At the Liveworx conference in Boston last week, Michael Porter, Harvard Business School professor and well-known business strategy expert, spoke about what he called “the third wave of IT innovation” — the Internet of Things.

Michael Porter

Michael Porter

Porter, along with Jim Heppelmann, president and CEO of PTC, summarized their findings from a November 2014 Harvard Business Review article about how the Internet of Things (IoT) is disrupting various industries, field service included. The pair also spoke about ongoing research on the implications for company strategy and organization, which will be published in HBR later this year.

“Not only is the product changing, the product change is feeding back and changing how companies operate today,” Porter said. “How you run a company is going to change much more dramatically than in previous generations of IT.”

According to Porter, one area poised to feel the IoT transformation acutely is the service and maintenance industries, thanks to the disruptive power of big data and predictive analytics.

Here are four ways the IoT will force service leaders to adapt:

1. Service businesses will shift from reactive to proactive

There will be a transformation in the way service businesses are run and organized, as connected products allow technicians to diagnose the problem, or even perform service, remotely. Companies will be able to push updates to products in the field, and analyze product usage data to improve service efficiency and warranty management. As new IoT-enabled technologies take hold, service companies will move beyond the repair model to data-enabled advanced services that add value to customers. Ultimately, Porter said, this model will evolve to “product-as-a-service” as companies design new functionality and extend product life cycles.

2. Big data will create an entirely new section of the value chain

IoTCompanies will find ways to create value from the constant data stream from both internal and external factors. (Internal data could be product usage and equipment performance information, while external data could include weather conditions.)

Porter and Heppelmann said that, rather than having each division deal with its own data separately, companies need to create a “unified data group,” led by a chief data officer, that can store, aggregate and analyze the data — and work closely with other divisions to uncover insights that create customer value.

3. Product design will require a long-term, integrative approach

Product design will become “evergreen,” said Porter, meaning products will be continuously re-designed and serviced via remote connections and services once they’re in the field. As a result, companies must find a new approach to product design that accounts for everything that happens after the sale is closed.

In addition, increased connectivity will require manufacturers to look at products within a larger, networked system. A “smart” tractor, for example, will have its own data analytics connections, but it must also interface with other smart machines on the farm.

4. Expect more consolidation and a war for talent

Porter frames the changes led by the IoT as an opportunity for companies to broaden their offerings and lead with innovative product functionality. There are two choices: cling to business as usual, or adapt. Companies that don’t react will have their products subsumed by companies that do. Porter predicts this will lead to further consolidation across industries, allowing companies to expand their market and products through data and IoT functionality.

But the biggest hurdle, Porter said, is likely to be the war for talent. There are currently too few people with the necessary mix of skills to tackle the new challenges presented by the IoT era.

ABOUT Lauren Zanolli

Avatar photoLauren is a freelance journalist most interested in what happens at the intersection of technology, business and society. She has covered economic development in the Middle East from Istanbul, microfinance and social entrepreneurship from Mumbai, and worked in the solar energy business while in San Francisco. She is currently based in New Orleans. Find her on Twitter @LaurenZanolli