OPPORTUNITIES
THE BUSINESS
Why Your Products Must be
Smart and Connected
Authors
Sreenivasa Chakravarti
Head, Innovation and Transformation, Manufacturing Services,
Tata Consultancy Services
Anurag Jain
Strategic Solutions Partner, Innovation and Transformation,
Manufacturing Services, Tata Consultancy Services
It’s become increasingly conceivable and cost effective to
embed sensors, wireless communication, and software into
all kinds of products—from complex $100,000 industrial
machines to $100 thermostats sold on the mass market.
Exponential improvements in computing power, advances in
sensor miniaturization, and pervasive connectivity have paved
the way. It’s a transformation, described by Harvard Business
School professor Michael E. Porter and James Heppelmann,
CEO of software company PTC, as a move from goods that are
simply composed of mechanical and electrical parts to the
complex systems we now know as smart, connected products.9
B2B manufacturers of high-cost assets have led the way in this
revolution—turning their products into services, or ‘servitizing’
them—with significant results. Schindler no longer simply
9
Harvard Business Review, How Smart, Connected Products Are Transforming
Competition, November 2014, Accessed August 03, 2017, https://hbr.org/2014/11/
26 how-smart-connected-products-are-transforming-competition
produces elevators capable of transporting passengers up and down reliably; the
company’s technology can analyze and predict elevator demand patterns to reduce
elevator wait times by as much as 50%.10 GE has long sold jet engines, locomotives,
gas-fired turbines and medical imaging equipment. Today it sells smart, connected
versions of the same equipment along with new services built upon the vast
amounts of data they generate. The result is a business model that not only sells jet
engines, for example, but a ‘full spectrum of performance enhancements across the
management of a flight.’11 Farm and construction equipment maker Caterpillar has
more than 500,000 connected assets in service, from autonomous mining trucks to
tug boats.12
The business value of connecting expensive assets like jet engines and mining
equipment—machines that can cost companies millions in revenues if they are
out of service or run inefficiently—to the Internet of Things is clear. But embedding
sensors and connectivity into lower-value consumer products can deliver significant
benefits as well. A number of brands have already introduced smart, connected
versions of everyday goods, from home printers that can order their own ink before
they run out to refrigerators that can order more milk.
The smart home space is abuzz with developments in automation and control.
Even a product as seemingly simple as a toothbrush is getting the smart, connected
treatment. Procter & Gamble’s Oral-B Genius pairs a position detection sensor in the
brush with a mobile app to help users identify spots they’re missing with their oral
hygiene approaches.13 As of February 2016, P&G said it had sold more than 1 million
Oral-B SmartSeries toothbrushes worldwide. Yet it called the product merely “the tip
of the iceberg.”14
Harvard Business Review, How Smart, Connected Products Are Transforming Competition, November 2014,
10
Accessed August 03, 2017, https://hbr.org/2014/11/how-smart-connected-products-are-transforming-competition
11
GE, Thrust for Sale: Innovation Takes Flight, Accessed August 03, 2017, https://www.ge.com/digital/blog/thrust-
sale-innovation-takes-flight
QuickBase, Smart Iron – How Caterpillar is Leveraging Data to Maximize Customer Experience, January 17, 2017,
12
Accessed August 03, 2017, http://www.quickbase.com/blog/smart-iron-how-caterpillar-is-leveraging-data-to-
maximize-customer-experience
13
Cincinnati Business Courier, P&G’s latest smart toothbrush pinpoints the spots you’re missing, February 23,
2016, Accessed August 03, 2017, https://www.bizjournals.com/cincinnati/news/2016/02/23/p-gs-latest-smart-
toothbrush-pinpoints-the-spots.html
14
Business Insider, Oral-B just unveiled a new smart toothbrush which shows the potential P&G has to make more
of its products ‘smart,’” February 22, 2016, accessed August 03, 2017, http://www.businessinsider.com/oral-b-
genius-toothbrush-hints-at-future-connected-pg-products-2016-2 27
Successful manufacturers of smart, connected products adopt new technologies,
including sensors, connectivity and personalization technologies, and smart
materials. They must innovate not just around products, but also with their business
models, to create a lean, efficient and cost-effective ecosystem that runs from the
supply chain through to customers, from whom they receive real-time data and
insights on product usage. Through these actions, manufacturers can translate
insights from data into profitable business models for today’s data economy. This
is a major paradigm shift. In the past, products were sold as capital equipment
churning huge revenues. In the data economy, the aim for manufacturers is to build
a revenue stream by selling more services.
To match the rapid pace of change in their customers’ preferences, manufacturers
also have to be ready to run their business models like a social network—
distributed yet connected, real-time and with a non-linear propagation. They also
have technological and operational capabilities to support these ongoing changes,
in products, data management, and services.
Still, many consumer and B2B companies have yet to begin making their products
smart and connected. Only about a quarter (26%) of the 800 large companies we
surveyed around the globe in 2015 said they had made a smart, connected product.
What’s more, they estimate they devoted less than a third of their Internet of Things
budgets to smart product monitoring.
But companies will very soon pay a competitive price for sitting on the sidelines
in the smart, connected product space. The cost of IoT sensors is rapidly declining,
from $1.30 in 2004 to a predicted $0.38 in 2020.15 Bandwidth, processing, and
storage costs have also declined several tenfolds over the last decade. The analytics
systems required to make sense of the data produced by smart, connected devices
are also becoming more advanced.
15
Hot for Security, The price of hardware that boosts IoT development is dropping, Goldman Sachs says, July 04,
2016, Accessed August 03, 2017, https://hotforsecurity.bitdefender.com/blog/the-price-of-hardware-that-boosts-
28 iot-development-is-dropping-goldman-sachs-says-14342.html
As these trends continue, sensor technology will become
ubiquitous. Gartner forecasts that 8.4 billion connected
things will be in use worldwide in 2017, reaching
20.4 billion by 2020.16 The Boston Consulting Group
predicts that companies will spend $267 billion on IoT
technologies, products and services in 2020.17
Nearly every manufacturer today should be
exploring making their products smart and
connected—not simply because the cost of doing
so is dropping dramatically, but because there are
increasingly clear benefits to doing so.
And the stakes for failing to ask the question could mean
the difference between future success and failure.
16
Gartner, Gartner Says 8.4 Billion Connected “Things” Will Be in Use in 2017, Up 31 Percent From 2016, February 07,
2017, Accessed August 03, 2017, http://www.gartner.com/newsroom/id/3598917
17
BCG Perspectives, Winning in IoT: It’s All About the Business Processes, January 05, 2017, Accessed August 03,
2017, https://www.bcgperspectives.com/content/articles/hardware-software-energy-environment-winning-in-
iot-all-about-winning-processes/ 29
Seven Business Benefits of Smart, Connected Products
When a product—whether a $35,000 automobile or a $150 electric toothbrush—is
‘smart’, it has sensors, processors, and software embedded in them that can track
key aspects of their performance—fuel performance or toothbrushing execution.
And when that product is ‘connected’, it can wirelessly transmit the data it collected.
When companies are able to continuously analyze the data streaming from
these products, it opens up a world of potential business value and competitive
advantage. It creates the unprecedented ability to monitor products at the most
important stage of their lifecycle—when they are in the customer’s hands. That
provides an unambiguous, new source of business intelligence in a wide variety
of areas—from product performance to customer experience. Smart, connected
capabilities are already enabling manufacturers of both high- and low-end products
to reimagine not just their products, but also their business models.
When companies are able to continuously
analyze the data streaming from these products,
it opens up a world of potential business value
and competitive advantage.
While the business value of a smart, connected product will vary by industry, market
factors, and customer needs, we have identified 7 benefits that await businesses,
which embrace them.
30
Faster, more effective product updates and
1 development.
Because manufacturers can continuously monitor
products in use, they can update their products, patch
problems, and rethink functionality—all of which
improves customer satisfaction. The intelligence from
smart, connected products can also inform future
product features and new product development. We are
all familiar with automatic app updates on our phones,
giving us access to new features or fixing problems
over the air. Smart, connected products can update
themselves in the same way. Diebold, for example, can
update and add new features to its smart, connected
ATMs remotely via software.18 Fitbit has been able to
increase its new product development thanks to the
information it has on how customers use the fitness
band—and those new offerings can come in the form of
either hardware or software options.19
Cheaper, more efficient maintenance and repair.
2 Because smart, connected products can be monitored in
the field, that data can be used to significantly streamline
the process of maintenance and repair. Rolls Royce tracks
the health of thousands of aircraft engines operating
worldwide using onboard sensors and live satellite feeds.
Its Engine Health Management system can predict when
something might go wrong to address it proactively or
transmit data on an engine problem so airlines can have
their service technicians ready with the right part to
make repairs when it lands, resulting in less downtime.20
Harvard Business Review, How Smart, Connected Products are Transforming Competition, November 2014,
18
Accessed August 03, 2017, https://hbr.org/2014/11/how-smart-connected-products-are-transforming-competition
19
The Verge, Fitbit has confirmed that at least two more products will ship this year, August 02, 2016, Accessed
August 03, 2017, https://www.theverge.com/2016/8/2/12362080/fitbit-earnings-Q2-will-release-at-least-two-new-
products-2016
20
Rolls-Royce, Engine Health Management, Accessed August 03, 2017, https://www.rolls-royce.com/about/our-
technology/enabling-technologies/engine-health-management.aspx#sense 31
New, better business models.
3 Many industrial manufacturers are remaking themselves
as service providers by creating new business lines based
on the analysis of smart product data. GE Digital, for
example, launched its Brilliant Manufacturing software
and service using real-time visibility into smart, connected
machines to help customers maintain equipment based
on operating conditions (rather than a breakdown), thus
driving greater efficiency.21 In fact, some companies may
see a benefit in shifting their business models from selling
goods to renting products and offering services. Michelin,
for example, has gone to market with a smart, connected
tire that is a product-service hybrid. Fleet customers
sign up for their customized tire lease programs and pay
by the mile for their usage while Michelin oversees any
maintenance or repair.22
The data that manufacturers gather from their smart,
connected products may also have value to other
companies or organizations that would pay for it. For
example, analysis of P&G’s Oral-B Genius data could
be sold to retailers or dentists who could use that
intelligence to better run their own businesses. Or,
consider the opportunity that an automaker has to
send useful information to motorists through an in-
car infotainment system—such as the location of a
parking lot or a nearby event. The automaker becomes a
medium through which other businesses communicate
to prospective customers.
GE, Everything you need to know about the Industrial Internet of Things, Accessed August 03, 2017, https://www.
21
ge.com/digital/blog/everything-you-need-know-about-industrial-internet-things products-2016
22
Michelintruck, MICHELIN® FLEET SOLUTIONS™, Accessed 03, 2017, http://www.michelintruck.com/services-and-
32 programs/michelin-fleet-solutions/
Improved product usage.
4 A smart, connected product can provide intelligence and
guidance to customers to help them make better use
of it or engage more deeply with the brand. Progressive
Insurance, which has a usage-based auto insurance
product built upon in-car telematics sensors and
monitoring, is one example. It launched a mobile app
for customers that, at the end of each trip, gives drivers
personalized information, including a one- to five-star
rating, a data summary, a map of their drive, and tailored
driving tips, to help them improve their score.23
Better product recall processes.
5 Poorly handled product defects and hazards can be
enormously expensive to brands, not only in direct costs
but reputational damage, as evidenced by incidents such
as Takata’s giant and expanding airbag recall which drove
it to bankruptcy24 and Samsung’s Galaxy Note 7 recall,
which cost the company $5.3 billion.25 With sensing,
connectivity, and the ability to detect a customer’s
product problems, manufacturers can uncover
dangerous defects more quickly and provide fixes more
effectively. When the National Highway Traffic Safety
Administration announced that a Tesla Motors’ charger
plug had been discovered to cause fires, Tesla owners
didn’t have to do anything; the company provided an
‘over the air’ software update to fix it.26
23
Progressive, Progressive® Insurance launches pilot Snapshot mobile app, September 02, 2015, Accessed August
03, 2017, https://www.progressive.com/newsroom/article/2015/september/snapshot-mobile-app/
24
Engadget, Faulty airbags cost Takata everything, June 26, 2017, Accessed August 03, 2017, https://www.engadget.
com/2017/06/26/faulty-airbags-cost-takata-everything/
25
LA Times, Samsung Galaxy Note 7 recall to cost at least $5.3 billion, October 14, 2016, Accessed August 03, 2017,
http://www.latimes.com/business/technology/la-fi-tn-samsung-recall-20161014-snap-story.html
Wired, Tesla’s Over-the-Air Fix: Best Example Yet of the Internet of Things?, Accessed August 03, 2017, https://
26
www.wired.com/insights/2014/02/teslas-air-fix-best-example-yet-internet-things/ 33
Reduced environmental impact.
6 Manufacturers of smart, connected products can retain
more control over what happens to a product not
only during the lifecycle of its first purchase, but how
it might be reused or recycled to reduce its negative
environmental impact. Companies that can track
individual products can better ensure its parts are
recycled correctly or even reused in entirely new ways
rather than being dumped in landfills.
Some visionary manufacturers are adopting a product-
as-a-service approach that ensures that this is the case.
For instance, if a telecom company provides handsets
or smartphones as a part of its service contracts, it may
collect, refurbish, and reuse them in areas where there
is an economic need to provide less expensive options.
With a lifetime of performance data, manufacturers can
also offer reconditioned products with warranties similar
to new options.
More intelligent, adaptive supply chains.
7 Industrial equipment manufacturers can deploy ‘digital
twins’: 3-D virtual-reality replicas of their physical products
to help them model manufacturing flows and figure out
how to eliminate bottlenecks or adapt to changes. As data
streams in, the digital stand-in shows how the product
reacts to various conditions. It then demonstrates how it
can be used to “provide new insights into how products
can be better designed, manufactured, operated, and
serviced,” according to Porter and Heppelmann.27
Ultimately, manufacturers can embrace not just connected,
but cognitive supply chains to enable automated just-in-
time or just-in-sequence manufacturing.
Harvard Business Review, How Smart, Connected Products are Transforming Companies, October 2015,
27
34 Accessed August 03, 2017, https://hbr.org/2015/10/how-smart-connected-products-are-transforming-companies
How to Evaluate Your Smart, Connected Opportunity
It’s becoming clear that for most manufacturers it should no longer be a question of
‘if’ they make their products smart and connected, but ‘when’. Those that wait too
long to adapt to this new reality will get left behind.
Still, manufacturers must be prudent in their approach in this arena. Efforts to
develop smart, connected products for the sake of doing so without a clear
understanding of transformation requirements and business value are bound to
fail. While the barrier to entry in the smart, connected product world is low—and
getting lower by the day—companies must be thoughtful about what they will do
with the data these intelligent products will collect. Figure 4 gives some examples
of issues to consider.
Figure 4: Smart Products: Factors to Consider
Factor Questions to ask Example
Differentiation Will a smart product make your Boeing aircraft performance data
offerings more attractive? improves design of future models.
Can data collection improve
future product development?
Customer Can you quantify benefits HP printers order ink refills
Value customers will receive from automatically.
your smart products?
Which features provide the
most benefit?
Product Usage How do customers use the Smart toothbrushes provide data
Patterns product now? about user’s oral hygiene habits
and how they might improve.
How can data enrich the
customer experience?
Data What is your current data Every smart, connected
Management management maturity level? product, from a toothbrush to a
locomotive, requires a cloud-based
What changes do you need to
infrastructure to manage growing
make to support a big increase in
volumes of product data.
customer product usage data?
35
Product and service differentiation. connected version. Low-involvement
Companies should begin evaluating products, like computer printers or
their opportunities for connected coffee machines, tend to have much
products by figuring out whether this less functionality but may still benefit
approach would create any significant from sensors and connectivity that
differentiation in the product category. relieve customers of burdens like
Will it make their product more reordering supplies or maintenance.
attractive to purchase? Could it inform
better product development later on? Existing product usage patterns.
Boeing’s 787, which has now been in Companies should also think about
service for six years, generates more data how companies use a product before
every day than the rest of the company’s developing a smart, connected plan
fleet does in their lifetimes. That has for it. High-utility products, like a fitness
helped the aircraft manufacturer not tracker, will provide many more data
only improve the performance of points, than a smart toothbrush. Thus
the Boeing 787 to the benefit of its the data may have more or wider value
customers; it has also informed the in the broader business ecosystem.
development of the company’s latest
model, the Boeing 737 Max.28 Your data management
capabilities. Finally, manufacturers
Quantifying customer value. must ensure that they are prepared
Manufacturers should also think about to manage the explosion of digital
what kind of value—and how much— data that smart, connected products
making a product smart and connected will produce. They will need to set up
would generate for customers. The the appropriate cloud infrastructure
interaction customers have with a to manage these huge and growing
product can help determine the right volumes of product data. They will
approach. High-involvement products, also have to invest in product-specific
such as vehicles or smartphones, analytic capabilities and processes to
typically have many features and thus generate insight based on the data. And
customers can benefit greatly from they will need to rethink their processes
the guidance provided by a smart, to integrate that insight and act on it.
28
IndustryWeek, Boeing’s Rookie Plane Boss Plots Assault on Airbus with New Jets, June 08, 2017, Accessed August
03, 2017, http://www.industryweek.com/companies-executives/boeings-rookie-plane-boss-plots-assault-airbus-
36 new-jets
Next Steps
In the digital era, where customer experience is the competitive differentiator and
creating sustainable competitive advantage is a top priority, making products smart
and connected will make sense for most manufacturers. An intelligent approach for
manufacturers that want to pursue this opportunity calls for them to:
Invest in building their network of IoT partners and collaborators
Map out their place in a smart, connected product services-based economy
Forecast the business models that smart, connected products may lead
them to pursue
Adapt low-cost sensors that may be used in their product categories
Determine whether to build an IoT platform or buy the platform as a service
Develop a robust security strategy for connected products data
Involve legal and compliance professionals in developing the infrastructure
that will support smart, connected products.
Smart, connected products are here. Firms that get a head start can strengthen
their market position. They can also demonstrate to customers that they are
pursuing new ways to deliver increased value. Manufacturers that find innovative
ways to turn products into successful services will win.
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