Orphan product lines can occur for a variety of reasons usually associated with innovation or simply change within your organization. As orphans are an inevitable result of ongoing innovation, it is essential that an innovative organization is able to recognize and handle them efficiently.
If you are an organization with an orphan, you likely are struggling with some of these common issues:
- You don’t want to let down key customers by abandoning a non-strategic product, yet you don’t know how to deal with the customer dissatisfaction coming from lack of investment;
- You don’t want to give up current revenues—let alone profits—even though the quality and potential of these pales in comparison with your other opportunities;
- You recognize the opportunity cost represented by your lack of investment and lack of focus in the better opportunity, but feel trapped in on-going concerns about the future and potential of the orphan.
You may even be wondering how you got into the position where you are now partially paralyzed by a non-strategic asset. The following are examples of where orphans come from:
The Strategic Direction of Your Business Is Shifting
Your business has developed or acquired new product lines with significant potential for return on further investment. In addition, the organizational capabilities that must be invested in to grow these businesses are slightly different than what is needed to support the old product line even though there is significant overlap with your old customer base. As a consequence, maintaining the old capabilities is becoming a significant investment itself and as your business invests in the promising new opportunities, sales and customer satisfaction in the old product lines begin to wane. As sales drop for the older product lines, a paradox results:
Further investment in the legacy product line becomes more difficult to justify in comparison to your newer opportunities. At the same time, the additional investment is more urgently needed and is likely championed by your customer-facing teams to satisfy your disenchanted legacy customer base.
Inheriting an Orphan Through Acquisition
An orphan can be inherited through a business acquisition when along with the product line you targeted you also receive one or more smaller product lines that weren’t part of the strategic rationale for the acuisition. It is hard to turn these down as they represent revenue and hopefully profits and they may even have been thrown into the deal for “free.” Unfortunately, in many ways, some slight and some significant, these additional product lines are not quite aligned with your market or internal commercial, development or support capabilities. Consequently, they require more investment of capital and executive mind-share than initially thought.
When vying for resources with the core business or the targeted acquired product lines these ancillary products fail to compete. Despite this there are internal champions for these orphan product lines who see the potential for market and profitability growth with further investment. The unfortunate thing is that this seems partially justified, not by the questionable projected rate of return but, by the fact that these products are also sold to many in your core customer base and they are now your responsibility rather than that of the company you acquired them from. You feel like your hand is forced to continue supporting these products.
Products Launched on the Way to the Next Big Idea
Your business is moving into a new emerging market. The market needs are evolving but you have significant domain knowledge and relevant technical expertise so you identify opportunities to provide near-term solutions to these new customers. Perhaps you start off with some niche hardware solutions to holes within the emerging workflow or you may supply some small software solutions that make the evolving workflow a bit easier to manage. As the market matures and your understanding grows you hit on the “big idea” and put your efforts into the system solution that provides the appropriate support required to capture a large segment of the market.
The big idea takes all of your development resources and although it does not obsolete the products you have commercialized along the way, it may cap their market potential. Between the effort you have to spend on the big idea and the limited potential of the previous solutions, you struggle with justification for on-going development and support for these solutions. Unfortunately, many of your current customers still want access to these products for which they may or may not have viable alternatives in the market.
The Solution to an Internal Need that Gets Commercialized
Your internal engineering team has developed some great tools to address recurring operating challenges you face every day. They are so successful in propagating their solutions internally that you find they are spending more and more of their time supporting their installed solutions rather than developing the new solutions for external customers that is their charter. You need to support what your team has done but you must also serve your core external customers by providing new and enhanced product solutions and you don’t have the budget to do both. Perhaps if you commercialized some of your existing internal solutions outside the company you could leverage the good work done and provide additional income to cover the support costs.
Fast forward two years and you have successfully commercialized the solutions and you now have satisfied internal and external customers with ongoing support expectations. Although you have been able to hire a few engineers dedicated to supporting the existing installations your internal and external customers expect ongoing development to keep the products current and viable. In fact, your new external customers committed to you as a result of your internal usage of the solution, knowing that your vested interest in supporting your internal installed base will benefit them as well. This is a strong selling point and helped you overcome the fact that although these customers are the same as those who buy your other core products, the marketing and service profiles are very different between your core products and this new offering. Your engineering team is doing all the work as they can take little advantage of your core commercial and support organizations.
Additional investment is required to create and support the sales necessary to make the new product line viable, however, this is hard to fit into your existing budget given your original charter of engineering support for new developments for the core business. Your company cannot justify investing in the infrastructure required to support this tangential market and they need your team’s engineering capability channeled towards new product development for your core lines. Unfortunately, your core customers are now dependent on this new product line and it is difficult to pull the plug.
Across all of these examples, the difficulties associated with effectively managing orphans are exacerbated by the fact that decisions on the various issues they create are typically made at different levels in your organization. Customer satisfaction issues are typically dealt with by a product-line manager, revenues and profits are the domain of the line of business manager, and capital allocation and opportunity costs are dealt with by executive management. The problem is further complicated when the orphan is small as the decision-making is typically pushed lower in the organization where, in most cases, less options are available to optimize the outcome for the company.
The bottom line is that if you want to sustain innovation, you must have a mechanism in place to recognize and disposition the inevitable orphan.