A services company’s dilemma of new product development

The service mindset- a fight of sustenance vs. disruption

A services company is driven by customers and financial resources brought in by these customers. The customer generally is ready for incremental innovations to improve performance along the historically valued dimensions. However, a disruptive product brings in a very different value proposition which rarely finds immediate acceptance particularly coming from a services company.

Therefore, it becomes difficult for services company to invest adequate resources in disruptive product ideas because it is opposed by customers and company’s good managers who focus on margins alike.

If after all this company is still able to pursue the product, it is generally a low priority and tactic of utilizing unutilized service resources till they get on to the next project.

Resource allocation and innovation are two sides of the same coin. Historical evidence shows that only those product development projects survive who have adequate resources, funds and management focus. Most products die not because of the weakness of the product but from starvation of resources.

The product development in a services set up faces three major challenges:

#1 The capabilities and organisation of these capabilities.

Most services companies are more specialized than they think they are. They generally work at component level providing certain sets of in demand skills which mostly work in isolation of each other. Let us say company X provides resources in technology A, B and C. These A, B and C tech teams and even individual resources within these teams mostly don’t need to interact with each other. On the contrary, for a product at the architectural level itself, multiple technologies come into play which need a team structure with free flowing communication and groupings between multiple teams and technologies. Learning new technologies becomes a mandate.

Another challenge within capabilities is that product development needs dependency on processes and not resources. No resource should be allowed to become critical, it is far more damaging for product than it is for services. The processes formulated in the formative stage of product development have profound impact in the growth stage of product life cycle.

#2 Investment in product should match the size of the market

In desperation to find the beta phase customers, adoption of the product by smaller services customer or smaller markets does not serve the need of the product growth. The product needs to be implanted in commercial organizations which are in the markets that have space for the growth phase of product.

This has two obvious advantages

  1. Of course it facilitates growth with less efforts to find new markets very often.
  2. Enough space to accommodate any competition which will erupt sooner or later.

In services approach, it is important to focus on in demand technologies and be follower in adopting new technology after observing demand. However, for a disruptive new product the first mover advantage and size of the market to sustain that advantage is of enormous importance.

#3 Analysing and finding Market for the new product

How does one analyze a market that does not exist? Understanding this point is crucial because predicting future of market whose past and present are known needs a very different plan and execution vis a vis new markets that have uncertain demand.

Planning and strategy for a new product should not focus on sales and forecasting but on exploring, understanding and learning from the exposure the product gets in the market. The strategy should be built around the process of capturing and using the learnings for the product design and redesign. The system has to be flexible enough to keep investment and resources ready to rework and built upon the market learnings.

Summarising

There are four pointers that can summarised if you decide to charter into the territory of product development from a services set up:

  1. Success of new product development project is a mirror of resources allocated and management focus.
  2. Capabilities of services company are more specialized than what is needed for a product.
  3. The size of market is crucial to sustaining first mover advantage.
  4. And finally, traditional approach of target and forecast based marketing should give way to exploratory marketing for a new disruptive product.

Posted on 11th July 2016 in Product Development

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About the Author

Ashish handles Marketing, Product innovation and Indian operations at Ideatarmac. He likes to define himself as someone who is an E-Entrepreneur. Allured by Marketing. Crazed by Data. Deluded by Psyche. Awed by Rural India. Gustoed by Gamification!

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