the changing roles of corporate and business developers
Lawrence Makoona / Unsplash
OEMs need to adopt a broader view of non-traditional growth opportunities that can include ventures to address emergent innovations that threaten the core business, as well as opportunities to collaborate with customers and partners on new solutions.
The changing roles of corporate and business developers
Management attention in OEM businesses has traditionally focused on the known, the visible, and the predictable. Anything too difficult to measure is too often treated as if it were unreal. Even more misleading is the assumption that “business as usual” will prevail over a given planning period. Such assumptions leave little room for dynamic management (or creation) of change, the early identification of emerging technologies, or the increased presence of unfamiliar competitors.
No doubt OEMs will need to be better at spotting emergent trends and being able to quickly respond to new market entrants with new technologies or evolving competitive threats. In our experience this capability is more art than science, and requires very acute observation of the external world. Staying close to customers, vigilantly tracking competitors’ maneuvers, and tapping alliance and ecosystem partners for new insights and perspective are all methods to become more acutely aware of change.
We strongly believe Smart Systems and IoT software will play a central role in OEMs’ strategies going forward. We have also observed how difficult it’s been for many OEMs to integrate new digital and IoT technology into their core business. As the pace of Smart Systems and IoT technology adoption increases, many managers will be challenged by the trade-off decisions they will face. Should they invest more in the core business or invest more in new innovations and new growth ventures?
CORPORATE GROWTH MODES AND MEANS
When does an OEM need to seriously consider alternative innovation modes and non-traditional growth ventures? Two basic situations tend to warrant this:
- When traditional business practices, company culture, and operating models inhibit the required creativity and speed to effectively drive new customer innovation and value creation.
- When traditional operating models constrain the organization’s ability to develop new technical skills or organizational capabilities.
Today, the subject of corporate ventures and related maneuvers does not inspire many executives, especially in the conservative cultures that often exist within machine builders and equipment manufacturers. We believe that like a pendulum swinging, corporate ventures suffered a bad reputation starting as far back as the run up to the Internet bubble in the 1990s. However, because the many challenges associated with embracing digital and Smart Systems technologies are now clearer and better understood, we believe the pendulum is swinging back.
THE PROXIMITY CHALLENGE
If OEM management teams will need to live in two distinct contexts—running their core business as efficiently as possible while also being able to identify new and novel product and systems innovations—then it is very likely we have entered a chapter in the marketplace where non-traditional growth ventures will become more common.
Developing autonomous growth ventures in parallel with the core business raises challenging operating model questions. To what extent should a new growth venture re-define elements in the core business? How, when and in what manner should the new business be integrated into the core? How will leadership make critical allocation decisions around skills, people, talent and investments? All of these issues lead to one very basic question: Is it better to create new growth ventures, or does it make more sense to keep an eye on similar external developments and players in the market, and then either invest or acquire the new growth business?
RE-THINKING HOW TO ORGANIZE and STAGE NEW INNOVATION and GROWTH VENTURES
To stay competitive, OEMs will need to sustain momentum in their core business while developing new digital and IoT capabilities, offerings, and business models. As disruption and innovation collapse the traditional boundaries between so-called core businesses and new growth opportunities, leadership in OEM businesses will need to carefully consider new corporate growth and innovation modes.
In our experience working with a broad spectrum of OEMs, the strategies and organizational approaches to enable new innovation adopted by many OEMs reflect a limited role for new ventures. Today, many OEMs focus on only one of many potential sources for new innovations:
- Internal ventures or spin-offs of new business ideas that surface in the core businesses, but where the culture and operating mode in the core do not permit them to survive beyond early R&D or development;
- Autonomous ventures often developed via a corporate venture function or similar entity for new high potential innovation and business concepts;
- Acquisitions which are often subject to revenue scale requirements and hurdle rates that tend to make the acquisition very expensive;
- Minority equity investments that increase learning about new technologies, markets or business models; and,
- External joint ventures created collaboratively with entrepreneurs, customers and/or partners.
While any of the above-listed corporate development modes can be effective, we believe OEMs need to move beyond their “comfort zone” and focus on multiple parallel strategies and maneuvers to expand beyond their core. OEM growth strategies should leverage a more flexible mix of approaches that will increase their capacity to identify the best mix and the most viable “vehicle/s” for new developing new customer solutions.
CREATIVE COMBINATIONS OF GROWTH MODES
To sustain growth, OEMs must identify and successfully pursue a succession of new opportunities. The larger the company, the greater the number of opportunities that must be considered. Identifying new customer needs and assembling the capabilities to serve them are the core of every growth strategy. Success requires the integration of multiple parallel efforts.
THE EMERGING ROLE OF THE BUMBLEBEE
The corporate development function should play a central role in implementing and coordinating these efforts. Instead, their role in many OEM organizations has been too narrowly defined. They have been the “M&A Department” keepers of a narrow set of “inorganic” skills that are often an OEM’s only real functional path to new growth. Such approaches freeze out too many sources of growth. They foster a narrow view of growth opportunities and fall far short of what is needed to sustain new innovation.
The rapid changes in competitive market structure and value delivery chains driven by Smart Systems and IoT technologies are imposing new requirements on corporate development. Re-focusing resources on emerging opportunities needs to now become a continuous process.
As Smart Systems and IoT technologies evolve, the complexity, number, and diversity of interrelationships within and between companies is growing exponentially. This turbulent environment requires a new strategic development persona with cross-functional interests and abilities to find new growth opportunities, build new ventures, and reshape competitive markets. Organizations need to foster new ideas and encourage diverse viewpoints to build shared knowledge about new innovation opportunities.
No single corporate development mode will be sufficient to achieve the mix of capabilities required in most markets today. Different approaches, each with their own strengths and weaknesses, must be carefully combined to achieve the desired results. Corporate development must evolve to include a broader network of new business developers across the organization that act like “bumblebees” within a company and throughout its ecosystem of alliances with suppliers, customers, and value-adders, “pollinating” new growth opportunities.
OEMs need to adopt a broader view of non-traditional growth opportunities that can include ventures to address emergent innovations that threaten the core business, as well as opportunities to collaborate with customers and partners on new solutions. While many companies continue to use traditional approaches to strategy and corporate development, and some even succeed in this way, Harbor believes that OEMs will need to creatively combine new technologies and business system elements to accelerate new growth. ✦
“Corporate Bumblebees” is distilled from our updated Insight “Catalytic Growth Models & Strategies for OEMs.”
Fill out the form below to download the updated Insight for free.