The Value of Intelligent Products and Services is Clear. Can Traditional Product Companies Seize the Opportunity?
Manufacturing leaders have big hopes for product development powered by smarter technologies. Currently, however, many manufacturers have only begun to explore what more intelligent solutions and a customer-centric development model might look like.
Digitally native companies have dominated the intelligent products and services landscape with software-driven offerings and services. But that may be changing. A 2022 survey of executives and senior leaders at 1,000 traditional manufacturers in 11 countries explored how they’re retooling for the future and how they’re using, or planning to use, intelligent products and services to protect and grow their franchises. The companies surveyed included automotive, consumer products, high-tech, medical device, and industrial manufacturers, along with energy and utility providers. The aim was to assess whether and how these organizations are catching up to digital natives in pursuit of new intelligent products and services such as connected cars, remote health monitoring, smart home devices, and more. This shift applies to consumer and B2B products and services.
The survey found that 59% of these traditional B2C and B2B companies already have “well-defined visions and strategies” for intelligent products and services, and they are already “realizing significant benefits in the form of new, profitable revenue streams; increased customer loyalty and satisfaction; greater efficiency; reduced total cost of ownership; and improved competitive advantage.” The remaining 41% of organizations surveyed are working on visions and strategies – but they’re often running into challenges that can delay or prevent their access to the full value that intelligent products and services can deliver.
Unlocking the value of intelligent products and services
Smart, connected, sensor-enabled, and software-controlled products and services seamlessly interact with the broader ecosystem through APIs and platforms. They can be continuously enhanced based on real-time feedback. They can deliver hyper-personalized customer experiences by using AI, machine learning, predictive analytics, and similar tools.
The Opportunity for Servitization
Maybe most importantly, intelligent products and services create the opportunity for servitization. Take an industrial manufacturer that has been selling only equipment, or equipment plus scheduled maintenance, for example. They could create an intelligent service that guarantees a certain level of product uptime for their customers. The manufacturer provides intelligent equipment that uses sensors, data analytics, and AI/ML to provide predictive maintenance, which helps avoid unplanned outages and downtime and can reduce the number of calendar- or hours-based scheduled service calls, so that field service is only required when a piece of equipment needs preventive attention.
The survey showed that manufacturers expect to generate tremendous value from servitization, which is “the key to creating value, fueling growth, and boosting resilience in organizations.” In the next three years, 43% of these companies expect intelligent services to provide more than 20% of their revenue, and 46% expect up to 20% of their revenue to come from intelligent services. This represents a seismic shift from what the market looks like today. Organizations, on average, get about 12% of their revenues from intelligent services right now, but in three years the projected average will be 28%.
Servitization can also improve customer experience and make those customers more loyal. This happens by automatically handling product maintenance or updates before they become issues for the customer. As customers grow to expect this kind of anticipatory service, brands that provide it may pull further ahead of companies that don’t.
Faster, more contextualized feedback also allows product companies to meet customer needs as they evolve. Manufacturers offering intelligent products and services can also make faster progress toward their ESG goals, with 84% reporting lower CO2 emissions and other environmental impact reductions.
Identifying proof-of-concept hurdles
With so many potential benefits, it’s important for organizations that aren’t in the fast mover category to accelerate their progress along the intelligent products and services maturity curve. The survey found that 48% of manufacturers have use cases at the proof-of-concept phase. Only 7% of the organizations said they have fully scaled use cases, and another 31% have partially scaled use cases. 13% have identified use cases but haven’t created a proof of concept.
While making the shift to intelligent products and services offers benefits and competitive positioning that manufacturers can’t afford to ignore, many manufacturers that are currently at an early stage of their journey report getting stuck at the proof-of-concept stage. Their barriers to progress fell into a handful of categories:
Organizational structure challenges
This includes siloed business functions or the absence of clear responsibility for intelligent products and services, lack of agile culture. Two-thirds of manufacturers cited siloed business functions such as research and development and sales as a hurdle to transforming.
Talent and skill gaps
Particularly for roles related to product innovation, data science, and data governance. More than half of the respondents cited critical talent gaps in data-related roles. The survey data s that “there will also be strong demand for networking engineers and physical product- development engineers.” Partnerships and open collaboration can help to address these issues.
Data lifecycle management
This requires good hygiene around data infrastructure, collection, management, ownership, and monetization. Less than half of surveyed manufacturers reported adequate data collection, analytics, and culture for their intelligent products and services goals.
Move away from legacy systems and data silos toward unified platforms that support data analytics, simulation tools, and digital twins. In the survey, 76% of manufacturers reported struggling with storing and handling the data that intelligent products and services create.
Protect systems, data flow, maintain data privacy, and maintain regulatory compliance. Software producers are used to building security features into their products. But, this presents an often new and different challenge for manufacturers. For example, 68% of those surveyed said that it was a challenge to embed security into hardware at the design stages to protect their intellectual property.
Moving forward with intelligent offerings
The way to address these challenges is to adopt a framework that starts with a holistic, innovation-driven, customer centric strategy. That strategy can inform talent hires, strategic partnerships, and changes to governance to maintain centrality while federating implementation for more creativity. With these resources in place, it’s possible to keep the customer at the center of the product development process. Big bang transformation rarely works. Companies are best served by starting small, taking a test and learn, iterative approach as a precursor to scaling. That feedback enables continuous evolution, product iteration, and better visibility across the product lifecycle.
As the value proposition for connected products and services along with servitization and new business models becomes clearer, and more manufacturers clear the hurdles in their path, we can expect to see a major shift in the way consumers and businesses select products, connect with brands, and develop loyalty.