The Internet of Things (IoT) refers to physical objects embedded with sensors that communicate with computers. The IoT enables the physical world to be digitally monitored or controlled.
Does your house have a smart thermostat? Or maybe you’re one of the one in three Americans who wears a fitness tracker to help you stay physically active. If you do, you are tapping into the Internet of Things, or IoT. It’s become embedded in our lives, as well as in the way organizations operate.
Cindy Levy is a senior partner in McKinsey’s London office; Enno de Boer is a senior partner in the New Jersey office; Gérard Richter is a senior partner in the Frankfurt office; Mark Patel is a senior partner in the Bay Area office; and Matteo Mancini is a senior partner in the Riyadh office.
IoT uses a variety of technologies to connect the digital and physical worlds. Physical objects can be embedded with sensors and actuators. Sensors monitor things like temperature or motion, or really any change in environment. Actuators receive signals from sensors and then react to the reported changes. Sensors and actuators communicate with computing systems via wired (for example, Ethernet) or wireless (for example, Wi-Fi or cellular) networks; these computers can monitor or manage the health and actions of connected objects and machines.
The constant connectivity that IoT enables, combined with data and analytics, provides new opportunities for companies to innovate products and services, as well as to increase operational efficiency. Indeed, IoT has emerged as one of today’s most significant trends in the digital transformation of business and economies. Challenges abound, particularly when it comes to IoT cybersecurity, but we estimate the total value potential for the IoT ecosystem could reach $12.6 trillion by 2030.
An IoT device is any object that has sensors and actuators embedded within it that communicate to an external network. Broadly, IoT devices are used in the following nine fields:
Other real-world examples abound. IoT solutions are being used in a wide variety of settings: in refrigerators, to help restaurants optimize their food compliance processes; in fields and farms, to track livestock; in offices, to track how many and how often meeting rooms are used; and more.
The potential value of IoT is large and growing. By 2030, we estimate it could amount to up to $12.5 trillion globally. That includes the value captured by consumers and customers of IoT products and services.
The potential economic value of IoT varies by usage context. IoT applications in factories and in human health contexts represent outsize shares of this total. IoT in factories alone could generate up to $3.3 trillion by 2030, or just over a quarter of the total value potential. IoT economic impact in human health settings could reach about one sixth of the total estimated value.
Another way of looking at IoT’s value is to explore use case clusters, or similar uses adapted to different settings. The following common use cases account for a sizable share of IoT’s potential economic value:
Other clusters include sales enablement, energy management, autonomous vehicles (the fastest-growing cluster), and safety and security.
To get value from IoT, it helps to have a platform to create and manage applications, to run analytics, and to store and secure your data. Essentially, these platforms do a lot of things in the background to make life easier and less expensive for developers, managers, and users. They handle issues like connecting and extracting data from many different end points, which might be in inconvenient locations with spotty connectivity.
Which IoT platform you select should depend on what your company is trying to achieve with IoT. Here are five things to consider when evaluating IoT platforms:
A seamless IoT experience meets the following six requirements, spanning enterprise and consumer use cases:
The billions of IoT devices in use have naturally created new vulnerabilities for companies. As more “things” get connected, the number of ways to attack them mushrooms. Pre-IoT, a large corporate network might have had 50,000 to 500,000 endpoints vulnerable to attack; IoT may involve a network with millions or tens of millions of these endpoints. In the 2022 McKinsey B2B IoT Survey, IoT solution suppliers and buyers ranked cybersecurity as the top impediment to IoT adoption.
Overcoming the cybersecurity obstacle may be the determining factor in whether IoT will be able to transition to a truly integrated network—and achieve its massive value potential.
It’s important to address customer privacy concerns vis-à-vis connected devices. But managing IoT cybersecurity is also about protecting critical equipment, such as pacemakers or entire manufacturing plants—which, if attacked, could put customers’ health or companies’ production capabilities at risk.
Six recommendations can help CEOs and other leaders tackle IoT cybersecurity:
The Industrial Internet of Things, or IIoT, is among the advanced manufacturing technologies collectively referred to as Industry 4.0, or the Fourth Industrial Revolution.
What are some benefits of IIoT technologies? They can drastically reduce downtime, open up new business models, and improve customer experiences—and they can also make organizations more resilient. In the COVID-19 era, for example, digital management tools and constant connectivity allowed some companies to quickly respond to market changes by adjusting production capacity and simultaneously supporting remote operations.
Companies using IIoT for digital transformation in manufacturing can follow seven guideposts to align their business, organization, and technology spheres to reap the full benefits from IIoT:
When it comes to getting more value from IoT, there are tailwinds as well as headwinds that will affect IoT adoption.
Three factors could accelerate the adoption and impact of IoT solutions:
Conversely, a variety of factors could constrain adoption. These include the need for new avenues of collaboration across functions, interoperability issues, and installation challenges, as well as concerns about cybersecurity and individual privacy.
If your organization is just getting started, it can be helpful to consider what could accelerate enterprise IoT journeys. In a McKinsey interview, Wienke Giezeman, a serial tech entrepreneur and initiator of The Things Network, offers insight on what can drive action: “We’ve seen this in the industry again and again—you cannot solve IoT problems with money. It’s so tempting to try to solve these problems with cash, but really, it’s the creativity and pushing for simplicity that leads to the solution.”
To really see the benefits of IoT, companies should embrace the technology at scale, rather than make one-off efforts. If your organization is adopting IoT, here are seven useful actions for scaling IoT:
For more in-depth exploration of these topics, see McKinsey’s Insights on the Internet of Things. Learn more about IoT consulting—and check out IoT-related job opportunities if you’re interested in working at McKinsey.
This article was updated in May 2024; it was originally published in August 2022.
