Book Review: Smart Products, Smarter Services, Strategies for Embedded Control

    By: Ruediger Klein, 57179 on Apr 09, 2013

    Smart Products, Smarter Services, Strategies for Embedded Control
    Mary J. Cronin. Cambridge: Cambridge University Press, 2010.  337 + xi pages.

    The advance of electronics in everyday life is relentless. Not only are we surrounded by consumer electronics, but we rely more and more on products, which traditionally did not contain electronics, such as refrigerators and cars.  These smart products, through the use of intelligent circuitry and interconnectivity, offer never-before-seen value, but pose challenges both to the manufacturer (trying to establish a foothold) and to the consumer (who seeks to realize the offered value).

    With this book, Mary Cronin reviews the evolution of smart products for managers to understand the implications for corporate strategy and value to the consumer. Realizing that the value delivery of interconnected, smart devices most often requires a functioning ecosystem, she describes four ecosystem strategies for designing and delivering smart products. She then proceeds to apply these ecosystem strategies to five different industries (automotive, energy, health, home automation and wireless).

    The author defines smart products as “consumer items with embedded microprocessors and software programmed to manage various aspects of the product’s functionality including any limits imposed by the vendor on how and when the product can be used by its owner” (p. 11). The definition already points at one of the key aspects of smart products discussed throughout the book:  the gradual shift of control over product functionality and use from the consumer to smart products.

    Control mechanisms offer the manufacturer options to avoid plagiarism, stave off the competition and lock in the consumer. On the other hand, the higher reliance on smart products poses a potential security risk. The author offers a typology of four smart products modes of control (p. 74):

    1. Pre-emptive control by the vendor: The vendor defines the limits of product functionality and imposes controls on usage. This can be done pre-sale through embedded programs or post-sale through the update of parameters. The product owner has no option to change the limits imposed by the vendor.
    2. Delegated control by consumer: The product owner agrees to the automatic functioning of the product on their behalf.
    3. Protective controls: Built-in usage restrictions are explicitly designed to prevent injury to the user or those coming in contact with the product.
    4. Compliance and contractual control: Product usage restrictions are defined by Terms of Use, End-User License Agreements or other types of contracts, sometimes using embedded usage restrictions, such as copyright protection for product content and software.

    The author notes a significant shift in the demarcation of rights associated with product ownership, since many purchase agreements today are being framed as licensing instead of ownership, giving more power to the vendor to control the usage of smart products (p. 97).

    Connected devices are often becoming more valuable as they are more widely adopted. If the incremental cost incurred by making products smarter can only be recovered by realizing higher prices based on value from these network effects, then the manufacturer faces a steep hurdle that many product companies have failed to take (p. 21).

    According to Cronin, the core elements of a smart product ecosystem are (p. 36):

    • Intelligent, connected devices;
    • Closely aligned and interconnected enterprise partners who build components, applications, services and infrastructure for these devices;
    • A core technology platform;
    • Data generation and management;
    • A clear value proposition for ecosystem participants and smart product end-users; and
    • Participatory and user-friendly applications and services.

    What becomes clear from the above is that the ecosystems not only represent a value chain for the physical products but also smart services, which extend the value proposition of the smart products beyond those offered by traditional products and services. In essence, the ecosystem contains a product service system at its heart, where the product as a good is used within a services framework.

    For companies to offer smart products, they often have to envision the ecosystem and determine a strategy for not only their place in the ecosystem but also how to create the ecosystem. Cronin outlines two major dimensions for ecosystem strategy frameworks: controlled versus open and incremental versus disruptive. In a controlled ecosystem, typically a major brand imposes restrictions on participants through proprietary interfaces and control of activities of the ecosystem partners in the ecosystem. In an open ecosystem, open standards and Application Programming Interfaces (APIs) are the basis for participation with little to no control other than adherence to the common standards and APIs. A disruptive ecosystem is one that by its very nature has to disrupt the existing business models and lead to new industry architectures. An incremental ecosystem simply extends the existing business models and leverages the existing value chain.

    The two dimensions open up four quadrants with four distinct ecosystem strategies (p. 39):

    1. The Hegemon ecosystem, controlled by one dominant company that determines the key elements of the ecosystem business model as well as selects and controls the partners. Because this model preserves and enhances the relationships of the dominant company, it is an incremental ecosystem strategy. An example would be OnStar by General Motors.
    2. The Charismatic Leader model, on the other hand, features a well-established company, which seeks to enter new markets, leveraging the brand recognition and enthusiastic following in the new market in a disruptive way. An example would be the iPhone by Apple.
    3. The Transformer is a model, where disruption of the status quo, combined with an open, standards approach is used to move things forward. Adopters of this strategy often are larger companies, which have their core revenues in other market segments. An example would be Android by Google.
    4. In the Federator model, the ecosystem founder seeks to leverage a consortium, standards body or industry alliance to place itself in a leading position. The founding company relies heavily on the technical merits of the solution as well as political skills and stamina to see this strategy through. An example would be the ZigBee Alliance and Ember.

    The introduction of these ecosystem strategies is a welcome exercise. It serves the reader well in distinguishing between the various existing initiatives. As is so often the case, the dimensions are gradual and any particular smart product ecosystem could be placed in several places along the way. In fact, industries, based on such factors as capital-intensity, regulation, company size, market reach and industry fragmentation, have a predisposition to one or the other ecosystem framework. The author places the four industries discussed in the book on a continuum between a Hegemon controlled platform to a Federated system (Energy, Automotive, Wireless and Home Automation, p. 297). The frameworks also have a lifecycle component. Strategies, which originally might have seemed incremental, could turn out disruptive in hindsight (iTunes by Apple). New technologies also can bring about new entrants utilizing different ecosystem strategies than the incumbents.  

    What is perhaps more important is how these frameworks can be used to create an ecosystem strategy. Given the provided parameters, a small player seems to have only the option of using the incremental, open approach of the Federator model or develop revolutionary technology to become a disruptive Transformer. The controlled approach appears to not be an option as small companies lack the resources to bring good partners into the ecosystem. However, can we think of examples of companies that have used a controlled approach to their advantage? In the technology field, companies like Microsoft, Research in Motion and Google seem to have adopted proprietary, closed strategies in the early years, relying on strong technical advantages.

    For large players, the choice of ecosystem strategy seems to depend largely on the current position: If the company is already well established in the target market for the ecosystem, it seems not plausible to adopt a federator model, as key competitive advantages would essentially be given away. If the company is not yet active in the target market, the choice seems to come down to whether it sees itself as charismatic, being able to assert control by building on its existing brand recognition, or whether it does not see itself as being able to assert that control.

    In chapter 8, the author makes a compelling case for why the smart service value proposition has to be different for consumers than for enterprises. The key differences of high-value attributes for M2M smart services are shown below in Table 1.

    Enterprise M2M

    Consumer

    Invisible and remote

    Visible and local

    Pre-emptive control

    Delegated control

    Sensor and machine data and interactions

    Social interactions

    Optimize machine performance and utilization

    Optimization of consumer experience

    Increase productivity and profitability

    Increase well-being and enjoyment

    Problem-centric and purpose-built

    --

    Reduce costs

    --

    --

    Adaptive, flexible solutions

    Table 1

    While enterprise customers of M2M solutions derive great value from collecting and analyzing large amounts of data on product usage to prevent potentially costly problems and therefore reduce costs, the consumer is mainly interested in increasing his or her well-being. The consumer needs visible and repeated feedback that the smart service is working for him or her. In this context, the experience of GM with the OnStar system and Ford’s very different direction with its SYNC® services provides a very useful reminder that what the consumer values and what the manufacturer values can be quite different and hard to unite within one end-to-end solution.

    As a case in point, chapter 9 focuses on the important issue of data collection and subsequent privacy concerns. At the heart of the issue is whether the data, which vendors need to provide their seamless solutions to consumers, is so private that special consideration has to be given to protect it. Because consumers, when openly questioned whether they would want this data to be collected, may resist, there is an incentive for the vendor to downplay the collection practice and gain concurrence from users through legal agreements, which are barely read or understood by the consumer. Several such cases and practices in several industries are reviewed.

    Finally, the author notes that the smartest strategy with regard to smart products might be to focus on delivering a platform, which allows offering several high-value smart services. Small enterprises might join a Federate ecosystem and establish themselves as a provider of smart services of high quality early on. Indeed, this takeaway is a confirmation of the reviewer’s client’s strategy in the smartphone industry.

    For the researcher of technology innovation and social change, the book poses a number of questions, which could benefit from empirical studies to arrive at more concrete recommendations. The case studies, while well developed, cannot possibly do justice to describe the respective industry evolution with regard to ecosystem introduction and success. Industry historians will undoubtedly be coming up short.

    This is a strong ‘sense-making’ book. It sheds light on the emerging issues in a world controlled more and more by the devices we use. While the viewpoint is that of managers trying to introduce smart products and services, the very real concerns of the consumers are picked up and investigated. This provides an opportunity for the reader to confirm the state of the trends in everyday life as well as participate in the non-technical, social discussion of what is an appropriate balance of control between man and machine.

    Ruediger Klein, NPDP
    International Graduate School Zittau

    Released: April 9, 2013, 1:40 pm
    Keywords: PDMA Blog | Book Review


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