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  3. The ROI from IoT – A Quantification Framework

The ROI from IoT – A Quantification Framework

Amit Chadha
Amit Chadha

CEO & Managing Director, L&T Technology Services Limited

Published on 31 May 2017

min read

The ROI from IoT – A Quantification Framework

When I think back, I recall countless instances of promising brands that fell prey to the vagaries of digital transformation. They failed to respond appropriately to emerging technologies and subsequently faded from the public consciousness. This goes to show the susceptibility of businesses to technological disruption and the need to remain relevant by proactively adapting to emerging innovations. Hence, I argue for the Internet of Things (IoT), a concept which has been around for a while but has just started to make its presence felt across industries. A recent paper published by IDC projects global spending on IoT devices and services to reach $1.7 trillion by 2020. With as many as 200 billion connected industrial and commercial devices coming online within the next three years, such massive investment is only to be expected.

Assessing Viability

Today, 80% of organizations have a positive outlook on IoT, and believe that it will be a key growth driver going forward. Bain’s survey paints an optimistic picture on how enterprises are moving towards assimilating IoT into their business framework. 60% of the surveyed companies are in the process of starting an IoT initiative to improve productivity and increase reliability of operations. However, 90% of these companies are still locked in the planning and proof-of-concept stage and only 20% feel that they can implement solutions at scale by 2020. Although two out of five manufacturers are busy beefing up their IoT capabilities, 31% face budgetary constraints. The problem therefore lies with building a case for return on investment (ROI) on IoT projects to convince decisions makers of their viability and profitability. Some firms use a time-bound window for realizing returns – very similar to a break-even analysis – to measure if benefits exceed cost of implementation and seek approval from top management. This explains the need to establish when returns can be expected from IoT initiatives. And, it also highlights the importance of an unconventional approach and a holistic understanding of what paybacks IoT has to offer in the interim period leading up to long-term returns.

Measuring ROI as a Factor of Maturity

Companies are eligible for substantial tax credits against IoT R&D efforts. Despite this, 58% of manufacturers report that they are not planning to claim these incentives. Worse yet, 37% say that they are not even aware of the fact that they can do so. This is surprising as the 13% tax credit on such spending can be used to offset any line item on the P&L sheet – from machine depreciation to alternative minimum tax (AMT). During the implementation phase, existing devices need to be connected to a single enterprise network. This will create a unified data stream, which can be leveraged to make dynamic efficiency adjustments to current business processes. A study commissioned by a leading telecom OEM revealed that oil and gas companies are in the process of improving their bottom line by 11%, by networking rig equipment and monitoring their functions. While aiming for immediate enterprise-wide implementation might seem like a tempting option, it is far better to develop a maturity roadmap first. Using learnings from a successful pilot project and replicating best practices across units and operations, manufacturers can meet milestones faster. This would mean eventually deploying a multiservice platform for converging discrete tasks or device-specific networks to enhance visibility, enable remote operations and diagnostics, and deliver cost benefits. The final stages of a mature IoT implementation program is marked by advanced automation and data-driven business intelligence. Predictive analytics can feed off historic and real-time IoT data to forecast failures, deliver prognoses, and schedule maintenance. In parallel, the data can be leveraged to measure asset utilization for visibility into overall equipment effectiveness (OEE) and identify areas of improvement. Improving OEE even by a margin of 10-15% can translate into a 50% increase in return on assets (ROA). In short, there is no real defined time frame within which you can expect to realize ROI for IoT projects. It happens in phases and increases with scope, scale of implementation, and maturity of the practice. Moreover, there is a remarkable difference in how and when returns can be expected based on the sector IoT is being implemented in. The benefits are measurable across industries, but needs a staged, planned approach, which is not constrained by established ROI assessment frameworks.

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Amit Chadha
Amit Chadha

CEO & Managing Director, L&T Technology Services Limited

Amit is the Chief Executive Officer & Managing Director at L&T Technology Services (LTTS), responsible for providing business & technology leadership, market direction and strategic vision to drive the company’s performance.

An influential leader in the engineering services industry for over 25 years, and one of the early proponents of engineering & information technology outsourcing services from India, Amit has amassed a wealth of international experience spanning a variety of geographies and is a trusted strategic advisor to clients on Engineering and R&D best practices.

Amit was previously Deputy CEO & Whole Time Director, running the gamut of business operations, delivery and sales & marketing at LTTS, and preparing the technology roadmap for the company’s future. Amit led LTTS’ executive management team that oversaw the organization’s business and strategy implementation.

Amit has always been passionate about helping global R&D customers and Fortune 500 companies leverage L&T Technology Services’ digital engineering offerings for their strategic differentiation and product development.

Amit is the sole ER&D sector leader in the elite NASSCOM Executive Council (IT/ITeS), guiding NASSCOM’s industry charter, helping foster out-of-the-box innovation, and promoting Intellectual Property creation in India’s tech industry.

He joined LTTS in 2009, as its Business Head of Americas. Over the years, he has progressively taken on increased responsibility for the company’s business worldwide and helped in its growth, both organically and via acquisitions.

As a core member of the LTTS leadership team, Amit was instrumental in driving the company through a high-profile Initial Public Offering (IPO) in India and successfully listing it on the National Stock Exchange and the Bombay Stock Exchange in 2016.

His career which spans over two decades in core engineering & information technology outsourcing, is marked with significant achievements. Amit has managed P&L for multiple business units, spearheaded organization-wide strategic initiatives and led business development and relationship management activities worldwide.

Amit is an electrical & electronics engineer and has been honored with the Distinguished Alumni Award for Leadership in Corporate World, Industry, Academia and Research Institutions by his alma mater, BIT Mesra in 2022. He was recognized by the Indo American Chamber of Commerce as the Corporate Leader of the Year, 2023.

Amit has done an Advanced Management Program in Business Leadership from INSEAD, France. He has also done a Global Business Leadership Executive Program with Harvard Business School Publishing.

Amit is an avid reader of both biographies and fiction and encourages his employees to nurture and expand their minds through reading. He has written extensively on Technology, Leadership and Sustainable Development. Amit is currently based out of Washington DC.

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