It is entirely possible for every company to turn their internal business capabilities into digital products for either internal or external customers. However, the key to deciding which of the two works best for your company— and executing it successfully — is identifying the right strategy based on broader objectives such as cost optimization, revenue generation and efficient business model execution.
Brian Prentice is Research VP at Gartner.
While any business capability that has the potential to be digitized should be productized, not all digital business capabilities should be turned into revenue-generating external products. This is an extremely important distinction, which is made much easier by first looking at business capabilities as digital assets. The more mature an organization's digital product management is, the easier it is to see business capabilities as digital assets and create productization strategies accordingly. By taking this approach companies can streamline their workflow, make more effective and strategic business decisions, and increase their sales and profits.
Step 1: Identifying your digital asset type
Companies can use different approaches to identify digital asset types. However, the most effective method to determine whether or not a business-capability-turned-digital-product has a market outside the organization is to ask your product lead three essential questions:
- Does the business capability provide a clear improvement over what is seen as current best practice?
- Does the business capability deliver tangible and measurable value?
- Would a potential customer who is aware of current best practices consider this capability innovative?
If your product lead answers “yes” to all three questions, this confirms that you have an innovative digital asset — this means you have something that is broadly recognized as an invention and has market potential. On the other hand, if the answer is no, you have a common digital asset — this means you have something that is not differentiated, which is to say other organizations are already performing or can easily perform the task.
Step 2: Creating revenue-generating external products from innovative digital assets
Once you have established that you have an innovative digital asset, the next step is to ask your product lead whether or not the asset is critical to your ability to expand your customer base, increase your value proposition or lower your cost of operations relative to your competitors.
If the answer to the above is yes, it confirms that your digital asset is important to the execution of your organization's business model, and it should remain internal. The reason it must stay internal, is that externalizing it would not only forfeit your ability to differentiate, but likely be detrimental to your company. However, if the answer is no, you must further explore turning the digital asset into a revenue-generating external product in order to achieve your goal.
After that, you must assess the commercial possibilities of the product, your go-to-market strategy and potential partners. To do this, you will need to ensure the product meets the key standards of desirability, feasibility, and viability. For example, if you are using cloud computing, you can take the product to market without the burden of maintenance costs and gain competitive advantage over traditional software vendors (depending on the vendor’s overall offerings, of course). Alternatively, you can also be entirely responsible for innovations but work with vendor partners on implementation or distribution.
Step 3: Creating external products from common digital assets
It is important to remember that bearing the maintenance costs of common digital assets is rarely practical, as they will not generate significant revenue. As a substitute, consider adding these capabilities to a third-party vendor’s existing product offering – as their maintenance and cloud service fees allow them to maintain and commercialize such capabilities across their customer base.
However, relying on third-party vendors to maintain and commercialize internal business capabilities comes with a risk. If a company is not careful in using this approach, they may end up creating too much dependency on a single supplier – which may become an issue later down the line and makes you susceptible to a plethora of external factors. Major industry players may also become loyal customers of a specific vendor that offers non-differentiating products, thus allowing the vendor to establish a dominant market position. In order to avert this risk, productize common digital assets through an open-source license agreement, which makes it impossible for any one entity to exert control.
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Brian Prentice is Research VP at Gartner. Mr. Prentice has been with Gartner for 17 years and in the IT industry for over 30 years. His expertise is on how enterprises can successfully create and manage digital products.