Chief Marketing Officer

The Internet of Things: Software-Intensive Products Are Making It Easier for Manufacturers to Meet Clients' Expectations

Jonathan Bachman, VP of Product Management for PTC, discussed the “Internet of Things,” and how IT executives can drive a company’s strategy.

Scott Robbin: What are some macro forces of transformation affecting manufacturers today?

Jonathan Bachman: Manufacturers today are being impacted by two major macro forces of transformation: software and connectivity.

Marc Andreessen wrote a famous paper a couple of years ago titled, “Software Is Eating the World,” and the gist of this paper was that if you’re a manufacturer, or a company from any industry, you’d better be good at software development and digital innovation. Software is beginning to contribute significantly to the differentiation of products, and your ability to succeed as a manufacturer is going to become dependent on your ability to develop great software.

So when I’m talking about software-intensive products, I’m really talking about smart products. These are products that not only have hardware, but also software embedded in and sometimes delivered alongside it. A great customer story I like to share is one around Continental, a tier-one automotive supplier. Many people think of Continental as a tire company, but the fact is that a bulk of Continental’s business comes from systems like automated windshield wipers, one of many very smart subsystems in an automobile. This is transformative because Continental employs around 18,000 engineers in their product development ranks, and about 12,000 of them now are software engineers.

Software intensive products bring up the next force of connectivity. Now, connectivity to me is really about products connected to the Internet. What’s happening is that once manufacturers find themselves with a product that has a CPU and software capability, they start thinking, “Why not equip this with an IP address and Wi-Fi, or other wireless connectivity, and enable a connected product?”

The power of things being connected together on the Internet grows exponentially when they are able to not only communicate and interact with each other, but also across other systems. These connected products can be refrigerators, automobiles or medical devices, and they’re all talking to each other, the manufacturer and other systems that are able to collect, share and analyze data, and therefore, monitor, enhance and control those systems. If you can believe it, 90 percent of the world’s data has been created in the last two years alone, and I see huge opportunities in the ability to develop business applications that can create insights in real-time.

A great example of a customer who’s put this idea to work is Schneider Electric. Schneider has developed a business capability around smart, connected building automation. So from a central control panel, Schneider can monitor and control a portfolio of buildings and monitor their energy use, lights, security, occupancy, temperature, human comfort and so forth.

By being able to see all these different parameters in real time, the company can optimize how specific buildings work and save about 20 percent on the energy consumption of a building, which is a dramatic savings if you own one building, or even a portfolio of them. And that really speaks of the power of smart, connected product capabilities.

“Software is beginning to contribute significantly to the differentiation of products, and your ability to succeed as a manufacturer is going to become dependent on your ability to develop great software.”

What are the implications of these forces for IT Executives going into 2014?

Because of these forces, the number of things connected to the Internet is now greater than the total number of humans on the planet, and according to Cisco, we’re accelerating to as many as 50 billion connected things by the end of the decade. This emerging “Internet of Things” will have three key implications for IT organizations: new threats, new skills and roles and new infrastructure.

Numerous threats, like questions about privacy, security and regulation and compliance, could limit the impact of the Internet of Things. The more product usage data manufacturers capture, the more privacy questions there will be on how that consumer data is stored, used and shared both inside and outside of the organization. Security poses an even larger challenge because the value of the Internet of Things, as with any network, increases based on the number of connected nodes, but each of the connected nodes in the Internet of Things creates a potential weak point that can be hacked or co-opted. Manufacturers have to find out how to deal with these security issues. Finally, different countries or even localities will develop standards and regulations in regards to things like consumer privacy and data security, and complying with multiple regulations creates yet another challenge.

IT executives will also need to evaluate the skills and roles of their organizations. Capturing the full value of the Internet of Things requires companies to address gaps in their skillsets and capabilities. Disciplines like software and application development, connectivity and big data analytics now join engineering and sales among the core capabilities of the manufacturing workforce. Finding and retaining the right talent is critical for companies, especially those that are used to older staffing plans. Additionally, the role that the IT organization will play in the product and service development process is transforming. R&D teams now need to collaborate with you and your IT organization in the concept phase to help infuse your products and services with new software-centered and connected capabilities that create new sources of value for your customers and your company.

Finally, IT executives need to reevaluate the infrastructure within their organizations against the requirements of a smart, connected world. You must ask yourself: Are existing systems able to capture and store product analytics, configure complex systems of hardware and software and analyze volumes of big data in real-time? Beyond the enterprise, the Internet of Things will require partnerships with new partners and suppliers that will require an increasing number of connections to critical business applications like CRM and PLM. Establishing an enterprise bus to manage and facilitate these connections will be increasingly valuable.

What opportunities arise from these changing forces?

The role of the IT executive in the organization has thoroughly been discussed and written about, with focus on the need for IT to be more strategic and customer centric. The Internet of Things now provides IT organizations with the means to accomplish both of these ambitious goals, and put them in a position to drive the strategy of the company.

As was described earlier, technology increasingly provides the primary means by which customers experience and interact with your products and services, and the means by which the organization can understand the customer and the product.

Until recently, once a product left the factory and entered the longest period of its lifecycle — its “use phase” — the manufacturer lost sight of it. As products have evolved from purely physical components to complex systems combining processors, sensors and software that are now connected to the Internet of Things, they now have a way to communicate with the manufacturer — they have a voice.

While most companies work to optimize their voice of the customer programs with customer relationship management (CRM) tools, it will not be sufficient. What is required is a fundamental transformation, from talking to the customer about your product, to talking to your product about the customer. The winners in this smart, connected world will be those who understand how to unleash the Voice of the Product (VoP) — to capture, analyze, and capitalize on what the product is saying. There is a huge opportunity for the IT organization to lead and capitalize on the voice of the product.

The insights created from this product usage data can drive next generation features and functions, improve product quality and serviceability and enable the IT organization to play a central and strategic role.

“Capturing the full value of the Internet of Things requires companies to address gaps in their skillsets and capabilities. Disciplines like software and application development, connectivity and big data analytics now join engineering and sales among the core capabilities of the manufacturing workforce.”

What do IT leaders, specifically in the manufacturing industry, need to understand in order to gain that competitive advantage?

IT leaders need to realize that while product and service capabilities have multiplied, the sources of value and differentiation have shifted. Manufacturers have to adhere to three essential value shifts in order to create new sources of competitive advantage, and IT leaders must enable the organization to pursue these value shifts.

Products have evolved from purely physical components to complex systems combining processors, sensors, software and digital user interfaces. This is causing manufacturers to increasingly turn to software to help accelerate product innovation and efficiently meet the growing diversity of customer demand and regulation. IT leaders must provide systems and tools that enable the development and reuse of software embedded in the product, and the systems to capture and analyze the data generated by smart, connected products and other “Things.”

While smart products have enabled new capabilities, there is a limit to the incremental value that can be generated from within the product. Connecting smart products allows for a digital component of the product to be in the cloud, and for this component to extend capabilities within the product and deliver entirely new capabilities alongside the product. Manufacturers are also finding that moving product capabilities to the cloud accelerates service, enhancements and innovation. IT leaders must enable a product cloud to enhance and extend product capabilities, and tools to rapidly develop the new business applications that create value from product data.

Finally, market forces and competition have diminished the growth capability of product-centric strategies that maximize returns at the moment of sale, and led to a burgeoning business model shift. Products are integrated with services that deliver new value throughout the entire product lifecycle, or simply deliver the desired outcome via an on-demand service. IT leaders must enable remote and real-time delivery of updates, enhancements and value-added services throughout the use of the product.

What advice do you have for the future IT leaders out there as we move toward the next generation of IT infrastructure?

I believe that in order to succeed in a smart, connected world, IT executives will have to evaluate future infrastructure investments based on four key attributes. First and foremost is flexibility, the ability to leave and layer new functionality and an infrastructure that is decoupled to support change without requiring significant IT costs. Second is engagement. The consumerization of IT is driving a different type of worker, and in order to attract and retain the talent required to succeed in a smart, connected world, technology solutions need to be available and easy to consume, with the goal of making users better at their jobs. Another critical attribute is openness, and by that I mean leveraging common and standard components to drive efficiency and interoperability with an existing and expanding number of systems. Finally, there needs to be a focus on dependable infrastructure that is rugged and secure, while also being configurable and supportable.

BIO:

Jonathan Bachman

Jonathan Bachman is a VP of Product Management at PTC in Needham, MA. Jonathan started his career as co-founder of Bachman Inc., one of the world’s first venture funded software companies. Over the past 30 years, Jonathan has been a strong leader in the areas of product management, software engineering and product marketing for a number of significant software companies. His domain experience includes model-based software engineering, content management systems, non-relational databases, enterprise application integration and product life cycle management. At PTC, Jonathan is responsible for product management of the various infrastructure elements of PTC’s PLM solutions. Jonathan holds a bachelor’s degree from the University of Massachusetts in Chemical Engineering and master’s degree in Engineering Management from Stanford University.

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