IS 501

2021-2022 Spring
Assignment # 2
1. By the changes brought by smart and connected products;
Bargaining power of buyers may reduce due to increasing cost of switching to a new supplier.
However, by gaining deeper understanding about product performance, they may get ability to
play multiple manufacturers. Moreover, their needs for taking advice or support about the
products may diminish by having access to product usage data. “Product as a service” and
“product sharing services” also decrease the cost of switching to a new supplier.
Rivalry among competitors may increase due to new opportunities of differentiation and value-
added services, increasing customer segmentation, and possibility of broader product systems.
However, the cost structure of smart and connected products (i.e. higher fixed costs and lower
variable costs) may reduce the rivalry by increasing the price pressure on the businesses. In
addition, unbounded feature and function arming race through the products may lower the
profitability.
Threat of new entrants may decrease due to high fixed costs, agile incumbents as first movers
who uses the accumulated data of customers to improve products, higher customer loyalty, and
increasing switching costs. However, it may increase because possibilities to take down
incumbents and “productless” competitors in the fields of reluctant incumbents to smart and
connected products.
Threat of substitutes may reduce due to superior performance, customization and customer
value compared to the traditional ones; nevertheless, it may increase since smart and connected
products offer wider capabilities. Overall demand for a product may decrease because of
substitution for product ownership (e.g. shared usage models).
Bargaining powers of suppliers may reduce for physical component suppliers due to shift of
value to the software components and decreasing need for physical tailoring. Nonetheless, new
types of suppliers like sensor providers, software, data analytics, …etc. may gain more bargaining
powers because of the technology stack they have.

2. According to the article, basic competitive strategies are still valid meaning that low-cost
leadership, product differentiation, focusing on market niche, and strengthening customer and
supplier intimacy are in charge while obtaining competitive advantage. To apply these strategies
successfully, Operational Efficiency (OE) is the key. OE is achieved by value-chain optimization
which include latest product technologies and production equipment, state-of-the-art sales
methods, information systems, and supply chain management approaches. Smart and connected
products do not only change the characteristics of the products, but also they transform the
value-chain activities in the way of successfully applying competitive strategies. For example;
analyzing the data of users (made available by the smart and connected products), market
segmentation can be performed in higher resolution which directly serves customer-supplier
intimacy and product differentiation. Then, a business can strategically position itself in the
market (either focusing on market niche or broad market) and adjust its pricing to get maximum
value for the lowest cost possible (lowest cost can be achieved software-based differentiation).

3. In the article, following value chain activities - transformed with the new era of smart products-
are mentioned;
 Design: Smart, connected products have different design principles than the traditional ones.
They should have a hardware standardization with software supporting customization,
personalization, product upgrade, and remote servicing. Product development process should be
adaptive to changes quickly and efficiently. Hardware and software development processes
should be synchronized. Systems engineering and agile software development expertise is useful
for integration of hardware and software.
After sale services: Predictive maintenance and service productivity is improved by analyzing the
health data of the smart and connected products. Accordingly, new service organizational
structures and delivery processes are needed to make timely (sometimes remote) repairiments.
So, field-service dispatch costs, product breakdown due to failure of parts decreases. Spare-parts
inventory control and service scheduling becomes more efficient. By analyzing the product usage
and performance data, design improvements to prevent failures and to improv service can be
possible. Moreover, warranty claims or violations can be proved by the usage data.
Marketing: By analyzing the product usage data, customer-supplier intimacy, product and service
differentiation (usually in low cost due to the nature of smart and connected products for
software based differentiation), customer segmentation, value delivery increases.
Human resources: New skill sets for the employees are needed such as talent in software
development, systems engineering, product clouds, big data analytics, and other areas instead of
mechanical engineering.
Security: Due to their connection to the internet or other networks, robust security management
is needed for smart and connected products including new authentication processes and control
of access privileges, protections against hacker and unauthorized use.

4. By the development and spread of smart and connected products, the risk of violation of
information rights, property rights and obligations increases significantly. This is simply because
of the fact that smart and connected products gather product usage data in addition to product
monitoring data and they are connected to a network (either internet or other networks like
enterprise systems, intranets, extranets). Product usage data may include private information of
individuals or businesses like their habits, desires, business models, etc. beyond the information
related to the product. Therefore, it is equally important to protect data from unauthorized
access and to protect the boundaries of private data, while handling the data. Suppliers of smart
and connected products may exploit the private data by intentionally or unintentionally for
their purposes, or data obtained by the smart and connected products may be accessed from
outsiders which rise the questions of accountabilities, liabilities and control mechanisms.
Moreover, system quality becomes more important. For example, consider the farm
management system given in the article. If the data provided by the weather data system is poor
or irrigation system has software bugs or hardware deficits, the whole harvest of the year may be
lost which is directly related the quality of life. The example again rises the accountability and
control issues. Another example may be given for risks related to the quality of life, a smart and
connected oven may be hacked to heat up in order to harm an individual or a residence.

5. Consider the organization you chose to introduce in Assignment 1. How could the new
technologies discussed in the paper be incorporated in the products and services? In what way
would this new wave change the industry and the organization? Discuss by referring to the
Porter’s competitive forces and value chain models as well as change in business strategy.