The Internet of Things has the potential to fundamentally shift the way we interact with our surroundings. The ability to monitor and manage objects in the physical world electronically makes it possible to bring data-driven decision making to new realms of human activity—to optimize the performance of systems and processes, save time for people and businesses, and improve quality of life (see Box E1, “Defining the Internet of Things”).
From monitoring machines on the factory floor to tracking the progress of ships at sea, sensors can help companies get far more out of their physical assets—improving the performance of machines, extending their lives, and learning how they could be redesigned to do even more. With wearable devices and portable monitors, the Internet of Things has the potential to dramatically improve health outcomes, particularly in the treatment of chronic diseases such as diabetes that now take an enormous human and economic toll.
A great deal has been written about the Internet of Things in the past five years, including by McKinsey, which began publishing its research on the emerging technology in 2010.1 IoTenabled developments such as self-driving cars have captured the popular imagination, and with fitness bands to monitor physical activity and Internet-connected devices to manage HVAC systems, appliances, entertainment, and security systems, consumers are getting a glimpse of what the IoT-enabled future may bring. Manufacturers, oil and gas companies, and other businesses have already begun to see the initial payoff from IoT technologies in their operations.
And technology suppliers are ramping up IoT businesses and creating strategies to help customers design, implement, and operate complex systems—and working to fill the gap between the ability to collect data from the physical world and the capacity to capture and analyze it in a timely way. 1 See, for example, “The Internet of Things,” McKinsey Quarterly, March 2010, and Disruptive technologies: Advances that will transform life, business, and the global economy, McKinsey Global Institute, May 2013. Manufacturers, oil and gas companies, and other businesses have already begun to see the initial payoff from IoT technologies in their operations. EXECUTIVE SUMMARY
Box E1. Defining the Internet of Things
We define the Internet of Things as sensors and actuators connected by networks to computing systems. These systems can monitor or manage the health and actions of connected objects and machines. Connected sensors can also monitor the natural world, people, and animals. For the purposes of this research, we exclude systems in which all of the sensors’ primary purpose is to receive intentional human input, such as smartphone apps where data input comes primarily through a touchscreen, or other networked computer software where the sensors consist of the standard keyboard and mouse.
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2 McKinsey Global Institute Executive summary We conducted this research to examine in detail how the Internet of Things can create value, and in the process we have uncovered novel findings about how that value can be captured by companies, people, and economies. Building on our earlier work, the McKinsey Global Institute, in collaboration with McKinsey’s Telecommunications, Media, and High Technology Practice and the McKinsey Business Technology Office, analyzed more than 150 IoT use cases across the global economy. Using detailed bottom-up economic modeling, we estimated the economic impact of these applications by the potential benefits they can generate, including productivity improvements, time savings, and improved asset utilization, as well as an approximate economic value for reduced disease, accidents, and deaths. These estimates of potential value are not equivalent to industry revenue or GDP, because they include value captured by customers and consumers.