Smart connected products: Killing industries, boosting innovation18 November, 2014 / Articles
“I work in the automobile industry.” “I work in the pet products industry.” “I work in the small appliance industry.” We make statements like these all the time. So often, that we rarely give any thought to the notion of how we are defining industries in the process. But we do have a way of defining them. And it’s about to be turned on its head.
Generally, industries are defined by what the organizations within them produce (e.g. automobiles, pet products, small appliances). One reason we define industries this way is because it’s simple. But it’s also the result of some of the most influential business thinking ever produced. In his seminal 1979 HBR article, How Competitive Forces that Shape Strategy, Michael Porter introduced the concept of “The Five Forces” that define industries and their attractiveness. These forces — Substitute Products, Buyer Power, etc. — are based on defining and industry by the product it produces. Thus, this idea has been further ingrained in our thinking ever since.
But in his most recent work, Porter himself has shown the cracks in this model of industry definition. In How Smart, Connected Products are Transforming Competition, he discusses the transformational power of smart, connected technologies when applied to product businesses. He describes how companies can evolve from making products, to offering more complex, higher-value offerings within a “system of systems”. For example, you might sell a tractor today. But once that tractor is smart and connected to the cloud, your products and services will become part of a highly interconnected agricultural management solution. Take this example of a smart, connected home bar product. Is it in the consumer electronics industry? The liquor industry? The home entertainment industry? All of the above?
Once smart, connected products take hold, the idea of an industry as being defined by the product alone ceases to have meaning. What sense does it make to talk about a “tractor industry” if tractors are just one piece of an integrated system of products, services, software, and data designed to help farmers increase crop yields? What Porter has shown is that in a smart, connected future, industries are defined not by products, but by “jobs to be done” (somewhere Clayton Christensen is chuckling). Saying, “I’m in the crop yield management industry,” will make a lot more sense than “I’m in the tractor industry.”