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Page 1: BENEFITS AND CHALLENGES OF IoT - iotuk.org.uk · BENEFITS AND CHALLENGES OF IoT l 2018 IoTUK SURVEY REPORT Summary The Internet of Things (IoT) is moving beyond hype to practical

BENEFITS AND CHALLENGES OF IoT

2018 IoTUK survey report

AUGUST 2018

Produced by

Page 2: BENEFITS AND CHALLENGES OF IoT - iotuk.org.uk · BENEFITS AND CHALLENGES OF IoT l 2018 IoTUK SURVEY REPORT Summary The Internet of Things (IoT) is moving beyond hype to practical

BENEFITS AND CHALLENGES OF IoT l 2018 IoTUK SURVEY REPORT2

ContentsSummary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Awareness and SME Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Enterprise IoT Use Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

IoT Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

IoT Challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Go-to-market Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Scale-up Challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11

Page 3: BENEFITS AND CHALLENGES OF IoT - iotuk.org.uk · BENEFITS AND CHALLENGES OF IoT l 2018 IoTUK SURVEY REPORT Summary The Internet of Things (IoT) is moving beyond hype to practical

BENEFITS AND CHALLENGES OF IoT l 2018 IoTUK SURVEY REPORT

Summary

The Internet of Things (IoT) is moving beyond hype to practical deployments that solve real-world problems.

Digital Catapult, on behalf of the IoTUK programme has conducted a survey of businesses involved in the IoT to get insights into the markets. This report explores our findings.

IoT is being used in a variety of use cases across multiple industries in the UK and UK enterprises are open to doing business with SMEs. Projects are delivering tangible benefits such as improving operational efficiencies and reducing costs, as well as less tangible rewards such as increasing revenues from existing and new products and improving people’s lives. SMEs plan to invest in a number of different areas in order to enhance their solution and expand their product line.

However, there are still difficulties to be overcome in getting IoT projects off the ground. SMEs with IoT products and solutions are struggling to recruit staff with the right technical skills; enterprises point to security issues as a barrier to adoption. The financial hurdles are considerable as SMEs and enterprises alike must justify the cost, rationalise the return on investment (ROI) and prove the value of each project, which will in all likelihood be competing for budget with other proposed expenditure.

At the same time, like any young and growing company, IoT SMEs face a raft of challenges related to scaling their business, from operational issues to managing cash flow and finding routes to market.

Introduction

In January 2018, as part of the IoTUK programme, Digital Catapult conducted an online and phone survey among 214 UK companies, comprising 110 SMEs (with 250 employees or less) and 104 enterprises.

The breakdown of participant numbers for the survey were as follows:

ONLINE PARTICIPANTS . . . . . . . . . 177

TELEPHONIC PARTICIPANTS . . . . . 37

The criteria for inclusion were:

●● The SMEs must currently or plan to supply, sell or manufacture IoT technology . We asked them about the key challenges they face scaling their business and getting customer projects off the ground and, as well as the benefits their solutions deliver to customers .

●● The enterprises must currently use or plan to use IoT technology . We asked them about the problems they face getting IoT projects off the ground and the benefits they are already achieving, or hope to achieve, through their IoT deployments .

Sources were given multiple drop-down answers. All percentages quoted in this report refer to the survey. We also conducted in-depth phone interviews with four UK SMEs to gain greater detail and insight around the issues: enModus, Pavegen, SPICA Technologies and Vivacity Labs. These interviews provided qualitative information and results were not included in the survey data. Details can be seen on the following page.

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BENEFITS AND CHALLENGES OF IoT l 2018 IoTUK SURVEY REPORT4

Awareness and SME Investment

Unsurprisingly, IoT awareness has grown considerably in the past three years, and investment in IoT is expected to increase in the next three years. Over half (56%) of SMEs expect their investment in IoT will rise in that period, 10% of them saying it will increase substantially.

SMEs plan to invest in a number of key areas to support the sale, supply or manufacture of their IoT solutions. Security heads the list of top-three priorities, cited by 48%

of SMEs although only 12% said it would be their number

one priority. Investment will be directed to improving the

product in a number of areas, such as the hardware

used in the solution and integration with other platforms,

services and solutions. But SMEs are not just planning

to invest in the technology behind and supporting their

product: 37% plan to invest in improving their employees’

skills and 35% in partnerships.

ENMODUS is based in Chepstow. The eight-year-old company has around 25 employees and provides smart-connected lighting and connected energy solutions for industrial, commercial and retail buildings. The primary focus is on energy savings. enModus also collects measured, sensed and telemetry data from the buildings and equipment in the buildings. The data is visualised in its cloud platform to provide insight to drive operational efficiencies, such as automating certain processes, and make buildings healthier and more comfortable for occupants with the goal of improving productivity.

VIVACITY LABS is based in London and was founded in late 2015. In 2017, it increased its workforce from 10 to nearly 30. Vivacity extracts data from video feeds gathered by smart sensors deployed on existing infrastructure, and uses machine learning to detect and classify different users. It then gains insight from the data to learn how traffic (vehicle or pedestrian) is flowing. It has road transport, rail management and smartcity applications.

PAVEGEN based in London, has developed a smart-flooring system that converts footsteps into off-grid energy that can be used to power a wide range of applications, from lighting and air quality sensors to interactive advertising campaigns. Pavegen tracks footfall data to provide insight into people movements and consumer behaviour and patterns. It has also developed a digital platform that provides rewards to users of the pavements via their smartphones and generates permission and relationship data. Pavegen has completed over 200 projects globally in places like public spaces, shopping centres, train stations and airports, in countries as diverse as Australia and Kazakhstan.

SPICA TECHNOLOGIES was set up in Birmingham in 2014 and has 15 employees. It targets the facilities management market with sensor-driven solutions that provide real-time contextualised data on building conditions including CO2 levels, temperature, lighting and occupancy. The aim is to improve the health, wellbeing and productivity of those in the buildings. There is also customer demand around compliance, as well as opportunities for cost reduction. It is a technology partner in the CityVerve (cityverve.org.uk) smart city and IoT demonstrator in Manchester.

www .enmodus .com

www .vivacitylabs .com

www .pavegen .com

www .spicatech .co .uk

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BENEFITS AND CHALLENGES OF IoT l 2018 IoTUK SURVEY REPORT

SME Investment Plans for Next 3 Years

Enterprise IoT Use Cases

The phone interviews provided useful insight into planned investment. While the sources outlined different priority areas, there was a common underlying theme of spending to enhance and extend their product offering. enModus is investing to identify further applications for its technology and will develop bridges to deliver those propositions to provide greater value to the customer. Pavegen is investing to reduce the price and increase the efficiency of its technology, as well as to boost the granularity and complexity of its data offerings. It is also looking at other technologies that can sit alongside or be integrated into its solution. SPICA is focusing investment on deriving greater value from the data it collects. It is looking to hire people who understand how to interpret the data, figure out what that data means from the business point of view, and communicate that to the customer so they can act on the results. Vivacity is researching where to take its technology next to unlock more benefits from the system and make it a more marketable product.

IoT hardware and ‘raw data’ are increasingly being

viewed as a commodity . We need to go up a level in terms

of the value we provide and deliver insights that are truly

meaningful . We will either build that advanced capability

ourselves or acquire non-technology industry expertise so

that we will be able to deploy the hardware, collect the

data and wrap it with a service to provide advanced end-

to-end solutions .

Paul Collins, Founder and Managing Director, SPICA

Another theme was investing in sales channels. Vivacity’s biggest investment in the short term will be to increase sales resources to generate more leads, while it is also in the very early stages of investigating international expansion. The next step is to explore the costs of conducting feasibility studies to identify the potential demand and specific legal and commercial

requirements of doing business in particular markets. enModus has built up a network of channel partners interested in taking its technology to market but has found they aren’t evangelising it to potential end users. It is therefore investing to increase market awareness around the technology and what it can do, in the expectation this can pull demand to its channel partners. It is also investing heavily in acquiring international certification standards to support demand coming from certain strategic partners.

Enterprise IoT Use Cases

Enterprises are already using or planning to use IoT for a wide range of use cases, with asset management and telematics clearly dominant to track and monitor vehicles, equipment and other physical assets so that they can be optimally deployed and enable applications like predictive maintenance.

A surprising result was the large number of enterprises looking at IoT to enhance the customer or citizen experience by delivering better and cheaper services more quickly. Responses came from enterprises in a wide range of industries. Insurance and retail banking are obvious markets to benefit, but sectors such as logistics and transportation also showed noteworthy interest.

A number of different people-related use cases are of interest to enterprises: crowd monitoring and management, for example, to monitor and automatically deploy field personnel; people and animal tracking through wearables and other means, such as monitoring the safety of personnel in hazardous conditions or tracking customer movements in a retail environment. Health applications involve monitoring of patient health and wellbeing, either individually or in groups.

Secu

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People

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Run-ti

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User in

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60

50

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Perc

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Asset

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Enhance

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Building m

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Envir

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Equipm

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Smart

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Crowd m

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managem

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People/

animal tr

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Smart

mete

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Smart

city i

nfrastr

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Teleh

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Infotainm

ent/s

mart

signage

5

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BENEFITS AND CHALLENGES OF IoT l 2018 IoTUK SURVEY REPORT6

IoT Benefits

The survey results show a welcome correlation between SME perceptions of the key benefits their IoT solutions enable their customers to achieve, and the value enterprises have already gained or hope to gain by deploying IoT.

Enhanced insight decision making and increasing revenues from existing products and services top the list of key current benefits, with the same importance attached to each by both SMEs and enterprises. SMEs rank increasing revenues from new products and services, reducing costs and increasing convenience slightly ahead of enterprises, while the latter put greater emphasis on improving operational efficiencies and risk mitigation.

This is an encouraging sign that SMEs are successfully targeting their products to meet enterprise needs but drilling down into the results uncovers a degree of disconnect. The widest discrepancy concerns cost reduction, which 18% of SMEs cited as the current number one benefit but was identified by half that many enterprises as such and was way down the list of the benefits they had either achieved or expected. Looking ahead three years, both SMEs and enterprises expect cost reduction to lessen in importance as a benefit, but SMEs still put it further ahead than enterprises.

The phone interviews confirmed the survey findings. Only one source said cost savings was the top benefit of their solution, but three of the four said it was in the top three. However, it is clear that these SMEs aren’t indiscriminately touting the cost reduction angle to their solution, but that it is a specific targeted benefit of their particular product or service. This is backed up when

considering the enterprise responses: 60% or more of enterprises engaged in the automotive, healthcare, and communications & IT sectors ranked cost reduction as a top-three benefit, while nearly 40% of energy sector sources said it was the number one benefit.

Another area worth highlighting is risk mitigation, which 34% of enterprises called out as a top-three benefit compared with 29% of SMEs. Again, further investigation of the survey results highlights that risk mitigation is of greater importance to specific verticals: 50% of transportation sector sources said it was the top benefit, while 63% of logistics, 58% of financial markets and 50% of manufacturing sector sources said it was a top-three benefit.

Top-Three Benefits of IoT

#1 Benefit of IoT

Enhance

d insig

ht

and dec

ision-m

aking

Increase

d reve

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from

exist

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ducts

Cost re

duction

Impro

ved oper

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effici

ence

s

Increase

d reve

nues

from

new p

roducts

Increase

d conve

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Life e

nhancing

Risk m

itigatio

n

50454035302520151050

Perc

enta

ge

SMEs Enterprises

Enhance

d insig

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and dec

ision-m

aking

Increase

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from

exist

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Cost re

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Impro

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s

Increase

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Increase

d conve

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Life e

nhancing

Risk m

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n

25

20

15

10

5

0

Perc

enta

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SMEs Enterprises

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BENEFITS AND CHALLENGES OF IoT l 2018 IoTUK SURVEY REPORT

Increasing revenues from existing products and services is a current top benefit identified by both SMEs and enterprises, but enterprises place greater importance on it moving forwards than SMEs. And while the headline numbers show SMEs believe that increasing revenues from new products and services is a greater benefit currently than enterprises, far more of the latter consider it the top expected benefit – 17% of enterprises versus just 9% of SMEs. That gap narrows looking ahead, as enterprises rank it as the number one benefit in three years while SMEs put it behind improving operational efficiencies.

A surprising result was the importance given to the life-enhancing benefits of IoT, i.e. delivering a real or perceived positive benefit to an individual’s life. While only a small proportion of SMEs and an even smaller number of enterprises said it was the number one benefit either now or would be in the future, both expect

it to rise in importance. Even more intriguing was that responses weren’t limited, as one might expect, to those in the healthcare sector. Enterprises in sectors as diverse as insurance, energy and manufacturing highlighted the life-enhancing aspect of their IoT projects.

IoT Challenges

There is a raft of challenges faced by SMEs getting their customers’ IoT projects off the ground and by enterprises implementing their own IoT projects. A key area of concern for SMEs is the ability to build the necessary expertise to manage and benefit from the solution, cited by just under half of all SMEs surveyed as being a top-three challenge. Notably, enterprises also struggle in this regard and both consider it will still be a problem in three years’ time, indicating a shortage of skillsets that is not expected to be alleviated in the short term.

#1 Benefit of IoT in 3 Years

Top-three Challenges in Deploying IoT

Enhance

d insig

ht

and dec

ision-m

aking

Increase

d reve

nues

from

exist

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Cost re

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Impro

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25

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10

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Building ex

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60

50

40

30

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Perc

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SMEs Enterprises

7

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BENEFITS AND CHALLENGES OF IoT l 2018 IoTUK SURVEY REPORT8

Enterprises highlight resolving security concerns as a significant challenge in advancing their IoT projects, an opinion not shared by SMEs: 22% of enterprises said it was the number one hurdle at present compared with 10% of SMEs. The issue moves further up the stack for SMEs in the short term but, while it will still be a concern, it will wane in importance for enterprises. The disconnect between the two extends to the issue of addressing privacy concerns. In all three metrics, enterprises place greater importance on this issue than do SMEs. The implication is that SMEs can do more to help their enterprise customers overcome security and privacy concerns.

However, this interpretation doesn’t give the whole picture. None of the sources interviewed by phone indicated security or privacy were a challenge for them. Two were asked specifically about the issues and the responses were illuminating. Both said they were very aware how high a priority security is for companies and had therefore directed considerable time, energy and money to making sure their solution was secure and in communicating that to their customers.

“Everyone is concerned about security and rightly so . We

have put a lot of thought and effort into the security of

our solution and we have engaged external consultants

to help audit our end-to-end security processes . We will

continue to focus on security because it is a critical issue

for any IoT application .”

Paul Collins, Managing Director, SPICA

Some problems relate to the size of the organisation. Enterprises struggle more with internal coordination issues than the smaller, more nimble SMEs, and the expectation is that this will continue to be an obstacle going forwards. SMEs rate inflexibility or other issues related to procurement channels or legal problems as

their number one challenge at present. However, they expect this will improve in the coming three years.

The phone interviews revealed that procurement issues are more nuanced than simply the need for large organisations to relax procurement policies to make it easier to engage with SMEs, and that SMEs will be better equipped to navigate the complexities of doing business with corporates as they grow. Enterprises are already willing to compromise on procurement requirements if the SME’s technology is something they can’t buy anywhere else or if the benefits outweigh concerns about the size of the organisation. Once the technology is proven, it can be relatively straightforward for an SME to become an approved supplier, particularly if they have a sponsor within the organisation or industry.

On the more negative side, IoT often involves a new way of thinking and service delivery, and overly prescriptive tender requirements can exclude new technology. Peter Mildon, Co-founder and Chief Operating Officer at Vivacity, wants to bid on a tender whose goals perfectly match what their technology delivers, but which stipulates specific technologies and delivery mechanisms. He has the option of applying speculatively or, a more likely scenario, partnering to offer the proscribed solution, which will counteract Vivacity’s two key selling points. He says:

Some re-education is needed in the market so people know

what technology is available and what is now possible, to

remove these kinds of barriers . We need outcome-driven

and not solution-driven procurement activity .

Unsurprisingly, cost issues present challenges for both SMEs and enterprises. Proving the value of their solution is a problem for SMEs in particular, while both cite difficulties in securing budget despite having proved the ROI, as well as justifying the overall cost

#1 Challenges in Deploying IoT#1 Challenge in Deploying IoT in 3 Years

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BENEFITS AND CHALLENGES OF IoT l 2018 IoTUK SURVEY REPORT

and ROI. IoT projects can be capital-intensive and may require a step-change in organisational thinking and business transformation. They will be competing for capital with other projects that may be easier for management to understand and quantify. And while the cost of a solution may be easy for the vendor to justify based on cost savings or other quantitative measures, there may be other less tangible benefits that are more difficult to prove.

Right now our biggest competitor isn’t anybody else in the

market, it’s internal capital competition . The MD has to

decide where best to invest the working capital . Is that in

an energy reduction programme with a 2-year ROI or in

new production equipment that will improve productivity

in the longer term?

John Wanklyn, VP Sales and Marketing, enModus

Interestingly, two of the SMEs interviewed by phone indicated they were exploring alternative finance options to provide an opex-based alternative to a big capital outlay.

I think the capital cost of hardware can put people off,

so we are committed to looking at ways in which we can

incorporate hardware costs into multi-year subscription

contracts . Having access to finance or being able to

partner to do that would really help .

Paul Collins, Managing Director, SPICA

Go-to-market Strategy

The survey provides positive news for SMEs in that 67% of enterprises will consider buying an IoT solution, or part of a solution, from an SME in the next three years. But some SMEs may miss out on this opportunity unless they rethink how they present themselves to the market. Enterprises have a clear preference for buying from a private partnership (47%) or consortium (23%), while many SMEs present themselves as a single vendor.

Just 13% of enterprises said they prefer to buy IoT services or solutions from a single vendor, below the option of building a solution internally (17%). Highlighting the gulf between the two, 46% of SMEs said they present themselves as a single vendor, 35% of which said it was the only way they go to market. Encouragingly, 52% of SMEs present themselves as a private partnership, and for 37% this is their sole means to market, but more need to take this approach if they are to win enterprise business.

Not surprisingly, enterprises consider a wide variety of factors when selecting vendors for their IoT

deployments. The number and quality of staff available to work on the project is the most important criteria but, while the vendor’s size and reputation plus previous experience in similar projects or industries are important, they fall further down the list than other considerations of a more technical nature.

On the technical front, vendor-owned IoT cloud platform services are highly desirable to support the product and deliver a complete end-to-end solution. Perhaps surprisingly, ease of integration is important, but not vital.

Our cloud platform is massively important to our

customers . It’s a key part of our end-to-end solution

delivery and continues to be a significant part of our

investment in technology development . The ability to

consolidate all the data and take advantage of cloud

computing, analytics, etc . is a big part of our vision and

value to the customer .

John Wanklyn, VP Sales and Marketing, enModus

Underlining the reluctance to rely on a single vendor, enterprises are looking for an associated ecosystem around the IoT deployment. By working as part of a partnership or wider ecosystem, SMEs can not only cater to enterprise ecosystem requirements but also address other considerations such as the availability of staff, geographic support, cloud platform services and professional services.

Scale-up Challenges

SMEs have a whole host of challenges they must meet in order to scale their business, at the same time as developing and getting their solution to market. The surveyed SMEs highlighted operational issues as their

Enterprise Criteria for IoT Vendor Selection

40

35

30

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Geogra

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Complet

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9

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BENEFITS AND CHALLENGES OF IoT l 2018 IoTUK SURVEY REPORT10

number one bugbear, although it moved further down the stack when considering the top-three challenges combined. For those sources, promoting the brand and managing cash flow were the main drag on their business.

However, this finding wasn’t backed up by those SMEs giving in-depth interviews, which all said the ability to hire and retain talent was their number one or two challenge. One source located in London and another in Birmingham outlined particular difficulties in hiring people with the right skills in highly technical areas such as data analysis or machine learning, although Chepstow-based enModus finds this less of a problem given its proximity to the Cardiff/Bristol technology cluster. Two of the four said Brexit and tighter immigration controls were a concern, and all expect the problem will persist until they are at the stage where they have large teams in place.

Far and away the biggest challenge is recruitment,

particularly in the tech sector in London at the moment

where the big US Silicon Valley companies are setting up

research bases. We have had to invest a large amount

of resource to find top quality developers. I suspect it will

continue to be a challenge, particularly given the current

climate on stricter immigration.

Peter Mildon, Co-founder and Chief Operating Officer, Vivacity

The problem isn’t limited to the recruitment of technical or engineering staff but encompasses the gamut of people needed to win and deliver a project, from pre-sales and sales through to project management and installation. The issue is that the technologies are new, the products and solutions are often highly specialised, and deployments can be complex or part of a wider project. As such, it can difficult for SMEs to brief recruiters on their specific requirements, which don’t fit into standard skills buckets.

Our biggest challenge is finding the best people across

different skillsets so we can grow our team to meet

increasing demand. It’s a new technology and a new

industry so there is no established way to find people.

Alex Johnson, Head of Communications, Pavegen

There were other differences between the surveyed and interviewed contributors. While 40% of the surveyed SMEs said finding partners and channels to market was a top-three challenge, none of those interviewed in depth said they had issues in this regard. In fact, two said the uniqueness of their technology and the benefits it delivers draw in interest from potential partners.

Scalability Challenges for SMEs

Operatio

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Gaining acc

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50454035302520151050

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Top 3 #1

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BENEFITS AND CHALLENGES OF IoT l 2018 IoTUK SURVEY REPORT

Conclusion

The survey and interviews provide welcome news that investment in IoT in the UK is on an upward trend, and that SMEs are well placed to benefit from enterprise IoT projects. However, there are some key areas some SMEs would do well to address if they are to make the most of the market opportunity:

●● Ensure you have given sufficient attention to the security of your product/solution as well as any potential issues around data privacy and communicate this to potential customers clearly and early on in the process .

●● Consider building out partnership opportunities to go to market rather than presenting yourself as a sole vendor . Enterprises are much more willing to buy from a partnership or ecosystem than a

single supplier, and a partnership approach may also help overcome other considerations such as staffing or the completeness of the solution .

●● Spend time to fully brief recruiters on your product and the specific talents and skillsets you need, not just in terms of technology but in bringing a new technology and product to market and being able to deliver a project through to completion .

●● Don’t be afraid to bid on a tender that might at first glance rule out a company of your size or your specific solution . Enterprises are willing to do business with and relax procurement rules for SMEs able to deliver a unique and/or valuable solution and may not be aware that your technology could be a new way to address the problem .

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