Finding Competitive Advantage in Adversity

HBR article Finding Competitive Advantage in Adversity has some important learnings for R&D managers:

Unlike many managers whose instincts are to hunker down and play it safe during difficult times, entrepreneurs like Bush hear a call to action in the oft-repeated advice of Machiavelli: “Never waste the opportunities offered by a good crisis.”

Opportunity 1: Match Unneeded Resources to Unmet Needs – That is to find resources that are not being used because of adversity and then repurpose or redirect them to meet unmet needs. This is extremely important in R&D management. As budgets are reduced, a lot of projects are cancelled midstream. Wise managers will build on projects being cancelled to deliver something new.

Adversity comes in many forms—acute, cyclical, long-term, and systemic. It sometimes affects individuals or single firms; other times it cuts across a wide swath of entities. However, its pathology is consistent: Adversity constrains a key resource, which then depresses demand, supply, or both. That gives rise to unmet need and releases other resources that become redundant. An opportunity emerges for inventive entrepreneurs who can reroute the redundant resources to fill the unmet need.

Opportunity 2: Round Up Unusual Suspects – somewhat less directly relevant to R&D. However, take away is to look for usual areas for cost cutting and unlikely areas for reuse.

Adversity is also characterized by missing or inadequate elements at critical points in the business system. These may include key inputs, capital, technologies, or partners in the supply, distribution, and marketing chains. Entrepreneurs who can creatively identify unlikely, alternative candidates are able to get a leg up. However, the art of aligning the incentives of an unorthodox coalition and maintaining equilibrium among the members is no small challenge.

Opportunity 3: Find Small Solutions to Big Problems – Take away is that do not make a big project out of repurposing R&D projects that are being cancelled (self explanatory).

The more severe the adversity, the harder it is to change the status quo. Comprehensive solutions that require many changes can appear to be dead on arrival, leaving only tiny cracks as points of entry to break the mold. The message for the intrepid entrepreneur: Small innovations can be huge. First, they are potentially more affordable and can be produced with less initial outlay. Second, they economize on features and complexity and may be just good enough to fulfill an unmet need. Third, their size can help minimize environmental effects or other negative externalities. Finally, they may be easier to integrate into the current model, with only minimal adjustments. In fact, four characteristics that, according to Trendwatching.com, define future consumer priorities may be the tiny cracks to look for: affordability, simplicity/convenience, sustainability, and design informed by local knowledge about product usage. Small solutions that fit within these tiny cracks represent major opportunities.

Opportunity 4: Think Platform, Not Just Product – This is probably the most important consideration for R&D managers.  By thinking long-term and focusing on platforms, the costs can be spread out over longer term.  The benefits can also be larger because platforms have larger revenue potentials.  Finally, stretching out R&D allows organizations to target solutions for when the adversity is mitigated.

In general, the underlying factors that constrain one situation of adversity also constrain others. This offers an opportunity to invest in a meta-solution that can address several unmet needs simultaneously, either in multiple market segments or various product markets. The multifaceted character of the opportunity also hedges the entrepreneur’s risk and helps the venture grow beyond the initial point of entry. Clearly, entrepreneurs can expect varying levels of success, but the broader the venture’s reach is, the greater the value to be unlocked. The profit potential comes from the capacity to enhance the business model at three possible leverage points: customer value, cost management, and growth-vector creation.