Sunday, November 16, 2014

Organisational-level Strategies towards New/Emerging markets & Disruptive products

In the last post, several organisational-level constraints were discussed which impede entering new/emerging markets and launch of disruptive products. In this post, the strategies to overcome these constraints are discussed. There is no one-size-fits-all and each strategy caters to specific conditions and challenges. These conditions and challenges can be both Market based or Operations based.

And the strategy would constitute designing an organisation which best fits the given Market & Operational conditions.

Strategy: Acquire & Maintain Autonomy

This strategy implies acquiring the target organisation (which offers a potential disruptive product for an emerging market). And to keep this organisation insulated from the influence of parent organisation's systems and processes. This strategy will be suitable in following conditions:

Market conditions:

  • If the target customers are going to be different from existing customer base. 
  • If the initial market size is going to be much lower than that of existing offerings.

Operational conditions: 

  • If the cost structure are going to be different. Especially, if the margins are going to be lower.
  • The technical inclination & competencies to develop the product are not available internally.
  • The product development process is different from that of parent organisation.

Strategy: Spin-out and give Autonomy

This strategy is similar to above with a difference that the external organisation is a spin-out rather than an acquisition.

The market conditions for this strategy remains same as that mentioned for the previous acquisition strategy. An external autonomous organisation is suitable to address a different market size and customers.

With regards to operational aspects, this strategy is applicable if the disruptive product is being developed in-house. But the operational conditions required to deliver the product are in contrast with that of organisation's.
  • The cost structure and margins are going to be different from that of existing products.
  • The product development process needs to be different from that of parent organisation.

Strategy: Ring-fencing  to create an Unit inside Parent Organisation

This strategy implies creating a near-autonomous organisational unit in the parent organisation. This unit will derive its resources from parent organisation but will have operational independence.

The strategy works if the target market conditions are going to be a close match to that of parent's organisation.

  • The target customers for the disruptive product are a close match to existing customer base. 
  • The initial market size is not going to differ much from that of existing offerings.

Ring-fencing is required to address the differences in following operational conditions from that of parent organisation.

  • The cost structure is going to be different. Especially when the margins are going to be lower.
  • The required product development process is different from that of parent organisation.
It of less consequence whether the product idea is in-house or externally acquired.

Another variant of above strategy is Ring-fencing to create an Unit inside a Function

If there is not much difference in operational aspects, then creating a near-autonomous unit inside a function is good enough to address the difference in market conditions.

In case, if the disruptive product is an offshoot of core products of the organisation, has similar cost structure, but has a different target market. In such a case, creating a focused marketing and sales team will be enough to enter the new market.

Strategy: Acquire & Integrate

This strategy is safe to use if an external disruptive product idea requires similar operational conditions and market conditions as that of parent organisation.

Various strategies are summarized below in a framework.
The y-axis refers to Market aspects like Target customers, Market size etc.
The x-axis refers to Operational aspects like Cost Structures, Technical competencies, Product Development process etc..

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