The importance to innovate as a supplier

I spoke recently with a senior executive of a small external service provider. A service provider with a staff of 350+ in the year 2000 and some 75 today. So one of the main topics we discussed was how this happened.

The founders of the company identified some twenty years ago a software niche in supply chain management. In this period manufacturers and their up-and downstream partners in the supply chain were looking for solutions to exchange information to optimize their logistics processes and stock levels. The founders came up with some very clever concepts and for many years the sky was the limit.
What the founders and subsequent managers overlooked however is that every (software) product goes through a lifecycle. And at the end of the lifecycle the software product has become obsolete. It may become obsolete because of not anticipating on evolving functionalities, technologies (e.g. Cobol) or because business models.
  • Functionalities. In the past many software vendors provided a ‘point solution’; a product which provides functionalities to cover a highly specific need (e.g. EDI mapping). These days, client companies expect an integrated service which covers a broad set of functionalities and includes end-to-end support. The broadening of functionalities can be ‘horizontally’ within the business process by supporting more activities, or ‘vertically’ by unlocking information to multiple channels (e.g. desktop, smart phone, tablets, surface tables).
  • Technology. Many client companies still use Windows XP or Internet Explorer 6 because they use applications which do not support more modern environments. But there will be a day when these applications will be replaced, and the client company will at that moment expect a state-of-the-art offering from its vendor or will shop elsewhere. At the same time are many client companies standardizing on certain eco-systems (e.g. Microsoft, IBM, SAP), replacing solutions provided by external service providers build using other technologies.
  • Business models. Shopping is increasingly becoming an online activity and the shops in the street are suffering. A similar trend is taking place with books: from paper to tablet. These are only two examples technology as an initiator of dramatic change. While it is an opportunity for many newcomers, is it a treat by many traditional software vendors. Vendors which for too long relied on their past success.
The executive I was talking to inherited a company which had for a long time failed to look beyond its current success and did subsequently not invest in the future. As a result was the company currently struggling to revitalize the solutions portfolio and to manage the lifecycle of the individual solutions. The first step they undertook was determining the ‘age’ of their current solutions and technologies (figure 1). This provides an idea of the distribution and health of the portfolio. If there are hardly any solutions on the left half of the curve, the company is likely to get into trouble in the years to come.
The ‘left’ and ‘right’ side of the curve are also important for another reason: the reaction of the market on a new solution is difficult to predict. As several are likely to fail, is it important to have an adequate volume of new innovative ideas and concepts to ensure enough business volume in the future.

The number of solutions and technologies will thus typically be larger at the left side of the curve. At the same side of the curve will the margin of successful solutions also be higher compared to the right side as client companies are willing to pay more for new and innovative solutions. When the solution matures, the competition will increase and thus the focus on price (see table).
Besides investing in enough new solutions and technologies to ensure the company has a healthy product portfolio, is it also possible to extend the life of existing solutions. The next figure provides some simple examples of initiatives to push the End-of-Life of a technology.

The senior executive at the company had made some tough decisions in last couple of years, but by scraping together resources he was able to invest in some initiatives which slowly started to show results. This was not only a good sign for the financial bottom line, but provided also some hard needed positive news and energy for the people doing the actual work.

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