The Internet of Things (IoT) has been threatening to explode for a number of years now. Ericsson has predicted that there will be 28 billion connected devices by 2021, while other firms have gone for roughly the same number, with Gartner’s among the lowest at 20.8 billion by 2020.
Although these estimates have fallen dramatically in the past few years - many have as much as halved since 2011 - it is clear that IoT is not just hype. It is a technology that will have a profound impact on the world over the next decade. Despite this, there is still insufficient understanding of what exactly IoT means for businesses. In a 2016 Penton survey of 996 companies, just 9% of respondents stated that they were extremely familiar with the technology, while 19% reported that they had never even heard of the Internet of Things and 56% agreed with the statement that there was a lot of confusion surrounding IoT.
For many, their perception of IoT is still that of a gimmicky technology useful only for connecting toasters to coffee machines and ovens to headphones, essentially just a Wallace and Gromit-type contraption for the digital age. However, the applications for business are many. In particular, it has the potential to transform many aspects of accounting and auditing, and help finance leaders confront the challenges they face in the modern business environment.
The IoT is a fairly simple proposition to understand. It’s the concept that all of our devices and things are connected. With connected devices, an organization will be able to collect more data than ever before, which can then be mined for trends offering insight into aspects of the business like customer purchasing habits and inventory. The central challenge facing CFOs today is measuring and monitoring business performance in a timely fashion to ensure their organization can respond to events in an agile fashion and exploit every opportunity possible without too great an exposure to risk. The IoT will make it significantly easier for CFOs to do this, with data flowing into billing, enterprise resource planning, and accounting systems in real time. This will change the way that forecasting and audits are carried out, providing real-time visibility around transactions and making risks easier to pinpoint - ultimately, leading to better decisions.
There are, however, a number of things that CFOs and other finance leaders must consider before these benefits are realized.
The first thing the CFO will need to be cautious of is security issues around the IoT. The financial data that is being collected by the myriad devices at their organization’s disposal is highly important, yet there are widespread concerns around the security of data held within the IoT, with many designers forsaking it in their hunger to get products to market early. The CFO will need to work closely with the CIO to ensure all devices are capable of withstanding attacks that could detrimentally impact their organization’s dealings, and maintain constant vigilance.
‘Another issue is the ramifications around taxation, which have the potential to blindside companies that are unprepared,’ says Paul Sallomi, vice chairman and global Technology, media and telecommunications industry leader, Deloitte LLP. Companies regularly invent new ways to add value to traditional products, including enhancing connectivity. This type of business model transformation often makes product companies look more like service providers. As these types of services become an increasingly important value-add element to the equipment, manufacturers could find themselves in a different type of business
Finance leaders will need to become more tech-savvy to make the most of IoT, and work closely with CIOs and other tech leaders in their company. Fortunately, IoT is not going to come in overnight, with implementation likely to come slowly and in stages. Finance functions have already gained significant experience in data collection and predictive analytics, so should be prepared to deal with another influx, but they will need to have the understanding and strategies in place to exploit the technology, or risk falling behind those who have.