The Internet of Things has quickly become part of everyday life. Early examples of the technology at work are providing convenience and business value, from electronic signs that monitor and reroute traffic in real time to commercial buildings where heating and cooling units are managed as a service and can tell the manufacturer when preventive maintenance is needed. Yet much work remains before this revolution delivers on its ultimate promise.
Smart, connected products—the “Things” in the Internet of Things—are expected to power the next wave of manufacturing. The potential is vast: the McKinsey Global Institute predicts that the Internet of Things will drive productivity growth of 2.5%–5% over the next ten years. That translates into combined revenue growth and cost savings of $900 billion per year for the manufacturing sector alone, a figure that could go much higher depending on the extent of adoption.
To better understand how manufacturers are navigating the opportunities and challenges surrounding smart, connected products (SCPs), Oxford Economics and PTC surveyed 300 manufacturing executives around the world. Only firms with strategies to develop these products were considered. The survey, along with a series of interviews with industry leaders, shows that the SCP revolution is well under way but remains in its early stages. Manufacturers are still rethinking their products, services, and processes for the new era, and most of the gains anticipated by those huge estimates remain up for grabs.
Creating products that integrate information-processing and communications is only the first challenge that manufacturers must address. More importantly, they must figure out how to build businesses around SCPs and the data they produce. This is no small job. It requires companies to transform how they organize themselves to create value for their customers.
For example, maintaining service-oriented relationships with customers instead of just selling them products is unfamiliar ground for many companies. Now, it is part of the new normal. Protecting customer privacy has not been a traditional focus for manufacturing firms; now it is. New relationships with non-traditional partners (such as software and entertainment companies for the automotive business) further complicate matters, as does leveraging usage data across business functions, including R&D, to inform next-generation products.
Smart, connected products are at a roughly similar state of development as the Internet in the late 1990s. Their enormous potential is widely recognized, but the road map to a mature market is only now starting to take shape.
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