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Michael Chui, Markus Lfer, and Roger Roberts In most organizations, informationtravelsalongfamiliarroutes. Proprietaryinformationislodgedindatabasesandanalyzedin reportsandthenrisesupthemanagementchain.Informationalso originatesexternallygatheredfrompublicsources,harvestedfrom theInternet,orpurchasedfrominformationsuppliers.
Michael Chui is a senior fellow with the McKinsey Global Institute, Markus Lfer is a principal in McKinseys Stuttgart ofce, and Roger Roberts is a principal in the Silicon Valley ofce.
Butthepredictablepathwaysofinformationarechanging:the physicalworlditselfisbecomingatypeofinformationsystem. InwhatscalledtheInternetofThings,sensorsandactuators embeddedinphysicalobjectsfromroadwaystopacemakersare linkedthroughwiredandwirelessnetworks,oftenusingthesame InternetProtocol(IP)thatconnectstheInternet.Thesenetworks !"#$%&'#(&"#)*&+',#-*.&'/&01(1&("1(&2'3&('&!'-4#(*$.&/'$&1%1,5.6.7& Whenobjectscanbothsensetheenvironmentandcommunicate, theybecometoolsforunderstandingcomplexityandresponding toitswiftly.Whatsrevolutionaryinallthisisthatthesephysical informationsystemsarenowbeginningtobedeployed,andsomeof themevenworklargelywithouthumanintervention. Pillshapedmicrocamerasalreadytraversethehumandigestivetract andsendbackthousandsofimagestopinpointsourcesofillness. Precisionfarmingequipmentwithwirelesslinkstodatacollected fromremotesatellitesandgroundsensorscantakeintoaccount !$'4&!'%06(6'%.&1%0&108#.(&("*&315&*1!"&6%06+60#1,&41$(&'/&1&9*,0&6.&
farmedforinstance,byspreadingextrafertilizeronareasthatneed morenutrients.BillboardsinJapanpeerbackatpassersby,assessing "'3&("*5&9(&!'%.#-*$&4$'9,*.:&1%0&6%.(1%(,5&!"1%)*&06.4,15*0& messagesbasedonthoseassessments. Yes,therearetracesoffuturisminsomeofthisandearlywarnings forcompaniestoo.Businessmodelsbasedontodayslargelystatic informationarchitecturesfacechallengesasnewwaysofcreating valuearise.Whenacustomersbuyingpreferencesaresensedinreal (6-*&1(&1&.4*!69!&,'!1(6'%:&05%1-6!&4$6!6%)&-15&6%!$*1.*&("*&'00.& ofapurchase.Knowinghowoftenorintensivelyaproductisused cancreateadditionaloptionsusagefeesratherthanoutrightsale, forexample.Manufacturingprocessesstuddedwithamultitudeof .*%.'$.&!1%&;*&!'%($',,*0&-'$*&4$*!6.*,5:&$16.6%)&*/9!6*%!57&<%0&3"*%& operatingenvironmentsaremonitoredcontinuouslyforhazardsor whenobjectscantakecorrectiveactiontoavoiddamage,risksand costsdiminish.Companiesthattakeadvantageofthesecapabilities standtogainagainstcompetitorsthatdont. ThewidespreadadoptionoftheInternetofThingswilltaketime,but thetimelineisadvancingthankstoimprovementsinunderlying (*!"%',')6*.7&<0+1%!*.&6%&36$*,*..&%*(3'$=6%)&(*!"%',')5&1%0&("*& greaterstandardizationofcommunicationsprotocolsmakeitpossible tocollectdatafromthesesensorsalmostanywhereatanytime.Ever smallersiliconchipsforthispurposearegainingnewcapabilities, whilecosts,followingthepatternofMooresLaw,arefalling.Massive increasesinstorageandcomputingpower,someofitavailablevia cloudcomputing,makenumbercrunchingpossibleatverylargescale andatdecliningcost.
Putting the Internet of Things to work: Information and analysis Tracking behavior
Monitoring the behavior of persons, things, or data through space and time.
Examples: Presence-based advertising and payments based on locations of consumers Inventory and supply chain monitoring and management
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1. Tracking behavior
Whenproductsareembeddedwithsensors,companiescantrackthe movementsoftheseproductsandevenmonitorinteractionswith ("*-7&@#.6%*..&-'0*,.&!1%&;*&9%*A(#%*0&('&(1=*&10+1%(1)*&'/&("6.& ;*"1+6'$1,&01(17&?'-*&6%.#$1%!*&!'-41%6*.:&/'$&*B1-4,*:&1$*&'//*$6%)& toinstalllocationsensorsincustomerscars.Thatallowsthese companiestobasethepriceofpoliciesonhowacarisdrivenaswell aswhereittravels.Pricingcanbecustomizedtotheactualrisksof operatingavehicleratherthanbasedonproxiessuchasadriversage, gender,orplaceofresidence. Orconsiderthepossibilitieswhensensorsandnetworkconnections areembeddedinarentalcar:itcanbeleasedforshorttimespans
toregisteredmembersofacarservice,rentalcentersbecome unnecessary,andeachcarsusecanbeoptimizedforhigherrevenues. Zipcarhaspioneeredthismodel,andmoreestablishedcarrental companiesarestartingtofollow.Inretailing,sensorsthatnote ."'44*$.C&4$'9,*&01(1&D.('$*0&6%&("*6$&-*-;*$."64&!1$0.E&!1%&"*,4& closepurchasesbyprovidingadditionalinformationoroffering discountsatthepointofsale.MarketleaderssuchasTescoareatthe forefrontoftheseuses. Inthebusinesstobusinessmarketplace,onewellknownapplication oftheInternetofThingsinvolvesusingsensorstotrackRFID(radio /$*F#*%!5&60*%(69!1(6'%E&(1).&4,1!*0&'%&4$'0#!(.&-'+6%)&("$'#)"& supplychains,thusimprovinginventorymanagementwhilereducing workingcapitalandlogisticscosts.Therangeofpossibleusesfor trackingisexpanding.Intheaviationindustry,sensortechnologies arespurringnewbusinessmodels.Manufacturersofjetenginesretain ownershipoftheirproductswhilechargingairlinesfortheamount '/&("$#.(&#.*07&<6$4,1%*&-1%#/1!(#$*$.&1$*&;#6,06%)&16$/$1-*.&36("& networkedsensorsthatsendcontinuousdataonproductwearand teartotheircomputers,allowingforproactivemaintenanceand reducingunplanneddowntime.
Assisting human decision making through deep analysis and data visualization Examples: Oil eld site planning with 3D visualization and simulation
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6%06+60#1,.&3"'&*%(*$&$*.($6!(*0&1$*1.7&?'-*&10+1%!*0&.*!#$6(5& systemsalreadyuseelementsofthesetechnologies,butmorefar reachingapplicationsareintheworksassensorsbecomesmallerand morepowerful,andsoftwaresystemsmoreadeptatanalyzingand displayingcapturedinformation.Logisticsmanagersforairlinesand truckinglinesalreadyaretappingsomeearlycapabilitiestogetup ('A("*A.*!'%0&=%'3,*0)*&'/&3*1("*$&!'%06(6'%.:&($1/9!&41((*$%.:&1%0& vehiclelocations.Inthisway,thesemanagersareincreasingtheir abilitytomakeconstantroutingadjustmentsthatreducecongestion costsandincreaseanetworkseffectivecapacity.Inanother 144,6!1(6'%:&,13A*%/'$!*-*%(&'/9!*$.&!1%&)*(&6%.(1%(1%*'#.&01(1&/$'-& .'%6!&.*%.'$.&("1(&1$*&1;,*&('&46%4'6%(&("*&,'!1(6'%&'/&)#%9$*7
1. Process optimization
TheInternetofThingsisopeningnewfrontiersforimproving 4$'!*..*.7&?'-*&6%0#.($6*.:&.#!"&1.&!"*-6!1,&4$'0#!(6'%:&1$*& installinglegionsofsensorstobringmuchgreatergranularityto monitoring.Thesesensorsfeeddatatocomputers,whichinturn analyzethemandthensendsignalstoactuatorsthatadjustprocesses forexample,bymodifyingingredientmixtures,temperatures,or 4$*..#$*.7&?*%.'$.&1%0&1!(#1('$.&!1%&1,.'&;*&#.*0&('&!"1%)*&("*& positionofaphysicalobjectasitmovesdownanassemblyline, ensuringthatitarrivesatmachinetoolsinanoptimumposition (smalldeviationsinthepositionofworkinprocesscanjamoreven damagemachinetools).Thisimprovedinstrumentation,multiplied hundredsoftimesduringanentireprocess,allowsformajor reductionsinwaste,energycosts,andhumanintervention.
Putting the Internet of Things to work: Automation and control Process optimization
Automated control of closed (self-contained) systems
Examples: Maximization of lime kiln throughput via wireless sensors Continuous, precise adjustments in manufacturing lines
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Examples: Smart meters and energy grids that match loads and generation capacity in order to lower costs
Examples: Collision avoidance systems to sense objects and automatically apply brake Clean up of hazardous materials through the use of swarms of robots
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