How Network Equipment Providers can successfully launch next-gen products while continuing to get the most out of existing product investments
One of the most difficult business challenges that all established companies face is successfully navigating from one product generation to another. This is especially tough in periods of rapid technological change such as the environment we face today. Increasingly, the pressure is coming not only from existing competitors but also from “born-digital” challengers that emerge suddenly and disrupt the market. How and when to integrate artificial intelligence, the internet of things, edge compute and other game-changing technologies adds to the complexity of the decision-making process.
These issues add new urgency to managing the age-old challenge of a product transition. Of course, timing is vitally important. Planning a successful transitional strategy begins before the core product line reaches maturation and revenue growth turns negative. This allows time to transition R&D investment and engineering staff from the old to the new. The only problem is that not all customers will transition at the same time, which requires continued investment in the maturing product line to maximize its lifespan and contribution to revenue.
Indeed, abandoning the old product line too soon is where many companies trip up. They end up leaving much-needed revenue on the table in their rush to invest in next-generation products. But shifting some investment and engineering staff line back to the old product line from the new product isn’t the answer either. The result is an inadequate investment for both product lines, which is a potentially deadly strategy.
Fortunately, there is a third option: partnering with a creative third party to invest in the existing product line to grow revenue, lower costs and share the profit. This proven product transformation solution relieves the company from investing in sunset products while keeping the product updated and relevant while also generating a profit.
There are three service components for successfully transferring mature products to a third party:
Strategy includes both product and R&D plans and a clear structure for how the third party will manage and invest in the transferred product line. In many cases, it involved transferring engineering staff from the customer company to the third party. This ensures continuity of product knowledge and helps lower the customer’s costs. Sharing performance metrics of the strategic objectives promotes transparency and trust and allows for quick collaborative course corrections if needed.
Execution starts with transitioning existing responsibilities from the customer to the third-party, which includes both staff and assets. The third-party’s team that is now responsible for the mature product line establishes a detailed design and delivery plan and assumes full responsibility for program management.
Sustainability efforts focus on extending the life of the product line for as long as practicable given the revenue growth potential and cost structure. Continuous innovative improvements and preventive maintenance are core objectives as are investments in technical marketing and channel enablement.
Consider a recent example of a large European telecommunications company. The company was facing declining revenue in its maturing product line and needed to update its products with new technology to meet customer demand. Realizing it could not address both challenges successfully, it adjusted its business model to include a revenue-sharing model for the existing product line with Capgemini Engineering Product Transformation Services (PTS).
Working closely with the customer, Capgemini Engineering PTC took responsibility for product design, marketing, R&D and testing of the aging product line. Over the course of a few years, Capgemini Engineering PTC increased investment in the old product line and reduce costs, which reversed the decline in revenue and profitability. Free from the burden of managing the existing product line, the customer-focused engineering staff, and R&D dollars on the development of next-generation products.
Capgemini Engineering enabled us to save approximately 18% of the total R&D cost associated with a specific product line in just the first year of our engagement. This also allowed us to refocus on newer, emerging tech and product lines for the future.” – VP, product management and engineering at a large European telecommunications technology company.
A case study of this example, including a quantitative three-year economic impact analysis, can be found in a recent Forester Consulting report commissioned by Capgemini Engineering. The net benefits calculated over three years were significant. What’s more, they are repeatable for any company regardless of the industry by applying the same innovative outcomes-based business model.
Download the Forrester Consulting Case Study.
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