Embracing the Internet of Everything To Capture Japan’s Share of …€¦ · The Internet of Everything Is Happening Now Cisco estimates that 99.4 percent of physical objects are

Joseph Bradley Joel Barbier Doug Handler

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

Executive Summary• TheInternetofEverything(IoE)willcreate$14.4trillioninValueatStakeforthe

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

• Japan’sshareoftheglobalValueatStakeis$761billionoverthenext10years.Thisrepresents5percentoftheglobaltotal.

• ThefivemainfactorsthatfuelIoEValueatStakeinJapanare:1)innovation(reducingtimetomarket)of$239billion;2)customerexperience(additionofmorecustomers)of$213billion;3)supplychainandlogistics(eliminatingwaste)of$181billion;4)assetutilization(reducedcosts)of$82billion;and5)employeeproductivity(greaterlaborefficiencies)of$46billion.

• Technologytrends(includingcloudandmobilecomputing,BigData,machine-to-machinecomputing,increasedprocessingpower,andespeciallyfastandubiquitousbroadbandaccessinJapan)andbusinesseconomics(suchasMetcalfe’slaw)aredrivingtheIoEEconomy.

• TogainthemostvaluefromIoE,businessleadersshouldbegintransformingtheirorganizationsandpoliciesbasedonkeylearningsfromusecasesthataremostapplicabletoJapan.Theseusecasesincludesmartfactories,connectedmarketingandadvertising,fastertimetomarket,andsmartgrid.

• Becausethestakesarehigh—over10years,companiesstandtolosemorethanayearofprofitsiftheydonotembraceIoE—thetimetoactisnow.

• Robustsecuritycapabilities(bothlogicalandphysical)andprivacypoliciesarecriticalenablersoftheIoEEconomy.TheIoEValueatStakeprojectionsarebasedonincreasinglybroadadoptionofIoEbyprivate-sectorcompaniesoverthenextdecade.Thisgrowthcouldbeinhibitediftechnology-drivensecuritycapabilitiesarenotcombinedwithpoliciesandprocessesdesignedtoprotecttheprivacyofbothcompanyandcustomerinformation.

Page 1©2013Ciscoand/oritsaffiliates.Allrightsreserved.

TogainthemostvaluefromIoE,businessleadersshouldbegintransformingtheirorganizationsbasedonkeylearningsfromusecasesthataremostapplicabletoJapan.

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The Internet of Everything Is Happening NowCiscoestimatesthat99.4percentofphysicalobjectsarestillunconnected.1Conversely,thismeansthatonlyabout10billionofthe1.5trillionthingsgloballyareconnected.2Atamorepersonallevel,thereareapproximately200connectablethingsperpersonintheworldtoday.3Thesefactshighlightthevastpotentialofconnectingtheunconnected.

Evenso,thegrowthoftheInternethasbeenunprecedented(seeFigure1).Ciscoestimatesthattherewereabout200millionthingsconnectedtotheInternetintheyear2000.Drivenbytechnologyadvancessuchasmobilecomputing,thisnumberhasincreasedtoapproximately10billiontoday,puttingussquarelyintheageoftheInternetofThings(IoT).ThenextwaveofdramaticInternetgrowthwillcomethroughtheconfluenceofpeople,process,data,andthings—theInternetofEverything(IoE).4

Figure 1. RapidGrowthoftheNumberofThingsConnectedtotheInternet.

Source:CiscoIBSG,2013

Worldwide,IoEisbeingdrivenbyseveralfactors.First,powerfultechnologyandbusinesstrends—includingthedramaticincreaseinprocessingpower,storage,andbandwidthatever-lowercosts(Moore’slawstillatwork);therapidgrowthofcloud,socialmedia,andmobilecomputing;theabilitytoanalyzeBigDataandturnitintoactionableinformation;andanimprovedabilitytocombinetechnologies(bothhardwareandsoftware)inmorepowerfulways—makeitpossibletorealizemorevaluefromconnectedness.InJapan,animportantfactorinthepossibleeffectivenessofIoEisthecountry’snearlyubiquitousultra-high-speedbroadbandconnectivity.Japan,forexample,isplanning10-gigabitInternetspeedsintothehome,hundredsoftimesfasterthanwhatistypicallyavailableintheUnitedStates.5Thishigh-speedconnectivityisimportantbecauseitcouldspeedtheproliferationofIoE,allowingJapantoreapthebenefitsmorequicklythanothercountries.


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ThenextwaveofdramaticInternetgrowthwillcomethroughtheconfluenceofpeople,process,data,andthings—theInternetofEverything(IoE).

Second,barrierstoconnectednesscontinuetodrop.Forexample,IPv6overcomestheIPv4limitbyallowing340,282,366,920,938,463,463,374,607,431,768,211,456morepeople,data,andthingstobeconnectedtotheInternet.Amazingly,IPv6createsenoughaddresscapacityforeverystarintheknownuniversetohave4.8trillionaddresses.

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)thatcanbecreatedorwillmigrateamongprivate-sectorcompaniesandindustriesbasedontheirabilitytoharnessIoE.CiscopredictsthattheIoEValueatStakewillbe$14.4trillionworldwideinthenextdecade(seeFigure2).6Morespecifically,overthenext10years,theValueatStakerepresentsanopportunitytoincreaseglobalcorporateprofitsbyabout21percent.7

Inotherwords,between2013and2022,$14.4trillionofvalue(netprofit)willbe“upforgrabs”forenterprisesglobally—drivenbyIoE.IoEwillbothcreatenewvalueandredistribute(migrate)valueamongwinnersandlaggards,basedonhowwellcompaniestakeadvantageoftheopportunitiespresentedbyIoE.8

Globally,Cisco’sanalysisshowsthatmostofthepotentialValueatStake(66percent,or$9.5trillion)comesfromtransformationbasedonindustry-specificusecasessuchassmartfactories,smartgrid,andsmartbuildings.Theother34percent,or$4.9trillion,isproducedbycross-industryusecasessuchasfastertimetomarketandbusinessprocessoutsourcing.

TheIoEValueatStakeforJapanis$761billionoverthenext10years.Fromthisamount,$581billionwillcomefromindustry-specificusecases,while$180billionwillresultfromcross-industryusecases.

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

Figure 2. InJapan,HowMuchValueIsatStakeintheIoEEconomy?


JapanesecompaniesthatharnessIoEbestwillreapthisvalueineitheroftwoways:

• Bycapturingnewvaluecreatedfromtechnologyinnovation

• BygainingcompetitiveadvantageandgrabbingmarketshareagainstothercompanieslessabletotransformandcapitalizeontheIoEmarkettransition9

5 Drivers Fuel IoE Value at StakeWorldwide,therearefivemaindriversofValueatStake(seeleftsideofFigure3).ThesearethesamedriversforValueatStakeinJapan(seerightsideofFigure3).TheamountofValueatStakeforeachdriverinJapanislistedinparentheses.Withthisinformation,businessandpoliticalleaderscanbeginplanninghowtobenefitfromtheIoEEconomy.

• Innovation, including reduced time to market ($239 billion) — IoEincreasesthereturnonR&Dinvestments,reducestimetomarket,andcreatesadditionalrevenuestreamsfromnewbusinessmodelsandopportunities.

• Customer experience, including the addition of more customers ($213 billion) —IoEincreasescustomerlifetimevalueandgrowsmarketsharebyaddingmorecustomers.

• Supply chain and logistics, including waste elimination ($181 billion) — IoEeliminateswasteandimprovesprocessefficiencies.

• Asset utilization, including reduced costs ($82 billion) — IoEreducesselling,general,andadministrative(SG&A)expensesandcostofgoodssold(CoGS)byimprovingbusinessprocessexecutionandcapitalefficiency.

• Employee productivity, including greater labor efficiencies ($46 billion) — IoEcreateslaborefficienciesthatresultinfewerormoreproductiveman-hours.

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JapanesecompaniesthatharnessIoEbestwillreapthisvalueineitheroftwoways:bycapturingnewvaluecreatedfromtechnologyinnovation,orbygainingcompetitiveadvantageandgrabbingmarketshareagainstothercompanieslessabletotransformandcapitalizeontheIoEmarkettransition.


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Figure 3. Japan’sValueatStakeComparedwiththeGlobalTotal.


Inaddition,tobenefitfromIoE,firmsmustcombinetechnology-enabledsecuritycapabilities(bothlogicalandphysical)withpoliciesandprocessesdesignedtoprotecttheprivacyofcompanyandcustomerinformation.IoE’sgrowthpotentialintheprivatesectoroverthenextdecadewillrelyheavilyuponthesuccessofcompanies’securityandprivacyefforts.

Which Connections Matter Most?

Bydefinition,IoEincludesthreetypesofconnections—machine-to-machine(M2M),person-to-machine(P2M),andperson-to-person(P2P).Combined,P2MandP2Pconnectionswillconstitute55percentofthetotalIoEValueatStakeby2022whileM2Mconnectionsmakeuptheremaining45percent(seeFigure4).ItisimportanttonotethatwhileM2Mconnectionsarefastbecomingasizablesourceofvalue,theendresultoftheseconnectionsisultimatelytobenefitpeople.ThebottomlineisthattheIoEEconomyisaboutenablingpeopletobemoreproductiveandeffective,makebetterdecisions,andenjoyabetterqualityoflife.

Figure 4. InJapan,M2MConnectionsWillPlayaBiggerRolethanintheRestoftheWorld.


Bydefinition,IoEincludesthreetypesofconnections—machine-to-machine(M2M),person-to-machine(P2M),andperson-to-person(P2P).



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InJapan,M2Mconnectionswillplayamoreimportantrolethanintherestoftheworld.ThisisbecauseM2MconnectionswillallowJapantoaddressitsuniquechallenges.AccordingtotheMinistryofInternalAffairsandCommunicationsinJapan,M2Mishelpfulinaddressingthefollowingneeds10:

• Higherefficiencyofservicesandmanufacturingbyautomation

• Strongerindustrialcompetitivenessthroughtechinnovation

• Moreelderly-friendlinessintransportation,housing,andutilities

• Fasterdecisionmakingandinformationsharingindisasters

• Moreeffectiveresponsestoenergyblackouts

Thesecanbeaccomplishedbydeliveringthefollowingcapabilities:

• Creativity,flexibility,anddiversityforservicesandmanufacturing

• Observabilityandcontrollabilityofsocialandenvironmentalimpacts

• Timelyanalysisanddecisionmakinginhandlingdisasters

• Self-adaptingandself-healingforvitalinfrastructures(forexample,energyandtransportation)

Real-World Use Cases Show the Impact and Potential of IoEToreceivethemostvaluefromIoE,businessandpoliticalleadersinJapanshouldbegintransformingtheirorganizationsandpoliciesbasedonkeylearningsfromusecasesthatshowhowIoEworksintherealworld.Thefourusecasesfeaturedinthispaperrepresent$375billionofthe$761billiontotalValueatStakeforJapan.TheusecasesarelistedinorderoftheamountofValueatStakedelivered(highesttolowest).

Interestingly,therelativecontributionsofusecasestotheValueatStakeforJapandifferwidelyfromthoseoftherestoftheworld.ThisisduetotheuniquechallengesandopportunitiescompaniesandindustriesfaceinJapan,includingthecountry’sagingpopulation,adeflationaryeconomy,largegovernmentdeficits,energysupplydisruptions,andapredominantlyexport-basedeconomy.

Eachoftheseusecasesincludesageneraldescription,theamountofcontributiontoJapan’stotalValueatStake,andacomparisonofthekeyuse-caseattributesinboth2013and2022tohighlighttheimpactofIoE.Inaddition,eachusecasedescribesthevalueofconnections,topIoEdrivers,typesofconnections,IoEtechnologyenablers,andwhethervalueiscreatedormigrated.

Interestingly,therelativecontributionsofusecasestotheValueatStakeforJapandifferwidelyfromthoseoftherestoftheworld.

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1. Smart factories: $139 billion of total Value at Stake

Addingconnectivitytomanufacturingprocessesandapplicationsincreasesfactoryproductivity,reducesinventorieswithreal-timeinventorysupplies,andcutsproductionandsupply-chaincosts.Thevaluefromsmartfactoriesislargelyderivedfrommoreintelligentmachinesthatincorporatebettersensors,improvedconnectivitytoothermachines,andmoreintuitiveinterfaceswithpeople.Thesenewcapabilitiesallowmachinestobeprogrammedmoreeasilyandmakethemmoreadaptabletotheirconditionssotheycanbemoreefficientatdoingtheirwork.Inaddition,back-endconnectionstothecloudforanalyticsenablemoreeffectiveintegrationoflabor,capital,andtechnology.

WhilesmartfactoriesrepresentoneofthetwolargestusecasesintermsofValueatStakeworldwide,theamountofvalueforJapanislowerthanthatoftherestoftheworld.ThisisbecauseJapanalreadyhasoneofthemostadvancedmanufacturingindustriesintheworld.GainsfromsmartfactoriesinJapanwillcomelargelyfromimprovedprocessesthatbuildonthecountry’salreadyimpressivemanufacturinginfrastructure.

Overall,thevaluefromsmartfactoriesislargelyderivedfrommoreintelligentmachinesthatincorporatebettersensors,improvedconnectivitytoothermachines,andmoreintuitiveinterfaceswithpeopletomakethemmoreeffectiveattheirjobs.Thesenewcapabilitiesallowmachinestobeprogrammedmoreeasilyandmakethemmoreadaptabletotheirconditionssotheycanbemoreefficientatdoingtheirwork.Inaddition,back-endconnectionstothecloudforanalyticsenablemoreeffectiveintegrationoflabor,capital,andtechnology.

• IoE value created:Moreintelligentdesignofmachines;greatercontrolofinstrumentationandproductionconditions

• Main IoE driver(s):Assetutilization,supplychain,andlogistics

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

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

• Value created or migrated: Migratedfrominefficientproducersandcountries

WhilesmartfactoriesrepresentoneofthetwolargestusecasesintermsofValueatStakeworldwide,theamountofvalueforJapanislowerthanthatoftherestoftheworld.

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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InJapan,valueinsmartfactoriesisobtainedfromcost-cuttingandrevenuegrowth.Withthisinmind,manufacturingleadersshouldaccelerateadoptionofIoEtechnologiesandconsiderinitiativesthatnotonlyreducecosts,butaddflexibilitytotheproductionprocesstoimprovecustomerresponsiveness.

2. Connected marketing and advertising: $107 billion of total Value at Stake

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

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

• 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

IoEwillenablecompaniestohaveacompleteviewoftheircustomers(behaviors,perferences,demographicprofile)anddeliverindividuallytargetedmessagesandofferstothemonanydeviceatthetimeandlocationwheretheywillhavethemostbeneficialimpact.

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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Data-drivenbusinessagilityisalsoatthecoreofachievingtheValueatStakefromconnectedmarketingandadvertising.LeadersshouldfocusonIoEinitiativesthatutilizeJapan’smostimportanttechnologyasset—thecountry’sultra-high-speedbroadbandnetwork.Inaddition,businessleadersshoulduseBigDataandcloudcomputingtoimprovedecisionmakingacrosstheircompanies.Tosucceed,everycustomer-facingdepartment,includingmarketing,sales,service,andsupport,mustbeabletoadaptmorequicklytorapidlychangingcustomerdemandsintheIoEEconomy.

3. Faster time to market: $71 billion of total Value at Stake

IoEhelpsproductdevelopmentteamscollaboratebetterwithallareasofproductionanddelivery,enablingfirst-moverbenefitsandbettercustomerrelationships.

Fastertimetomarketinvolvesbothgoodsandservices.Thevaluefromthisusecasefocusesonthediscoveryonunmetorpreviouslyunidentifiedconsumerandbusinessneeds.Togainthemostvaluefromthisusecase,businessesshouldtransformintwoways:1)useBigDatatoidentifycustomerneeds,and2)increaseagilitytobringproductsandservicestomarketmorequicklythankeycompetitors.ThisusecaseisespeciallyimportantforJapan’smacroeconomicgrowthsinceitcanbringnewcategoriesofconsumerspendingand/orgrowthinnewexportmarkets.

• 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

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

LeadersshouldfocusonIoEinitiativesthatutilizeJapan’smostimportanttechnologyasset—thecountry’sultra-high-speedbroadbandnetwork.

2013 Current state (without IoE)

2022 Potential with IoE

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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4. Smart grid: $58 billion of total Value at Stake

Aneffectivesmartgridusesnetworkconnections—fromproductiontocustomers—tobetterunderstanduserbehaviorandimprovethereliability,economics,andsustainabilityoftheproductionanddistributionofelectricity.

Utilitycompaniestodaytypicallyoperateona“besteffort”infrastructure:theygenerateandplaceenergyontheelectricalgridwithouttakingfulladvantageoftheirassets.Thismakesthegridvulnerabletofaultsandallowsonlyforaone-wayflowofelectricity—fromproducerstoconsumers.Inaddition,thesystemisinefficientbecausepowergenerationcannotbeeasilyadaptedtofast-changingenergyusagecycles.Finally,energyinfrastructuresarevulnerabletonaturaldisasters,asevidencedbythetremendousdevastationcausedtoJapan’snuclearpowerfacilitiesduetothe2011earthquakeandtsunami.

• IoE value created: Connectssensing,measurement,andcontrolsinrealtimetoimprovesupplyanddemandalignment,increasereliability,andreducecosts

• Main IoE driver(s): Supplychainandlogisticsefficiency

• Type of connection(s): Primarilymachine-to-machine

• IoE technology enabler(s):Integratednetworkarchitecture,smartsensorsandmeters,privatecloudcomputing,andsecuritytechnology

• Value created or migrated:Netreductioninenergycostsforallprivatesectorstakeholders

IoEwillimprovetheelectricgridbyautomaticallydetectingandrepairingproblems,controllingelectricalflowsbasedonreal-timedemand,improvinggeneratorutilization,andenablingmoresustainableenergysourcessuchaswindandsolarpower.

IoEwillimprovetheelectricgridbyautomaticallydetectingandrepairingproblems,controllingelectricalflowsbasedonreal-timedemand,improvinggeneratorutilization,andenablingmoresustainableenergysourcessuchaswindandsolarpower.

2013

Current state (without IoE)

2022

Potential with IoE

Vulnerable to breakdowns, security threats, and natural disasters

Automated detection and self-healing improves reliability of the electricity network

One-way electricity flow Ability to shape the flow of electricity enables more flexibility and distributed power generation capabilities

Production calibrated only for peak demand, requiring reserves and causing inefficiencies

Demand-side management improves generator utilization and grid efficiencies

Variability in renewable energy sources prevents widespread adoption

Enables more sustainable energy sources such as wind and solar to contribute to the power grid

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How To Get StartedWhilethescopeofIoEmayseemdaunting,thereareactuallysomeverysimplestepsyoucantaketobegincapturingyourshareoftheIoEValueatStake:

• Determine where your business is today with regard to IoE. Withthehugenumberofconnectionsthatneedtomadeamongpeople,data,andthings,companiesmusthaveanadvancedITinfrastructureandanalyticalskills.

• Understand the role of IT in enabling your company to benefit from IoE. UsingITtoreducecostshasdiminishingreturns.Ontheotherhand,investinginITtostrengthenandgrowthecustomerbasehasnearlylimitlessupsidepotential.

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

Mostimportant,firmswillneedtoconsidertheirowninternalculturalchangesthatarenecessarytoembraceIoE.ThevalueofanyITinvestmentwillbedeterminedbythecapabilitiesitenablesoutsidetheITdepartment.IoEValueatStakeemanatesfromthemarketing,HR,finance,production,sales,andothercorporatedepartments.Therefore,acompany’sITdecisionsmustconsidertherequirementsofthesedepartments.Corporatepoliciesonemployment,input-sourcing,andincustomer-facingareasmayneedadjustmenttoembracetheseIoE-drivenbestpractices.

JapanwillneedtomaketheinvestmentsrequiredtoachieveIoE-driveneconomicgrowthasmeansofcopingwithitsdeflationandtospurrevenuesthatcanhelpreducethecountry’slargegovernmentdeficits.Itisimperative,therefore,thatcompaniesandindustriesmakeproductivity-driveninvestmentsthatresultinnewproductsandservicesthatprovideacompetitiveadvantageandincreasecustomerdemand.Inaddition,increasedamountsoftechnicaleducation,includinglanguageskills,willbeaprerequisiteforthiseconomicshifttooccur.

DespiteJapanrankingasthetopcountryinmanyoftheWorldEconomicForumGlobalCompetitivenessbusinesssophisticationindexes,Japanranks42ndforventurecapitalavailabilityand134thforhiringandfiringpractices.11ForJapantocapturethepromiseofIoE,accesstocapitalmarketsmustbewidened(especiallyfornewerandsmallerbusinesses),andlabormarketreformsneedtobeputinplacetoencouragethemovementofemployeeswithkeyskills.

ForJapantocapturethepromiseofIoE,accesstocapitalmarketsmustbewidened(especiallyfornewerandsmallerbusinesses),andlabormarketreformsneedtobeputinplacetoencouragethemovementofemployeeswithkeyskills.

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

Inthisenvironment,winnersandlosersaredeterminedfasterthaneverbefore.With$761billionofValueatStakeinJapanoverthenextdecade,IoEpresentsanimportantopportunitytoovercomemanyofthecountry’schallenges,includinganagingpopulation,adeflationaryeconomy,largegovernmentdeficits,energysupplydisruptions,andapredominantlyexport-basedeconomybyhelpingcompaniesandindustriesincreasemarketshare,gaincompetitiveadvantage,improveefficiencies,andgrowprofitability.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, and Noelle Resare for their valuable contributions to the development of this paper.

Jointheconversation:#InternetofEverything#IoE

Endnotes1. Source:CiscoIBSG,20132. Ibid.3. Ibid.4. CiscodefinestheInternetofEverythingasbringingtogetherpeople,

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

5. Source:Knowledge@Wharton,May2012.6. ValueatStakediffersfromInternetMarketSize,ortotaladdressable

market(TAM).ValueatStakeisaforecastofthepotentialbottom-linevaluethatcanbecreatedorwillmigrateamongcompaniesandindustriesgloballybasedontheirabilitytoharnesstheInternetofEverythingoverthenextdecade.Ciscoestimatesthisvalueat$14.4trillionoverthenext10years.Bycontrast,theInternetMarketSize,orTAM,isprojectedtoreach$4.1trillioninannualrevenueforallparticipatingvendorsby2016.Beyondrelevantinformationandcommunicationstechnologies(ICT),itincludese-commerceandadvertising.Ciscowilladdress$258billion(6percent)ofthisInternetmarket(source:CiscoSMO,2012).ValueatStake

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With$761billionofValueatStakeinJapanoverthenextdecade,IoEpresentsanimportantopportunitytoovercomemanyofthecountry’schallenges,includinganagingpopulation,adeflationaryeconomy,largegovernmentdeficits,energysupplydisruptions,andapredominantlyexport-basedeconomybyhelpingcompaniesandindustriesincreasemarketshare,gaincompetitiveadvantage,improveefficiencies,andgrowprofitability.

includesshiftsofbenefitsamongcompetingfirmsinanindustry;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. Tobeasaccurateaspossible,CiscocalculatedtheValueatStakebytakingabottom-upapproachconsideringthevaluecreatedbymorethan50usecasesintheprivatesectoronly—bothindustry-specificandcross-industry—andconsolidatingthemintothe21mostmaterialandvalue-generatingexamples.Top-downanalysiswasalsoperformedasacross-checktovalidatethecompletenessandorderofmagnitudeofthemorethoroughbottom-upapproach.Finally,carewastakennottodouble-countvalueacrossusecases.WebelieveCiscoistheonlycompanytotakeabottom-upapproachwhenevaluatingtheopportunityofferedbytheInternetofEverything.ItisimportanttonotethatCiscoisfocusingontheamountofprivatesectorValueatStaketomakethefindingsandinsightsasapplicableaspossibleforbusinessesandindustries.Whileasignificantnumberonitsown,the$14.4trilliondoesnotincludepotentialValueatStakefromtheconsumerorpublicsectors,orfromsocietalbenefitsthatarebeyondthescopeofthisanalysis.

9. Ciscoestimatesthat59percentofValueatStakewillbenewvalueresultingfromtechnologyinnovation,while41percentwillbegeneratedbycompaniescapturingmarketsharefromthecompetition.

10.Source:MinistryofInternalAffairsandCommunications(MIC),Japan,October2011.

11.WorldEconomicForumGlobalCompetitivenessReport,2012-2013.

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