Seeing windows of opportunity.

Many successful business outcomes depend on a good assessment of the "window of opportunity." There is often an element of time that needs to be considered: Something can make perfect sense at one point in time but not another, or it can be a good idea for a while but not indefinitely. When a window of opportunity opens up, conditions are right for a good return on investment. When it closes, you had better be prepared to manage an exit or adapt to those conditions. How long it stays open can have a big effect on the value of the opportunity. So keeping in mind the concept of the window can be a useful framework for business decisions.

What drives the timing of a window of opportunity? It can be related to a product lifecycle. Consider the example of Teleflex and its adjustable pedal systems. In the 1990s, concerns were raised about the safety of airbags for drivers of small stature sitting close to the steering wheel. Teleflex's proprietary technology for moving a brake/accelerator assembly a distance of up to three inches in parallel with the floor became, more or less instantly [by automotive industry standards, anyway], more than a comfort and convenience item. Spurred by safety considerations, the feature grew from an option on the 1999 Lincoln Navigator to availability on more than 57 nameplates in North America in 2005, according to one source. Last year, however, Teleflex completed the divestiture of its automotive pedal systems business. Despite proprietary technology and solid market presence, the company concluded "the business could be more valuable aligned with another company." As far as Teleflex was concerned, the window for the adjustable pedal business had closed. Joint ventures often involve a window of opportunity. Jeffrey Reuer, assistant professor at INSEAD in France, has studied the dynamics of international joint ventures extensively. He makes the point that "the end of a joint venture is not necessarily a sign that it has failed, even if its life span has been short. It often means simply that the business logic for the venture no longer applies." One joint venture that was designed with this potential for change in mind was BV Chassis Systems, a combination of The Budd Co. and Visteon to blend Visteon's expertise in overall suspension design and components such as control arms and stabilizer bars with Budd's chassis and structural knowledge. The collaboration resulted in responsibility for the Saturn Vue independent rear suspension module in a manufacturing facility set up near Saturn's Spring Hill assembly plant in Tennessee. But the companies made a point of saying that the JV would continue on a case-by-case basis--only when and where the need for modules to be delivered in sequence from a satellite plant merited the mutual investment. Anticipating the closing of the window of opportunity helps companies recognize the conditions when they see them.

Joint ventures can be useful as a means of gaining access to a new market or customer base. Johnson Controls built quite an array of joint ventures with Japanese seat makers starting in the late 1980s in order to get a piece of the action as Honda, Toyota and Nissan began establishing assembly facilities in the U.S. This strategy helped it quickly capture business as the window of opportunity opened, rather than pursuing a slower and longer process of winning business with the New Domestics on its own.

A current example where the window of opportunity should be of particular concern is in the many suppliers that are pursuing low-cost sources in China. The problem is that costs are rising in China. As Ben Rudolph, professor of Marketing at Grand Valley State University, recently wrote, "The early innovators in China outsourcing took on large risks for a potentially large payoff. The laggards may find that they are taking equally large risks for a quickly diminishing payoff." Has the window of opportunity already begun to close? Maybe.

The window of opportunity concept came up in a recent conversation that we had with a supplier considering the acquisition of a European operation from one of its customers. The supplier felt that the opening of the period of time in which this acquisition would be advantageous would be driven by its own ability to make improvements in the cost structure and productivity of the operation in order to achieve an acceptable margin. The components were largely of a commodity nature, in a product area not subject to much change. The window of opportunity would close, according to this supplier's assessment, at the point where the low-labor-cost countries have developed their process technology for this particular component to a comparable level, so the components get moved offshore. Their initial thoughts on the duration of the open window? "Somewhere between five and 50 years, but that is a big range." The supplier is working now to narrow it down.

Calculating the timing and size of the window of opportunity is often tricky. One approach is to look for analogies--similar products, for example, and data on what their lifecycle pattern looked like. Time-series data related to economic conditions can be used to project the rate of change in key variables of the opportunity equation. And, if necessary, plain old gut instinct is a common alternative, which is not all bad as long as it is accompanied by consideration and monitoring of the forces that will determine the window of opportunity. Everything has its season. Astute business leaders must always be attuned to the timing of the deal.

By Melissa Anderson, Vice President, IRN, Inc. [e-mail]