Michael Porter on How Smart, Connected Products are Ushering in a New Era of Competition

How Smart, Connected Products are Transforming Competition” just published on Harvard Business Review’s website. Read it now as it will only be available, in full and for free, for two weeks. We promise it is an important and worthwhile investment of your time and for your career.  

Information technology (IT) radically reshaped competition and strategy twice over the past 50 years – and it’s doing so again, observes Harvard Business School Professor Michael Porter, the world’s preeminent authority on strategy and competition. Automation within the value chain sent productivity soaring in the 1960s and 1970s; 20 years later, the rise of the Internet made global coordination and integration possible and seamless. Today, smart, connected products usher in a new era of competition.

The “Internet of Things” falls considerably short of an explanation for the strategic and competitive shifts underway. Until now, a framework for understanding and setting strategy aligned with IT’s transformation of products didn’t exist.

“Every company, especially manufacturers, has an urgent need to rethink nearly everything in the value chain – from how products are conceived, designed and sourced, to how they are manufactured, operated and serviced,” says Porter.

Porter deconstructs this next generation of IT in the November issue of Harvard Business Review, in an article co-authored with James Heppelmann, CEO of cutting-edge software company PTC. The rapidly transforming nature of products – now made smart by combining hardware with sensors, electronics and software, and connected through the internet in myriad ways – is restructuring value chains, altering industry structure, broadening industry boundaries, redefining opportunities for competitive advantage and creating new competitive threats.

To capture the value creation opportunity presented by smart, connected products, managers must assess every part of their business strategy. They must learn to collect, analyze and capitalize on vast streams of data all arriving at increasing volumes and speed. This new world also opens up many new business models.

Take the agriculture industry, perhaps the world’s oldest enterprise, and the underpinning of American culture and economic growth. John Deere and AGCO, for example, are beginning to connect not only farm machinery but irrigation systems, soil and nutrient sources with information on weather, crop prices and commodity futures to optimize overall farm performance.

“This third wave of IT not only will create step function improvements in product capability and performance, but will radically improve our ability to meet many business and human needs,” Porter emphasizes. “Across many fields, products will be far more efficient, effective, safe, reliable and more fully utilized, while conserving scarce natural resources.”

Yet, the implications are even broader and more fundamental. If companies move aggressively to embrace the opportunity to drive rapid innovation and economic growth, they will enable the U.S. to reinvigorate its capacity as a technology leader in the global economy.

Porter’s article, the first in a two-part series, is an essential read for anyone looking for ideas to start a business, lead a division or run a company; it is one to be carefully studied and appreciated in this moment and for years to come.

Stern Strategy Group: