Digital is over – long live digital! A new kind of post-digital age has dawned, a mature phase in the epic tale of digital transformation. Its central hallmark: businesses and consumers have become less interested in the digital hardware of a product itself or its wrapping services. What they are focusing on instead is the final outcomes and experiences devices can deliver. So, digital is hardly over. But product users see it much less from a technology angle and much more from an emotional angle that says, “It supports and enriches my life and I really don’t care how.”
That means that in the post-digital age all hardware products, from industrial machinery to consumer items such as cars or appliances, will be reinvented as living, experience-rich products. They will become responsive, collaborative, proactive and responsible, leading to a complete digital reinvention of the B2B and B2C product world as we know them today.
Using AI to Transform Products
Software will become not only the product’s connective tissue but the sole value driver, as only smart algorithms will allow for continuous product reconfiguration, enhanced features and real-time adaptive user experiences in all usage contexts.
For all this, AI will be the enabling technology, transforming an ordinary product into the intelligent, experience-rich and value-creating device of tomorrow. More than half of the 1300 manufacturers we researched state that at least 30 percent of their product and service portfolio will be AI-enabled within the next three years. And around a quarter think that half of their portfolio will be AI-enabled as soon as 2021.
So, while this new focus on user experience forces companies to reimagine products and their marketing strategies radically, traditional product makers are in great danger of being overrun on this new front – at least in terms of R&D dollars spent.
Investment in R&D
The best innovation in the high-tech sector is now coming from the digital platform and component providers – from businesses such as Intel and Qualcomm or Google and Amazon. Where traditional product makers put around 7.5 percent of their revenue into R&D, platforms invest close to 14 percent and component providers as much as 18 percent. And while overall profits for the three have increased by more than 60 percent over the last five years, traditional product manufacturers now command 25 percent of the value where they controlled 36 percent in 2012 and over 60 percent in the early 2000s.
Traditional product makers, it seems, will lose out unless they adopt radical experience-driven product strategies. So let’s look at one that has embraced the new product world with a bang: French tire maker Michelin with its tire-as-a-service scheme. Michelin will guarantee that each of your vehicles has perfect sets of tires whatever the haul, season or location of your trucks – and they will invoice you by the mile. The company is even going a step further with its Effifuel offering, a clear-cut outcome-based service, in which Michelin guarantees you the technologically enabled outcome of a seven percent reduction on your fleet’s diesel consumption. That is a very different business from Michelin’s starting point: simply selling you a set of tires.
A Tool for Product Transformation Success
How can others find such a successful way into experience and outcome-driven operating models? At Accenture we have developed a tool for just this purpose, the Product Reinventing Grid (PRG), a chart squaring the technology profile of a product with the respective experience levels it provides. As part of this, we have identified five value areas that product businesses of practically every type – cars, industrial vehicles, domestic appliances and heavy equipment – can aim at.
While the vertical axis of this quadrant-style chart measures the experience level or “Experience Quotient” (EQ), the horizontal reflects the technology level from passive to intelligent and even autonomous – the “Intelligence Quotient” (IQ). The resulting combinatorial space allows businesses to aim at the right mix of both. Together they give you the “Product Reinvention Quotient”, or PRQ.
The bigger the PRQ, the greater the magnitude of the change and of the prospective value. Marrying the progression along the IQ continuum with the evolution of EQ is a journey. But this progression transforms into exponential change, with products eventually becoming intelligent and autonomous, and delivering really rich outcomes.
Remember that most industrial manufacturers are aiming to get at least 20 to 30 percent of their revenues from these new value spaces within the next three to five years. And around 70 percent of manufacturers see digital tech and AI software as key enablers of their innovation and growth agenda.
So a look at the chart might help them to take the right path from day one of the journey into the post-digital future. My Accenture colleague David Sovie and I have laid it out and described it in detail in our new book “Reinventing the Product”.