Six key insights as to what the industry players should do

1. Preserve existing revenues by taking care of your client needs
   We learned from publicly listed product companies that 60 per cent of them faced revenue compression in one of the preceding three years. Further, the impact of the ongoing coronavirus epidemic is widely visible and has significantly impacted a number of industries: airlines, hotels, leisure and hospitality, automotive, oil and gas, to name a few. As a software product provider, it is very important to evaluate the impact of COVID-19. Executives and business leaders of many such companies have set up war rooms to preserve and protect their existing revenues and revalidate their forecasts for the rest of 2020, simply because the original revenue forecasts are no longer credible under the unusual circumstances.Most of the leaders have proactively started reviewing the changing spend patterns of clients with an intent to capitalize on newer areas of opportunity and to be able to hedge the overall revenue decline. Although customer retention has always been an integral part of most business strategies, the need to strengthen and maintain relationships has become even more pronounced today. With newer relationships getting difficult to build, retaining current long-term relationships and expanding them has become critical.
2. Find opportunities for growth in the white spaces between existing product offerings
   It is apparent that business leaders in software product companies have dual tasks at hand. First, they have to look to survive the crisis and protect their turf. Second, as the new normal becomes more and more real, they have to invest in new areas of opportunities to be able to win the race. According to BCG research, it takes 2x investment into R&D to go beyond one’s core products,15 so it is clear that investing in completely new product areas is not an easy game to play.The economic scenarios that will emerge over the next few years will differ widely by country and industry, depending on the local impact of the coronavirus epidemic, government stimulus packages, and other factors. It is important to keep looking out for leading indicators and rapidly move forward with execution. As the market demand evolves it might be interesting to find adjacencies to existing products and solution offerings and determine customer needs by segmentation. In some cases, it could mean addition of new products/ offerings to existing road maps, and in others pursuit of a different customer segment altogether.
3. Reprioritize and refocus product road maps
   Volatile and uncertain market scenarios are forcing organizations to reprioritize their plans. Business and engineering leaders at software product companies are also actively considering changes in their product roadmap priorities, reducing or reallocating budgets. Agile planning, rapid reprioritization and high-speed execution are the key success mantras, given today’s realities. It is time to embrace a more flexible product portfolio to be able to continually iterate based on evolving client needs. After possible growth areas have been identified, it is imperative to reassess product road maps and re-baseline priorities in alignment with one’s strategic goals, financial constraints, resource capability and capacity.
4. Leverage global delivery model to drive consolidation and build new offerings
   In order to effectively tackle uncertainty and change, every business needs to be more agile and adaptable. The companies that can optimize their expenditures to build greater resilience and responsiveness are the ones that are more likely to be successful in this VUCA phase. Therefore, almost everyone is trying to cut down operational costs and improve cash flows to weather the storm. For software product companies it is also important to keep investing in R&D activities for accelerating growth. In our conversations, it was apparent that while executives and business leaders are exploring means to maximize returns on R&D investments, they are also equally concerned about the speed of execution, leveraging emerging tech capabilities. Leveraging a global delivery model becomes even more critical to meet these diverse and often conflicting objectives.
5. Adopt new-age business models to accelerate reach and penetration
   The shift in customer buying patterns has also accelerated growth in some areas that were already on the radar of software product companies even before the Covid phase. For instance, a sudden spurt in digital activities had led to an increase in spending on cybersecurity and cloud-based products across different industries. Apart from increasing digital opportunities, demand for better communication and operational infrastructure has also escalated. Therefore, companies focused on these domains are looking to quickly expand their offerings in these specific areas. Many software product companies are evaluating the expansion of their partner ecosystem, both from the perspective of enhancing the product offerings and also for widening the go to market. In order to create end-to-end solutions focused on changing customer needs and to quickly address high-growth markets, many product companies are forging new partnerships, both in sell-with and sell-thru business models.
6. Mergers and acquisitions: a polarization of winners
   To many this may sound like a rather aggressive and overly optimistic approach, especially during a pandemic situation. But mergers and acquisitions are a fast way to expand portfolios and build new capabilities to align with the new market situation. Therefore, many companies are seriously looking at strategic acquisitions and partnerships to broaden their presence in certain key areas. The bigger companies can afford to expand by investing in acquisitions. For smaller niche businesses, acquisition may prove to be an effective survival strategy. Successful, cash-rich software product companies are looking to seize the opportunity by acquiring key capabilities to expand their horizons, both from the present and future business standpoint. At the same time, companies that are struggling for growth and cash flows are finding an amicable exit path. In many ways, we are observing a ‘polarization of winners’ in this market.

Nitin’s conclusion:

Even as the new normal throws up some new opportunities for software product companies, many are still treading cautiously and taking the defensive route to consolidate their businesses. Many believe that initially playing defence helps build resilience and creates a strong foundation, which in turn will enable them to adopt an offensive strategy when the market is ready. So offence is possible, but the path to doing that is through great defence. Ultimately, how an organization balances the two will determine its ability to survive and thrive in the long run.