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This paper was presented at The XXVII ISPIM Innovation Conference – Blending Tomorrow‟s Innovation Vintage, Porto, Portugal on 19-22 June 2016. The publication is available to ISPIM members at www.ispim.org.

The Impact of the IoT on Product Development and Management Julius Golovatchev* Detecon International GmbH – Deutsche Telekom Group Sternengasse 14-16, 50676 Cologne, Germany. E-mail: [email protected] * Corresponding author

Prodip Chatterjee Detecon International GmbH – Deutsche Telekom Group Sternengasse 14-16, 50676 Cologne, Germany. E-mail: [email protected]

Florian Kraus Detecon International GmbH – Deutsche Telekom Group Sternengasse 14-16, 50676 Cologne, Germany. E-Mail: [email protected]

Roger Schüssl Detecon International GmbH – Deutsche Telekom Group Sternengasse 14-16, 50676 Cologne, Germany. E-Mail: [email protected] Abstract: A rising complexity of products, an on-going digitization and an accelerated shift of market demands lead to a rapidly rising number of uncertainties in business and technology environments. The Internet of Things (IoT) offers many potential opportunities and benefits to both manufacturers and customers. The paper aims at integrating knowledge from the diverse fields into a comprehensive, practical approach for the development and implementation of the products and services using IoT technologies. The research focused especially on the needs and challenges of innovation and product managers who have to find ways to cope with rising uncertainties and the problem of increasingly complex business environments and digitalization. Therefore, this paper presents first learnings that guides practitioners through implementation of industrial IoT and its impact on new product development and management. It gives them guidance on how the company's IoT project could be linked with its new product development initiatives. Keywords: Internet of Thing (IoT); Product Lifecycle Management (PLM); product development, digital economy; IoT platform.

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Motivation

A rising complexity of products, an on-going digitization and an accelerated shift of market demands lead to a rapidly rising number of uncertainties in business and technology environments. These uncertainties make it challenging to successfully develop new products and services: development costs increase, implementations become more complex and finally result in more and more product flops. Information technology does more than simply support companies and their business - digital technologies and their intelligent application are decisive key factors, putting their stamp on products, service concepts, and market strategies. The definition of "IoT" and the market projections are characterized by huge volatility. There's not an agreed definition of the Internet of Things (cf. Stark, 2015). The individual components of IoT with various devices and other products have existed for many years. The concept of IoT emerged in the 1990s, although many companies didn't start to address the subject until later. The Internet of Things and related Smart Products offer companies and their customers many potential benefits. At first glance there may not seem to be much in common between new product development as well as product lifecycle management (PLM) and the Internet of Things. However, the two subjects are closely related, as the "Things" are products. And the devices are also products. Since a couple of years the topic of IoT has impact on new product development as well as product lifecycle management (PLM) which gains quite some attention from management science (in publications of J. Stark , J.Golovatchev and O. Budde). The detailed consideration and research on IoT and its impact on new product development (NPD) and product lifecycle management (PLM) are still missing. The Internet of Things (IoT) offers many potential opportunities and benefits to both manufacturers and users of products and services. Some benefits arise when the product is inside the company. Other benefits arise when the product is outside the company, from where the product can send data to the company's product developers, maintenance engineers, machine operators and sales force. No doubt, IoT is one of the buzzwords of 2016 – the term is omnipresent and surprisingly hard to understand for many people in the industry and most importantly for many customers across all industries. According to Gartner we will see 6.4 billion connected “things” in 2016, up 30% year over year and with 20.8 billion “things” existing in 2020. Likewise Gartner says $235 billion was spent on IoT solutions in 2016. This estimate is underlined by the massive investments from big ICT players (e.g. Google, Amazon, Microsoft, Alibaba, Deutsche Telekom, Oracle, SAP etc.), as they‟re investing heavily into IoT platforms, products and services. We see a similar development to the cloud computing business in its early stages – a trend which was primarily implemented and boosted by vendors. Perhaps the most significant difference and one focus point of this paper is the importance and power of start-ups who are leveraging the IoT trend and building entirely new products designed horizontally across industries or tailor made for a certain vertical. The pace of IoT start-ups emerging is significant and mainly driven by dramatic drop in prices for sensors and computing power. At the same time IoT brings together all the issues of the Internet and all the issues around products - and then adds some new ones. IoT market trends show level of activity and change in this market as lightning fast and in its early stages shaped by many market uncertainties. On the one hand these IoT offerings derive amazing opportunities for

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clients to make their existing business better by cutting costs and/or driving revenues, but on the other hand they are bringing enormous complexity to their potential clients – mainly due to the generation of massive amounts of data, different PLM cycle speeds, data management issues and process adjustments necessary. In a nutshell, small IoT solutions can have big impact on customers – generating big opportunities but in case of wrong PLM, management will lead eventually to big risks as well. By applying smart PLM for IoT solutions customers can leverage the potential of these new products without risks. Consequently, scholars as well as practitioners call for new perspectives that understand the challenges and opportunities of IoT for the product development and management from a management perspective. This also refers to the issue that IoT may be seen as a technical topic for engineers to play with in their sandbox and not as a business subject requiring executive involvement. How will the project team find out where business value will be generated? How will real business benefits be measured and tracked? Firms are in need of new approaches to deal with those issues and have to take a proactive step to develop the solutions and this paper has the ambition to give clients guidance in this new world.

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Research design

Research questions The key goals of this research is to understand hot product/service related topics, business- and go-to-market models of the participants inside the IoT and try to understand how these new emerging IoT players will change the PLM especially of customers, e.g. large enterprises.To do so, the paper aims at integrating knowledge from the diverse fields into a comprehensive, practical approach for the development and implementation of the products and services using IoT technologies. Furthermore a future outlook across selected key sectors (with IoT product related issues in healthcare, automotive and ICT) is also a focus of this analysis.

Research design The research design was executed in four distinctive steps in cooperation with companies of Deutsche Telekom Group. In a first step, the current status of literature/industrial publication has been evaluated in order to examine the central concepts of IoT (e.g. B2B & B2C IoT Platforms) and to identify central benefits of IoT implementation and its impact on new product development and management for both manufacturers and users of products and services - monitoring product performance contact with their products across the lifecycle, data analytics etc. Due to the broad set of research fields that mention IoT in different ways, connections, complements and contradictions between the different fields have been highlighted.


Step two focused on practitioners' experiences and assured that practical perspectives and problem perceptions were considered sufficiently. Therefore, innovation managers of companies that had already implemented products and services in IoT fields have been inquired through structured expert interviews between June and September 2015 either on-site at the interviewee's office location or via teleconferencing. The interviewees belonged to big industrial companies as well as start-up in the IoT field (N=22). All experts held a leading position in innovation departments or worked in comparable positions inside their organizations. The focus on members of innovation management departments was chosen to make sure that the interviewees can report from and share insights of different new product development projects in IoT field. On average, the interviews lasted one hour and have been transcribed, codified and analyzed in order to extract central problems and challenges with IoT and product development. The results of the first two steps have been consolidated to develop a comprehensive view that takes into account the identified criteria for the management and implementation of IoT as well as for practitioners' needs and problems. In order to validate the feasibility and practicability of the developed approach, an additional set of interviews with business consultants of Detecon Consulting (Member of Deutsche Telekom Group) was conducted. This way of validation offered the chance to hypothetically check the developed approach with experiences from real client projects.

Research findings The first step of the conducted research was focussed on high-level strategic market analysis combined with the second part of our research which was focussed on interviewing selected promising start-ups as well as big industrial companies across four important IoT sections: IoT platforms, smart home, smart factory and smart city. Across all analyzed IoT sections we found strong and clear evidence that start-ups market space is evolving very fast and market participants – analysts, incumbents and start-ups have no doubt that IoT adoption will come and be a big untapped and unleashed market for them. However, the different IoT sections do have different pace and maturity level with smart factory clearly to be most advanced in pull-mode over the next couple of years whereas areas like smart cities and IoT platforms are still struggling of significant customer demand. On a product dimension we found out that many start-ups focussed on building clear endto-end solutions mostly consisting of hardware, software and service in one solution that works without any dependencies with other IoT components. The reason for this is partly the nascent stage of that market – many interview partners we talked to believe in IoT platform to manage and orchestrate numerous solutions from numerous vendors playing together. But this is still a game of the future as customers are not ready and demanding this now. However, with exponential development of automation in the digitized world, the missing ends may very sudden come together leading to a tsunami of industry reshaping revolutions. So look ahead, companies should build your early warning radar system and create flexibility to be agile enough when it comes over them.

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Looking at sales and PLM we found the most surprising and definitely highest impact development that emerged with IoT solutions the radical shift of PLM amongst vendors (mostly young and small start-ups) and customers (often midsize to large enterprises or cities). Key reason for this is on the one hand the innovativeness and focus of IoT vendors (focussing on a small niche) and on the other hand the impact of IoT generated software and services (especially data analytics) in customers‟ existing processes. In a nutshell this means that business customers are adopting more and more IoT solutions fitting to their specific needs, which they integrate into their IT infrastructure over time and hence PLM step-by-step in order to generate more efficiency and improve their products. As these IoT solutions become essential to their business over time they are integrated into customers‟ PLM process – at this stage they are confronted with likely different PLM set-ups of themselves and their IoT vendors. Customers have to face complexity of managing various IoT vendors – each of them with their hardware, software and service – and have to manage / orchestrate them very carefully and slowly. IoT vendors on the other hand come from the technology sector and use to think in fast and agile environments framed by software releases, adoption to services / functionalities and hardware as well. They have to focus on their own product only and will eventually not be able to consider each of their customers‟ individual requirements while updating their product. These factors lead to a smart and adaptive PLM framework in order to master tomorrow‟s IoT landscape.

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Internet of Things and Product Lifecycle Management – Key Definitions and Status Quo

Detecon defines Product Lifecycle Management (PLM) as a strategic business approach for managing a company‟s products and services throughout their lifecycle in the most effective and efficient way: starting with the original idea, through the design, marketing and withdrawal phases. From this definition, a strong interrelation between the value creation process and the PLM of the company can be deduced (compare Golovatchev et al. 2010b). Safeguarding the value creation process leads to a sustainable growth. The digital transformation and Industry 4.0 push companies in traditional sectors to extend the product portfolio drastically in the direction of connectivity using IoT. Although those companies have already faced an increasing level of complexity in the past (e.g. complex pricing models for B2B clients), these new challenges will push them to new limits. They have to embrace the new innovation dynamic in the market, therefore they have to make the right decisions in a timely manner. Similar to the liberalization and globalization, the digitalization is leading to a disruption of linear value chains and a transformation towards complex business and value-chain networks. This means, that many companies especially in the service industry have to transform from a nowadays one-fits-all product company with a limited product spectrum to a FullService-Provider offering customized solutions as for the new smart products (cf. Golovatchev et al. 2016) by the means of mass production. As a consequence of the growing demand for tailored products and the dynamics of technological developments, the range of added value services offered by companies will grow and become more complex. The complexity is an important issue for industry and


service companies that needs to be managed adequately. Companies must be prepared to handle the ever-increasing complexity. If they are to master the related organizational and technical IT challenges, they will have to develop a holistic product lifecycle management approach which will enable them to adapt their product portfolios and product architecture quickly. In order to proof the status quo of the PLM and IoT, to evaluate the impact of IoT on the future product development and management and to develop the new framework and check its feasibility and practicability an additional set of interviews with business consultants of Detecon Consulting (Member of Deutsche Telekom Group) was conducted alongside interviews with leading enterprises and start-ups across the highlighted four sectors of IoT. This way of validation offered the chance to hypothetically check the developed approach with experiences from real client projects. IoT platform players The core takeaways from a market perspective in IoT platforms is a clear focus of spending towards software & services apart from hardware sales, which is becoming less important. Customers do focus not on data generation but moreover on concrete findings/learnings of these data streams that they can convert practically to their business. On the IoT platform side two early adopting sectors are automotive and intelligent buildings (66% of IoT platform revenues are expected from these two sectors). The overall IoT platform market has a CAGR of 32.3% and is expected to hit $2.5 billion until 2020. The fragmentation of IoT platform players is enormous especially in B2B segments – all of them promising interoperability and E2E solutions. However, there is no market leader in B2B despite giants like Microsoft, Qualcomm, GE, Bosch, IBM, Intel, Salesforce and many more are strongly investing in their platforms. On the flipside the consumer market is less crowded with Amazon (with its Echo platform) as well as Google and Apple with their mobile operating systems who will accord most experts will be the de-facto platform for consumer IoT solutions. On the customer side there is a clear trend to pilot IoT solutions on small scale with very little impact and scale it up if everything works. Platforms are essential for customers once they‟re using multiple IoT solutions from multiple vendors and complexity level increases. One of the biggest barriers is the very low level of standardization in the IoT space which is making easy adoption and full flexibility nearly impossible. The key findings, based on the detailed interactions with start-ups in the IoT platform space, was a strong common belief that hardware-focussed IoT players are important, but will eventually fail if they don‟t master the software & service/analytics part very well. Another interesting outcome was the fact that hardly anybody of the interviewed start-ups wanted to estimate who is going to dominate the platform sector (out of the big players). There is a lot of uncertainty in the sector as this is in their view a clear push-market. That means there is very little proactive customer demand – moreover most deals happen because of very strong sales / customer engagement activities. IoT in Smart Home Another market with high expectations in the industry - but still not underlined by real customer demand - is the smart home sector. Most of the products sold here – especially those who are in energy management – are typical IoT products. From a market

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perspective analysts expect strongest revenue share in the US (35%) and China (21%) followed by Western Europe (15%). The strongest share product-wise will come from integrated entertainment systems (e.g. Smart TVs) and smart objects (e.g. refrigerators). As smart home is primarily a consumer category it is covered by companies who are strong in that space already. Key big players are GE, Samsung, Siemens, Apple, Philips, Amazon, Belkin, Nest and more – however, there is no global incumbent with significant footprint except Samsung. M&A activities increased (e.g. with Google acquiring Nest for $3.2 billion in 2014) and market participants hope for a quick uptake of that market. From a commercial point of view this sector is mainly about hardware selling with software & service included in the pricing model. Inside the smart home section there is a strong emphasis on energy and security systems to tackle a broader consumer section. The awareness as of today is still driven mostly by tech-savvy male customers and only slowly reaches a broader audience. Our conversations with start-ups in this sector mirrored the high level analysis by confirming that it is a push-market and not in a stage where customers require and buy these solutions proactively (which start-ups expect to happen maybe in five years from now). On a technical level smaller players are confronted with different protocols leading to a fragmented market and customer confusion – most of them share the hope and expectation that Apple and Google will pave the way in standardization by scaling their built-in platforms on iOS and Android with Google considered having advantages over Apple because of their openness and innovation experience in that sector especially with Nest. Interestingly in some of the screened start-ups artificial intelligence played an important part in their value proposition and product offering – one can say a trend in this sector could be a more sophisticated approach in finding intelligence out of data which can specifically very well be applied e.g. in energy management systems (e.g. smart thermostats). On a business side it fairly remains a pay per unit hardware business – with software and services included for free; however it will eventually move to other monetization models such as subscriptions or cross-subsidized pricing models. The dominating usecases with strongest customer drive are energy and security solutions as customers are able to see their benefit very clearly. IoT in Smart Factories / Industry 4.0 One of the most promising sectors for the whole ICT industry and especially IoT players is the smart factory segment – here we are talking about solutions that make a factory environment digital, connected and steered through data. R&R Market research predicts this market to grow on average 8% per year until 2020 to $246 billion in that year. The US will have the biggest share of the market with APAC, Europe and others however look promising as well. Especially Germany and China are providing and impetus to the growth. Market participants expect these solutions to make factories on average 30% faster and 25% more efficient than they are today. Similar to the IoT platform sector we see tremendous competition and investments in this sector as well – many larger players are active in this sector with their solutions (e.g. SAP, Cisco, ABB, Siemens, Bosch, IBM etc), but nobody is covering an E2E solution. Proven software players like SAP try to leverage their customer insights to work on topics like Big Data, 3D Visualization, Cloud and mobility solutions. Due to the immaturity of the market


there are regional initiatives and consortia trying to find joint use-cases, standards and solutions (e.g. The Industrial Internet Consortium). Product-wise the focus in many solutions is to save energy and improve efficiency (rather than using IoT driven smart factory solutions to generate new products). Major restraints for many market participants are lack of interoperability & standardization as well as the shortage of trained workers. Our interactions in the research with start-ups in the smart factory sector showed a heterogeneous landscape of solutions and services. From factory monitoring start-ups, who make information of analogue machines digital to wearables and robotic solutions the range of products was very broad. Start-ups consider big players in this sector as attractive for partnering, but criticise their product qualities and desire to lock customers into an own ecosystem. On a technical level the IoT players with smart factory solutions face challenges of integrating their solutions to the customer‟s existing IT infrastructure – as of now the focus is on building APIs and web services to connect. Speed is a major issue – most solutions were very fast to implement with a couple of days or sometimes even same day to operate – however this is true without deep integration into existing IT. On the customers‟ perspective most start-ups told us that here the market moves with good pace from push (now) to a pull market (very soon) with customers proactively looking into solutions. The approach was very similar in most cases – customers try and test out a product on very small scale with no IT integration for couple of months before they decided to gradually scale it. Hence a compelling proof of concept (POC) is essential for players in that sector. Moreover a key changing factor is that most of these specific solutions come from start-ups and large companies who are used to source mainly from other large companies see themselves now confronted with small but innovative players who have impact on their factory very profoundly – this sector is probably the best to describe challenges in PLM in the IoT sector. Interestingly many start-ups see themselves as lean and easy smart factory enabler by helping customers to digitize machines and finding intelligence out of this data focussing on small and midsize businesses. The sharp fall of sensor prices created solutions especially for supply chain management and logistics with most players focus on very specific solutions to find a niche where they can win. IoT in Smart Cities Smart cities are in very nascent stage, but with tremendous growth opportunities and more and more initiatives already happen in mature and emerging markets. Key drivers are rapid urbanization which let city majors face tremendous challenges on how to deal with the massive inflow of people into their cities. Analysts expect 22.5% market growth per year until 2019 to $1.1 billion revenue in that year. Half of the market share is expected to take place in Europe and US and other half mostly covered by APAC. Major cities already started initiatives of making their city “smart” including metropolitan areas such as New York, Singapore, London, Amsterdam, Tokyo, Beijing and New Delhi. Focus areas are infrastructure/ transportation, energy & waste management. However, the use-cases and focus areas are extremely diverse in this sector – hence is the market landscape of bigger players very heterogeneous in terms of scope and service as well. Nobody is focusing on one vertical; larger players are offering a set of services tackling multiple smart city components (e.g. healthcare and education). IBM has the strongest ambition and investment in this sector approaching almost all smart city sectors with own solutions (e.g. public safety, smarter buildings,

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urban planning, e-government, water & energy, etc.). On the customer side the demand and preference amongst the different smart city components varies but there is a strong focus among most cities on smart technology, smart mobility and smart energy. ICT services will be at the core of every smart city. Fortunately for market participants regulatory impacts are pushing more and more cities becoming smart e.g. in order to serve carbon reduction regulations including large governmental funds to support smart city initiatives (e.g. EU‟s €450 million smart city initiative, India‟s “Smart City Challenge”, China‟s Five year plan and more). Start-ups are increasingly interested in the smart city sector as well – and they win with being specialized. Nobody we talked to is offering horizontal technologies but more over focus on delivering narrow defined use-cases. Strongest category of start-ups we have talked to are parking/transportation and lightning players. The whole market and solutions are very fragmented and in early stage – there is no common platform for the interplay of different smart city components. Municipalities are sourcing different products for specific focus areas that operate in isolation and don‟t communicate with the broader city infrastructure. Start-ups don‟t see this sector as being dominated by larger players despite many of them entering the field at the moment. The market is considered as push-market as things are still in early stage and customers (cities) are public in this case which naturally has longer sales cycle and very different procurement behavior. The biggest challenges were identified by the start-ups we have talked to in three areas: missing innovative mindset of municipalities, low amount of existing proof of concepts (POC‟s) and connected to this missing customer education. Significant potential however is seen at lightning solutions – leveraging and optimizing the existing lightning infrastructure of a city with additional features or AI based smart lightning management. Almost all start-ups focus on end-to-end solutions which are simple and require very low upfront investments (whereas the incumbents are expected to make their investments into stronger capex heavy products like smart city infrastructure etc.).

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Next Generation PLM in the Era of Internet of Things (IoT): Management Framework

In 2010 the authors composed a comprehensive study about PLM in the telecommunication industry for which they analyzed 50 communication service providers with regard to existing PLM structures. 2013 this PLM approach was adjusted to the energy and utility industry: The results show that an integrated product lifecycle management enables companies to control the increasing complexity such companies are facing. The companies in the Industry 4.0 and during the digital transformation are faced with similar challenges as a result of the increased complexity which makes both problem settings quite analogous. The model proposed in the following section shows that through the structural similarity, problem-solving approaches can be adapted to the current challenges of the Industry 4.0 in the context of IoT implementation. The dimensions of an integrated PLM and the related design elements can be derived from the integrated management principles. The framework encompasses the four dimensions of PLM strategy, PLM process, product architecture, and PLM IT architecture and should be used from companies as an orientation for their processes and products in the future (see Figure 1).


This PLM approach provides companies‟ management with best-practice management tools that are collectively exhaustive and mutually exclusive in the four design domains – enabling management to evaluate and to integrate the right components within their organization according to the specific complexity level of the company. The strengths and opportunities inherent in such a PLM approach can be summarized as follows: • It is holistic in a sense that it reflects all fields for action from a management perspective. • It provides a wide range of best-practice management tools that simply need to be configured according to a company‟s individual complexity level. • It safeguards the business-to-business alignment as PLM is a collaborative process which includes the coordination of departments within a company, as well as the management of external parties. • It spans the entire product lifecycle starting with the early phase of innovation management, through launch and market management all the way to the retirement phase.

Figure 1. Next Generation PLM Framework in the Era of the IoT

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PLM-Strategy The purpose of the domain „PLM strategy‟ is the alignment of the innovation and marketing strategy with the overall PLM strategy to allow for a synchronization of the product development, market management and retirement processes. In order to do so, a strong link to customer needs management has to be ensured, as well as the safeguarding of lifecycle-oriented product and project portfolio management – controlling and monitoring the innovation and product pipelines. A strategic PLM process management defines the cornerstones of the PLM process by introducing PLM process variants according to innovation level and by implementing consistent PLM process reporting. In particular, for the IoT companies the design of PLM process variants and agile processes play a very important role by the development of various innovations. For example the development of an energy tariff, as incremental innovation, requires a completely different product development process design as the introduction of new innovation complex products and services in the context of e-mobility (cf. Golovatchev, J.; Budde, O. et al, 2010b). A successful product management for a complex product requires an active Customer Experience Management (CEM). CEM is based on two new innovative approaches that are increasingly important for the IoT industry: Customer Experience Design (CED) and Design Thinking. Using these approaches, it may be possible to constantly check and continuously improve customer interaction points during the customer journey.

PLM-Process Since PLM plays a crucial role for the organizational success in such highly complex and competitive markets as the utility industry, the relevance of an adequate PLMprocess is self-evident. As indicated in the earlier section, the requirements on such a PLM-process have changed. Long-living products with a limited variance in their product structure along their lifecycle are becoming less and less relevant. Those products have been replaced by a new type of product-service-system that is characterized by the fact that it consists of a bundle of components/modules, each with a different lifecycle and a high variance and functionality. As the product concept has changed, the PLM-process has to be adapted accordingly regarding sustainability and environmental issues. As part of the definition of the functional integration, the organizational interfaces between the different departments and with the external value chain partners involved should be clearly defined. In times of social media, Big Data and the Internet of Things, the management of information and innovations of value chain partners become two key success factors.

Product Architecture Many present quality deficiencies in the product development in the power industry originate from a diffuse definition of products as well as from the inconsistent view on the object “product". The right product architecture leads to simplification, cost optimization and sustainability of “product and service engineering” through the re-use of the production and service modules, shorten “time-to-market”, avoiding overlaps in development and reduce technical variance, availability of the product modules range of all service lines (factories) for all division of the companies


The problem of building a modular product structure can also be solved by an appropriate product architecture. A product modelling on the performance level (market perspective), process level (service view) as well as the physical product level (material goods and network) is required. In addition, for the modelling in these dimensions is production view (data model) for product on an appropriate level of information technology should be assured. For example, for e-mobility, the properties of the available plugs in the charging stations should be taken in the consideration (cf. Budde, Golovatchev 2011).

PLM IT-Architecture Finally appropriate IT support architecture is necessary for the efficient PLM process implementation. For the companies in energy industry such a PLM ITArchitecture must support the PLM process in the dimensions: (1) Decision support, (2) Operational support and (3) integration of supplemental business applications. We suggest to rely on a PLM IT- Architecture that re-uses, respectively customizes existing IT- components as far as possible. For the product-service-systems (PSS) mainly the systems for the project and workflow management are essential. In the IoT world the integration of supplemental business applications will play the very important role to ensure the effective product management. In combination these four factors provide a framework for development and management of complexity of the products in the Era of the IoT. The developed PLM Framework can serve as a basis for further evaluation of the impact of the IoT on the product development and management. In order to do this, we evaluate 23 design elements, which support 16 target elements of PLM (see Figure 2). The detailed description of the design and target elements can be found in Golovatchev, J. et al., 2010, p.22 ff.

Figure 2. Overview of 23 PLM Design Elements and 16 Target Elements.

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The conducted evaluation phase has revealed that the designed approach can be applied to a diverse set of product and service related problems and seems specific as well as adaptable enough to be helpful in different business settings. In the next chapter, the authors give the outlook across selected key sectors with IoT product related issues: Automotive, Healthcare, and Energy.

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Impact of IoT on the Product Development: Future Use Cases

Despite the huge potential of IoT devices, there are quite a few risks and challenges that need to be managed when integrating them into existing product lifecycles. We identified three exemplary use cases in the sectors of Automotive, Healthcare and Energy to describe and assess these challenges and risks. The description of the future use cases is followed by an assessment of 23 PLM design elements and their impact on the PLM targets (see Figure 2). Automotive Industry As already mentioned above, smart factories will be one of the areas, where IoT devices will have the biggest impact in the future. Based on Intel‟s wearabledevelopment module Edison, ProGlove is integrating technology into the natural movement of workers‟ hands.1 As a business intelligence solution for production management, it combines RFID, motion tracking, sensors and automated scanning. It is an almost perfect example for how to use IoT technology in the field of manufacturing and logistics. “A smart glove that helps workers in logistics and manufacturing to work more efficiently”.2 ProGlove not only provides its users with useful information about products, processes and assembling instructions, but is also able to gather information, such as documentation about processes and workflow sequences, and send it back to a central storage. By applying the technology in production, tools are becoming intelligent and reduce complexity, as e.g. motion tracking is helping to avoid mistakes, in case of workflows are not sequenced in the right order. The power of this solution gets enabled, when ProGlove is integrated in already existing production facilities and IT systems of an Automotive OEM. After having been implemented, the devices are able to send data which they gather during usage. The intelligent logic gets more powerful when more and more IoT devices from different vendors are being integrated in the IT landscape of the OEM. The chance for the OEM is, that all devices communicate with each other, information sent by these devices is gathered, logically combined and analyzed, so the manufacturer can benefit in a way, that e.g. development cycles can be shortened significantly thanks to real-live availability of the data. However, the challenge on the OEM side is to align the technologies of all different IoT device vendors, software, updates and creating interfaces that enable smooth and timely docking of new components and technologies. From either view it is necessary to have a holistic view on PLM‟s four functional design domains: PLM strategy, PLM process, product architecture and PLM IT 1 2

www.connect.de www.ProGlove.de


architecture, as being integrated in the production at different OEMs, their requirements have an impact on product enhancements of the IoT device vendor, too. Meanwhile, the OEM has to handle the different development cycles, updates and upgrades of all used components. The main challenge is the interaction between the vendor and its different customers when it comes to developing the devices further. ProGlove will benefit from the data gathered while being used at the different customers, however they are challenged by integrating the fast development cycles of ProGlove. Pharma & Health Industry A couple of challenges specifically arise in the sector of Pharma and Health. The average cost to develop and approve a new drug is roughly at $55m. Besides that, lots of drugs are sold, not consumed by the patients but simply thrown away. IoT devices found their way in, as RFID tags were used to equip drug packages. This was quite a step forward in improving inventory and drug counterfeiting. It also gives pharmacies and retailers the chance to store data (e.g. information for the patients on how to use the drugs) on the chips and provide useful information to the customers. Nowadays, as technologies have been developed further, some companies have even been able to create eatable IoT devices. This groundbreaking technology makes it possible to embed devices in the medication itself and thereby to gather data about medication regiments, health issues, miss-use or even drug black markets. Especially pharma companies and insurance companies would participate from the usage of such technologies. Pharma companies e.g. in the case of improved drug testing, tracking of side effects and shortened development cycles. Insurance companies would gain deep knowledge by gathered data of how their customers live and take (or not take) their medicine. This is a great opportunity for them to customize individual products and services. The biggest advantage in this scenario is to be seen for the medicine manufacturers. IoT devices would be the key connector between consumers, insurance companies and medicine manufacturers. Especially they can profit from the data by making it useful through analytics and in the end to improve their development cycles. This will have a real cost impact during their R&D and approval phase. The challenge, however, is to analyze the insights drug manufacturers learn from the shortened feedback cycles and to incorporate it into their R&D cycles and product lifecycles. A powerful PLM architecture can serve as the enabler for the Pharma industry for improved drug testing and development. Energy & Utility Industry The energy sector is facing two major challenges: Firstly, it has to cope with the energy turnaround and secondly it is facing the process of digitalization. In order to survive on the market, companies have to profitably cater themselves to the transformation and build new business models in the digital world. As the conventional energy business is significantly hit by decreasing profits, the digital transformation implicates massive changes in the business logic of almost all industries. Telecommunication, media and retail companies have been the first to be affected by the pressure to innovative that internet companies such as Skype, Google and Amazon have caused.

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The transformation and digitalization pushes companies to extend the product portfolio drastically in the direction of Smart Energy products. Although those companies have already faced an increasing level of complexity in the past (e.g. complex pricing models for B2B clients), these new challenges will push them to new limits. They have to embrace the new innovation dynamic in the market, therefore they have to make the right decisions in a timely manner. This means, that companies have to transform from a nowadays one-fits-all product company with a limited product spectrum to a FullService-Provider offering customized solutions as Smart Energy Products (cf. Golovatchev; Budde, 2016) by the means of mass production. Consumers or B2B customers stand at the end of a definable value chain and network. The entire value creation is directed towards the satisfaction of those customer needs which grants a special role to the “translation” of the own product to the needs and experience of customers. Companies that have distinctive capabilities in the field of innovation, service quality (“Customer/Service Experience") and market entry are particularly successful in taking up this interface position and hence manage customer relationships. In times of social media, Big Data and the Internet of Things, the management of information and innovations become two key success factors. IoT devices have already been the enabler for innovation in the field of smart grid. The intelligence of these devices is able to transform conventional grids to smart, data driven, grids. The implementation opens up new opportunities towards business models for both existing and also new stakeholders such as utilities and network operators, ICT companies and last but not least the customers (cf. Jonker, 2012) Households could benefit from smart grids as well. Being equipped with smart metering devices, already by today, it is possible to measure and track consumption, control heating remotely, and source energy efficiently. Smart metering brings multiple major advantages for the customers. While consumption can be tracked instantly, billing can be done more transparent. Instead of estimates based on the forecasted consumption, real-time usage can be calculated. These data can also be used by the customers to radically reduce their bills, since up-to-date information of their consumption allows them to manage their energy use and supply more efficiently. This of course also will have a significant effect on the pricing. Usually, the pricing of electricity is embossed by supply and demand and thereby peaks at certain points in time, whereas lows could attract customers to source energy at better prices. As market prices would be more transparent, customers will rethink their consumption habits and thereby save both energy and money. Remote control of energy consuming devices at home also shows an interesting scenario. With washing machines, dishwashers, heaters, etc. being connected, mobile control would allow customers to switch them on and off whenever they want. They could react to changing market prices and make use of intra-day lows. In order to cope with the challenges energy providers are facing, the firms have to leverage the opportunity that lies in digitalization in form of new, significantly more complex business models. Those will be realized through partnerships across industries, very close customer relationships and under with the aid of digital technologies. An example for such an innovation is the emerging market for intelligent household appliances which is typically known as “Smart” or “Connected Home”. Companies from different independent industries, such as energy, telecommunication, building engineering and telecommunication work together to launch such products and solutions. Other markets with similar constellations that are expected to become relevant for energy


providers are cities or regions with intelligent infrastructures and civic services (“Smart Cities”). Moreover, facility and energy management including energy services as well as the expansion of decentralized infrastructures and prosumer solutions become highly relevant in the upcoming years. As a consequence of the growing demand for tailored products and the dynamics of technological developments, the range of added value services offered by power provider companies will grow and become more complex. Having brought some light into the Smart energy product definition, the question arises why complexity is an important issue for energy industry that needs to be managed adequately. Providers must be prepared to handle the ever-increasing complexity. If they are to master the related organizational and technical IT challenges, they will have to develop a holistic product lifecycle management approach which will enable them to adapt their product portfolios quickly. Impact Evaluation on the PLM Domains On the way towards PLM excellence, which describes the fact of lean products and services offered at the best market price, product quality, process quality, costs and time to market have a huge impact (cf. Golovatachev, J. et al, 2010b) 23 PLM design elements have been identified, that indeed have an impact on the four PLM design domains as explained above. Amongst these 23 elements, some have more, some have less impact on the four design domains. We have analyzed the three use cases intensively and would like to highlight a few of them, which we find are very relevant. As for PLM Strategy, PLM Process Variants and Customer Need Management have the biggest impact across all three sectors. Network-based product service systems have replaced long-lived products with limited variance. With the usage of modules and new devices, product lifecycles change and interdependencies between components and network infrastructures have to be taken into consideration. A PLM Strategy also has to be designed towards the market needs of ever changing customer demands and expectations. Feedback, demands and expectations have to be monitored and integrated in the development process. Individual solutions will be the mass production of the future. Value-Adding Partners will have the biggest impact on the PLM Process itself. Nevertheless, the challenge will be to include all partners in the development processes. As products will become more and more complex, standardized processes are required. Not only the integration, but also the manageability of these value-adding partners has to be organized. The bigger the difference in size and scale of all involved companies is, the more challenging it is to keep them aligned. The usage of IoT devices will affect products and services in a way, that they become more virtualized and service-oriented as they are by today. Thus, product model and product data have to be aligned more and better than ever. A structured mode based on an information network needs to be applied across the entire organization to provide the reference data model, which makes further integration possible. With respect to the IT Architecture domain, three design elements show similar degrees of impact in all three cases. PLM in its entirety also needs to cover the IT domain of decision support systems. This is one of the most critical parts, especially taking into consideration that with the implementation of connected, data generating devices, Extended Collaboration Tools need to ensure a continuous data provisioning for

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controlling and product portfolio analysis. Thus, those tools shall make collaboration across different departments throughout the own organization, as well as with outside partners, possible. By having IoT devices implemented, more and more data is gathered. In order to benefit from this immense amounts of data, Data Management processes and tools need to be set in place, because unstructured data is useless data. Without the huge amounts of data being structured, it cannot support decision making in a satisfying way. The design element of Data Management itself can be separated into three different aspects: data visibility and role-based access to information, harmonized data sources and data consistency, and versioning of product-related data. All three of them shall support availability, accuracy, timeliness and completeness of information towards achieving transparency for making the right decisions at the right time. In order to benefit in the most efficient way, PLM IT Architecture needs to be in line with all other systems like CRM, OSS, BSS or finance. Only a full integration of a PLM application, for example, makes it possible to track and analyze financial data from both, a customer-related and a product-related, point of view (cf. Golovatchev, J. et al., 2010). The following tables aim to validate the elements on the three respective use cases. The Harvey Balls thereby explain the degree of impact for the customer of the IoT solution (e.g. Automotive OEM, Pharma companies, Energy provider). Design elements with a bigger impact have to be adapted more intensively, when keeping the virtualizing and service-oriented effect of implementing IoT devices in mind.

Figure 3. PLM Strategy, own illustration.


Figure 4. PLM Process, own illustration.

Figure 5. Product Architecture, own illustration.

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Figure 6. PLM Architecture, own illustration.

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Conclusion and Outlook

The key goal of this paper is to understand hot product/service related topics, business- and go-to-market models of the participants inside the IoT market and trying to understand how these new emerging IoT players will change the PLM especially of customers, e.g. large enterprises who are picking up to adapt and test these new IoT solutions – with many of these enterprises having not dealt with start-ups as suppliers for key product areas that have substantial effect on their business (processes). To do so, the paper aims at integrating knowledge from the diverse fields into a comprehensive, practical approach for the development and implementation of the products and services using IoT technologies. The research results show that it is generally feasible to establish a general management perspective on development of products and services within IoT. Furthermore, new areas of research could have been identified by focusing on practitioners' challenges within IoT and new product development that have not been investigated by recent literature. Furthermore a future outlook across selected key sectors (with IoT product related issues in healthcare, automotive, energy) is also a focus of this analysis. The research focused especially on the needs and challenges of innovation and product managers who have to find ways to cope with rising uncertainties and the problem of increasingly complex business environments and digitalization. Therefore, this paper presents first learnings that guides practitioners through implementation of industrial IoT and its impact on new product development and management. It gives them guidance on how the company's IoT project could be linked with its new product development initiatives. Ideally, managers are able to achieve improved product market


fit, save costs due to early problem identification and enjoy a wide range of communicative advantages by using the results of the paper.

References Budde, O., Golovatchev, J. 2014. Produkte des intelligenten Markts In: C. Aichele, O. D. Doleski (Hrsg.), Smart Market, p. 593–620, Springer Fachmedien, Wiesbaden,. . Budde, O., Golovatchev, J., 2011. Descriptive Service Product Architecture for Communication Service Provider, In: Hesselbach, J., Herrmann, C., Functional Thinking for Value Creation, Springer Berlin-Heidelberg, p. 213-218. Golovatchev, J., Budde, O., 2016. PLM Framework for the Development and Management Smart Energy Products, In: A. Bouras et al. (Eds.): Product Lifecycle Management in the Era of Internet of Things, PLM 2015 IFIP AICT 467, p. 698–707. Golovatchev, J., Budde, O., 2013. Complexity measurement metric for innovation implementation and product management. In: International Journal of Technology Marketing 8. Jg. (1). p. 82-98. Golovatchev,J. et al., 2010. Next Generation Telco Product Lifecycle Management. How to Overcome Complexity in Product Management by Implementing Best-Practice PLM, Detecon, Bonn, Online: www.detecon.com/PLM. Golovatchev, J., Budde, O., Hong, C., 2010b. Integrated PLM-process-approach for the development and management of telecommunications products in a multi-lifecycle environment. In: International Journal of Manufacturing Technology and Management 19. Jg. (3), p. 224-23. IEEE, 2015. Towards a Definition of the Internet of Things (IoT), Stark, J., 2015. Product Lifecycle Management: Paradigm for 21st Century Product Realisation, 3rd Edition, Volume 1. Connect webpage, 2016. http://www.connect.de/ratgeber/wearables-industrie-medizinfallbespiele-bmw-sap-3120436.html. Jonker, W., 2012. Smart Energy Systems in EIT ICT Labs - A European Perspective. ProGlove, 2015: Webpage. http://www.proglove.de/.

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