The Third Industrial Revolution is Here – and It’s Changing How Companies Function

How smart, connected products are transforming companies

Smart thermostats control an array of home devices, transmitting usage data back to manufacturers. Networked industrial machines autonomously coordinate and optimize work. Cars send virtual software upgrades to enhance performance or head off problems. In recent years, information technology (IT) has evolved everyday products into intelligent, connected devices – redefining customer relationships, upending industries and reshaping competition. It’s also transforming how companies work, a radical shift that renowned economist Michael E. Porter deems manufacturing’s most substantial change since the second Industrial Revolution, more than a century ago.

Porter, Harvard Business School professor and the world’s preeminent authority on strategy and competition, deconstructed this new generation of IT in a provocative Harvard Business Review article examining external implications. His latest work – available online now and in the publication’s October print issue – delves into the internal impact on operations and organizational structure. It’s an equally essential read for anyone looking for ideas to start a business, lead a division or run a company.

No industry is immune – and no function is untouched – by the new capabilities and vast quantities of data that smart, connected products offer. For example, as software and cloud-based operating systems become integral to products, new product development principles emerge, manufacturing components and processes change, and IT security becomes the job of every function. Companies need different skills and expertise, which creates new imperatives for HR, while the rich data on location and environment take logistics to a whole new level.

“Virtually every traditional function will…need to be restructured, given the dramatic realignment of tasks and roles taking place,” emphasizes Porter, who co-authored the article with James Heppelmann, CEO of cutting-edge software company PTC.

But it won’t happen overnight; the transformation Porter describes is evolutionary rather than revolutionary. And the impact of smart, connected products is still in early innings. However, in many ways such rapid flux coupled with gradual shifts – the continued coexistence of the new and the old – will further complicate operations and organizational structure. “There is no playbook,” he says.

The product and organizational transformations required are difficult and uncertain, but the opportunities are tremendous for those that manage the transition well. “The companies and other institutions that can speed this journey will prosper and make a profound difference for society.”

It’s a mission Porter is personally passionate about, and committed to helping companies realize and drive forward. One of the world’s most legendary thinkers on management and competitiveness, he recognizes the unique opportunity – and value – of working deeply and intimately with senior leaders of organizations poised to make truly strategic changes in this new era of smart, connected products. It’s through these intense yet personal engagements and experiences that Porter believes real impact happens.

Stern Strategy Group: