How Smart, Connected Products Are Transforming Competition

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.
• 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.
• 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.

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

• Evolution of products into intelligent, connected devices is radically reshaping

• The relationship a firm has with products and customers is becoming

• Smart, connected products substantially changes the work of virtually every

• These products have three core elements Physical components Connectivity

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

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

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

• Control : Can be controlled through software embedded within or in the cloud.

• Optimization : Algorithms and analytics can optimize product operation,

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

• Buyers : Reduce of their power because of

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

• Strategic positioning. Do things differently.  unique value

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