This presentation draws on ideas from Professor Porter’s books and articles, in particular, Competitive Strategy (The Free Press, 1980); Competitive Advantage
(The Free Press, 1985); “What is Strategy?” (Harvard Business Review, Nov/Dec 1996); “The Five Competitive Forces That Shape Strategy” (Harvard Business
Review, 2008); On Competition (Harvard Business Review, 2008); “How Smart, Connected Products Are Transforming Competition” (Harvard Business Review,
2014); and “How Smart, Connected Products Are Transforming Companies” (Harvard Business Review, 2015). No part of this publication may be reproduced,
stored in a retrieval system, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of
Michael E. Porter. Additional information may be found at the website of the Institute for Strategy and Competitiveness, www.isc.hbs.edu.
How Smart, Connected Products are
Transforming Competition and Companies
Professor Michael E. Porter
Harvard Business School
Jim Heppelmann
President & CEO, PTC
NAM Smart Manufacturing Summit
03/29/2016
2 03/29/2016 — NAM Smart Manufacturing Summit Copyright 2016 © Professor Michael E. Porter and Jim Heppelmann
Products are
mechanical/electrical
and information
processing is performed
manually
IT automates processes
and information
collection in activities
across the value chain
The internet enables
coordination and
integration across the
value-chain, with
customers, business
partners, and across
geography
IT is embedded in
products themselves,
expanding the way
products create value
and the nature of
competition
Mechanical Products
& Physical Processes
Value Chain
Automation
Value Chain Dispersion and
Integration
Smart, Connected
Products
1800s 1960s 1980s 2000s Beyond
The Third Wave of IT Driven Competition
3 03/29/2016 — NAM Smart Manufacturing Summit Copyright 2016 © Professor Michael E. Porter and Jim Heppelmann
The Technology Stack
Identity &
Security
External
Information
Sources
PRODUCT CLOUD
PRODUCT
Network Communication
Product Data Database
Application Platform
Rules/Analytics Engine
Smart Product
Applications
Product Hardware
Product Software
AR Experiences
Integration
with
Business
Systems
COMMUNICATIONS
4 03/29/2016 — NAM Smart Manufacturing Summit Copyright 2016 © Professor Michael E. Porter and Jim Heppelmann
The Technology Stack
Identity &
Security
External
Information
Sources
ON-PREMISE/HOSTED CLOUD
EQUIPMENT
Local Historian
IT/OT Network Communication
Application Platform
Rules/Analytics Engine
Smart Equipment
Applications
Equipment Hardware
Equipment Software/Controller
AR Experiences
Big Data Database
Integration
with
Business
Systems
COMMUNICATIONS
5 03/29/2016 — NAM Smart Manufacturing Summit Copyright 2016 © Professor Michael E. Porter and Jim Heppelmann
Turning Product Data Into Insight
Data Lake
Prescriptive Analytics
“How to Improve Results?”
Predictive Analytics
“What Will Happen Next?”
Diagnostic Analytics
“Why Did It Happen?”
Descriptive Analytics
“What Happened?”
Enterprise Data
Data Analytics
Smart, Connected
Product Data
Condition
Operation and Use
External Data
Content and
Information
Environment Product
Details
Customer Detail
and History
6 03/29/2016 — NAM Smart Manufacturing Summit Copyright 2016 © Professor Michael E. Porter and Jim Heppelmann
Capabilities of Smart, Connected Product
Smart, connected products enable new categories of capabilities,
with each building on the preceding layers
1. Monitor
2. Control
3. Optimize
4. Automate
Sensors and external data
enables monitoring of:
• Product location
• Product operation
• Product condition
• Surrounding environment
Software embedded in the
product or cloud enables:
• Expanded and remote
control of product functions
• Unprecedented
customization and
personalization
Algorithms and analytics
can optimize:
• Product operation
• Capacity utilization
• Diagnostics, allowing for
predictive service and
repair
The combination of other
capabilities enables:
• Autonomous operation
• Self-coordination with other
products and systems
• Autonomous enhancement
and personalization
• Self-diagnosis and service
7 03/29/2016 — NAM Smart Manufacturing Summit Copyright 2016 © Professor Michael E. Porter and Jim Heppelmann
Overlaying the Digital and Physical Worlds
Enhance Visualize Operate Instruct
Enhance the user’s view
of the real world with
contextual, digital
information or
experiences
Overlay digital dashboard
to visualize information
about the product
operation and condition
in context
Interact with and
personalize a physical
product through an
augmented digital user
interface
Overlay instructions to
train or guide users on
how to operate or
service a product
Augmented Reality (AR):
• Superimposing data and computer graphics onto a
live view of the world
• Enhances existing SCP capabilities with new
experiences
8 03/29/2016 — NAM Smart Manufacturing Summit Copyright 2016 © Professor Michael E. Porter and Jim Heppelmann
Smart, Connected Products and Industry Competition
Threat of Substitute
Products or Services
Threat of New
Entrants
Rivalry Among
Existing Competitors
Bargaining Power
of Buyers Bargaining Power
of Suppliers
9 03/29/2016 — NAM Smart Manufacturing Summit Copyright 2016 © Professor Michael E. Porter and Jim Heppelmann
10 03/29/2016 — NAM Smart Manufacturing Summit Copyright 2016 © Professor Michael E. Porter and Jim Heppelmann
11 03/29/2016 — NAM Smart Manufacturing Summit Copyright 2016 © Professor Michael E. Porter and Jim Heppelmann
Smart, Connected Products and Industry Competition
Threat of Substitute
Products or Services
Threat of New
Entrants
Rivalry Among
Existing Competitors Bargaining Power
of Suppliers
Bargaining Power
of Buyers
+ Expanded opportunities for
differentiation, segmentation,
switching costs
12 03/29/2016 — NAM Smart Manufacturing Summit Copyright 2016 © Professor Michael E. Porter and Jim Heppelmann
Smart, Connected Products and Industry Competition
+ Less dependence on
mechanical components
Threat of Substitute
Products or Services
Threat of New
Entrants
Rivalry Among
Existing Competitors Bargaining Power
of Suppliers
Bargaining Power
of Buyers
+ Expanded opportunities for
differentiation, segmentation,
switching costs
13 03/29/2016 — NAM Smart Manufacturing Summit Copyright 2016 © Professor Michael E. Porter and Jim Heppelmann
Smart, Connected Products and Industry Competition
+ Shift rivalry away from price + Less dependence on
mechanical components
Threat of Substitute
Products or Services
Threat of New
Entrants
Rivalry Among
Existing Competitors Bargaining Power
of Suppliers
Bargaining Power
of Buyers
+ Expanded opportunities for
differentiation, segmentation,
switching costs
14 03/29/2016 — NAM Smart Manufacturing Summit Copyright 2016 © Professor Michael E. Porter and Jim Heppelmann
Smart, Connected Products and Industry Competition
+ Shift rivalry away from price + Less dependence on
mechanical components
Threat of Substitute
Products or Services
Threat of New
Entrants
Rivalry Among
Existing Competitors Bargaining Power
of Suppliers
Bargaining
Power of
Buyers
Bargaining
Power of
Channels
+ Reduced
dependency on
channels/
service partners
+ Expanded
opportunities for
differentiation,
segmentation,
switching costs
15 03/29/2016 — NAM Smart Manufacturing Summit Copyright 2016 © Professor Michael E. Porter and Jim Heppelmann
Smart, Connected Products and Industry Competition
Threat of Substitute
Products or Services
Threat of New
Entrants
Rivalry Among
Existing Competitors Bargaining Power
of Suppliers
Bargaining
Power of
Buyers
Bargaining
Power of
Channels
+ Reduced
dependency on
channels/
service partners
+ Expanded
opportunities for
differentiation,
segmentation,
switching costs
+ Shift rivalry away from price + Less dependence on
mechanical components
+ Higher barriers to entry
16 03/29/2016 — NAM Smart Manufacturing Summit Copyright 2016 © Professor Michael E. Porter and Jim Heppelmann
Smart, Connected Products and Industry Competition
+ Shift rivalry away from price
+ Higher barriers to entry
Threat of Substitute
Products or Services
Threat of New
Entrants
Rivalry Among
Existing Competitors Bargaining Power
of Suppliers
+ Less dependence on
mechanical components
Bargaining
Power of
Buyers
Bargaining
Power of
Channels
+ Reduced
dependency on
channels/
service partners
+ Expanded
opportunities for
differentiation,
segmentation,
switching costs
-/+ New business
models support
recurring revenue
but can be
terminated
-/+ Greater customer
visibility of value
+ Expanded
opportunities for
differentiation,
segmentation,
switching costs
17 03/29/2016 — NAM Smart Manufacturing Summit Copyright 2016 © Professor Michael E. Porter and Jim Heppelmann
Smart, Connected Products and Industry Competition
+ Shift rivalry away from price
+ Higher barriers to entry
+ Less dependence on
mechanical components
- Greater power of
IT vendors
Threat of Substitute
Products or Services
Threat of New
Entrants
Rivalry Among
Existing Competitors Bargaining Power
of Suppliers
Bargaining
Power of
Buyers
Bargaining
Power of
Channels
+ Reduced
dependency on
channels/
service partners
+ Expanded
opportunities for
differentiation,
segmentation,
switching costs
-/+ New business
models support
recurring revenue
but can be
terminated
-/+ Greater customer
visibility of value
+ Expanded
opportunities for
differentiation,
segmentation,
switching costs
18 03/29/2016 — NAM Smart Manufacturing Summit Copyright 2016 © Professor Michael E. Porter and Jim Heppelmann
Smart, Connected Products and Industry Competition
+ Shift rivalry away from price
+ Higher barriers to entry
Threat of Substitute
Products or Services
Threat of New
Entrants
Rivalry Among
Existing Competitors Bargaining Power
of Suppliers
- Higher utilization and product
sharing reduce volume
+ Less dependence on
mechanical components
- Greater power of
IT vendors
Bargaining
Power of
Buyers
Bargaining
Power of
Channels
+ Reduced
dependency on
channels/
service partners
+ Expanded
opportunities for
differentiation,
segmentation,
switching costs
-/+ New business
models support
recurring revenue
but can be
terminated
-/+ Greater customer
visibility of value
+ Expanded
opportunities for
differentiation,
segmentation,
switching costs
19 03/29/2016 — NAM Smart Manufacturing Summit Copyright 2016 © Professor Michael E. Porter and Jim Heppelmann
Smart, Connected Products and Industry Competition
+ Shift rivalry away from price
- Higher fixed costs increase
pressure to discount
+ Higher barriers to entry
+ Less dependence on
mechanical components
- Greater power of
IT vendors
Threat of Substitute
Products or Services
Threat of New
Entrants
Rivalry Among
Existing Competitors Bargaining Power
of Suppliers
- Higher utilization and product
sharing reduce volume
Bargaining
Power of
Buyers
Bargaining
Power of
Channels
+ Reduced
dependency on
channels/
service partners
+ Expanded
opportunities for
differentiation,
segmentation,
switching costs
-/+ New business
models support
recurring revenue
but can be
terminated
-/+ Greater customer
visibility of value
+ Expanded
opportunities for
differentiation,
segmentation,
switching costs
20 03/29/2016 — NAM Smart Manufacturing Summit Copyright 2016 © Professor Michael E. Porter and Jim Heppelmann
Smart, Connected Products and Industry Competition
+ Shift rivalry away from price
- Higher fixed costs increase
pressure to discount
+ Higher barriers to entry
- New entrants can leapfrog incumbents
+ Less dependence on
mechanical components
- Greater power of
IT vendors
Threat of Substitute
Products or Services
Threat of New
Entrants
Rivalry Among
Existing Competitors Bargaining Power
of Suppliers
- Higher utilization and product
sharing reduce volume
Bargaining
Power of
Buyers
Bargaining
Power of
Channels
+ Reduced
dependency on
channels/
service partners
+ Expanded
opportunities for
differentiation,
segmentation,
switching costs
-/+ New business
models support
recurring revenue
but can be
terminated
-/+ Greater customer
visibility of value
+ Expanded
opportunities for
differentiation,
segmentation,
switching costs
21 03/29/2016 — NAM Smart Manufacturing Summit Copyright 2016 © Professor Michael E. Porter and Jim Heppelmann
Expanding and Shifting Industry Boundaries Farm Equipment
Weather Data
System
Irrigation
System
Seed Optimization
System
Farm Equipment
System
Rain, humidity,
temperature
sensors
Weather
maps
Weather
forecasts
Weather data
application
Farm performance
database
Seed database
Seed optimization
application
Field
sensors
Irrigation
nodes
Irrigation
application
SYSTEM OF SYSTEMS
TILLERS PLANTERS
TRACTOR FLEETS
Farm
Equipment
System
COMBINE
HARVESTERS
PRODUCT SYSTEM
+
+
SMART, CONNECTED
PRODUCT
+
SMART
PRODUCT
PRODUCT
Farm
Management
System
Platform
22 03/29/2016 — NAM Smart Manufacturing Summit Copyright 2016 © Professor Michael E. Porter and Jim Heppelmann
23 03/29/2016 — NAM Smart Manufacturing Summit Copyright 2016 © Professor Michael E. Porter and Jim Heppelmann
File
Transfer
Field
Connect
Agronomic
Data
Machine
Monitoring
24 03/29/2016 — NAM Smart Manufacturing Summit Copyright 2016 © Professor Michael E. Porter and Jim Heppelmann
+ Less dependence on
mechanical components
- Greater power of
IT vendors
Threat of Substitute
Products or Services
Threat of New
Entrants
Rivalry Among
Existing Competitors Bargaining Power
of Suppliers
- Higher utilization and product
sharing reduce volume
+/- Systems disintermediate
discrete products
+ Higher barriers to entry
- New entrants can leapfrog incumbents
+ Shift rivalry away from price
- Higher fixed costs increase pressure to
discount
Smart, Connected Products and Industry Competition
Bargaining
Power of
Buyers
Bargaining
Power of
Channels
+ Reduced
dependency on
channels/
service partners
+ Expanded
opportunities for
differentiation,
segmentation,
switching costs
-/+ New business
models support
recurring revenue
but can be
terminated
-/+ Greater customer
visibility of value
25 03/29/2016 — NAM Smart Manufacturing Summit Copyright 2016 © Professor Michael E. Porter and Jim Heppelmann
+ Less dependence on
mechanical components
- Greater power of
IT vendors
Threat of Substitute
Products or Services
Threat of New
Entrants
Rivalry Among
Existing Competitors Bargaining Power
of Suppliers
+ Higher barriers to entry
- New entrants can leapfrog incumbents
+ Shift rivalry away from price
- Higher fixed costs increase pressure to
discount
+/- Rivalry shifts from products to systems
Smart, Connected Products and Industry Competition - Higher utilization and product
sharing reduce volume
+/- Systems disintermediate
discrete products
Bargaining
Power of
Buyers
Bargaining
Power of
Channels
+ Reduced
dependency on
channels/
service partners
+ Expanded
opportunities for
differentiation,
segmentation,
switching costs
-/+ New business
models support
recurring revenue
but can be
terminated
-/+ Greater customer
visibility of value
26 03/29/2016 — NAM Smart Manufacturing Summit Copyright 2016 © Professor Michael E. Porter and Jim Heppelmann
+ Less dependence on
mechanical components
- Greater power of
IT vendors
Threat of Substitute
Products or Services
Threat of New
Entrants
Rivalry Among
Existing Competitors Bargaining Power
of Suppliers
+ Higher barriers to entry
- New entrants can leapfrog incumbents
- New potential entrants from other parts of the product system
+ Shift rivalry away from price
- Higher fixed costs increase pressure to
discount
+/- Rivalry shifts from products to systems
Smart, Connected Products and Industry Competition - Higher utilization and product
sharing reduce volume
+/- Systems disintermediate
discrete products
Bargaining
Power of
Buyers
Bargaining
Power of
Channels
+ Reduced
dependency on
channels/
service partners
+ Expanded
opportunities for
differentiation,
segmentation,
switching costs
-/+ New business
models support
recurring revenue
but can be
terminated
-/+ Greater customer
visibility of value
27 03/29/2016 — NAM Smart Manufacturing Summit Copyright 2016 © Professor Michael E. Porter and Jim Heppelmann
• Creating a unique competitive
position
• Assimilating and extending
best practices
Operational
Effectiveness
Smart, Connected Products Strategy
Getting to the
productivity frontier
Doing things differently to
deliver distinctive value
Strategic
Positioning
28 03/29/2016 — NAM Smart Manufacturing Summit Copyright 2016 © Professor Michael E. Porter and Jim Heppelmann
Which product capabilities to pursue?
Functionality embedded in the
product vs. the cloud?
Open or closed system?
Technology development:
internal or outsource?
What data to capture?
How to manage data rights, access, and security?
Disintermediate distribution
or service channels?
Change the
business model?
Sell data to
outside parties?
Expand product scope to
systems?
6
9
7
8
10
5
2
4
1
3
Ten Strategic Choices for Manufacturers
29 03/29/2016 — NAM Smart Manufacturing Summit Copyright 2016 © Professor Michael E. Porter and Jim Heppelmann
Value
What
buyers are
willing to
pay
Support
Activities
a
r g
i
n
Primary Activities
Procurement
After-Sales
Service
Manufacturing
Firm Infrastructure
How Smart, Connected Products Transform the Value Chain
Human Resource Management
M Technology Development
Inbound
Logistics
Order
Processing
& Outbound
Logistics
Marketing
& Sales
30 03/29/2016 — NAM Smart Manufacturing Summit Copyright 2016 © Professor Michael E. Porter and Jim Heppelmann 30
New Principles of Product Design
Configurable
Tractor Engine
• Products become complex systems involving sensors, software, connectivity, and operating in the cloud
• Product development shifts from largely mechanical engineering and product design to true interdisciplinary systems
engineering
• New design principles emerge, including:
− Design for low-cost variability of function
− Design for evergreen customization and improvement
− Design enabling new user interfaces
− Design for ongoing quality management
− Design for connected service
− Design for system interoperability
− Design for new business models
User Interface via a
Mobile App
Bikes Designed for Sharing
Product Development
31 03/29/2016 — NAM Smart Manufacturing Summit Copyright 2016 © Professor Michael E. Porter and Jim Heppelmann
Inbound and Outbound Logistics
Connected Ordering and Tracking
• The early roots of SCPs were in the use of RFID (radio frequency identification) for product identification and
tracking, allowing more efficient routing and faster delivery
– SCPs go beyond RFID to enable continuous monitoring, allowing broader logistical improvements
• Locate and monitor key assets (e.g. raw materials, final products, containers) to optimize logistics, prevent quality
issues, and detect theft.
• Real- time data on customer usage and consumable status also enables predicting needs and further automating
order processing, shipping, and delivery
32 03/29/2016 — NAM Smart Manufacturing Summit Copyright 2016 © Professor Michael E. Porter and Jim Heppelmann
• Shift from traditional transactional sales to proactively maximize ongoing product value for the
customer, enabled by increased visibility of product use
• Greater opportunities for segmentation and personalization of features, special offers, or after-sale
service packages
• Enable more sophisticated pricing models based on usage at the segment or individual customer level
• Manage upgrades, replacement products and services over the product’s life
• Expand opportunities for new value added services (e.g. benchmarking) or business models (e.g.
products as a service)
• Sell entire product systems or platforms
Redefining Customer Relationships
Smart Home Platform
Demand Based
Pricing Model Single Button Ordering
Marketing & Sales
33 03/29/2016 — NAM Smart Manufacturing Summit Copyright 2016 © Professor Michael E. Porter and Jim Heppelmann
• Shift from reactive service to proactive, predictive and remote service
System-wide fixes and improvements can be proactively pushed to all units in use via the cloud
Analysis of product performance data can anticipate problems and improve uptime and technician utilization
Remote diagnostics allows for one-stop service and higher fix rates, while other problems are fixed remotely
• Incorporate augmented reality (AR) to make product operation, training, and service more efficient
• Potential to disrupt channel service providers through “digital proximity” and direct connections to products/customers
• Offer product as a service, and introduce entirely new value added services
New Service Delivery Approaches
Remote Diagnostics
Augmented Reality
Enabled Service
After-Sales Service
One-Stop Service
34 03/29/2016 — NAM Smart Manufacturing Summit Copyright 2016 © Professor Michael E. Porter and Jim Heppelmann
Capitalize on Smart, Connected Equipment
• Smart, connected equipment that integrates, automates, and optimizes the production process (e.g. Industrie 4.0 and
Smart Manufacturing) to improve labor, material and energy efficiency
• SCPs hold the individual production steps, including control of the manufacturing equipment, to automate
manufacturing systems and enable multiple products on a single production line
• Connect equipment, factory sensors, and manufacturing systems to improve root cause analysis and corrective actions
and enable real-time and predictive quality measurement
• Smart tools and smart work instructions connected in real-time to manufacturing systems to improve efficiency, quality
and performance of assembly workers
Smart, Connected
Automotive Assembly
Smart Manufacturing Operations
Plant Floor Visibility Smart Tools
35 03/29/2016 — NAM Smart Manufacturing Summit Copyright 2016 © Professor Michael E. Porter and Jim Heppelmann
Restructuring Production and Ongoing Product Operation
• SCPs can reduce the physical complexity of products as more features and variability are delivered via software,
simplifying assembly
• SCPs enable later stage design changes, via software, and the ability to finalize the product post-manufacturing
• SCPs rely on a cloud-based technology stack that must be continuously and seamlessly operated and improved over
the product’s life
• The product can be modified and enhanced after purchase and customized based on the customer’s evolving
preferences
Customization via Software “Glass” Airplane Cockpit
Smart, Connected Product Manufacturing
Remote Software Enhancement
36 03/29/2016 — NAM Smart Manufacturing Summit Copyright 2016 © Professor Michael E. Porter and Jim Heppelmann
Parts are delivered late
to customer
UNSATISFIED
CUSTOMER = $
Repair parts located or
ordered and
equipment repair implemented
PARTS & REPAIR
WORK = $
Unexpected part quality
issue found
during inspection
POOR QUALITY = $
Operator stops
producing the parts,
begins a cascade of process disruption
DOWNTIME = $
Material review
board meets for
emergency troubleshooting
CRISIS WORK = $
Parts already produced
are quarantined for
Scrap or Rework
SCRAP &
REWORK = $
CAPA and traceability
initiatives are initiated
EXTRA WORK = $
Machine learning
detects onset of
process anomaly and
alerts operator
MONITORING = $
The OLD Manufacturing Process
The NEW Manufacturing Process Operator analyzes
problem before
significant problems
materialize
DOWNTIME
AVOIDANCE = $
Replacement parts
can be located or
ordered in advance
EXTRA LEAD
TIME = $
Augmented reality
3D documentation
ensures quick fix
QUICK FIX = $
Machine, process,
and quality data is
collected
automatically
AUTO DATA
CAPTURE = $
Quality parts are
delivered on-time to
the assembly line
SATISFIED
CUSTOMER = $
Unexpected problems and cascading
delays result in significant loss of
profitability and customer satisfaction
37 03/29/2016 — NAM Smart Manufacturing Summit Copyright 2016 © Professor Michael E. Porter and Jim Heppelmann
• Businesses units are organized into distinct functional units
• Integration occurs through management committees, process flow handoffs
and other mechanisms that facilitate coordination across the organization
CEO
FINANCE HUMAN
RESOURCES
IT R&D MANUFACTURING MARKETING SALES SERVICE AND
SUPPORT
Implications for Organizational Structure
38 03/29/2016 — NAM Smart Manufacturing Summit Copyright 2016 © Professor Michael E. Porter and Jim Heppelmann
TRADITIONAL FUNCTIONS
NEW FUNCTIONS
CEO
FINANCE HUMAN
RESOURCES
IT R&D MANUFACTURING MARKETING SALES SERVICE AND
SUPPORT
UNIFIED DATA
ORGANIZATION
DEV-OPS
CUSTOMER
SUCCESS
MANAGEMENT
Led by a chief data officer. Handles
unit-wide data aggregation and
analytics, collaborates with and
shares information and insights
across the firm.
The Shifting Organizational Model
39 03/29/2016 — NAM Smart Manufacturing Summit Copyright 2016 © Professor Michael E. Porter and Jim Heppelmann
TRADITIONAL FUNCTIONS
NEW FUNCTIONS
CEO
FINANCE HUMAN
RESOURCES
IT R&D MANUFACTURING MARKETING SALES SERVICE AND
SUPPORT
UNIFIED DATA
ORGANIZATION
DEV-OPS
CUSTOMER
SUCCESS
MANAGEMENT
Deep collaboration reflecting
the new need for IT in product
development. May lead to IT
teams embedded in R&D or
product design teams with IT
representation.
Led by a chief data officer. Handles
unit-wide data aggregation and
analytics, collaborates with and
shares information and insights
across the firm.
The Shifting Organizational Model
40 03/29/2016 — NAM Smart Manufacturing Summit Copyright 2016 © Professor Michael E. Porter and Jim Heppelmann
TRADITIONAL FUNCTIONS
NEW FUNCTIONS
CEO
FINANCE HUMAN
RESOURCES
IT R&D MANUFACTURING MARKETING SALES SERVICE AND
SUPPORT
UNIFIED DATA
ORGANIZATION
DEV-OPS
CUSTOMER
SUCCESS
MANAGEMENT
Oversees product updates,
enhancements, and postsale service,
and coordinates shorter release cycles
while achieving 100% reliability.
Deep collaboration reflecting
the new need for IT in product
development. May lead to IT
teams embedded in R&D or
product design teams with IT
representation.
Led by a chief data officer. Handles
unit-wide data aggregation and
analytics, collaborates with and
shares information and insights
across the firm.
The Shifting Organizational Model
41 03/29/2016 — NAM Smart Manufacturing Summit Copyright 2016 © Professor Michael E. Porter and Jim Heppelmann
TRADITIONAL FUNCTIONS
NEW FUNCTIONS
CEO
FINANCE HUMAN
RESOURCES
IT R&D MANUFACTURING MARKETING SALES SERVICE AND
SUPPORT
UNIFIED DATA
ORGANIZATION
DEV-OPS
CUSTOMER
SUCCESS
MANAGEMENT
Takes charge of the ongoing
customer relationship, ensuring
that customers gain maximum
value from the product.
Oversees product updates,
enhancements, and postsale service,
and coordinates shorter release cycles
while achieving 100% reliability.
Deep collaboration reflecting
the new need for IT in product
development. May lead to IT
teams embedded in R&D or
product design teams with IT
representation.
Led by a chief data officer. Handles
unit-wide data aggregation and
analytics, collaborates with and
shares information and insights
across the firm.
The Shifting Organizational Model
42 03/29/2016 — NAM Smart Manufacturing Summit Copyright 2016 © Professor Michael E. Porter and Jim Heppelmann
The Larger Opportunity
• Smart, connected products are dramatically increasing opportunities for value creation
and higher productivity throughout the economy
• SCPs create a whole new generation of lean, driving out waste
• SCPs will transform competition in many service industries, not just in manufacturing
• While there will be dislocations, the net effect is likely to be rising productivity, faster economic
growth and improving prosperity
• SCPs will allow for better meeting human needs by conserving natural resources, improving health
and safety, raising energy efficiency, sharing products, and others
• SCPs will affect jobs and the nature of work
• The net effect on jobs will be positive, through faster growth, new businesses, new roles, and
new tools for training and human resource development
• The impact of SCPs is still in the early innings