Does anyone really understand how fast the world is changing?  Just think about this paradox:  virtually all of the data created to date on earth can now be modeled and analyzed, but more than half of all the data created from physical or operational systems today loses any value that can derived through analysis in minutes.

Today we are creating data at a faster rate than we are building and deploying bandwidth. And if anyone is wondering how fast we are moving towards truly distributed systems and intelligence, then consider that there is more processing power in smart phones and devices than in all the servers and storage devices in data centers on the earth today.

As networks have invaded the “physical” world, system and solution designers are seeing the new values that come from the growing and abundant interactions between sensors, machines, systems and people. Electronic, mechanical and other related systems and software that used to have unique physical interfaces and components are now becoming standardized and part of a larger set of “horizontal” system technologies.

These combinatorial innovations are what we call “complex adaptive systems” or “system of systems,” where multiple technologies converge and reinforce one another. A Smart System of Systems is an arrangement of independently operated systems that allow for collaborative interactions among them, giving rise to emerging capabilities and values while maintaining each of the individual system’s own capabilities and values.

To be a truly Smart System, data must be able to travel and interact freely across systems, applications, people and more. This allows data that originates from diverse points to be aggregated and modeled, thus increasing their overall value to users. Open data architectures are like bridges built at private expense for public benefit. Everybody wants to collect the tolls, but few are prepared for the major challenges and costs they will face to build and maintain the bridge.

Despite these challenges, the world continues to innovate and evolve towards ever more sophisticated, intelligent and adaptive systems.  This new paradigm is driving all data, information and, more importantly, their interactions towards real-time, state-based, context-driven capabilities that integrate people, processes, physical equipment and knowledge to enable collective awareness and better decision making.

Whatever we choose to call the next wave—autonomous, robotic, automated, etc.—intelligent systems will increasingly become self-sensing, self-controlling and self-optimizing automatically, without human intervention. Think of intelligent agents and virtual assistants residing inside systems and making purchase decisions defined by a set of programmed rules. Then think of machines and systems making optimized selections among competing offers based on learning and rules or, ultimately, machines deducing human needs based on rules, context and preferences.

The convergence of collaborative technologies and complex adaptive systems will enable entirely new modes of services delivery and interactions. This implies a total paradigm shift. The depth of this shift has begun to suggest itself, but it is by no means accomplished.

The implications are enormous. No product development organization will be able to ignore these forces, nor will their suppliers. Product and service design will increasingly be influenced by the use of common components and subsystems. Vertically defined, stand-alone products and application markets will become part of a larger ever more closely coupled set of subsystems.

As more and more companies delve into developing Smart Systems, they are quickly finding that competitive differentiation shifts away from unique, vertically focused product features. The new focus will be on how the product fosters interactions between and among users in a system of systems context.

All of these trends lead us to the simple question: How well-prepared are manufacturers for the era of Smart Systems? Do we even know how to design Smart Systems?  We think many companies are finding this to be a real challenge. For all the talk today about going “digital” and with all the silicon-based “intelligence” permeating every aspect our lives, we still live in a brutally dumb world.

Has Anyone Seen a Real True-To-Life Knowledge-Based Organization?

We believe that in most companies there is too much disconnection between people, functions, processes and knowledge. Large organizations have many rules and policies that often seem completely disconnected. They have been creating language, processes and systems that seem to be a triumph of technique over substance. General managers, like cost accountants, claim to have developed uniform approaches for just about everything — including “organic” growth.

In our view, mounting evidence suggests that most of the existing approaches to creating new growth businesses are of little value when it comes to emergent and disruptive opportunities like complexsystems.  These days all large manufacturers have a so-called “business system” which seems to have severely diminished managers’ ability to focus on new Smart Systems opportunities, take risks or do just about anything creative.  These bureaucraticprocesses lead organizations further and further away from any kind of innovation and blur management’s vision.

Most knowledge comes from human experience and expertise; but today, knowledge and expertise largely resides in functional silos dispersed across organizations. Acting singularly, those siloed systems are constrained by the resources under their control. Legacy processes and habits inhibit any natural ability to communicate and collaborate on solving big problems or creating new solutions. In many companies, lean practices have been applied so aggressively that people are simply consumed by “running the business.”  They fail to harness the collective intelligence available throughout the company and its networks; thus they fail to develop creative products, systems and solutions.

So how have manufacturers been able to continue to grow and create value in the equity markets? Global expansion, re-engineering, lean practices, and mergers and acquisitionsare all reasonable strategies for growth and value creation. But in a marketplace that is rapidly consolidating and driven by new and unfamiliar technologies, what worked in the past is less likely to work now or in the future.  For many companies, those strategies have already reached the point of diminishing returns.

The Blind Leading the Vision Impaired

This evolution reminds us of a story by H. G. Wells. The Country of the Blind concerns a group of people living in total isolation in a valley of the Andes Mountains. For an unknown reason, the inhabitants of the valley have been congenitally blind for two or three generations. The people in the valley have re-evaluated much of the information handed down through oral tradition; new impressions have been forged based on subjective experience. For example, they have decided there is no difference between angels and birds. The people have reasoned that they can hear both birds and angels sing, and they can feel the wings of both brush their faces — so there must be no difference.

The story depicts a group of people who, as long as they remain in isolation, can rationalize any type of behavior — no matter how absurd the behavior appears to an outsider. Isolation and blindness lead the inhabitants further and further away from the truth.

We believe existing schemas, institutions and approaches for new growth development are, for the most part, broken. In this era of Smart Systems, the complexity of interdependent relationships required for new growth ventures only compounds the challenges. In this environment, growth depends on interacting in new and creative ways. Linking functions by breaking down the barriers to communication is the first step, but it can’t stop there. The key is building truly collaborative networks.

So, Where to Now – Heaven or Hell?

For those brave enough to have invested in Smart Systems opportunities, progress has been slow to come. The “Achilles Heel” of Smart Systems development and adoption does not originate in the technology. Those inventions are not necessarily always ideal, but they are useful enough today. Rather, the weakness lies with people and behaviors. In the Smart Systems “game,” think of connected products and systems like you’ve made it to first base, and a solution that is open, collaborative and fully leverages data and analytics as making it to home base. In between are the important steps of embracing new business models and mitigating risks.

In many ways, most of the larger diversified industrials have not gone beyond “first base” in capitalizing on the value of connected smart systems and services. We believe they have focused too much attention on creating “walled gardens” not new innovations. While many manufacturers have begun to build Smart Systems  programs, they are mostly directed at services and support delivery efficiency. These development programs are focused inward rather than focusing on creating new customer values.

In our research, we’ve found that many of these systems barely utilize the data they collect. While many players are talking a “big data” game, few are realizing any significant new value from machine data and analytics. To date, the Smart Systems opportunity has been comprised of monitoring applications and related tracking and location services –what we like to call the “alerts and alarms” syndrome. Manufacturers are stalled, wondering how to get to a future focused on collaboration between devices, data, people and systems.

Given the apparent speed that corporate leadership can absorb new management theories maybe this isn’t a real problem, just a work in progress.  With all the fads and fashion of management concepts, from empowerment to re-engineering to innovation and, more recently, design thinking, it’s a wonder we haven’t met the challenge of Smart Systems Design by now.  Just observe how many consulting firms have acquired design firms in recent years; help is surely on the way.

The whole predicament reminds us of a favorite quote from Hunter S. Thompson, the journalist and author who famously blurred the lines between writer and subject and fact and fiction.  In a similar context to the challenges we are describing here he said, “When the going gets weird, the weird turn pro.”

Compared to what is evolving in the marketplace – design thinking or not – the solutions we are describing here will have far less managerial hierarchy, less command-and-control decision-making, less stage gate process and less proprietary ownership of ideas. These networked Smart Systems will be self-organized by manufacturers, partners and customers who are motivated to explore and develop ideas they care deeply about. Collaborative innovation will go beyond ideas about new products and services, extending to ideas about the very manner in which business is conducted. ◆

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