Wires. 3 Hours Ago. Maria, the most powerful storm to strike Puerto Rico in nearly 9. Trump, who plans to visit the island on Tuesday, fired off a series of angry tweets from his private golf club in New Jersey, taking aim at the mayor of San Juan, the island's capital and largest city. How Smart, Connected Products Are Transforming Competition. Information technology is revolutionizing products.
![]() Once composed solely of mechanical and electrical parts, products have become complex systems that combine hardware, sensors, data storage, microprocessors, software, and connectivity in myriad ways. These “smart, connected products”—made possible by vast improvements in processing power and device miniaturization and by the network benefits of ubiquitous wireless connectivity—have unleashed a new era of competition. Smart, connected products offer exponentially expanding opportunities for new functionality, far greater reliability, much higher product utilization, and capabilities that cut across and transcend traditional product boundaries. The changing nature of products is also disrupting value chains, forcing companies to rethink and retool nearly everything they do internally. Further Reading. Competitive Strategy. Feature. Visit our companion case study and video on how Joy Global’s smart, connected mining equipment transforms mine performance. These new types of products alter industry structure and the nature of competition, exposing companies to new competitive opportunities and threats. They are reshaping industry boundaries and creating entirely new industries. FlexPod Datacenter with Cisco ACI and VMware vSphere 6.0 U1 Design Guide. NOTE: Works with document’s Advanced Properties “First Published” property. ![]() ![]() In many companies, smart, connected products will force the fundamental question, “What business am I in?”Smart, connected products raise a new set of strategic choices related to how value is created and captured, how the prodigious amount of new (and sensitive) data they generate is utilized and managed, how relationships with traditional business partners such as channels are redefined, and what role companies should play as industry boundaries are expanded. The phrase “internet of things” has arisen to reflect the growing number of smart, connected products and highlight the new opportunities they can represent. Yet this phrase is not very helpful in understanding the phenomenon or its implications. The internet, whether involving people or things, is simply a mechanism for transmitting information. What makes smart, connected products fundamentally different is not the internet, but the changing nature of the “things.” It is the expanded capabilities of smart, connected products and the data they generate that are ushering in a new era of competition. Companies must look beyond the technologies themselves to the competitive transformation taking place. This article, and a companion piece to be published soon in HBR, will deconstruct the smart, connected products revolution and explore its strategic and operational implications. The Third Wave of IT- Driven Competition. Twice before over the past 5. Before the advent of modern information technology, products were mechanical and activities in the value chain were performed using manual, paper processes and verbal communication. The first wave of IT, during the 1. See “How Information Gives You Competitive Advantage,” by Michael Porter and Victor Millar, HBR, July 1. The productivity of activities dramatically increased, in part because huge amounts of new data could be captured and analyzed in each activity. This led to the standardization of processes across companies—and raised a dilemma for companies about how to capture IT’s operational benefits while maintaining distinctive strategies. The rise of the internet, with its inexpensive and ubiquitous connectivity, unleashed the second wave of IT- driven transformation, in the 1. Michael Porter’s “Strategy and the Internet,” HBR, March 2. This enabled coordination and integration across individual activities; with outside suppliers, channels, and customers; and across geography. It allowed firms, for example, to closely integrate globally distributed supply chains. The first two waves gave rise to huge productivity gains and growth across the economy. While the value chain was transformed, however, products themselves were largely unaffected. Now, in the third wave, IT is becoming an integral part of the product itself. Embedded sensors, processors, software, and connectivity in products (in effect, computers are being put inside products), coupled with a product cloud in which product data is stored and analyzed and some applications are run, are driving dramatic improvements in product functionality and performance. Massive amounts of new product- usage data enable many of those improvements. Another leap in productivity in the economy will be unleashed by these new and better products. In addition, producing them will reshape the value chain yet again, by changing product design, marketing, manufacturing, and after- sale service and by creating the need for new activities such as product data analytics and security. This will drive yet another wave of value- chain- based productivity improvement. The third wave of IT- driven transformation thus has the potential to be the biggest yet, triggering even more innovation, productivity gains, and economic growth than the previous two. Some have suggested that the internet of things “changes everything,” but that is a dangerous oversimplification. As with the internet itself, smart, connected products reflect a whole new set of technological possibilities that have emerged. But the rules of competition and competitive advantage remain the same. Navigating the world of smart, connected products requires that companies understand these rules better than ever. What Are Smart, Connected Products? Smart, connected products have three core elements: physical components, “smart” components, and connectivity components. 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 exist outside the physical product itself. The result is a virtuous cycle of value improvement. Some have suggested that the internet of things “changes everything,” but that is a dangerous oversimplification. Physical components comprise the product’s mechanical and electrical parts. In a car, for example, these include the engine block, tires, and batteries. Smart components comprise the sensors, microprocessors, data storage, controls, software, and, typically, an embedded operating system and enhanced user interface. In a car, for example, smart components include the engine control unit, antilock braking system, rain- sensing windshields with automated wipers, and touch screen displays. In many products, software replaces some hardware components or enables a single physical device to perform at a variety of levels. Connectivity components comprise the ports, antennae, and protocols enabling wired or wireless connections with the product. Connectivity takes three forms, which can be present together: One- to- one: An individual product connects to the user, the manufacturer, or another product through a port or other interface—for example, when a car is hooked up to a diagnostic machine. One- to- many: A central system is continuously or intermittently connected to many products simultaneously. For example, many Tesla automobiles are connected to a single manufacturer system that monitors performance and accomplishes remote service and upgrades. Many- to- many: Multiple products connect to many other types of products and often also to external data sources. An array of types of farm equipment are connected to one another, and to geolocation data, to coordinate and optimize the farm system. For example, automated tillers inject nitrogen fertilizer at precise depths and intervals, and seeders follow, placing corn seeds directly in the fertilized soil. Connectivity serves a dual purpose. First, it allows information to be exchanged between the product and its operating environment, its maker, its users, and other products and systems. Second, connectivity enables some functions of the product to exist outside the physical device, in what is known as the product cloud. For example, in Bose’s new Wi- Fi system, a smartphone application running in the product cloud streams music to the system from the internet. To achieve high levels of functionality, all three types of connectivity are necessary. Smart, connected products are emerging across all manufacturing sectors. In heavy machinery, Schindler’s PORT Technology reduces elevator wait times by as much as 5.
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