Fluent Essays

First, Read the article “How Smart, Connected Products are Transforming Companies”, focusing on the section “Transforming the value chain” on pages 101-108 in the article, which is posted on the “Readings” section on Blackboard•share your thoughts regarding About 350-500 words–How has smart, connected products changed the value chain–You may discuss the impact of smart, connected products on any one of functions, such as production development, manufacturing, marketing, etc.–Give your post a title like “ Transforming marketing and sales” to highlight your post contents. how_smart__connected_products_are_transforming_competition.pdf Unformatted Attachment Preview SPOTLIGHT ON MANAGING THE INTERNET OF THINGS SPOTLIGHT ARTWORK Chris Labrooy Braun, Toaster HBR.ORG Michael E. Porter is the Bishop William Lawrence University Professor, based at Harvard Business School. James E. Heppelmann is the president and CEO of PTC, a Massachusettsbased software company that helps manufacturers create, operate, and service products. November 2014 Harvard Business Review 65 SPOTLIGHT ON MANAGING THE INTERNET OF THINGS nformation technology is revolutionizing products. Once composed solely of mechanical and electrical parts, products have become complex systems that combine hardware, sensors, data storage, microprocessors, software, and connectivity in myriad ways. These smart, connected products”—made possible by vast improvements in processing power and device miniaturization and by the network benefits of ubiquitous wireless connectivity—have unleashed a new era of competition. INSIGHT CENTER Find our monthlong series of articles on the internet of things at hbr.org/ insights/iot. Smart, connected products offer exponentially expanding opportunities for new functionality, far greater reliability, much higher product utilization, and capabilities that cut across and transcend tra­ ditional product boundaries. The changing nature of products is also disrupting value chains, forcing companies to rethink and retool nearly everything they do internally. These new types of products alter industry struc­ ture and the nature of competition, exposing com­ panies to new competitive opportunities and threats. They are reshaping industry boundaries and creating entirely new industries. In many companies, smart, connected products will force the fundam ental question, “What business am I in?” Smart, connected products raise a new set of stra­ tegic choices related to how value is created and cap­ tured, how the prodigious amount of new (and sensi­ tive) data they generate is utilized and managed, how relationships with traditional business partners such as channels are redefined, and what role companies should play as industry boundaries are expanded. The phrase “internet of things” has arisen to reflect the growing num ber of smart, connected products and highlight the new opportunities they can represent. Yet this phrase is not very helpful in understanding the phenomenon or its implications. The internet, whether involving people or things, is simply a mechanism for transmitting information. What makes smart, connected products fundamen­ tally different is not the internet, but the changing nature of the “things.” It is the expanded capabilities of smart, connected products and the data they gen­ erate that are ushering in a new era of competition. 66 Harvard Business Review November 2014 Companies m ust look beyond the technologies themselves to the competitive transformation tak­ ing place. This article, and a companion piece to be published soon in HBR, will deconstruct the smart, connected products revolution and explore its stra­ tegic and operational implications. The Third Wave of IT-Driven Competition Twice before over the past 50 years, information technology radically reshaped com petition and strategy; we now stand at the brink of a third trans­ formation. Before the advent of modern information technology, products were mechanical and activities in the value chain were performed using manual, pa­ per processes and verbal communication. The first wave of IT, during the 1960s and 1 9 7 0 s, automated individual activities in the value chain, from order processing and bill paying to computer-aided design and manufacturing resource planning. (See “How Information Gives You Competitive Advantage,” by Michael Porter and Victor Millar, HBR, July 1985.) The productivity of activities dramatically increased, in part because huge amounts of new data could be captured and analyzed in each activity. This led to the standardization of processes across companies— and raised a dilemma for companies about how to capture IT’s operational benefits while maintaining distinctive strategies. The rise of the internet, with its inexpensive and ubiquitous connectivity, unleashed the second wave of IT-driven transformation, in the 1980s and 1990s (see Michael Porter’s “Strategy and the Internet,” HBR, March 2 0 0 1 ). This enabled coordination and HOW SMART, CONNECTED PRODUCTS ARE TRANSFORMING COMPETITION HBR.ORG Idea in B rief A CHANGING ENVIRONMENT th e y do, fro m how th e y THE NEW STRATEGIC CHOICES S m art, co n nected p ro d u c ts conceive, design, and S m art, connected p ro d u cts p ro d u cts w ill force th e o ffe r e xp o n e n tia lly expanding source p ro d u cts; to how raise a new set o f strategic fu n d a m e n ta l question, o p p o rtu n itie s fo r new th e y m an u fa ctu re , operate, choices a b o u t how value ‘W h a t business am I in?” fu n c tio n a lity and c a p a b ilitie s and service th e m ; to how is created and captured, th a t tra n sce n d tra d itio n a l th e y b u ild and secure th e how com panies w o rk w ith This a rtic le provides a p ro d u c t boundaries. necessary IT in fra stru ctu re . tra d itio n a l and new partners, fra m e w o rk fo r developing and how th e y secure stra te g y and achieving p ro d u c ts is d is ru p tin g value co m p e titive advantage as co m p e titiv e advantage chains and fo rc in g com panies th e new ca p a b ilitie s reshape in a sm a rt, connected w o rld . to re th in k n early e ve rything in d u stry boundaries. For The ch a nging n a ture o f m any firm s, sm a rt, connected integration across individual activities; with out­ W h a t A re S m a rt, side suppliers, channels, and customers; and across Connected Products? geography. It allowed firms, for example, to closely Smart, connected products have three core ele­ integrate globally distributed supply chains. ments: physical components, “smart” components, The first two waves gave rise to huge productiv­ and connectivity components. Smart components ity gains and growth across the economy. While the amplify the capabilities and value of the physical value chain was transformed, however, products components, while connectivity amplifies the ca­ themselves were largely unaffected. pabilities and value of the smart components and Now, in the third wave, IT is becoming an integral enables some of them to exist outside the physical part of the product itself. Embedded sensors, proces­ product itself. The result is a virtuous cycle of value sors, software, and connectivity in products (in effect, improvement. computers are being put inside products), coupled Physical components comprise the product’s with a product cloud in which product data is stored mechanical and electrical parts. In a car, for example, and analyzed and some applications are run, are driv­ these include the engine block, tires, and batteries. ing dramatic improvements in product functionality Smart components comprise the sensors, m i­ and performance. Massive amounts of new product- croprocessors, data storage, controls, software, and, usage data enable many of those improvements. typically, an embedded operating system and en­ Another leap in productivity in the economy will hanced user interface. In a car, for example, smart be unleashed by these new and better products. In components include the engine control unit, anti­ addition, producing them will reshape the value lock braking system, rain-sensing windshields with chain yet again, by changing product design, market­ automated wipers, and touch screen displays. In ing, manufacturing, and after-sale service and by cre­ many products, software replaces some hardware ating the need for new activities such as product data components or enables a single physical device to analytics and security. This will drive yet another perform at a variety of levels. wave of value-chain-based productivity improve­ Connectivity components comprise the ports, ment. The third wave of IT-driven transformation antennae, and protocols enabling wired or wireless thus has the potential to be the biggest yet, triggering connections with the product. Connectivity takes even more innovation, productivity gains, and eco­ three forms, which can be present together: nomic growth than the previous two. • One-to-one: An individual product connects to Some have suggested that the internet of things the user, the manufacturer, or another product “changes everything,” but that is a dangerous over­ through a port or other interface—for example, simplification. As with the internet itself, smart, con­ when a car is hooked up to a diagnostic machine. nected products reflect a whole new set of techno­ • One-to-many: A central system is continuously or intermittently connected to many products simul­ logical possibilities that have emerged. But the rules of competition and competitive advantage remain taneously. For example, many Tesla automobiles the same. Navigating the world of smart, connected are connected to a single m anufacturer system products requires that companies understand these that monitors performance and accomplishes re­ rules better than ever. mote service and upgrades. N o v e m b e r 2 0 1 4 Harvard Business Review 6 7 SPOTLIGHT ON MANAGING THE INTERNET OF THINGS • M any-to-many: Multiple products connect to many other types of products and often also to external data sources. An array of types of farm equipment are connected to one another, and to geolocation data, to coordinate and optimize the farm system. For example, automated tillers inject nitrogen fertilizer at precise depths and intervals, and seeders follow, placing corn seeds directly in the fertilized soil. Some have suggested that the internet of things “changes everything,” but that is a dangerous oversimplification. The rules of competition and competitive advantage still apply. Connectivity serves a dual purpose. First, it al­ lows inform ation to be exchanged betw een the product and its operating environment, its maker, its users, and other products and systems. Second, con­ nectivity enables some functions of the product to exist outside the physical device, in what is known as the product cloud. For example, in Bose’s new Wi-Fi system, a smartphone application running in the product cloud streams music to the system from the internet. To achieve high levels of functionality, all three types of connectivity are necessary. Smart, connected products are emerging across all m anufacturing sectors. In heavy machinery, Schindler’s PORT Technology reduces elevator wait times by as much as 50\% by predicting eleva­ tor demand patterns, calculating the fastest time to destination, and assigning the appropriate elevator to move passengers quickly. In the energy sector, ABB’s smart grid technology enables utilities to ana­ lyze huge amounts of real-time data across a wide range of generating, transforming, and distribution equipment (manufactured by ABB as well as others), such as changes in the temperature of transformers and secondary substations. This alerts utility control centers to possible overload conditions, allowing 68 Harvard Business Review November 2014 adjustments that can prevent blackouts before they occur. In consumer goods, Big Ass ceiling fans sense and engage automatically when a person enters a room, regulate speed on the basis of temperature and humidity, and recognize individual user prefer­ ences and adjust accordingly. Why now? An array of innovations across the technology landscape have converged to make sm art, connected products technically and eco­ nomically feasible. These include breakthroughs in the performance, miniaturization, and energy efficiency of sensors and batteries; highly compact, low-cost computer processing power and data stor­ age, which make it feasible to put computers inside products; cheap connectivity ports and ubiquitous, low-cost wireless connectivity; tools that enable rapid software development; big data analytics; and a new IPv6 internet registration system opening up 340 trillion trillion trillion potential new internet ad­ dresses for individual devices, with protocols that support greater security, simplify handoffs as de­ vices move across networks, and allow devices to request addresses autonomously without the need for IT support. Smart, connected products require that compa­ nies build an entirely new technology infrastructure, consisting of a series of layers known as a “technol­ ogy stack” (see the exhibit “The New Technology Stack”). This includes modified hardware, software applications, and an operating system embedded in the product itself; network communications to support connectivity; and a product cloud (soft­ ware running on the manufacturer’s or a third-party server) containing the product-data database, a platform for building software applications, a rules engine and analytics platform, and smart product applications that are not embedded in the product. Cutting across all the layers is an identity and se­ curity structure, a gateway for accessing external data, and tools that connect the data from smart, connected products to other business systems (for example, ERP and CRM systems). This technology enables not only rapid product application development and operation but the col­ lection, analysis, and sharing of the potentially huge amounts of longitudinal data generated inside and outside the products that has never been available before. Building and supporting the technology stack for smart, connected products requires sub­ stantial investment and a range of new skills—such HOW SMART, CONNECTED PRODUCTS ARE TRANSFORMING COMPETITION HBR.ORG THE NEW TECHNOLOGY STACK S m art, connected products require com panies to build and support an entirely new technology infrastructure. This “technology stack” is m ade up o f m ultiple layers, including new p roduct hardw are, em b ed d ed softw are, connectivity, a product cloud consisting o f softw are running on rem ote servers, a suite o f security tools, a gatew ay fo r external inform ation sources, and integration w ith enterprise business systems. P R O D U C T C LO U D Smart Product Applications Software applications running on remote servers th a t manage the monitoring, control, optim ization, and autonomous operation o f product functions - Id e n tity an d S e c u rity Tools th a t manage user Rules/Analytics Engine The rules, business logic, and big data analytical capabilities th a t populate the algorithm s involved in product operation and reveal new p roduct insights Application Platform An application developm ent and execution environm ent enabling the rapid creation o f sm art, connected business applications using data access, visualization, and run-tim e tools authentication and system access, as w ell as secure Product Data Database A big-data database system th a t enables aggregation, normalization, and management o f real-tim e and historical product data the product, t connectivity, and product cloud layers C O N N E C T IV IT Y Network Communication E x te rn a l In fo rm a tio n Sources In te g ra tio n w ith Business S ystem s A gateway for Tools that inform ation integrate data from external from smart, sources—such as connected weather, traffic, products w ith com m odity and core enterprise energy prices, business systems social media, such as ERP, CRM, and geo­ and PLM mapping—th a t informs product capabilities The protocols th a t enable communications between the product and the cloud PRODUCT Product Software An embedded operating system, onboard software applications, an enhanced user interface, and product control components Product Hardware Embedded sensors, processors, and a connectivity port/antenna that supplem ent traditional mechanical and electrical components as software development, systems engineering, data analytics, and online security expertise—that are rarely found in manufacturing companies. W h a t C an S m a rt, C o n n e c te d P r o d u c ts Do? Intelligence and connectivity enable an entirely new set of product functions and capabilities, which can be grouped into four areas: monitoring, control, op­ timization, and autonomy. A product can potentially incorporate all four (see the exhibit “Capabilities of Smart, Connected Products”). Each capability is valuable in its own right and also sets the stage for the next level. For example, monitoring capabilities are the foundation for product control, optimization, and autonomy. A company must choose the set of ca­ pabilities that deliver its customer value and define its competitive positioning. M o n it o r i n g . Smart, connected products en ­ able the comprehensive monitoring of a product’s November 2014 Harvard Business Review 69 SPOTLIGHT ON MANAGING THE INTERNET OF THINGS condition, operation, and external environment through sensors and external data sources. Using data, a product can alert users or others to changes in circumstances or performance. Monitoring also al­ lows companies and customers to track a product’s operating characteristics and history and to better un­ derstand how the product is actually used. This data has important implications for design (by reducing overengineering, for example), market segmentation (through the analysis of usage patterns by customer type), and after-sale service (by allowing the dispatch of the right technician with the right part, thus im­ proving the first-time fix rate). Monitoring data may also reveal warranty compliance issues as well as new sales opportunities, such as the need for additional product capacity because of high utilization. In some cases, such as medical devices, monitor­ ing is the core element of value creation. Medtronic’s digital blood-glucose meter uses a sensor inserted under the patient’s skin to measure glucose levels in tissue fluid and connects wirelessly to a device that alerts patients and clinicians up to 30 minutes before a patient reaches a threshold blood-glucose level, en­ abling appropriate therapy adjustments. Monitoring capabilities can span multiple prod­ ucts across distances. Joy Global, a leading mining equipment manufacturer, monitors operating con­ ditions, safety parameters, and predictive service indicators for entire fleets of equipment far under­ ground. Joy also monitors operating parameters across multiple mines in different countries for benchmarking purposes. C o n tr o l. Smart, connected products can be con­ trolled through remote commands or algorithms that are built into the device or reside in the product cloud. Algorithms are rules th at direct the pro­ duct to respond to specified changes in its condition or environment (for example, “if pressure gets too high, shut off the valve” or “when traffic in a park­ ing garage reaches a certain level, turn the overhead lighting on or off”). Control through software embedded in the prod­ uct or the cloud allows the customization of product performance to a degree that previously was not cost CAPABILITIES OF SMART, CONNECTED PRODUCTS The c a p a b ilitie s o f s m a rt, c o n n e c te d p ro d u c ts can be g ro u p e d in to fo u r areas: m o n ito rin g , c o n tro l, o p tim iz a tio n , an d au to n o m y . Each b u ild s on th e p re c e d in g one; to have c o n tro l c a p a b ility , fo r e x a m p le , a p ro d u c t m u s t have m o n ito rin g c a p a b ility . C o n tro l m 0 M onitoring and control Sensors and external Software embedded in the data sources enable the product or in the product capabilities enable algorithm s and optim ization allows: comprehensive m onitoring of: cloud enables: th a t optimize product • Autonomous produc ... Purchase answer to see full attachment