What Finance Departments Need to Know about IoT Devices

It’s happened to every finance manager or CFO: the sales, marketing or customer service department suggests incorporating Internet of Things (IoT) devices into the business for more efficient customer tracking. Or frontline managers and supply chain managers want to start using IoT devices to increase visibility into vendors and stock, or to track inventory and physical locations. As IoT devices are changing the way businesses operate, from better worker tracking to increasing visibility into the supply chain, they’re creating new challenges for CFOs and their teams. As a financial leader, it’s important to evaluate whether an investment in IoT devices is likely to generate a positive return for your company.

Asking the Right Questions about Whether IoT is Right for Your Business

As a CFO, you and your team need to understand how the Internet of Things is changing the way companies in your space operate, and also what specific questions you need to ask to determine whether IoT devices can save you money or increase profits. For example: How are IoT devices helping companies make and save money? What do finance departments need to understand about this class of technology and looking at ROI in the context of their specific businesses? What underlying infrastructure investments must you make to really capture the benefits? Each of these areas is critical and leads to one fundamental question: How can IoT devices help your company work smarter? Here’s a closer look at some definitive strategies your finance department can use to evaluate IoT for your business—and ensure that you make informed decisions regarding approving the expense requests made by other teams.

Think Blue Sky, but Find a Definitive Point of Entry

For finance professionals, perhaps the most critical element of capturing benefits from IoT devices is being able to measure return on investment. As a result, it’s important that a finance manager is able to evaluate the business case being made by other departments requesting money for IoT investments, with an eye toward ROI. Often, sales or supply chain managers get stars in their eyes when they imagine the possibilities of IoT devices. They start their process with blue sky brainstorming to think about all the potential applications for IoT across your business. From there, these managers choose one entry point based on three criteria:

  • What are your most important business objectives?
  • Where can you integrate IoT devices smoothly from a technological and process standpoint?
  • What area will allow you to quickly quantify the impact of the devices you choose?

As PTC notes, IoT devices can be used in a variety of ways, such as engineering quality assurance and remote product support. With these elements in mind, the sales or supply chain managers will craft a business case for IoT devices from a technological, strategic and financial point of view. Finance managers need to understand how these managers from across the business view IoT, and be prepared to push for clear financial justification in both the immediate and long term.

Evaluate ROI from a Range of Different Perspectives

IoT devices offer a range of different value propositions. In some cases, they help businesses save money. In others, they increase customer satisfaction or provide you with a unique advantage. For example, adding IoT devices to specific products and allowing customers to see them in transit may offer you a visibility advantage that helps win more business over time. IoT devices can also improve customer satisfaction by providing better access to information, such as real-time updates on an impending service call, or even alerting customers to the need for preventative maintenance before a component fails. As you think about how your business will measure the ROI of an investment in the IoT, it is important to be clear about how you define success, including:

  • Finding cost savings
  • Increasing visibility
  • Enhancing remote control of key processes
  • Improving the customer experience

A finance manager who understands the intangible aspects of IoT devices—such as a better customer experience and financial incentives—will be in a better position to make strategic spending approvals.

Consider Operation Improvements with IoT

While many people are familiar with the concept of a smart home, fewer may be familiar with the idea of a smart office. A good example of this technology in action is using sensors throughout a climate controlled warehouse or computer area to consistently report temperatures. Managers can use an app on their smartphone to monitor temperature fluctuations, and even adjust the thermostat based on their needs. This allows the overseeing team to have a wider scope of influence and more responsibilities, yet be dialed into their performance with a level of precision simply not possible before these tools were developed. From a finance perspective, this can help save money by preventing spoilage of inventory and reducing staff expenses for manning the warehouse. You can also pinpoint performance issues. Techtarget notes that insurance companies are using IoT devices to ensure customer compliance with regulations and to gather data. Creative integration of IoT devices into existing processes can have unexpected benefits on the operational side, including cost savings and operational efficiencies that speak directly to the bottom line.

Reduce Costs and Improve the Accuracy of Data

Companies are increasingly focused on delivering a world-class customer experience, which from a financial perspective is critical to revenue and profits. This requires access to accurate real-time data on customer behavior and preferences. Many companies have discovered it is possible to streamline their data collection efforts—and even reduce their market research budgets—by using IoT devices. One retailer is embedding IoT sensors into their price tags and coat hangers to get a better sense of customers’ post-purchase behavior. Historically, following up with customers after a purchase would require expensive surveys and analysis. While IoT devices don’t eliminate the need to talk to your market, they do provide an easy way to keep your finger on the pulse of what’s happening with your customer base. As a financial manager evaluating these requests, be aware of the potential savings.

Invest in Underlying Infrastructure

IoT devices—and interconnected IoT platforms—generate massive amounts of data. For finance managers, it’s critical to ensure you have the right network speed to maximize the benefits from your investment in these devices. For example, a network of sensors and control devices is typically connected via WiFi to a central Internet connection. If devices are consistently relaying data, there’s a need for a high-powered and always-on data connection. Downtime will take your IoT sensors offline and render them useless. At the same time, slow speeds can compromise IoT devices’ performance. Investing in a strong Internet connection based on the underlying reliability of fiber optics will ensure your investment yields a high ROI overall. As a financial manager, understanding the role that infrastructure plays in capturing the full benefits of your company’s IoT investments is imperative.

IoT devices are changing the way that companies do business, and managers are struggling to understand how IoT devices can fit within their own business’s specific ecosystem. For finance managers, your specific challenges are ensuring there is a clear business case for IoT, metrics are in place to measure success, and that the underlying infrastructure investments have been made to ensure the full benefits of the technology are captured.