The Internet of Things won’t only change the way consumers interact with products in their daily lives, a top Harvard Business School economist says. It will alter the way companies do business in ways that are still not fully appreciated.
The IoT is driving “one of the most powerful business transformations that I’ve ever studied, let alone experienced,” said Harvard’s Michael Porter, who follows this phenomenon, at LiveWorx today. “How we run a company is going to change, very dramatically. How we organize ourselves as companies is going to be changing because of the impact of smart, connected products on the nature of work, on the nature of what companies have to do.”
Entirely new kinds of employees and organizations will be needed to respond, said Porter and Jim Heppelmann, CEO of PTC, coauthor with him of a seminal piece about connected products that appeared in the Harvard Business Review.
“In ways that frankly we didn’t understand even a year ago, this is actually going to change a lot about how we do our work inside our companies,” Porter said.
The payoff, he said, is the potential for an economic boon after a decade of comparatively lackluster business and job growth.
“What we’re seeing here is still early, but it’s the beginning of an opportunity to see another surge of economic growth and prosperity in the economy” thanks to improved efficiency and productivity, said Porter, an expert on industry competition and business strategy and the author of On Competition, who initially trained at Princeton as an aerospace engineer.
“We don’t need to fix products before they need to be a fixed anymore,” he said. “We will know to the second how much we’re using a product each day. We’re going to drive waste out of the economy in ways we’ve never really seen before. All of a sudden we use our resources better.”
First, however, Heppelmann said, companies will have to radically adapt.
“You go to bed as a manufacturing company and you wake up as a software company,” he said, paraphrasing General Electric CEO Jeffrey Immelt.
They’ll need analytics platforms, that can tell them in real time what’s happening to their products. They’ll need descriptive analytics to interpret that information. They’ll need diagnostic analytics to learn what’s causing the product to behave that way. They’ll need predictive analytics to tell them what will happen next. And they’ll need prescriptive analytics, to prevent a problem that might happen next from actually happening.
Each step is incrementally more challenging, but increasingly more powerful, Heppelmann said.
Companies that operate on the Internet of Things will also need data protection, he said, since much more is at stake in hackers controlling products than in them simply stealing information. And connected products are easier to attack, with more entry points, and harder to defend. “You can’t lock it up in a data center,” Heppelmann said.
There will need to be new corporate organizational structures, starting with data-analytics departments that largely don’t exist today, “a whole new part of the value chain we’ve never really had before,” Porter said, with new chief data officers to oversee them.
Information technology and product-development divisions will have to collaborate on new designs. “Those groups historically have been largely separate,” Porter said. “Now we have to fuse those in some very powerful new ways.”
A new “customer success management” function will be required to follow connected products through their life cycles.
The whole product-development process is in great flux,” Porter said. “What shape it’s going to take is still uncertain. But it’s going to be different.”
Conventional service departments will have to shift from being reactive to proactive, anticipating and correcting predicted failures. Marketing employees will no longer close the sale and walk away from it, but continue their work through the lifetime of the product.
“We now have to take ownership of this product forever,” Porter said. “We can’t just sell it and say, ‘We’re done.’ We’re responsible for how it works.”
A significant problem will be finding employees with skills to accomplish these things, including software development, data science, and systems systems integration—especially for companies outside of tech hubs.
“This is going to be probably one of your most interesting and important challenges to overcome,” Porter said. “The set of new skills here, particularly for a manufacturing company, is completely different”—including the ability to collaborate across departments. “There are very few people today that are trained in this discipline.”
Consumers are likely to know more about products, heightening competition.
“The customer is going to be a lot better informed about how good our product is now, how much uptime, how often it’s used, how often it fails,” Porter said. “We’re going to have an opportunity for differentiation, but we’re going to be held accountable in ways we’ve never been held accountable before.”
But companies who manage to do all of this stand to benefit proportionally, he said.
“After an era for the last 10 years in which there have been incremental improvements, all of a sudden we have an explosion of new capabilities,” Porter said. “We have an opportunity here for a very bright era. The question is, how do we capitalize on that?”
View Porter’s LiveWorx keynote.
Photo by Brian Smith