Making the Business Case for IoT

2019 Trends in Internet of Things – part 5

With such a far-reaching initiative as IoT, the justification and ROI analysis will inevitably be more extensive than it is for standard IT projects. This, as with improved collaboration, is another hallmark of digital transformation.

Where IT projects used to be measured primarily on the cost benefits or efficiency gains, they are now often measured by the same standards as any other corporate strategy. They must show a positive impact on overall organizational goals, many of which have never included a digital component.

After identifying an area where IoT might be implemented, the next step is to fully understand the risks and hurdles. This step is critical at this point because so many technology projects underestimate the risks, leading to unexpected costs or problems. This is especially true when a line of business is driving the decision process. Companies are already concerned about IoT costs; 43% say that upfront costs are a major hurdle, and 34% cite ongoing costs as an issue. But if there is not a thorough assessment of other risks—such as cybersecurity (41%), interoperability (25%), or handling new data (13%)—those costs will skyrocket.

On the other side of the ROI equation are the benefits companies hope to gain from IoT. Cost savings lead the list, with 43% of companies expecting that IoT will lead to a reduction in operational costs. As with other emerging technology trends, cost may ultimately prove to be a lower priority, as businesses realize that IoT’s primary benefits may be improved data for decisions (38%), better asset tracking (34%) or automated business processes (32%).

Even if current technology ROI calculations should not necessarily give the most weight to the pure financial components, that is the typical approach to IT projects. In the past, IT served more of a tactical support role and was typically viewed as a cost center. IT investments were meant to provide more IT capacity at a lower cost or greater IT capacity at the same cost. Now, as technology plays more of a strategic role, investments are evaluated more in terms of a growth mindset, looking at the overall return to the business.

Even with the focus being primarily on the finances, there is some recognition that technology is not simply a tool for cost savings. Three out of ten companies with existing IoT projects view IoT as a revenue generator, and 35% feel that there is a mix of cost savings and revenue opportunity in their IoT efforts. Large firms (500+ employees) are most likely to see IoT as potentially benefitting both cost and revenue, with 42% selecting that option. Interestingly, 33% of small firms (less than 100 employees) and medium-sized firms (100-499 employees) view IoT as primarily revenue-generating, putting those companies ahead of large firms, where only 26% take that view. The smaller firms have less operational overhead to optimize and more growth potential from trying something new, but of course they also have fewer resources to apply to the problem. This makes IoT especially interesting to solution providers, who will need to combine creativity with technical acumen when pitching IoT solutions to these clients.

Further driving home the point that IoT is more than just a standard IT project, a majority of companies indicate that IoT funding comes from places other than the IT department. The most common source of IT funding is a new budget allocation, with 37% of companies citing this option. This demonstrates not only the importance of IoT to future strategy, but the company-wide impact that IoT tends to have. While 26% say that IoT projects are funded through discretionary IT budgets, another 19% say that the funding comes through a combination of different budget sources, once again emphasizing the holistic nature of IoT.

Although the IT team may not be the primary driver from a budgeting standpoint, there is still a tremendous opportunity for IT pros and solution providers to lead the discussion on how ROI will be determined. Over half of companies in the survey (58%) say that determining ROI for IoT is “very difficult” or “moderately difficult.” Again, the end goal for IoT differs from other technical projects because of the broad impact beyond cost savings. However, the technology and support needs are still the main components. This plays directly to the strengths of IT, and the ability to lead this discussion will ingrain IT further into the strategic patterns of a business.