Heidelberg_Honeywell__and_Eaton.pdf
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Consider Heidelberger Druckmaschinen AG of Ger- many (commonly known as Heidelberg), the number-one maker of high-end printing presses for printers and print media producers throughout the world. For all of its long history, the company has offered repair services to its cus- tomers. But several years ago, Heidelberg developed the ability to monitor its equipment remotely using built-in sensors, networking microprocessors, and other information technologies. Heidelberg soon found that it could provide maintenance much more cost-effectively with these smart products. Now with its machines communicating continu- ously over the Internet, relaying information about their sta- tus between the print shops and Heidelberg’s regional and global technical support specialists, the company has the ac- cess and insight to optimize printing performance in cus- tomers’ shops and minimize maintenance and repair costs for Heidelberg as well as its customers. With such smart services, Heidelberg now offers total support of its products—which, for example, can extend even to the removal and resale of its machines. Thus the self- monitoring and networking capabilities built into its prod- ucts provide a strategic opportunity for Heidelberg to use information technology to become a partner in the success- ful operations of its customers, while reducing its costs and creating new sources of revenue from smart services. Honeywell International is another prime example of a company that is benefiting from smart products and services. This global conglomerate is involved in many different in- dustries, one of which is control and automation systems for petroleum refineries. Honeywell recognized that such systems represented just a small part of the cost involved in operating and maintaining a refinery. So its engineers devel- oped a new suite of customer smart services called Experion Process Knowledge System, or PKS, a system of information and operations technologies which is deployed at a cus- tomer’s refinery, but controlled and monitored remotely via network connections by Honeywell. PKS performs a variety of manufacturing equipment support and optimization tasks formerly performed by customer and Honeywell mainte- nance personnel. With Honeywell’s PKS smart services, customers experi- ence fewer false alarms indicating a process is failing, less unanticipated downtime, and lower maintenance costs. They also work closely with Honeywell to learn from knowledge PKS provides concerning the performance of their refinery equipment and systems. The increased value provided by the PKS service enables Honeywell to charge a premium for its use, and in many cases Honeywell has been able to increase the scope of other services it provides to its customers. Our last example is Cleveland-based Eaton Corp., which began making axles and other truck parts in 1911, and later diversified into other engineered components, including res- idential circuit breakers. With the end of its first century in Heidelberg, Honeywell, and Eaton: Using Information Technology to Build Smart Products and Services Virtually no business or organization, large or small, can compete without information systems and information technology. We truly live in a wired world. Source: Rick Maiman/Corbis. REAL WORLD CASE 1 n today’s world, any manufacturing company that has not awakened to the fact that it must become a service business is in peril. Unfortunately, there are many businesses that still think of themselves as builders of things and state their measures of success solely in terms of “the product.” But even their more enlightened competitors, the ones who’ve begun to wrap valuable services around their products and profit directly from those services, are enjoying only a tem- porary advantage. They may be improving their customer relationships by taking on various tasks such as maintenance and replenishment of supplies, but that will get them only so far. A select group of companies is already upping the ante. Soon, it will not be enough for a company to offer services; it will have to provide “smart services.” Smart services go beyond the kinds of upkeep and up- grades companies are bundling with their products both in their value to customers and in the cost efficiencies they gen- erate for their providers. To provide them, companies must use information technology to build “smart products”— products with awareness and connectivity—into the prod- ucts themselves. And they must be prepared to act on what these smart products reveal about their use. For example, maintenance is one of the key activities in the life cycle of a product where forward-looking man- ufacturers are using information technology to intervene, assist, and gain the benefits of providing smart services to their customers. Typically, their smart products can de- tect that a part is approaching failure and alert them to that fact, thus giving them the opportunity to own the pro- vision of maintenance services and resulting benefits to their customers. I FIGURE 1.1 Chapter 1 / Foundations of Information Systems in Business ● 5
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Heidelberg_Honeywell__and_Eaton.pdf
Transcript of Heidelberg_Honeywell__and_Eaton.pdf
Consider Heidelberger Druckmaschinen AG of Ger-many (commonly known as Heidelberg), the number-onemaker of high-end printing presses for printers and printmedia producers throughout the world. For all of its longhistory, the company has offered repair services to its cus-tomers. But several years ago, Heidelberg developed theability to monitor its equipment remotely using built-insensors, networking microprocessors, and other informationtechnologies. Heidelberg soon found that it could providemaintenance much more cost-effectively with these smartproducts. Now with its machines communicating continu-ously over the Internet, relaying information about their sta-tus between the print shops and Heidelberg’s regional andglobal technical support specialists, the company has the ac-cess and insight to optimize printing performance in cus-tomers’ shops and minimize maintenance and repair costsfor Heidelberg as well as its customers.
With such smart services, Heidelberg now offers totalsupport of its products—which, for example, can extend evento the removal and resale of its machines. Thus the self-monitoring and networking capabilities built into its prod-ucts provide a strategic opportunity for Heidelberg to useinformation technology to become a partner in the success-ful operations of its customers, while reducing its costs andcreating new sources of revenue from smart services.
Honeywell International is another prime example of acompany that is benefiting from smart products and services.This global conglomerate is involved in many different in-dustries, one of which is control and automation systemsfor petroleum refineries. Honeywell recognized that suchsystems represented just a small part of the cost involved inoperating and maintaining a refinery. So its engineers devel-oped a new suite of customer smart services called ExperionProcess Knowledge System, or PKS, a system of informationand operations technologies which is deployed at a cus-tomer’s refinery, but controlled and monitored remotely vianetwork connections by Honeywell. PKS performs a varietyof manufacturing equipment support and optimization tasksformerly performed by customer and Honeywell mainte-nance personnel.
With Honeywell’s PKS smart services, customers experi-ence fewer false alarms indicating a process is failing, lessunanticipated downtime, and lower maintenance costs. Theyalso work closely with Honeywell to learn from knowledgePKS provides concerning the performance of their refineryequipment and systems. The increased value provided by thePKS service enables Honeywell to charge a premium for itsuse, and in many cases Honeywell has been able to increasethe scope of other services it provides to its customers.
Our last example is Cleveland-based Eaton Corp., whichbegan making axles and other truck parts in 1911, and laterdiversified into other engineered components, including res-idential circuit breakers. With the end of its first century in
Heidelberg, Honeywell, and Eaton:Using Information Technology toBuild Smart Products and Services
Virtually no business or organization, large orsmall, can compete without information systemsand information technology. We truly live in awired world.
Source: Rick Maiman/Corbis.
REAL WORLD
CASE 1n today’s world, any manufacturing company that has notawakened to the fact that it must become a service businessis in peril. Unfortunately, there are many businesses that
still think of themselves as builders of things and state theirmeasures of success solely in terms of “the product.” Buteven their more enlightened competitors, the ones who’vebegun to wrap valuable services around their products andprofit directly from those services, are enjoying only a tem-porary advantage. They may be improving their customerrelationships by taking on various tasks such as maintenanceand replenishment of supplies, but that will get them only sofar. A select group of companies is already upping the ante.Soon, it will not be enough for a company to offer services;it will have to provide “smart services.”
Smart services go beyond the kinds of upkeep and up-grades companies are bundling with their products both intheir value to customers and in the cost efficiencies they gen-erate for their providers. To provide them, companies mustuse information technology to build “smart products”—products with awareness and connectivity—into the prod-ucts themselves. And they must be prepared to act on whatthese smart products reveal about their use.
For example, maintenance is one of the key activitiesin the life cycle of a product where forward-looking man-ufacturers are using information technology to intervene,assist, and gain the benefits of providing smart services totheir customers. Typically, their smart products can de-tect that a part is approaching failure and alert them tothat fact, thus giving them the opportunity to own the pro-vision of maintenance services and resulting benefits totheir customers.
I
FIGURE 1.1
Chapter 1 / Foundations of Information Systems in Business ● 5
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business approaching, Eaton found itself in very maturebusinesses fighting with established competitors over everypoint of market share. That’s when a few visionary managerswithin the Electrical Products Division started to thinkabout device connectivity and the broader solutions it couldoffer consumers. The system they envisioned, recentlylaunched as Home Heartbeat, monitors the status of varioushome systems and alerts the home owner when something isamiss. To do this, it uses water sensors, open/closed sensors,and power sensors, all of which communicate to a base sta-tion over a wireless network. That base station communi-cates with a key fob device carried by the home owner, or itcan be instructed to send an e-mail or text message to a cellphone if there is a change in the state of a sensor.
Consider how useful this would be. You’re commutingby car or train to work, and it occurs to you that a spaceheater might have been left on. You can check your key fobto be reassured instead of having to turn back. (The key fobdevice communicates only within a limited range of distance,but captured data about the status of your home when youleft it.) Home Heartbeat features a water shutoff valve that
can be automatically activated by sensors. So if you’re on va-cation and you hear about an unexpected cold front, poweroutage, or burst pipe back home, you can check your e-mail.In the meantime, you can be confident that if the waterneeded to be shut off, it was.
Home Heartbeat is a good example of smart productand service innovation. Eaton used information technologyto build awareness and connectivity into devices it wasalready selling, turning them into smart products. Then itwas able to position itself not just as a product vendor, butas a service provider. No longer consigned to an obscurecorner of the industry, the Eaton brand now stands for totalhome awareness. Now the company is playing the role ofnew business aggregator, as it courts an entirely new rangeof partners, from wireless carriers to insurance companies,to join with it in providing new smart services to businessesand consumers.
CASE STUDY QUESTIONS REAL WORLD ACTIVITIES
1. Why should manufacturing companies build smartproducts and provide smart services? What businessbenefits can be gained? Provide several examplesbeyond those discussed in this case.
2. What information technologies are used by thecompanies in this case to build smart products andprovide smart services? What other IT componentsmight be used? Give examples of the capabilities theywould provide.
3. What are some limitations of a smart products andsmart services strategy? Give several examples that abusiness might encounter, and explain how it mightovercome them.
1. Use the Internet to investigate how Heidelberg,Honeywell, and Eaton are proceeding in their use ofsmart products and services. Discover if they areexpanding this approach and what benefits they areclaiming for this strategy.
2. Now expand your Internet investigation to othermanufacturing companies to discover several that arebuilding smart products and offering smart services andwhat business value they are claiming for themselvesand their customers. If this search is fruitless, selectseveral companies from your Internet research andexplain how and why they might employ a smartproducts and services strategy.
3. What security and privacy concerns might consumershave concerning Eaton’s Home Heartbeat service?Break into small groups with your classmates to discussthe rationale for these concerns, and consider whatcould be done to reduce any threats to security andprivacy posed by such services, while improving thevalue of this new use of information technology.
6 ● Module I / Foundation Concepts
Source: Adapted from Glen Allmendinger and Ralph Lombreglia, “FourStrategies for the Age of Smart Services,” Harvard Business Review, October2005, and Peter Weill and Sinan Aral, “Generating Premium Returns onYour IT Investments,” MIT Sloan Management Review, Winter 2006.
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