Structuring an innovation group for Internet of Things opportunities

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This question was tackled by Daniel Ostrower, CEO of the product design consultancy Altitude Inc. A Monitor Company veteran and three-time entrepreneur with a degree in Mechanical Engineering from Harvard, we felt Dan was uniquely positioned to answer this member question…

Question:

We’re a $1 billion+ physical products company that lacks software expertise; although we have some in-house, I wouldn’t say we’re “Google-esque” in our mastery of software development. Do any of your members or partners have any thoughts on how to think about the integration process re: “smart devices” or “the internet of things”?

Are there any standard practices on structure (i.e., where do we fit a software team?), integration, reporting relationships (i.e., who’s the boss, hardware or software?!), partnerships (i.e., build vs. partner), etc.? We need to dip our toes in the water here, and looking for any advice, counsel, or recommendations that could fuel the process and help put executive anxiety at ease so we can start to experiment.

Answer:

This is an incredibly important question, because the smart, connected products (or IoT) revolution is most definitely upon us and is here to stay. From thermostats to kitchen appliances, there soon won’t be “regular products” and “smart products”; there will only be the latter. Any manufacturer of physical products needs to be dealing with this inflection point, and fast.

But as the questioner implies, that’s easier said than done. Here are our answers to your questions, based on actual lessons we’ve learned in the field:

1. On Structure: The consumer and the business should be the boss, not “hardware” or “software”

The magic of connected products isn’t necessarily in the hardware or the software, but how the two work together. Smart, connected products have an enormous number of interdependencies. Those interdependencies must answer an identified consumer need that also represents a business opportunity. As a result, your question about “where do we fit a software team” into a physical products company is a bit of a misnomer; the development team shouldn’t report to hardware or software functional leaders, but to a business or product leader who is held accountable for making a solution that fulfills both the need and opportunity. Ideally, this person should be respected and influential within your organization to procure the resources needed and keep the team properly focused.

2. The “why” should come before the “what”

With any new product, you should always understand why it will have value to customers (the job to be done) before you decide what the product will be (the attributes, features and specs). Such a “design thinking” approach is even more critical when creating smart, connected products.

The intersection of the Internet with physical things will fundamentally change the relationship people have with those things. We must be able to see these possibilities to properly specify and design the smart, connected product. And to see these possibilities, we must look at our customers’ lives with fresh eyes and fresh perspective.

But too often, companies skip this step and just slap connected technology on an old product, ending up with products that no one wants. In fact, research shows that consumers are overwhelmingly underwhelmed with the first wave of IoT products. Nielsen recently found that 58 percent of consumers feel strongly that they won’t upgrade to smart products unless they offer real value, while 41 percent of consumers feel strongly that current smart products are gimmicky (Editor’s note: The Nielsen survey can be downloaded here.)

To avoid falling into this chasm, we highly recommend stepping into your customers’ world with fresh eyes to understand what problems you will solve for them, and why that will be valuable. For example, consider sending a team to conduct on-site, qualitative research, observing and interviewing customers in context (Editor’s note: Altitude has published more detailed information on ethnographic research here.)

Such an open-ended investigation will help you understand more deeply the need you are serving before designing the product or hiring software engineers.

3. Multi-disciplinary, highly connected teams are critical

All the pieces of the product — the industrial design, the electronics, the software, the algorithms, the cloud services — are connected and depend on one another. So when something changes during development (and trust me: it will), the ripple effects can be enormous.

In addition, if the end solution doesn’t feel integrated, cohesive, and well executed to the customer, your product will be more likely to fail.

To deal with these realities, there is simply no substitute for getting everyone — consumer insights, marketing, designers, engineers, and others — together on to one team, and (if at all possible) in one room.

Given the complexity of smart, connected products and the requirement for integration, your organizational silos and boundaries need to fall.

4. Protect and nurture

If this is your first IoT rodeo, the team is probably going to need to operate outside of established business processes and norms. That’s because the processes, norms and incentives that make today’s non-IoT business model hum are different than those that for an IoT business.

Here’s an example: I was recently speaking to a product management leader for a line of corded consumer durable products. When I asked his opinion on the opportunity that IoT presents, he responded, “Why do I want to make a $100 version of my product that costs me $30 to make today?”

In other words, today he is incentivized to drive volume and product margin, which makes sense. But an IoT product, while having higher COGS and potentially lower gross margin, might produce other benefits like service revenue streams or deeper consumer engagement; he had no incentive to pursue such opportunities.

Your IoT team must be insulated from forces that support today’s business, but may kill tomorrow’s.

5. Build with flexibility in mind

The day of the “Home Operating System” is coming.

Devices that connect to one another and share information will ultimately be of more value than those that do not. And some kind of an OS will be needed for this to happen. But which OS? Who will win?

As Google, Apple and others fight over this space, it’s important to keep software flexible and open, so it can plug into one or more of these Home Operating Systems to offer added consumer value.

While scary, the IoT is a huge opportunity for every physical product company. We hope these pointers are helpful as you commendably “dip your toes in the water,” as you said, and start to experiment.

Good luck!

What’s your take on this question? Post a comment below…

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