One of my favorite Peter Drucker passages about innovation goes something like this:
“To render a business entrepreneurial, management must take the lead in making obsolete its own products and services rather than waiting for a competitor to do so. The business must be managed so as to perceive in the new an opportunity rather than a threat. It must be managed to work today on the products, services processes, and technologies that will make a difference tomorrow.”
What Drucker is alluding to here is not so much the ‘systematic abandonment’ of existing businesses that are becoming obsolete, but rather, to focus on the proper allocation of resources– both personnel and financial–to create businesses for tomorrow in order to continue growth.
Being able to properly allocate (and reallocate) your most valuable talent to the products and services that will drive growth for tomorrow is one the biggest challenges today for most growing companies. Those products that led to yesterday’s competitive advantage are fast becoming commoditized tomorrow. And while it may not make sense to abandon today these commoditized products of tomorrow, it does make sense to think about a reallocation of resources so that your best talent–the same ones who helped build the product’s competitive advantage–is not wasted as the product begins to roll down the commoditization curve. Most companies wait too long to reallocate these highly talented people. It’s only natural for successful product managers to ‘cling’ too long to their most talented people. But in doing so, they not only hinder the overall innovation efforts of the company and they also do a disservice to their people. As the work becomes less-challenging, these people become under-utilized, under-appreciated, and are some of the first to jump ship when better challenges present themselves.
Here’s the takeaway: Resource allocation from low-margin to high-margin businesses is one of the biggest challenges for growing companies. But for those companies that get it right, it can lead to lead to even higher growth going forward.
Patrick Lefler is the founder of The Spruance Group – a management consultancy that helps growing companies grow faster. He is a former Marine Corps officer; a graduate of both Annapolis and The Wharton School, and has over twenty years of industry expertise.