Every enterprise can turn internal business capabilities into digital products for either internal or external customers. The key to deciding which — and executing successfully — is identifying the right strategy based on broader objectives such as cost optimization, revenue generation and efficient business model execution.
“Any business capability that can be digitized should be productized,” says Brian Prentice, VP Analyst at Gartner. “But not all digital business capabilities should be turned into revenue-generating external products. This distinction is made much easier by first looking at business capabilities as digital assets.” The more mature an enterprise’s digital product management, the easier it is to see business capabilities as digital assets and create productization strategies accordingly.
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Identifying your digital asset type
To determine whether a business-capability-turned-digital-product has a market outside the enterprise, ask the product lead three 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 the answer to all three questions is yes, you have an innovative digital asset — something that is broadly recognized as an invention and has market potential. If the answer is no, you have a common digital asset — something that is not differentiated, which is to say other organizations are already performing or can easily perform the task.
Creating revenue-generating external products from innovative digital assets
Presuming you have an innovative digital asset, ask your product lead whether 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 is yes, the digital asset is important to the execution of your enterprise’s business model, and it should remain internal. Externalizing it would forfeit your ability to differentiate. If the answer is no, further explore turning the digital asset into a revenue-generating external product.
Assess the commercial possibilities of the product, your go-to-market strategy and potential partners. Ensure the product meets the standards of desirability, feasibility and viability. 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). Alternatively, you can be entirely responsible for innovations but work with vendor partners on implementation or distribution.
Creating external products from common digital assets
Bearing the maintenance costs of common digital assets is not practical, as they won’t generate significant revenue. Instead, 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 the risk of creating too much dependency on a single supplier. Major industry players may become loyal customers of a specific vendor that offers non-differentiating products, thus allowing the vendor to establish a dominant market position. 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.