Product Innovation Trends

How Connected Devices Will Transform Competition

Madeline Wigen | November 14, 2014

devicesThe November issue of the Harvard Business Review includes the first part of a comprehensive new report from Michael E. Porter and James E. Heppelmann, “How Smart, Connected Products Are Transforming Competition.”

The report highlights how smart, connected products are changing how value is created and captured – causing disruption in nearly every part of the product development process.

Key takeaways from the first part of the report include:

  • Many companies will be forced to ask the question, “What business am I in?” What was once composed of mechanical and electrical parts is now full of complex systems. Companies can’t just think about components now, they need to consider ecosystems.
  • This is the third wave of IT-driven competition. The first was in the 1960s and 1970s when automated processes, such as order processing and billing were first introduced. The second wave came with the rise of the internet and unprecedented connectivity in the 1980s and 1990s. The difference with the third wave is that IT isn’t just influencing production of the product, it’s becoming part of the product itself.
  • Smart, connected products are reshaping the relationship between the five competitive forces, and will have a huge impact on some industries, the greatest effect will be felt in manufacturing.
  • Industry boundaries become less defined and systems overtake products. For some industries, the definition of what they are will change completely.
  • While the structure of industries may shift, the rules of competitive advantage still apply. Connected products are defining a new level of operational effectiveness, but they’re not reinventing it.

The second part of the report will go into more depth around the topics of competition, value chain impacts and organizational issues. Companies will need to ask themselves how their industry is changing and how they will adapt to achieve a competitive advantage – or conversely, will they struggle. While many companies will face these changes with trepidation, there are huge opportunities for the organizations that become more adaptable and agile to this new, more connected model of business and productization. Do you agree with the assertions by the report? Share your thoughts on the implications in the comments below.