Operating a tiny division within a massive corporation comes with a unique set of hurdles. Thomas Petersen experienced this firsthand when he took over a five-million-dollar business buried inside a billion-dollar company. Rather than trying to build better versions of existing products for a shrinking niche, he realized his team needed a complete shift in perspective. Moving this business from a fledgling unit into a core corporate pillar ultimately required finding a way to matter on a much larger scale.
The Pursuit of Corporate Relevance
During his early days, Petersen noticed his team was fighting a tough battle. They were focused on a specific semiconductor market that had largely moved its operations overseas. During a strategy meeting, the group suggested making their current equipment faster or cheaper to win back market share. Petersen quickly identified a fundamental flaw in this thinking.
“That’s not our problem at all. That’s relevance,” Petersen recalls telling his team. He explained that a massive corporation cannot give credence to a tiny division fighting for scraps. To secure resources, they had to apply their core competencies to lateral markets where the available customer base was significantly larger. This specific realization became the anchor for the division over the next decade. His team held on to this concept tightly as they built their strategy. Years later, the corporation officially announced the systems business as one of its primary pillars. As a result of staying aligned on that ultimate goal, Petersen notes that “not a single person forgot the idea of relevance.”
Understanding the Cost of Scaling
Setting a clear vision is critical, but leaders often misunderstand the operational realities of elevating a systems business. Executives coming from a components background tend to assume they can easily transition into complex systems. They frequently misjudge the required resources and fail to realize how drastically different the operational strategies need to be. “If you’re in a components business or in a subassembly business, you can dabble in the systems business. It’s really not much of a stretch to go from providing, say, a motion control system to a simple vision system,” Petersen explains. However, leaders get fooled by hidden costs and underestimate the expense of sales channels. Sales and marketing run much leaner in a component business than in capital equipment.
Service demands also shift dramatically when a division moves into the systems space. Service in a components business is generally a minor concern, but a systems business directly impacts a customer’s production line. Petersen points out that scaling requires a deep understanding of the investments needed to build out a sales force and deploy service teams effectively.
Building a Case for Investment
Securing investment requires building a compelling narrative for the board of directors. Leaders have to present a path showing sufficient market size, defensible differentiation, and realistic profit expectations. This process gets difficult when moving from high-margin components to lower-margin systems. Petersen refers to this challenge as margin matching. “It’s all about vision, right?” Petersen says. Showing up with a plan that only results in a small business after 10 years will not win board approval. You must share a vision where margins hold up long enough to justify the heavy initial investment. As markets move toward commoditization, margins fall, meaning leaders must constantly look for their next act. Patience remains a necessary part of this strategy. Corporate boards need to understand the realistic timeline for seeing a return. “Systems businesses take five to seven years to build traction unless you have something so technically superior that you can really storm the market; those opportunities come along very infrequently,” Petersen explains.
Leading the AI Transformation
Today, that long-term vision must account for the rapid rise of artificial intelligence (AI). Many companies have been slow to adopt AI simply because they lack the scale or resources to support it. Petersen himself struggled for years to get his group to engage with AI until a blunt conversation changed his perspective. During a supplier conference, a chief information officer directly addressed the internal adoption struggle. “He said, ‘I’ll tell you what the problem is: it’s you,'” Petersen recalls. “He said, ‘You have to lead; there is no one else who is going to take the mantle. You have to do your AI projects.'” Recognizing the truth in this advice, Petersen immediately began dedicating time to lead his own AI initiatives. This hands-on leadership matters because AI is changing what customers value. In medical imaging, customers previously focused on hardware specifications like magnet strength. Now, their primary focus is on AI software that can efficiently process images. Petersen notes that this shift completely changes how suppliers must approach systems companies and manage development.
As technologies like AI and robotics drive massive growth, leaders must look ahead to maintain relevance. Predicting what the industry will look like five to seven years from now is incredibly difficult. Waiting for a market to become hot before entering it is a guaranteed way to miss out entirely. “It’s like placing bets at a casino,” Petersen notes regarding future corporate growth. “The market that’s hot today is not going to be hot tomorrow. The issue is, by the time it gets hot, if you’re not already in it, you’re out.” Companies lacking a background in a booming sector cannot catch up when demand suddenly spikes. To avoid missing these cycles, leaders must make strategic moves into lateral markets early. By placing small bets in emerging areas, companies gain crucial experience and establish a foothold. Petersen warns that trying to predict one big winner is dangerous, as missing those massive bets can be catastrophic for the business.
Follow Thomas Petersen on LinkedIn for more insights on scaling systems businesses, maintaining corporate relevance, and leading AI initiatives within larger enterprises.
