Value Creation in the Era of Smart, Connected Products

The proliferation and stitching together of these intelligent machines, sensors, tools and controls into vast, interconnected webs has given rise to the buzz phrase, “Internet of Things” (IoT)—and to the sense that this new world affords great opportunities, if only we can grasp how, exactly, to seize them.

“We can connect factories to the Internet and [use those connections] to monitor, control, optimize and automate them and so forth,” James (Jim) Heppelmann, president and CEO of PTC, told CEO participants in a roundtable discussion cosponsored by Chief Executive and PTC. “But just because you can do something doesn’t mean you should. That is, it doesn’t mean there’s a real economic value associated with doing [these things].”

Clearly, however, there can be. As with most technological advances, the trick will be to be strategic about how we harness the power of these capabilities. (For details on making the most of IoT opportunities, see sidebar, this page.) Manufacturers, in particular, can benefit greatly from the ability to collect data from products, product systems and other “things” connected to a computing infrastructure to control, service and upgrade the production process, as well as to drive better decision-making and expand innovation.

At John Deere, for example, WorkSight technology connects the company’s equipment to monitoring dashboards that enable managers to see where their vehicles are, evaluate their performance and
diagnose potential issues in real-time so that—in theory—failing parts can be replaced before the machinery even breaks down.

The company has now turned those capabilities into a new business offering called FarmSight, which does the same thing for farmers and more, enabling them to access real-time data from both their equipment and their fields.

“Monitoring the productivity of different fields might affect the farm’s strategy for what seeds to plant, how dense to plant the seeds and how much fertilizer and irrigation to put on next spring,”
explained Heppelmann, who added that FarmSight is something of a departure for the tractor company. “Suddenly, John Deere finds itself acting more like a software company, multiple levels
removed from being a tractor company. That kind of thing is still an experiment because the farther you go with it, the more you may end up competing with people who don’t even have tractors and
are pretty potent competitors.”

Opening new lines of business will, in turn, raise a host of challenges, noted several CEOs. “For those of us who are traditionally B2B businesses, the challenge is that we’re all going to be becoming
more B2C if we’re going to move up and down the channel that way, rather than horizontally,” noted Terrence Hahn, president and CEO of Honeywell Transportation Systems. “You’ll have to identify those
unmet user needs and bring them back.”

By its very nature, data-centric technology is always a pricey and dicey investment for companies, involving a hefty capital spend and the challenge of ensuring that new capabilities are leveraged
appropriately. “A lot of people talk Big Data and they collect all of it, but they don’t know what to do with it,” noted Bob Nardelli, founder, chairman and CEO of XLR-8.

Having been down the implementation road before, many CEOs dread the prospect of reconciling new and existing systems. “We’re in the process of globally implementing SAP and I’ve got another monitoring system in place,” noted Michael Reed, The Manitowoc Company’s vice president of operations.

“The struggle we have is how to tie all this together into one system so that we’re not going back and forth trying to figure out, ‘Where is my data coming from now?’”

To avoid drowning in a deluge of indecipherable data, CEOs need to take the time to identify key criteria and develop a dashboard that will present the most-needed data in a meaningful way, asserted Jay Pittas, president and CEO of Remy International.

“Most processes and applications have a handful of critical parameters that define what you’re doing well or not doing well,” he pointed out. “So you have to put some smarts into what you watch. Otherwise, you’ll get overwhelmed.”

However, the data you need now may not be the same data you’ll need tomorrow if your company should decide to pursue the new opportunities and markets that the IoT offers. “I think you’ve got to start with the business side first,” said Microsoft Business Solutions’ Colin Masson. “It’s understanding what it is, in your product or your portfolio, that you can turn into a service. Is your business system flexible enough for you to turn that into a product service offering; and if so, how do you price it?”

The exciting part of this opportunity is that it’s another way to enhance business models and the value proposition—and it’s not just for big companies,” agreed Hahn. “Everybody’s got a chance to play further down the economic ecosystem of the business [each is] in. It’s about understanding that economic model, that market map and figuring out how to use the tools you have to collect that
value. It’s a pretty exciting time.”