New types of ‘smart, connected products’, resulting from advances in technology, are having a significant impact on reshaping industries, competition and competitive advantage, according to this Harvard Business Review article. Products that used to be simply mechanical and electrical have become more complex systems that combine hardware, sensors, data storage capabilities, micro-processors, software and connectivity.

These products have new capabilities, such as in the monitoring process. Smart, connected products are able to comprehensively monitor a product’s condition, operation and external environments through sensors and external data sources. For example, Medtronic, a digital blood-glucose meter, uses a sensor inserted under the patient’s skin to measure glucose levels and connects wirelessly to a device that alerts patients and clinicians up to thirty minutes before a patient reaches a threshold blood-glucose level, enabling appropriate therapy adjustment.

Another capability is control. Software is embedded in the product or in the product cloud that enables the product to be controlled and the user experience to be personalised. Smart connected technologies also have optimisation capabilities. The rich flow of monitoring data, coupled with the ability to control product operations, means companies can enhance product performance through diagnostics and repairs. The article gives the example of Diebold, a product that monitors ATMs for signs of trouble. A malfunctioning machine can be repaired remotely or a technician sent out who has received a detailed diagnosis of the problem, a recommended repair process and often the needed parts.

These capabilities also give the smart, connected products autonomy. For instance, the iRobot Roomba vacuum cleaner uses sensors and software to scan and clean floors in rooms with different layouts. Sophisticated products such as this learn about their environment, self-diagnose their own service needs and adapt to users’ preferences. So what does this mean for the world of work and, in particular, HR? Are all workers about to be replaced by Roomba’s and HR left working out what their role is ‘championing better work and working lives’ for these smarter beings who can probably do it for themselves?

Smart connected products are reshaping the structure of industry. According to the authors, ‘in any industry competition is driven by five competitive forces: the bargaining power of buyers, the nature and intensity of the rivalry among existing competitors, the threat of substitute products or services, and the bargaining power of suppliers. The composition and strength of these forces determines the nature of industry competition and the average profitability for incumbent competitors’.

In short, smart, connected products move away from competition based on price alone and reduce buyer’s bargaining power because they allow organisations to better understand their customers and become less reliant upon other organisations in the value chain. They also open up much greater avenues for differentiation and value-added services.

It does become much harder for new entrants to enter into markets, largely due to high costs, but these drop as smart, connected products improve and invalidate the strengths of existing goods or services. For example, Fitbit, a wearable fitness device that captures multiple types of health-related data including activity levels and sleep patterns, substitutes devices such as pedometers.

Finally, smart, connected products have an impact on suppliers and redistribute bargaining power. While the demand for certain components may disappear, new suppliers will be needed to provide resources such as sensors, software, connectivity, and embedded operating systems.

Increasingly new boundaries are being drawn, not only around the smart, connected products themselves. Some organisations widen their ‘product systems’ to encompass a set of related products meet a broader underlying need, for example, in the farming industry, expanding from tractor manufacturing to farm equipment optimisation. Industry boundaries can expand even further to ‘systems of systems’. According to the authors, this is, ‘a set of disparate product systems as well as related external information that can be coordinated and optimised, such as a smart building, a smart home or a smart city’.

In these types of industries, sustained competitive advantage is based upon ‘doing things differently’ while continuing to be operationally effective.

Smart connected products create major new HR requirements and challenges, say the authors. They recognise the need to recruit new skills, many of which are in high demand, such as engineering, software development, systems engineering, product clouds and big data analytics.

Some organisations will disappear because the smart products will no longer need them and some roles in organisations will be replaced by others that will require very different skill sets. Organisations will need to look at retraining as well as bringing in these new skills. Potentially, smart connected products might change talent management: organisations may cover a greater spectrum of the value chain, individuals may see greater development opportunities within their existing organisations and be less likely to move, particularly if competition lessens and organisations constantly strive to produce the next best thing.

feel that organisations best suited to smart, connected products will be smaller, agile organisations which bring together specialists and experts to work on their development. The next question is how much of these individuals’ knowledge is critical to the competitive success of these products. If the products are so smart, maybe one day they’ll be able to design and build themselves as well.

Reference

Porter, M.E. & Heppelmann, J.E. (2014) How Smart, Connected Products are Transforming Competition. Harvard Business Review. 92(11), November 2014, pp.64-88.