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The Value of Intelligent Products and Services is Clear. Can Traditional Product Companies Seize the Opportunity?

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Companies that were born in the digital age have been leading the way in offering intelligent products and services that are driven by software. However, the landscape may be shifting. A survey of 1,000 traditional manufacturers in 11 countries in 2022 looked into how they are adapting for the future and incorporating intelligent products and services into their offerings. The surveyed companies came from various industries including automotive, consumer products, high tech, medical device, and industrial manufacturing, as well as energy and utility providers. The goal was to understand the extent to which these organizations are catching up to digital native companies by introducing new intelligent products and services, such as connected cars, remote health monitoring, smart home devices, and more. These changes apply to both consumer and B2B products and services.

The survey revealed that 59% of these traditional B2C and B2B companies already have clear visions and strategies for intelligent products and services. They are already reaping the benefits in the form of new revenue streams, enhanced customer loyalty and satisfaction, improved efficiency, reduced cost of ownership, and a stronger competitive advantage. However, the remaining 41% are still in the process of developing their visions and strategies, and they are facing challenges that could hinder their ability to fully realize the value of intelligent products and services.

Unlocking the value of intelligent products and services

Intelligent products and services are characterized by being smart, connected, sensor-enabled, and software-controlled, allowing seamless interaction with the broader ecosystem through APIs and platforms. They can be continuously improved based on real-time feedback and can provide highly personalized customer experiences through the use of AI, machine learning, predictive analytics, and similar tools.

The Opportunity for Servitization

Intelligent products and services create the opportunity for servitization. For example, an industrial manufacturer that previously only sold equipment could introduce an intelligent service guaranteeing a certain level of product uptime for its customers. By providing intelligent equipment that utilizes sensors, data analytics, and AI/ML for predictive maintenance, the manufacturer can help prevent unplanned outages and reduce the need for scheduled service calls, thereby improving the overall service experience for the customer.

The survey also revealed that manufacturers anticipate generating significant value from servitization, with 43% of companies expecting intelligent services to account for more than 20% of their revenue in the next three years. This represents a major shift from the current market, where the average revenue from intelligent services is around 12%. Servitization not only enhances customer experience but also contributes to customer loyalty and satisfaction, while helping manufacturers achieve their environmental, social, and governance (ESG) goals by reducing CO2 emissions and other environmental impacts.

Identifying proof-of-concept hurdles

Despite the potential benefits, many manufacturers are encountering challenges in advancing their intelligent products and services. The survey found that 48% of manufacturers are at the proof-of-concept phase, while only 7% have fully scaled use cases and 31% have partially scaled use cases. The barriers to their progress can be categorized into several areas:

Organizational structure challenges

Siloed business functions and a lack of clear responsibility for intelligent products and services are common hurdles for manufacturers looking to transform their operations. A significant number of manufacturers cited siloed business functions, such as research and development and sales, as barriers to their transformation efforts.

Talent and skill gaps

Many companies face critical talent gaps, particularly in roles related to product innovation, data science, and data governance. Addressing these gaps through partnerships and open collaboration is essential.

Data lifecycle management

Effective data collection, analytics, and culture are essential for achieving intelligent products and services goals, yet less than half of surveyed manufacturers reported having adequate capabilities in these areas.

Digital transformation

Manufacturers are struggling to move away from legacy systems and data silos toward unified platforms that support data analytics, simulation tools, and digital twins. Storage and handling of the data that intelligent products and services create also present challenges for 76% of manufacturers.

Cybersecurity

Ensuring the security of systems, data flow, and maintaining regulatory compliance is a significant challenge for 68% of surveyed manufacturers, particularly in embedding security features into hardware at the design stage.

Moving forward with intelligent offerings

Overcoming these challenges requires adopting an innovation-driven, customer-centric strategy, which can inform decisions related to talent acquisition, strategic partnerships, and governance changes. Taking a test-and-learn, iterative approach to scaling intelligent products and services based on customer feedback is also key.

As more manufacturers clear the hurdles in their path and the value of intelligent products and services becomes clearer, we can anticipate a significant shift in how consumers and businesses interact with brands and develop loyalty.

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