New research, published in the November issue of Harvard Business Review provides a framework for understanding the new technology infrastructure companies must build and support to survive in a smart, connected world.
The article, How Smart, Connected Products Are Transforming Competition, results from a collaboration between Jim Heppelmann, president and CEO of Boston-based tech company PTC, and Michael Porter of the Harvard Business School.
The research introduces the third wave of IT-driven competition in which IT is becoming an integral part of the product itself. These smart, connected products enable an entirely new set of product functions and capabilities, but require new technology infrastructure and strategic choices.
What are smart, connected products?
Smart, connected products have three core elements: physical components, “smart” components, and connected components.
The physical components are the mechanical, electrical, and other material components, which have become necessary but insufficient to enable ongoing innovation and differentiation.
To enable new capabilities, efficient personalization and improved safety and quality, manufacturers have embedded smart components such as sensors, microprocessors and software.
Today, those smart products are increasingly becoming connected, which allows information to be exchanged with the product and for some capabilities to exist outside the physical product in a product cloud. For example, in consumer electronics company Bose’s new Wi-Fi system, a smartphone application running in the product cloud controls the music sources, sound volume, and presets.
The changing nature of products is disrupting value chains and forcing companies to rethink nearly everything they do, from how they conceive, design, and source products; to how they manufacture, operate, and service them; to how they build and secure the necessary IT infrastructure.
The new technology stack
These smart, connected products require an entirely new technology infrastructure, consisting of a series of ten layers known as a technology stack.
At the bottom of the technology stack are the modified product hardware components like embedded sensors, processors and connectivity port/antenna. An embedded operating system, software applications or enhanced user interface are part of the product software.
A layer of connectivity enables communications between the product and the cloud, which is software running on the manufacturers’ or a third-party server.
The product cloud itself is composed of four layers, a database that aggregates and normalizes the streams of new data; an application development and execution environment; a rules or analytics engine that create insights from the data; and smart, connected product applications that enable capabilities and deliver value to the manufacturer and user.
The product cloud allows for the collection, analysis, and sharing of the potentially huge amounts of data generated inside and outside of products that has never been available before.
Cutting across all the layers is an identity and security structure that secures and protects the product, connectivity and product cloud layers, a gateway connecting these layers to information from external data sources, and tools that integrate the layers with other core business systems such as ERP, CRM or PLM.
Building and supporting the technology stack for smart, connected products requires substantial investment and a range of new skills—such as software development, systems engineering, data analytics, and online security expertise—that are not traditionally core capabilities within manufacturing companies.
In the Harvard Business Review article, Heppelmann and Porter identify the strategic implications of this new technology stack. For example, should the company pursue an open or closed system or which layers of the technology infrastructure should a business develop internally or outsource?
To learn more, download the full report: How Smart, Connected Products Are Transforming Competition.
This work contains material first published in “How Smart, Connected Products Are Transforming Competition”, Harvard Business Review, November 2014.