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By Richard A. Siegel "We need more business!! What new products are we developing? How will we generate a competitive advantage?" Sound familiar? Let's talk about asset-leveraging new business development and how it links to competitive advantage. If you're a technology-based company, and you influence the direction of new product and business development, you can actually begin to build the potential for competitive advantage into the new business program from the outset. Let's design the front end of a model 'asset-leveraging' business development program. The goal Our ultimate goal in this program is to introduce new strategic products that can significantly increase our revenues and profits within a reasonable period. For customer appeal and staying power, these new products need to possess competitive advantages. One way to do this is by leveraging non-financial assets (NFAs). So what do I mean by asset leverage? Think of it as a way of exploiting, benefiting from, using to best advantage, getting lots of mileage from -- things other than capital. What kinds of things? Non-financial assets - NFAs - include your technical capabilities, skills, know-how; your core and new technologies; your patents; your manufacturing and testing facilities and equipment; technical service resources and skills; and your skills in moving new products through regulatory systems. They help define the universe of things you can commercially produce and technically service. But don't think NFAs are just technical. They very much include your marketing, sales and distribution know-how, resources and systems; as well as your knowledge of customer needs in selected markets; knowledge of market dynamics and trends; and other customer/market related stuff. Collectively, NFAs define a lot of what makes you unique and different from your competitors, or someone who might become a competitor. An often overlooked fact is that the more NFAs a new business opportunity leverages, the more it will match you and the less it will match a competitor. In short, the more competitive advantage it could possess. If a new business opportunity only leverages your money, you probably won't wind up with new products you can defend in the marketplace or a business you can manage or grow very well. Others, who are leveraging their NFAs, will have the advantage. You see, generally speaking, your competitors have the same money. If they match you dollar for dollar, and that's all that's needed to play, then what do you have? What do they have? It's the guy with asset-leverage who can win. Asset-leverage gives you strategic advantage. And that's a real good thing to have. This isn't neurosurgery, it's a discipline. It keeps you in a realm where you can do something new very well, limit risk and gain advantage. There's plenty of room for innovation and breakthrough, all much more matched to the unique collective capabilities of your company than anyone else's. As we continue to move through design of the front-end of our asset-leveraging new business development model, we'll see how NFA implications and opportunities continue to pop up. The model Before designing our model, some key decisions must be made. Will the new products be internally developed or accessed from outside sources through acquisition, licensing or contract? For our purposes, assume the products will come from internal development and manufacture (even though a number of points in this discussion will apply equally well to externally sources new products.) We'll call them assets. Next, we'll select from the following three choices. This is heavily asset-related. Do we want:
This is also strategic, since each approach brings with it some strategic implications for growth of the company, as well as different risk and investment levels. In the first instance, we take the least amount of risk and limit investment on the marketing side. We know the customer base and can easily introduce new products to them. All the marketing, distribution and service systems -- i.e., assets -- are in place. In the second approach, we look to broaden the markets we sell into with familiar products and technologies. New markets can be geographic or new types of customers, both functional markets. Here our risk increases since we don't know these customers and their needs as well as those of existing customers; and we need to put new marketing, sales, distribution and service systems in place. Or to limit these risks and investments, we might consider an alliance partner who has these marketing assets in place and can provide us market access for our to-be-developed 'similar' products. Of course, we wind up sharing value (and profits) with our partners and make less money. But that might be okay. If we end up with high margin products, value-sharing might work just fine. In the third scenario, we have some interesting risks and opportunities to consider. For example, if we can leverage our technical and marketing assets, we might limit our risk -- particularly if we can use our technical and marketing assets in innovative ways to create and market these new products. There might be innovations created here that you could also address to your current markets and customers. If you can do that, it could be a home run. One strategic reason to choose new products for new markets is to gain an opportunity to dramatically expand the customer base and accelerate growth. But it puts you in unfamiliar waters. Lots of folks acquire new product lines (and companies) for this reason, but the products can be home grown as well. If you can tolerate the added risk of dealing with new products for new types of customers, then go for it. It could offer the greatest long-term returns of the three approaches. For our development model, we'll go with similar products for new markets. This will allow us to expand the customer base while limiting investment in new products and new technology. We'll primarily be leveraging our technical assets and product know-how. Does this mean we blatantly disregard what new markets to look at? No! (Recalling that this author has a strong bias toward market-driven business development, one next step we could take is to begin identifying markets with needs functionally similar, in some way, with those of our current markets, i.e., look for analogous problems and needs.) Various techniques of market research and 'market discovery' can lead us to identification of a small universe of such new markets. Once identified, we need to evaluate the logistics of doing business in them. For those where logistics appear manageable, that is, where we can imagine cost-effective ways to market, sell and service, we should begin a dialog with the innovative, market leading companies to begin to understand where the opportunities lie for adaptations of our technology -- our products. If we are offering the potential of bringing exciting new capabilities to these markets through adaptations of our technologies and technical capabilities (our technical assets), then high level technical and commercial development execs, like you, ought to be interested in exploring the possibilities with us. (Note: The Mar/Apr '98 article entitled "Bogus assumptions can buffalo new business development" discusses technical executive-to-executive workshops which can be used for this purpose. Also see Jan/Feb 99, Nov/Dec 98 for pointers on Market-Driven Development and Market Discovery). Development involving the market in this way is an iterative process, in that you want to explore the possibilities, do some preliminary ideation internally, then continue the dialog with the leading prospective customers -- all while leveraging as many of your technical assets as possible into the shaping of the new product concepts. This will ensure that you keep the emerging ideas as unique to your company as possible, and that much more difficult for competitors to replicate. At some point, start to turn these ideas into product development scenarios which can be analyzed for cost, timing, investment, testing, regulatory requirements, and other factors that will ultimately determine the price/value you'll be able to deliver to new customers in these markets. One of the major benefits to this approach is that you haven't yet spent the big bucks. You've explored and hypothesized, you've analyzed and secured reactions from the marketplace as you've progressed. You let the market keep you on track. You haven't yet developed the products and modified technology as may be required. That's the big money. If all goes well, you should emerge from this up-front part of an asset-driven new business development process with some solid business opportunities, market-validated concepts and the promise of competitive advantage. And you should also have spent time determining ways to get these products to market, whether under your direct management or through an alliance or two. If you haven't yet made these determinations, this is a good time. You need to understand the "business model" you'll use to commercialize. The model discussed here had two driving philosophies. It was asset-leveraging to help shape opportunities around things we're particularly good at doing; and it was market-driven to enable us to apply our non-financial assets in ways needed by the market. That's a good start to any new program. One caution: When you involve innovative market leaders in your product and business development programs (as we did here), don't hang them out to dry by cutting off contact with them after you think you have the answer. Trust me, you probably don't, yet. Continue to work with them through prototype testing and product refinement. They'll respect the fact that you're accessing their expertise and opinions, and you'll very likely turn some of these leaders into strategic customers for market introduction. (Yet another competitive advantage.) Got some ideas for future articles? Let me know. Richard Siegel is founder and CEO of ISIS International Inc., a Connecticut-based international consultancy specializing in strategic planning, new business development and international technology commercialization. He can be reached at 203/261-5300, Fax 203/261-4911 or rsiegel@isisusa.com. ISIS is at www.isisusa.com. Article republished with permission of Technology Business Magazine. Copyright © 2000 Richard A. Siegel. All rights reserved. |
