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. by Michael E. Porter and James E. Heppelmann

1. How Smart, Connected
Produces Are Transforming
Companies
By MICHAEL E. PORTER AND JAMES E. HEPPELMANN
Harvard Business Review
Fahmy Amrillah - 1506772744
Strategic Marketing

2. Background
Evolution of products into intelligent, connected devices is
radically reshaping companies and competition
The relationship a firm has with products and customers is
becoming continuous and open-ended.
Smart, connected products substantially changes the work
of virtually every function within the manufacturing firm.

3. What is smart, connected product ?
Smart, connected products have many of the same physical
components that products have always had
but also have new features that make them more
intelligent
Sensors and
Software

4. What is smart, connected product ?
Smart, connected products have three core elements
Physical
components
Connectivity
components
Smart
components
Sensors
Microprocessor
s
Data storage
Control
Software
Embedded OS
Digital UI
Mechanical
Electrical
parts
Ports
Antennae
Protocols
Networks

5. What is smart, connected product ?
Many products are connected to the Internet and the “product
cloud” which runs remote software connected to the products
named “Technology Stack”
It requires a whole new supporting technology infrastructure
provides a gateway for data exchange
integrates data from business systems, external sources, and other related
products
serves as the platform for data storage and analytics, runs applications, and
safeguards access to products and the flowing data.

7. New Capabilites of Smart, Connected Products
Control
Optimization
Autonomy
Monitorin
gCan monitor and report on
themselves and their environment
in real time, creating new data and
insights.
Can be controlled through
software embedded within or in
the cloud.
Gives users the unprecedented
ability to customize.
And to operate them in hazardous
or hard-to-reach environments.
Algorithms and analytics can
optimize product operation,
capacity utilization, and
predictive maintenance
Enables autonomous
operation, self-coordination,
and self-diagnosis.

8. Data : reshaping the value chain
The new data resources
• In the past, data was generated primarily by
internal operations, information gathered
from surveys, research, and other external
sources
• Now, sources of data are being
supplemented by product itself
• Data now stands on par with people,
technology, and capital as a core asset of
the corporation
• its value increases exponentially when it is
integrated with other data

9. Data : reshaping the value chain
Data Analytics
• Ability to unlock the full value of data
becomes a key source of competitive
advantage
• Powerful insights by identifying patterns in
thousands of readings from many products
over time
• Uses mathematics, computer science, and
business analysis techniques
• Collected data are often unstructured ->
emerging solution is a “data lake”

10. Data : reshaping the value chain
Data Analytics
• The data from “data lake” can be studied
with a set of new data analytics tools
• Descriptive
• Diagnostic
• Predictive
• Prescriptive.

11. Data Analytics

12. Transforming The Value Chain
Powerful new data and new capabilities of Smart, connected
products, is restructuring the traditional functions of
business
Product Development
Product development shifts from largely mechanical
engineering to true interdisciplinary systems engineering
Design teams are shifting from a majority of
mechanical engineers to a majority of software
engineers

13. Transforming The Value Chain
Low-cost variability
Software makes variability far cheaper. Ex:
Product Development
Evergreen design
Software also makes it easier to localize
products for different countries and languages
Companies will improve products continuously
Can be updated via software in the cloud. Ex:

14. Product Development
New user interfaces and augmented reality
Augmented reality applications tap into the product cloud
and generate a digital overlay of the product.
The digital user interface enabling remote operation and
even eliminating the need for controls in the product itself

15. enabling continuous monitoring of real-world
performance data
Product Development
Connected service
allowing companies to identify and address
design problems that testing failed to expose
Product can be used to monitor product health and
performance and warn service personnel of failures
Ongoing quality management

16. Support for new business model
Smart, connected products let companies
switch from transactional selling to product-
as-a-service models.
Product Development
System Interoperability
The responsibility for and associated cost of
maintenance remain with the manufacturer
Through codesign, companies can simultaneously
develop and enhance hardware and software across a
family of products, including those of other companies.

17. Transforming The Value Chain
Smart
factories
Manufacturing
Simplified components
Smart, connected machines are
reshaping manufacturing plants
Machines increasingly
can be linked together in
systems
Shift from mechanical parts to
software
Smart, connected products create new production
requirements and opportunities. Such as shift final assembly
to the customer
Physical complexity of products
decreases but the quantity of
sensors and software rises -> new
complexity.
Reconfigured
assembly process
Software in the
product or in the
cloud can be loaded
or configured well
after the product
leaves the factory

18. Transforming The Value Chain
Manufacturing
Continuous product operations
manufacturing has been a discrete process that
ended once the product was shipped
Smart, connected products create new production
requirements and opportunities. Such as shift final assembly
to the customer
operate and improve throughout the
product’s life

19. Transforming The Value Chain
it can be done continuously, wherever products
are, and provides rich information – current and
location history, condition (their temperature,
say, or exposure to stresses), and surrounding
environment.
Logistics

20. Transforming The Value Chain
Marketing and Sales
Direct and ongoing dialogue with consumers through smart,
connected products = new customer relationship
New business models will emerge as products can be o ered as a
service.
As companies gather and analyze product data, they gain new insights
into customer segmentation and product customization
Teams will need broader knowledge to position offerings as part of larger
smart, connected systems.

21. Transforming The Value Chain
After-sales service
Sensor data can predict when parts are about to break that makes
predictive maintenance possible
Service technicians can use augmented reality applications that tap
into the product cloud and generate a digital overlay of the product.
Smart, connected products make it feasible to deliver service remotely.

22. Transforming The Value Chain
Security
Companies tasks are safeguarding firms’ data centers, business
systems, computers, and networks
The job of ensuring IT security now cuts across all functions.
As IT is pushed into products, security concerns become important

23. New expertise
skills needed to design, sell, and
service smart, connected products are
in high demand but short supply
Human Resources
New Cultures
skill requirements shift from mechanical
engineering to software engineering, from
selling products to selling services.
Establishing a physical presence in
Boston and Sillicon Valley
Manufacturing smart products require
far more coordination across functions
and disciplines than traditional
manufacturing does
Integrating staff with varied work styles
and from more-diverse backgrounds
and cultures

24. New compensation model
Need new approaches to attracting and
motivating talent
Human Resources
Perks like job flexibility, concierge services, sabbaticals, and
free time to work on side projects of personal interest are the
norm in high-tech firms

25. Implication For Organizational Structure
As manufacturing firms become hybrid hardware and
software companies, they must adopt new organizational
structures.
Four new functions are developed
Unified data
organization
A chief data officer leads this
group, which captures,
aggregates, and analyzes
data for the entire
organization.
Tighter IT-R&D Collaboration
The new need for IT in
product development.

26. Implication For Organizational Structure
As manufacturing firms become hybrid hardware and
software companies, they must adopt new organizational
structures.
Four new functions are developed
Dev-ops
Dev-Ops groups manage the
product cloud
Customer Success Management
Since smart, connected products stop
functioning if the product cloud fails,
companies must carefully maintain, upgrade,
and find bugs in the product cloud.
Companies must ensure that
customers receive full value from
their products

27. Implication For Organizational Structure

28. Making The Transition
Smart, connected products will need to coexist with
traditional products for a sustained period
At business level unit, IT might be assigned the lead role for
product strategy and deployment.
Special steering committee made up of the functional heads may
be asked to champion and oversee this effort
Organizational transformation will be evolutionary, not
revolutionary,

29. Making The Transition
Stand-alone business
unit
separate new unit, with profit-and-
loss responsibility, is put in charge
of supporting the company’s smart,
connected products strategy
Center of excellence
It does not have profit-and-loss
responsibility but is a cost
center that business units can
At corporate level
Cross-business-unit
steering committee
Summoning a committee of
thought leaders across the
various business units
champion of opportunities,
share expertise, and facilitate
collaboration
usually lack formal decision-
making authority

30. Broader Implication
Smart, connected products will free us to purchase only the
goods and services we need, to share products that we do
not use much, and to get more out of the products that we
already have.
The effects are not confined to manufacturing, but are
spreading to other industries that use—or could use—smart,
connected products, including services.

31. Broader Implication
New industries, new services, and new roles will be created
that can allow more people to work more productively and in
less rote and repetitive ways.
Impact on employment and growth is likely to be positive
Companies and other institutions that can speed this journey
will prosper and make a profound difference for society

32. Thank You