Experts predict we’ll see as many as 50 billion “things” connected to the Internet by the end of this decade in a massive trend often called the Internet of Things (IoT). That’s a four-fold increase in just six years.
Others predict the IoT will generate as much as $6.2 trillion in global economic value over the next ten years. That’s about ten times as much economic value as will be created by 3D printing, another transformative trend.
Although there are more things getting connected to the Internet; it’s the fundamental nature of products—the ‘things’ in the IoT—that’s changing and driving innovation. The Internet is just a tool to amplify the value in smart, connected products, not the value creator itself.
First, the smart components of a product amplify the value and capabilities of the physical components. Then, connectivity amplifies the value and capabilities of the smart components. Together, smart, connected products enable a virtuous cycle of innovation.
Smart, connected products are transforming industries, customer relationships, and the nature of competition. With the right strategy, manufacturers can capitalise on these new opportunities to capture real economic value. In the end, it’s about making the right strategic choices, selecting the right partners, and enabling the right capabilities to create and sustain competitive advantage.
To expose the transformational impact of smart, connected products, we outlined their evolution from physical assets to complex, evolving, and interconnected systems of smart, connected products across five phases:
1.Physical: The physical product is composed of mechanical, electrical, and other material components. Digitisation—replacing analog product and service information with a fully accurate digital representation that can be easily leveraged across the value chain (e.g., engineering, factory floor, service)—drives efficiencies in this phase. While the physical product remains the foundation on which incredible amounts of new value are being created, it is now a necessary but insufficient component to drive innovation and sustain competitive advantage.
2.Smart: Manufacturers seeking to accelerate product and service innovation and efficiently meet the growing diversity of customer demand and regulation increasingly turn to embedded software, sensors, and processors. Smart products enable enhanced product and service capabilities and a user interface that expands user control and interaction with the product. This shift also requires a systems engineering approach where product hardware and software development processes are integrated.
3.Smart and Connected: Manufacturers increasingly add wired or wireless connectivity to their smart products to enable new product and service capabilities. Regardless of the type of connectivity, the ability to get data to and from remote products transforms the way manufacturers create, operate, and service that product. This transformation requires new infrastructure and capabilities. IT is often embedded within product and service organisations, and new business applications leveraged across business functions use connectivity and product data to deliver new features, quality improvements, remote service, and optimisation of existing design, manufacturing, and service processes.
4.Product System: Some manufacturers move to integrate products— usually within the same industry like a smart farm, automated mine, or a fleet of vehicles—into a product system. Product systems require enhanced and often real-time analytics leveraging predictive algorithms to optimise system performance. New partnerships and personnel—like data scientists—and integration of other enterprise systems and processes, are critical to executing and capitalising on these value opportunities.
5.System of Systems: Some manufacturers interconnect other products, product systems, and things. Four example, a medical device connected to a smart home can analyse how frequently appliances are used to better measure the health of an elderly patient. Manufacturers looking to expand their system capabilities or efficiencies by coordinating with other systems must enhance their data management, privacy, and security capabilities, and requires the integration of third party systems outside their traditional partners, suppliers, and industry
There is an exponential growth in value opportunities four manufacturers as products become smart and connected. To find out how companies transform their organisations to capture the IoT opportunity, download the Business Harvard Review Article: "How Smart, Connected Products Are Transforming Companies" below.
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 organizational structure.
Smart, connected products and the data they generate are transforming traditional business functions, sometimes radically.
How do companies transform their organizations to capture the IoT opportunity?
This article provides examples from dozens of companies that have successfully transformed their organizations and provides three models for how companies are making the transition.