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Everyone knows the expression, "Necessity is the mother of invention,” which implies that we innovate when change is needed. When crisis strikes, companies find themselves performing in ways they may have considered impossible just a short time before. A crisis has a way of clearing the clouds and bringing laser focus, all hands-on deck, and forcing survival instincts to kick in. When this happens, decisions and changes are made quickly.
Change always brings opportunity for those ready and able to take advantage of it. Call them lucky? As Spanish philosopher and rhetorician Lucius Seneca put it, “Luck is what happens when preparation meets opportunity.”
Let’s review what’s happened so far this year and probe how ready technology companies are to leap to post COVID-19 business success.
Without a doubt, 2020 will be much written about in the years to come. Books will chronicle how the COVID-19 pandemic swept westward across the globe, causing businesses to shut down overnight and relocating information workers to their home offices. The rate at which the technology business world adapted and changed behavior was dizzying.
The technology industry moved from responding to the crisis through April and by the end of May were deep in analysis, scenario planning, and anticipating what kind of business climate would prevail in the months, quarters, and years ahead. Many strategy, product, and offer teams were scratching their heads asking themselves if their experiences in Spring 2020 would become the new normal or if completely new value propositions would emerge.
In early April 2020, I wrote about the impact of the COVID-19 pandemic on product management practices as technology companies steered their business ships in the choppy waters of the business hurricane that was bearing down.
Some weeks later, in April 2020, we looked at the accelerating rate of innovation in the industry, what’s fueling that innovation, and how the pandemic is further impacting it. Value pools are shrinking at an accelerated pace, which will be further fueled by post-pandemic industry consolidation.
How are technology companies adapting to survive and are their product innovation strategies robust enough to thrive post-pandemic?
In early May, I dove further into these topics in the XaaS Product Management research track at TSW LIVE!, examining the data on portfolio investment and lifecycle management practices of TSIA member companies, making key recommendations to optimize for innovation at this time, including examining the product portfolio Investment profile and accelerating subscription offers in market (more on that below).
The timeline of events are summarized below.
At the time of writing this blog post, early June 2020, suppliers are studying the crystal ball harder, with over two thirds of technology suppliers spending more time on planning and strategy[i]. Enter Horizon 2 planning.
There were a lot of new offers pushed to market in Spring 2020. A TSIA poll during this time showed that 69% of responding companies[ii] created and launched completely new offers that were not previously in their roadmap plan.
Now they are speculating if these COVID-19 inspired offers and pricing actions will:
At 64%[iii], most companies feel that it’s too early to tell what strategies and offers will pay off down the line, reflecting the highly experimental nature of COVID-19 inspired value propositions, while just 16%[iv] believe that the value propositions introduced during Spring 2020 will become the new customer expectation, and therefore the “new normal.” Forty percent believe that businesses will apply what they’re learning about their customers, their businesses, and themselves during this time to fuel innovation in brand new ways.
As suppliers have a full grasp of the trends and accelerators in the market, will they be ready to pursue new innovations?
Technology businesses might ask themselves the following questions:
Many companies have been on that journey. Let’s briefly examine four primary types of innovation.
Definition: Incremental Innovation is where companies focus their energy in innovating within existing target markets.
Incremental innovations often happen where the market is well understood by the business and the focus is on winning market share by outperforming competitors. In mature markets, this often requires overcoming an intense level of competition where suppliers can experience commoditization pressures and where companies may be competing mainly on price. This innovation strategy is often called a Red Ocean Strategy where cutthroat competition turns the ocean bloody red, hence the term. Recent TSIA data[v] reveals that 86% of companies are engaging in incremental innovation. This is not altogether a bad thing, as many firms have profitable mature product categories, as long as this is not the exclusive focus. Indeed, technology companies ignore the other innovations categories at their peril.
Benchmark data reveals[vi] that a full 50% of revenue acquired from solutions that are in-decline (AKA have a very little market lifespan remaining), is reinvested in those same in-decline solutions. This behavior feeds the Red Ocean. To ensure a conscious and continual process of innovation, refer to TSIA research insight report Measuring Innovation: A Recipe for Growth, available for XaaS Product Management research practice members.
Definition: Capability Innovation is when companies launch a new value proposition to their existing market.
A great example of this is the transition from offering an on-prem technology via a perpetual license with an attached support contract, to offering a subscription to a cloud-hosted value proposition with a good, better, best, portfolio with each edition containing technology, services, data, and analytics.
This new value proposition may even be offered with value-based pricing, which has huge impacts on the technology design and aligns the goals of the customer and the supplier like never before. This approach requires innovation in critical organization capabilities to run the business under a different technology and customer engagement model.
Seventy-three percent of tech companies recently reported[vii] investing in new capabilities, which reflects the business model transition journey many tech firms are on. How aggressively are companies making that shift and what tactics are being taken to migrate the existing customer bases to brand-new value propositions? This short poll will offer some perspective on that question. Real-time results available.
Definition: Market Innovation happens when companies apply their existing solutions to completely new vertical market segments.
Sixty-four percent of technology companies report[viii] they have taken their value proposition to new markets over the past 18 months in an effort to expand their footprint and grow market share. With market innovation, companies are attempting to use your existing know-how to penetrate industries in which they have not been active before.
This market innovation requires knowledge of the business operational behaviors of a new class of customer to realize success in as-a-service. Imagine a company that successfully sold to the Financial Services industry and now wants to expand into the Legal or Healthcare vertical? It’s not hard to imagine that the needs of the users are likely to differ (i.e. different offer-market fit) from existing markets. Competitors will undoubtedly be different, and the distribution model may not be the same (i.e. different offer-market-sales fit). Is the supplier familiar with the partner companies that serve this new vertical segment? Where does the solution fit in the value chain? What sector trends prevail?
Designing successful products and services, creating solutions, and pricing those solutions requires a deep understanding of customer personas, use cases, their operating environment, what they value, their behavioral characteristics, and their role in achieving a desired outcome (i.e. the problem space). Designing with this deep problem space understanding is more likely to result in the optimal offer-market fit.
TSIA research insight report Segmentation Strategies for Optimal XaaS Offer-Market Fit, available for XaaS Product Management research practice members, offers a structured way to determine how best to approach a new market segment and the organizational capabilities necessary to succeed.
Definition: Complete Innovation happens when companies attempt market innovation and capabilities innovation simultaneously. Some 40% companies report doing exactly that over the past 18 months[ix].
In summary, innovation is the lifeblood of the technology industry and at a macro level, the industry appears to be doing a good job of it. However, not all companies will make it through the difficult period ahead.
With subscription models demonstrating their resiliency over traditional models and all things digital providing better tools to maintain and grow business during the pandemic induced recession, the companies that double down on these strategies and invest in the necessary organizational capabilities may indeed come out the other side smiling vs those that do not.
Join me on Thursday June 17th 2020 at 11am, where I’ll discuss this topic and additional strategies in a webinar Product, Offers and Pricing in a Post- COVID-19 World.
We understand that our member companies, the technology industry, and the world at large have been impacted by COVID-19. Now, more than ever, we need to work together to get through these challenging times. TSIA is committed to providing visibility as quickly as possible into the changing industry trends and practices that come as a result of COVID-19. Visit our Rapid Research Response Initiative resource page for more information.
If you have any questions related to how COVID-19 is impacting your organization, we’re here to help.
[i] Source: TSIA COVID-19 Product Management Impact Poll
[ii] Source TSIA: COVID-19 Impact on Offers & Pricing Poll
[iii] Source: TSIA COVID-19 Offers & Pricing Impacts
[iv] Source: TSIA COVID-19 Digital Portfolio Agility Poll
[v] Source: TSIA COVID-19 Digital Portfolio Agility Poll
[vi] Source: 2019 XaaS Portfolio Investment and Lifecycle Management survey
[vii] Source: TSIA COVID-19 Digital Portfolio Agility Poll
[viii] Source: TSIA COVID-19 Digital Portfolio Agility Poll
[ix] Source: TSIA COVID-19 Digital Portfolio Agility Poll
Post Date: June 11, 2020
Laura Fay is the vice president and managing director of offers research and advisory for TSIA. She also serves as TSIA’s vice president of XaaS product management research. Laura is a technology industry veteran with over 30 years' experience driving business growth in the enterprise technology industry via leadership roles in product management, general management, product development, and customer success.
Topics discussed in this post
The Technology & Services Industry Association (TSIA) is dedicated to helping technology and services organizations large and small grow and advance in the technology industry. Find out how you can achieve success, too. Call us at (858) 674-5491 or we can call you.