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As companies build smart, connected products, they face a new set of strategic choices about how to make best use of product-level intelligence, capture rich historical and in-use data, manage the complex network of connections between products and suppliers and customers, and redefine their relationships with traditional business partners.

These changes reshape industry boundaries and open up a range of new avenues for differentiation and value-added services. But they can also elevate rivalry and drive up costs and erode industry profitability.

Autonomy

Autonomy is a key capability in smart, connected products. It allows products to operate without human intervention, leveraging data about their performance and their environment to self-diagnose problems and make autonomous decisions. The ability to do so improves safety in dangerous environments, enables operations far underground where human operators are not easily accessible, and enables a variety of other functions.

The value of these capabilities can grow as more products become connected. For example, the smart electric grid enables energy utilities to gain insight into energy consumption patterns over time, which may help them respond more efficiently to demand. The ability to customize product performance is also key to autonomy. This is enabled by software embedded into or in the cloud of a smart, connected product. Users can adjust a Philips Lighting hue light bulb via their smartphone to blink red if an intruder is detected or dim the lamp slowly at night.

Increasing levels of automation in smart communications products and their accompanying big-data-driven micro-targeting are likely to benefit consumers by helping them perform tasks faster, safer, and more cost-effectively while minimizing the need for costly consumer input. But how these automated choices affect perceived autonomy and well-being is still unclear.

Comprehensive Monitoring

Smart, connected products provide a rich flow of monitoring data that allows companies to optimize product performance in ways that have not been possible previously. This data can help companies to identify and address warranty compliance issues, to track product usage patterns in a market segment, or to optimize after-sale service dispatching by matching technicians with the right parts.

A smart engine for example, monitors RPM, boost and oil pressure, oil and coolant temperature, voltage, fuel rate and more. It also provides remote commands that let the operator adjust the performance of the engine as needed. This can be done with algorithms that reside in the product cloud or are built into the product itself.

Comprehensive monitoring is a key enabler for full-time operation, dispatching and optimization of multimodal transportation systems. The system enables the management of multiple vehicles holistically, and it focuses on the technical system, service functions and network layers. This model can be applied to road, waterway and aviation, as well as railways. The technology can be used to monitor the status of multiple devices and respond to their needs in real-time, improving the efficiency of multimodal operations. It can even be used to improve safety and reduce congestion in cities.

Optimization

Optimization is a process for improving the performance of systems. It may involve a trade-off between a number of different aspects such as memory usage, execution time, disk space or bandwidth. This may be done by modifying the code to use less memory or reduce the time it takes to process data.

In many ways optimization is an essential part of the development cycle for smart communications products. It enables firms to create more efficient processes and remove redundancies that don’t serve any purpose.

It also helps ensure that the data gathered by the product is consistent, accurate and up-to-date. This ensures that the company’s operations are functioning at their best, and also enables them to adapt quickly to changes in legislation or regulations.

Depending on the industry, network optimization is often a critical element of ensuring optimal operation and performance for business applications and systems. This is because the network carries all of the vital data that drives businesses and their customers.

Companies that use smart communications products are able to optimize these systems by applying algorithms and analytics to in-use and historical data. This allows them to adjust systems to capture and harness the most energy, while minimizing the effect on other nearby products and equipment.

This can result in a significant reduction in costs, allowing businesses to improve productivity and cut down on overhead. It also enables the company to better understand its customers and market segmentation, helping to increase the competitiveness of the firm.

Optimization in smart communications products is a key way for firms to increase profitability and growth, as well as reduce industry substitution threats. It can also lead to new opportunities for monetizing data, which may be valuable to entities other than traditional customers.

New Suppliers

In some industries, such as agriculture and healthcare, the new capabilities offered by smart, connected products create opportunities for new suppliers. These include providers of sensors, software, connectivity, embedded operating systems, and data storage, analytics, and other parts of the technology stack.

These companies often have strong consumer brands and numerous related applications, and their bargaining power can be substantial. For example, Google recently joined with auto OEMs to provide the embedded operating system and other components needed for Android-based vehicles.

Similarly, medical device maker Biotronik manufactures stand-alone pacemakers and insulin pumps but also offers a smart, connected system that monitors health conditions and delivers alerts when glucose levels reach certain limits. It streams data to a central device, enabling doctors to monitor and control patients’ devices at a remote location.

Another trend is that smart, connected products can function with full autonomy, removing the need for human operators to monitor or manage them. A smart shirt, for instance, streams distance covered, calories burned, movement intensity, and heart rate data to a mobile device, allowing the wearer to track her activities in real time.

These changes imply that many companies must refocus their core businesses to meet a broader need. For example, Trane has moved from producing heating, ventilation, and air conditioning (HVAC) equipment to providing services for people who own and operate high-performance buildings.

Industry Structure

Smart, connected products can dramatically reshape industry structure and competition. These products expand the definition of product systems and the boundaries of competitive rivalry, changing companies' core purpose as well as their value propositions.

The emergence of smart, connected products is driven by technology innovations in sensors, batteries, computer processing power, data storage, connectivity, software, and the Internet of Things (IoT). These developments have made it possible to put computers inside physical products, amplify their capabilities and value, and enable them to communicate with other devices or platforms.

Moreover, smart, connected products are creating new types of substitution threats. For example, Fitbit's wearable fitness device captures multiple forms of health-related data and is a substitute for conventional devices such as running watches and pedometers.

As a result, smart, connected products can shift the balance of product-related competition away from price and toward features and capabilities. This can improve industry growth and profitability by expanding opportunities for product differentiation and enhancing value-added services.

However, this can also lead companies to enter an arms race in which they add as many new features as possible. This can blur strategic differences and create zero-sum competition.

As a result, smart, connected products require a significant addition of new human resources. Engineering departments will need to recruit experts in product cloud development, systems engineering, big data analytics, and other areas. They will also need to develop new product-development processes that accommodate late-stage or post-purchase design changes quickly and efficiently.