But what does this mean for manufacturers? For those on the frontline of the “things” business it’s going to require some significant value shifts.
The efficient production of physical products has been the hallmark of manufacturers’ competitive advantage during the past 50 years. This strategy has led manufacturers to prioritize activities that maximize returns at the moment of sale.
Today’s products, however, have evolved from purely physical components to complex systems combining processors, sensors, software, and digital user interfaces that are now connected to the IoT. Technological capabilities have multiplied, enabling us to do things with a product well beyond its primary function, in turn creating new forms of value.
This transformation is shifting the sources of value and differentiation toward software, cloud, and service, and spawning entirely new business models:
Hardware to software. As manufacturers seek to accelerate product innovation and efficiently meet the growing diversity of customer demand and regulation, they increasingly turn to software. One example, the automobile now has on average 100 million lines of code to enable variable driving modes, various engine and emission configurations, adaptive cruise control, and hands-free commands.
Product to cloud. When the digital component of a product lives in the cloud, the capabilities of that product are vastly extended. Wi-Fi music systems, for instance, shift core functionality from the product to the cloud to dramatically simplify the product design, improve user experience, and better integrate with other apps and services.
Product to service. Products are now integrated with services that deliver new value throughout the entire product lifecycle or simply deliver the desired outcome via an on-demand service. Manufacturers are driven to optimize product up-time, develop value-add services, and enable operators to better manage costs. An example: aircraft engine manufacturers that sell hours of flight instead of engines.
IoT and the confluence of software, cloud technology, and services will be the crucible of innovation and the basis for differentiation for manufacturers of tomorrow.
These value shifts will require a new way of thinking, new skill sets, infrastructure, and operational models, but manufacturers who embrace the shift will unearth fresh opportunities to get ahead.
To learn more, download our eBook: The Internet of Things: How a world of smart, connected products is transforming manufacturers.