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Every smart product design and operations architecture begins by identifying the value it can provide. This is a crucial step in digital transformation. Without offering significant value at a reasonable cost, a smart product or operation is likely to fail. It may struggle to secure funding for commercialization or face resistance during integration into company operations. The key to unlocking value in digital transformation lies in converting data into valuable information. However, the source of this value depends on whether the focus is on business value or consumer value.

Identifying Business Value

In business, value generated through smart products or operations needs to be evaluated financially. A good starting point is to examine the profit and loss statement (P&L). Smart products can increase revenue by expanding market share or entering new markets. Digital transformation improves existing products through innovation and develops new products through invention.

To enhance a product’s competitiveness, data can improve its usefulness, ease of use, or efficiency. For smart operations, whether internal or provided as services, the focus is on improving profit margins by reducing operational expenses (OPEX), cost of goods sold (COGS), and capital expenditures (CAPEX).

Start by examining the company’s key performance indicators (KPIs) and major cost centers. While improving manufacturing processes is common, operational efficiency can be enhanced in any department through virtualization. Different companies have different needs. For example, a logistics company may benefit from real-time tracking of trucks and trailers. Digital transformation also enables smart business models that reduce barriers to monetization and increase revenue.

Align your business model with your customers’ and differentiate it from competitors. For businesses, smart products and operations need to be measured by their financial impact.

Identifying Consumer Value

Consumer value is less quantifiable than business value. Focus on intangible factors that matter to customers, such as usability, utility, and quality. Smart products enhance the customer experience by providing functional, emotional, or social value. New business models improve the customer experience by making ownership more convenient or reducing overall costs.

An example of a digitally transformed business model is the inkjet cartridge industry. Instead of purchasing individual cartridges, customers can subscribe to a cartridge service. The original equipment manufacturer (OEM) automatically reorders cartridges based on ink levels, simplifying the process for the customer.

Designing Smart Products and Operations

Once we identify the value we want to create and the necessary information to deliver that value, we enter an iterative cycle of design, selling, and building. This methodology allows us to validate a product before full-scale production by selling it first.

The Design Phase

Designing a smart product or implementing a smart operational process requires a broader perspective. “Smart” means being software-defined and data-driven. Consider the physical aspects, digital twin requirements, application software, and analytics at every stage.

Value is created from the top down. Start by defining the value proposition and identifying the information needed to deliver it. Then determine the data required to provide this information. Only after this should we consider the technology needed to collect and process the data.

Applying the Smart Design Framework

Whether designing a smart product like a smart tire or implementing smart operations like location-based services for logistics, it all starts with value. Specify the value proposition as a statement and quantify it as a model. Identify the data that should be captured for the digital twin and determine the necessary software and analytics tools to transform this data into meaningful information.

Apply the smart design framework to each value area identified. This helps define the requirements for the digital twin, application software, and analytics. Explore opportunities for innovative value creation, enhancing customer operations, and inventing new value-adding solutions.

The Selling Phase of Digital Transformation

Smart Products and Smart Operations are new for both buyers and sellers. To reduce the risk of failure, it’s crucial to get customer buy-in early in the sales cycle. Gathering feedback before the engineering or development phase minimizes development costs and delivery time.

Engaging Customers Early

To get early customer feedback for a Smart Product or stakeholder feedback for a Smart Operation, we engage in selling throughout the development cycle. This involves a series of customer meetings for Smart Products or internal stakeholder meetings for Smart Operations. Start with “friends and family” customers, but remember these meetings are sales-oriented. Selling the product before it’s built is essential because the most valuable feedback comes with a financial commitment.

Iterative Feedback Process

This feedback process is iterative and aligns better with an agile development structure rather than a waterfall approach. At each logical step in development, we seek feedback from potential customers or internal stakeholders. This feedback is then incorporated into the engineering phase before moving to the next milestone. Validating the features of a Smart Product before investing in their development is crucial.

Adapting to Feedback

Based on experience, all digital transformation projects undergo significant changes after consulting with customers. These changes happen regardless of the time and money invested in engineering. Therefore, minimizing development expenses before fully understanding customer needs is logical.

The Building Phase of Digital Transformation

To increase the success of a smart project, prioritize and execute technology and development decisions in a specific order. This step involves converting requirements into features, focusing on delivering the identified value by collecting the right data and transforming it into the right information.

Creating the Requirement Document

The requirement document is created in a top-down manner to ensure value creation. Start by identifying the value you want to achieve, then determine the information needed to create that value. Identify the data required to transform into the necessary information, and finally, consider the technology needed to generate this data and information.

Following the Agile Development Process

The Agile development process follows the requirement document iteratively, gradually developing the smart product or operations. Once the value, information, and data requirements are defined, focus on the technology. The top of the technology stack is the digital twin. After designing the digital twin, determine the necessary analytics, selecting appropriate analytics packages and routines. Then, define the application development requirements based on the digital twin.

Selecting the IoT Platform

Choosing the IoT platform or IoT product cloud should be the last step. A common mistake is to choose the IoT platform first and then build around it. Instead, start with the digital twin, followed by analytics and application. The required analytic APIs become a requirement for the IoT platform. The chosen application development environment also determines the application protocols supported by the IoT platform. Sensors, actuators, and embedded systems depend on the digital twin, and the network protocols required by those components must be supported by the IoT platform or product cloud.

Defining External Systems

The choice of external systems determines the data services and APIs that the IoT platform needs to support. Since the IoT platform or product cloud functions as a pipeline or middleware, define the value-producing technologies first. By following these technology dependencies, development decisions can avoid compromising the value created by the features.

Ensuring Technology Supports Value

Throughout the Agile development cycle, ensure that technology supports the value, not the other way around. The iterative process of designing, selling, and building continues until no new insights are gained during customer consultations. Follow this framework when designing a smart product or architecting smart operations.