Product Focus – Turning Core Competency into Value

The internet is littered with articles about how to properly spin an existing and popular product or service into a new product or service. The idea is obvious: create a new revenue stream by tapping into new markets. Maybe it’s a popular children’s toy and the plan is to create a Saturday morning cartoon about it (ignoring, of course, the death of Saturday morning cartoons). Perhaps it’s a line of cookies and the plan is to borrow the credibility of the name or launch a new line of crackers. These things happen regularly and, sometimes, with great success.

However, this business model doesn’t translate well into the capital equipment market. Occasionally, the maker of an industrial drill press (for example) might make a great hand drill, or the manufacturer of the best CNC milling machine on the market might make a great lathe. These are simple transitions that make use of existing  product expertise and leverage it into new products in the same market. But how big of a jump will focused, and well developed, expertise buy you? Is there a litmus test to determine when a leap is too big?

Fortunately, there are plenty of real-life case studies on this. Essentially, the dividing line is this: if you are relying on market knowledge instead of product knowledge then the leap may be too big. That’s not to say it’s impossible, it just means you’re making the move for the wrong reason or that you’re metric for deciding how to make the move must be very different. Imagine the two scenarios:

  1. At a manufacturer of industrial packaged goods conveyors, an engineer notes that with little effort the existing technology could be used to make a high efficiency inclined transport belt. After a bit of market research, it’s determined that the mining industry could make use of that type of product if it’s properly ruggedized. The product is developed and sold with a bit of success but the second generation of the product becomes incredibly popular.
  2. A business development executive for the same manufacturer sees a need in many factories for a sorting machine that can identify which delivery conveyor should receive which products from a master conveyor. After a consult with engineers, its determined that they will have to hire outside engineers or consultants to help solve the technical problems with the design. The initial release is a disaster and tarnishes the company’s name, even for their core product line.

Now, obviously, I’ve invented these scenarios to suit my purpose. However, I’ve seen exactly this happen before at a company I worked for previously. Engineers said “we could reliably expand into this area” but executives claimed “but this market is much larger.” And by trading on the credibility of the company’s name they essentially “tricked” customers into buying a product that the company had no business selling. That being said, the same company is now doing better after some product refinements but has yet to sell one of those new products for any profit.

Again, I’m picking examples to suit my need. For all I know, that company will be incredibly successful after a few are sold and perhaps it will work out well. However, it deserves repeating that there were other, more subtle shifts that could have been made with much higher reliability: increases in product speed, cost reductions to popular products, and even fixing the problems with existing products. And instead of utilizing the engineering group at 200% in disciplines that were unfamiliar (amid lay-offs, no less), it would’ve been possible to maintain a much higher standard of work with a lower personal cost to employees.

This won’t hold true in every case, but if you’re selling high-cost low-volume capital equipment, you should stop and consider where your value is. Is your value really the manufacturing floor? Is your value really locked up in your marketing machine? Or is your company’s value hidden in the product knowledge, expertise, and experience of its employees?

I once heard a CEO of a major manufacturer of capital equipment remark during the development phase of an entirely new product: “why do we need some many engineers?” You need that many because you’ve never settled on a core competency.

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