Product companies have the unenviable challenge to constantly optimise a complex blend of products and services with the imperative to remain profitable. Frequently the demands of day to day operations dominate and dilute efforts to be innovating around new products. When the heat is on, optimising operations is more attractive than longer term projects that require strategic planning, foresight and investment. The result is a short term focus on operational efficiency and a diminished focus on strategic growth initiatives around the product lines.
Optimisation of an entire business is not easy. At a macro level, companies seek to optimise their investment portfolio through a combination of growth and restructuring of the existing operations, while simultaneously looking to acquiring and partnering with companies that strengthen the core business through financial risk diversification, sector diversification and product line diversification. This macro strategic planning is easier to grasp than the similar process that has to happen around innovations in existing business models, market segments and products.
Product strategy can be seen as optimising the companies mix of products and services to enhance growth initiatives in a sustainable manner. This can be achieved by strengthening the value proposition to existing customers while simultaneously entering adjacent or new markets. A good product strategy will leverage operational strengths and focus product investments in a way that leverages existing capabilities. Product strategy must at the same time be aligned with the acquisitive strategy to ensure that new acquisitions do not detract the existing business and destroy value by (for example) competing with existing products in a constrained market.
At a company level, complimentary acquisitions involve ensuring that the blend of financial, product and operational factors have a net positive impact on the value of the business.
At a product level, what strategies might be considered to achieve the same goal?
Innovation is sometimes perceived as a process whereby good ideas are successfully transferred into commercial reality, such that competitive advantage is realised. Good innovation is when transformational ideas are shown to be feasible and from which new lines of business can be developed.
The reality in my mind is that innovation is another of many processes that optimise businesses at multiple levels including product portfolio, operations, and company level.
In my experience, innovation is most likely to succeed when the focus is more on excecution than the ideas themselves. Good ideas are a dime a dozen, solid viable business plans are far more difficult to find. So when a company is seeking to accelerate innovation, the focus needs to be on those factors that could inhibit effective execution, such as organisational structure, investment practices, product development, product marketing, commercial practices and so on.
CUSTOMER LED INNOVATION
A powerful concept is that of customer led innovation and this has worked well in a number of situations I have been involved in. When customers have demand for new products and services, this secures a ready market for the built solutions. And despite what customers say, there are few truly unique requirements. So when a customer led enhancement to a product or service is incorporated into an existing commercial offering, it is likely that there will be other customers out there that need the same thing. Providing these developments are done in a way that is repeatable and scaleable, customer enhancements can become a new extended product line.
There are several minefields when adopting customer led innovation that could result in product development decending into bespoke development. These include the agreements around intellectual property rights, the ability to separate generic core product features from customer specific features, and the ability to invest in generic capability at the same time you are building unique customer solutions. If you get the balance wrong in any one of these areas you can end up with a brittle bespoke customer solution that cannot be sold repeatedly to the market. Another approach might be to develop a bespoke customer application as a “proof of concept” and then later rebuild the solution for a generic market need. Most organisations are however not set up for this type of investment, preferring to deploy the same development capacity into the next (paid for) bespoke development. This is a trap that is really obvious to everyone, yet companies continue to pursue this approach like lemmings leaping over the proverbial cliff.
DEFENDING THE CORE WITH THIRD PARTY PRODUCTS
A really interesting approach to innovation is to integrate third party products with your core products in innovative ways such that the combination is worth more than the sum of the individual products combined. This is frequently an attractive option when a product company has developed a successful core product, and their resources are too stretched to accelerate development of new features, even if customers are willing to pay for this. Introducing third party products into the mix can significantly strengthen the value proposition to the market without detracting from key constrained resources. This is a form of defensive strategy, whereby you can protect your existing market position with products that satisfy the need for customer enhancements without having to build these from scratch.
As always, integrating third party products is a potential minefield. You become dependent on the viability and strategic direction of one or more third parties, and you may not have any control over their decisions in future. Version incompatibility, platform compatibility, intellectual property constraints and other considerations all introduce risk. Yet, if well managed the risks can be managed and the end result can be significantly more valuable than the do-it yourself approach or the bespoke development approach.
In conclusion, optimising a business is complex at multiple levels. Product strategy needs to integrate into the corporate strategy around acquisitive growth and leverage existing capabilities. The secret to good innovation is often that the execution needs to be flawless, and organisational structures need to support rapid commercialisation around new ideas. Customer led innovation as well as introducing complimentary products form part of the optimisation process, both have risks but have the potential to have transformational impact on existing product lines and ultimately the business.