Connected products are changing business models

Connected products are changing business models

No less an authority than Professor Michael Porter, of Harvard Business School, argues that the expanded capabilities and the data generated by today’s new connected products is ushering in a new era of competition.

He knows a bit about the nature of competitive pressures, haven developed the Five Forces model of competitive forces in the 1970s.

He is today the most widely cited scholar in economics and business.

Now his interest in competitive forces has led him to co-write a paper in collaboration with our IoT solutions partner ThingWorx, published in the Harvard Business Review.

The Third Wave

The paper argues that we’re now in a third wave of information and technology – and this third wave will have an even greater impact than the two proceeding it; the automation of activities in the value chain and the advent of the internet.

In this third wave, technology is becoming part of the product itself.

Today’s new smart connected products have three elements: the physical, the “smart” elements, and the connectivity components. The paper argues that “smart components amplify the capabilities and value of the physical components, while connectivity amplifies the capabilities and value of the smart components and enables some of them to exit outside the physical product itself. The result is a virtuous cycle of improvement.”

As a result, these products will reshape the value chain again and make further productivity improvements possible.

This, argues Professor Porter in the paper, means this third wave of technological transformation has the potential to be the biggest yet: “triggering even more innovation, productivity gains and economic growth than the previous two.”

Commercial Rewards

As we stood on the cusp of the digital age and the internet age, most of us had no idea about where they would take us. Yet there is no doubt today about the way they have shaped business, competition, society and our day-to-day lives.

Indeed, a few far-sighted individuals were able to spot the opportunities they presented and help to shape this changing world.

We might not all be potential Bill Gates or Mark Zuckerbergs, but for those that can understand the potential offered by today’s new smart connected products – and the potential offered by the internet of these “things” – the commercial rewards are likely to be just as great.

Where to Start?

The Professor Porter and PTC article makes a fantastic attempt to layout a framework for developing strategy and achieving competitive advantage in a smart, connected world.

It looks at both the changing nature of products and the changing nature of the value chain and argues that companies need 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.”

No longer do manufacturers or traders sell a product and then have no visibility of it. The internet of things makes it possible to have visibility of all of those products.

This visibility has an immediate impact on the maintenance and care of that product – creating new opportunities to develop ongoing relationships with customers, or offer new ‘as a service’ models.

These disruptions to service models will affect all areas of the business.

They will also affect the way you think about competition and your relationships with your customers and the rest of the value chain.

When a business moves to a subscription service, one of the most striking changes will be the need to dedicate time to manage those relationships and new service models – so that you don’t lose subscriptions.

And, of course, the financials have to change.

The potential for change is huge – so huge that many businesses have, as yet, failed to grasp just how huge the potential is.

But that’s the good news: it means for businesses that can – and do – reimagine their business based on this third wave of transformational technology there is also the potential for huge competitive advantage.


Learn How Smart, Connected Products Are Transforming Companies

In their second Harvard Business Review article, How Smart, Connected Products Are Transforming Companies, co-authors Michael Porter of the Harvard Business School and Jim Heppelmann, President and CEO of PTC, examine the impact of the Internet of Things on companies' operations and organisational structure.

  • Learn how companies transform their organisations to capture the IoT opportunity
  • See examples from dozens of companies that have successfully transformed their organisations and provides three models for how companies are making the transition.