BY MICHAEL E. PORTER AND JAMES E. HEPPELMANN
There is a fundamental disconnect between the wealth of digital data available to us and the physical world in which we apply it. While reality is threedimensional, the rich data we now have to inform our decisions and actions remains trapped on two-dimensional pages and screens. This gulf between the real and digital worlds limits our ability to take advantage of the torrent of information and insights produced by billions of smart, connected products (SCPs) worldwide.
Augmented reality, a set of technologies that superimposes digital data and images on the physical world, promises to close this gap and release untapped and uniquely human capabilities. Though still in its infancy, AR is poised to enter the mainstream; according to one estimate, spending on AR technology will hit $60 billion in 2020. AR will affect companies in every industry and many other types of organizations, from universities to social enterprises. In the coming months and years, it will transform how we learn, make decisions, and interact with the physical world. It will also change how enterprises serve customers, train employees, design and create products, and manage their value chains, and, ultimately,how they compete.
In this article we describe what AR is, its evolving technology and applications, and why it is so important. Its significance will grow exponentially as SCPs proliferate, because it amplifies their power to create value and reshape competition. AR will become the new interface between humans and machines, bridging the digital and physical worlds. While challenges in deploying it remain, pioneering organizations, such as Amazon, Facebook, General Electric, Mayo Clinic, and the U.S. Navy, are already implementing AR and seeing a major impact on quality and productivity. Here we provide a road map for how companies should deploy AR and explain the critical choices they will face in integrating it into strategy and operations.
Fully one-quarter of the world’s economy will be digital by 2020, forecasts a new report from Accenture. But that prediction doesn’t tell the whole story. Because increasingly, all business processes will be not only digitized – converted from analog to digital – but also digitalized – transformed in a way that blurs the physical and virtual.
WHAT IS AUGMENTED REALITY?
Many organizations are struggling to respond. In fact, only five percent of companies say they’ve mastered digital transformation to the point of competitive differentiation, according to Forrester.
Isolated applications of AR have been around for decades, but only recently have the technologies required to unleash its potential become available. At the core, AR transforms volumes of data and analytics into images or animations that are overlaid on the real world. Today most AR applications are delivered through mobile devices, but increasingly delivery will shift to hands-free wearables such as head-mounted displays or smart glasses. Though many people are familiar with simple AR entertainment applications, such as Snapchat filters and the game Pokémon Go, AR is being applied in far more consequential ways in both consumer and business-to-business settings. For example, AR “heads-up” displays that put navigation, collision warning, and other information directly in drivers’ line of sight are now available in dozens of car models. Wearable AR devices for factory workers that superimpose productionassembly or service instructions are being piloted at thousands of companies. AR is supplementing or replacing traditional manuals and training methods at an ever-faster pace.
The challenge is especially acute for manufacturers. From innovation to production to logistics, manufacturers are seeing their operations revolutionized by digital technologies.
More broadly, AR enables a new information-delivery paradigm, which we believe will have a profound impact on how data is structured, managed, and delivered on the internet. Though the web transformed how information is collected, transmitted, and accessed, its model for data storage and delivery—pages on flat screens—has major limits: It requires people to mentally translate 2-D information for use in a 3-D world. That isn’t always easy, as anyone who has used a manual to fix an office copier knows. By superimposing digital information directly on real objects or environments, AR allows people to process the physical and digital simultaneously, eliminating the need to mentally bridge the two. That improves our ability to rapidly and accurately absorb information, make decisions, and execute required tasks quickly and efficiently.
That starts with research and development. Here are four key ways digitalization is transforming R&D:
AR displays in cars are a vivid illustration of this. Until recently, drivers using GPS navigation had to look at a map on a flat screen and then figure out how to apply it in the real world. To take the correct exit from a busy rotary, for example, the driver needed to shift his or her gaze between the road and the screen and mentally connect the image on the map to the proper turnoff. AR heads-up displays lay navigational images directly over what the driver sees through the windshield. This reduces the mental effort of applying the information, prevents distraction, and minimizes driver error, freeing people to focus on the road. (For more on this, see the sidebar “Enhancing Human Decision Making.”)
科技给予用户更多自由。如今用户已经拥有及时和稳定的信息，包括产品、质量和价格 – 无论是你还是你的竞争对手。过去，如果你已经是某个领域的领导者，竞争者处于劣势。今天，用户们知道你是如何在世界范围和对手们较量的，你过去的市场领导者地位变得无关紧要。
AR is making advances in consumer markets, but its emerging impact on human performance is even greater in industrial settings. Consider how Newport News Shipbuilding, which designs and builds U.S. Navy aircraft carriers, uses AR near the end of its manufacturing process to inspect a ship, marking for removal steel construction structures that are not part of the finished carrier. Historically, engineers had to constantly compare the actual ship with complex 2-D blueprints. But with AR, they can now see the final design superimposed on the ship, which reduces inspection time by 96%—from 36 hours to just 90 minutes. Overall, time savings of 25% or more are typical for manufacturing tasks using AR.
1. End consumers are more empowered
Technology has put consumers in the driver’s seat. Customers now have instant, constant access to information about products, quality, and pricing – for both you and your competitors. In the past, if you had established yourself as a leader in a region, the competition was at a disadvantage. Today, customers know how you stack up against rivals around the world, and your past market leadership is irrelevant. This isn’t just a problem for sales and marketing. It’s also a problem for R&D, which must respond – in as near to real time as possible – to changing customer demands. The good news is that technology is also the solution. For example, by designing smart products that leverage Internet of Things (IoT) sensors, R&D can capture usage data to understand customer desires and capture performance data to learn how to improve products rapidly.
AR’S KEY CAPABILITIES
As we’ve previously explained (see “How Smart, Connected Products Are Transforming Competition,” HBR, November 2014), the SCPs spreading
2. Transparency is rewriting how manufacturers collaborate
Information access is changing the way manufacturers interact both internally and with suppliers. This is true for every function, but especially for R&D.
As R&D creates more smart products, the skills it requires are changing. The automotive industry is a case in point. Fifteen years ago, cars began to incorporate electronics such as engine-control systems. Today, electronics are where most automotive R&D is happening, and within 10 years, electronics will allow cars to pretty much drive themselves.
That dramatically changes how cars are designed. In the past, mechanical engineers led design efforts, and electronics were merely an add-on. Today, software development – with its very different requirements and design cycles – is integral to the process. In the automotive industry and in virtually every other industry, product design will involve new stakeholders who must work together in new ways.
through our homes, workplaces, and factories allow users to monitor product operations and conditions in real time, control and customize product operations remotely, and optimize product performance using real-time data. And in some cases, intelligence and connectivity allow SCPs to be fully autonomous.
AR powerfully magnifies the value created by those capabilities. Specifically, it improves how users visualize and therefore access all the new monitoring data, how they receive and follow instructions and guidance on product operations, and even how they interact with and control the products themselves.
3. Business models are growing more flexible
In the past, product designers worked for companies that sold products. But increasingly, manufacturers will sell not products but services. That affects R&D in fundamental ways.
A good example is a midsize SAP client that makes industrial air compressors. Some years ago it realized customers wanted not air compressors but compressed air. So it began offering compressed air as a service. Before this time, it designed and manufactured air compressors and then sold them to customers. Now, it designs and manufactures air compressors, installs them at customer sites, and then charges for the compressed air customers consume.
That new business model changes how R&D develops products. First, it needs to design in IoT sensors to monitor the compressors in real time and enable predictive maintenance. Second, it needs to optimize longevity and ease of maintenance. One way the company achieves that is by having engineers regularly spend time with field service to see firsthand how equipment is performing.
X-ray vision, revealing internal features that would be difficult to see otherwise. At the medical device company AccuVein, for instance, AR technology converts the heat signature of a patient’s veins into an image that is superimposed on the skin, making the veins easier for clinicians to locate. This dramatically improves the success rate of blood draws and other vascular procedures. AR more than triples the likelihood of a successful needle stick on the first try and reduces the need for “escalations” (calling for assistance, for example) by 45%.
Bosch Rexroth, a global provider of power units and controls used in manufacturing, uses an AR-enhanced visualization to demonstrate the design and capabilities of its smart, connected CytroPac hydraulic power unit. The AR application allows customers to see 3-D representations of the unit’s internal pump and cooling options in multiple configurations and how subsystems fit together.
4. Business processes are becoming more customer centric
In fact, 83% of executives believe digitalization is driving a shift from supply-side economies of scale to demand-side economies based on interconnection with customers and partners, according to the Accenture report.
Manufacturers will have to be more connected to customers, because new business models will demand it. Take the air compressor customer. It hasn’t invested in a capital-intensive air compressor; it’s simply contracted for compressed air. At the end of the contract, there’s little disincentive to switching to a more attractive contract. The same will be true for many products across many industries.
How does that change R&D? Design cycles will have to accelerate to maintain competitive differentiation. For example, most carmakers update a car’s electronics only if the customer happens to come in for service. Tesla has upped the ante by sending new features and functions directly to the consumer through regular software updates. Don’t be surprised if its competitors start to follow.
Ultimately, the digital economy begins and ends with the customer. Customers are more empowered, so companies need to become more customer-centric. And nowhere is that more true than in R&D.
For more insight on the new customer-centric digital economy, see Customer Relationship Status: It’s Complicated.
Instruct and guide. AR is already redefining instruction, training, and coaching. These critical functions, which improve workforce productivity, are inherently costly and labor-intensive and often deliver uneven results. Written instructions for assembly tasks, for instance, are frequently hard and timeconsuming to follow. Standard instructional videos aren’t interactive and can’t adapt to individual learning needs. In-person training is expensive and requires students and teachers to meet at a common site, sometimes repeatedly. And if the equipment about which students are being taught isn’t available, they may need extra training to transfer what they’ve learned to a real-world context.
AR addresses those issues by providing real-time, on-site, step-by-step visual guidance on tasks such as product assembly, machine operation, and warehouse picking. Complicated 2-D schematic representations of a procedure in a manual, for example, become interactive 3-D holograms that walk the user through the necessary processes. Little is left to the imagination or interpretation.
At Boeing, AR training has had a dramatic impact on the productivity and quality of complex aircraft manufacturing procedures. In one Boeing study, AR was used to guide trainees through the 50 steps required to assemble an aircraft wing section involving 30 parts. With the help of AR, trainees completed the work in 35% less time than trainees using traditional 2-D drawings and documentation. And the number of trainees with little or no experience who could perform the operation correctly the first time increased by 90%.
AR-enabled devices can also transmit what an on-site user is seeing to a remote expert, who can respond with immediate guidance. In effect, this instantly puts the expert at the user’s side, regardless of location. This capability not only improves worker performance but substantially reduces costs—as Lee Company, which sells and services building systems, has discovered. It uses AR to help its field technicians with installations and repairs. A remote expert can see what the tech is viewing through his or her AR device, guide the tech through the work to be done, and even annotate the tech’s view with instructions. Getting expert support from a central location in real time has increased Lee’s tech utilization dramatically. And, by reducing the number of repeat visits, Lee saves more than $500 per technician per month in labor and travel costs. The company calculates a return of $20 on every dollar invested in AR.
Interact. Traditionally, people have used physical controls such as buttons, knobs, and, more recently, built-in touchscreens to interact with products. With the rise of SCPs, apps on mobile devices have increasingly replaced physical controls and allowed users to operate products remotely.
AR takes the user interface to a whole new level. A virtual control panel can be superimposed directly on the product and operated using an AR eadset, hand gestures, and voice commands. Soon, users wearing smart glasses will be able to simply gaze at or point to a product to activate a virtual user interface and operate it. A worker wearing smart glasses, for instance, will be able to walk a line of factory machines, see their performance parameters, and adjust each machine without physically touching it.
The interact capability of AR is still nascent in commercial products but is revolutionary. Reality Editor, an AR app developed by the Fluid Interfaces group at MIT’s Media Lab, provides a glimpse of how it is rapidly evolving. Reality Editor makes it easy to add an interactive AR experience to any SCP. With it, people can point a smartphone or a tablet at an SCP (or, eventually, look at it through smart glasses), “see” its digital interfaces and the capabilities that can be programmed, and link those capabilities to hand gestures or voice commands or even to another smart product. For example, Reality Editor can allow a user to see a smart light bulb’s controls for color and intensity and set up voice commands like “bright” and “mood” to activate them. Or different settings of the bulb can be linked to buttons on a smart light switch the user can place anywhere that’s convenient.
The technologies underpinning these capabilities are still emerging, but the accuracy of voice commands in noisy environments is improving, and advances in gesture and gaze tracking have been rapid. GE has already tested the use of voice commands in AR experiences that enable factory workers to perform complex wiring processes in wind turbines—and has achieved a 34% increase in productivity.
COMBINING AR AND VIRTUAL REALITY