H O W S M A R T, C O N N E C T E D

PRODUCTS ARE
TRANSFORMING COMPETITION

BY
GROUP - 8
 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.
 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

• These products have three core elements Physical components Connectivity

components Smart components Sensors Microprocessors Data storage Control
Software Embedded OS Digital UI Mechanical Electrical parts Ports Antennae
Protocols Networks

• Many products are connected to the Internet and the “product cloud” which runs
remote software connected to the products named “Technology Stack”
 THE NEW TECHNOLOGY STACK

• Smart, connected products require companies to build and support an entirely

new technology infrastructure.

• This “technology stack” is made up of multiple layers.

• It includes new product hardware, embedded software, connectivity, a product

cloud consisting of software running on remote servers, a suite of security
tools, a gateway for external information sources, and integration with
enterprise business systems.
 NEW CAPABILITIES OF SMART, CONNECTED
PRODUCTS
• Monitoring : Can monitor and report on themselves and their environment in
real time, creating new data and insights.

• Control : 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.

• Optimization : Algorithms and analytics can optimize product operation,

capacity utilization, and predictive maintenance

• Autonomy : Enables autonomous operation, self-coordination, and self-diagnosis.

NEW CAPABILITIES OF SMART, CONNECTED
PRODUCTS
 HOW IOT AFFECT THE PORTER’S 5 FORCES?

• Buyers : Reduce of their power because of

– More differentiated products. No price competition.
– Better segments based on behaviour.
– Better relationships.
– Disintermediation.
But their power might get increased because they better understand the product
(no switching costs).
• Rivalry : Intense because
– New types of firms
– More fixed cost and less variable cost (in cost structure) hence firms want economies of scale…. So
war… so industry’s profitability erodes.
 HOW IOT AFFECT THE PORTER’S 5 FORCES?
• New entrants : It is difficult because
– We have high fixed costs and this whole thing with technology stack… new
IT infrastructure is required.
– The definition of products is broader. Hence a firm does not just need to
manufacture sth but do sth that has broad functionalities e.g. not just a
drug but sth that will send info about the patient to the doctor.
– Switching costs. The first have the advantage of the data (usually not always)
– But of course, if the firms hesitate to fully embrace the capabilities of these
systems for example to protect their legacy system then they are
threatened.
 HOW IOT AFFECT THE PORTER’S 5 FORCES?

• Substitutes.
– Optimize and tailor offerings. So low substitution threat for their existence
but themselves are threat for other industries.

• Suppliers.
– The new technology make some supplies obsolete and hence their power
decreases.
– On the other hand, other suppliers needed e.g. for sensors.
 NEW INDUSTRY BOUNDARIES
- The function of one product is optimized with other related products. Firm is just one
actor.
- e.g. tillers + tractors… from product to systems to system of systems (e.g. smart city)
 COMPETITIVE ADVANTAGE
• CA  superior value

• Superior value  Operational effectiveness. Do sth better than a rival

does. Notion of value chain and sameness.

• Strategic positioning. Do things differently.  unique value

• But unique value not only through products but through value chain. And
smart, connected products reshape the value chain.
 PROCESSES

• Design. E.g. enable the remote service or the updates etc. New set of design
principles.
• After sales services. You need to be predictive in maintenance and productive
in service. Leverage the potential of data for current or potential errors.
• Marketing. Enable new kind of relationships because of data and of course how
these data are turned into insights and actions.
• HR. new skills set
• Security. For data flow, products for unauthorized use, access between product
technology stack and other business systems.
 CHALLENGES
• Need for new skills (firm to employees).
• Need for new capabilities (firm to firm’s capabilities). Otherwise threaten from
new competitors. Do you want to see your product being commoditized?
• If the rival offers a broad product, why the customers to select you?
• Customers potential support : Do they value (want) the adding functionality?
Clear value proposition?
• Privacy and security : Do not underestimate the risks.
• New competitive threats : New competitors emerge, the boundaries can
easily be reshaped.
• Wait too long : Do not move slow. Data is everything.
• Internal capabilities : Do not overestimate and seek for capabilities that you
really need!
 CONCLUSION

• The article is an example how innovation can reshape the existing things… How
a new business model – “way of doing business” is being born. How value is
created for customers, how value is captured (competition) and the boundaries
of competition.