Executive Summary: ISG Provider Lens™ Internet of Things (IoT) - Services and Solutions - Germany 2022
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ISG Provider Lens™ Internet of Things - Services and Solutions - Managed Services - Germany 2022
ISG Provider Lens™ Internet of Things - Services and Solutions - Strategic Consulting - Germany 2022
German companies see IoT and AI as strategic advantages.
The IoT market in Germany is showing robust growth. Companies see IoT — especially in combination with AI — as a strategic competitive advantage. Moreover, use across an enterprise provides measurable, added value. Technologies such as AI give IoT a fresh impetus, expanding its scope. However, any discussion of IoT should also include mention of challenges such as data security, lack of qualified personnel in Germany and a notion of sustainability that is only slowly taking hold.
The growing IoT market
The IoT market continues to expand in Germany, where local companies now see it as a strategic way to optimize business processes, increase product offerings, and provide a better and more intense experience to their customers. Among CEOs, Industry 4.0 is gaining importance, and topics such as digital twin technology are therefore becoming highly relevant in the manufacturing industry, particularly in logistics and product development in Germany.
Lack of qualified personnel is a challenge
The shortage of skilled labor has worsened in Germany, especially in the IT environment. In 2021, two-thirds of Germany-based companies still saw a shortage of IT specialists; before the pandemic, this figure was more than 80 percent. The pandemic has also delayed several projects and brought about a fundamental shift in the work model. Overall, inadequately skilled personnel is a major challenge for local companies. Complex projects such as the ones involving IoT are increasingly being outsourced to IT providers with nearshore and offshore capabilities.
Importance of planning IoT projects
Planning IoT projects is a must. Even today, nearly one-third of projects fail in the early proof-of-concept stage either because the implementation is too expensive or the benefits are not clearly measurable. This is especially true for large, enterprise-wide IoT use that spans multiple departments and where deployment is long term. Service providers are addressing this by offering services for proofs of concept, organizing design thinking workshops as well as providing new contract models. These include contracts that are directly dependent on the revenue of the products or processes developed, development takeovers up to productive use, extended partnerships and outsourcing of IoT developments.
Managed IoT services in high demand
The shortage of skilled labor is a powerful driver for managed IoT services. Companies are trying to ensure that they can operate and develop their extensive IoT landscapes efficiently and cost-effectively in the medium and long term. The market in Germany reflects this demand, with providers reporting doubledigit growth rates in the country. The maintenance and upkeep of extensive, often geographically dispersed IoT landscapes of sensors and peripheral devices — sometimes with very different security standards — are difficult or nearly impossible to manage for the IT departments of many companies. It is in long-term, enterprise-wide projects that managed services for IoT give customers the financial flexibility and economic benefits to design large, more comprehensive projects.
IoT is underrepresented in some industries
In Germany, IoT projects are strongly promoted by the process manufacturing and automotive industries as well as by logistics companies. Complex electronic products are increasingly being equipped with sensors, but the idea of a smart home has not yet gained importance, which is also true for the concept of a smart city. The primary reasons are a lack of understanding of the benefits, the complexity of the solutions and the need for stringent data protection and security.
To complicate matters, sectors (and segments) in which IoT offers many opportunities for optimization opportunities — such as infrastructure, agriculture, shipping and utilities — are conservative by nature and often slow to adopt new projects and technologies.
Security as a major challenge
In the first half of 2021, cyberattacks related to IoT more than doubled. Between January and June of the year alone, approximately 1.51 billion attacks were made on IoT-related devices, an increase from 639 million from the same period in 2020. Security is of great concern for both IT and business decision makers. About a third believe that attacks on IoT devices are likely to affect critical operations and 26 percent believe that data generated by IoT is exposed to security breaches and regulatory violations.
Therefore, security remains a highly relevant issue for IoT. As technology landscapes expand and become more complex, there is a corresponding increase in volume of data and a related need for transmission security, access control and determining the legality of operations. This is especially true for image-related data that make people vulnerable to exploitation. In Germany, this is a critical area and one with the potential for high conflict.
Much of the OT involved in IoT are legacy devices in which security mechanisms are minimal or non-existent. Risk mitigation strategies often cover IoT and IT, but not their integration or the networks over which data is transmitted. As a result, visibility into the actual number of devices on a network is limited, where technology components are often not updated or synchronized. The providers considered by ISG offer robust services related to IoT, but they need to be used optimally by clients.
Sustainability is not yet well developed
While sustainability is being increasingly discussed in Germany, its implementation has not yet gained momentum. Many companies and suppliers are trying to obtain information about optimizing energy consumption through the collection of relevant data and analysis. However, this is often on an ad hoc basis. In this scenario, the demand for comprehensive solutions and strategies are often only when complete changes or reorganization of entire process chains and procedures are involved. Provider offerings in this environment are diverse, ranging from one-time solutions to comprehensive consulting and solution scenarios. In view of the significant and foreseeable long-term increase in energy prices, and the additional insecurity of supply brought about by the conflict between Russia and the EU, this topic will gain importance in Germany and Europe in the short term.
Another aspect in the area of sustainability is the proliferation of electronic components in objects used in daily life. An increasing number of products, buildings and places are equipped with electronic components that often require their own power supply and must be networkable. This makes the idea of sustainability absurd.
Concurrently, sustainability in the area of the hardware used, or the recycling of components, does not seem to be a concern for companies. In this study, no vendor could be identified as addressing this dilemma proactively by offering solutions.
In 2020, new types of sensors for monitoring emerged and this trend is expected to continue across industries in 2022, with sensors becoming more affordable and being bundled in innovative ways to support new applications. At the same time, security will become more stringent with the significant improvement in remote update capabilities.
Going forward, ISG expects strong growth in the use of AI technologies in connected devices because of the many benefits of directly processing data generated through IoT at the source, including independence from connection issues, reduced latency and scalability of the solution for large volumes of data. A decisive factor here is the availability of AI-optimized processors that consume less power; new algorithms can be used on these processors to make faster and more accurate decisions with less data. Standardized AI models and algorithms for certain applications, such as speech recognition or image recognition, already exist. Further developments in this area are expected to achieve quick, measurable results in projects. These AI models will be easy to maintain and adapt to new tasks, greatly reducing the effort required to use AI, which is still underestimated today.
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