The second wave of IT-driven transformation began in the 1980s and 90s with the advent of the internet and its cheap and ubiquitous connectivity. This enabled integration and coordination across activities and with external suppliers, channels, and customers. It also allowed for cross-border coordination. This allowed firms, as an example, to close integrate distributed supply chains globally.

The economy saw substantial productivity gains, and the first two waves brought about significant economic growth and Supply chain security. Although the value chain was transformed, the products were relatively unaffected. It is now an integral part of the product in the third wave. Products with embedded processors, software, and connectivity (in effect, computers being placed inside products) dramatically improve product functionality. These improvements can be made possible by massive amounts of product-usage information.

Information technology is revolutionizing products. Once purely composed of electrical and mechanical parts, products have evolved into complex systems incorporating hardware, sensors, data storage, and software. These “smart, connected” developments have enabled vast advances in processing power, device depreciation, and the network benefits of ubiquitous wireless networking.

Information technology is revolutionizing products. Products no longer consist of only mechanical and electrical parts. Instead, they are complex systems that combine hardware and sensors with data storage and software. These “smart, connected” products have opened up new avenues of opportunity. They are possible thanks to vast improvements in processing power and device minimization.

Smart, connected products present exponentially more opportunities to add functionality, more excellent reliability, and allow for product utilization that is higher than ever before. They also offer capabilities that go beyond and above traditional product boundaries. Companies must rethink their internal processes and adapt to the changing nature of products.

These new products can alter the industry structure and competition. Companies are exposed to new competitive opportunities as well as threats. They are changing industry boundaries and creating entirely new industries. Many companies will be forced to ask, “What business do I own?”

Smart, connected products present new opportunities for strategic decisions regarding how value is created and managed, how sensitive data generated is used and managed, how traditional business partners like channels are redefined, and what role companies should take as the industry borders expand.

To highlight the opportunities that bright, connected products can offer and reflect on the increase in their number, the term “internet of all things” was coined. This phrase, however, isn’t very useful in understanding the phenomenon and its implications. Regardless of how it involves people and things, the internet is simply a means to transmit information.

The internet isn’t what makes intelligent, connected goods fundamentally different; the changing nature of the “things” makes them unique. Intelligent, related products have expanded their capabilities and generated new data, ushering in a new age of competition. Companies must see beyond technology to understand the current competitive transformation. This article and a companion piece will appear in HBR shortly and examine the implications of intelligent, connected products on strategic and operational levels.

Over the past 50 years, information technology has revolutionized strategy and competition. Now we are on the verge of a third transformation. Before modern information technology, products were made mechanically, and activities within the value chain were done using manual, paper, or verbal communication. In the 1960s to 1970s, the first wave in IT automated individual value chain activities, including order processing, billing, and design and manufacturing resource planning.


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