In this, the final installment of a four-part interview, Jim Heppelmann, CEO of Boston-based software company PTC, looks at how the Internet of Things and smart, connected products are reshaping business models.
The IoT has meant an increased focus on product data – does this require a strategic take?
Yes, we see data and the insights derived from analytics becoming the key differentiator in a smart, connected world. This is really key to capturing the full opportunity. There are three strategic choices specific to data, first of which is: What data do I need? Capturing and analyzing data is fundamental to value creation, but also imposes costs and risks.
Variable product costs increase from additional sensors, carrier-based data transmission, and so on, and fixed costs from robust analytics capabilities and skills required to translate big data into insight. And almost any data collected brings with it the risk and burden of data stewardship to ensure that all the data is secure and protected over time.
This relates to the next data choice around how the company manages ownership and access rights to the data. Firms must determine their approach to data ownership, sharing, and transparency. For example, providing data access to upstream component suppliers may improve component quality and innovation but may lead to new competitive threats if the supplier develops value added services for the end customer using the data. The services that GE Aviation provides directly to airlines based on data collected from the aircraft engine is a real world example for Boeing and Airbus.
This brings us to the third data choice about monetizing the data. Companies may find that the data they capture is valuable to entities beyond their traditional customers, creating new services or even businesses. The challenge is in defining mechanisms that provide valuable data to third parties without alienating existing customers or increasing regulatory risks.
All of these choices seem to open up some corporate level decisions around the company’s business model and scope.
Yes, through the capabilities and data generated by smart, connected products, firms are now able to maintain direct and deep customer relationships through the products, which can reduce the need for distribution channel partners. Tesla Motors, for example, has disrupted the automotive industry by selling cars directly to consumers rather than through a dealer network. In an existing business we would only caution not to underestimate the relationship that customers may have with existing channel and service partners.
Through those same capabilities, data and direct relationships companies may be inclined to change their business model from product sales towards product-as-a-service. As customers pay for the utility of performance of the product instead of the ownership of the asset, the value of the smart, connected product improvements, like improving product quality or service efficiency, will captured by the manufacturer.
Finally, as products continue to integrate in product systems and diverse networks, many companies will have to re-examine their core mission and determine what role they want to play in these larger systems; should they attempt to provide the platform and services for the entire system or play a supporting role in a broader industry landscape?
All difficult choices, but we believe that by providing the right strategic framework and ensuring the right environment for their execution, IoT and smart, connected products will be the foundation for the next era of IT-driven productivity growth for these companies and their customers.
This interview has first published in Enterprise IoT, a digital book that analyzes and documents IoT use cases in various industries, including automotive, energy and manufacturing.
- Rethinking PLM for Smart, Connected Products
- Designing for Smart, Connected Products
- How the IoT is Changing Sales and Marketing