Features
30 Sep 2015 09:54am

Internet of Things

The Internet of Things is set to revolutionise every sector of industry, so businesses – and their accountants – must fully understand its benefits and challenges, says Iwona Tokc-Wilde

The Internet of Things, or IoT, has its roots in the long-standing efforts to monitor and control the physical and digital environments in which people live, work, shop and play. At a basic level, some of its components have existed for years: thermostats, pacemakers, flight recorders and equipment location tracking tools have been sources of useful data about the user and the device, especially when wired into more complex information systems.

Being able to mine data demonstrating consumer habits would mean services customers' needs like never before

But the IoT only came into being when disparate devices got connected to the internet and got talking to each other, empowered by the new technology of cloud computing, digital modelling and fabrication, and smartphones. Now everything from your fridge to your trainers can function smarter when connected to the internet.

The IoT is big, and it is growing. According to Gartner Group, it will consist of 4.9 billion devices by the end of 2015 (up 30% from 2014), and will reach 25 billion by 2020. Of its three core markets – enterprise, home and government – the Enterprise Internet of Things (EIoT) is the largest. By 2019, the EIoT market is estimated to account for nearly 40% or 9.1 billion devices, according to a report from BI Intelligence.

Guy Wilmot, technology and IT partner at law firm Russell-Cooke, says: “The IoT is increasingly looking like the future and the opportunities for companies are vast – being able to mine data demonstrating consumer habits would mean servicing customers’ needs like never before. For example, a washing machine connected to the internet could re-order washing powder, or a part if the machine breaks down. Similarly, it could feed usage information back to the manufacturer, helping to improve efficiency and user-friendly features.”

The IoT is starting to have a big impact on the accountancy sector, too.

Nick Lawrence is chief executive at NWN Blue Squared, specialist accountants in the creative sector. “I firmly believe the IoT is driving us as a business, and accountancy as a profession in general, changing the way we think about and interact with our clients,” he says. “Without question, communication has changed – the ‘always-on’ world means our clients have much more information at their fingertips, much faster, and expect us to respond at their speed. It also means we have to understand much more about their businesses and their business models.”

Many of NWN Blue Squared’s clients are in the music industry, including festivals. “Festivals are increasingly using the IoT to link visitor data with revenue streams, for example ticket sales with merchandise or on-site promotions,” Lawrence says. One client, Standon Calling, equips festival-goers with Radio Frequency Identification wristbands, improving the experience for visitors, organisers and on-site workers. He explains: “In a cashless environment created by ‘topping-up’ the wristbands with a money balance, the bars no longer need a £20k cash float; prices can be adjusted incrementally in real-time by five or 10 pence depending on demand; the festival also knows the real-time value of sales and can ensure stock or staff are in the right place to meet demand.”

The use of the technology also engenders a trust-based relationship with suppliers, such as food traders. “The IoT has removed pricing suspicion and allowed pitch fees based on percentage of sales. In addition, the related management information means that informed decisions can be made regarding re-licensing of existing trader partners – or recruitment of new ones – based on performance during the festival,” Lawrence says.

In essence, Lawrence believes servicing IoT clients does not differ from servicing other customers. “Any business, however technologically minded, needs the accountancy basics,” he says. But he adds: “What is different is the quality of business-critical information that is now available thanks to the IoT. For example, combining web traffic, social media, smart mobile technologies and Big Data is allowing even the smallest businesses to gain greater insight into what works and what doesn’t from a business perspective, and provides ‘real time’ information on sales, enquiries or cashflow.”

Still, while the concept of IoT is broadly understood, many businesses and their accountants struggle to assess how the technology could benefit the company in question, and what challenges it would pose.

Currently, the automotive and energy industries are often cited as the biggest users of IoT. “They are both large industries with millions of connected cars and smart meters,” says Magnus Melander, IoT consultant at THINGS, a shared working space in Stockholm where big industry players such as Cisco, Husqvarna, ABB and ASSA ABLOY come together with hardware and IoT start-ups and entrepreneurs to collaborate and share ideas.

As for the future, Cisco estimates the UK start-up community alone stands to make over £100bn from investments in the IoT in the next 10 years. Its Internet of Everything: Unlocking the Opportunity for UK Startups report reveals that start-ups in the healthcare industry have the greatest opportunity, with the scope to access over £48bn in the next decade; the retail industry is not far behind at £37bn; the transport sector is set to make £11bn; and the energy sector is forecasted to make £7bn.

Melander agrees the IoT will make the biggest impact in the health sector, from general wellness to specialist health and home care. “It will also make a drastic impact in industrial applications,” he adds. On the whole, however, the IoT is for everyone. “Without exception, it can transform any area that involves any ‘thing’ that can be connected to the internet, so there are opportunities in all sectors, from retail to manufacturing and even conservation – the list is almost endless,” says Sarah Eccleston, director of Enterprise Networks and IoT at Cisco UK&I.

Cisco’s report highlights that, by streamlining processes and removing inefficiencies, IoT adopters can transform their operations and reduce costs. In the oil and gas industry, for example, IoT-enabled automation of remote operations directly impacts on companies’ bottom lines. Nav Dhunay, chief executive of PumpWell Solutions, says: “The impact of having smart technology make real-time decisions for remote machines is profound. The machines work at optimal capacity, equipment downtime and failures decrease and safety increases. Personnel on-site time goes down, too – in many cases, there’s no longer any need for highly-paid operators to physically visit the site, which costs between $500 and $1,000 per well per visit.”

The IoT also allows businesses to create better customer experiences, and retail is a good example. “The IoT can bring an end to the shopping queue – the ultimate killer of sales,” Eccleston says. She explains: “Cisco’s CMX technology can track the locations and shopping behaviours of anyone carrying a Wi-Fi enabled device, such as a smartphone. Combining this technology with a predictive analytics engine to forecast when a customer is just about to finish their shop (smart shopping baskets can do this, based on how full the shopping basket is) means that the shop can direct a member of staff with a mobile terminal to the customer to enable them to pay, removing the need for them to go to a checkout till and wait in a queue.”

The technology also opens up new business models and revenue streams, says Brian Levy, chief technology officer, EMEA, at networking solutions provider Brocade. “The possibilities are practically limitless – once devices are connected, there are myriad ways in which to deliver services to users. For instance, smartwatches are ideally suited for the delivery of health services or location-based promotions, and connected home devices allow businesses to deliver additional value through maintenance support services.”

Crucial in all of this is the data generated by IoT devices. “Data is the new oil already seems a cliché, but for IoT data is its lifeblood,” says Dr Gordon Fletcher, co-director of the Centre for Digital Business at Salford Business School. Therefore, Fletcher says, businesses seeking to adopt IoT will need to recognise what data they need and establish a robust Information Strategy, rather than rely on their existing IT strategy.
Collecting IoT data is one thing, being able to analyse it is another – cue IoT analytics. “Many companies are used to structured and ‘clean’ data accessible through queries to databases, but not to streaming, heterogeneous data transmitted in real time. Dealing with this new type of data, and extracting value from it, is challenging and requires know-how,” says Gadi Lenz, chief scientist at IoT analytics specialist AGT International.

There are also compliance issues to consider when dealing with data. “Suppliers of connected devices must be transparent about how they will process users’ personal data and for what purposes, and must obtain specific and informed consent to that processing,” says Louise Taylor, senior counsel at law firm Taylor Wessing.

“Also, users have the right to manage their personal data, for example by requesting that inaccurate data is corrected. Therefore, companies need to address privacy issues at the design stage, not as an afterthought,” she says.

The collection of data must also be limited to no more than what is needed. “This ‘data minimisation’ principle doesn’t sit easily with the Big Data trend of aggregating and crunching pools of data for new applications,” says Taylor. “This is one area where IoT industry practice and regulatory guidance is likely to evolve over time.”

Accountants can help clients understand what the security and privacy risks are versus the business value of their IoT initiatives

According to HP Security Research, over 70% of commonly-used IoT devices are vulnerable to being hacked or compromised, so data security needs to be addressed early on, too. Taylor says: “To minimise the risks, IoT stakeholders need to prioritise data security and adopt a ‘security by design’ approach to device development, as recommended by the EU Article 29 Working Party released in autumn 2014.” She adds that the new EU data protection law looks set to be finalised in early 2016. “There will potentially be more restrictions around profiling and data retention, higher penalties for data security breaches and clarification that certain types of metadata and device data will be treated as personal data,” she says.

Businesses can also mitigate security concerns by partnering with a trustworthy, reliable IoT network service provider. “Companies should have appropriate service level agreements in place and these should include clauses around data ownership and access, explaining where the data generated will be stored, who will have access to and rights over it,” says Levy. He adds: “Failure to see to this could be costly, since they might find themselves unable to retain control over who accesses sensitive data, and may not be able to switch providers without significant data losses.”

Accountants also can help clients manage the risks associated with IoT. “They can help clients understand what the security and privacy risks are versus the business value of their IoT initiatives,” says Richard Anning, head of the IT Faculty at ICAEW.

“Accountants should also see themselves as the guardians of the IoT-generated data – they can help gather, curate and make it meaningful, they can produce reports on it, and they can change ‘behaviour’ based on it.”

They can also guide clients through other challenges of doing business in an IoT environment. “One of the biggest challenges in the creative sector is the issue of downloads and streaming, and the way the IoT is affecting business and creativity,” says Lawrence. “Creatives have to find methods of monetising the opportunities and we can help them establish the right systems to monitor the publishing and distribution of creative products, and gather royalties and other revenues,” he adds.

While it is clear Lawrence sees IoT as an opportunity for his own business, other accountants are not as convinced as he is. “I guess it’s whether you perceive the incredible steps that have been made in technology as risks or opportunities. Sadly, much of the accountancy profession still believes the world would be a better place without IoT, but I’m one of an increasing number that disagree,” he says.

Some practice staff now fear automation of tasks and processes may lead to them becoming redundant, but this fear is – at least for now – unfounded. “Depending on your definition of IoT, the impact on smaller businesses is going to be limited in the short term,” says Anning. He adds: “More data and capabilities will be available to help understand better and certain processes will be automated; it is a question of how usable the technology can become for practitioners to take advantage of it.”

Iwona Tokc-Wilde

 

 

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