Smart, Connected Products Will Radically Alter the Value Proposition.

Marketing has worked for years in framing the marketing mix on the classic 4P theory of product, price, promotion and place for finding its value proposition, today it is becoming smart by being connected.

Then this was extended for the need to bring in the service aspect, by becoming the 7P,  adding physical evidence, people and process onto the original 4p.

Then this was updated in the nineties to become people, process, programs and performance.

Great as this may be in its  ‘progressive’ evolution these are totally inadequate to ‘serve’ today’s world of smart, connected products. Product design has become hyper, connected and needed to be well-designed. It is more to do with what is embedded or how it is connected and less on the product as the value-generating a proposition.

Getting a deeper understanding of the smart, connected world

I’ve been reading a terrific article by Michael Porter and James Heppelmann in the Harvard Business Review entitled “How Smart, Connected Products Are Transforming Competition,” this is in the HBR November 2014 edition. The article is around 12,000 words long but I would argue is well worth the read, it opens up much to consider as connected technology becomes this new competitive force.

The authors write about the third IT-driven wave. As technology is becoming or has become an integral part of the product itself. Embedded sensors, processors, software and connectivity within our product, coupled into the cloud to produce (tons of) data, that needs storing, and analysing to drive dramatic changes in value, product functionality and performance.

The “internet of things” changes everything but as it is pointed out it is more “the things” that are changing the competitive landscape.
Product marketing will be governed by IT and how it grapples with these changes, the Technology team become central to the fortunes or decline of our organizations in this connected world.

The connected products expand the potential for new functionality, greater reliability, higher product utilization and capabilities that will cut across and transcend traditional product boundaries.

We are in real need to ask the question “What business am I in, or simply want to stay in?”

The strategic choices are how are these significant changes going to change the competitive landscape for each of us, and how will we be able to capture and create new value. The industry boundaries are suddenly expanding, becoming highly porous to new competitors, threatening existing and well-established organizations in multiple ways.

More-complex product design coupled with embedded technology and multiple layers of new IT infrastructure challenges the conventional product dramatically.

Jeff Immelt, Chair and CEO of GE, recently stated “every industrial company will become a software company”, I’d go further it is simply ‘every company.’

Value propositions are radically altering as well as Business Models
Standalone discrete products that have worked for years suddenly seem outdated. We are receiving more product systems and will see an increasing number of systems within systems, where multiple products all connect to help in the home, the car, the hospital, connecting us within the city we live or as we travel, on our aeroplanes, in remote places.

The system that connects the products and offers new value propositions will become the core advantage place, not the product itself. Some of our organizations will end up being deliberately “product-less” so as to provide these systems or be the master provider of the system of systems. Think Google here for example to begin to visualize this.

New business models will proliferate to incorporate this smart, connected world as the strategic position will be all about doing things very differently, across the organization and how you connect and engage outside, both with new partners and with your final customer.

Replacing the old 4P with a new set of escalating connected considerations that will drive your product offerings.

Porter and Heppelmann suggest it is the capabilities of smart, connected products that will need to be worked through by building from one into the next. Although each capability is valuable in its own right it allows the next one to build from it and the more of these four built into the final offer, the more the customer value and eventual competitive position will be determined by the finite choices within each.

Monitoring – connected products need growing comprehensive monitoring of a product’s condition, operation and external environment. This provides how a product is being used, this helps design, market segmentation possibilities and improved after-sales service to achieve better utilization, or changing product capacity. An example is medical devices where monitoring is potentially key in its value creation or premium

Control-connected products will be increasingly controlled by remote commands or algorithms that can respond to specific changes or improved customization of the product and allow for higher personalization. An example is connecting the home, it’s lighting, heater, security etc.

Optimization – the flow of all the ‘connected data’ has the potential of improving output, utilization and efficiency, where a more remote repair can take place, preventative maintenance. By operating with real–time’ knowledge you can make smart connected repairs or when you send someone to repair something malfunctioning that technician can have already knowledge of the possible diagnosis of the problems, recommended repair processes ready to work through and have the potential parts all on hand.

Autonomy – Robots, like vacuum cleaners, can use their built-in sensors and software to scan and clean floors, it can over time learn about their environment, self-diagnose and adapt to user preferences. I must admit (smiling) human interference might just get in ‘its’ way to do the optimum job. The connected products can coordinate with other products and systems so you get your brew of coffee waiting for you after the robot has done the hard work! It gets hard watching all the activity or monitoring performance.

So we will need to work through a more complex product offering beyond just simply the ‘old four P’ but the ability to deliver through these new capabilities is a massive undertaking.

The IT department will become more of the central innovating connecting hub. How it responds will be pivotal.

The IT department will massively change as this will become more of the innovation hub of connectivity, evaluation and deployment. It will move from being at the ‘back end’ into one of leading the front end of change. Innovation will radically alter its present role as it moves more towards technology-based innovation or system innovation. Both will make IT the essential go to place. IT does have a pivotal role to play in innovation activities.

The changes within IT will require a massive up-ramping of skills not presently found in most of our organizations, many of those got either downsized or handed over to others, outsourced, to perform. This will need to be rethought in the changes ahead.

These ‘drawing in’ skills will include software development, systems engineers, data analytics, security expertise and new partners to complement and assist. A new wave of providers will need to be competing with existing IT partners for the investments that will have to be made.

These will need to be on new product hardware, embedded tailored software, connectivity, in-house storage, remote servers and cloud, security tools, new gateways for external protocols and finally integrating into the enterprise business systems in really different ways.

Just imagine the need to go and build or connect into a new “technology stack” which requires the product in hardware and embedded software, a connectivity network, a growing product cloud of applications, analytic engines, application platforms and a data storage system.

Then you have to consider the higher level of protection for data security, application and protection that both the product and the user needs simply rise exponentially and all of those needs. This is a real inhibitor of fast adoption for many.

Working through all the threats and opportunities calls for significant strategic thinking and radical overhauls of products and connected design

The hurdles that will limit or accelerate this new competitive threat are tough challenges that each organization has got to work through. Firstly it has got to get its head around all of the changes taking place in connected technology and digitization.

There is a lot at stake, possibly the biggest change in redefining different industry boundaries and connecting increasingly into systems of systems. It will redefine competition and many existing organizations will undergo consolidation and takeover. The entrenched ways of competing will be the loser as the system that connects products will be the new core advantage, not the product alone.

The issue is how our organizations will incorporate smart, connected capabilities into their products to realize the potential of connecting technology, enabling a digital vision through different software, smart machines, the cloud, mobile device diversity and its management.

How it incorporates mobile applications, new architecture, connecting personal clouds with hybrid clouds, the IoT of social, industrial and nearly everything that a sensor, processor, piece of software and our connected world seems to be presently throwing at us. It is creating an evolution challenges.

This is going to require lots of trade-offs in deciding what to do, what is possible or not and then more importantly what to not do as you do not have the capabilities for a product being enabled or smart embedding.

A challenging pathway lies ahead – it requires a new IT understanding and appreciation.

Charting this potential impact by just working through the four building blocks of the connected values found in monitoring, controlling, optimization and autonomy begins the realization we are in a new age of connecting technology. It will reshape everything, it will be transforming.

Do you have the skills and abilities to compete?

Have you the ability these connected technologies and the systems will require available to you? Take a read of that HBR article, I think you will find it invaluable in thinking a little more deeply about what is coming towards all of us.

The smart, connected world threatens much of the established order; it will shape the new order.