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The impact of IoT on the enterprise: a Cisco perspective

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13 April 2016

Global Services

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With several trillion dollars at stake, the Internet of Things (IoT) is driving a technological tsunami that will utterly transform most industries.

Cisco is right in the heart of that revolution, creating the building blocks of a secure, reliable and scalable IOT system architecture. We spoke to Alexis Malchair, Cisco’s IoT lead for Northern Europe, and asked him about the impact of IoT on enterprise IT and the CIO.

Defining IoT: everything connected in a huge distributed network

To begin with, how would you define or describe the ‘Internet of Things’?

Alexis Malchair: While most of us use the term ‘Internet of Things’ to refer to connected devices, the broader, overarching trend is that everything – not only things, but also people, processes, and data – are being connected in a huge distributed network.

That is why at Cisco we often talk about the Internet of Everything as the ‘next wave’ of internet growth. Connected devices will get us to several billion smart objects, but the Internet of Everything will take us to 50 billion connected devices. This is an evolution that is growing at an exponential rate, much faster than we have seen with any other technology adoption.

Now what is interesting about IoT is not so much the fact that things themselves are becoming connected, but the implications thereof on the business models of nearly every major industry. As consumers we are seeing an increasing range of IoT applications – think smart meters, connected scales, and ambient lighting – but most of these are still stand-alone applications with limited impact on the core business model of that industry. That is all about to change.

The economic impact of IoT: $14,4 trillion in “Value at Stake”

Why is that? What impact will IoT have on business?

Alexis Malchair: At Cisco we have calculated that IoT will create $14,4 trillion in “Value at Stake” over the next 10 years. By that we mean the total economic value that could be impacted by IoT, including cost reductions, improved employee productivity, more efficient supply chains, customer growth and innovation.

Moreover, we expect that within 5-10 years many Fortune 500 companies will lose significant market power due to technological disruption.  We have all become familiar with the stories of Uber and Airbnb, but they simply illustrate the bigger trend that all industries are facing disruption of their core business models thanks to digitization.  When we surveyed the CEOs of Fortune 500 companies, 75% acknowledged that adopting a digital strategy is crucially important for the survival of their company, and yet only 25% actually have a far-reaching digital strategy in place today.

That is why we are working with our customers and partners such as BT to build sector specific solutions. For example, we are involved in Smart City initiatives where we focus on the optimization of public as well as road transport. When it comes to manufacturing we are enabling more flexible and efficient manufacturing lines.  And in the logistics sector, we’re creating ever-smarter and more connected supply chains.

Fog computing: the distributed model – close to the sensors

Let’s look at IoT from a CIO’s perspective. What are the key trends that CIOs should be aware of?

Alexis Malchair: The major change is that we are moving toward a more standardized, interoperable environment. There is more openness in the system and that makes an exponential growth in the range of interactions possible. Standardization also enables better security, which is crucially important given the threat of cybercrime. Also important is the concept of Fog computing or a more distributed computing model. As millions more devices become connected, the use of the network increases exponentially. Ultimately we will hit the limits of the Cloud model where all data is handled centrally.

Fortunately, from a business model perspective we usually don’t need all the data that connected devices generate. Say you are monitoring the temperature of a device or location using a sensor that takes a measurement every 10 seconds. You may not have the bandwidth and latency to collect such data from thousands of sensors simultaneously. And anyway, the data may only become interesting once the temperature falls or rises above a certain threshold, or when it correlates with some other measure.

So instead of performing that analysis centrally in the cloud, we can distribute that intelligence across the network, closer to the devices themselves. To reduce the amount of data flowing through the network, we need to process the data in the network. The network is the ideal place to distribute applications or micro services, and allows us to evolve to a network-centric application model. Connected devices require routers and gateways, and these have memory and storage capacity, so why not use that capacity to handle distributed applications? We call that Fog computing.  The Cloud is up there; the Fog is down there closer to the sensors. And that’s Cisco’s core business.

Standardization, security, interoperability and real-time analytics

What are the implications of Fog computing for enterprise IT?

Alexis Malchair: Firstly, a distributed computing model is a far more efficient (and secure) means to handle IoT data storage, communication and management.

Secondly, and perhaps most interesting from a business perspective, it can enable powerful real-time analytics. For example, in a centralized cloud model, analytics are typically conducted on historical data because latency issues preclude real-time analytics.  With Fog computing it becomes easier to conduct real-time analytics and even streaming data analytics.  For example, if you are monitoring specific tolerance levels in a production process, historical analytics will only pick up faults hours into a production run; with streaming data analytics you could pick it up immediately.

Thirdly, Fog computing enables IoT standardization because you can introduce a layer of data transformation in the network. Related to this, there is a clear trend toward open APIs in the application layers that enable more interoperability – and hence new business models – beyond the walls of the traditional enterprise, linking customers, suppliers and partners. Ultimately we need to start looking at IoT as a platform.  For example, Smart Cities have an opportunity to connect traditionally ‘siloed’ infrastructure and thereby create a range of new services. Sensors in parking spaces could enable parking navigation apps while boosting city revenues.  And sensor-equipped street lamps could adjust their energy consumption in response to traffic conditions, and simultaneously be used for surveillance and air quality monitoring.  Enterprise also needs to start reimagining their business in this way.

IoT and digital transformation

What is Cisco’s role in the development of IoT?

Alexis Malchair – Cisco’s IoT lead for Nothern Europe
Alexis Malchair
Cisco’s IoT lead for Northern Europe

Alexis Malchair: Over the past three decades Cisco has played a key role in building the internet and hence the Internet of Things is very much core business.  We want to help build a scalable platform that can handle billions of devices – an interoperable platform based on open standards, and, crucially, a secure platform.  No single company can do all of that on its own and that is why we work with partners such as BT.  In fact, we are building an ecosystem of partners within verticals such as manufacturing, energy and smart cities, so that together we can drive innovation and experiment with new models.  In support of that strategy we have opened IoT innovation centers in several cities around the world, where we can we work with customers, partners and startups to quickly test ideas and launch new innovative concepts.

How should large enterprises embark on their digital transformation? The task can be overwhelming, so where should CIOs begin?

Alexis Malchair: In our experience there are three different ways in which companies look at their digitization strategy.  Some companies look at digitization to improve their existing business, for example to streamline existing processes and cut costs. Others use digitization as a means to differentiate from the competition.  And yet others have made digitization an integral part of their business model, with Uber and Airbnb being the classic examples.  Every company must decide for itself on which approach is more feasible or relevant, but a degree of digital transformation is unavoidable.

The key challenge that many CIOs face is to find time and resources for innovation. Most still spend 80% of their time running their existing business, leaving little time for innovation. Our advice for those companies is to begin with small steps. They should run a few pilots and avoid having to take the legacy along. If you try to integrate existing processes from day one you will probably create a complex and overwhelming task.  Rather work with virtual teams, do rapid prototyping and fail fast too – if needed. By doing this you will gradually build capabilities.

Connect with us in our BT Let’s Talk LinkedIn Group, to discuss the impact of IoT and fog computing for your business.