Tools and strategies to optimize product and service development
Growing businesses often reach the first plateau of success through a combination of compelling product offerings and service innovation. Scaling products and services to reach the next level can become an exercise in staff and production line multiplication, but innovation must continue to play a leading role to establish a resilient business model. Private equity firms leverage their experience and expertise, along with the power of the portfolio, to foster innovation in portfolio organizations.
In this blog post, we discuss the importance of new products and services in a competitive business landscape. We also review the keys to product innovation PE firms utilize to ensure creative employees and strategies lead to expanding suites of products and services that continue to delight customers.
The importance of new products and services
The adage that businesses who stand still are really moving backwards applies to more than just revenue and headcount. The needs and preferences of customers are continually changing, so one of the best ways to retain a competitive advantage is through the addition of new products and services. This successful formula is evident in companies ranging from Amazon and Walmart to Samsung and Google as they redefine business transformation based on innovation and service excellence. Additional benefits of continuous product and service evolution include:
- Creation of new sales revenue streams to improve resilience
- Competitive advantages over businesses with similar offerings
- Brand reputation and loyalty based on responsiveness to customer needs
- Improved employee morale, engagement, and retention
At the same time, product development can be an expensive and time-consuming undertaking, so any line expansion should be accompanied by a predictable growth strategy that complements long-term business objectives. Effective planning and resource allocation allow PE firms and portfolio companies to maximize their development ROI with a shared vision.
Planting the seeds of innovation
While the benefits of new product and service innovation are clear, execution hinges on a combination of financial, social, and human capital forms working together. Private equity firms are instrumental in providing access to these resources, allowing portfolio organizations to fund development efforts without compromising their purchasing, expansion, or talent acquisition priorities.
Beyond the requisite capital, PE firms also provide the leadership, industry connections, technology access, and cultural guidance needed to turn innovative concepts into successfully launched products and services.
Product expansion through acquisition
Rather than developing all new products and services from scratch, mergers and acquisitions can also become important elements of the private equity strategy. Add-on acquisitions provide immediate access to intellectual property (IP), customers, and talent without the lengthy product development processes that can tie up resources and capital. Strategic acquisitions conveniently fill product line gaps while potentially removing future competitors from the marketplace.
The right acquisitions also bring an influx of engineering, sales, and leadership talent that can be leveraged across the organization, and provide valuable mentoring opportunities for existing employees at all levels. Therefore, cultural alignment is another important consideration for PE firms seeking to optimize the synergy between platform companies and acquisitions.
Talent alignment to foster innovation
The human element is the key ingredient required to promote innovation, and talent alignment is one of the most effective ways to ensure employees are engaged and motivated. Talent alignment is an offshoot of the right person, right seat principles used to recruit and deploy employees effectively. A three-dimensional alignment process utilizes people analytics, workforce planning tools, and KPIs to ensure the goals and objectives of each employee also align with those of the organization. A top-down approach ensures the business transformation flows from senior management to each individual worker.
The business transformation tool kit
Along with the requisite talent and culture needed to foster innovation, businesses must also have systems and tools in place to support efficient development and project management processes. This includes product lifecycle management (PLM) and enterprise resource planning (ERP) platforms to centralize product data and coordinate workflows. Collaboration platforms also help to streamline brainstorming and feedback loops.
Business owners may not always realize what they need to take their product and service development to the next level. PE firms support the business transformation by identifying tools and systems that will improve execution for each organization. The power of the portfolio also allows solutions that worked well for similar companies to be shared and implemented efficiently.
The dividends of R&D investments
The benefits of R&D investment are apparent within the private equity realm, and the business world at large. Technology companies, including Apple and Microsoft, consistently reinvest a high percentage of their revenue into R&D, then reap the benefits that come from differentiated product and service offerings and unique intellectual property. Pharmaceutical, automotive, and consumer electronics businesses also invest heavily in their product development teams to remain a step ahead of the competition.
The connection between increased spending and increased profit margins may seem counterintuitive, but successful PE firms follow the trail blazed by these industry giants by encouraging the product line expansion efforts of portfolio companies. Valesco has deployed this strategy consistently and successfully, such as North American Kitchen Solutions and Drug Free Sport International accelerating their growth through strategic add-on acquisitions and improved tools and processes.
Conclusion
Consistently creating innovative products and services that meet customer needs is essential for driving business growth. PE firms help their portfolio organizations establish the combination of tools, talent, and resources needed to spur creativity and accelerate product development cycles. Strategic acquisitions, talent alignment, and collaboration are equally viable options for companies looking to meet evolving customer preferences. The right PE partner can provide the expertise, resources, connections, and systems needed to ensure product line expansion remains a top priority in driving predictable growth.