Challenges for Innovative Companies in Modifying Their Business Strategy

Innovative, technology-focused companies are often challenged to develop and execute business strategies that can result in commercial success. Other companies with an established market position can face the necessity to modify their business strategy to adapt to changes in the marketplace. In either of these situations, the road to moving forward with a new business strategy is linked to the development of a viable business plan.

The Beach Head

A “Beach Head” strategy is one where a company targets entering a market for the first time. The objective is to validate the value of the company’s products/technology in a particular market space. The goal is to establish an initial commercial success which can then become a platform for future revenue growth.

Companies in this position often have a strong research and development team. The attributes and uniqueness of their products/technology have also been reasonably well documented. At the same time, its commercial value needs to be validated.
Frequently, technology-focused companies trap themselves by responding to a wide range of individual project requests. Often these are divergent in the market applications they represent. It lacks business direction.

A “Beach Head” strategy is intended to create focus. It channels company resources and significantly reduces the number of extraneous R&D project activities.

Diversification from Existing Markets

A diversification strategy is normally based on the need to find new sources of revenue outside of the market applications that comprise the majority of the company’s current business. There are a variety of reasons behind a company’s decision to diversify.
• The markets currently served have become commoditized.
• New or game-changing technologies from competitors pose a significant threat to future revenue streams from current product offerings.
• Desire to enter adjacent markets that provide additional sources of revenue and profitability that also fit within the company’s core competencies.
• Target growth for current technology in the same markets in other geographic regions.

Transition into a Different Level of the Value Chain

Consideration for moving forward in the value chain (from the company’s current market position) is mainly driven by several issues. The most obvious is the increase in the size of the market opportunity. In turn, this brings with it an expectation that the revenue streams and resulting profits will also be significantly greater.

In the coatings industry, value chain migration is often contemplated by companies that manufacture additives and are now considering offering formulated coatings. In this circumstance, the target market applications are ones where the company has already gained formulation knowledge through problem-solving for coating manufacturers.

Alternatively, transitioning backward in the value chain from formulated coatings to include additive manufacturing is also an option considered by some companies. The objectives, in this case, are varied and may include:
• Secure supply of key raw materials.
• Protect formulation IP and control potential differentiators.
• Improve profitability by capturing the additional value of key formulary components as part of a long-term business strategy.
• Strengthen the company’s competitive position by adding relative support services such as equipment, pilot facilities, warehousing and distribution, etc.

Reinvent the Company's Business Strategy

In certain situations, it becomes necessary for a company to change course and head in a new business direction. This can be the result of a major disruptive event in the marketplace that signals a change that obviates the long-term use of the company’s existing products/technology.

Alternatively, this could be (for example) the result of a major shift in the type of substrate materials used, industry-changing to a new manufacturing process, or regulatory requirements that demand a change in technology,
As a consequence of such disruptive events, the company is faced with the necessity of charting a new course for the business in order to survive.

So Where Do You Start?

The starting point for tackling a significant change in direction for the business in any of these scenarios (Table 1) is basically the same. Start with a well-defined set of business goals and objectives. This sets boundaries within which a business plan can then be developed. Once management defines the business result they want to achieve, the next step is the development of a supporting business plan.

In order to develop a realistic business plan, information gathered on the market needs to be both current and objective. In this regard, the use of external sources for researching the “market” is an important consideration. Sources can include the use of consulting firms, independent researchers, and industry experts. Taking this approach brings objectivity and an unfiltered assessment of the business direction being targeted.

The Value of External Information Sources

Using external market research sources can challenge the organization’s internal views on the attractiveness of the opportunity. It can also uncover various issues that the company needs to be prepared to address if they choose to go forward with a change in business direction. This approach also helps minimize surprises, reduce risk, and avoids underestimation of the commitment necessary to ensure the company can win.

Sole reliance on internal sources to frame the market entry plan unintentionally introduces potential pitfalls. Emotional attachment to the status quo or pre-determined opinions about the merits of moving ahead with the proposed change in direction happens all too often. Table 2 provides a list of key market issues that need to be assessed and researched prior to plan implementation.

When considering a change in business direction, the level of departure from the present business model helps dictate the complexity of the tasks required to prepare a viable business plan. When there are identifiable synergies between the existing business and what is being proposed, then there is better frame of reference from which to gauge the effort required.

A radical departure from the company’s current business model is considered when management sees the need to make a major shift in the long-term strategic direction. It can be the result of major events in the marketplace or industry transitions that demand a change in direction by management.

Radical departures from the company’s present business model are limited in the contributions they can obtain from in-company personnel. As a consequence, the importance of reaching out to external sources to obtain in-depth information on the market is an important consideration.

When identifiable synergies exist with the current organization and the new business direction, it helps reduce the risks involved in implementation. These synergies also provide a level of confidence in the ability of the current organization to achieve success by pursuing a new direction.

Assessing the Company’s Internal Fit and Capabilities

In finalizing a business plan, it is important to assess the synergies that exist. This includes identifying the availability of relevant assets from within the organization that can help support this effort. Table 3 provides a list of the elements that should be evaluated for their potential contributions.

Summary

The challenges facing companies pursuing a new course for their business are many. Management needs to set well-defined business goals and objectives as the first step. Next, a business plan needs to be created that provides a road map for the organization to lay out how the company will proceed.

The strength of the business plan is in the effort put forth by the company to understand the market as thoroughly as possible prior to initiating commercial activities. When the new business direction is a significant departure for the present business model, input from independent sources can be extremely valuable to reduce risk and increase the chances for success.

Separately, an examination of the internal capabilities of the organization to support the new business direction is also necessary. Determining ahead of time where there are unanticipated shortfalls in personnel, manufacturing, and other support services needed to implement the plan, can minimize unexpected problems down the road.