Launching new products and services: financing of the company’s development plan
Serebrov Sergey(1), Chudakov Anatoliy(2), Dolgushev Nikita(1,3)
(1) St. Petersburg Technopark
(2) Saint Petersburg University
(3) EFESO Consulting
When a company is becoming a leader of the market it faces increasing threats and risks. One of the most important factor reducing this kind of risks is a consistent financial development plan aligned with company growth strategy. Such a plan can be developed quickly and effectively using a digital model for holistic links between wide range of aspects of the company's activities. The digital model is especially needed for launching of new products and/or services projects when break of links between "path-to-market" plan and financial plan may lead to sensitive rising of risks.
1. Leadership strategy - to offer the market what is needed and do it faster than everyone else
Modern economic systems are based on the regular supply of new values to consumers. Ongoing development of technologies dictates the need for participation in joint cooperative chains of value creation, access to export markets and coordination of forces of the main stakeholders. This makes it possible to quickly and accurately offer the market exactly what most meets its expectations.
2. Financial risks and not only ones …
The adoption of a leadership strategy involves many risks: a company that focuses on advanced levels based on new technology inevitably takes on greater risks compared to less ambitious market participants.
One of the significant risks faced by the innovative business is financial risk. The consequences of this risk are expressed in the loss of liquidity (a lack of money) and lead to the inability to continue to develop and carry out operational activities. As a result, it is impossible to implement a general plan for the development of the company.
The most significant factor determining the level of financial risks is the quality of financial planning. Without designing it in detail, further movement towards the goal is impossible. In turn, financial risks are closely related to the company's specific value offer in the market and the company's ability to carry out activities crucial for achieving strategic priorities.
Proper management of financial risks and the construction of a realistic financial plan require system approach. Traditionally, when building models of complex systems, digital models are used. The merits of digital models include their pragmatic focus on solving practical problems, integrity, visibility and convenience for organizing the collective work of expert communities.
3. Digital model as a framework on the "path to market" leadership
A digital model is used to determine the need for investments and sources of financing for a new products/services launch project. Basic axes of the digital model are:
- voice of the consumer (market);
- voice of business (stakeholders);
- voice of the process (technology);
- financing plan for the development project.
The model is designed to formulate and solve the problems of choice:
- Which product has the greatest market outlook?
- What technology ensures its production?
- What are the expectations of stakeholders?
The search for answers forms not only the coordinate system in the digital model, but also its interrelations.
The answer is a well-reasoned signal about priority development focal points in the following areas:
- Technological equipment. Reasons of choosing technologies or equipment that are necessary for the product manufacture.
- Staff’s competence. Determination of skills’ sufficiency and abilities of company’s employees.
- Management system. Identifying key aspects of project development management.
Clarity and practicality of the result allows the investor to independently make a balanced decision on the financing of the project. Understanding the essence of the product and the validity of the financing directions help to establish a permanent live contact between the company and the investor.
A detailed description of a new product's conceptual design is contained in the article "Bringing a new product to the market: From an innovative idea to a value proposition.".
We will focus on the financial part of the digital value proposition model.
The further trajectory of movement to leadership in the market assumes transformation of conceptual solutions of product design into the financial result, which is achieved by linking value proposition and script-based financial planning.
4. From the concept of value proposition to the holistic financial plan - art or technology?
The connection between the concept of value proposition and financial planning is provided by the financial model of the project. Its construction begins with a correct identification of the need for financial resources.
In turn, the need for financial resources is determined by the selected script of the company's development. The script should be developed at the stage of conceptual design of a new product.
The basic principles of forming the financial model are:
- the development plan of the company places general focuses of financing in the selected priorities of technological equipment, personnel competencies and management systems;
- cost centers form the main directions of financing, which are distributed according to the organizational structure of the company for the relevant types of costs (fixed asset investments, fixed and variable costs);
- sources of financing determine the resource base of cash for the company.
The financial model is built on the basis of the necessary planning horizon and with an acceptable level of detail (month, quarter, year). As a result, it is possible to form a financial plan script or several scripts if needed. In this case, they must take into account the possible variability of events in internal and external environments of an organization for subsequent selection of the most optimal financing option for both the company and the investor. So, a "bridge" is formed between the value proposition and the project’s final financial result.
5. Modelling of sustainable cash flow
The financial result, for both the company and the investor, is shown in the major financial and economic indicators of the project. In the terms of script-based financial planning, the values of these indicators acquire a model variant of cash flows depending on the chosen path of development. The model forms a balanced composition of alternatives for the entering markets with new products and services.
The financial model is easily transformed into a "traditional" cash flow chart. The analysis of the table allows all stakeholders to assess the financial sustainability of the project for entering markets with new products and services, identify possible risks and avoid the implementation of a negative script.
Ability to quickly determine the effectiveness of each of the alternatives to the implementation of the value proposition by the company and to assess the emerging financial risks makes it much easier to choose the right tactical solution and allows one to answer the question: will it be possible to offer the market what is needed most quickly like a true leader.
Управление риск-факторами позволяет повысить привлекательность бизнеса для собственников, кредиторов и контрагентов, а также сфокусировать совершенствование операционной деятельности на измеримых показателях, оказывающих наибольшее влияние на финансовую стабильность бизнеса.
Цифровая модель "Управление финансовой устойчивостью" позволяет: 1) диагностировать риск-факторы, значимые для успеха бизнеса, определять их влияние на ликвидность, платежеспособность и рентабельность, 2) оценить вероятность наступления данных событий и определить перечень мероприятий для работы с каждым из ключевых риск-факторов, 3) составить дорожную карту и систему KPI для повышения кредитного качества бизнеса.