Transitioning towards smart products : an empirical analysis of capabilities and processes needed in manufacturing firms

Schulz, Colin; Piller, Frank Thomas (Thesis advisor); Kortmann, Sebastian (Thesis advisor)

Aachen : RWTH Aachen University (2021)
Dissertation / PhD Thesis

Dissertation, Rheinisch-Westfälische Technische Hochschule Aachen, 2021

Abstract

The rise of digital technologies has led to deep-seated changes in industrial processes and consumers’ lives. Smart products are one of these revolutionary technologies that are transforming the way value is created and exchanged, especially in the manufacturing industry. Infusing physical products with embedded electronics, software, and connectivity components allows companies to continuously interact with their customers and customize the user experience through software updates and complementary digital services. However, the transition towards smart products is a challenging journey for manufacturing firms. It requires new competencies in developing smart products and services and managing recurring and value-creating customer relationships. Present research on smart products in the fields of innovation management, information systems, and marketing is still in an infant state and lacks organizational guidance that can help manufacturers become more flexible, customer-centric, and value-oriented. Therefore, the objective of this cumulative dissertation is to complement existing management research by uncovering the processes and capabilities that traditional manufacturers need in order to successfully transform into smart product manufacturers. To address the underlying research questions, I conduct the first empirical large-scale study on smart product manufacturers. Thus, I provide the empirical groundwork and theoretical foundation for a hitherto phenomenon-driven research field. In a series of three interrelated but independent papers, I elucidate antecedents, mechanisms, and outcomes associated with smart products. The first paper examines how manufacturing firms change their development processes when integrating high-tech components into tangible hardware products. To contribute to the academic discourse on aligning software and hardware development approaches, I survey product managers in industries strongly affected by smart products. I find that agile development practices are key to successfully developing and deploying smart products, as they help firms become more flexible towards technical advances and constantly changing customer needs. However, agile practices are not enough. My results show that successful companies have a high level of mass customization capability enabled by smart products. These companies leverage product usage data to personalize the user experience of stable hardware platforms by automatically adopting product configurations, software-based functions, and digital services. Consequently, I encourage manufacturing companies to personalize smart products in the usage stage instead of manufacturing customized physical products before purchase, thus alleviating the tension between mass production and personalized solutions. The second paper explores how companies can cope with the increasing degree of firm-customer interactions associated with customer-centric development processes and maintain an active engagement with their customers’ usage processes. To help firms understand and manage co-creation with smart products, I re-conceptualized Grönroos and Voima’s (2013) co-creation framework by redefining boundaries and accounting for continuous, loop-based firm-customer interactions along the production (co-production) and usage (value co-creation) phases. Testing the model with survey data from more than 200 smart product manufacturers, I provide empirical evidence for the wide-ranging dissolution of independent firm-customer spheres and pinpoint the co-creation mechanisms that, indeed, create value for the customer. For co-production, I observe that leveraging data analytics to integrate customer insights is a fruitful strategy and outperforms involving customers as innovators. For value co-creation, I find that smart services increase perceived customer value, yet manufacturers need to be cautious with fully autonomous solutions. The third paper is practitioner-focused and contemplates over-the-air (OTA) updates that enable on-demand features and digital services for smart products. First, I contribute to research on OTA updates by conceptualizing the different types of OTA updates that build on each other, namely product updates and product upgrades. Second, I analyze data collected for Papers 1 and 2 and find that manufacturing firms take two steps to develop OTA capabilities. In step one, they attain essential technological competence and leverage it through their ability to envision and implement new services. In step two, they refine their business model to deliver and capture their value proposition in new ways. Finally, I analyze innovative manufacturers in the field of OTA updates to determine best practices for firms aiming to deliver product updates and upgrades that customers value, thus building long-lasting customer relationships.

Institutions

• Chair of Technology and Innovation Management (TIM) [812710]