Join Anil Gupta for an in-depth discussion in this video Creating new offerings for existing customers, part of Designing Growth Strategies.
- For any company, some of the most attractive opportunities for profitable growth lie in building on existing customer relationships. The goal here is to think about how you could expand the portfolio of products and services offered to your current customers. GE provides an excellent example of growth via such a strategy. Through much of its history, GE has supplied sophisticated equipment to its customers.
Examples would be locomotives, thermal and nuclear power plants, wind turbines, jet engines, and medical imaging systems, such as x-ray, CT, and MRI machines. Jack Welch, GE's legendary CEO, transformed the company from a largely products provider into a products and services provider. Almost every piece of GE equipment has a long lifespan, often running into decades.
During this period, customers need a variety of equipment-related services: Operator training, maintenance and repairs, spare parts, upgrades and improvements, asset tracking and management, operations, and so forth. Jack Welch noted that these services provide revenue opportunities several times larger than those from just the original equipment.
In addition, profit margins in these services are often higher. Given this realization, Welch pushed GE hard into the services business also. In brainstorming around the question of how you could expland the portfolio or products and services offered to your current customers, it's important to examine three different pathways for doing so.
The first pathway is to brainstorm around what other complementary products and services the customer needs in order to use what you currently sell. in the case of GE, equipment services are complements to the equipment business. For a company like Coke or Pepsi, snacks are complements to beverages. And for airlines, complements would include hotel and car rental businesses.
The second pathway is to brainstorm around what products and services might substitute the ones that you currently sell. Diversifying into substitutes can yield two benefits. It offers opportunities for growth, and introduces the risk that a newcomer could do an end run around you. Take Coke and Pepsi. The original product of these companies was cola-flavored soda.
In their quest for growth, both companies diversified into substitutes, such as orange and lime-flavored soda, fruit juices, and, more recently, bottled water. The third pathway is to think of possible ways by which you could offer a complete solution, rather than just a discrete product or service to the customer.
This is exactly the kind of transformation that IBM has undergone since the early 1990s. Prior to 1993, IBM was largely a seller of hardware and some complementary software. Today, IBM earns bulk of its revenues by selling complete IT solutions to corporate customers.
Instead of buying individual pieces of hardware and software, customers have the option of paying for the solution, often on an on-demand basis. As compared with the hardware business, the solutions business is much larger in size and offers better growth opportunities. In addition, a solutions approach deepens the company's relationship with its customers and thus offers better margins.
Obviously, no company can or should think of every complement, every substitute, or every solutions-type approach as an attractive or viable opportunity for growth. However, in terms of brainstorming around possible avenues for growth, identifying the complements, the substitutes, and possible complete solutions is a useful starting point. As I discuss in a later segment in this series, these potential avenues need to be analyzed and assessed in detail in order to unearth those one or two growth opportunities that are better than all others and should be pursued now.
Look at your own business. What are the complements, the substitutes, and the solutions-type approaches that might potentially serve as direction for your company's future growth.
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- The growth imperative
- Identifying opportunities for growth
- Assessing and choosing among the growth options
- Implementing the chosen growth strategy
- Organizing and leading for growth