A new wave of technological innovation, called the Internet of things (IoT), has started to spread. It is on the verge of creating significant disruption in a wide range of industries.
Although many people have heard of new consumer products such as the Amazon Echo – a voice-controlled device that is connected to the Internet and can play music, answer questions, read books or the news, report traffic or weather, and control lights and thermostats at home – most do not yet realize the impact that this new wave of technology will have on their lives, both at home and in their businesses.
IoT takes automation to the next level because connected devices or objects are now able to communicate with humans and each other. The interdevice communication automatically analyzes situations and recommends decisions, or takes actions using software embedded in the device or running on the cloud. The software technology behind IoT includes big data to analyze the data collected from the devices and algorithms.
The results are only starting to reveal themselves. The automobile industry, for one, is reinventing itself with self-monitoring and self-driving capabilities. New companies such as Uber use IoT (location sensors using the mobile phone of drivers and passengers) to transform the transportation industry. How will this impact CPAs, you might ask? Although change will be evolutionary and many obstacles remain to be overcome, the short answer is the impact will be profound and pervasive.
Financial services are already on this path with mobile apps connected with robo-advice for financial planning, wealth management, and digital mortgage capabilities. Experts refer to IoT as the next industrial revolution. In this feature we will discuss what IoT is, provide examples of its use in industry today, highlight some adoption trends, and show how CPAs may be affected.
The Internet of Things
There are many definitions of IoT. In a recent LinkedIn post, Abhimanyu K. Agarwal, a senior managing consultant at IBM, defined IoT as a way for sensors and machines to communicate with each other by combining the capabilities of big data, analytics, and artificial intelligence to anticipate needs, solve problems, and increase efficiency.1
Related capabilities include neural networks and machine learning, which are expected to play a significant role in the development of IoT.
In his book, Cloud Enterprise Architecture
, Pethuru Raj, PhD, a cloud computing expert and researcher, referred to IoT as a central part of the future of cloud computing.2
In a recent ISACA Journal
article, Marcelo H. Gonzalez, CISA, CRISC, refers to IoT as a world where virtually everything (objects, animals, or humans) can be imbued with one or more tiny computers or smart sensors, all transmitting a flow of data onto the Internet.3
For the purposes of this article, we use the term IoT in the context of the enterprise and its impact on the CPA profession.
Use in the Enterprise
Early adopters have started implementing IoT technology in a number of business areas. In the manufacturing world, IoT is referred to as the industrial Internet of things, and a transformation is under way in functions such as physical asset management and predictive maintenance. For example, early adopters are installing sensor chips on their physical assets to track them in real time and monitor their health, allowing manufacturers to extend the life of their assets, minimize downtime, and reduce costs. They also incorporate sensor chips in their products to collect information about their usage by their customers and to enhance services, such as real-time diagnosis and notification when parts need to be replaced or automatic service order notification sent to the manufacturer or distributor’s customer service department. As an added benefit, the customer may also be given the ability to access valuable real-time data on their own usage of the product compared to benchmarks.
Finally, IoT allows manufacturers to reinvent the way they price products and services based on usage or subscription-based models. Just as the computer and software industries have seen the emergence and growth of software-as-a-service, infrastructure-as-a-service, and platform-as-a-service options, the industrial world is on the verge of similar product-as-a-service models.
IoT technology is also emerging in the world of supply chain and logistics. Companies use sensors and machine learning to collect data and optimize the supply chain process. For example, with chips placed on shelves and connected to the Internet, inventory can be managed more efficiently with automated replenishment, real-time analytics, and improved forecasting. Chips can also be placed in trucks to monitor conditions during transport or in packages to track order status and monitor deliveries in real time. Thus, visibility into the supply chain can be enhanced for both the vendor and for the clients.
The retail industry has started experimenting with IoT to transform its processes. With chips on shelves, retailers can optimize retail space utilization. With Bluetooth beacons, they can track smartphones of consumers in the store, better understand purchasing behaviors, and improve the customer experience by providing assistance for locating items in the store or information about discounts. Finally, retailers have already started to adopt self-service ordering kiosks and self-check-out systems, as well as mobile payment methods. They are continuously experimenting with new ways of leveraging IoT technology to streamline payments and improve the customer experience.
Another area where IoT is starting to take off is in the banking and financial services industries. The payment industry is currently going through a profound transformation with mobile options such as Apple Pay, Google Wallet, and others. We are seeing the emergence of mobile apps connected to automated digital wealth management platforms (also referred to as robo advisors) in the wealth management industry.
The insurance industry is opening up to IoT, too. For example, consumers may be provided with the option of putting an IoT device in their car to take advantage of better pricing from the insurer based on their driving profile, among other benefits.
Health care organizations are experimenting with the technology to manage patient treatment and improve the monitoring of chronic diseases. They are using connected devices, either worn by patients or embedded in the patient’s body, to provide alerts, create efficiencies, and improve the quality of communication between patients and health care providers.
In more general applications, offices and worksites use IoT technology to monitor security and energy use. Cities and other government organizations are investing in IoT to conserve water and energy, improve security, reduce traffic congestion, improve public transportation, and enhance quality of life.
Energy companies, in sectors such as oil, gas, or wind, use sensors on equipment to monitor their condition and minimize downtime. The mining sector is investing in self-driving trucks.
These few examples demonstrate the pervasiveness of IoT and the significance of the transformations to come in the world of business.
Adoption Trends and Projections
As we indicated, IoT is in the early stages of adoption. Research from leading IT research firms Gartner, Forrester, and International Data Corp. (IDC) concur on the current state of adoption and the fact that it is gaining momentum. For example, research from Gartner depicts IoT as a relatively immature (and hyped) technology, but discusses how IoT is evolving beyond early applications and increasing in market penetration.4
According to Gartner, 6.4 billion connected things will be in use worldwide in 2016, up 30 percent from 2015, and will reach 20.8 billion by 2020.5
Drivers of IoT growth cited by Gartner include the falling costs of connectivity and technology, mobile app development platforms, applied analytics, new technologies, new business models, and other factors. Key inhibitors to IoT deployment include security and privacy, areas where technologies and standards are expected to improve.
In a recent study, McKinsey Global Institute analyzed more than 150 IoT use cases across multiple sectors of the economy and, using economic modeling, estimated that IoT has a potential economic impact of $3.9 trillion to $11 trillion per year in 2025, the equivalent of 4 percent to 11 percent of the world economy in 2025.6
The report suggests that, while consumer markets are driving adoption today, nearly 70 percent of the economic value created by IoT will ultimately come from business markets.
Impact on CPAs
IoT is a transformational technology, much like the digitization of music was before the iPod brought it to the mainstream. Understanding that IoT is about to create the same level of disruptive change is key to being prepared to take advantage of the trends.
Some of the specific areas where our profession will be affected include the following:
More generally, keep in mind that IoT is not just about IT. The duties of CPAs will continue to transform and integrate with IT systems, possibly leading to consolidation. This is one of the reasons why Barry Melancon, president and CEO of the AICPA, has stated at various times that the skill set of staff will be changing over the next several years, with more emphasis on data analytics and more hiring from the STEM areas (science, technology, engineering, and math).7
Preparation for riding the wave of change that IoT represents will revolve around understanding systems that are hyperconnected. They will always be on, always be collecting data, and always be connected (and connecting) to multiple data sources.
Increasing investments in cloud systems will be critical to leverage increased storage capacity and ubiquitous access to data. Cloud-based systems can efficiently provide the high levels of scalability, storage, and accessibility that will be needed.
Leveraging publicly available application programming interfaces (open APIs) to interconnect applications and data sources and access them like a single source will be critical. Now is the time for CPA firms and businesses to assess their organizations’ internal system readiness, as well as understand the future strategies of their IT vendors, who will need to be active partners in building systems that take advantage of IoT.
Begin by analyzing how IoT might affect your firm or business today. Identify risks and opportunities, and leverage your own data sources. This analysis will provide your organization with critical insight into potential data interconnectivity strategies, creating business value and differentiation within your particular business environment. It will also lend experience in working with larger data sources, and might well lead your firm to new revenue streams (such as predictive advisory services).
Other ways to prepare include the following:
It is important to remain cognizant that we are in the earliest stages of this transformational technology. There may be risks that outweigh the rewards.
As a recent white paper from ISACA states, “Although IoT can result in financial, health and safety, and quality-of-life benefits, IoT can also introduce new risk. Any new technology, process, or business method can increase risk, but IoT, because of its pervasiveness, has the potential to increase risk significantly.”8
Be aware of and prepared to address these issues:
Now is the time to begin reviewing and updating mobile/personal device policies to include connected technologies that people may want to bring into the corporate environment. Consumer-grade devices can be very appealing, but they represent a significantly higher security risk than IoT devices that are researched and deployed by the appropriate enterprise teams.
IoT is not a fad or a trend that can be ignored. The adoption of IoT will reach a tipping point and progressively become consumerized with mass adoption. It no longer will be a subsector of electronics, but will be included within everything. It will change the way we think and interact, and it will have a profound impact on how businesses and customers make decisions and operate.
In this context, it is essential that CPAs understand the implications of IoT for the profession, and prepare their respective organizations and clients for the significant changes ahead. To stay in front of the wave, adopting the proper mind-set and building your organization’s ability to securely collect, store, process, and analyze an exponential amount of data will be critical. Jobs and skill sets will need to change. At the same time, risks must be considered and balanced alongside the potential rewards.