4.3 Product and service innovation

There are very few categories of industrial machinery or commercial equipment, or associated services, that do not incorporate ICT in some way. Businesses look to ICT to enable product and service innovation.

The difference between what is an ICT product or service and a non-ICT product or service is becoming less clear. For example, medical devices , machine tools and equipment, motor vehicles and even detonators incorporate ICT in the form of processors and communication capability: ICT is a fundamental part and/or function of the product.

A recent Business Week feature on digital convergence argued that ICT manufacturing companies, such as Microsoft, Cisco and Dell, are venturing far from their specialities into consumer and industrial products. Similarly, consumer products manufacturers in Japan and mobile phone manufacturers in Korea are ‘rigging their products with microprocessors and software, racing to turn them into a new generation of digit-gobbling, network ready contraptions’ (Einhorn,  Ihlwan, et al. 2004).

ICT is also embedded in products to collect, store and transmit data that will be used by manufacturers to monitor performance and functionality (and failure), and for subsequent product development and enhancement. Embedded ICT is not only used to improve product performance and contribute to product development, it also enables a change in the relationship between manufacturer and consumer.

Where once a business would have manufactured physical products for a one-time sale to an anonymous consumer, there is now a shift towards building long term relationships with customers and serving their needs around the services provided by a manufactured product. Building this relationship is enabled by the embedded ICT. Moreover, embedded ICT provides opportunities for companies to collect and use information as a way of marketing the service value of a product to new customers – rather than simply merchandising a tangible object.

In this environment, as the design, manufacture, sale and distribution of this equipment has become increasingly knowledge intensive; it requires the input of highly skilled scientists and technologists to support the work of engineers in design and manufacture. Sales and marketing teams also need to understand the technology characteristics and service potential of the products they are selling.

In commoditising markets, and in order to drive home a commitment to customers, businesses are bundling complementary offerings into their products in order to compete (Gulati 2004). These complementary offerings are often marketed as product enhancements or product service packages. It has been argued that every company has an opportunity to integrate ICT enabled services into its products. These services are seen as part of the ICT hardware, differentiating otherwise commodity products to gain competitive advantage (Tapscott 2004).

The machinery and equipment suppliers consulted for the study, for example, combine hardware, software and value added services such as consultancy and performance information back to their customers. This equipment includes medical devices (Proteome Systems, Vision BioSystems) and mining equipment (Orica Mining Services).

Following on from the idea of capturing revenue from the service value of a product, manufacturers are finding it necessary to provide education and training in product use to their distributors and customers. This goes beyond installation into after sales service and warranties. Consequently, manufacturing companies are finding it necessary to take a much closer interest and involvement in how their products are used.

The interviews indicated that the competitive advantage provided by ICT intensive products is not the ICT per se, but the information attributes, properties and customised service offerings that the ICT enables, and which are embodied in the product. In other words, clever use and incorporation of ICT becomes a differentiator.

Back to 4.2 ICT and innovation in ‘old economy’ industries | Table of Contents | Forward to 4.4 Process innovation

• Document ID: 29107 |
• Last modified: 5 February 2008, 10:31am