PPB July 2018

FEATURE | PPAI Exclusive Research Are Transforming Competition,” authors Michael E. Porter and James E. Heppelmann identify three core elements that make a product “smart”: 1) Physical components that change the product design using mechanical and electrical parts; 2) Smart components that give the product a virtual identity, typically embedded in an operating system and accessed through an enhanced user interface; 3) Connectivity components that enable a wired or wireless connection with the product, whether installed, in the workflow or in the hands of the user. Smart components amplify the capabilities and value of physical components, while connectivity components amplify the capabilities and value of smart products. The result is an ongoing cycle of value improvement. Newly added components enable an entirely fresh set of product functions and capabilities. Each builds on the preceding, allowing smart products to monitor the product’s condition, external environment, operation and usage, control product functions and optimize product performance. It also allows autonomous product self- diagnosis and service, enhancement and personalization, as well as self- coordination with other products and systems. While each capability is valuable in its own right, a product can potentially incorporate all four components. Products that were simply electronic were once considered “smart,” but now this label is expanding to everyday products. The Expo attendee badges are an example of how the smart revolution has already entered the mainstream—by the extension of ordinary products in our daily lives. Due to the falling price of IoT sensors and their increasing efficiency, the market for sensors in IoT devices is projected to grow at a compound annual growth rate of nearly 27 percent. In fact, the International Data Corporation (IDC) predicts more than 100 billion connected devices will be in service by 2025, generating revenue close to $10 trillion. Figure 5: The Impact Of Smart Product Development Source: PPAI 2018 Business Study HIGHER MARGINS 35% LOWER MARGINS 65% INCREASED INDUSTRY COLLABORATION 67% REDUCED INDUSTRY COLLABORATION 33% MORE COMPETITION 74% LESS COMPETITION 26% Figure 6: Making Sense Of The Smart Product Opportunity Source: PPAI 2018 Business Study Most Important Strategic Objectives Suppliers Hope To Pursue Through The Development Of Smart Products Most Important Reasons Distributors Will Use Data Collected From Smart Products BRING NEW PRODUCT CATEGORIES TO THE MARKET IMPROVE CUSTOMER EXPERIENCE IMPROVE CUSTOMER UNDERSTANDING GROW MARKET SHARE IN ESTABLISHED PRODUCT CATEGORIES GROW REPUTATION FOR INNOVATION ADD NEW PRODUCT CATEGORIES TO THE ORGANIZATION GAIN GREATER PROXIMITY TO BUYERS 67% 58% 42% 58% 42% 42% 25% PROTECT AGAINST DISRUPTION FROM COMPETITORS 17% IMPROVE CUSTOMER SERVICE PERSONALIZE SERVICES AUTOMATE CUSTOMER SERVICE PRODUCE MARKETING CAMPAIGNS OPTIMIZE INTERNAL BUSINESS PROCESSES ANALYZE PRODUCT USE OPTOMIZE PRODUCT DESIGN / PERFORMANCE ANALYZE PRODUCT LIFECYCLE COLLABORATE ON PRODUCTS WITH SUPPLIERS 75% 67% 39% 35% 33% 27% 24% 20% 20% TRACK CUSTOMERS’ LOCATIONS 14% 30 | JULY 2018 |