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The ROI of IoT: How to make the Internet of things benefit your bottom line

Published: October 12th, 2015 By: Dave Webb

We’ve examined how IoT can improve the customer experience, improve loyalty, and give a savvy organization the opportunity to deliver the right offer to the right customer at the right time. All but the latter are soft in terms of return on investment (ROI). You can see that a better customer experience has an ROI, but can you measure it?


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IoT often seems to be a retail game, where ROI should be an easy sell. But let’s start deeper than at the shop floor and build from there. We’re talking about incredible volumes of data being collected for analysis, so let’s go back to where it lives: the data centre.

“Every high-tech device in the data centre industry – storage, servers, switches, application software, or any appliance – generates copious amounts of machine data that can be analyzed to help the manufacturer gain operational and strategic insights,” says Mike Matchett, senior analyst at Tanelja Group, of the potential of IoT in the manufacturing sector. “These insights can assist in reducing costs to support customers by lowering mean time to resolution (MTTR) per case. They also enable manufacturers to build and sell specific value add services to their customers with the objective of being proactive, predictive and prescriptive in front of their top enterprise accounts. Finally, deep insights can be gleaned off this kind of machine data analytics, if done the right way, to funnel strategic information onto the future product roadmaps.”

So ROI doesn’t begin at the register; it’s deeply rooted in the organization.

Now let’s build on that. Where’s the money in the supply chain? The traditional supply chain proposition is: better product, cheaper cost, faster delivery. There’s a huge role for IoT to play in the supply chain management (SCM) game. And, in fact, it’s been playing it for years. It’s probably the first object lesson in the value of IoT.

Many years ago, I had the singular experience of a tour of Memphis International Airport after dark. After 11 p.m., the airport belongs to FedEx; it’s the major hub of its hub-and-spoke architecture, the one for which founder Frederick W. Smith failed his MBA dissertation. (I’m pretty sure his professor retired with a whole lot less money than Fred.) It’s fascinating to see, if it still looks like it did then; a maze of conveyors, automatically switched by bar code readers as pallets raced by, guided by laser to the appropriate dock for distribution across the world. Gravity—my favourite law—played a large role in the process, as did a team of “jammers”—young and lithe men with helmets and knee and elbow protection and sticks who would dive into any “jam” situation and get cargo moving again.

I don’t know if it was IP-connected—you didn’t automatically ask that back then—but whether there was an Internet connection or it was just plugged into the FedEx database, I can look back at it as a proof point for IoT in the supply chain. Devices functioning independently, analytics guiding traffic decisions. In fact, according to Deloitte, 74 per cent of companies who invested in autonomous supply chain technology like radio frequency identification (RFID) or barcoding in their supply chains saw not just a reduction in costs, but an increase in revenue.

So we’ve started at the backend of the company with two processes—data centre processing and supply chain management—which are traditionally viewed as cost centres: the bottom-line benefit is in reducing the cost. Yet IoT automation can clearly generate revenue, not just ameliorate costs. And we haven’t even gotten into the customer-facing applications of IoT.

What’s clear is that the fresh-faced, sexy applications of IoT — largely customer-facing — are not where the real ROI is. In general, in business, ROI doesn’t start with the face of the customer. These days, it’s called a conversion, apparently, but a whole lot of behind-the-shelf work goes into making that conversion. It’s always been so, and always will be. And it will always be an unrecognized source of ROI — not just because of cost amelioration, but because backend processes can generate revenue.

IoT is not a bolt-on solution. To justify the investment—which can be large—it must be embedded in every business process, not just customer-facing applications. Start from the most basic business functions and see how IoT can provide a benefit; move up through the more complex functions, one at a time, with a view to how IoT can benefit your company. Then keep moving to the customer transaction, which is really the easy part of IoT.


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