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Sunday, 3 March 2013

Dodgy Diversification or Great Opportunity? Pilot It Before You Decide!


Often, when things are going well, a curious feeling which is almost boredom can overtake the leader, and especially the entrepreneurial owner/manager.

The usual outcome is to attempt to find something new to do, another cause to espouse or another idea for a new product or service for the business.

Not to be one to dismiss this out of hand, I would suggest that the whole concept of innovation needs to be actioned in a formal and considered manner, if the project is to be successful and presumably profitable.

I well remember speaking to the CEO of a major global consumer electronics manufacturer who told me that their innovation policy was to have a group of highly intelligent and motivated people whose sole function was to think up new product ideas, however bizarre.

The background to this scheme was daunting.  On average it took three years for any new product to be brought to market and incredibly (at the time) the average life expectancy of any new product was six months.  That meant some pressure on the pipeline, to say the least.

At least they were running their new product development operation in a formalised and thoughtful way which was extremely successful at the time.

US speaker, Dan Pink, tells of a company which every six months or so encourages all personnel to have a day off during which they can think up any ideas that they consider appropriate as new products.   The results have been startling with people relishing the freedom to think outside their normal area of activity (please note that I deliberately avoided using “outside the box”!)

The fact is that, in general, NPD (new product development) is often carried out in a rather haphazard way and worse, without much appreciation or even research as to the likelihood of success.

That old axiom demonstrated by the Ansoff Matrix says that by far the best and most effective way to build a business and especially an SME with minor market share is to do more of what they are good at and that is to say, go for more market penetration.

That, of course, doesn’t seem very exciting if sensible so some efforts are made to dig up ideas for new products or services.

Ansoff says that the next best route to success is to bring a new product to the existing market and that is logical.  You, the business and its reputation are all well known to existing customers and the market so the introduction of something new into the company’s portfolio will more than likely be well received.

Maybe so, but Ansoff points out sagely that even though the new product can be acceptable to the market, the effort demanded in making it a successful entry would take approximately four times that of building the exiting business.

It is worth remembering that Ansoff also says that bringing existing products into new markets takes around eight times the effort of building your existing markets and bring new products into new markets simply means that you have designed a new business.

That is not say, don’t do it; merely to understand that the launch of any new idea to what can be a sceptical audience will demand time and effort.  The question then is whose time and whose effort?  Who will be designated the new product champion to oversee its birth?  People need to be allocated to the task with specific performance goals in a specified time frame.

However good the idea seems to be it makes sense to research the potential market as thoroughly as possible and then to test it by running a small pilot launch in a specific area or sector of the market.

That way the leader can decide whether this great scheme will turn out to be just another dodgy and potentially dangerous diversification or preferably a great opportunity for the growth and profitability of the business.
 
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