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The transformative potential of IoT as an enabler of digitalization across all industries is increasingly seizing executives’ attention. However, our partner pulse survey with Harvard Business Review Analytic Services also identified certain challenges regarding IoT that potentially hinder business leaders to kick off their digital journey.

Although three quarters of respondents said they felt under some pressure to quantify and leverage the potential of IoT benefits before their competitors get there first, only 10% were able to measure the return on investment (ROI) on most of their initiatives. Nearly half were worried about change management challenges, 45% admitted to not knowing where to start with IoT, and a majority reported they were still trying to identify potential use cases.

With the underlying imperative that technology must serve business, people and our wider society, how should leaders overcome these specific hurdles to make their IoT initiative a resounding success?

Let’s have a closer look at the top four IoT adoption challenges.

90% of executives struggle to accurately measure the return on investment (ROI) of their IoT initiatives. This is one of many common IoT challenges and issues in large and complex organizations that raise executives’ doubts in the impact and value of IoT for their businesses.

The return on investment is defined “simply” by the ratio between profit and the cost of the investment based on discounted cash-flow calculations. However, it is still a huge roadblock for leaders to accurately measure and calculate it.

How to overcome this?

The first thing to remember is that leaders should only consider starting their digitalization and IoT journey once they have established a clear business goal. Companies tend to “fall in love” with a new technology but forget about the actual business value it should bring to them. The real value of digital initiatives can be seen and assessed more clearly if executives flip the question of ROI around: Instead of looking for the ROI of a specific IoT solution, they should be asking how to calculate the ROI when using IoT to solve a business problem and create a lasting impact. Only when defining the business goal of the initiative as precisely as possible, executives will be able to accurately measure whether it will pay off in the future. The way the solution solves the business problem defines the return of the initiative.

Therefore, the investment budget always needs to consider transition costs for change management, the adaptation of processes and tools and skill development next to technical costs.

Only when taking all of these aspects into consideration, the real return of your investment will become visible. More details about accurately calculating the ROI for IoT initiatives can be found here.

To view the Key Challenges for IoT graphic in full width please click here.

As pointed out earlier, one of the main causes of failure stems from a misconception of IoT as an initiative based primarily on new technology. In truth, IoT is a people business, and the success depends on taking the employees on the journey from the start. However, executives often don’t know how to prepare their employees for what is to come.

How to overcome this?

For employees and leaders alike, some of the most challenging aspects of IoT are characterized more by the need for a cultural transformation than a technological one – this requires a structured change management approach from the very beginning. First and foremost, an integrated approach across both tangible and non-tangible elements of the transformation is needed. That means bringing together technological and process elements with social factors such as corporate and team culture. Both aspects are equally important to create employee buy-in.

Additionally, an understanding and acceptance of evolving target states – part and parcel of any digital transformation – is crucial. Here, leaders need to foster an agile mindset. During the transformation, needs and overall objectives might change unexpectedly – that’s just natural. Flexible concepts and an agile approach are needed to constantly adapt to new requirements – while not losing people along the way.

In the context of IoT projects, classic change management levers – communication, leadership, team configuration and ongoing training – have to be adapted to the digital environment. One possible starting point for change management measures is to check the employees’ readiness for change in general and digital readiness in particular. This will help to identify the organizations change capabilities and address any gaps in digital core competencies and to prepare the workforce for new and changing job requirements.

To carry the digital mindset into the organization, the successful approach of one of our clients, a leading energy equipment supplier can be adopted: the client identified digital role models in their workforce to act as ambassadors and coaches. With full access to the digital transformation strategy, their role is to report back to colleagues and help lead them through the necessary changes, meaning nobody’s left behind. In our client’s case, it gave their engineers clarity on future roles and training, and resulted in their engineers proactively engaging in the successful launch of their AI design algorithm for their parts. However, this is only one specific action that can be taken to put your employees at the core of your digital transformation journey.

Business leaders are naturally worried about the risk of cyberattacks. With more and more devices and assets connected and networked, executives are becoming more wary of an increased digital attack surface and greater vulnerability. IoT security challenges can range from customer data theft to ransomware to industrial espionage and are driven by increasing professionalization of cybercrime. As the number of vulnerabilities increases, the attack surface becomes more important to defend.

Also, connecting the OT and IT world brings along several unknown cyber challenges as the number, diversity and complexity of connections amplify: a secure linking with the cloud, the industrial control center or third-party providers need to be guaranteed while availability and connectivity of the assets need to be ensured at any time. In general, the discrepancy between the OT and IT network logic needs to be considered to define what are the challenges of IoT here.

Nearly half of respondents in our HBR study rank cybersecurity as an issue that merits close attention, and over one third report that it’s among their top concerns. 

How to overcome this?

Step one is to understand that even if a company already has complex cybersecurity defenses in place, they usually only protect the IT world. In the IoT / OT landscape there are new problems which is why companies need to adapt their approach. A common pitfall is to threaten the IT landscape by neglecting the operational technology (OT) network. This brings additional risks which the companies need to mitigate.

Companies should use the planning phase to embed security into their IoT project and establish threat risks with a full IoT risk assessment while projects are still being developed. Therefore, a risk-based approach that prioritizes vulnerabilities and threats can be the answer: Starting with prevention is crucial to make it as difficult as possible for an adversarial to break into the systems. If the cybercriminal finds a way in, companies need to detect the threat actor as fast as possible.

Especially in the IoT environment, it is essential to have a risk-driven strategy in place and create transparency over assets. Cybersecurity departments need to make sure to know, manage and track all endpoints and devices during the entire lifecycle. Weaknesses need to be identified and therefore, effective threat monitoring solutions implemented. Applying new principles like “zero trust” to control and verify all actors in the network as well as every data stream can help to prevent disruptions before they occur.

By connecting assets with digital environments and data analytics, IoT can be a main enabler for asset monitoring and tracking, effective resource management and maintenance optimization – especially in the manufacturing environment. Measures of predictive maintenance can for instance prevent factories from unplanned production downtimes and therefore, can ensure production and supply chain functioning. At the same time, data-driven decision making can optimize maintenance schedules and improve investment decisions.

However, the big initial question is: how to actually realize the connection between operational (OT) and information technology (IT) – especially for aging, proprietary manufacturing assets? Due to this difficulty, this is often believed to be one of the main IoT implementation challenges as it requires greenfield sites which hardly exist in reality. This makes business leaders doubt the business potential of IoT. Also, IoT implementation leads to more connected devices in the ecosystem causing higher asset diversity, volume and in the end complexity – especially when trying to adapt many diverse IoT technologies at the same time. Localizing even more assets in real time might be challenging as well.

How to overcome this?

Companies should apply a step-by-step, structured approach: Sensors and connectivity should be added gradually to existing machinery, allowing to harvest data and gain valuable insights one machine at a time. This gradual implementation allows executives to optimize existing assets and control costs. A carefully tested and piloted path can equip machines with IoT capability causing only minimal impact on the production line. Doing so, executives can demonstrate the overlooked value of IoT, which lies in upgrading brownfield environments consisting of older equipment step by step. Sensor monitoring, data analytics and predictive maintenance, for example, can be deployed on legacy assets without widespread risk to the production lines.

To find the right sensors and data collectors, might even require a certain amount of creativity – especially in brownfield environments. Established machinery is often hard to connect to state-of-the-art sensor technology. For example, to obtain data from a shop floor with machines not originally designed to deliver operational data, a camera system monitoring the shop floor could provide valuable data that can be further processed and evaluated, thus creating a potentially valuable use case.

The complexity and diversity of data often requires major efforts in processing and evaluating the information generated from assets. To overcome this, implementation teams that include IT experts, domain experts, and data scientists are needed. Furthermore, in complex cases, no company can do this alone, so a co-creation between different partners of an ecosystem can be the answer.

After tackling these initial hurdles, the potentials of IoT for asset management are limitless: Optimizing the OEE (Overall Equipment Efficiency) makes it possible to not only manage the physics of assets, but even their usage itself. Track & Trace solutions can be the foundation of an e2e supply chain, connecting inter- and intra-logistic. 

IoT has little value without an established business case, benefitting people and society. Here we’ve identified what are the main challenges of IoT faced by organizations and their potential solutions.

What they show is that a change in perspective of the way the ROI is calculated can reveal the true value of IoT; that the employees should not be treated as an afterthought; and that the machine assets should be digitalized gradually and creatively to maximize output whilst controlling costs and optimizing utilization. And all insulated by effective cybersecurity defenses to shield the data, assets and networks from attack while ensuring availability.

What executives can achieve by overcoming these hurdles presents an even greater prize than merely the sum of their parts: A resoundingly successful IoT project that generates benefit to the company and its stakeholders.  

With the confidence to face the challenges head-on, executives are more likely now than ever to be able to seize the significant advantages of IoT to leverage these advantages ahead of their competitors.

Now’s the time to seize the significant opportunities that digitalization offers.