PTC CEO, Jim Heppelmann, and Harvard Business School Professor, Michael Porter, have co-authored their second in a series of Harvard Business Review articles. The new article, How Smart, Connected Products Are Transforming Companies, focuses on how these products are impacting companies’ operations and organizational structure.
The first article, published last November, introduced the notion of smart, connected products. It described their makeup, new capabilities, and impact on industry dynamics and competition. It also defined the ten strategic choices that companies have to make to effectively capitalize on new business opportunities with smart, connected products.
“The second article looks within the company and asks how will the nature of these smart, connected products actually affect the work that your firm does? How will it affect the processes and activities within departments? Ultimately, it asks will the organization of a company need to change, because some of the work will be transformed to such a great degree?” Heppelmann says in his executive summary, the first in a series of five short videos.
“For example, you need new ways to collaborate, and the need for new functions that do things like data analytics, and different ways of maintaining and insuring the success of customer relationships over time,” says Heppelmann.
The New Data Resource
Smart, connected products generate tremendous streams of data—high-volume, high variety information that if decoded can provide a valuable understanding of the use of your product and the satisfaction of your customer.
“You can think of this data coming in, in a very raw format. Some people have said that data is the new oil. And if data is the new oil, then we’re going to need a refinery—a data analytics capability to help us produce very useful by-products out of a very crude, raw initial resource,” says Heppelmann in his second video.
Big data analytics shows patterns and trends in information that aren’t visible to the naked eye. By integrating the data with other sources of information coming from business systems you can understand the full picture of product performance and customer use and optimize a situation, or react to a problem that’s beginning to develop, he says.
In addition to using big data analytics and data integration capabilities, some companies are beginning to deploy techniques like a Digital Twin, Augmented Reality and Virtual Reality. “These are all really interesting, powerful, new ways to understand, comprehend, and then act on what that data is telling you,” says Heppelmann.
Transforming the Value Chain
Dramatic transformations are happening within the business functions of a firm’s value chain, starting with how the product is developed.
“We’re asking engineers to create a fundamentally different product in a fundamentally different way,” says Heppelmann in his third video. “We’re not only concerned about the physical product, but the digital elements too, the part that’s on premise with the product and the part that runs in the cloud.”
Other parts of a firm’s value chain undergoing dramatic changes include after-sales service, marketing and sales, and security.
For example, a service department now has a feedback loop of data and can use analytics to understand product performance, which allows proactive service to prevent products from failing, rather than needing to fix them after they do.
Visibility into product data and analytics helps marketing and sales functions understand how products are used by different customers. This gives them a much finer grain segmentation capability to deliver slightly different product configurations into slightly different constituencies.
Until recently security was a problem that the IT department was supposed to solve. “If we look at the implications of smart, connected products, it’s a much bigger challenge which involves many departments within the company,” says Heppelmann. “Each smart, connected product represents a potential vulnerability or a point of attack for hackers. I think we need to think of security as a more fundamental capability of a good product now, as opposed to something that the IT department is responsible for.”
Implications for Organizational Structure
“As Professor Porter and I, together with our research teams, analyzed the companies that were moving into the world of smart, connected products, we began to realize that these companies are actually entering a situation where they’re placing one foot in the traditional world of a company who manufactures, sells, and services physical products—and the other in this new world that’s basically a software-as-a-service-based technology company,” says Heppelmann in his fourth video. “And it’s creating a lot of new challenges for them.”
One challenge is in IT and R&D integration. “We need them to work together, to each bring their skill to the table and try to figure out how we can make a product that is one part physical, one part digital, and all very safe and secure and meeting the customer requirements at the same time,” says Heppelmann.
A second challenge is around how to use the tremendous amounts of data streaming from smart, connected products in the field. “But we have to figure out how to decode, through big data analytics, what the data is telling us and then how to provide that insight and intelligence back to the departments that would benefit from it,” says Heppelmann.
Third, is around a capability referred to as DevOps. “This careful introduction of changes into a fleet of products as they’re being actively operated is really the domain of DevOps—not previously seen in manufacturing companies,” says Heppelmann.
Fourth, is around customer success management, ensuring that customers are getting value out of smart, connected products.
Making the Transition
“For many companies, the change from the traditional manufacturing model, to this new world of smart, connected products is a daunting organizational transformation,” says Heppelmann in his fifth video.
Yet there are techniques companies can use to make the transition, he advises. One is to form a cross functional steering committee that oversees a smart, connected products program, or initiative. Another is to form a center of excellence by drafting talent from different parts of the business to develop best practices for the broader organization. Another is the formation of a new business unit so that other business units that can then retain a strong focus on the traditional aspects of the business.
“These are all transition techniques, probably all temporary techniques, on the path to some new normal that could be years down the road by the time a company really masters where they’re going,” concludes Heppelmann.