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1© The Economist Intelligence Unit Limited 2015
Developing smart products
Contents
Executive summary 2
About this report 4...
2 © The Economist Intelligence Unit Limited 2015
Developing smart products
Executive
summary
In an age of low-cost electro...
3© The Economist Intelligence Unit Limited 2015
Developing smart products
ten say they have established joint go-to-market...
4 © The Economist Intelligence Unit Limited 2015
Developing smart products
l Jeroen Tas, CEO, informatics solutions and se...
5© The Economist Intelligence Unit Limited 2015
Developing smart products
Introduction
Futurists have been predicting the ...
6 © The Economist Intelligence Unit Limited 2015
Developing smart products
more value from it too. Pretty soon, if you’re ...
7© The Economist Intelligence Unit Limited 2015
Developing smart products
BUSINESS MODEL REVOLUTION
1
Smart products have ...
8 © The Economist Intelligence Unit Limited 2015
Developing smart products
What impact do you expect smart products to hav...
9© The Economist Intelligence Unit Limited 2015
Developing smart products
Which of the following effects have
smart produc...
10 © The Economist Intelligence Unit Limited 2015
Developing smart products
INFRASTRUCTURE AND DESIGN
2
Introducing “smart...
11© The Economist Intelligence Unit Limited 2015
Developing smart products
The technological challenges that smart product...
12 © The Economist Intelligence Unit Limited 2015
Developing smart products
EXPANDING ECOSYSTEMS
3
A smart-product strateg...
13© The Economist Intelligence Unit Limited 2015
Developing smart products
in which you and your partners can do business
...
14 © The Economist Intelligence Unit Limited 2015
Developing smart products
Conclusion
Smart products present businesses w...
15© The Economist Intelligence Unit Limited 2015
Developing smart products
Appendix:
Survey results
US
UK
Netherlands
Swit...
16 © The Economist Intelligence Unit Limited 2015
Developing smart products
Healthcare, pharmaceuticals and biotechnology
...
17© The Economist Intelligence Unit Limited 2015
Developing smart products
Yes
No
100
0
(% respondents)
Are you familiar w...
18 © The Economist Intelligence Unit Limited 2015
Developing smart products
Require us to spend more on customer service p...
19© The Economist Intelligence Unit Limited 2015
Developing smart products
Decrease 5% to 15% Decrease up to 5% No change ...
20 © The Economist Intelligence Unit Limited 2015
Developing smart products
Open source hardware
Collaborative/crowd-sourc...
21© The Economist Intelligence Unit Limited 2015
Developing smart products
Hire data scientists
Hire product designers
Hir...
22 © The Economist Intelligence Unit Limited 2015
Developing smart products
Automate customer service
Analyse how your cus...
23© The Economist Intelligence Unit Limited 2015
Developing smart products
We don’t have enough budget/it costs too much
W...
24 © The Economist Intelligence Unit Limited 2015
Developing smart products
It requires us to expand our partner ecosystem...
While every effort has been taken to verify the accuracy
of this information, The Economist Intelligence Unit
Ltd. cannot ...
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Fax: (44.20) 7576 8500
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Developing smart products

  1. 1. 1© The Economist Intelligence Unit Limited 2015 Developing smart products Contents Executive summary 2 About this report 4 Introduction5 Business model revolution 7 Infrastructure and design 10 Expanding ecosystems 12 Conclusion14 Appendix: Survey results 15
  2. 2. 2 © The Economist Intelligence Unit Limited 2015 Developing smart products Executive summary In an age of low-cost electronic components and almost ubiquitous wireless connectivity, it is now both technically and economically feasible to embed computing and networking functionality into almost any object – from industrial equipment and vehicles to clothes and accessories. The resulting smart products could prove revolutionary. However, they will also radically change the way companies interact with customers, how they bring products to market, and how entire industries operate. Companies that are pursuing smart-product strategies therefore face profound questions about their role in the value chains in which they participate. Indeed, companies face a wave of disruption equal to the turbulence first created by the Internet over 20 years ago. This report explores how the smart-product revolution is unfolding. Written by The Economist Intelligence Unit (EIU) and sponsored by Cognizant, it is based on a survey of over 200 RD and product-design professionals in Europe and the US, desk research and interviews with innovation professionals at major international businesses, the report explores how the smart- product revolution is unfolding. The key findings are as follows: For companies involved in their development, smart products are a strategic priority. The majority of respondents report that the CEO owns their organisation’s smart-product strategy, a sign that companies see smart products as critical to their long-term interests. Smart products will reinvent the relationship companies have with their customers. Almost three-quarters of respondents say that smart products are allowing them to interact directly with customers for the first time, and almost half say that smart products provide customer insights that were previously impossible to acquire. Reinventing customer relationships will reshape organisations and their business models. Over 50% of respondents say they have adopted a subscription-based business model as a result of selling smart products. More change is on the way, as companies are evidently still wrestling with the financial consequences of smart products. Companies are rebalancing their capabilities for the smart-product era. Smart products require new approaches to design; they require new technical infrastructure; and they demand
  3. 3. 3© The Economist Intelligence Unit Limited 2015 Developing smart products ten say they have established joint go-to-market strategies with new partners. Smart products look set to have just as much of an impact on business ecosystems as the Internet. In the era of digital business, analysing web traffic and online behavior has become critical to understanding customers. Smart products will make this kind of analysis vital for product development and distribution, customer service and support, and many other corporate functions. that the information produced by smart products is effectively integrated into business processes. No wonder companies are looking to both upskill and partner to improve their capabilities. The structure of entire industries will evolve as smart products reconfigure value chains. Smart products will unleash new dynamics in the sales channel, such as putting manufacturers in direct contact with their customers. Nearly half of respondents say they are selling their smart products through new channels, while four in
  4. 4. 4 © The Economist Intelligence Unit Limited 2015 Developing smart products l Jeroen Tas, CEO, informatics solutions and services, Philips Healthcare l Venky Balakrishnan, global vice president, digital innovation, Diageo l Kyle Nel, executive director, Lowe’s Innovation Labs The EIU would like to thank these interviewees for their time and insight. The report was written by Jessica Twentyman and edited by Pete Swabey. Developing smart products is a report by The Economist Intelligence Unit, sponsored by Cognizant. The report investigates the challenges and opportunities that companies face in designing, selling and supporting products with added digital functionality. The research draws on a survey of 205 senior RD, innovation and product-development executives from companies in the retail, healthcare and manufacturing industries in the US and Europe. It incorporates interviews with the following executives: About this report
  5. 5. 5© The Economist Intelligence Unit Limited 2015 Developing smart products Introduction Futurists have been predicting the advent of smart products – from refrigerators that know when you are running out of milk to lawnmowers that cut your grass automatically – for decades. The revolution is now under way, according to a new survey of senior executives in research and development (RD) and product design, conducted by The Economist Intelligence Unit (EIU) and sponsored by Cognizant. The EIU surveyed 205 RD, product-design and innovation executives from companies in the healthcare, retail and manufacturing sectors who are involved in developing smart products. Of these companies, 74% say they have already successfully developed such products. Defined as products that incorporate computing components (sensors, data storage, embedded operating systems, for example) and network connectivity, smart products offer consumers new functionality, new information and greater ease of use. For manufacturers and retailers, they provide a direct link to customers, capable of delivering valuable data about their products and their customers. Companies evidently recognise the potential and the stakes. In our survey, 59% of respondents say the CEO is the owner of their organisation’s smart-product strategy. So why, given this momentum, are we not already surrounded by smart products? According to Jeroen Tas, CEO of the healthcare informatics business at Dutch electronics giant Philips, it is partly a matter of market acceptance. Consumers are not yet clamouring for products to be smarter. “But I feel we’re at a tipping point,” he adds. “As people become accustomed to the enhanced ‘smartness’ of a product, they get more use from it. And as they get more use from it, they get Who among the C-Suite owns the smart-product strategy at your organisation? (% respondents) Chart 1 CEO Chief innovation officer or equivalent 15% Chief technology officer or equivalent 12% Chief marketing officer or equivalent 7% Chief information officer or equivalent 3% Chief strategy officer or equivalent 3% Chief digital officer or equivalent 0% 59% Source: The Economist Intelligence Unit.
  6. 6. 6 © The Economist Intelligence Unit Limited 2015 Developing smart products more value from it too. Pretty soon, if you’re lucky and you’ve designed your smart product well, the customer will feel that they couldn’t live without it,” he says. As customer demand grows, so too will the benefits for businesses, says Venky Balakrishnan, global vice president of digital innovation at UK- headquartered drinks manufacturer Diageo. “We may make a very traditional object – a bottle of liquid – but it exists in a digital world of connected supply chains and smart supermarket shelves. Building even a small level of intelligence into that bottle allows us to know more about where it is, the people who buy it, when they buy it, where they shop. Even a small amount of intelligence can unlock a Swiss Army Knife of applications and insight.” The smart product revolution is “creeping up on all of us”, Mr Balakrishnan says. “It isn’t about someone turning on a switch and we all shift, overnight, into a brave new world of smart products. But every single day small advances happen that, over time, amount to big progress. We’re adding inches daily, and before we know it, we’ll have covered a huge distance.” Even a small amount of intelligence can unlock a Swiss Army Knife of applications and insight.”
  7. 7. 7© The Economist Intelligence Unit Limited 2015 Developing smart products BUSINESS MODEL REVOLUTION 1 Smart products have the potential to disrupt many traditional industries, and companies are eager to claim the first-mover advantage. When asked about their strategic objectives in developing smart products, the top response is to launch product categories that are new to the market, cited by over half (52%) of those surveyed. But being a market leader is never easy, and there are many challenges to address. Companies are already wrestling with the financial impact of smart products. For example, 37% of respondents identify “pricing” as one of their most difficult operational challenges, more than any other category. Most agree that smart products will command a higher price than their non-smart predecessors: 42% of respondents say they have already increased the average selling price of products. But when asked about the likely impact on revenue, the picture becomes more confused. Thanks to smart products, 41% expect overall revenue to increase in the next three years, but over half (51%) expect it to decrease. The consensus on costs, by contrast, is clearer: 84% anticipate a rise in costs. This shows that companies developing smart products are unsure what the financial benefits will be, but they are well aware of the costs they face. “The process of taking any product and making it smart is expensive,” explains Mr Tas at Philips. “You have to add smart components, you have to add connectivity. But you also need to build software apps to run on the product and integrate it with your back end. You need to provide support for your newly smart product on a 24/7 basis. It all adds up quickly, and that’s the main reason why the market isn’t yet filled with these products.” Launch product categories that are new to the market Which of the following are the most important strategic objectives you are pursuing through the development of smart products? (% respondents) Chart 2 Launch product categories that are new to your organisation Improve understanding of your customers Gain greater proximity/direct relationship with customer Defend against disruption by rivals Grow sales/market share in established product categories Grow reputation for innovation Improve the customer experience 52% 43% 43% 42% 35% 34% 19% 15% Source: The Economist Intelligence Unit.
  8. 8. 8 © The Economist Intelligence Unit Limited 2015 Developing smart products What impact do you expect smart products to have on your revenues and costs in the next three years? Revenue Costs (% respondents) Source: The Economist Intelligence Unit. Increase No change DecreaseDecrease Decrease Chart 3 84% 51%41% Increase 10% 6% No change 5% Indeed, when asked about the organisational challenges they face in developing smart products, almost half (47%) say that they do not have the budget or that it is too costly. Addressing the financial consequences of smart products requires more than just money. For many, they demand an entirely new business model, such as subscription-based pricing, in order to pay for the ongoing data services that accompany them. Philips, for example, is already selling MRI systems to hospitals worldwide on a subscription basis, charging them per use, rather than demanding an upfront multi-million-dollar investment. Over half of survey respondents (52%) say that they have adopted a subscription model for smart products. But switching to that new model, while delivering financial results that investors want to see, is not easy. “The economics question is a tough one to answer for many organisations,” says Mr Tas. “The market looks quarterly at your revenue, and in many cases you’ll be moving to a subscription model, where revenue and costs are spread out over the lifetime of a smart product. New financial patterns are bound to emerge that don’t correspond to the patterns that came before.” The financial implications of smart products are foremost in the mind of many companies developing them, but it may be their impact on customer relationships that proves more disruptive. Smart products create a new connection between a manufacturer and its customers, an exchange of data that becomes a new facet of the customer relationship. This is not just a side-effect of digital connectivity: for many companies, it is the primary driver for launching smart products. Forty-three percent of those surveyed state that one of their smart-product goals is to improve their organisation’s understanding of its customers. Almost as many (42%) report a desire to achieve a closer, more direct relationship with customers. In this respect, they are already seeing solid results: almost three-quarters (74%) say smart products allow them to interact directly with customers for the first time, while 46% report that smart products are giving them information about customers that it was previously not possible or cost-effective to acquire. When asked how they use or plan to use the data received from smart products, the most popular answers relate to the customer relationship: the data are used to automate customer service (40%) and to analyse how customers use their products (39%). This promises to have a revolutionary impact on the way many markets operate. In the consumer product industry, for example, the customer relationship is traditionally mediated by retailers. Manufacturers have relied on retail partners not only for sales but also for market insight and, in some cases, the ability to communicate with customers. The direct customer connection enabled by smart products promises to redraw the power balance in the relationship.
  9. 9. 9© The Economist Intelligence Unit Limited 2015 Developing smart products Which of the following effects have smart products already had on your relationship with customers? (% respondents) Chart 4 Allow us to interact directly with our customers for the first time Allow us to earn more revenue per customer Give us information about our customers it was not previously possible or cost effective to acquire Require us to spend more on customer service per unit sold Grow customer referrals Improve customer satisfaction Require us to change our brand identity and marketing messages 74% 46% 48% 39% 38% 37% 20% Source: The Economist Intelligence Unit. Retailers have much to gain too, according to Kyle Nel, executive director at Lowe’s Innovation Labs, the innovation division of US-based DIY retailer Lowe’s. Currently, he says, many customers arrive at their local branch of Lowe’s having thoroughly researched their purchases online, often on customer-review sites. “The perfect next step in the retail evolution is to take insight from manufacturers when we’re setting up shelves and integrate it with the shelves themselves, so that a customer can see how other customers use that product and its competitors, comparing their own intended use with that of others and delivering a new level of understanding.” According to Mr Nel, smart products are already having an impact at Lowe’s and will soon be the norm. The challenge now emerging is to develop systems and business practices that make use of this growing “smartness”. He adds: “The next evolution is about figuring out how to integrate smart products with intelligent systems.” The next evolution is about figuring out how to integrate smart products with intelligent systems.
  10. 10. 10 © The Economist Intelligence Unit Limited 2015 Developing smart products INFRASTRUCTURE AND DESIGN 2 Introducing “smartness” to a conventional product also introduces a whole new technical and organisational infrastructure that is necessary to collect, integrate, analyse and make profitable use of the data it produces. Unsurprisingly, this presents a raft of challenges. When asked about their organisation’s weak spots when it comes to developing smart products, 28% of respondents point to the design and deployment of back-end data systems. And their most difficult operational challenges in developing smart products, after pricing, are data management/analysis and IT security, each cited by 36% of respondents They are right to worry, says Mr Tas. “Before you start selling a smart product, there’s a whole lot of IT work that needs to take place behind the scenes,” he explains. This includes a database to store a smart product’s communications, analytics tools to interpret these data, a platform for building software applications, and a rules engine that dictates how the product should be used, supported and serviced. All of this must integrate with existing systems. “The big challenge here is about linking smart products into your existing environment and Which of the following do you consider to be the most difficult operational challenges in developing smart products? (% respondents) Chart 5 Pricing Data management and analysis Information security Customer privacy User interface design Technology integration Selecting and managing partners Product design Marketing Identifying market opportunities Source: The Economist Intelligence Unit. 37% 36% 36% 34% 28% 25% 24% 22% 15% 13% value chain,” Mr Tas explains. “If you can’t do this very well, it’s unlikely that your smart product will be a success in the market, because you won’t be able to support it well. In that case, the product may as well be dumb.”
  11. 11. 11© The Economist Intelligence Unit Limited 2015 Developing smart products The technological challenges that smart products present are on the agenda for companies developing them, and they recognise the need to improve their capabilities as a result. When asked which adaptations they need to their company’s product development capabilities, almost half of respondents (48%) say they need to increase their software development resources. Four out of five respondents agree that extracting value from data through analytics is an intrinsic part of their smart-product business model. Hence 44% report that, over the next three years, they will need to hire more data scientists. Equally critical to the success of a smart product is its design. A poorly designed product, however sophisticated its technical infrastructure, is unlikely to succeed in the market. Respondents are confident in their product- design capabilities: one-third agree that product design is their number-one strength with respect to developing smart products, while 81% agree that they have the required product-design capabilities in-house. It is testament to the significance of design in any smart-product strategythat many companies expect to expand their capabilities in the future. Over the next three years, 43% of respondents plan to hire more product designers. Nor will they keep the process entirely in-house: half have already outsourced some element of product design and development. Successfully designing smart products is not simply a matter of scaling up the design practices of old. Indeed, three-quarters of respondents (75%) agree that the design challenges associated with smart products are unique. This explains the appetite for new approaches to product design. Over half of respondents have used open-source hardware (56%), while 42% that say they use hardware-in-the-loop simulation, a technique that uses mathematical models to simulate the performance of embedded systems under different conditions. Perhaps the most significant new approach that companies are applying to smart products is involving customers in collaborative and crowdsourced design, as used by 53% of respondents. This reflects not just the fact that crowdsourcing has become significantly more viable in the digital age, but it also underlines the particular importance for smart-product design to reflect customer needs. The good news is that the very nature of smart products means that customer needs can be ascertained by analysing the data they produce. “You can constantly probe customers as to what more they want, what they’d like to see improved,” says Mr Tas. “It’s a kind of crowdsourcing.” Open source hardware Which of the following tools and techniques have you successfully applied during smart product development? (% respondents) Chart 6 Collaborative/crowd-sourced design incorporating customers Outsourced product design and development Collaborative design with one or more partners Hardware-in-the-loop simulation Open source software Rapid prototyping/ 3D printing Source: The Economist Intelligence Unit. 56% 53% 50% 44% 42% 28% 19%
  12. 12. 12 © The Economist Intelligence Unit Limited 2015 Developing smart products EXPANDING ECOSYSTEMS 3 A smart-product strategy has many facets, including commercial, organisational and technological components. This is not a journey that most companies can undertake alone. Which of the following are the most important kinds of organisation to partner with when developing smart products? (% respondents) Chart 7 Source: The Economist Intelligence Unit. Product design agency Systems integrator Hardware manufacturer Information security provider Analytics provider/ consultancy Market researcher Cloud service provider e.g. Amazon Web Services Consumer web service provider e.g. Google Telecommunications service provider e.g. Telefonica, Verizon Advertising agency Management consultancy 52% 45% 45% 38% 23% 22% 12% 12% 12% 9% 8% The vast majority (93%) of survey respondents agree that smart products will require them to expand their partner ecosystems. The most important partners, they say, will be product- design agencies (52%), with systems integrators and hardware manufacturers in joint second place. The three executives interviewed for this report expect that smart products will have significant implications for their partners’ ecosystems. At Diageo, Mr Balakrishnan anticipates closer collaboration with the company’s supply-chain and retail partners, so that smart bottles of drink can be delivered in the right quantities to the right location. Mr Tas of Philips predicts that smart healthcare products – a smart medication dispenser, for example – will be a point of connection not just between Philips and individual patients, but also the medical staff, homecare providers and health insurance companies that serve them. “We need to create ecosystems,” say Mr Tas. “A car isn’t just a car: it’s a product that’s supported by its manufacturer, by services organisations, by insurance companies, road-toll organisations. How can I connect this product in a way that everyone wins in that ecosystem? You need to go back to the drawing board, design a new way
  13. 13. 13© The Economist Intelligence Unit Limited 2015 Developing smart products in which you and your partners can do business together. The changes here are far more profound than people see on the surface.” Mr Nel of Lowe’s says that effective collaboration between smart-product providers is essential if the vision of the “smart home” – in which products “talk” to each other to provide useful outcomes – is to become a reality. This is why Lowe’s has developed Iris, its own smart-home management system, which allows homeowners to control their smart products through a single mobile app. The fact at that retailer such as Lowe’s would build this kind of system shows how disruptive smart products are already proving to be. This need for integration has already led to partnerships that were previously unthinkable. In June 2014 Nest, a home monitoring specialist, announced that it was working with carmaker Mercedes-Benz to allow smart cars to communicate with its thermostats, so that the heating or air conditioning in a customer’s home can be switched on as the customer approaches his home by car. This is not unusual. Forty-seven percent of survey respondents reveal that they are selling products through new channels, and 42% have established joint go-to-market strategies with new partners. The changes here are far more profound than people see on the surface.
  14. 14. 14 © The Economist Intelligence Unit Limited 2015 Developing smart products Conclusion Smart products present businesses with a long list of challenges, from practical considerations to strategic concerns. In the short term, they require new skills and capabilities. In the medium term, they will force companies to explore new business models and partner strategies. In the long term, they will reshape many industries beyond recognition, by changing ownership of the customer relationship and the very nature of the commercial offerings that companies provide. However, if this all sounds rather daunting, there is also reason for optimism. The very nature of smart products means that companies face these challenges armed with an unprecedented level of insight into the way customers buy and use their products. Those companies that can extract and understand these insights and act on them will be the ones that weather the upheaval. “We stand at very interesting times,” says Diageo’s Mr Balakrishnan. “There have been some phenomenal advances in printing, in retail technology, in image recognition, in data analytics. Why would we not take advantage of them, in getting our products to rise to the same level of sophistication as the environment they sit in?”
  15. 15. 15© The Economist Intelligence Unit Limited 2015 Developing smart products Appendix: Survey results US UK Netherlands Switzerland Sweden Finland Germany Belgium Denmark Iceland Austria Norway Luxemburg Other 49 21 8 6 3 2 2 2 2 2 1 0 0 0 (% respondents) In which country are you personally located?
  16. 16. 16 © The Economist Intelligence Unit Limited 2015 Developing smart products Healthcare, pharmaceuticals and biotechnology Manufacturing Retail Other 45 40 15 0 (% respondents) What is your primary industry? $500m or less $500m to $1bn $1bn to $5bn $5bn to $10bn $10bn or more 50 10 23 6 11 (% respondents) What are your organisation's global annual revenues in US dollars? CEO Other C-level executive SVP/VP/Director Head of Business Unit Head of Department Manager Other 37 15 21 3 7 17 0 (% respondents) Which of the following best describes your title? Product development Innovation Research and development Other 60 23 17 0 (% respondents) What are your main functional roles? Yes, we have already developed smart products Yes, we are in the process of developing smart products Yes, we plan to develop smart products in the next 12 months No 74 22 3 0 (% respondents) Is your organisation involved in developing smart products, or does it plan to become involved in the next 12 months?
  17. 17. 17© The Economist Intelligence Unit Limited 2015 Developing smart products Yes No 100 0 (% respondents) Are you familiar with your company’s smart product strategy? Smart industrial equipment Smart packaging Consumer home devices Consumer wearables Smart building/smart city products Other (please specify) 58 57 40 19 5 6 (% respondents) Which of the following categories of smart product are you developing or have you developed? Tick all that apply Launch product categories that are new to the market Launch product categories that are new to your organisation Improve understanding of your customers Gain greater proximity/direct relationship with customer Defend against disruption by rivals Grow sales/market share in established product categories Grow reputation for innovation Improve the customer experience Other (please specify) 52 43 43 42 35 34 19 15 0 (% respondents) Which of the following are the most important strategic objectives you are pursuing through the development of smart products? Select up to three Allow us to interact directly with our customers for the first time Allow us to earn more revenue per customer Give us information about our customers it was not previously possible or cost effective to acquire Require us to spend more on customer service per unit sold Grow customer referrals Improve customer satisfaction Require us to change our brand identity and marketing messages None/not applicable 74 48 46 39 38 37 20 0 (% respondents) Which of the following effects have smart products already had on your relationship with customers? Tick all that apply
  18. 18. 18 © The Economist Intelligence Unit Limited 2015 Developing smart products Require us to spend more on customer service per unit sold Allow us to earn more revenue per customer Grow customer referrals Improve customer satisfaction Give us information about our customers it was not previously possible or cost effective to acquire Require us to change our brand identity and marketing messages Allow us to interact directly with our customers for the first time None/not applicable 46 40 40 36 35 21 11 2 (% respondents) Which of the following smart products effects do you expect will occur in the next two years? Tick all that apply Adopting a subscription model for smart products Increasing the average price of your products Selling products through new channels Joint go-to-market strategy with new partners Selling data and/or insights extracted from smart products to third parties Other (please specify) None of the above 52 28 42 42 48 40 42 35 26 30 0 2 1 4 Already adopted Expect to adopt in next 2 years (% respondents) How, if at all, have you changed your business model as a result of selling—or deploying—smart products? Tick all that apply More competition Higher margins Less competition Lower margins Consolidation within the industry Market growth Increase industry collaboration Reduce industry collaboration None of the above 49 48 38 35 29 27 27 23 1 (% respondents) What impact do you think smart product development will have on your industry? Please select the three most important
  19. 19. 19© The Economist Intelligence Unit Limited 2015 Developing smart products Decrease 5% to 15% Decrease up to 5% No change Increase up to 5% Increase 5% to 15% Increase 15%+ Revenue Cost 415 366 236483 151041 (% respondents) What impact do you expect smart products to have on your revenues and costs in the next three years? Physical products excluding smart products Smart products Internal tools and processes Digital interfaces (mobile/app) Other (please state) 40 34 20 5 0 (% respondents) Which of the following is the number one priority for your innovation and RD efforts? Product/UX design Product manufacture Business model design Weakest Product testing Data back-end design and deployment Data back-end support and maintenance Sales and marketing 33 29 16 7 5 4 4 (% respondents) Which of the following capabilities do you think is your organisation’s strongest with respect to smart products? Data back-end design and deployment Data back-end support and maintenance Product testing Sales and marketing Product/UX design Product manufacture Business model design Weakest 28 17 14 10 9 9 5 (% respondents) Which of the following capabilities do you think is your organisation’s weakest with respect to smart products? Strongly agree Agree somewhat Disagree somewhat Strongly disagree Don't know/can't answer We have the product design capabilities required by our smart product strategy in house Effectively integrating multiple stakeholders in the design process is critical to success The design challenges associated with smart products are unique Few individuals have all the skills required to effectively design a smart product 1 19 1 314 22 332 41 51 51 33 39 30 24 31 (% respondents) To what extent do you agree with the following statements regarding your organisation’s use of design?
  20. 20. 20 © The Economist Intelligence Unit Limited 2015 Developing smart products Open source hardware Collaborative/crowd-sourced design incorporating customers Outsourced product design and development Collaborative design with one or more partners Hardware-in-the-loop simulation Open source software Rapid prototyping/3D printing Other (please specify) None of the above 56 53 50 44 42 28 19 0 4 (% respondents) Which of the following tools and techniques have you successfully applied during smart product development? Tick all that apply Increase software development resources Introduce new project management techniques Increase electronics/hardware resources Hire market researchers Hire specialist project managers Hire product designers Hire data scientists Acquire one or more specialist company Reorganise the product development function Outsource product development Other (please specify) None of the above 48 35 34 29 26 24 24 22 21 9 1 1 (% respondents) Which of the following adaptations to your product development capabilities have you made in order to pursue your smart product strategy? Please select the three most important
  21. 21. 21© The Economist Intelligence Unit Limited 2015 Developing smart products Hire data scientists Hire product designers Hire market researchers Increase electronics / hardware resources Introduce new project management techniques Reorganise the product development function Acquire one or more specialist company Hire specialist project managers Increase software development resources Outsource product development Other (please specify) None of the above 44 43 39 28 25 23 22 18 16 6 0 0 (% respondents) Which of the following adaptations to your product development capabilities do you expect to make in order to pursue your smart product strategy in the next three years? Please select the three most important Extracting value through data analysis is an intrinsic part of the business model for our smart products We have internal employees with the technical skills required to effectively process and manage the data from our smart products We have internal employees with the analytical skills required to effectively analyse the data from our smart products Effectively analysing data from smart products requires “big data” technology – eg, Hadoop, non-relational databases, in memory computing A lack of common data standards hinders our smart product strategy 1 1 21654 11941 222354 333237 372744 26 37 19 25 18 (% respondents) To extent do you agree with the following statements regarding your organisations’ use of data analytics in connection with smart products? Strongly agree Agree somewhat Disagree somewhat Strongly disagree Don't know/can't answer
  22. 22. 22 © The Economist Intelligence Unit Limited 2015 Developing smart products Automate customer service Analyse how your customers use products Share with suppliers to collaborate on products Analyse product lifecycle Personalisation of your products or services Extract information for marketing purposes Analyse energy consumption Track your customers’ location Optimise your product design / performance Optimise your internal business processes Improve customer service Other (please specify) None of the above 40 39 32 29 28 26 25 24 19 15 11 0 1 (% respondents) Which of the following are the most important ways that your organisation uses/will use data collected from smart products? Select up to three This function supports our smart strategy well This function supports our strategy adequately We need to adapt this function somewhat in order to support our strategy We need to adapt this function significantly in order to support our strategy Recruitment IT Finance Manufacturing Design Sales Marketing Strategy Compliance 3223638 1 1 2 2 194332 204234 4173540 1 1 164932 164732 174337 154635 3165226 (% respondents) To what extent do you believe the following business functions at your organisation support your smart strategy?
  23. 23. 23© The Economist Intelligence Unit Limited 2015 Developing smart products We don’t have enough budget/it costs too much We don’t have the in-house expertise/skills It doesn’t fit with our existing culture We’re not agile enough Our organisational structure isn’t right It is not considered a priority by the business C-suite buy-in to the smart products strategy Other (please specify) 47 44 39 39 28 24 19 4 (% respondents) Which of the following do you consider to be the most difficult organisational challenges in developing smart products? Select up to three Pricing Data management and analysis Information security Customer privacy User interface design Technology integration Selecting and managing partners Product design Marketing Identifying market opportunities Other (please specify) 37 36 36 34 28 25 24 22 15 13 1 (% respondents) Which of the following do you consider to be the most difficult operational challenges in developing smart products? Select up to three CEO Chief innovation officer or equivalent Chief technology officer or equivalent Chief marketing officer or equivalent Chief information officer or equivalent Chief strategy officer or equivalent Chief digital officer or equivalent Other (please specify) 59 15 12 7 3 3 0 0 (% respondents) Who among the C-Suite owns the smart product strategy?
  24. 24. 24 © The Economist Intelligence Unit Limited 2015 Developing smart products It requires us to expand our partner ecosystem It requires us to have a more geographically diverse partner ecosystem It requires our sourcing/procurement function to have more technical understanding It means that we are more reliant on the innovation of suppliers than before It requires us to share more intellectual property with partners than we have done in the past It means we have to manage our supply chain more strategically (eg, mitigate risk, balance cost) 65241 1 1 1 1 1 1 1 1 31946 1 173842 1856 2644 1950 30 24 26 28 (% respondents) To what extent do you agree with these statements on the impact of your smart product strategy on your partner ecosystem? Strongly agree Agree somewhat Disagree somewhat Strongly disagree Don't know/can't answer Product design agency Systems integrator Hardware manufacturer Information security provider Analytics provider/consultancy Market researcher Cloud service provider e.g. Amazon Web Services Consumer web service provider e.g. Google Telecommunications service provider e.g. Telefonica, Verizon Advertising agency Management consultancy 52 45 45 38 23 22 12 12 12 9 8 (% respondents) Which of the following are the most important kind of organisation to partner with when developing smart products Select the three most important We understand all the data protection and privacy regulations that apply to smart products in the markets we operate in The regulatory environment we operate in makes it easy to develop and sell smart products Our smart products strategy makes it harder for us to comply with data protection and privacy regulation Building customers’ trust in our ability to protect their privacy is a key success factor for our smart products strategy 1 1 95337 4163346 23194629 21164437 (% respondents) To what extent do you agree with the following statements regarding regulation? Strongly agree Agree somewhat Disagree somewhat Strongly disagree Don't know/can't answer
  25. 25. While every effort has been taken to verify the accuracy of this information, The Economist Intelligence Unit Ltd. cannot accept any responsibility or liability for reliance by any person on this report or any of the information, opinions or conclusions set out in this report.
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