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Kathleen Mitford

As we go about our daily lives, it is hard to escape the prevalence of smart, connected products. They impact almost everything from our health and home life to our lives at work.

Behind these smart, connected products are manufacturers experiencing the impact that these type of products have on overall strategy and organization. With IoT promising the opportunity for new value creation and competitive advantage, manufacturers are eager to capitalize on its potential. While some manufacturers are adapting their businesses quickly, others are struggling to kick off their IoT initiatives and develop a clear strategy for smart, connected products.

One of the biggest disruptions to consider in an IoT strategy, is how smart, connected products require a reshaping of the manufacturing organization. In addition to the vast amount of decisions that need to be made specifically related to the products themselves — what connected capabilities and infrastructure should be pursued — manufacturers must also prepare for the implications that these connected products will have across their organizations’ processes and structure. An IoT strategy requires new levels of collaboration internally and affects every activity in a manufacturer’s value chain including engineering (research and development), manufacturing, IT, marketing, human resources, finances and more.

PTC CEO, Jim Heppelmann, and Harvard Business School Professor, Michael Porter, co-authored a series of Harvard Business Review articles that focus on the transformation companies are making due to smart, connected products. The most recent article focuses on how these products are impacting companies’ operations and organizational structure and altering the processes and activities within departments to a degree that requires evaluation and possible restructuring.

“You need new ways to collaborate, and the need for new functions that do things like data analytics, and different ways of maintaining and insuring the success of customer relationships over time,” says Jim Heppelmann, PTC CEO.

“As Professor Porter and I, together with our research teams, analyzed the companies that were moving into the world of smart, connected products, we began to realize that these companies are actually entering a situation where they’re placing one foot in the traditional world of a company who manufactures, sells, and services physical products — and the other in this new world that’s basically a software-as-a-service-based technology company,” continues Heppelmann. “And it’s creating a lot of new challenges for them.”

With software an essential component of smart, connected products, manufacturers must have the infrastructure in place to incorporate software, the cloud and data analytics into the mix while also continuing to design, produce and support complex physical products. The classic model of a manufacturer’s organizational structure isn’t optimized for smart, connected products and the emergence of a structure that will foster a successful coexistence of smart, connected products with traditional physical products is required.

Four opportunities to redesign an organizational structure to support a manufacturer’s IoT strategy are highlighted in the recent Harvard Business Review article, “How Smart, Connected Products are Transforming Companies.”

1. IT and R&D Integration

When creating smart, connected products that are embedded with IT hardware and software, it is important for IT to engage in a more central role with the R&D organization. The IT department is typically the most skilled to support the IoT infrastructure and has the cloud-based experience required for connected products. Manufacturers need to consider how to make a collaborative relationship between the two units work whether it is embedding an IT team within the R&D organization or creating a cross-functional product design team with IT representation.

“We need them to work together, to each bring their skill to the table and try to figure out how we can make a product that is one part physical, one part digital, and all very safe and secure and meeting the customer requirements at the same time,” says Heppelmann.

2.  The New Data Resource

To truly unlock the value of IoT, the data coming from smart, connected products needs to be accessed and analyzed in order to understand and reveal potential opportunities for value. “But we have to figure out how to decode, through big data analytics, what the data is telling us and then how to provide that insight and intelligence back to the departments that would benefit from it,” says Heppelmann.

The challenge to gaining this insight and intelligence increases with the complexity and tremendous volume of data streaming from connected products in the field. Most organizations are not currently equipped to handle the large volume of data coming off of these connected devices and are struggling to effectively collect, manage and analyze the data. An increasing number of organizations are creating dedicated data units that are led by a C-level executive or in some cases, a Chief Data or Analytics Officer who reports to the CEO, CFO or COO. By creating a dedicated data organization you have a centralized function that is tasked with consolidating and analyzing all of the data collected; managing the issues of data security; as well as communicating the insights from the data across the applicable functions and business units it impacts. This strategy ensures that there is a unified vision and strategy for data across the organization.

3. A New Functional Group: Dev-Ops

Smart, connected products can be continually upgraded via software, often remotely, as well as be updated to meet new customer requirements or solve performance issues. This new evergreen design model that calls for continuous product operation, support and product upgrades creates a need for manufacturers to create a new functional group called Dev-ops. This term comes from the software industry and describes a collaborative, cross-functional software development and deployment method.

“This careful introduction of changes into a fleet of products as they’re being actively operated is really the domain of DevOps—not previously seen in manufacturing companies,” says Heppelmann.

A manufacturer’s Dev-ops team would be responsible for the management and optimization and ongoing performance of connected products after they have left the factory including product updates and patches, delivering new services, product maintenance and more.

4. Customer Success Management

To ensure that customers are getting value out of smart, connected products, manufacturers also need an organizational unit dedicated to customer success management.

The recent Harvard Business review article says, “This unit (Customer Success) performs roles that traditional sales and service organizations are not equipped for and don’t have incentives to adopt: monitoring product use and performance data to gauge the value customers capture and identifying ways to increase it. This new unit does not operate as a self-contained silo but collaborates on an ongoing basis with marketing, sales, and service.”

“For many companies, the change from the traditional manufacturing model, to this new world of smart, connected products is a daunting organizational transformation,” says Heppelmann.

Yet there are techniques companies can use to make the transition, he advises. One is to form a cross functional steering committee that oversees a smart, connected products program, or initiative. Another is to form a center of excellence by drafting talent from different parts of the business to develop best practices for the broader organization. Another is the formation of a new business unit so that other business units that can then retain a strong focus on the traditional aspects of the business.

“These are all transition techniques, probably all temporary techniques, on the path to some new normal that could be years down the road by the time a company really masters where they’re going,” concludes Heppelmann.

The organizational challenges that smart, connected products present may seem difficult and uncertain but those manufacturers who are able to successfully navigate the transformation have the opportunity to gain strong competitive advantage and long-term customer value.  By considering these four opportunities within an IoT strategy, manufacturers can take steps to ensure that they have the internal infrastructure in place for the IoT journey.

Kathleen Mitford is CVP of Corporate Strategy at PTC.

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