How Smart, Connected Products Are

Transforming Product Development

A product development view of the new Harvard Business Review article –
How Smart, Connected Products are Transforming Companies

PAGE: 1 2 3 4 5 6 7 ptc.com
The Definitive Articles on the IoT

“
PTC President and CEO, Jim Heppelmann, and Professor Michael Porter HBR.ORG NOVEMBER 2014
REPRINT R1411C

of the Harvard Business School, collaborated on a multi-year research

project to understand the impact of smart, connected products,
commonly referred to as the “Internet of Things,” on competition
SPOTLIGHT ON MANAGING THE INTERNET OF THINGS
Smart, connected products
and companies. How Smart,
Connected Products will give rise to the next era
Are Transforming
The findings of their research were published in two Harvard Business Competition of IT-driven productivity
Review articles, How Smart, Connected Products Are Transforming
by Michael E. Porter and James E. Heppelmann

Competition published in the November 2014 issue, and How Smart,

growth at a time when the
Connected Products Are Transforming Companies published in the impact of earlier waves of IT
October 2015 issue.
has largely played itself out.”

– November 2014

“
HBR.ORG OCTOBER 2015
REPRINT R1510G

Smart, connected products

How Smart,
Connected Products are transforming how
Are Transforming
Companies
The operations and organizational structure of firms are being radically
reshaped by products’ evolution into intelligent, connected devices.
companies design, manu-
facture, operate and service
by Michael E. Porter and James E. Heppelmann

products, and ultimately,

Michael Porter Jim Heppelmann
how they organize to create
R1510Gf2.indd 1 9/22/15 3:44 PM

Harvard Business School President and CEO, PTC

and capture value.”
– October 2015

PAGE: 1 2 3 4 5 6 7 ptc.com
Transforming Companies: Executive Summary

How Smart, Connected Products are Transforming Companies, the

second in this two-part series, focuses on the impact of smart, connected
products on companies’ operations and organizational structure.

The unprecedented data and capabilities that smart, connected

products generate are driving this transformation. The impact is
reshaping the work of virtually every function in the Value Chain,
including product development, IT, manufacturing, logistics, marketing,
sales, and after-sale service.

In addition, new forms of cross-functional collaboration and entirely

new functions are emerging:

• IT & R&D Collaboration: Reflecting the new need for IT in

product development

• Unified Data Organization: Handles enterprise-wide data

management and analytics

• Dev-Ops: Oversees ongoing product updates and efforts to

shorten product-release cycles

• Customer Success Management: Ensures customers gain

ongoing value to reduce churn

How will product development need to transform in order to capitalize

on the unprecedented data and capabilities that smart, connected
products generate?

PAGE: 1 2 3 4 5 6 7 ptc.com
Transforming the Value Chain

The Value Chain, a concept defined by Michael Porter in his 1985 best-seller Competitive Advantage, are the many discrete activities a firm performs
in designing, producing, marketing, delivering and supporting its product. Each of these activities contributes to a firm’s cost and creates a basis for
differentiation, which enables competitive advantage. Using Porter’s Value Chain framework, the impact of smart, connected products on each activity
is analyzed.

The “Technology Development” activities refer to the firms use of technology to obtain competitive advantage. For manufacturing firms, this application
of technology is primarily used in Product Development.

FIRM INFRASTRUCTURE

Human Resource Management

TECHNOLOGY DEVELOPMENT

Procurement
Margin

Inbound Operations Oubound Marketing After-Sales

Logistics Logistics & Sales Service

PAGE: 1 2 3 4 5 6 7 ptc.com
Transforming Product Development

Smart, connected products require a fundamental rethinking of design. At the most basic level, product development shifts from largely mechanical
engineering to true interdisciplinary systems engineering.

These new design principles are becoming foundational for competing in a smart, connected world:

LOW-COST VARIABILITY: Software-driven product variability enables new low-cost options. Meeting customer needs for variability through
embedded or cloud based software, not hardware, is critical.

EVERGREEN DESIGN: Design enables evergreen products that can be continually upgraded via software, often remotely, after they are sold.
Products also can be fine-tuned to meet new customer requirements and solve performance or security issues.

NEW USER INTERFACES AND AUGMENTED REALITY: Enhance flexibility and reduce the need for controls on the product itself through
digital user interfaces, often via mobile applications. Augmented reality applications can virtually overlay product information and controls
on the product.

CONNECTED QUALITY MANAGEMENT: Continuous monitoring of real-world product performance data enables ongoing quality
management, so that companies can increase speed and accuracy of root cause analysis, and improve next-generations designs.

CONNECTED SERVICE: Product designs incorporate sensors to monitor product health and performance, warn service personnel of failures
and allow some service functions to be performed remotely.

SUPPORT FOR NEW BUSINESS MODELS: Product designs incorporate sensors to capture usage and performance data that enable
product-as-a-service business models, where the customer only pays for the usage or performance of the product.

SYSTEM INTEROPERABILITY: Products that become components of broader systems require system interoperability, and through
codesign companies can simultaneously develop and enhance a family of products, including those of other companies.

IT & R&D COLLABORATION: The development of smart, connected products requires IT to assume a more central role. IT hardware and
software are now embedded in products and in the entire technology stack.

SECURITY: The job of ensuring security is no longer the sole responsibility of the IT organization. Security now cuts across all functions
including product development, which needs to embed security into product design.

PAGE: 1 2 3 4 5 6 7 ptc.com
Industry Analyst Perspective

IoT Makes “As Good as the Day I Bought It” a Thing of the Past
– Jim Brown, President, Tech-Clarity

A recent Harvard Business Review article, How Smart, Connected

Products Are Transforming Companies, shares insights on the way
today’s intelligent, sensored products and the Internet of Things are
changing the fabric of manufacturing companies. One particular area
that caught my eye is the discussion on “Evergreen Design.” As the
article points out, “Smart, connected products … can be continually
upgraded via software, often remotely.”

The article shared two examples that, to me, explain why manufactur-
ers need to pay attention to this discipline. In two separate instances,
Tesla set themselves apart from traditional automakers using evergreen
principles. In the first, they identified a hazardous driving condition that
was leading to fires and remotely upgraded all existing cars’ suspensions
to prevent the scenario from occurring. They made the car safer to drive
and avoided an expensive recall. In another, they included “autopilot”
capabilities into cars while the feature was still a work in progress. They
avoided the difficult, traditional tradeoff of either omitting a new feature
in a new model or delaying product introduction. They included what
they could with plans to continually improve it and introduce the feature
when it was ready.

So why should manufacturers pay attention to evergreen design?

Let’s step back a bit…

Read the full article on ptc.com.

PAGE: 1 2 3 4 5 6 7 ptc.com
Summary

The capabilities and data generated by smart, connected products

dramatically increase the opportunities for value creation and higher
productivity, but require companies to build and support a new
technology stack and face 10 new strategic choices.

This innovation is going to transform the nature of work across all busi-
ness functions, starting with product development, which require new
skills such as software development, data science, UI design, IoT security,
and systems integration, that are in short supply.

We are still early in the transformation and the organizational transition

will be evolutionary, with old and new structures operating in parallel
for many years.

To get started however, it is critical for companies to align on these

concepts across business functions and define a comprehensive strategy.
Defining and prioritizing IoT use cases, like Connected Product Quality,
to pilot is the clearest path to creating value. If you’re ready to go from
thinking about IoT to winning in the new competitive environment of
smart, connected products, request an Innovation Workshop.

© 2016, PTC Inc. All rights reserved. Information described herein is furnished for informational use only, is subject to change without notice, and should not be taken as a guarantee, com-
mitment, condition or offer by PTC. PTC, the PTC logo, Creo, Elements/Direct, Windchill, Mathcad, Arbortext, PTC Integrity, Servigistics, ThingWorx, ProductCloud and all other PTC product
names and logos are trademarks or registered trademarks of PTC and/or its subsidiaries in the United States and other countries. All other product or company names are property of their
respective owners.

J7578–HBR–Transforms–Product–Development–EN–0816

PAGE: 1 2 3 4 5 6 7 ptc.com