributes of
interest, such as price. Through experimentation
and data science, WASH is “trying to optimize cus-
tomer revenues and, relatedly, the experience of
our customers’ end users,” says Buccola. “There’s
not a lot of research on this. Without the telemetry
and data science, we would be running purely on
instinct, and it would take a lot longer to figure out
how to optimize that experience.”
WASH Laundry relies on its customers more, too —
the company’s service offerings and distinctive
competencies now depend on customers’ data.
Internet of Things, MIT Sloan Management Review conducted a sur-
vey of business executives, managers, and IT professionals from
organizations located around the world. The survey, conducted in the
spring of 2016, captured insights from 1,480 respondents from a
wide variety of industries, and from organizations of all sizes. The
sample was drawn from several sources, including MIT Sloan Man-
agement Review subscribers.
In addition to these survey results, we interviewed subject matter ex-
perts from a number of industries and disciplines to understand the
practical issues facing organizations today in their use of analytics.
Our interviewees’ insights contributed to a richer understanding of
the data. We also drew upon several case studies to illustrate how or-
ganizations are using the Internet of Things.
FIGURE 1: DATA FLOWS IN AN IOT ECOSYSTEM
Organizations both send data to and receive it from others, including
their competitors.
Percentage of

organizations sending Competitors

Furthermore, WASH also depends heavily on its data to or RECEIVING Receiving
ata from other 5% % Sending
suppliers (e.g., the makers of washers, dryers, and
vending equipment) and service providers (e.g.,
3% 46%
telecommunications) to ensure a constant flow of ma- Supplier Organization Customers
34% 40%
chine telemetry. The flow of data from devices thus
deepens existing relationships among organizations.

Expanding the Value Chain

IoT project send data to or receive data from a com-
IoT projects also create new organizational inter-
dependencies with some unlikely partners, such as
competitors and governments. What’s more, many
companies are creating value from IoT data by re-
cruiting or renting talent from other organizations.

Working With Competitors

Some organizations with IoT projects are sharing

data with competitors, either receiving or sending it.
Twenty-two percent of those actively working on an
petitor’s device. Among those
companies that do share data
with other organizations, one-
third send data to a competitor or
get data from a competitor.

But why would competitors

share data? Chris Mc- Farlane,
the CEO of PrintFleet, a print
management and assessment
software developer based in
Ontario, Canada, says that
sharing information can be valu-
able for everyone, especially the
end user. PrintFleet collects
usage and other data from
networked print- ing devices on
behalf of OEMs, distributors,
and dealers of printing
equipment.
RESEARCH REPORT DATA SHARING AND ANALYTICS DRIVE SUCCESS WITH IOT

McFarlane offers the story of a client who gathered have no idea what the rest of the world is doing. Only
information via his PrintFleet solution about his in the last 18 months — and we’re about a 12-year-
brand of OEM printers as well as his competitors’ old company — have we seen our clients become
printers but didn’t use the competitor data. “That more aware of the value of competitor data, and
strikes me as silly,” McFarlane says. “Without the they’re starting to use it more and more and increas-
competitor data, you might think you’re making the ingly asking us to ensure that we gather information
best ‘buggy whip,’ but the competitor information within their PrintFleet Enterprise solution from as
lets you know whether you’re making the best buggy broad a device base as possible.” (See Figure 2.)
whip and if anybody even wants buggy whips any-
more. Without utilizing available information, you Data sharing among competitors appears to increase
with experience and the ability to derive business
value from the data. For example, 21% of organiza-
tions that have been using IoT for more than two
years send data to competitors, versus 16% of orga-
FIGURE 2: VALUE FROM IOT ASSOCIATED WITH nizations that have been using IoT for less than two
DATA SHARING Organizations that have no trouble getting years. Twenty-six percent of those who send IoT
value from IoT are more likely to share data. data to competitors have no trouble getting busi-
ness value from IoT. That percentage drops to 17%
among those respondents who do not send data to
Percentage of organizations that report sharing data
competitors. These differences are currently too
Sending to Receiving from
small to be conclusive but may indicate that coop-
65% 61%
Customers Organizations eration will grow as organizations gain experience
42% 35% with no trouble and demonstrate the value of data sharing with com-
getting value
47% 47% from IoT petitors. Indeed, organizations with strong, good, or
Suppliers
28% 32% Organizations excellent analytical capabilities are much more likely
with trouble
23% 23% getting value to be sending data to (23%) and receiving data from
Competitors from IoT
16% 14% (20%) competitor devices. Data sharing correlates
with the ability to analyze data. (See Figure 3.)

Encouraging competitors to form partnerships to

share data, however, can be difficult.
FIGURE 3: ANALYTICAL CAPABILITIES LINKED TO
DATA SHARING Organizations with stronger analytical General Electric Company’s experience in the oil
capabilities are more likely to share data. and gas industry illustrates this challenge. Data from
sensors on GE equipment in that industry provide
a trove of operational data that could help compa-
Percentage of organizations that report sharing data
nies improve their operations, especially in a field
Sending to Receiving from where only about 35% of the potential oil in a well,
62% 52%
Customers on average, is recovered due to operational limita-
27% 24% Organizations
with stronger
tions. Shared data from multiple organizations in
42% 43% analytics the industry could improve yields for everyone, but
Suppliers
18% 24% Organizations companies in this space are reluctant to share data.
with weaker
23% 20% analytics As Dan Brennan, executive director for the Indus-
Competitors
9% 10%
trial Internet for GE Oil & Gas, put it, “Maybe five
or six years from now, we’ll begin to see companies
more willing to share data that could unlock new
levels of collaboration across the entire supply chain.
They might start to release pockets of data if they
realize they can learn from each other and drive ef-
ficiencies back into the entire industry.”4
Raj Ramasamy, vice president and CIO of Thales
USA, the U.S. division of the designer and builder
of electronics systems for the defense and aerospace
industries headquartered in Hauts-de-Seine, France,
sees potential for this idea as well. He says that “the
challenge is that you can’t have a meaningful prod-
uct for air passengers with just part of the data [about
their experience]. So partnering with other providers
to jointly develop a product combining all segments
of data is important. That could be a comprehensive
source of data that all parties could use to enhance
the passenger experience.” He suggests that this ag-
gregation of data might be done by a third party, a
role played by PrintFleet for the print industry.
Working With Government
Unlike the Internet, which has had an infrastructure,
governing bodies, and widely accepted protocols for
many years, the Internet of Things is undergoing de-
velopment along all of these dimensions. As a result,
many organizations that are working on IoT projects
are also working with public-sector entities to gain
exposure to various types of IoT projects. AT&T,
Cisco, Intel, Microsoft, Motorola Solutions, Schnei-
der Electric, and Zebra Technologies, for example,
work together in the Array of Things smart-city
project that is spearheaded by Argonne National
Laboratory and the University of Chicago and par-
tially funded by the National Science Foundation.
Charlie Catlett, director of the Urban Center for
Computation and Data, is the head of this project,
which will see sensors installed around the city of
Chicago to gather data to study issues such as urban
flooding, air quality, and congestion. The partner
companies provide engineering expertise and ser-
vices, and in return get firsthand experience with
issues that arise in an IoT project as it is rolled out.
In the case of the Array of Things, the government
fills the important role of seeding development on
basic science to facilitate later applications. But gov-
ernmental bodies can be more directly involved.
For example, the public/private partnership takes
a different form in Amsterdam: That city uses GPS
data from mobile and navigation devices, gathered
by a private company, to create models to study traf-
fic issues in the city. Similarly, General Motors Co.’s
OnStar system tracks detailed data about vehicle
conditions as an end user drives. It provides warn-
ings if a driver is about to drift into another lane or
is too close to a vehicle in front and is able to track
driver reactions to these warnings. GM shares this
data with the National Highway Traffic Safety Ad-
ministration. In this case, the government’s role is
more than funding basic science, and it is a direct
beneficiary of GM’s IoT data.
A benefit and consequence of government involve-
ment is that subsequent data is usually then available
to others. The data released from sensors in the
Array of Things project will also be publicly avail-
able within minutes of being captured, and Catlett
expects that the data will be used by others to cre-
ate other applications of value to citizens of Chicago.
Similarly, many who are not involved directly in the
OnStar system can use the traffic safety data as well.
These subsequent uses create interdependencies, as
other organizations begin to rely on this data.
Working With Talent in Other
Organizations
Given the complexities involved with adding sen-
sors and sensor data to a company’s mix of products
and operational processes, many organizations
need additional expertise to take advantage of IoT
projects. For traditional manufacturers, a foray
into IoT may mean embracing the often unfamil-
iar world of high-tech. Daniel Cooley, senior vice
president and general manager of IoT products at
Austin, Texas-based Silicon Labs Inc., a mixed-sig-
nal semiconductor developer, has found that not all
companies are comfortable adding a high-tech com-
ponent to their product offerings. He says, “Not all
of them will be around in the future because of it.”
Many companies simply don’t have the technical
knowledge to manage IoT projects: Forty-nine per-
cent of our respondents indicated that, in order to
RESEARCH REPORT DATA SHARING AND ANALYTICS DRIVE SUCCESS WITH IOT
take advantage of IoT, they needed to improve their
IoT talent base. (See Figure 4.)
Organizations are building relationships to find
this talent. More than half (56%) of our respon-
dents whose organizations actively use IoT gain IoT
expertise by hiring new talent. But for others, IoT
activity involves depending on other organizations:
Thirty-nine percent engage consultants to access
IoT expertise. What’s more, 43% obtain IoT talent by
FIGURE 4: IMPROVEMENTS NEEDED TO TAKE
ADVANTAGE OF IOT Two of the top three areas for
improvement relate to talent.
Percentage of organizations reporting they need to IMPROVE
the following capabilities in order to take ADVANTAGE of Io
Overall analytics capability 58%
Analytics talent base 52%
oT talent base 49%
Executive team’s understanding of IoT 46%
Ability to communicate how we are using
oT to our customers 45%
Relationships with other groups who understand IoT 40%
Data security 34%
Sensor-data security 2 %
FIGURE 5: GETTING ACCESS TO IOT EXPERTISE
Organizations source IoT expertise in numerous ways.
Percentage of organizations reporting that they
use the following methods to access IoT talent
Hiring employees with IoT talent/expertis 56%
Partnering with another organizatio
43%
that has IoT talent
Engaging consultants with IoT talent/expertis 39%
Outsourcing our IoT activities to 23%
third-party organization
Not doing anything to obtain IoT talent 4%
partnering with an organization that has IoT talent.
(See Figure 5.)
Deep relationships are particularly important for
the design of IoT devices. When a customer of Sili-
con Labs engaged them to provide chips for an IoT
project, Cooley noted that “from their [the custom-
er’s] perspective, we were the equivalent of a cloth
manufacturer who provides cloth for a couch to be
put together. We were just one of many suppliers. But
now they realize that they need a deeper partnership
with us because our core technology is an impor-
tant component of their user experience and to their
customers’ use cases. We have to work with our cus-
tomers to define these things at the very beginning.”
Taking IoT Projects to the
Next Level: Three Issues
While many organizations’ experience with IoT is
with pilots or small projects, it is increasingly clear
that expanding the scope of these efforts brings
complications, some of which may be atypical of
traditional IT projects. Two complications — future
demand for IoT devices and data security — have yet
to become a focus of general managers.
Economies or Diseconomies of Scale?
IT projects traditionally benefit substantially from
economies of scale. Creating a website or a software
application may be difficult or have large initial costs
before working for the first user. But after that, each
additional user costs little, leading to large econo-
mies of scale.
Silicon Labs’ Cooley points out that his customers
need to understand that “the Internet of Things is
an actual network of real physical things. Somebody
has got to make them, somebody has got to install
them, somebody’s got to maintain them. That’s the
difference between IoT and, say, enterprise software
that industry was adopting like crazy from the early
1980s to the mid 1990s. You could rapidly, rapidly
scale it because it was just software. We could ship

it into PCs. That’s not the way it is with the Internet
of Things. Maintaining a growing network of real,
physical things involves all kinds of costs and needs
you don’t see in software at scale.”
Because some aspects of IoT projects are like tra-
ditional IT projects, it is easy to get inured to the
ever-escalating measures of data volume and to for-
get that clear technical infrastructure challenges are
associated with IoT. (See Figure 6.) It’s also easy to
forget that no one yet has ever managed zillions of
different devices, each generating data.
Overall, almost half of our respondents indicated
they were very effective or extremely effective at ac-
quiring IoT data (48%), managing/governing IoT
data (43%), and securing IoT data (52%). (How-
ever, managing and governance capabilities vary by
industry; read more in the “Industry Capabilities”
sidebar.) These competencies are associated with
experience with IoT projects. Organizations with
more than two years’ experience with IoT report far
greater competencies than those still planning IoT
projects or in early stages.
But unlike traditional IT projects, where variable
costs are extremely low, each additional device may
bring considerable ongoing maintenance costs. Am-
sterdam, for example, was willing to install smart
LED bulbs in all of its streetlights, expecting to save
money by dimming the lights when no one was
in certain areas. However, “it turns out that this is
a challenging task. Modern LED lights can be pro-
grammed at the factory to dim at certain hours,
based on traffic patterns. But what if those patterns
change? In Amsterdam, city workers would have to
change the streetlights, light by light, potentially all
150,000 of them. Using people to change that many
lights is not practical,” says Arnan Oberski, a man-
ager in the city’s lighting department, “and that’s
even before factoring the upfront costs of putting
in smart LEDs and the devices needed to wirelessly
connect with them.”5
Additionally, managing the increasing number and
depth of relationships that come with IoT projects
may present as great a challenge as managing the
FIGURE 6: EXPERIENCE AND IOT DATA
COMPETENCIES Data capabilities are strongly associated
with IoT experience.
Percentage of organizations that are VERY or
extremely EFFECTIVE at the following capabilitie
70%
60%
50% Acquiring
oT dat
40%
Managing /
30% governing IoT data
20% Securing
0% oT dat
0%
Have plans Recent y ess than More than
to use IoT bega two year two year
Experience using IoT
growing technical infrastructure. In a network, the
number of potential connections increases with
the square of the number of nodes: Linear growth
in the number of devices creates nonlinear growth
in the number of potential connections. While not
every added device will require a new relationship,
the ones that do may affect all existing relationships,
perhaps with new data formats, different timing, or
idiosyncratic processes. For example, Boston-based
EnerNOC Inc., an energy intelligence software
and service provider, handles equipment with 40
different input-type sources and frequencies. But
the devices they support are spread across many
countries; within each country, multiple different
pricing structures (tariffs) for energy consumption
mean that EnerNOC must accommodate more than
200,000 tariffs. The result is that growth can have
multiplicative effects: Each added customer rela-
tionship may introduce a new equipment provider
and new tariffs, which then may affect all previous
connections that EnerNOC maintains.6
Are Managers Concerned (Enough)
About Reaction to IoT Devices?
It is still far from clear how individuals will react to
the growing presence of IoT devices in their lives.
People may just want their blender to blend their
food, not blend their lives with the manufacturer
or other blender users. They may just want a thing,
not a relationship. Yet only 23% of the organizations
responding to our survey reported that they are
concerned about customers’ reaction to their IoT
 RESEARCH REPORT DATA SHARING AND ANALYTICS DRIVE SUCCESS WITH IOT
FIGURE 7: IOT EXPERIENCE AND CONCERN FOR
CUSTOMER REACTION Concern for customer reactions is
associated with experience.
Percentage of respondents reporting that they are
oncerned with their customers’ reaction to IoT INITIATIVES
30%
20%
0%
0%
No plans Have plans Recent y ess than More than
to use IoT to use IoT bega two year two year
Experience using IoT
FIGURE 8: IS SECURITY ONE-QUARTER FULL OR
THREE-QUARTERS EMPTY? Most organizations don’t see
a need to improve security.
Percentage of respondents reporting their
organizations need to IMPROVE security
Nee Don’t nee
to improv to improv
Sensor-data 24% 76%
security
Overal 32% 68%
data security
projects. Concern about consumer reactions grows
considerably as organizations gain experience with
IoT, diminishing slightly for organizations with the
most experience, perhaps as those organizations fig-
ure out how to anticipate customer reactions. Our
interviews with executives suggest that customer re-
actions may be of growing importance in the future.
(See Figure 7.)
Charlene Marini, vice president of segment market-
ing for ARM Holdings plc, a U.K.-based developer
of processor architectures for IoT chips, anticipates
that individuals will become more conscious of how
the data they generate is used. As data is gathered,
she says, “[W]hich data as an individual do I want to
ensure stays close to me? Maybe I don’t want the data
from my home monitoring system to be removed
from my house; I want it to be only for my use and
sit securely on my home gateway. Which data am
I okay with being used by others, maybe in anony-
mized form? I don’t think we’ve reached a real point
at which individuals are aware of the amount of data
capture and how that data is used, but certainly we’re
starting to see more discussions in various forums
across industry, consumer, and policy arenas.”
The Array of Things project is taking steps to make
privacy preservation the default operating mode of
its systems, “ensuring that no personal information
is collected,” says project head Catlett. “For example,
although the devices have cameras, they process the
images within the sensor units and then discard the
images, rather than transmit, store, or share them.”
The idea of managing an ongoing relationship be-
tween device makers and end users is important
because makers are connected to their devices
throughout the devices’ lifetimes in a way they are
not in the non-IoT world. Devices will need to be
updated during their lifetime by their makers, both
to address security concerns and to update device
capability. This has to be done in such a way that
end users do not feel that the value of their device
is diminished. Customers who purchased the Revolv
smarthome hub, for example, were told in February
2016 that as of that May, their device would no lon-
ger work at all, and were eventually offered a refund
of their purchase price. 7 When IoT evolves from
a one-time transaction to a relationship with end
users, that relationship requires management that
defies seamless economies of scale.
Keeping IoT Data Safe andTrustworthy
Organizations already struggle with information se-
curity. Nothing about IoT will make that easier, and
many aspects will make it harder. For example, in-
trinsically distributed devices open up the possibility
of physical attacks as well as all of the typical methods
of compromising software. Additionally, organiza-
tions that are new to software development likely will
not have experience developing secure code. Some
 FIGURE 9: ORGANIZATIONAL EXPERIENCE
WITH IOT Most organizations are not yet active with IoT.

Percentage of organizations reporting

their experience with Io
organizations also recognize that they need to im-
33%
prove sensor-specific data security (24%) and overall
data security (32%). (See Figure 8, page 10.) And, as
is often the case with security, these areas were not 27%
12% 3%
what respondents felt that their organizations most 11%

needed to improve; other needs seem more pressing.

Not Not Just Actively Actively
currently currently recently using IoT using IoT
active and active but begun for less for two
But the connected relationships inherent in IoT have no have plans actively than two years or
plans to to use IoT using IoT years

have further implications for security. First, as IoT use IoT

* Percentages do not add up to 100% due to non-responders
increases the number of relationships organiza-
tions must manage, it also increases the number of
relationships that require mutual trust. If organiza-
tions are interdependent, then weaknesses in one

affect many others. In an interdependent ecosystem recognizing the need to improve both their sensor-
of data, getting value from data depends on its ac-
curacy. For example, does the absence of washing
machine telemetry mean that no one is doing laun-
dry, or that a partner is no longer sending data? Can
self-serving partners spoof usage data, leading to
incorrect revenue sharing? Can competitors eaves-
drop on or manipulate data as it passes through
multiple networks that WASH does not control? Has
inaccurate analysis led to systematically incorrect
pricing that will affect revenue and customer satis-
faction for everyone?

Second, organizations providing IoT devices to

others will be in difficult positions, with no easy an-
swers. When inevitable weaknesses are found, how
will required updates propagate? If automatically
and instantaneously, devices may be more secure
at the risk of business process interruptions due to
unexpected updates. If voluntarily or delayed, pe-
riods of insecurity will be extended and business
processes may be longer at risk. In January 2016, for
example, many users of the Nest Web-connected
thermostat found that a software bug from a previ-
ous update drained the device’s battery, leaving them
with a thermostat that didn’t function and leading
some users to replace their connected device with
a traditional mechanical one.8 Yet Nest might have
experienced a backlash if it had failed to provide the
update. Consistently perfect updates are ideal, but
pragmatically impossible.

The relatively low percentage of respondents

specific data security and their
overall data security may be due,
in part, to the large numbers of
respon- dents who are not in IT
(86%). IT professionals and
industry analysts recognize that
many companies are unprepared
for security issues related to the
IoT. More than two years ago,
Bruce Schneier, then the chief
technology officer of Co3 (which
became Re- silient, an IBM
company), made an effort to
bring concerns over IoT
insecurity to a wider audience in
a Wired article “The Internet of
Things is Wildly In-
secure — and Often Unpatchable.”9 Since that time,
attackers have demonstrated the
vulnerability of a wide range of
IoT-connected devices, from
police body cams to automobiles,
and technology research firms,
such as Gartner and IDC, have
documented a variety of IoT-
related security issues.10 IDC
pre-
dicts that by 2018 two-thirds of
IoT networks will have a security
breach.11 It may be that IT
concerns over IoT security are
secondary to general managers.
Another way to interpret our
findings is that most managers
fail to recognize their need to
improve sensor-specific data
security (76%) and overall data
security (68%). (See Figure 8,
page 10.)

Creating Business
Value With IoT

Although most respondents to our

survey are not yet actively
working on IoT projects, most
see it as im- portant to their
organization’s strategy. Sixty
percent of respondents report
that their organizations have not
yet started any IoT project. (See
Figure 9.)
RESEARCH REPORT DATA SHARING AND ANALYTICS DRIVE SUCCESS WITH IOT
FIGURE 10: COMBINING CAPABILITIES FOR IOT
VALUE Business value depends on multiple capabilities.
Percentage of respondents who HAVE no
trouble getting VALUE from Io
Those having strong analytic l capablities
7%
31% 15%
Those effe tively 38% Those sharing data
managing and with customers,
governing data 8% 13% 11% suppliers, or
competitor
Despite their lack of engagement with IoT, or be-
cause of it, a majority of respondents believe IoT
is important to their organization’s strategy. Over
half (53%) see it as important to their organization’s
strategy today, and 68% say that it will be necessary
to their corporate success in the future. Fifty-two
percent believe that their organization will be able to
use IoT to create business value within the next three
years; this figure rises to 83% among those organiza-
tions that currently have IoT projects underway.
Even though 52% of respondents strongly believe
their organization will get value from IoT within
three years, fewer than 13% of respondents have been
actively using IoT for two or more years. Even so,
optimism about the benefits of IoT is strong. Respon-
dents could classify IoT as an opportunity, threat,
neither, or both: Ninety percent of respondents
see IoT as an opportunity, while only 15% see it as
a threat. For those with strong analytics capabilities,
95% see IoT as an opportunity. The intrinsic com-
plexity of the Internet of Things offers new prospects
for organizations able to master that complexity.
Analytics Capabilities Are Key
To get value from the IoT, organizations have to
be able to use the data from IoT devices to obtain
meaningful insights. Our survey found the two
most common challenges for deriving value from
IoT were in the area of data analytics, specifically
handling and analyzing the resulting data from IoT
devices. The next most common challenge was the
need to increase their IoT talent base. These capa-
bilities aren’t yet widespread; this year’s MIT Sloan
Management Review analytics report classifies 49%
of organizations as analytically challenged.12
But the IoT raises existing challenges to another level.
IoT devices often provide significantly more data to
be managed and analyzed than companies tradi-
tionally handle. For instance, the data GE can collect
from sensors embedded in its machines — “50 mil-
lion data variables from 10 million sensors” — is far
greater than the data generated by retail and social
websites. According to GE’s chief digital officer, Bill
Ruh, “Machines generate time-series data, which is
very different than social or transactional data. We
had to optimize for the kinds of analytics that would
help us understand the behavior of machines.”13
Organizations that have already developed strong
analytical capabilities are well-positioned to deal
with the additional complexity IoT brings. (See
Figure 10.) Those organizations with analytical ca-
pabilities that are good or excellent are three times
more likely to report having no trouble getting busi-
ness value from IoT, compared to those who rated
their analytical capabilities as worse than good.
And analytical skill goes hand in hand with being
able to quantify the potential effect of IoT projects.
Forty-five percent of those with good or excel-
lent analytical capabilities can measure the return
on their IoT investments, while only 19% of those
without good analytical capabilities can do so. (Fur-
thermore, analytical capabilities vary by industry;
read more in the “Industry Capabilities” sidebar.)
Embrace Complexity
IoT projects tend to be much more complex than
setting up a network of mostly homogeneous com-
puters in an office building. Each component may
come from different organizations, each with differ-
ent incentives and different relationships to manage.
Unlike the Internet of today that connects comput-
 FIGURE 11: COMPETITIVE ADVANTAGE AND IOT
Opportunity for competitive advantage exists now, but may fade
over time.

Percentage BELIEVING that IoT creates VALUE, is

ers and mobile computer–like devices, the IoT is rare, can be imitated, or has substitute
connecting networked things that may have more
52%
differences than similarities.
33% Now
39%
28%
What’s more, not only are these organizations and 24% n three years
18%
15%
their devices diverse, they may be located far away

Creates s rare Can be Has

from each other. WASH needs sensors to measure value mitate substitutes
key operational factors of many brands of washing
machines and dryers, manufactured in different
years, located across the country and in Canada.
These machines send data via hundreds of wireless
networks, none of which WASH controls. Even if the

company could minimize the variety in equipment, rare, inimitable, and nonsubstitutable.
the network diversity is practically unavoidable. In
fact, this lack of an omnipresent wireless network is
a common difficulty for IoT projects in many orga-
nizations. It may even introduce bias into the data
being collected: if wireless networks are more preva-
lent in laundry facilities in university settings rather
than urban neighborhoods, for example, data may
describe the behavior of predominantly university
students. Inferences drawn from IoT data thus may
not represent the bulk of laundry customers.

Interconnected relationships are also important

when dealing with the management of diverse,
remote components of the IoT. In the Array of
Things, Chicago’s smart-city project, the sensors are
mounted on city-owned light posts. If a sensor needs
repair, its timing and specific instructions must be
coordinated with the city of Chicago’s electricians,
who have a wide range of other responsibilities.

Competitive Advantage From IoT:

A Minority Opportunity

A large majority of our respondents are confident

that they’ll be able to create business value from IoT
in the near future. Twenty-four percent of respon-
dents report that their organization is able to derive
value from IoT now, and 52% expect business value
from IoT within three years.

But business value alone is not enough to stand out.

Extracting competitive advantage from IoT also re-
quires that the capabilities of the organization are
Currently, some organizations network of
have an opportunity to generate a
competitive advantage from
their IoT activities, as 39% agree
that their IoT capabilities are rare,
15% report that they can be
imitated, and only 6% believe
there are substitutes for the
value that IoT can provide. This
combination of value, rarity,
difficulty of imitation, and lack
of substitutes is the formula for
competitive advantage.

But the window of opportunity

may not last too long. While
companies expect to derive more
value from IoT within three
years, the opportunity for dif-
ferentiation may not last. (See
Figure 11.) Eighteen percent of
organizations believe that the
rarity of IoT capabilities may
drop, 33% report that other
organi- zations will be able to
imitate insights gathered from
IoT, and 28% of organizations
believe that substi- tutes for IoT
will arise.

Conclusion:
Advice for
Managers

While many factors contribute

to successful IoT projects and
larger-scale IoT initiatives,
managers should consider
developing the following three
key factors at an early stage of
their projects: a strong
analytics capability; sharing
data; and preparing customers
for an ongoing business
relationship with their IoT
devices. Creating business value
from the IoT depends on much
more than managing IoT
devices, or even managing the
data that flows from these
devices. As companies gain
experience with the IoT, they
become enmeshed in a
RESEARCH REPORT DATA SHARING AND ANALYTICS DRIVE SUCCESS WITH IOT

INDUSTRY CAPABILITIES organizational relationships that require dedicated

In most industries, over 40% of respondents report having good or
excellent analytical capabilities. This percentage is higher in tradi-
tionally information-driven fields such as finance/insurance and
information technology, and lower in manufacturing and
public administration.
resources and management attention. Creating busi-
ness value from the IoT depends as much on the
maintenance of these relationships as on the devel-
opment and maintenance of IoT devices.
Strengthen Analytics Capabilities

Because IoT devices typically create a need to man-

FIGURE 12: PERCENTAGE OF RESPONDENTS WITH age unprecedented volumes of data, and because
GOOD OR EXCELLENT ANALYTICAL CAPABILITY, the standards and infrastructure that support IoT
BY INDUSTRY devices are at an early stage, managers should take
seriously the importance of improving their access
Percentage of respondents with good or excellent analytical capability by industry to strong analytics capabilities. In the IoT context, a

inance and Insuranc 6% strong analytics capability is valuable in at least three

T and Technology 58% ways. First, our own survey data suggests that having
a strong analytics capability is highly correlated with
Transportation and Warehousin 54%
a company’s ability to derive value from IoT devices.
Health Care and Social Assistance 5 %
Second, strong analytics capability can help an or-
Professional, Scientific, and Technical Services 46% ganization identify bias and security issues that may
Energy 43% arise as a direct result of the early-stage development
of IoT infrastructure. And third, having a strong
Manufacturin 4%
data and analytics capability can boost a company’s
ublic Administration 36% ability to support data-sharing relationships.

The interconnections that are a hallmark of IoT are generally present Prepare to Share
across industries. With the exception of public administration, over
half of respondents in all industries reported sharing data either Because sharing data is such a strong feature of
within their supply chain or with competitors. managing IoT devices, many companies will need
to develop new data-sharing practices. Identifying
which practices are best for an organization is one
FIGURE 13: PERCENTAGE SHARING DATA WITHIN issue to address, but equally important will be identi-
SUPPLY CHAIN OR WITH COMPETITORS, fying who is responsible for developing, monitoring,
BY INDUSTRY and adjusting these practices. Is this responsibility
part of one person’s role, a single person’s role, or a
Percentage of respondents sharing data with suppliers, customers, or competitors group’s role? Data-sharing practices will have to ad-
dress when to share data and when not to share data;
Health Care and Social Assistance 82% simply identifying the proper owner of a set of data
T and Technology 80% may become an important issue. Under what con-
Transportation and Warehousin 70% ditions do you consider data to be yours, shared, or
belonging to others? And is there a process for ad-
inance and Insuranc 68%
judicating disputes? All these issues may be further
Energy 63%
complicated by regulations in some areas, such as
Professional, Scientific, and Technical Services 6 % those recently adopted by the European Union, that
impose stringent restrictions on what data can be
Manufacturin 52%
shared with whom.
ublic Administration 4 %
Addressing these issues may require skills that lie
outside the comfort zone and responsibilities of
traditional IT staff and encourage new forms of in- INDUSTRY CAPABILITIES (CONTINUED)
teraction between legal and IT departments.
The ability to manage and govern data is much more variable across
Prepare the Market industries. In most industries, however, at least 40% of those ac-
tively working on IoT projects report good or excellent ability to
Some consumers may be willing to pay a premium manage or govern data. Notable exceptions are manufacturing and
for certain types of IoT devices but not for others. In- public administration.
deed, some consumers may not want IoT versions
of a given device at all (think blenders!). Supporting
the demand for IoT devices and understanding it
over time may be more complicated than for other AN IOT PROJECT WITH GOOD OR EXCELLENT
types of products. Because some IoT devices will ABILITY TO MANAGE AND GOVERN DATA
need to be updated post-purchase, businesses may
need to develop new, more extended relationships
with their customers, especially if more than soft-
ware updates are involved. What’s more, there may
be demand for data from your IoT devices from new
partners or new types of customers. Assess whether
there is, or could be, a market for this data and
whether exploring this market conflicts with your
data-sharing practices.

Early indications are that having advanced data and

analytics capabilities is crucial for deriving busi-
ness value from IoT initiatives within this complex
dynamic. Even so, having advanced analytics ca-
pabilities does not mean that long term success
with the IoT is ultimately about technology. Rather,
what’s clear from this year’s survey and research is
that relationship management is an important key to
success with the IoT.

Reprint 58181.
Copyright © Massachusetts Institute of Technology, 2016.
All rights reserved.
RESEARCH REPORT DATA SHARING AND ANALYTICS DRIVE SUCCESS WITH IOT

REFERENCES
1. “About the Industry: Laundry Facts,” n.d., www.coin-
laundry.org.
2. “Fact Sheet: About WASH,” n.d., http://www.washlaun-
dry.com/wp-content/uploads/2013/12/about-wash.pdf;
S. Ransbotham, “Making Data Experiments Powerful,”
MIT Sloan Management Review, July 19, 2016, http://
sloanreview.mit.edu.
3. S. Ransbotham, “Making Data Experiments Powerful,”
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sloanreview.mit.edu.
4. L. Winig, “GE’s Big Bet on Data and Analytics,” MIT
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April 5, 2016, http://www.theverge.com.
8. N. Bilton, “Nest Thermostat Glitch Leaves Users in the
Cold,” New YorkTimes, January 13, 2016.
9. B. Schneier, “The Internet of Things Is Wildly Insecure
— and Often Unpatchable,”Wired, January 6, 2014, http://
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10. C. Pettey, “Gearing Up for the Internet of Things,”
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com/smarterwithgartner.
11. G. Press, “Transform or Die: IDC’sTop Technology
Predictions for 2016,” ContentLoop, November 11, 2015,
http://www.content-loop.com.
ACKNOWLEDGMENTS
John Buccola, chief information officer, WASH
Multifamily Laundry Systems
Ryan Buckholtz, project manager, WASH Multi-
family Laundry Systems
Charlie Catlett, director, Urban Center for Com-
putation and Data
Daniel Cooley, senior vice president and general
manager of IoT products, Silicon Labs Inc.
Jim DiMarzio, former chief information officer,
North American Operations, Mazda Motor Corp.
Michael Fitzgerald, contributing writer
Eric Hansen, professor, Oregon State University
Laura Heinrich, revenue marketing leader, Gen-
eral Electric Co.
Scott Leavengood, associate professor and director
of the Oregon Wood Innovation Center, Oregon
State University
Charlene Marini, vice president of segment mar-
keting, ARM Holdings plc
Kristina McElheran, assistant professor of strategy,
Rotman School of Management, University of To-
ronto
Chris McFarlane, CEO, PrintFleet
Elise McFarlane, marketing manager, PrintFleet
Phil Potloff, chief digital officer, Edmunds.com Inc.
Raj Ramasamy, vice president and chief informa-
tion officer, Thales USA
Hugh Scandrett, vice president of engineering, En-
erNOC Inc.
Steve Schwinke, director of advanced development
and concepts, General Motors Co.
Dale Weisman, global public relations manager,
Silicon Labs, Inc.

12. S. Ransbotham, D. Kiron, and P.K. Prentice, “Beyond

the Hype: The Hard Work Behind Analytics Success,” MIT
Sloan Management Review, March 8, 2016, http://sloanre-
view.mit.edu.

13. L. Winig, “GE’s Big Bet on Data and Analytics,” MIT

Sloan Management Review, February 18, 2016, http://
sloanreview.mit.edu.
RESEARCH REPORT DATA SHARING AND ANALYTICS DRIVE SUCCESS WITH IOT

AUTHORS

STEPHANIE JERNIGAN is an assistant professor of

the practice in the Operations Management
Department at the Carroll School of Management
at Boston College.

SAM RANSBOTHAM is an associate professor in the

Information Systems Department at the Carroll
School of Management at Boston College, as well as
guest editor for MIT Sloan Management Review’s
Data & Analytics Big Idea initiative.

DAVID KIRON is the executive editor of MIT Sloan

Management Review.

The research and analysis for this report was conducted under the direction of the authors as part of an MIT
Sloan Management Review research project sponsored by Teradata.

To cite this report, please use:

S. Jernigan, S. Ransbotham, D. Kiron, “Data Sharing and Analytics Drive Success With IoT” MIT Sloan
Management Review, September 2016.

Copyright © MIT, 2016. All rights reserved.

Get more on the Internet of Things from MIT Sloan Management Review:

Read the report online at http://sloanreview.mit.edu/iot2016

Visit our site at http://sloanreview.mit.edu/topic/iot

Get the free digital leadership enewsletter at http://sloanreview.mit.edu/offers-news

Contact us to get permission to distribute or copy this report at smr-help@mit.edu or 877-727-7170


The Flood of Data From IoT Is Powering New
Opportunities — for Some
SAM RANSBOTHAM
Companies that got into IoT early are reaping rewards in more timely, accurate,
detailed, and reliable data.
It comes as no surprise that an important part of data
analytics is the data itself. In fact, the appeal of the
internet of things (IoT) largely relates to the role of
connected devices in gathering this valuable resource.
With hyperbole rampant about the new “oil,” “soil,” “coal,”
or even “gold,” are we becoming inured to data’s promise?
And even if we aren’t, how effective is IoT at delivering on
the promise of these data riches?
MIT SLOAN MANAGEMENT REVIEW
DATA & ANALYTICS
Recently, Stephanie Jernigan, David Kiron, and I
researched the effect that IoT is having on organizations.
A combination of interview and survey responses from
1,480 managers resulted in a summary report of this
research, “Data Sharing and Analytics Drive Success With
IoT”.
One aspect of our findings that we were unable to cover
in the summary report was the relationship between
organizational experience with IoT projects and
organizational data. Our understanding of this
relationship flows from responses to two questions: First,
we asked organizations how much experience they had
with IoT projects, ranging from none (27%) to actively
using IoT for more than 2 years (13%). Second, we asked
organizations to assess the data they’ve collected along
four dimensions: its timeliness, accuracy, detail, and
reliability. Figure 1 summarizes these results.
What we found was that increased experience with IoT
projects is associated with improvements in the
timeliness, detail, accuracy, and reliability of data. This is
certainly comforting to those investing the time and
resources in deploying these devices. A greater volume of
data from IoT devices seems inevitable. But beyond that,

organizations improve over time in their ability to get
better quality data, not just greater quantities.
Figure 1: Data Quality and Experience
With IoT
Of these data quality measures, timeliness exhibits the
largest difference. About 40% of respondents whose
organizations aren’t active with IoT reported that their
data has “mostly” or “completely” sufficient timeliness; in
contrast, 76% of respondents who have 2 years or more
of IoT experience said their data was sufficiently timely.
As systems monitor and transmit data closer to the
source, delays associated with data gathering decrease.
Accuracy of data takes longer to improve but eventually
reaches the same level of sufficiency as the timeliness
dimension.
How Are Companies
Using IoT Now?
We also asked respondents for their favorite example of
how IoT has been used in their organization.
MIT SLOAN MANAGEMENT REVIEW
DATA & ANALYTICS
Respondents certainly spoke to timeliness, accuracy,
detail, and reliability. Descriptions of these projects
provide qualitative support for the empirical findings
but also offer insight and richness in unexpected ways,
including:
• Improved customer experience by sharing more
accurate and more timely data
• Early warning on poor equipment performance and
failure
• Automated alerting for critical systems
• Real-time alerts for immediate action
• Real-time contextual collaboration between all
stakeholders in an open and honest environment
In this way, IoT can be particularly beneficial in reducing
bullwhip effects with projects that “improve supply chain
performance to meet variable demand.”
Opportunities Abound
While many examples focused on improved speed and
efficiency through data, some also spoke of entirely new
opportunities that resulted from IoT projects. One
respondent noted, for example, that “analytics of the data
from IoT is being bundled as a service and is one of the
strategies for growth,” while another commented that IoT
permitted “developing new modules and linking them
with existing products.” Still another commenter
described, “testing key biometrics from a small group of
employee volunteers to see if there are any specific client
interactions [meetings, phone calls, help desk, etc.] with
specific clients that create employee stress” — a far cry
from industrial equipment monitoring.
 MIT SLOAN MANAGEMENT REVIEW
DATA & ANALYTICS

Perhaps as another indication of the potential for IoT, About the Author
some respondents were cagey. We got comments such as,
“I can’t tell you; it is proprietary!!!” and “we are in stealth Sam Ransbotham is an associate professor of
mode, so ... no comment.” Such comments indicate the information systems at the Carroll School of
potential for competitive advantage that IoT may contain. Management at Boston College and the MIT Sloan
Management Review guest editor for the Data and
And yes, there were certainly those who did not provide Analytics Big Idea Initiative. He can be reached at
examples. Some were optimistic that examples will come, sam.ransbotham@bc.edu and on Twitter at
with such comments as “... I can only hope,” while others @ransbotham.
noted that investments were still required (“It really
hasn’t borne fruit yet” and “We are in the early stages”) or
complementary changes needed (“We aren’t really using it
yet; our business model needs changing to make it
happen”). It can take considerable effort and investment
to get ready for IoT.

So while the internet of things is associated with more

data, making use of IoT isn’t just about quantity — and
fortunately for organizations investing in IoT devices,
quality does not seem to suffer in the deluge.

IoT Can Drive Big Savings in the Post-Sales
Supply Chain
DANIEL GETTENS, FRANCISCO JAUFFRED, AND DANIEL W. STEENECK
The internet of things can unleash cost savings, service improvements, and better
customer experiences — but ensuring collection of good-quality data comes first.
An area where the internet of things (IoT) can live up to
its hype is the post-sales or service supply chain. Sensors
and product log files can be used to track and analyze the
performance of installed products ranging from
computer equipment and storage devices to production
machinery.
IoT-enabled product monitoring provides much greater
precision and granularity than traditional methods, and a
MIT SLOAN MANAGEMENT REVIEW
FRONTIERS
more efficient service supply chain increases device
productivity with a reduced spare parts inventory. The
potential for companies that go down this path is to reap
huge cost savings, service improvements, and a much-
enhanced customer experience.
Companies are understandably eager to reap these
rewards — but there’s a catch. Before this revolution can
move forward, both the quality and collection of
performance data need to be greatly improved.
Traditionally, machine-monitoring programs manage
spare parts inventory largely on the basis of historical
demand data. Companies use algorithms combined with
simple rules of thumb to determine how many spare parts
they should stock. While this was best-practice
methodology prior to the IoT’s arrival, it does not deliver
a high level of accuracy. Companies are prone to
overstocking parts at considerable cost, and often
underachieve when it comes to reducing machine or
device downtime. The understocking of parts has a
negative impact on service quality and customer
goodwill.
In other words, the post-sales supply chain is ripe for
change.

Looking Toward Big
Upsides
A recent research project at the MIT Center for
Transportation & Logistics (MIT CTL) carried out in
collaboration with OnProcess Technology underlines the
potential for fresh approaches. MIT CTL researchers
reformulated the way a leading computer manufacturer
can generate spare parts forecasts. Simulated scenarios in
the revised model — the first to incorporate machine-
failure predictability in the service supply chain —
showed a potential to reduce average inventory
requirements by 5% to 7%. Inventory reductions on this
scale could translate into tens of millions of dollars in cost
savings.
Better monitoring and forecasting methods enable
companies to be more proactive when reacting to
machine failures, which increases equipment uptime and
hence productivity. When IoT sensor networks are
introduced, dramatic improvements to service operations
are within reach. Companies can construct detailed
breakdowns of how specific components perform and
evaluate the likelihood of failures with greater accuracy.
Aligning service operations with detailed maps of parts
demand patterns increases the responsiveness of service
supply chains.
Such gains enable companies to respond to shifting
customer demand, especially in markets for high-tech
products such as laptops, smartphones, servers, and
medical devices. In these markets, customer expectations
have increased markedly over recent years. Buyers expect
warranties to cover longer periods and offer more
comprehensive support. CFOs are under pressure to
lower the cost to serve, even as the service supply chain
MIT SLOAN MANAGEMENT REVIEW
FRONTIERS
has to accommodate complexities such as shorter product
life cycles.
The Challenge: Raising
Data Quality Standards
Many companies have taken steps to harness the IoT in
order to increase the efficiency of post-sales operations.
But more work is needed in both business-to-consumer
and business-to-business markets.
In many businesses, the quality of data on how machines
and devices in the field are performing is poor. Data
collection can be haphazard and subject to buyers’
willingness to participate in monitoring systems.
A key issue is that companies need to be more systematic
in the way they plan and execute product monitoring and
data analysis. Today, these programs are mainly designed
to respond to signal failures. They do not provide a sound
baseline for analyzing machine performance and,
critically, predicting failures. Moreover, there is too much
emphasis on the few pieces of equipment that are starting
to fail, rather than the whole installed base.
Rather than focusing on collecting more types of data,
companies should focus on collecting the right data and
improving reporting rates from devices in their installed
base.
Incentivizing customers to provide performance data is
one way to raise data-quality standards. In addition,
research is needed to improve product self-diagnosis
capabilities.
It is notable that the MIT CTL project with OnProcess
Technology found that significant reductions in spare
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FRONTIERS

parts inventory are possible even though the available IoT
data was limited in scope. Also, the gains were made in
aggregate across a wide population of computers; a
superior monitoring system would make it possible to
analyze the performance of individual devices.
About the Authors
Daniel Gettens is chief analytics officer of OnProcess
Technology. Francisco Jauffred and Daniel W.
Steeneck are research affiliates at the MIT Center for
Transportation & Logistics.

Companies Ignore IoT

Opportunities at Their
Own Risk
In their study Supply Chain Trends in the Digital Age,
consultancy firm Gartner forecasts that by 2020, an
installed base of 25 billion endpoints will be connected
through the IoT, “driving powerful business opportunities
behind the reams of data shared by these devices.”
Capturing these opportunities in machine monitoring is a
strategic issue for companies. Up until now, executives
have understandably focused on building out their digital
platforms and improving the customer experience. The
next logical step is to develop systematic product-
monitoring programs that enable enterprises to better
serve their customers while reducing cost-to-serve — a
challenge that preoccupies most senior executives.
Further, IoT-connected machine monitoring is an
important component of digital business transformation,
which is certainly on executive team radar screens right
now.
Companies that fail to do the required groundwork to
take advantage of the IoT-inspired revolution in product
monitoring will leave substantial savings and service
gains on the table.
 MIT SLOAN MANAGEMENT REVIEW
DATA & ANALYTICS

Safeguard Your Organization’s IoT Initiatives

SAM RANSBOTHAM

As data becomes increasingly valuable, companies need to secure their IoT-enabled

devices now, rather than wait until hackers find a way in.

As implausible as this scenario seems, increasing internet

of things (IoT) adoption portends worse cybersecurity
breaches unless businesses recognize the need to improve
IoT components.

In the fish tank example, it is particularly ironic that the

pun “phishing” evolved back to the original “fishing.”
Phishing attempts to steal valuable information through
deceit. An email, for example, elicits confidential
information by pretending to come from a boss or
colleague. Rather than attacking systems directly,
phishing uses social engineering to prey on parts of
computer systems that are traditionally far weaker: users.
But in the weakest link contest, we have a contender
rising quickly — IoT devices.

Unfortunately, IoT did not rise to the top of the weakest-

link leaderboard because we the users all strengthened
Recently, attackers broke into an unnamed casino and
our security chops. Despite constant prescriptions for
stole data by compromising an internet-connected fish
better user education, it is difficult to raise every user’s
tank. If this were a plot device in a Hollywood thriller, the
security prowess — and the resilience of a defense
cyberattack method would likely be deemed far too
depends, by definition, on the minimum weakness.
implausible and left on the cutting-room floor — not to
Instead, IoT devices may become the preferred path for
mention the preposterous idea that thieves find a better
attackers by creating far better ROI for attackers along an
return on investment (ROI) in stealing data from a casino
IoT path rather than a user path.
instead of stealing money. But both the method and
“goods” targeted by the thieves are real. The use of “ROI” here is important. It’s tempting to think
of security as a technical problem — one that we wish

some smart technical folks would just solve. Despite
many smart people working on it, this is highly unlikely.
Instead, security is an economic problem — attackers are
economic actors who will strike when benefits exceed
costs and will turn their attention elsewhere when it
doesn’t.
The “return” part of the attacker ROI is based on the
value of data. The value of data has increased
dramatically over the last decade. It stands to reason that
the same data would be valuable to attackers as well. For
example, transaction databases provide valuable insight
on customer behavior, but our economy thrives on
payment systems that rely on poorly kept secret numbers
(for example, credit card numbers) that we must
constantly supply to organizations in order to enable
transactions. This “secret” information therefore has
value to attackers, as it can readily be exchanged for
goods and services. With IoT, the proliferation of devices
offers numerous paths to that valuable data — even
through a fish tank.
The “investment” part is where IoT currently lags. As
businesses build and deploy weakly secured devices,
attackers don’t have to exert significant effort to identify
and exploit vulnerabilities. The effort to secure is out of
balance with the effort to attack successfully. It is
currently too hard for businesses to reduce attacker ROI.
With ROI like this, it doesn’t take Punxsutawney Phil or
Carnac the Magnificent, much less fancy prescriptive
analytics, to prognosticate that more stories like the
casino fish tank are in our future. What can help change
this future?
If securing devices is difficult or expensive, businesses
won’t do it. The lure of features will divert from increased
MIT SLOAN MANAGEMENT REVIEW
DATA & ANALYTICS
security. Instead, it needs to be much easier for business
IoT deployments to demand more effort from attackers.
We can then depend on business laziness and frugality to
change the ROI. The difficult part is how.
We’ve been here before. For example, in the early days of
computing, each program had to develop data and
indexing routines. With each program, just building
minimally reliable data storage diverted costly
development resources away from improved features. But
reusable routines emerged, followed by dedicated libraries
available for purchase, then dedicated companies put
considerable resources into reusable data storage systems
(for example, relational databases or map-reduce
clusters). Now every program can take advantage of
millions of hours of development and refinement of
sophisticated data storage algorithms, often at low or no
cost.
With security, the situation is worse because security is so
difficult to get right. As cybersecurity expert Bruce
Schneier noted, “Amateurs produce amateur
cryptography,” and most businesses are amateurs at
securing IoT devices. Those developing security for their
own devices are bound to make mistakes — unless they
are a dedicated security company, as most, of course, are
not. But even dedicated groups working openly on
security make mistakes: In 2015, 4 million smart meters
were found “rife with security issues” after deployment.
Security is hard.
As a result, most businesses won’t be able to develop
secure IoT devices on their own. They will need better
components, both hardware and software, to build from.
Societally, we cannot afford to have every organization
grow their own devices through to mature products —
 MIT SLOAN MANAGEMENT REVIEW
DATA & ANALYTICS

the resulting security compromises will be staggering About the Author

along the way as they mature. Components work because
Sam Ransbotham is an associate professor of
they allow economies of scale. They allow organizations
information systems at the Carroll School of
dedicated to building secure components to acquire
Management at Boston College and the guest editor for
expertise, spend resources, and then be rewarded for their
MIT Sloan Management Review’s Data & Analytics Big
efforts. Ideas Initiative. He can be reached at
sam.ransbotham@bc.edu and on Twitter @ransbotham.
Before getting too judgmental and thinking, “Who on
earth needs an internet-enabled fish tank?” consider the
benefits: The internet connectivity “allowed the tank to be
remotely monitored, automatically adjust temperature
and salinity, and automate feedings.” Remote monitoring,
automated processes, reduced labor — these all sound like
the benefits that most businesses desire from IoT.
It is exactly these benefits that technologies such as IoT
and artificial intelligence promise. But unless businesses
have secure components to build from, their data remains
at risk.
 NE W PR O D U C T DE V E L O P M E N T : OP I N I O N

NowThatYourProducts
CanTalk,WhatWill
TheyTellYou?
To take full advantage of the opportunities presented by
THE LEADING
QUESTION
How will
the Internet
of Things
affect product
development?
the Internet of Things, companies will need to rethink
many aspects of new product development — including FINDINGS
Instead of just being
the definition of a new product. a physical device, a
connected product
BY SUKETU GANDHI AND ERIC GERVET can provide valuable
information.
By “listening” to
their products,
companies can
identify new
opportunities.
NOT LONG AGO, companies had to rely in large part on surveys and focus groups to understand
A new product
what customers liked and didn’t like about their products. In recent years, social media and online ratings could be an existing
device with new
have given businesses new ways to learn about customers’ opinions about their products. Today, however, software
some of the products themselves — at least those downloaded.

devices that are part of the connected world of the Inter-

net of Things — are starting to provide unprecedented
levels of information that can be used to improve both
the products and the customer experience.
In particular, information from connected devices
offers companies three tremendously important core
pieces of contextual information that were previously
unavailable: where the products are being used, how
they are being used, and which customers are using
them at any given time. Some companies use this in-
formation to modify their products to meet customer
needs and improve revenue. Others go even further,
taking the information gathered from their products
and connecting it with other shared data they own or
access. This combined intelligence allows them to de-
sign and create the next level of products, with
enhanced features and services.
What once may have been considered mundane
devices (washers, dryers, and refrigerators, to name a
few) are now turning into sophisticated, technology-
driven products. Agricultural equipment makers, for
example, manufacture GPS-driven tractors that pro-
vide farmers with data that can help improve their
planting decisions.
NE W PR O D U C T DE V E L O P M E N T : OP I N I O N
Going forward, we expect that companies that
manufacture smart, connected products will have
an advantage in the market. What will be impor-
tant to success is not only building smart, connected
products, but also starting to listen to them. Such
“listening” changes the perception of what consti-
tutes a product; instead of just being a physical
device, a product becomes something that provides
valuable information for companies and their cus-
tomers. We think this new perspective will change
the way products are modified and monetized and
how customer support is provided.
For instance, a company does not have to wait
until a customer calls with a complaint to know
that a product connected to the Internet of Things
is not working correctly; the product has already
communicated the information. With this advance
knowledge, the company can report an issue to
a customer and seek to address it before it becomes
a bigger problem. This service call could also turn
into a sales call if the company not only fixes the
problem but also activates a new feature that
gives the product additional capabilities. The
advantage of such proactive service is that a com-
pany can start to prevent product failures before
they happen — and, in the process, create more
loyal customers.
So by listening to their products, a company can
both improve them and provide better service.
Equally important, it can better monetize these
products over their life cycles. Typically today, rev-
enues rise during a new product’s introduction and
then flatten. By listening to their products and
modifying them when customers start to use them
differently (or not at all), a company can introduce
upgrades that generate mini-revenue boosts and
further extend the life of the product. While this
action may come at the expense of some product-
introduction revenues, we believe the net result will
be greater overall monetization opportunities
across a product’s life cycle.
Building responsive products creates tremen-
dous opportunities, but it also comes with
significant challenges. They include:
• Setting a Product’s Price The way a company
thinks about setting a product’s cost and extract-
ing lifetime value will be significantly different
and more difficult. The company must consider
not just the initial cost of the physical device, but
its overall lifetime value created by the informa-
tion it provides and the modifications made from
this information over the product’s life cycle.
• Designing a Product Since products will likely be
modified as more information is collected about
how customers use them, certain features kept dor-
mant initially may be activated as the user needs or
wants them. This approach moves designers fur-
ther away from working on physical products and
more toward building software-driven products —
even for historically electromechanical devices like
washers and thermostats.
• Innovating The current model of innovation is
that a “new product” is a new physical device. But
once products are connected to the Internet of
Things, a new product could be an existing device
with new software downloaded. Going from the
first perspective to the second requires a mindset
change, away from one in which a company needs
to sell a new physical device to increase its reve-
nue. That mindset is a strong barrier to developing
smart products; it will have to evolve into one that
sees a continually modified product as a revenue
generator over the product’s life cycle.
• Rethinking Product Design Processes Right
now, too many companies see the software and
information component of a product as an
afterthought rather than an integral part of the
product. This perspective must change. If your
product is “talking” to you and providing impor-
tant contextual information, then technology
plays a critical role in product design, and IT must
become an equal part of the product develop-
ment group.
It will not be easy to overcome any of these chal-
lenges. But doing so can lead a company into the
connected world of responsive products. These
products have something important to say. Is your
company ready to listen?
Suketu Gandhi and Eric Gervet are both partners
in the global digital transformation practice of the
management consulting firm A.T. Kearney. Comment
on this article at http://sloanreview.mit.edu/x/57319,
or contact the authors at smrfeedback@mit.edu.
Reprint 57319.
Copyright © Massachusetts Institute of Technology, 2016.
All rights reserved.
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