It has been very interesting to watch the mindset trends of learners going through foundational
business acumen simulations that are focused on building individual and company business savvy over the past six months.
In many of Advantexe’s core business acumen simulations, learners are presented with a portfolio of products and services that mimic real-world situations. At the most basic level, many companies have mature products, growth products, and new products. One of the most important decisions when you are playing to win is how you will manage the portfolio in terms of investments, resources, and time to optimize performance (revenue, profit, cash flow, and shareholder value).
Over the past six months, we have tracked trends in our business simulation workshops. For example, the last 40 workshops that we’ve conducted have seen the selected strategy distributions of:
- Innovation focused strategy – 71%
- Customer focused strategy – 22%
- Low price focused strategy – 7%
When given the chance, a significant number of our participants learning about strategic thinking and planning in a case study that comes to life have chosen or feel more comfortable choosing a strategy of innovation.
How they execute that strategy through operational decisions and metrics of performance is why they are in the business acumen program…
The Instinct to Kill the Cash Cow
Inevitably, when the teams trying to execute an innovation strategy start talking about the portfolio, more than 80% of the time there is a decision made to kill the cash cow which is defined in our simulations as a mature product that has high market share but also diminishing margins in a declining growth market.
It makes no sense!
This instinct may be a very poor decision. Sure, if you want to execute on an “innovation” strategy you focus on new, shiny products and services. But, don’t make the mistake of at least not thinking about how to innovate, invigorate, and grow the mature products. There are plenty of world-class examples such as P&G whose strategy is to deliver superior products to their customers. Many of their categories are mature, but they continually invest in R&D to innovate. Bounty is truly the best paper towel in the world and exceeds expectations in absorption because P&G continues to innovate.
Another example is Apple’s iPhone. We are now on version 15 and it keeps getting better and better through innovation. It’s a cash cow that not only fuels the growth of new products like Vision Pro, but generates billions of dollars of positive cash flow for shareholders.
5 Tips to Innovate a Cash Cow
Based on research and observations from working with the world’s best companies, here are 5 tips to think about when innovating on and not killing your cash cow:
1) Listen to the Voice of the Customer
Your customer knows more about what they want and how they appreciate the value of a mature product than you do. Ask them for insights and help on how to innovate the product to the next level and then do the cost justification to see if it is worth it.
2) Focus on the Needs of the Innovative customer (and not the price customer)
Your customer is the innovative customer! Don’t make the mistake of focusing on the needs of the cost customer because the cost customer wants a lower price and not so much more innovation. This is a huge mistake companies make.
3) Look for Cost Efficiencies to Increase Margins
There is a difference between operational excellence, finding ways of being more efficient at producing an innovative product, and cutting costs to make it less expensive. Again, too many companies don’t recognize the subtlety here.
4) Look to Expand Market and Distribution Channels Previously not Available
In mature markets, suppliers tend to withdraw when it becomes unprofitable for them. Are there older channels now available that previously weren’t? New (to you) channels can drive revenue and share.
5) Add Customer Loyalty Programs
An oldie but goodie. Create customer lock-in by offering loyalty programs to your innovative customers and use that loyalty to drive more volume and share.
