The Road to Building Commercial Excellence
The road to building commercial excellence (ComEx) to achieve high levels of growth is long, but not necessarily straight. Commercial excellence, like operational excellence (OpEx), combines processes, programs, culture, and leadership to profitably grow the top line. ComEx is not just one thing, and like many enterprise-level initiatives, it takes a significant amount of effort, time, and committed leadership to build and operationalize it.
As industrial companies struggle to achieve growth rates much above GDP levels and address the pressure from the investment community to deliver value, CEOs and board members have started to think about the process of growth.
There is a link between OpEx and ComEx: companies with good operational rigor have put similar processes in place to address growth. In one case, the CEO of an industrial company measured each commercial transaction on a weekly tollgate review process with the intent of achieving an 80+ percent probability-of-win rate. With this process, the company increased top line by approximately 25% over a three-year period.
The formula for growth is both organic (investing in the current business) and inorganic (typically achieved through mergers and acquisitions, or M&A). Developing organic growth is the essence of ComEx, but it is also the most challenging and creative of the two. A recent study by McKinsey & Company of 550 companies over a fifteen-year period revealed two things: (1) companies with more organic growth generated higher shareholder value than those dependent on M&A, and (2) companies achieving above-market growth pursued a diversified approach to growth.
Traditionally, ComEx sits in the realm of strategy, marketing, business development, and sales departments. To build a robust ComEx program, it is necessary to connect the commercial teams to product development, R&D, manufacturing, human resources, and finance. Some companies have built a proprietary business system (such as the Danaher Business System), which integrates all these concepts into a cohesive commercial and operational model that achieves shareholder value. These companies have painstakingly built their proprietary model over the years, and it has become part of both their culture and their winning formula. As Peter Drucker said, “Don’t confuse motion with progress.” Investing in a few meaningful programs is better than chasing many wasteful ones.
In a crowded marketplace, the key to success lies in differentiating your products and services from those of your competition. As Warren Buffett famously said in 2007, “I don’t want a business that’s easy for competitors. I want a business with a moat around it with a very valuable castle in the middle.” Part of developing a solid ComEx program means building this moat around organization’s valuable assets. It means constantly positioning and repositioning your business by understanding the external dynamics and by connecting the dots in the marketplace.
I have developed a simple model (Exhibit 1) that serves as a framework for assembling the building blocks of ComEx along customer-, market-, and business-focused programs. Within each of these areas, one can build multitudes of competencies, capabilities, tools, templates, and processes, but I have listed the critical programs that can have a significant effect on the overall growth. To start the journey, conduct a current capability study across all these programs and then pick one or two each year to implement ComEx.
Customer-Focused Programs
Irrespective of the size of the company, resources are always limited. Doing a thorough analysis on the customer segments, picking the right segments to play (and not play), and preparing a unique value proposition for the targeted segment is key to success.
To optimize selling cost effectively, it is important to allocate resources along the chosen customer segments. An active and robust channel management process, whether working with direct or indirect channels, helps build closer customer intimacy for increased sales.
Consider doing a Pareto analysis of your customer segment and in some cases, few customers contribute to a bigger share of your revenues. How the company serves these big customers, as part of your key account management process becomes important to maintaining the lead. Similarly, large projects that contribute to a bigger share of the revenues and risks need a special process (project pursuit) throughout the life cycle of each project.
Market-Focused Programs
Similar to customer programs, this is externally focused, and companies get better at making critical decisions by having a deep knowledge of the external environment. The customer and market programs combined with product planning help build a solid go-to-market strategy.
If playing in a regulatory-based environment or a business with long project cycles, it is critical to implement upstream marketing (missionary work) to influence the decision makers with the company’s unique value proposition.
Finally, in this modern digital economy, how the company conveys the value proposition to a diverse global customer base through marketing collaterals is key to long-term success.
Business-Focused Programs
As one might imagine, the real battleground is typically inside the company. The secret sauces for growth are the internal processes, programs, initiatives and talented leaders that help build the moat we talked about above.
Good data drives good decisions, and implementing a good customer relationship management (CRM) tool is the basis for driving a good sales process. In the absence of a formal CRM tool, using a glorified Excel spreadsheet to manage the sales process works, and yes, it can be done.
Building pricing models based on market and competitive assessment, combined with a clear value proposition, positions your organization’s offering attractively in the marketplace.
Having a solid sales and operating plan (S&OP) tying the sales plan to the factory floor helps deal with the volume and mix issues while contributing to improved working capital.
Driving innovation and R&D investments based on a thorough understanding of the market and customer needs yields a higher return on investment. There are limits to growth and innovation in certain sectors of the industrial markets. Following the principles of “fail fast, fail cheap” allows companies to test out many growth ideas until they hit the jackpot. Fast product customization, similar to fast fashion in the retail industry; help generate incremental sales to selected customer segment.
Finally, the people who make growth happen need to be trained, rewarded, and motivated. As the markets grow increasingly diverse and global, introducing a sales leadership program that facilitates the recruitment of new talent and putting them through various markets and businesses helps build the superior sales team of tomorrow.
Bringing It All Together
The programs mentioned here are tactical in nature, but on top of it sits your company’s growth strategy. A simple model for organic growth comes from the work done by Chris Zook, who has written several books on growth. If thinking about organic growth in terms of the six angles of product, geographic, channel, customer, supply chain, and new business development expansions, one can generate a rich list of growth ideas. I have used this model to host growth workshops in which participants successfully create adjacency growth maps for each of the business units.
How Do You Know It When You See It?
Companies that are operationally focused also tend to have a good commercial growth program. They manage growth the same way they manage the factory floor, with clear performance metrics and rigor when it comes to delivering results. There is tight coordination between the customers, commercial teams, and factory floor. Senior leaders spend more time in front of the customers doing enterprise selling and defining the value proposition to their customers. These leaders work with the customers to jointly shape the future of the industry, and share the success and rewards with their customers. They do not let market conditions impede growth, because they have already studied the market dynamics and are prepared for all eventualities. Finally, instead of holding their people’s feet to the fire to squeeze out every ounce of growth, the leaders partner with the commercial teams by asking, “How can I help you grow or close the deal?”
The Bottom Line
Commercial Excellence and Operational Excellence are two sides of the same coin. Operationalizing the growth process and connecting the two helps the business achieve significant growth and value.
