Efficiently making great products has been the hallmark of manufacturers’ competitive advantage during the past 50 years. But such production-centric strategies have begun to diminish, in part because they have become commonplace.
With a new century upon us, manufacturers are thinking about fresh sources of competitive advantage. Under these new business models, the line between products and services is blurring, with products being reconceived as “things bundled with services” or, in many cases, things delivered and consumed as a service.
For manufacturers, this means a rethinking of nearly everything, from how products are conceived, designed, and sourced to how they are produced, sold, and serviced.
The rapid rise of smart, connected products is dramatically accelerating the pace of change. Products today have evolved from purely mechanical devices to fully integrated systems of hardware and software, increasingly embedded with sensors that are reshaping how machines interact with humans, with other machines, and with manufacturers. This is good for manufacturers and their customers.
For example, auto-industry supplier Continental AG, based in Hanover, Germany, now makes windshield-wiper systems with rain-sensors and software that control how rapidly the wipers sweep across the windshield. But Continental also lets car makers connect the sensors to vehicle-control systems that tell the car to roll up the passenger windows when rain starts—great for consumers.
An analogous win for manufacturers is being generated by a “digital umbilical cord,” a persistent electronic connection to products that feeds volumes of performance and related data back to the manufacturer.
An obvious application of this concept applies to the after-sales service period. Under this scenario, the manufacturer always knows about the status of the product. Smart, connected products have the ability to help perform self-diagnostics and capture service information. Manufacturers understand how products are being used, how best to maintain them, and how best to deliver value over the course of the products’ useful lives.
Customer demands are also reshaping age-old business models. When customers buy something, they don’t just want the assurance it will either be fixed or replaced if it breaks. They want the manufacturer to have skin in the game. They’re signing contracts specifying that they will pay by the hour of operation or the amount of work done by the product. They aren’t simply paying up front for the product itself.
Take Trane, a maker of HVAC systems that is part of Ingersoll-Rand Corp. An air conditioner is a pretty basic manufactured product—fans, compressors, and sheet-metal connected to a thermostat that tells it when to turn on. But Trane’s newest HVAC systems also contain extensive digital sensor systems that are connected to its Intelligent Services Center. The center monitors buildings 24-hours a day, seven days a week, watching for systems failures or warning signs of trouble. It’s a smart, connected product, to be sure.
Using proprietary analytics and subject matter expertise, Trane is fundamentally shifting its business model to offer optimized building operations as an ongoing business service to its customers. Trane Intelligent Services resolves 30 percent of HVAC problems remotely without sending a service truck. Some 40 percent of problems are diagnosed in 30 minutes or less. This allows Trane and its customers to reduce costs.
Are smart, connected products changing the way you do business?
This post is part of an article written by Jim Heppelmann, president and CEO of PTC, discussing manufacturing transformation. Read the full article, published in Frost & Sullivan’s Manufacturing Leadership Journal.