History is often taught with a review of major economic revolutions. From the industrial economy to the internet economy, each revolution has utilized technology advancements to drive major shifts in the way businesses operate and how people live and work. Interestingly, each of these changes also has had significant impact on the gross world product (GWP). The intersection of recent technology trends indicates that the world is again poised for another economic revolution … the digital economy. Also known as Industry 4.0, this new reality is being powered by the unique convergence of hyper-connectivity, supercomputing, cloud computing, the smarter world, and cybersecurity. Each of these technology trends has matured and hit scale at the same time. They have already led to exponential growth in the number of connections between people, devices, and businesses.
For businesses, the digital economy means companies are using data analytics as a basis to redefine who they are, what they sell, and how they operate. Finding new ways to connect the business with assets, customers, and suppliers already has led to the development of smarter products and new business models. For example, through data analysis and smart applications, a snack food vending machine has been introduced that anticipates and makes smart purchase recommendations to customers based on their profiles and historical purchase patterns. This same machine also gathers customer demographic information, such as gender and age, and passes it back to the vendor, who uses the information to make smarter inventory decisions, thereby increasing purchasing frequency and revenue. With unmatched opportunities for companies in every industry across the globe, the key to successful product innovation lies in maintaining a strong focus on the business outcomes and keeping customers at the center of everything you do.
How Products Are Changing in the Digital Economy
The digital economy promises to redefine nearly every aspect of a company’s operations—from raw material procurement through post-sale services. Yet, some of the most dramatic changes will be seen in how companies evolve their product portfolios and leverage digital capabilities. New product and service offerings often provide much-needed differentiation in the marketplace and form the foundation for innovative business models, which is one reason behind a recent push for developing “smart” products. While sensors have been embedded in large assets for many years, digital technology now has made them smaller and more affordable. The use of sensors is predicted to grow 700,000% by 2030 in order to help solve nearly every human need and want, from smart shoes to cancer-killing chips (SAP Center for Business Insight 2015). To compete in the new digital economy, companies can start by taking an existing product or device created to perform a single function, and, by adding sensors, allow it to transmit and collect vast amounts of data.
As a result, products are changing in three key ways:
First, embedding sensors in products can make them more intelligent and self-aware of their status so they can solve problems autonomously. For example, using real-time data analytics, mill machines can now self-diagnose failures and automatically trigger maintenance procedures. When a machine fails, companies lose money. In some cases, such as when a cement kiln that operates nonstop 365 days a year goes down unexpectedly, the entire plant stops. However, when machinery is equipped with sensors that produce reliable information about its condition, companies can be alerted immediately when a machine or part may soon be in need of repairs. Companies also can use historical data, forward forecasts, and advanced algorithms to predict service needs. This allows them to perform proactive, preventative maintenance at a fraction of the cost. In addition to savings from reductions in unplanned outages, companies can coordinate maintenance more efficiently. This is important for companies operating in remote locations because it makes them better able to plan to get specialists and parts to these locations.
A second change happening to products in the digital economy is connectivity. Soon everything will be connected: every asset, supplier, worker, and stakeholder. This means products can now work together and through IoT to get jobs done faster and safer than ever before. For example, embedded sensors enable crane-to-crane communication on a construction site. When multiple cranes are moving in tight spaces, it’s important to keep them separated to avoid collisions. Intelligence-enabled cranes constantly transmit distance data to each other so multiple cranes can safely move containers or service the same area without incident.
The rise of the digital economy means companies are using data analytics as a basis to redefine who they are, what they sell, and how they operate.
Product connectivity also opens up a world of possibilities for improving how products interact with the world around them, including people and supply chains. Cloud-based vehicle networks already are in development that connect many types of smart vehicle-related products and services for an improved customer experience. For example, through the vehicle network, drivers can activate gas pumps, pay at the pump, reserve parking, open off-street parking gates, and even pay for on-street parking—all from their cars through a mobile wallet or app. The cubeXX concept car, from STILL International, also provides a great example of using technology to reinvent a product by connecting it to the outside environment. The cubeXX handles logistical challenges through a unique six-in-one design featuring embedded sensor and scanning technology. Among its many features, cubeXX identifies the driver via a chip embedded in clothing, which automatically triggers an access check, automatic seat adaptation, and a customized drive program. From soccer balls to thermostats, there are countless examples of how companies are connecting products and using the resulting data to improve business processes and customer experience.
A third key change beginning to emerge is the ability for companies to manufacture customized products at the efficiency of mass production. Known as mass-personalization, this new capability gives customers exactly what they want, when they want it, while streamlining the supply chain. Using advanced digital technologies on the shop floor, manufacturers are able to automate production lines, thereby making it possible to quickly change configurations to adapt to specific requests. Additionally, 3D printers are used to produce prototypes or specific components that can accommodate personalized requirements. For example, Airbus’ new aircraft has more than 1,000 3D printed parts, according to 3DPrint.com.
Visionary company Harley-Davidson is at the forefront of the digital economy with its customer-centric focus and customized motorcycle configurations. In Harley-Davidson’s manufacturing facility, every machine is a connected device, and every variable is continuously measured and analyzed. The company can tell exactly how long it will take to install every component on a motorcycle, and the system alerts floor managers about issues at the individual component level. In this way, Harley-Davidson can build 1,700 bike variations on one production line and ship a customized bike approximately every 90 seconds.
Data Requirements for Digital Product Transformation
At the heart of digital product transformation are the agility and flexibility to adjust course at any time. To do this, manufacturing companies must be able to bring together transactional information and data analytics on the same platform. Combining all data in a format that allows for easy understanding and analysis leads to more insightful recommendations and ideas, which can then be instantly acted upon either by humans or smart machines. To meet the data requirements necessary to capitalize on the digital economy, companies must first digitize, connect, and collect data on all of their assets, suppliers, workers, and stakeholders. Second, they need high-speed platform technology capable of quickly analyzing the data from multiple angles and combining internal content with external information. Finally, all information must be viewed in the right business context and with the customer experience in mind at all times and across all channels.
Act Now
Early adopters of the digital economy are winning by growing shareholder and stakeholder value faster than their counterparts. Seventy-four percent of U.S. and European retail, healthcare, and manufacturing companies have already developed smart products, according to The Economist. By proactively embracing the digital economy, these industry leaders are harnessing the power of real-time data analytics to develop the next generation of products that connect people and businesses in ways we are just beginning to understand. Gartner estimates that connected products and service suppliers will generate incremental revenue exceeding $300 billion in 2020, and IDC forecasts that the worldwide market for IoT solutions will grow from $1.9 trillion in 2013 to $7.1 trillion in 2020.
The digital economy will allow companies to redefine who they are and where they want to go. Yet, in order to not get lost in this new, connected world, it is important to keep your customers in mind and focus on the ultimate outcomes of any product innovations.
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