How CIOs can influence new product innovation

We’ve all heard the hype about a future of data-driven, always-connected devices where everything from cars to game consoles to refrigerators plays a role in the Internet of Things. We envision our household appliances tapped into the power grid, analyzing and fine-tuning electricity use. We expect our parked cars to one day use Wi-Fi to send traffic and weather forecasts to our office computers before we head out on the commute home.

What we haven’t heard much about yet is how this Internet of Things could put CIOs at the strategic heart of new business models and strategies-and guide your companies’ profitable use of an ever-widening array of smart products.

By combining the capabilities of the Web, cloud computing, analytics and tiny intelligent sensors, CIOs can help create wholly new products and services connected to networks and to each other. For companies that adopt an Internet of Things strategy, “I expect the CIO career trajectory to change,” says CIO Dan Speicher of Hughes Telematics.

That’s largely because smart products change the predictable pathways of information flow within companies, sometimes dramatically, adds Roger Roberts, a partner in the global IT firm McKinsey and Co.

Communication with customers, for example, won’t be limited to that moment when a cashier rings up a sale. Data will flow continuously back and forth. Factory machines, city buildings and pieces of public infrastructure will be talking to the computers monitoring their activities. With careful collection and analysis, all this fresh information can be used to improve how products and services are created, sold and used. CIOs can help a struggling U.S. economy open new vistas, Roberts says. Once we know how often or intensely a product is used, for example, CIOs can create additional saleable options, such as charging usage fees rather than outright selling a product, he notes.

And as this web of connected people and gizmos thickens, the IT group is uniquely qualified to advise product designers and guide engineers toward whichever technologies work best to, say, harvest customer data or improve product performance. IT can also provide the infrastructure to manage and understand data generated by smart products.

But CIOs must jump in now or risk losing this more-strategic business role.

At car maker Mazda, for example, designers have been pondering the future of the car interior. Customization is an up-and-coming trend, allowing car owners to change some features of the vehicle to suit their tastes rather than the manufacturer’s, says Jim DiMarzio, CIO of Mazda North American Operations. Product designers asked DiMarzio for his insights on how technology could make that possible.

In one scenario, the dashboard comes not with knobs and dials but a liquid crystal display that uses Bluetooth to share information with the driver’s smartphone. It could identify that the wife is driving today by recognizing her iPhone as she gets in, lighting up the dash with her preset preferences, such as a speedometer and a clock-in her favorite colors, of course. When her husband climbs behind the wheel with his BlackBerry, the dashboard hides the clock and shows him the tachometer.

DiMarzio notes that these are just unrealized ideas right now. But that’s good: IT is brainstorming with R&D. “Doesn’t mean they’ll listen to me, but they are starting to recognize that we deal with this stuff every day, so maybe there’s insight we have,” he says.

Roberts is more pointed. “It is going to be quite critical for the CIO to step up and really assure that they’re being the chief information officer for all the information in their enterprise­-not just the transactional systems.”

Making New Friends
Today, about 35 billion devices connect to the Internet, according to Cisco, which is about five devices per each person on Earth. That includes computers and cell phones, naturally, but also items such as manufacturing machinery, vehicles, televisions, game consoles, healthcare equipment and swarms of sensors attached to consumer and industrial products. Within three years, the number will reach one trillion, the networking vendor predicts.

Today, sensors placed in cars can record minutely detailed data about how the vehicle performs. Business analysts can upload that new pool of field data to a corporate database and combine it with historical supply-chain and financial information to determine which parts suppliers are worth doing business with, or which types of customers are most lucrative.

Auto insurers, meanwhile, can find out which drivers are truly safe-or not-and price individual policies accordingly. Teenage boys and their insurance-paying parents may shudder, although that RPM-loving guy in the Mazda may not. For companies, says McKinsey’s Roberts, “this opens up a lot of new space in defining business models we haven’t heard of yet.” (For more on this, see ” FTC Considers Allowing Consumers to Opt Out of Behavioral Marketing.”)
Yet CIOs will have to keep a grip on how their companies use and profit from the Internet of Things, along with related research and development efforts, he adds. They’ll also need to form deeper relationships with peers in product design and engineering. Yet aside from answering the perpetual call for more server power, the IT department and product groups aren’t tightly linked at most companies, Roberts notes. The typical partnerships are IT and marketing, IT and finance, IT and sales, IT and supply chain.

Some CIOs will be unprepared to pursue these new forms of collaboration. Our 2010 State of the CIO survey of 594 heads of IT showed that 34 percent fell into a function head/operational category, rather than having a transformational or strategy-setting focus. Just 16 percent said that developing new go-to-market strategies and technologies was a key focus for them. Still, it’s a positive sign that our most recent survey showed a big jump in the percentage of CIOs who said that identifying and seizing commercial opportunities is a critical leadership skill for them-from 6 percent in 2009 to 22 percent this year.

CIOs will naturally deal with technical challenges such as data management, privacy and integration. But what are the best ways to create organizational and political links between IT and R&D? How will an influx of never-before-seen data change how a company operates?

Perhaps the most basic question of all is, How can companies add the right amount of the right kind of technology to a product or service to make sure it makes money? “You don’t spend $50,000 in programming on a $500 device,” Speicher says.

Jump Right In
CIOs must start those conversations instead of waiting to be asked, says Drew Martin, CIO of Sony Electronics. Approach the head of engineering or product development to talk about what IT can offer, he recommends, whether it’s knowledge, staff or existing technology.

When the new Sony Internet TV with Google technology was in development, Martin made sure he or his staff collaborated with product engineers about how they expected consumers to interact with the product. “Think about the other touch points consumers have with the company and how that needs to be factored in to the [new product’s] design,” he advised them.

Typically, he leads these discussions down a path. “Once you get agreement on that, then we start to get into what kind of assets we already have. We have a database with information we already know about the customer,” he says. “Let’s design this new thing with that in mind, so the customer needs to tell us something only once, one sign-on,” he says. “CRM is a core IT issue. Now it’s a product-development issue.”

Along with CRM issues, CIOs are quite familiar with planning how to move technology forward while preserving what is useful about legacy systems. One potential quagmire in building smart products is accomplishing similar continuity.

Some of the products ripest for technology treatment, such as appliances and cars, people tend to keep for many years. That means that even as consumer technology advances, companies have to support the old stuff.

Makers of dishwashers traditionally got the product to retailers and hoped for booming sales. Barring major problems, rarely did these companies hear from consumers. But makers of dishwashers loaded with software and Internet access need to think like technology vendors and plan for a help desk or service depot, notes Vinnie Mirchandani, a contract negotiations expert and author of The New Polymath: Profiles in Compound-Technology Innovations.

“Just because you embed technology in products successfully doesn’t mean your organization is ready for tech support,” Mirchandani says. An IT-enabled consumer product sports a much higher, more public profile than an internal IT project, he says. He recommends preparing the help desk and call center with special training. “This affects your brand and business directly, not just your IT bonus,” he says. “People can sue you for failure.”

Supportability comes up a lot for Speicher, the Hughes Telematics CIO. Mercedes-Benz is incorporating various sensing technologies from Hughes into its luxury cars.

The system, called mbrace, includes features such as the ability for the owner to call up a map on his smartphone so he can find his Mercedes SLR McLaren Roadster on a crowded street. (As if anyone would misplace that $450,000 beauty. Well, if so, mbrace also includes a stolen-vehicle identification system to help police track it down.)

Plans call for mbrace to allow owners to choose among applications to download, as you would with an iPhone, Speicher says. Hughes Telematics and Mercedes are working with auto-parts suppliers to create hardware that can support in-car databases to add even more complicated software to the vehicle. He talks about applications that store and read local news and weather to you as you drive and ones that tag songs on satellite radio to replay, purchase or share with connected friends.

Support, Speicher says, gets complicated. Internally, he uses tools built with IBM to integrate mbrace’s underlying software and communications technology. As for supporting car owners, today that’s mainly done at the dealership. Just as companies shouldn’t overspend on technology, the cost of long-term support must be factored into decisions about how, and even whether, to build technology-based products, he says.

Ultimately, automakers and perhaps dealerships, too, should be able to upgrade software in a vehicle remotely, which costs less than having each customer return to the dealership. To the company, each car will be just another node on the corporate network, he says.

That network should be owned by the CIO, adds Mirchandani. Any separate infrastructure that grows up around a technology-enabled product will only have to be integrated by IT later, he says. A familiar trial, no? A company that envelopes its smart products with its existing CRM and analytics systems puts itself ahead, he says, by giving customers one seamless experience and the CEO new insights from all that data.

Keeping Up With Friends
Part of what makes support a pressing issue is that consumer technology changes faster than corporate IT. With faster product cycles and fickle buyers, “delays and mistakes are magnified,” says Ray Rivera, CIO of Taser International.

Taser has recently started to offer digital video archiving and retrieval services-a completely new line of business for the $105 million maker of stun guns and other law-enforcement equipment. Taser’s Axon hardware records what officers see and hear; the video is uploaded to Taser’s private cloud,, for storage and searching during investigations.

The company is also preparing to launch, a set of software, hardware and Web services aimed at parents who want to monitor and limit their children’s mobile phone use and, later, driving habits. A parent installs a single dashboard on a smartphone, computer or TV with Internet access. The software alerts the parent when it detects a dangerous condition, such as when a teenager’s car is on and her BlackBerry, Windows Mobile or Android phone is being used for texting. is due out within the next month or two. Meanwhile, Taser is testing the technology with various combinations of devices, Rivera says. “When you’re offering products that are Internet-based, you’re a vendor,” he says. “As a vendor, [customer] expectations are completely different.” Taser formed separate business units for both and, each with its own technology budget. But as corporate CIO, Rivera has a firm hand in both, with his IT talent directly involved with product development for those units. As a small company of 360 employees, that model works for Taser.

At larger companies, that kind of separation could cause problems later, notes Sony Electronics CIO Martin. Where the IT group remains distant, he says, R&D groups may outsource the technology work that goes into connected products. “Helping [to] source technology talent is important, whether it’s from your IT staff or a third party.” If the product group goes outside for IT staff, he adds, knowing all the details about which contractor is providing which people for what fees will put the CIO in a stronger position in any future negotiations with that vendor, he points out.

Shake the Pillars
Once companies analyze the data around how people use a product or service, CIOs and other business leaders can help their companies create new business models. DiMarzio sees big things ahead for Mazda. Knowing the minutiae of customer driving habits, for example, would let the company finely segment its customers to market to them better. “We could come up with service plans or extended warranties on a granular level” that produces more revenue, he says.

Yet it doesn’t escape notice that continuously upgrading the digital guts of a smart product, rather than urging consumers to buy a brand new one, shakes at least one pillar of the American economy: planned obsolescence. If a car or refrigerator gets better over time, companies must shift to charging for it as a service instead of selling it once and assuming a replacement cycle kicks in, says McKinsey’s Roberts. But that key change depends on IT, he says, compelling smart CIOs to envision what new capabilities the business will need, what new skills IT must possess and which new relationships to establish.

As CIOs bring core IT knowledge to bear on product design, they entrench themselves and their IT organizations deeper in the company’s business strategy. That’s right where you want to be, says Sony’s Martin. The CIO will want to spend time in the area where the company is trying to differentiate itself from competition, he says. “That’s not in managing data centers.”

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