Commercial development: Aim! Fire! Ready?

Management's decision to shift the company's product portfolio may not lead to success if the corporate climate is not right.

Mildred A. Hastbacka

I n pursuit of improved profit margins, producers of commodity industrial products often look to new product development and commercialization as a route to success. The higher selling prices per unit associated with specialty or "value-added" products look tantalizingly like the pot of gold at the end of the rainbow to those whose objective is to increase profits. Management sets sales goals and timetables for achieving these profits; these goals and timetables are often defined by and driven solely by the desired financial outcome (e.g., a target return on assets or return on capital employed).

Success in achieving such goals via new product development depends on numerous factors, including how realistic the sales goals are relative to the marketplace and how aggressive the timetable is. Organizational factors also affect success. First, is there a successful pattern of or model for development and commercialization of value-added products, or are product development and commercialization new to the organization? Most important, are the people in the organization ready for this new way of doing things?

It is absolutely necessary that the employees be ready and eager to accept the kinds of changes that will be required to achieve success in the commercialization of value-added products. However, this readiness is often assumed or simply overlooked. Readiness goes beyond the personal and professional attributes of the individual contributors involved in commercial development to encompass the entire internal climate in which these people must perform successfully together.

The Climate Index
At Arthur D. Little, we have developed a technique to help assess the climate for commercial development in a given organization. We call it the Climate Index. Using this technique, we can do the following:

• Identify the key factors necessary for successful product development and commercialization.
• Characterize the goals, actions, attitudes, measures, and rewards conducive to achieving success.
• Test for the presence or absence of those characteristics.

The Climate Index is a diagnostic and benchmarking tool that can help any organization answer the following questions:

• How does the commercial development staff perceive the climate for carrying out programs?
• Is there a shared understanding of the objectives of commercial development?
• How do other functional groups perceive the climate for commercial development?
• How can those involved in commercialization, directly or indirectly, help achieve the objectives?
• Are improvements needed? Where?

The Climate Index can gauge the extent to which the formal and informal operating principles of the work environment support the strategic goals--in this case, the goals of new product development and commercialization. Assessing the readiness of your resources to carry out commercialization is a recommended first step if there have been previous commercial development failures or if commercial development is new to any part of the organization and the stakes are high.

In the following case study, we illustrate how the Climate Index can be applied. The company is a producer of commodity industrial products looking to new product development and commercialization as the route to value-added products with higher selling prices per unit.

The company's goals and our objective
Our case study company wished to capitalize on opportunities for sales of new and/or higher-value-added products. It wanted product development targets that would reflect both target customer needs and the financial goals of the business unit. Minimizing the time to market was important, as was customer recognition of the value-added nature of the new offerings so that the new products could command higher prices. The company also wanted to make product and commercial development deliberate and planned and to institutionalize the process for commercial development within the business unit. Of course, these goals had to be accomplished while maintaining the technical and commercial support necessary for existing core sales.

Initially, our assigned role was to help develop a commercial development process and an accompanying organizational structure that would allow the company to achieve its goals. To do this, we identified the factors that we expected to be key to the company's success. So we would be able to make the most specific recommendations possible, we conducted information-gathering discussions regarding various issues with involved staff (see sidebar, Information gathering).

TO SIDEBAR: Information gathering

In the process of gathering the background information necessary for us to fulfill our initial objective, we uncovered an underlying and more fundamental problem: The company's management had endorsed a strategy that required a shift from a commodity-oriented to a noncommodity-oriented business. To management, all that remained was implementation. But the team of people who had to carry out the development and commercialization were still pretty firmly entrenched in a commodity-oriented climate. The internal climate in which these people had to perform together successfully was not at all conducive to realizing sales growth targets that were both very ambitious and strongly dependent on successful development and commercialization of value-added products.

How we found out
How did we know that the climate was not conducive to developing and commercializing value-added products? First, some evidence was apparent in the following representative comments from staff members assigned to contribute to commercial development:

• "We've never had to meet a customer specification before"-- R&D
• "What do we do with off-spec material?"--Production
• "I'm already too busy `putting out fires'"--Technical Service
• "The market sets the price, and we meet it"--Sales

Clearly, the commercial development team in our case study company reflected the established and prevailing commodity-oriented climate. They needed new ways of operating, individually and collectively, to meet the goal of developing and commercializing value-added products.

Second, we compared the climate of our case study company with the climates in other businesses successfully practicing new product development and commercialization (1, 2). We identified several relevant, analogous commercial development models among existing external companies that had successfully diversified from commodity to a mix of commodity, custom commodity, and specialty products and had successfully differentiated commodity products via applications know-how or other forms of technical service.

Then, we analyzed and characterized the commercialization climate within those businesses: the processes, resource readiness, and supporting organizational structures that positively affected the ability of these model businesses to achieve their strategic targets. Most well-functioning commercialization climates share some common elements, especially those relating to decision-making processes, shared understanding of commercialization goals, and multifunctional efforts integrated and directed toward those common commercialization goals.

These common elements can be expressed as operating principles--that is, statements of attitudes, activities, goals, decision-making, and performance measures that are consistent with and support the overall strategy. By comparing our case study company's operating principles, one by one, with those of our models of successful commercialization, we developed a Climate Index for our case study company. We thereby developed some insight into how its commercialization climate might be made more conducive to successful implementation of its commercialization goals.

Operating principles can be linked to and expressed as actions that support specific elements of the overall strategy. They can be organized in various ways, for example, by statements that

• are linked to and are expressed as actions that support specific elements of the strategy, as established and endorsed by management;
• compare and contrast the operation of the company now with its operation in the future (see Figure 1 for case-specific illustrative examples); and
• describe the operation of key business functions and processes (see sidebar, Operating principles expressed in terms of key business functions and processes).

Figure 1. Specifying operating principles...

TO SIDEBAR: Operating principles expressed...

A significant gap
The contrasting operating principles of Figure 1 were transformed into a questionnaire consisting of a series of two paired operating principles. Each individual in the commercial development team was asked to choose which of each pair of operating principles was most characteristic of the environment in which he or she worked. Responses are illustrated in Figure 2.

Figure 2. The climate for commercial development...

Defining the Climate Index as the collective average of all the responses to all the pairings leads us to a Climate Index for our case study company that is modestly to the left of center, indicating a significant gap between where the climate is and where it should be for maximum success. The individual Climate Indices--that is, the responses to each individual pairing--can provide clues about what specific attitudes, activities, or objectives are farthest from the ideal and, therefore, are potentially high leverage points for corrective action. Although not shown in the accompanying figures, the range about the average response is also important in that it indicates how disparate or dissonant the views are among the various functional areas of the organization.

In our example case, the climate is not yet as favorable as it could be for commercial development that supports the chosen "value-added" strategy. Our case study company had set its "aim," given the order to "fire," and then found out its troops weren't quite "ready." With the enlightenment provided by the Climate Index exercise and equipped with a new set of standard operating principles (SOPs), it is our mutual expectation that the company will pursue its goals in new and potentially more successful ways.

Are you ready?
To develop a meaningful Climate Index for your own organization, you must understand your strategy and strategic goals as well as what individual and functional goals, actions, attitudes, measures, and/or rewards are necessary to achieve them. Once the Climate Index is completed and analyzed, the educational activities that will make success more likely can be developed.

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