Creating New Value with Connected Products and Systems

Creating New Value with Connected Products and Systems

The Harvard Business Review article, How Smart, Connected Products Are Transforming Competition, identifies ten strategic choices manufacturers must make to capitalize on the Internet of Things.

In this tenth, and last installment of a series of video interviews, the article’s co-author Jim Heppelmann explores ways to create new value with connected products and product systems in the IoT.

What new value can be created through product systems?

If you think about how smart, connected products work, they’re part physical and part digital, and much of the digital part runs in the cloud where it could be shared across many, formerly discrete products. Now products that used to be standalone actually share information that could optimize how they work together.

For example, in the HBR article, we talked about a farm equipment example, where the data from the equipment that harvests the grain in the Fall could be stored in a database. And this information about productivity per area of land could be used to inform the tillage equipment that injects fertilizer and the planting equipment that tries to put the seeds exactly where the fertilizer was injected. This is a case where equipment working together improves the performance of each piece of equipment, versus similar equipment working completely independently without shared information.

When companies think about, “Should I create a product system or a system of systems?” there are a couple of key questions to think about. First, “Is there a way that my products, when working together, could create more value than they create when working stand alone?” That’s the first key question.

The second key question is, “Is my company in a position to provide the platform that integrates these different formerly independent products together?” or “Should I think about joining somebody else’s product family?” Of course the risk there is that your products become a commodity in a value proposition from some other company. What really happens though is when companies start thinking about this particular question, they realize, “We need to really rethink, what is our corporate purpose? What business am I in? Do I provide tractors or am I focused on farm productivity?” It’s a very interesting question.

Recommendation

So our recommendation is to realize that entry into adjacent markets with related products always involves some risk and some need for new capabilities and new skills.

We think it’s important that a company carefully identify a clear value proposition for what you’re going to do by expanding your offering. And then you need to think about whether this dilutes your focus on the core business, your focus on your customers, and your focus on the brand. Or does it actually add value?

And then finally, we’d say be very cautious not to outrun your supply line. This line of thinking is a bit of a slippery slope, and it convinces customers to expand more and more. And suddenly, they might find themselves competing with system integrators and asking, “Why are you here?” and a system integrator saying, “Because this is really a system integration problem. Why are you here?” So it’s a great opportunity, but one that I think needs to be pursued very, very carefully.

Learn More:

In their upcoming October 2015 Harvard Business Review article, How Smart, Connected Products Are Transforming Companies, co-authors PTC CEO, Jim Heppelmann, and Harvard Business School Professor, Michael Porter, will focus on the impact of smart, connected products on companies’ operations and organizational structure. Reserve your copy››

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