Friday, August 02, 2019

Challenges when innovating smart, connected devices

I've been struck by the importance of two rapidly converging forces - digital transformation and new product innovation.  As we've discussed, here and elsewhere, ad nauseam, there is increasing demand for new products and services, making stretching the capacity of tenuous innovation processes and teams.  When we add in the new requirement that many of these new products must also be smart and connected, innovation gets a lot more interesting and a lot more difficult.

What does it take to create not just a new product, but a new product that is smart and connected?  Certainly it takes more than simply gluing a sensor to an existing device.  If only it were that simple.  Let's think about what it takes to create smart and connected new devices by considering the simply air filter.  Yes, 3M has released a smart and connected air filter.  As I noted in a previous post, capital equipment (tractors as an example) have been smart and connected for years, but when the concept jumps to consumables like air filters, literally any device can be smart and connected, and that changes everything.

Smart AND connected

First, let's talk about our language.  There are a number of what I'd call "smart" products that capture data or respond to surroundings.  These devices can analyze the environment and turn on or off or take a specific action.  They are somewhat "smart" in that they operate in a way that responds to commands or to the environment.  But many of these aren't necessarily connected to the internet or other systems.

Smart and connected requires that the product include senors and other IoT capability AND share that information with the consumer and with the manufacturer or distributor through the internet.  When the data is shared beyond the household, the smart and connected device becomes the basis for a new potential revenue and business relationship.

What's more important, the product or the data

Using 3M's air filter as an example, we can begin to see that the end product will become the razor and the data created and shared will become the razor blades, only in reverse.  The air filter's value to 3M in terms of revenue and profit is marginal, but the value of the data gathered, managed, analyzed and repackaged is much higher.  As the data is shared, and aggregated from other sources and combined with other geographic, demographic or psychographic data it creates insights for new products and new services and can be packaged and sold to others.  This in turn offers the potential for new business models, new recurring relationships with consumers that the company can control and monitor and new product development based on insights from the data.

Emerging impact on customer experience

A smart connected filter also means that 3M can create and leverage new customer experiences.  Previously if I acquired an air filter I did so based on availability and cost, since the filters were mostly commodities.  If I acquire the 3M smart filter and download the app and have a good experience learning about my usage and in the reordering process, I may "lock in" to 3M's products and even a recurring revenue stream if the customer experience is good.  For a product where traditionally customer experience wasn't important, suddenly secondary issues like customer experience with reordering or the applications or data presentation matters.

Managing and harvesting data

There are so many considerations when transitioning a traditionally "dumb" product to a smart, connected product.  I've noted the challenges with customer experience just above.  Another is the nature and volume of data that will be generated, and the importance of gaining insight and value from that data.  While many of these products may not generate a lot of data, the aggregate data generated will be significant.  Imagine that 3M sells hundreds of thousands of air filters in a year and each is connected and shares even just a few bits of data every day.  That data provides a baseline about product usage.  But when consumers sign in to 3M's app more data becomes available - the customer's location, purchase preferences, reordering models and so forth, for every home that has a smart device.  With that data 3M can then merge their data with more data about location, geography, neighborhood incomes and other data to get a full picture of the client profile, usage, buying patterns and other data to use to improve products, offer new incentives or advertising or package and sell the data.

Transition from dumb to smart and connected

So, far from a simple transition, there are significant shifts when moving to a smart, connected device.  Beyond simply adding a sensor and connectivity, which are not simple but are probably the easier activities, companies will have to consider the data generated and how to obtain value, the enhanced customer interaction and experience and the potential impact to existing business relationships and business models.

If you find that this is more complex than you first imagined, you are right.  My team can help think through this with a framework we've built that considers many of these components to a successful smart, connected device as part of innovation and new product development.  Contact us if you'd like to learn more. 

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posted by Jeffrey Phillips at 7:21 AM


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