What CFOs need to know about the Internet of Things

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What is the Internet of Things? ‘IoT’ has become something of a buzzword. It’s been adopted and adapted by different industries - The Internet of Space Things, the Internet of Value, the Internet of Medical Things, or simply the Internet of Everything. It calls to mind Google Nest or Amazon Alexa, smartwatches, and sensors. Why is it important to finance?

IoT is expected to be one of the greatest drivers of value creation for businesses in the next decade. A McKinsey study published in 2021 estimates that IoT could enable economic growth of $5.5 trillion to $12.6 trillion in value by 2030. 26% of this value is expected to be unlocked in manufacturing alone, with healthcare accounting for another 14%.?

Most of the value derived from IoT-gathered at present is in business to business (B2B) activity, but in the background, the contribution of business to consumer (B2C) data capture is gradually accelerating. It is estimated that there will be up to fifty billion connected consumer devices by 2025, from computers to kettles. Our movements and our choices as we interact with applications are generating huge volumes of data to refine the B2C offering in the future.

In industry, IoT is at the heart of digital transformation, part of the core stack of frontier technologies. While smart factories designed from the outset to harvest data are on the rise, particularly in Asia, IoT devices can level the playing field in established businesses with long-term investments in older machines. Once you know what you need to measure, it’s now simple to connect the unconnected using appropriate sensors on diverse systems and hardware.

The wealth of data generated from everything from smart manufacturing to traceable supply chains is delivered in real-time by fast networks such as 5G, interpreted by AI, and secured and verified by blockchain.

Choose your data carefully

The real innovation of IoT is the capture and creation of value from data. The finance function is perfectly placed to define what data could enhance decision making, and from where it can be sourced. The greatest challenge that finance faces is not the technology, which is established and proven, but the practical and ethical dimensions of having so much data available. Just because we can collect data does not mean that we should.

Cyber security is the primary concern, with a long history of scandals around IoT devices being hijacked for nefarious purposes. The Mirai botnet, available for hire on the dark web for Distributed Denial of Service (DDOS) attacks, was the first of many ‘Thingbots’ to emerge. It is powered by the processors of thousands of domestic CCTV cameras, all shipped to their unsuspecting owners with the same unchangeable default username and password.

The security of devices is one thing, but the security of data is quite another. Europe’s General Data Protection Regulations (GDPR) require that personal data is collected with consent and purpose. Wholesale data harvesting for the sake of it, particularly in B2C businesses, can fall foul of privacy laws in many jurisdictions.

A golden opportunity

How can the CFO help the business to claim its share of this economic growth windfall?

• Look for the data gaps. What additional information would improve strategic decision-making across every function of the business, from manufacturing to marketing, from sales to cash management?
• Seek the source. Want to know the market’s favorite style and color for your product? There’s an app for that. Want to know about critical machine behavior? There’s a sensor for that.
• Recognize the challenge. Introducing IoT isn’t a quick fix or a new gadget. It's a transformation process that changes the way the business operates, whether that’s in the speed of reaction to market feedback or decision making on the production line.
• Lead the way. Demonstrate the value of IoT data and present a clear vision of what can be achieved.

The IoT presents a golden opportunity for CFOs to drive value, allowing smarter, more accurate, and more strategic allocation of financial resources. It’s time to realize the value of the Internet of Things.

This was the sixth article in my latest series "Frontier Technologies for Finance". You can read the previous ones below. Remember to click subscribe to be notified about future articles.

How are frontier technologies impacting the world of Finance?

Why CFOs are well-placed to understand Blockchain and Distributed Ledgers

It's time for CFOs to get a grip on cryptoassets

CFO, here are your blockchain use cases

How blockchain is shaking up your financial statement

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Anders Liu-Lindberg ?is the co-founder and a partner at the?Business Partnering Institute ?and owner of the largest?group dedicated to Finance Business Partnering ?on LinkedIn with more than 10,000 members. I have ten years of experience as a business partner at the global transport and logistics company?Maersk . I am the co-author of the book “Create Value as a Finance Business Partner ” and a?long-time Finance Blogger ?on LinkedIn with 67.500+ followers and 150.000+ subscribers to my blog. I am also an advisory board member at?Born Capital ?where I help identify and grow the next big thing in #CFOTech.