At the recent World Business Forum in NYC, Michael Porter replayed his perspective on how smart connected products are changing the competitive landscape by their ability to monitor, control, optimize and automate systems. Now augmented reality is breaking down the divide between virtual and physical. So far humans have been left out, but the next phase is a small step away. There’s real promise in monitoring, assessing and adjusting human behavior with an organization or system.

Porter lays out the case for how smart connected products are transforming competition in the Harvard Business Review. He took us through that logic at the World Business Forum. Key points:

Digital is going to be the biggest transformation engine for every industry over the next period of time.

We started with mechanical products.

Then in the 1960s we saw IT driven value chain automation.

The 1980s were marked by the Internet driving value chain dispersion and integration.

Now we’re seeing smart connected products with IT “embedded in the products themselves” and expanding the way products create value.

Porter sees the fourth wave of change as the interface between products and humans. Some even think we’re heading toward every one of us having a chip implanted in our brains.

The ability of these smart connected products to monitor, control, optimize and automate systems changes the way leaders should think about their industries, their competitive advantage and their value chain.

From an industry standpoint, expect:

  • Suppliers to be less dependent on mechanical components and more on IT
  • Buyers’ reduced dependency on channel service partners and expanded opportunities for differentiation and segmentation, smarter customers and new business models.
  • New entrants to see higher barriers to entry but the ability to leap frog entire system.
  • Substitutes with products as substitutes themselves for service offerings.
  • Existing rivalries with less focus on price but higher fixed costs with IT systems.

This leads Porter to ten strategic questions:

  1. Which product capabilities to pursue?
  2. Functionality embedded in product or in the cloud?
  3. Open or closed system?
  4. Technology development internal or outsourced?
  5. What data to capture?
  6. How to manage data rights, access and security?
  7. Disintermediate distribution or service channels?
  8. Change the business model?
  9. Sell data to outside parties?
  10. Expand product scope to systems?

These questions cut across the value chain, impacting design and development, production, marketing and selling, logistics and delivery, and services and support.


From smart connected products to smart connected people

Porter is convinced that augmented reality will drive the fourth wave of this revolution as the interface between products and humans. He suggests machines have advantages in physical power and endurance, computing power and processing, analytics, consistency and resistance to harsh environments. Humans are better at ideation, creativity and innovation, broad sensory pattern recognition, complex communication and sophisticated sensorimotor skills.

We’re already seeing heads up displays and wearables making it easier for humans to visualize things, receive instruction and guidance and interact with machines. Expect this to continue.

Sooner rather than later we’re going to leverage augmented reality’s ability to accelerate human transitions like onboarding. Bridgewater’s continual “dot” driven feedback is already trying to do this. Augmented reality can be particularly valuable in keeping new leaders from stepping on landmines and adjusting to their new situation over their first 100-days:


  • Monitor: Track where new leaders actually spend their time, whom they interact with and those people’s reactions to the new leaders.
  • Assess: Compare what new leaders are doing with current best thinking on what they should be doing. Spot trends in people’s reactions to new leaders – what’s going well and less well.
  • Adjust: Most of us see what we want to see. Those using augmented reality to see when new leaders fail will see more failures. Those using augmented reality to help new leaders adjust along the way in order to succeed will see more successes.