Embracing the Internet of Everything To Capture Europe’s ... · • Business leaders should begin...

Joseph Bradley Joel Barbier Doug Handler

Embracing the Internet of Everything To Capture Europe’s Share of $14.4 Trillion More Relevant, Valuable Connections Will Improve Innovation, Productivity, Efficiency & Customer Experience

Executive Summary• TheInternetofEverything(IoE)creates$14.4trillioninValueatStakeforthe

private sectorworldwide—thecombinationofincreasedrevenuesandlowercoststhatiscreatedorwillmigrateamongcompaniesandindustriesfrom2013to2022.(Cisco’sValueatStakeanalysisdoesnotincludethepublic-sectorandconsumersegments.)

• Europe’sshareoftheglobalValueatStakeis$4.3trillionforthenextdecade.1

• ThefivemainfactorsthatfuelIoEValueatStakeinEuropeare:1)assetutili-zation(reducedcosts)of$1.85trillion;2)employeeproductivity(greaterlaborefficiencies)of$1.06trillion;3)innovation(reducingtimetomarket)of$766billion;4)supplychainandlogistics(eliminatingwaste)of$440billion;and5)customerexperience(customeracquisitionandretention)of$206billion.

• Technologytrends(includingcloudandmobilecomputing,BigData,increasedprocessingpower,andmanyothers)andbusinesseconomics(suchasMet-calfe’slaw)aredrivingtheIoEeconomy.

• ThesetechnologyandbusinesstrendsareusheringintheageofIoE,creatinganunprecedentedopportunitytoconnecttheunconnected:people,process,data,andthings.Currently,99.4percentofphysicalobjectsthatmayonedaybepartoftheInternetofEverythingarestillunconnected.

• BusinessleadersshouldbegintransformingtheirorganizationsandpoliciesbasedonkeylearningsfromusecasesthatmakeupthemajorityofIoE’sValueatStake.InEurope,theseusecasesincludenext-generationworkers,smartfactories,connectedmarketingandadvertising,physicalandlogicalsecurity,andfastertimetomarket.

• Robustsecuritycapabilities(bothlogicalandphysical)andprivacypoliciesarecriticalenablersoftheInternetofEverythingEconomy.TheIoEValueatStakeprojectionsarebasedonincreasinglybroadadoptionofIoEbyprivate-sectorcompaniesoverthenextdecade.Thisgrowthcouldbeinhibitediftechnology-drivensecuritycapabilitiesarenotcombinedwithpoliciesandprocessesthatprotecttheprivacyofbothcompanyandcustomerinformation.

©2013Ciscoand/oritsaffiliates.Allrightsreserved.

BusinessleadersshouldbegintransformingtheirorganizationsbasedonkeylearningsfromusecasesthatmakeupthemajorityofIoE’sValueatStake.

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The Internet of Everything Is Happening NowCiscoestimatesthat99.4percentofphysicalobjectsarestillunconnected.2Conversely,thismeansthatonlyabout10billionofthe1.5trillionthingsgloballyareconnected.3Atamorepersonallevel,thereareapproximately200connectablethingsperpersonintheworldtoday.4Thesefactshighlightthevastpotentialofconnectingtheunconnected.

Evenso,thegrowthoftheInternethasbeenunprecedented(seeFigure1).Ciscoestimatesthattherewereabout200millionthingsconnectedtotheInternetintheyear2000.Drivenbyadvancesinmobiletechnologyandthe“bringyourowndevice”(BYOD)trend,amongothers,thisnumberhasincreasedtoapproximately10billiontoday,puttingussquarelyintheageoftheInternetofThings(IoT).ThenextwaveofdramaticInternetgrowthwillcomethroughtheconfluenceofpeople,process,data,andthings—theInternetofEverything(IoE).5

Figure 1. RapidGrowthoftheNumberofThingsConnectedtotheInternet.

Source:CiscoIBSG,2013

IoEisfurtherbeingdrivenbyseveralfactors.First,powerfultechnologytrends—includingthedramaticincreaseinprocessingpower,storage,andbandwidthatever-lowercosts(Moore’slawstillatwork);therapidgrowthofcloud,socialmedia,andmobilecomputing;theabilitytoanalyzeBigDataandturnitintoactionableinformation;andanimprovedabilitytocombinetechnologies(bothhardwareandsoftware)inmorepowerfulways—makeitpossibletorealizemorevaluefromconnectedness.

Second,barrierstoconnectednesscontinuetodrop.Forexample,IPv6overcomestheIPv4limitbyallowingfor340,282,366,920,938,463,463,374,607,431,768,211,456morepeople,processes,data,andthingstobeconnectedtotheInternet.Amazingly,IPv6createsenoughaddresscapacityforeverystarintheknownuniversetohave4.8trillionaddresses.


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ThenextwaveofdramaticInternetgrowthwillcomethroughtheconfluenceofpeople,process,data,andthings—theInternetofEverything.

Third,formfactorscontinuetoshrink.Today,acomputerthesizeofagrainofsalt(1x1x1mm)includesasolarcell,thin-filmbattery,memory,pressuresensor,andwirelessradioandantenna.Camerasthesizeofagrainofsalt(1x1x1mm)nowhave250x250-pixelresolution.And,sensorsthesizeofaspeckofdust(0.05x0.005mm)detectandcommunicatetemperature,pressure,andmovement.Thesedevelopmentsareimportantbecause,inthefuture,thingsconnectedtotheInternetmaybehardforthehumaneyetoevensee.

Finally,IoEreflectstherealitythatbusinessvaluecreationhasshiftedtothepowerofconnectionsand,morespecifically,totheabilitytocreateintelligencefromthoseconnections.Companiescannolongerrelysolelyoninternalcorecompetenciesandtheknowledgeoftheiremployees;instead,theyneedtocaptureintelligencefaster,frommanyexternalsources.ThiswilloccurthroughconnectionsenabledbytheInternetofEverything.

IoE Creates $14.4 Trillion of Value at Stake for Companies and Industries ValueatStake,accordingtoCisco,isthepotentialbottom-linevalue(higherrevenuesandlowercosts)thatcanbecreatedorwillmigrateamongcompaniesandindustriesbasedontheirabilitytoharnessIoE.CiscopredictsthattheIoEValueatStakewillbe$14.4trillionforcompaniesandindustriesworldwideinthenextdecade(seeFigure2).6Morespecifically,overthenext10years,theValueatStakerepresentsanopportunitytoincreaseglobalcorporateprofitsbyabout21percent.7

Inotherwords,between2013and2022,$14.4trillionofvalue(netprofit)willbe“upforgrabs”forenterprisesglobally—drivenbyIoE.IoEwillbothcreatenewvalueandredistribute(migrate)valueamongwinnersandlaggards,basedonhowwellcompaniestakeadvantageoftheopportunitiespresentedbyIoE.

Globally,Cisco’sanalysisshowsthatmostofthepotentialValueatStake(66percent,or$9.5trillion)comesfromtransformationbasedonindustry-specificusecasessuchassmartfactories,smartgrid,andsmartbuildings.Theother34percent,or$4.9trillion,isproducedbycross-industryusecasessuchasfastertimetomarketandbusinessprocessoutsourcing.InEurope,$2.6trillionofthepotentialValueatStakewillcomefromindustry-specificusecases,while$1.7trillionwillresultfromcross-industryusecases.

CiscocalculatedtheValueatStakebytakingabottom-upapproachconsideringthevaluecreatedbymorethan50usecasesintheprivatesectoronly—bothindustry-specificandcross-industry—andconsolidatingthemintothe21mostmaterialandvalue-generatingexamples.Top-downanalysiswasalsoperformedasacross-checktovalidatethecompletenessandorderofmagnitudeofthemorethoroughbottom-upapproach.Finally,carewastakennottodouble-countvalueacrossusecases.8

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ValueatStake...isthepotentialbottom-linevalue(higherrevenuesandlowercosts)thatcanbecreatedorwillmigrateamongcompaniesandindustriesbasedontheirabilitytoharnessIoE.

Figure 2. HowMuchValueIsatStakeforEuropeintheIoEEconomy?


Europe’s Share of Value at StakeEurope’sshareoftheValueatStakeis$4.3trillionoverthenext10years(seeFigure3).Thisrepresents30percentofthe$14.4trillionglobaltotal.Figure3alsoshowsthedegreeofbeneficialimpactbygeographicregion,asdeterminedbydividingtheValueatStakebythesizeofeachregion’seconomicoutput.

ThegeographicdistributionsofValueatStakearedrivenbyeachregion’srelativeeconomicgrowthrateandbytherelativesizeofeachindustrysectorineachregion.InEurope,ValueatStakeopportunitiesaremostprevalentinthemanufacturing,consumerspending,andbusinessservicesareas.

Figure 3. Europe’sValueatStakeMakesUp30PercentoftheGlobalTotal.


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InEurope,ValueatStakeopportunitiesaremostprevalentinthemanufacturing,consumerspending,andbusinessservicesareas.

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EuropeancompaniesthatharnessIoEbestwillreapthisvalueineitheroftwoways:

• Bycapturingnewvaluecreatedfromtechnologyinnovation

• BygainingcompetitiveadvantageandgrabbingmarketshareagainstothercompanieslessabletotransformandcapitalizeontheIoEmarkettransition9

5 Drivers Fuel IoE Value at StakeWorldwide,therearefivemaindriversofValueatStake(seeleftsideofFigure4).ThesearethesamedriversforValueatStakeinEurope(seerightsideofFigure4).TheamountofValueatStakeforeachdriverinEuropeislistedinparentheses.Withthisinformation,businessandpoliticalleaderscanbeginplanninghowtobenefitfromtheIoEEconomy.

• Asset utilization ($1.85 trillion) — IoEreducesselling,general,andadministrative(SG&A)expensesandcostofgoodssold(CoGS)byimprovingbusinessprocessexecutionandcapitalefficiency.

• Employee productivity ($1.06 trillion) — IoEcreateslaborefficienciesthatresultinfewerormoreproductiveman-hours.

• Innovation, including reducing time to market ($766 billion) — IoEincreasesthereturnonR&Dinvestments,reducestimetomarket,andcreatesadditionalrevenuestreamsfromnewbusinessmodelsandopportunities.

• Supply chain and logistics ($440 billion) — IoEeliminateswasteandimprovesprocessefficiencies.

• Customer experience ($206 billion) — IoEincreasescustomerlifetimevalueandgrowsmarketsharebyaddingmorecustomers.

Figure 4. HowMuchValueIsatStakeintheIoEEconomy?


Worldwide,therearefivemaindriversofValueatStake.ThesearethesamedriversforValueatStakeinEurope.

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Which Connections Matter Most?

IoEincludesthreetypesofconnections—machine-to-machine(M2M),person-to-machine(P2M),andperson-to-person(P2P).Combined,P2MandP2Pconnectionswillconstitute58percentofthetotalIoEValueatStakeby2022,whileM2Mconnectionsmakeuptheremaining42percent(seeFigure5).ItisimportanttonotethatwhileM2Mconnectionsarefastbecomingasizablesourceofvalue,theendresultoftheseconnectionsisultimatelytobenefitpeople.ThebottomlineisthattheIoEEconomyisaboutenablingpeopletobemoreproductiveandeffective,makebetterdecisions,andenjoyabetterqualityoflife.

Figure 5. P2MandP2PStillMakeUptheMajorityofInternetConnections.


Connectedhealthcareandpatientmonitoringprovideagreatexample.Byenrichingtheconnectionsbetweenmedicaldevicesandbothpatientsanddoctors(M2P),andamongpatientsanddoctorsthemselves(P2P),betterhospital-levelcarecanbeprovidedatpatients’homes.Thisimprovesqualityoflife,increasespositivemedicaloutcomes,andreducescostsforbothprovidersandpatients.

ThebottomlineisthattheIoEEconomyisaboutenablingpeopletobemoreproductiveandeffective,makebetterdecisions,andenjoyabetterqualityoflife.


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Real-World Use Cases Show the Impact and Potential of IoEToreceivethemostvaluefromIoE,businessleadersshouldbegintransformingtheirorganizationsbasedonkeylearningsfromusecasesthatshowhowIoEworksintherealworld.Thefiveusecasesfeaturedinthispaper,whichrepresent$2.39trillionofthe$4.3trilliontotalValueatStakeforEurope,wereselectedfortheirusefulnessinhelpingbusinessleadersdeterminehowtomoveforwardwithregardtotheircompanies.11

Eachoftheseusecasesincludesageneraldescription,theamountofcontributiontothetotalValueatStake,andacomparisonofthekeyuse-caseattributesinboth2013and2022tohighlighttheimpactofIoE.Inaddition,eachusecasedescribesthevalueofconnections,topIoEdrivers,typesofconnections,IoEtechnologyenablers,andwhethervalueiscreatedormigrated.

1. Next-generation workers: $900 billion of total Value at Stake

Next-generationworkersconsistsoffourseparateusecases:

• Telecommuting ($509 billion of Value at Stake) — allowingemployeestoremainproductiveevenwhentheyareremote.

• Mobile collaboration ($277 billion of Value at Stake) — increasingemployeecollaborationandproductivity.

• Bring your own device, or BYOD ($108 billion of Value at Stake) — increasingemployees’capacityforworkwhilereducingITtotalcostofownership(TCO).

• Virtual desktop integration, or VDI ($6 billion of Value at Stake) — loweringTCO,improvingoperationalefficiencies,andimprovingaccesstocorporateapplicationsinahighlysecureenvironment.

ToreceivethemostvaluefromIoE,businessleadersshouldbegintransformingtheirorganizationsbasedonkeylearningsfromusecasesthatshowhowIoEworksintherealworld.

2013

Current state (without IoE)

2022

Potential with IoE

BYOD: employee devices, plans, and support provided by employer; corporation is liable

BYOD: employees pay for the devices, plans, and support they want

Mobile collaboration: employees work mostly face-to-face and use multiple unconnected devices

Mobile collaboration: greater connectivity among people and mobile devices improves innovation, increases productivity

Telecommuting: commute time is expensive, unproductive, and impacts environment; local talent is scarce; work space required

Telecommuting: increased employee productivity, satisfaction; ability to hire needed expertise; reduced environmental impact

VDI: time-consuming and expensive for IT; data on devices increases security risks

VDI: lower costs; increased employee productivity; enhanced security; greater scalability

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• IoE value created: Increasedemployeeproductivityandsatisfaction;lowerCapExandOpExexpenses;reducedenvironmentalimpact;improvedsecurity

• Main IoE driver(s): Employeeproductivity,assetutilization,costreduction,supplychainandlogisticsefficiency,andinnovation

• Type of connection(s): Machine-to-machine,people-to-machine,andpeople-to-people

• IoE technology enabler(s): Cloud-basedITmanagement,VDI,smartdevices,pervasivevideo,webconferencing,unifiedcommunications,mobility,unifiedcommunications,webconferencing

• Value created or migrated: Both

Evenwiththerapidincreaseinnumberofdevices,machines,andsensorsinIoE,employeeswillcontinuetobecompanies’mostimportantasset.Infact,workerswillbecomeevenmoreimportanttohelpanalyze,manage,andmakedecisionsbasedonallofthenewdatathatwillbegatheredbyconnectingtheunconnected.Inaddition,IoEwillplayakeyroleinhelpingEuropeansworkwithothersindifferenttimezones—withoutneedingtobeintheoffice.

2. Smart factories: $574 billion of total Value at Stake

Addingconnectivitytomanufacturingprocessesandapplicationsincreasesfactoryproductivity,reducesinventorieswithreal-timeinventorysupplies,andcutsaverageproduction/supply-chainexecutionandinput-purchasecosts.

WorldwideandinEurope,smartfactoriesrepresentoneofthetwolargestusecasesintermsofValueatStake.Thevalueislargelyderivedfrommoreintelligentmachinesthatincorporatebettersensors,improvedconnectivitytoothermachines,andmoreintuitiveinterfaceswithpeople.Thesenewcapabilitiesallowmachinestobeprogrammedmoreeasilyandmakethemmoreadaptabletotheirconditionssotheycanbemoreefficientatdoingtheirwork.Inaddition,back-endconnectionstothecloudforanalyticsenablemoreeffectiveintegrationoflabor,capital,andtechnology.

WorldwideandinEurope,smartfactoriesrepresentoneofthetwolargestusecasesintermsofValueatStake.

2013

Current state (without IoE)

2022

Potential with IoE

Automated assembly machines are expensive and complicated to create and install

Reduced costs as automated tools become less expensive to manufacture and implement

Often inflexible and costly product-line changes

Revenues increase with ability to produce multiple products with variations in inputs.

Allows for greater customization of products and smaller product-line runs.

Quality controls rely on human perception and dexterity

Sensors help workers improve product quality

Reliance on low-cost manufacturing countries. Employees with IT and data interpretation skills are costly, scarce.

Socialization of knowledge flattens the skills curve; IoE maximizes access to human talent pools at lower cost

Inefficient use of key inputs for production. Lack of flexibility among assembly locations.

Reduced waste (materials, energy). Greater freedom and agility to reallocate production and optimize inputs.


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• IoE value created:Moreintelligentdesignofmachines;greatercontrolofinstrumentationandproductionconditions

• Main IoE driver(s):Assetutilization,supplychainandlogistics

• Type of IoE connection(s):Machine-to-machine

• IoE technology enabler(s): Machinedesigntools,productionsensors,employeetraining

• Value created or migrated: Migratedfrominefficientproducersandcountries

Valueinsmartfactoriesisobtainedfromcost-cutting,revenuegrowth,andbetterworkforcecollaboration.Withthisinmind,manufacturingleadersshouldaccelerateadoptionofIoEtechnologiesandconsiderinitiativesthatfocusonimprovedcollaborationamongworkerstomakeemployeesmoreefficient.

3. Connected marketing and advertising: $484 billion of total Value at Stake

BroadITandsocialapplicationsformarketingandadvertisingtransformthewaycompaniesengagewithcustomers,analyzetheirbehavior,andoptimizetheimpactoftheirinteractions.Examplesincludelocation-basedservices,viralmarketing,andmobileadvertising.

Today,itisverydifficulttocreateandimplementcohesivemarketingandadvertisingstrategiesacrossnumerousanddisparatechannels(TV,radio,Internet,pointofsale).IoEwillenablecompaniestohaveacompleteviewoftheircustomers(behaviors,preferences,demographicprofile)anddeliverindividuallytargetedmessagesandofferstothemonanydevice,atthetimeandlocationwheretheywillhavethemostbeneficialimpact.Withinthisnewparadigm,companiescanreactmorequicklybyassessingandreactingtotheirmarketsinrealtime;increaseprofitsbyofferingpricingbasedoncustomers’situationandabilitytopay;andgrowrevenuesbybundlingtheirofferingswithotherproductsandservicesbasedonaholisticassessmentofcustomers’wantsandneeds.

IoEwillenablecompaniestohaveacompleteviewoftheircustomers(behaviors,preferences,demographicprofile)anddeliverindividuallytargetedmessagesandofferstothemonanydevice,atthetimeandlocationwheretheywillhavethemostbeneficialimpact.

2013 Current state (without IoE)

2022 Potential with IoE

Missed or unidentified sales opportunities Increased sales from real-time market assessments and reactions

Inefficient geographical selling Increased sales from location-based selling

Inflexible product lines Increased sales from better use of Internet-driven “freemium” market segmentations

Lost sales due to shifting competitive pressures and poor timing

Increased sales by directly tying pricing to current selling situation and customers’ ability to pay

Little holistic assessment of customers’ wants and needs

Increased sales from improved coordination with other products and services (two-sided markets)


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• IoE value created: Assimilationandanalysisofcustomerdemographicandpurchasehistoriesfrommultiplesources

• Main IoE driver(s): Customerexperience,innovation

• Types of IoE connection(s): Machine-to-machine,person-to-machine,andperson-to-person

• IoE technology enabler(s): Cloudcomputing,BigData,real-timedecisiontools

• Value created or migrated: Both

Data-drivenbusinessagilityisalsoatthecoreofachievingtheValueatStakefromconnectedmarketingandadvertising.BusinessleadersshoulduseBigDataandcloudcomputingtoimprovedecisionmakingacrosstheircompanies.Tosucceed,everycustomer-facingdepartment,includingmarketing,sales,service,andsupport,mustbeabletoadaptmorequicklytorapidlychangingcustomerdemandsintheIoEEconomy.

4. Faster time to market: $262 billion of total Value at Stake

IoEhelpsproductdevelopmentteamscollaboratebetterwithallareasofproductionanddelivery,enablingfirst-moverbenefitsandbettercustomerrelationships.

Fastertimetomarketinvolvesbothgoodsandservices.Thevaluefromthisusecasefocusesontheever-acceleratingdiscoveryofunmetorpreviouslyunidentifiedconsumerandbusinessneeds.Togainthemostvaluefromthisusecase,businessesshouldtransformintwoways:1)useBigDatatoidentifycustomerneeds,and2)increaseagilitytobringproductsandservicestomarketmorequicklythankeycompetitors.

• IoE value created: EnablesmoreeffectivecollaborationamongproductdevelopmentandR&Dteamstodrivemorebusinessagilityandreuseofrelevantinformation

• Main IoE driver(s): Innovation

• Types of connection(s): Machine-to-machine,person-to-machine,andperson-to-person

• IoE technology enabler(s): Collaboration,video,andworkplacetools

• Value created or migrated: Both.Valuecreatedthroughfirst-moveradvantage,improvedproductquality,andmoreintimatecustomerrelationships

Data-drivenbusinessagilityisalsoatthecoreofachievingtheValueatStakefromconnectedmarketingandadvertising.



Inefficient meeting management Automated management of available resources

Subject-matter experts (SMEs) unknown, unavailable, or hard to find

Easy access to stored SME knowledge; devices enable ubiquitous access

Random product development ideation Product development ideation based on deep analysis of past successes and failures

Linear production and delivery processes with other departments (marketing, finance, etc.)

All key business departments brought early into product development process

Duplication of thought processes Best practices stored for expedient reuse


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Internalcollaborationwithinfirms’R&Dandproductiondepartments,andexternalcollaborationwithcustomers,willbenecessarytoachievetheinnovationsrequiredtogarnertheValueatStake.Smartgridandsupply-chainprocesseswillalsoneedtoberevampedsincecostcontainmentisessentialtocompetinginmarketsforgloballytradedgoods.

5. Optimized supply chain and logistics: $175 billion of total Value at Stake

Moreefficientpurchasing,delivery,storage,andbillingoperationsreducethecostsofdirectandindirectprocurement.

• IoE value created: Connectionsamongproductiondepartments(orderreceipt,supplychain,vendormanagement,inventorymanagement,accountspayable/receivable,etc.)becomeautomatedandoptimized

• Main IoE driver(s): Assetutilization/costreduction

• Types of connection(s): Machine-to-machineandperson-to-machine

• IoE technology enabler(s): Linkedsuitesofsupply-chainapplications

• Value created or migrated: Valuecreatedthroughlowercostsandimprovementsinprocessquality

Thisusecasecombinesallthebenefitsofastreamlinedpurchasinganddeliveryprocess.Thesupply-chainprocessitselfwillbeasautomatedaspossible,especiallythesupplierrelationshipmanagementaspects.Thatis,collaborationbetweenthebuyerandsellerisfinelytuned,withthesellerbeingacutelyawareofthebuyer’sproductionneedsonacontinuousbasis.Deliveriesaremadeontimeandcontainthecorrectgoods;billingisautomated;andpaymentsaremadeatthelatestpossibletimebeforepenaltychargesareincurred.Inaddition,thebuyercanchoosefromanarrayofpreapprovedsupplierswhocanmeettheseconditions,resultinginaggressivepricecompetitionamongthesesuppliers.Logisticsbenefitsarealsoincluded,wherenotonlydeliveryroutesareoptimized,butthevolumeofmaterialsthathavetobedeliveredarealsooptimized,savinginventorycosts.

Internalcollaborationwithinfirms’R&Dandproductiondepartments,andexternalcollaborationwithcustomers,willbenecessarytoachievetheinnovationsrequiredtogarnertheValueatStake.



Inefficient negotiations result in suboptimal pricing and inflexible terms

Multiple vendors result in “least-cost” pricing and more flexible, favorable terms

Frequent vendor turnover Quality vendors more easily vetted; improved supplier management techniques

Exclusive inventory and warehousing costs Lower costs due to linkages with production and older schedules

Delivery errors and inaccurate billing and payments create additional work

Back-office processes increasingly automated and optimized

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How To Get StartedWhilethescopeofIoEmayseemdaunting,thereareactuallysomeverysimplestepsyoucantaketobegincapturingyourshareoftheIoEValueatStake:

• Determine where your business is today with regard to IoE. Withthehugenumberofconnectionsthatneedtobemadeamongpeople,data,andthings,aswellasthemyriadofwaysthattheseconnectionscanaddvalue,companiesmustassesstheirstrengthsandweaknessesintheareasoftechnologyskills,businessprocessmanagement,dataanalytics,connectedness,andsecurity.

• Understand the role of IT in enabling your company to benefit from IoE. UsingITtoreducecostshasdiminishingreturns;investinginITtostrengthenandgrowthecustomerbasehasgreaterupsidepotential.

TheusecaseswiththemostValueatStakeforEuroperevealseveralcriticalIoEenablers,includingBigData,analytics,video,andtheuseofcloud-basedtechnologiesandservices.Inordertogarnerthebenefitsfromtheseenablers,investmentsshouldbeaccompaniedbychangesinacompany’sinternalculture.Someexamplesofthesechangesincludemorefact-baseddecisionmaking(bothmorefactsandmoredecisions);greatercollaborationwithteammembersfromotherdepartments;andanincreasedrelianceonthirdpartiestoexecuteandsupportnon-criticalbusinessprocesses.

• Take steps now to maximize your firm’s capabilities in the areas of security and privacy. IoEsecuritywillbeaddressedthroughnetwork-poweredtechnology:devicesconnectingtothenetworkwilltakeadvantageoftheinherentsecuritythatthenetworkprovides(ratherthantryingtoensuresecurityatthedevicelevel).Privacy,ontheotherhand,willrequirethatcompaniescombinetechnologywitheffectiveprocessesandpolicies.TobenefitfromIoE,firmswillneedtoidentifynewprivacymodelsthatmeetcompanyandcustomerexpectations.

Mostimportant,firmswillneedtoconsidertheirowninternalculturalchangesthatarenecessarytoembraceIoE.ThevalueofanyITinvestmentwillbedeterminedbythecapabilitiesitenablesoutsidetheITdepartment.TheIoEValueatStakeemanatesfromthemarketing,HR,finance,production,sales,andothercorporatedepartments.Therefore,acompany’sITdecisionsmustconsidertherequirementsofthesedepartments.Corporatepoliciesonemployment,inputsourcing,andincustomer-facingareasmayneedadjustmenttoembracetheseIoE-drivenbestpractices.

ImplicitinthisanalysisisthatEurope’seconomicgrowthwillbeincreasinglydependentonexportsandknowledge-workerproductivityinthecomingdecade.Itisimperative,therefore,thatEuropeancompaniesmaketheIoEinvestmentsthatwillenablethemtocompetesuccessfullyinglobalizedmarketsandresultinnewproductsandservicesthatwillprovideacompetitiveadvantage.Thesetransformationswillrequireincreasedamountsoftechnicaleducation,adepthofunderstandingofwhatexactlydeterminesvaluetoacustomerorenduser,andafinelytunedentrepreneur’seyetopullitalltogether.

“Youcan’twinifyoudon’tplay.Astechnologyandconnectednessacceleratethepaceofdeterminingthewinnersandlosers,preparingforIoEisnotaquestionofif,butofwhen.”

Joseph Bradley,General Manager and Senior Director,Cisco IBSG Global Research & Economics, Communications, and Planning Practices

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The Game Is on . . .Challengesaboundfortoday’sbusinessleaders.Therapidpaceofchangecreatesconfusionandmisinformation,whichoftenleadstopoordecisionmakingor,worse,inaction.Whencombinedwithpricetransparencyandglobalsupplychains,manyofthesametechnologytrendsthatareusheringintheIoEeraarealsoenablingnewentrantstobecomeviablethreatsinjustweeksandmonthsratherthanyears.

Inthisenvironment,winnersandlosersaredeterminedfasterthaneverbefore.With$14.4trillionValueatStakeglobally,IoEpresentsanimportantopportunitytoincreasemarketshare,gaincompetitiveadvantage,strengthenandgrowyourcustomerbase,andincreaseprofitability.Andbecausethestakesarehigh—over10years,companiesstandtolosemorethanayearofprofitsiftheydonotembraceIoE—thetimetoactisnow.

The authors would like to acknowledge Michael Adams, Dave Evans, Jeremy Hartman, Jeff Loucks, James Macaulay, Bob Moriarty, Ewan Morrison, Andy Noronha, Kathy O’Connell, Noelle Resare, and Cisco IBSG’s industry practices for their valuable contributions to the development of this paper.

Jointheconversation:#InternetofEverything#IoE

Endnotes1. Forthepurposesofthispaper,EuropeincludesallWestern,Central,and

EasternEuropeancountries.

2. Source:CiscoIBSG,2013.

3. Ibid.

4. Ibid.

5. CiscodefinestheInternetofEverythingasbringingtogetherpeople,process,data,andthingstomakenetworkedconnectionsmorerelevantandvaluablethaneverbefore—turninginformationintoactionsthatcreatenewcapabilities,richerexperiences,andunprecedentedeconomicopportunityforbusinesses,individuals,andcountries.

6. ValueatStakediffersfromInternetMarketSize,ortotaladdressablemarket(TAM).ValueatStakeisaforecastofthepotentialbottom-linevaluethatcanbecreatedorthatwillmigrateamongcompaniesandindustriesgloballybasedontheirabilitytoharnesstheInternetofEverythingoverthenextdecade(10-yearnetpresentvalue).Ciscoestimatesthisvalueat$14.4trillionoverthenext10years.Bycontrast,theInternetMarketSize,orTAM,isprojectedtoreach$4.1trillioninannualrevenueforallparticipatingvendorsby2016.Beyondrelevantinformationandcommunicationstechnologies(ICT),itincludese-commerceandadvertising.Ciscowill

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address$258billion(6percent)ofthisInternetmarket(source:CiscoSMO,2012).ValueatStakeincludesshiftsofbenefitsamongcompetingfirmsinanindustry;shiftsofbenefitsamongdifferentindustries;new-to-the-worldrevenuegrowthfrominnovation;costsavingsfrommoreefficientprocesses;andallowancesforimplementationcosts.ValueatStakedoes notincludeextentoflossesatfirmsthatdon’ttransform;consumerorgovernmentbenefits;socialbenefits;andvalueestimatesforreducedriskofoperations.

7. Weselectedaperiodof10yearsbecauseitisareasonableamountoftimeforcompaniestoidentify,design,andimplementchangestocapturetheirshareoftheIoEValueatStake.The$14.4trillionnumberisthenetValueatStake.ThegrossValueatStakeis$18.7trillion.Inotherwords,aninvestmentof$4.3trillionisrequiredtoachievethenetValueatStakeof$14.4trillionover10years.Inaddition,Ciscoestimatesthatthe$14.4trillioninValueatStakerepresentsanincreaseinaggregatecorporateprofitofabout21percentover10years.

8. ToillustratehowValueatStakewascalculated,we’llusetheexampleofthe“ConnectedCommercialGroundVehicles”usecase.Cisco’sanalysisconsideredtwofactors:1)lowercostsforfleetownersand2)thepotentialrevenueincreaseforserviceproviders.Wealsoprojectedthepenetrationofcommercialgroundvehiclesasapercentageofthetotalglobalcommercialfleet—fromlowerpenetrationtoday(6.3percent)toestimatedpenetrationof24.5percentby2022.Usingresearch,wethenestimatedtheIoEbenefitspercommercialvehicle(includingfuelefficiencyanddriverproductivity)at$970annually.Fromthesebenefits,wedeductedone-timeandrecurringcosts.WealsoconsideredSPrevenueopportunities.Basedonthesamepenetrationnumbers,theanalysisalsoconsiderednewrevenueopportunitiesforSPs,includingconnectivityandvalue-addedservices.ToestimatetheValueatStakeforSPs,weassumedaconservativeaveragemarginof$12-$15monthly.TheoverallValueatStakenumber—$347billion—reflectsthecombinednetpresentvalueofthebenefitsforfleetownersandserviceproviders.WebelieveCiscoistheonlycompanytotakethiskindofuse-case-driven,bottom-upapproachtoevaluatetheopportunityofferedbytheInternetofEverything.

9. Ciscoestimatesthat59percentofValueatStakewillbenewvalueresultingfromtechnologyinnovation,while41percentwillbegeneratedbycompaniescapturingmarketsharefromthecompetition.

10.Sources:GlobalInsight,AmericanProductivityandQualityCenter,U.S.BureauofEconomicAnalysis,U.S.BureauofLaborStatistics(all2012),andCiscoIBSG,2013.The18industriesmeasuredfortheamountofValueatStake,inorderofsize,include:1)manufacturing;2)retailtrade;3)informationservices;4)financeandinsurance;5)healthcare;6)educationalservices;7)professional,scientific,andtechnicalservices;8)administrativeandwastemanagementservices;9)wholesaletrade;10)arts,entertainment,andrecreation;11)otherservicesexceptgovernment;12)agriculture,forestry,fishing,andhunting;13)construction;14)transportationandwarehousing;15)managementofcompaniesandenterprises;16)realestate,rental,andleasing;17)mining;and18)utilities.

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11.The$14.4trillioninValueatStakecomprisesthefollowingusecasesandvalues:1)smartfactories,$1.95trillion;2)connectedmarketingandadvertising,$1.95trillion;3)smartgrid,$757billion;4)connectedgamingandentertainment,$634billion;5)smartbuildings,$349billion;6)connectedcommercialgroundvehicles,$347billion;7)connectedhealthcare/patientmonitoring,$106billion;8)connectedprivatecollegeeducation,$78billion;9)innovativepayments,$855billion;10)wealthmanagement,$451billion;11)improvedtimetomarket,$1.03trillion;12)businessprocessoutsourcing,$742billion;13)virtualattendants,$163billion;14)supplychaincostsavings,$697billion;15)smartfarming,$189billion;16)digitalsignage,$38billion;17)next-generationworkers(BYOD,mobilecollaboration,telecommuting,VDI),$2.16trillion;18)travelavoidance,$980billion;19)physicalandlogicalsecurity,$1.09trillion;20)next-generationretailbankbranches,$20billion;21)next-generationvendingmachines(digitalmalls),$49billion.

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