Monetizing Internal Capabilities: Find New Growth by Looking at What You’re Good at, Not Just What You’re Known For

25 Feb

“Add new features. Sell more. Increase marketing spend. BE MORE INNOVATIVE.” These are just a few of the myriad ingredients in the pantry of company executives charged with the daunting task of cooking up revenue and profit growth on a consistent basis. In a world where competition is increasingly attacking from all angles – crowdfunded Kickstarter campaigns, agile startups and international firms, in addition to your traditional competitors – identifying new growth opportunities is not as easy as many shareholders would prefer it to be.

A handful of firms such as Apple, P&G and Amazon will grab headlines and spurn management professors into churning out book after book on how to be innovative and create disruptive products and services that “wow” consumers. Sure, these companies are great and serve as models of excellence when it comes to innovation, but we’ve been increasingly intrigued by companies that have found new growth opportunities not through innovating the products and services they’re known for, but instead by commercializing what they’re good at – their internal capabilities.

From R&D and supply chain logistics, to organization-wide functions like IT and HR, we have found examples of companies that have created new services through marketing their internal capabilities to external customers. Capabilities are the business processes, supporting systems and technologies that make your business to run. Capabilities enable the products and services conceived and developed by your organization to hit the shelves in the market. Historically, these capabilities have been nurtured so that firms may gain a leg up on the competition, but increasingly we are finding examples of organizations that are turning proprietary capabilities into new businesses in an effort to diversify revenue streams, add value to their customers, and expand their customer base by entering new industries.

Let’s examine a few case studies of firms that have created entirely new service offerings by marketing their proprietary capabilities.

Disney

Creativity, teamwork and innovation have long been the hallmarks of the culture at Disney, a company that has built a reputation of delivering entertaining, family-friendly customer experiences over the past eight decades. The culture at Disney became especially relevant to the business community after appearing in the celebrated book In Search of Excellence, which profiled the world’s most successful companies and identified the themes that led to their success. Disney’s success, the book argued, was driven by the firm’s culture. “How do they do it?” executives around the country soon asked. Disney answered.

The Disney Institute formed in 1986 as a vehicle for individuals, teams and entire organizations to learn the customer-centric methods that have made Disney so successful. Part management consulting firm and part executive education program, the Disney Institute has been retained by school systems, hospitals, foreign governments, Fortune 500 companies and small-scale entrepreneurs to teach leadership, customer experience, brand loyalty and training.

Fees from the Institute’s services range from under $1,000 per person for a one-day workshop to hundreds of thousands of dollars for extended consulting engagements. Net revenues from the service are negligible to Disney’s bottom line – the company had $42.3 billion in revenue in 2012 – but it has no doubt exposed Disney to a host of potential future business partners and given it perspective on a range of new industries.

Bellin Health

In 2002, Green Bay-based integrated healthcare delivery system Bellin Health confronted a startling fact: healthcare costs for its own employees were projected to increase 30% to $13 million, in just one year. This unsustainable trajectory of rising overhead led Bellin to develop strategies to improve the health of its employees, rather than just treating health concerns. The organization looked at the various factors influencing the health of its workforce, and ultimately designed a system that saved Bellin $15 million over the following nine years.

Local organizations took notice of Bellin’s success and approached it in order to learn how to rein in their own rising healthcare costs; Bellin’s Business Health Solutions business was born. Bellin was able to parlay its internal cost savings initiative into a service that has allowed organizations such as the Northeast Wisconsin Technical College and the Foth Companies to save $500,000 and $250,000, respectively, in their organizations’ healthcare costs.

BlackRock

Since its formation in 1988, global asset management firm BlackRock has built a reputation for its best-class risk management systems. The firm’s proprietary risk management tools have enables BlackRock portfolio managers to make informed decisions and provide portfolio transparency.

In 2000, BlackRock began marketing its in-house risk management and trade processing tools to external clients under the BlackRock Solutions brand. Aladdin, Green Package and AnSer are the three key offerings of BlackRock Solutions, a line of business that generated $510 million of revenue in 2011. Revenue from Aladdin, a risk analytics and portfolio management enterprise solution, has been growing at a CAGR of 17% since 2007 and reached $374 million in 2011. These offerings, which grew out of BlackRock’s internal capabilities, are now used by more than 160 clients responsible for managing a collective $10 trillion in securities and derivatives.

For organizations seeking a way to “future proof” and their businesses, we encourage you to take an introspective inventory of your capabilities. “What can we do better than our competitors, or better than just about anyone in the market today?” The answer to this question might be your next $100 million business.

Imagine if P&G, widely acknowledged as one of the world’s most preeminent companies in terms of marketing, externalized these proprietary capabilities. From secondary market research to consumer product testing, P&G’s marketing capabilities would no doubt find an audience chomping at the bit to retain such specialized services.

Apple is another organization whose market-leading capabilities have made it the envy of tech and non-tech companies alike. How much would managers and executives pay to attend classes and seminars at an “Apple Institute of Design for Organizations”?

And what about market entry strategies and supply chain development? Surely there are few organizations around the world that have mastered these challenges as adeptly as Coca-Cola – is there an opportunity for the global food and beverage giant to enter the services world through a consulting and training business?

Conclusion

In the examples above, we saw companies in industries as diverse as media and entertainment, healthcare and financial services diversify their revenue streams and grow their client bases through marketing internal capabilities as a service offering. One only has to look at the March 2012 sale of Caterpillar’s logistics business, CAT Logistics, to a private equity firm in a deal valuing the business at $750 million to realize the extent to which a link in the value chain can balloon into its own profitable line of business.

For competitive reasons, there will always be specific, proprietary capabilities that your organization will maintain as closely guarded keys to success; however, if your goal is to identify non-intuitive revenue growth and expand your service offerings, look inward to grow upward.

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