How can smart products create smarter businesses?
Businesses can capture more information than ever before thanks to innovations in connected devices. How can they use it for more than incremental gains?
We’re in the era of the “smart” product – connected devices that collect and transmit a vast range of data. Used effectively, that data can provide previously impossible insight into almost every aspect of the way the world works, facilitating significant future improvements and efficiencies.
“The challenge today is not the technology,” says Rob Holston, EY Global Consumer Products Commercial Analytics Leader, “but the inability of most large organizations to operationalize it at the pace and scale needed to create differentiation.”
Realizing the full potential of data
The rise of the Internet of Things (IoT) and smart technology doesn’t just provide opportunities for new product lines, or even for new revenue streams through selling the data collected by your new connected devices. Approached the right way, it can open up whole new ways of thinking, working and doing business.
“Now that we can see the digital world in a digital format, what does that mean?” asks Edwina Fitzmaurice, EY Global Advisory Business Development Leader. “Everything that now exists, including people, is going to be monitored inside a computer at a very precise level. We've never had that before.”
“Many large organizations recognize their business models have been or are going to be disrupted by the rise of these new technologies,” says Holston, “but they’re not seeing the full picture. They can’t see where this could take their business or what is required for them to be competitive in this new environment.”
“Too often, businesses are pondering how technology can make existing processes better,” says Holston, "when they should be asking, ’what’s our unconstrained vision of the future given all these market dynamics, access to technology, data, algorithms and people?’”
The short-term improvement
“The Internet of Things is really about sensors,” says Fitzmaurice. “An IoT device is a monitoring device, gathering data.” With detailed data on how your customers are using your products and services, their behavior can be analyzed to discover trends and patterns that can help you to identify ways to improve your offerings and increase customer loyalty.
Modern video games are a great example. Being entirely digital, and born into a digital world, they have long been able to monitor user behavior and adjust the game in response. If users are frequently finding particular sections difficult, then the game can be altered to make it easier – or vice versa, to increase the challenge and make the game more fun. Increasingly, this kind of adjustment can even be done algorithmically, in real-time, personalized for individual gamers.
“Now apply that to your supply chain,” says Fitzmaurice, “being able to monitor that in real-time and track every asset in the supply chain back to the original source.” You will be able identify inefficiencies and improvements throughout your entire business, radically improving your operations, perhaps even in real-time.
With the rise of the smart product, this kind of approach is increasingly possible in the real world. But this is still thinking small. It’s just optimizing existing processes, rather than creating new processes and business models.
The long-term business model change
The data generated by your connected devices is the first big opportunity for new revenue streams – selling or leasing access to your data to enable others to create accessory or complementary products and services around yours. For the entire life cycle of the product, data will be generated that can be monetized as well as feed into future product development. A car manufacturer with sensors tracking road surfaces will be generating data that could feed into improved urban planning and traffic flow systems, or be used to update digital road maps.
A farmer with smart sensors on his or her equipment will be generating data that could help markets predict crop yield, making him or her effectively a farmer of financial information as well as corn. This is why “companies are battling to own the data right now,” says Fitzmaurice.
The sensors and data they generate are just the start. There’s also their processing power – few IoT devices will be using their computing capabilities all the time, but via their internet connections that processing power could be leased out during downtime as part of a distributed cloud network, helping process other information for third parties.
“But the big shift is from thinking about selling finite products to selling longer-term services,” says Fitzmaurice. The product stops being something a customer owns, and becomes a continually improved service that they subscribe to.
Here computer games have again led the way: now the post-release period sees multitudes of updates, add-ons and additional features, many of which are charged for on a “pay-as-you-go” basis. Some games have even gone “freemium” – the game itself is free to play, but users can decide to make micropayments or take out subscriptions to gain access to special features.
Using continual analysis of customer behavior via analytics to adapt and evolve the game, developers can work so that their audiences remain playing – and paying – over much longer timeframes. Their detailed knowledge of their customers also means they have valuable data insights that can potentially be used for other revenue streams or developing new products.
With the right approach and the connectivity of the smart product, where the physical is digitized through sensors, these business models could work for almost any product or industry.
Are you asking the right questions?
Even when businesses set off on the right path to capitalize upon the data from their products, they can set unrealistic, irrelevant targets that mean hitting short-term goals takes precedence over the long-term aim, which should be to use connected technology to improve their products and services. Overcoming these self-imposed constraints is now more than ever a fundamental part of remaining competitive in business.
“While connected devices and the rise of availability of customer data can lead to some obvious insights and ways to improve products in the short-term, businesses needs to step back and rethink their fundamental assumptions about their industries,” says Holston.
More detailed data about how customers are using your products and services may generate ideas for incremental improvements, but what else can you learn from their habits and interests? Could there be hidden needs you are not yet addressing? Could this data be hiding insights that could lead to the development of whole new product lines and revenue streams?
“It all starts with asking ‘what’s possible?’ and thinking more broadly about where value is going to be created,” says Holston. If you start from assessing the full range of possibilities, rather than simply attempting to hit targets or make incremental improvements, the potential for radical growth is truly immense in this time of rapid change.
We are entering an age of unprecedented access to information. This means businesses have unprecedented potential. The key is not to set limits, but to aim to break new ground.