I’ve noticed a pattern when speaking about, and helping clients implement, growth programs: when we talk about the portfolio of products under development, there is a tendency to assume that all of those investments have the same potential return.
The key to developing a successful growth portfolio is realizing the basic truth: not all investments in new products and services are created equally.
So how do you find out which are the real golden eggs?
I use my Growth Zone framework to help people discover the differences in their growth investments. A useful framework will pinpoint the best bets for development funds, which are those projects and programs with much higher returns and with acceptable risk profiles.
The Growth Zone framework is made up of 4 different quadrants:
- Home Court
- Growth Zone
- The Battlefield
- Quantum Leap
Quadrant 1: Home Court. You Are Here. These investments are your main-stay work. You have great market intelligence and metrics, modeling tools and predictable outcomes for investments. There are ecosystems of market data, trade shows, press and analysts that fly in formation to support your view here. You also have a pretty tight range of outcomes — i.e., predictable ROI.
Quadrants 2 & 3: Growth Zone and the Battlefield. In these areas, it takes more work to get to a clear hypothesis for each investment. In the Growth Zone, it’s about finding your existing customers’ trail to new products. In the Battlefield, you’re going to have to fight hard for new territory in the market by using strategies to add more value than your competition.
Every investment in these quadrants should also have a use case, business case and financial model. These models are best constructed after getting outside the four walls of the firm and doing some in-depth research. Examine these models well – they will have a broader potential range of financial outcomes than your core business. By following the steps to de-risk your hypotheses, you minimize your downside and find a higher leverage upside.
Quadrant 4: The Quantum Leap: This is where you are doing a new product for a new customer base, and needless to say, risk and reward both grow immensely. This is start-up territory, and recent breakthroughs in business model development and lean start up give us tools to quickly and assertively test and scale here.
Are You Unintentionally Investing in the Status Quo?
When I first begin to work with someone, one of the first things I help them establish is an objective view of the R&D investment plan to get clear on which programs are in each quadrant and what the investment is.
Let’s assume that the company is doing a great job in Home Court and all is in order. Then it’s time to take a look at the business case documents to make sure that the remaining programs have sufficient return to cover their risk.
The above descriptions make this all seem too straightforward, so let’s examine some real world complications. One of the bigger complications is that the four-quadrant model is anchored over a shifting market. The Growth Zone methodology is intended to shift a percentage of investment into new applications or new customer zones – pushing your business model boundary. Sometimes, however, the underlying market is moving faster than the organization can iterate, and those “growth” projects quickly become absorbed into Home Court.
Let’s use a historical example for illustration. HP had several great profit engines in Home Court. For the purpose of illustration, let’s use two here: printing and desktop computing. Both of these businesses provided solid returns for years by providing management with much flexibility and investors with good returns. Then, both of these profit engines fell on hard times. In fact, an article in Businessweek chronicled the seven-year journey as the company worked to recover its position.
Applying the above framework, HP invested in what it thought were growth strategies and acquisitions, when in reality they were defensive plays relative to its core profit engines. Rather than building enterprise upside, they have endured a tremendous roller coaster ride. (There are many other factors in the HP story of note, but for the purpose of illustration I am focusing on product/market issues.)
There are two reasons that market shifts are frequently disruptive to companies: the first is that it is very difficult to view a product investment without considering the influence of the Home Court. Most organizations focus on and promote experts in the Home Court business and technologies. Gradually even the best people on the team lose their objectivity to see the market shift.
When the rate of change externally in the market exceeds the rate of change internally, the company is going to suffer.
The second is that all strategies have a natural peak in effectiveness that is very difficult to recognize for those caught up in the day-to-day business of a successful strategy. In a perfect situation, the investment return from Home Court provides the fuel for the Growth Zone and Battlefield quadrants.
Bottom line: what was once a breakout product investment had become a Home Court investment for HP.
3 Signs You’re Playing Defense with your Growth Investments
It’s all too easy to allow immediate threats and competition to deceive you into thinking a Home Court investment is pushing your edge of growth into one of the other quadrants. Even large, sophisticated organizations like HP can fall into the trap of allowing themselves to rationalize Home Court expenditures as “new” or “breakthrough.” If you see any of the following in your organization, it’s a sign of trouble:
- Investing in response to a competitor or perceived trend instead of serving a customer.
- The financial results are coming up short of your business case estimates on your Home Court investments.
- Your customers are clinging to their “older” platforms and are less interested in new features.
Before you can invest “outside the box,” you need to make sure you aren’t deceiving yourself about what is “in” or “out” of the box.
There is much more to say on this and I’d like to hear your insights. Please drop me an email or put a call on our calendars using this link.
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