June/July 2013

Advancements in technology have long been considered the great disruptor, providing advantages to the firms that apply them first. Entities large and small have focused on developing and applying these new technologies to gain a share of this so called first-mover-advantage. For centuries, “product companies” focused on applying these technological advancements. After all, this is what their business was. Design a widget, manufacture a widget, distribute a widget, and improve the design to make a new widget. Rinse, wash, repeat!

What Are We Disrupting?
More than 30 years ago, a significant disruptive class of technology emerged in the market that tested the traditional product world, and nothing has been the same since. A primarily mechanical-driven environment was infiltrated by the introduction of the affordable microcomputer. With it came the advent of embedded electronics. Products that at one time were 100% mechanical slowly emerged throughout the last three decades as a more complex system made up of three interrelated subsystems: mechanical, electrical, and software.

This shift has wreaked havoc on the bedrock-like foundation of the product industry. Not only did this change the product, but also the way the product was managed. Product lifecycles have been shortened while customer expectations have only grown. As computing power allowed for more complex problems to be solved in realtime, the ability for a product to do more, act differently, and play a more central role in its owner’s life continued to progress.

During this evolution of the product, advancements in communication technologies also were emerging. Long (satellite, etc.), mid (cellular, etc.), and short-length (Bluetooth, etc.) communication technologies were discovered and launched. Mega infrastructures were put in place to enable these technologies. As product developers mashed these two technological advancements together into their products, a mega disruptor was born. No longer were companies dealing with closed systems, but rather products that simply became one node in a much larger ecosystem.

CW_n19_ExecutiveInsight_chart1This Internet of Things, a.k.a. connected products, or M2M, is shaping up to be the next great technological enabled disruptor. This disruption is once again, not just to a single product, or for that matter even a group of products. This disruption isn’t even affecting just a single industry, but like the standalone innovations of the microcomputer, or communication, this trend is redefining what products are, and with it how companies need to manage them.

Are cars really just transportation devices or are they something more? How about a cellphone? Is it even fair to call it a smart “phone” anymore? Aren’t all these connected products starting to evolve into something more than just a “product” or a “smart product” or “connected product” or a “[fill in your own term here] product”?

Connected Product or Company?
This shift is happening so rapidly that traditional product companies are struggling to know how to react. Many companies are facing the question of perspective and asking where they should focus.

  • Connected Features – It is just a product, isn’t it? Can’t companies just manage this like another set of features? Survey the target consumers, document their desires, engineer to meet those desires, manufacture to high quality standards, and distribute. They are just another set of requirements, right? We are still a product company, and a product company always needs to focus on the product, right?
  • Connected Owners – Maybe it is about this new “connected consumer” which is a new type of market to sell into. One made up of these so-called “digital natives” who have different expectations. After all, the product probably is the ultimate touch point for a product company. If we focus here, we can ensure a consistent experience while learning a bit more about how our products are used.

The reality is connectivity is all of this. It is about changing and shaping the product itself, the way the product is accessorized, customized, and updated. A product ready for production means something significantly different in the “connected” era than it did in the “closed system” era. It is not necessarily about adding new features, but shaping the core attributes of what your product has always been in order to fit a connected world.

It doesn’t end with the product though. Understanding that a consumer who owns and uses the product now has different expectations of a connected product than one that was just a closed system is part of the maturity curve for “connected companies.” Consumers expect more consistency in the experiences between a product and the brand that offered it to them. They expect the experiences outside the product are informed by the experiences they have had while using the product. We like to call the product the “ultimate customer touch point,” which needs to inform marketing, CRM (customer-relationship management), and the retail functions.

The reality, however, is that companies that have been in the business of making “things” must decide at a much more fundamental level how connectivity will shape their firm.

Connected Corporate Strategy
Many product companies have launched into the connected era by turning on a few connected features, thinking this was just the next greatest thing in their product road map. More recently they have started to understand their product channel and their “off board” channels needed to be aligned. Therefore, they have been seeking assistance with “connectivity strategies” or derivatives of such.

These efforts often assume that connectivity is the newest weapon in their traditional product business space. Decisions are often being left to functional leaders.

Some companies see this as an opportunity to allow their engineers to compete by turning on the most differentiated connected features. Others are turning attention to the consumer of their product and allowing marketing and customer experience teams to focus on branded experiences, both external from and connected to the product.

CW_n19_ExecutiveInsight_chart2Fewer, however, are recognizing the magnitude of some of their decisions. As companies continue to live the vision of a “connected life,” consumers will have a more connected lifestyle. Products and the data they consume and create will begin to mesh across industry lines. Innovation will continue to occur on the fringe and corporate strategists and the senior leadership they serve will be facing a much more critical question made real by connectivity: What business are we in?

This age-old question is not being created by connectivity, but it is being forced on product companies that hadn’t set off looking for it. CEOs and boards will be considering if they are a “hardware/product” manufacturer, or if they are a more diverse company that is focused on both the product/ device and also the content that runs through it.

This is not a simple change, and there is no one “right” answer. Some firms will choose to be the best device company, while others will seek to compete in a more content rich environment. Regardless of the choice, however, this decision should be made explicitly. While functional leaders continue to wrestle with how to compete in today’s business, corporate leaders need to create a true connected strategy that allows room to move in the business of choice, for both today and tomorrow.

Gregg Garrett leads a team that advises clients on how to harness innovation in the connected economy as CEO and president of CGS Advisors. He lectures at several universities and contributes to Connected World. Previously, he served in chief strategy roles at Volkswagen Group of America and Deutsche Telekom in North America. He can be reached at greggory.garrett@cgsadvisors.com

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