The buzz around smart technology — the shift that has devices loaded with sensors and connected to the cloud — isn’t going away, and it’s going to change the business world as we know it. “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,” Michael E. Porter and James E. Heppelmann write for the Harvard Business Review.
“The changing nature of products is also disrupting value chains, forcing companies to rethink and retool nearly everything they do internally.” Nearly every business’ perception of threats and opportunities will shift. Industries are being created; boundaries are being broken. “In many companies, smart, connected products will force the fundamental question, ’What business am I in?’” Porter and Heppelmann write.
Companies need to learn to think bigger, writes Daniel Burrus for wired.com. “This is a huge and fundamental shift,” he said. “When we start making things intelligent, it’s going to be a major engine for creating new products and new services.” This will create a new, different kind of business world that will transcend silos and redefine competition.
Companies preparing for these shifts should steel themselves for “higher upfront costs of software development, more complex product design, and high fixed costs of developing the technology stack, including reliable connectivity, robust data storage, analytics, and security,” Porter and Heppelmann write. “Industries with high fixed cost structures are vulnerable to price pressure as firms seek to spread their fixed costs across a larger number of units sold. The huge expansion of capabilities in smart, connected products may also tempt companies to get into a feature and function arms race with rivals and give away too much of the improved product performance, a dynamic that escalates costs and erodes industry profitability.”
Companies will need to re-evaluate the idea of their own industries, Dan Ostrower writes for wired.com. “What sense does it make to talk about a ’tractor industry’ if tractors are just one piece of an integrated system of products, services, software, and data designed to help farmers increase crop yields?,” he writes. New industries will be defined by jobs to be done. For example, the tractor industry will become the “crop yield management industry.”
Companies should prepare for this change in perspective, and look for opportunities in this brave new world of smart, connected products. “Approaching your business from a ’job to be done’ perspective is more likely to inspire you to innovate,” Ostrower writes. “In other words, we are about to enter an incredibly powerful virtuous cycle of innovation… It’s going to be a wild ride.”