Commercial Excellence
Inspiration
Commercial Excellence 1
Commercial Excellence .
Successful organisations embrace the concept of commercial excellence as a management philosophy that constantly strives to set new standards for front- end competitive edge. Organisations engaged in commercial excellence typically seek to find the right balance between efficiency and effectiveness. Why? Simply because doing things the right way matters only if doing the right things. By Kennet Hammerby, Jens Buur Madsen and Rasmus Lundsgaard Nielsen
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Commercial Excellence The concept of commercial excellence has its origin in the highly measurable production activities of a business. Manufacturing operations gave rise to the concept of operational excellence, and over time these principles (e.g. minimising time, continuous improvement of quality and benchmarking towards peers) have spread to the front-end activities of sales and marketing. Thus, the essence of commercial excellence is to achieve excellent performance in everything that a business does in its front-end functions.
behaviour of key stakeholders across the front end of the business in order to achieve excellent performance.
How do you get started, and what characterises a strong approach?
To further explain the concept of commercial excellence and what potential it may hold for your business, the following three topics will be discussed in this paper:
01. What is commercial excellence about?
Based on some of the key principles of operational excellence, commercial excellence is also about reaching clear, tangible goals and about changing the
Why should a company consider launching a commercial excellence programme, and what can you expect to gain?
What may a commercial excellence programme consist of, and in what type of organisations would a programme be effective?
Quartz has worked with several organisations on implementing commercial excellence. Often, our customers have an ambition of finding the right balance between efficiency (doing things the right way) and effectiveness (doing the right things) in order to optimise their commercial performance (see figure 1). Focusing too much on one dimension might work in the short term, but will, however,
Figure 1: Key questions to consider when thinking about initiating a commercial excellence programme Excellence in commercial performance is essentially about striking the right balance between effectiveness and efficiency
Are we doing the right things?
Effectiveness
Efficiency
Are we doing things right?
• Are we targeting the right customer segments?
• Is our customer understanding based on the right insights?
• Do we have the right value proposition?
• Are we maximising the return on our marketing investments?
• Do we have a clear life-cycle strategy for our brand/product portfolio? • Do we have the right go-to-market approach? • Etc.
• Is our pricing and discount structure optimally managed? • Is our sales force consistent and streamlined? • Etc.
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Commercial Excellence have crucial consequences in the long run. Why? Simply because doing things the right way does not matter much if we are not doing the right things and vice versa. Commercial excellence explicitly addresses this dilemma by taking a cross-functional and outside-in-based view on how to optimise the front end of a business across strategy, operations and organisation. The keyword 'capability' frames what commercial excellence means. In our terminology, a capability is made up of a number of elements – knowledge, skills and tools or systems are obviously part of many capabilities, but components like culture, change readiness or cross-functional cooperation are equally important components in many commercial capabilities. Whether being a small organisation with two or more business units or a multibusiness group with several business units, commercial excellence is a pragmatic and flexible concept that most organisations would benefit from. After all, it is a programme designed specifically to fit the context and challenges of the organisation (e.g. growing customer bargaining power, increasing competition and following price pressure, etc.)
02. Why should you consider commercial excellence, and what can you expect to gain? Commercial excellence is about achieving
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superior commercial performance and may include objectives such as: • • • • •
Increase customer profitability Optimise channel management to drive growth Increase marketing effectiveness Improve sales force effectiveness Improve ability to react to changes in the market place
One example was a leading international FMCG company wanted to substantially lift profits and market share across a number of countries where the company held strong shares in relatively mature markets. Growing share and profit simultaneously required a well-orchestrated but also comprehensive effort which included a number of initiatives and tools, such as a full customer P&L and a channel/customer segmentation model to identify unprofitable channels/customers. Marketing effectiveness was analysed using a marketing funnel (marketing model which illustrates a customer's journey towards the purchase of a product or service) to reduce over-/underinvestment across the funnel. Furthermore, sales force effectiveness was improved by identifying "white spots" in sales force coverage hereby optimising resources spent on serving customers. Finally, a common CRM system and an internal commercial excellence forum were implemented as key enablers of a common mindset and to improve the general capability/skill level.
In the specific situation, a full-blown and comprehensive programme was required to achieve the desired uplift in commercial performance. In another setting, a pharmaceutical company considered the commercial excellence programme to be more of a preventive measure to handle increased turbulence in the environment and changes to consumer demand. The increasingly turbulent environment coupled with the launch of a number of new products fuelled a need for stronger commercial performance across the entire organisation. Hence, the primary objectives for the commercial excellence programme in this setting were to: • • •
Optimise product portfolio management and planning Increase marketing effectiveness Optimise pricing
To address these objectives, the pharmaceutical company decided to focus its initiatives on enhancing the organisational capabilities. To prepare the organisation, the company identified gaps between current capabilities and best practice using a self-assessment tool and external benchmarks with peers. By focusing on building critical competences internally and by aligning vital interfaces between functions, affiliates and HQ,
Commercial Excellence commercial excellence was lifted to the next level. The two case examples illustrate that commercial excellence programmes cover a wide field in terms of ambitions and objectives. Also, they indicate that an excellence programme can be initiated not just as a reaction to a burning platform, but also in the pursuit of being at the forefront of developments to prepare the organisation for future turbulence. Despite the multifaceted objectives stated in the two cases, the possible objectives of a commercial excellence programme are not limited to these examples. In figure 2, seven typical objectives are listed including initiatives to help reaching them as well as expected outcome – still keeping in mind
to address both efficiency and effectiveness. The initiatives implemented to obtain the objectives can be categorised into five generic key levers – that is five potential improvement areas that can be changed or managed differently to improve commercial performance: 1. Organisational structure – e.g. what is the best structure to support commercial performance? What should be centralised/decentralised? Where should interfaces be optimised? 2. People and skills – e.g. what capabilities are needed, and how can we close potential gaps? 3. Processes – e.g. how can our business processes and planning cycles be optimised and aligned? E.g. how is
knowledge collected by the sales force shared with relevant stakeholders in the organisation? 4. Tools – e.g. which tools should be applied to measure and improve performance? 5. Insights/knowledge – e.g. where and how can we gain insight about the market and the competitive environment? At what frequency should intelligence be collected, and how should it be shared across the organisation?
03. How to get started? To successfully apply the five levers and reach the defined ambitions, it is essential to apply a structured approach when initiating a commercial excellence programme.
Figure 2: Examples of what to expect from a commercial excellence programme
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Objectives
Effectiveness initiatives
Efficiency initiatives
Increase customer profitability
Conduct customer segmentation based on potential and profitability
Implement full customer P&Ls to create transparency on the value of each customer
Optimise product portfolio
Assess attractiveness of current and future portfolio to identify priority brands/products
Analyse brand/product profitability (individual and segments)
Increase marketing effectiveness
Develop clear guidelines for the use of different tools
Implement ROI tracking tool to track and measure impact of promotions
Increase sales force effectiveness
Assess and identify "white spot" areas with high potential
Implement sales performance "cockpit"
Optimise pricing
Develop discount structure aligned with customer segmentation model
Streamline deal-making process
Optimise channel management
Develop go-to-market strategy for selected brands/products/segments
Implement channel guidelines
• Striking the right balance between product mix and channels to ensure optimal profitability and value offering
Improve organisational capabilities
Identify critical competences to be developed
Conduct international excellence training programme
• Strengthening capabilities across the organisation
Expected outcomes (not exhaustive) • Identification of unprofitable customers leading to changes in service levels/product mix modifications and/or termination of unprofitable customers • Reallocation of marketing resources to most effective marketing vehicles and/or reduction of over-/underspending across segments
Commercial Excellence For the FMCG company mentioned earlier, the content of the programme was defined by a multitude of detailed targets defined primarily from the corporate level that were to be implemented locally with support from a central task force team. This approach can typically be defined as top-down driven. Although this approach may cause difficulties in terms of mobilising the change in affiliates, it has a significant upside when the resources and/or capabilities of the affiliates are limited. At the other end of the scale, we find the explorative or bottom-up driven approach focusing on high involvement and best practice sharing across affiliates – this approach was chosen by the pharmaceutical company mentioned earlier. Resources from HQ typically take on the role of ensuring communication and co-ordination across affiliates rather than that of managing the actual implementation. The approach often has a strong ability to mobilise affiliates; however, it should be evaluated against the risk of less control, speed/ momentum and consistency.
04. Ensuring a successful implementation With the right approach in place, the process of ensuring a successful performance improvement effort needs to be nurtured from definition to implementation of the ambition. To support this, Quartz has developed a seven-step framework (se figure
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3) with each individual step paying strong respect to the fact that commercial excellence programmes essentially evolve around people. Step 1: Setting the overall ambition It is important that the overall ambition is inspiring and directional. It must serve as a beacon for top management as well as for the rest of the organisation. When developing the overall ambition, it is essential to secure commitment from the management from day one. This can be done through high involvement and a set of shared ambitions, targets, etc. Many projects fail, not due to lack of will or skills, but as a consequence of too little time invested in securing management's commitment and active governance from day one. Step 2: Diagnosis and opportunity assessment The purpose is to measure the current performance and thereby assess the relative size of the opportunity at hand. This can be done in several ways. In the case of the pharmaceutical company, key stakeholders from the affiliates and HQ were asked to evaluate their capabilities ranging from a basic to best performance level by using an online self-assessment tool. On this basis, "performance gaps" were defined and hypotheses on where to focus efforts were generated. Step 3: Setting clear targets and goals The purpose is to define overall goals per business unit, region, etc. It is vital for a successful implementation that financial impact on the business is evaluated
explicitly. Furthermore, success stories (e.g. best practice, implemented tools) should be used for mobilising internal and external stakeholders. This process will help to define the actual scope and direction of the programme. Step 4: Driving the agenda for change It is important to seek broad-based acceptance by mobilising internal stakeholders in the organisation. In too many cases, a clear understanding of what, why and how as well as an ongoing follow-up are neglected, which prevents the organisation from reaching their overall objective of achieving commercial excellence. Step 5: Setting up programme design and performance tracking The content of the programme can be derived from several sources, e.g. piloting, internal assessments, benchmarks and best practice sharing. Based on the insights generated from the process, the right levers can be derived and the coherent initiatives that constitute the programme can be developed. To ensure that the process runs optimally, objectives and plans should be communicated clearly alongside a strong anchoring of roles and responsibilities with the relevant stakeholders. Step 6: Piloting and refining the concept As some initiatives may need testing before a full-scale roll-out, it is in many cases necessary to conduct pilots. The pilots allow for the organisation to be involved in validating, adapting and refining the
Commercial Excellence concept of the initiatives thus ensuring a higher success rate when implemented. Step 7: Roll-out preparation When preparing the roll-out, the order in which the initiatives are executed must be prioritised according to ease of implementation, potential impact and business logic (e.g. project interdependencies). A follow-up modus for tracking performance during the implementation must be defined (e.g. a dashboard solution) and a plan for switching from project mode to "normal mode" must be defined including long-term targets, KPIs and frequency of performance measuring.
05. Key take-aways
from the organisation to actually change – a process often associated with fear and insecurity.
From working with commercial excellence, we have learned that commercial excellence programmes should not be regarded as: a) An isolated HQ flagship project b) A one-off solution to secure long-term excellence c) A response solely to a burning commercial platform
Commercial excellence should be seen as an approach to continuously seeking to be one step ahead of competition. Being commercially excellent is highly dependent on how high the bar has been raised by competition. As competitors close the gap or leapfrog in performance, we need to continuously track and potentially adjust to circumstances.
Whether using a top-down or bottom-up driven process, addressing commercial excellence programmes without a high degree of involvement of affiliates will often result in failure due to lack of motivation
Hence, a common misunderstanding is that the starting point for engaging in a
Figure 3: Seven steps of developing and implementing a successful commercial excellence programme Seven steps excellence process Setting the overall ambition
Diagnosis and opportunity assessment
Setting clear targets and goals
Driving agenda for change
Setting up programme design and performance tracking
Piloting and refining the concept
Roll-out preparation
High
Sales Impact
Earnings Market share
Medium
Low Low
Medium
High
X
X
X
X
X
X
KPI
Attitude
Success criteria
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• Define overall ambition that responds to external/internal challenges • Secure the management's commitment to the overall ambition
• Assess performance on key dimensions across selected affiliates • Develop hypotheses for "need" and potential upsides
• Create transparency of current performance • Develop prioritised list of initiatives • Define programme targets
• Anchor programme with senior management • Develop internal communication packages • Secure buy-in from key stakeholders
• Develop overall organisational role and key responsibilities for programme • Clarify how the programme should work with the organisation • Define initial key performance indicators for future tracking
• Develop concept and detail initiatives • Test initiatives and expected impact with selected pilots • Refine concept before roll-out
• Develop and prepare rollout plan • Initiate early preparation of involved business units/ affiliates
Commercial Excellence commercial excellence programme is a burning platform and/or a major threat to the existing business model. From our experience, no organisation, be it a market
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leader or a challenger, is excellent within all areas of their business platform.
As a consequence, commercial excellence is the vehicle of a committed management’s ambition to continuously seek to set new standards for front-end competitive edge.
Commercial Excellence 7 steps of excellence process 1. Setting the overall ambition
2. Diagnosis and opportunity assessment 3. Setting clear targets and goals
4. Driving agenda for change
5. Setting up program design and performance tracking
6. Piloting and refine concept
7. Roll-out preparation
d) Improved tools and processes across organisation Commercial Excellence programmes have Success criteria typically been implemented as functional • Define overall ambition in that responds external/internal challenge e) Improved and organisationally aligned programmes large globaltoorganisations. • Secure managements to overallbeen ambition The reason commitment for this has typically driven capabilities by the desire to reduce silo-thinking and lack of alignment between functions, goals and In order to meet these objectives several • Create common language execution – a common pitfall associated with levers can be utilized. • Assess performance on key dimensions across selected affiliates large complex organisations. Nevertheless, • Develop hypotheses for "need" Levers of excellence as the concept of commercial excellence • Create transparency of current performance programmes is highly pragmatic and • Develop prioritised list of initiatives flexible, small• Define programme targetsand midcap organisations can Firstly, securing a higher profitability in also benefit highly from it. After all it is a marketing functions can, among others, be • Anchor programme with senior management programme designed specifically to fit the obtained by implementation of customer • Develop internal communication packages context and challenge which the P&L’s, as described in the case of the global • Secure buy-in from key stakeholders organisation is facing. beverage company. However, other methods • Develop overall organisational role and key responsibilities for programme apply e.g. tools that track return on • Clarify how the programme should work with the organisation Last in this article a few questions has been investment (ROI) of marketing investments. • Define initial key performance indicators for future tracking proposed that potentially can provide more Although many organisations will argue that • Develop concept initiatives insightand intodetail whether your organisation could their ability to track media investments have Central • Test initiatives andfrom expected impact selected pilots benefit engaging in with a commercial evolved to a highRegional level - only a limited Local • Refine concept beforeprogramme. roll-out excellence number of organisations have a holistic and valid understanding of the impact of • Develop and prepare roll-out plan • Initiate early preparation of involved business units/affiliates What should we expect to gain? marketing investments or even the right metrics to support decision making.
pragmatic balance
In the quest for improved commercial performance organisations typically seek a multitude of objectives that together supports the overall goal of building excellence throughout the commercial functions of the organisation – among others these objectives are:
Continuous tracking of market share and share of voice may indicate the historic performance and a theoretical perspective on media pressure - however, it does not provide any understanding of the market dynamics - more likely it has more proved to be an internal tool for marketing executives to secure budgets.
Basically one can argue that both Quartz Strategy Consultants organisations Kohavevej 5 were seeking to find the right balance between efficiency (doing things the 2950 Vedbaek Denmark right way) and effectiveness (doing the right T: +45 70 13 38 00 things)in order to optimised commercial E: quartz@quartz.dk performance. Focusing too much on one W: quartz.dk dimension over the other, however, might a) Increased profitability work in the short term, but will have crucial Quartz Strategy in Consultants works for theSimply largest companies in the Nordic countries –transparency including the leading players in private equity. Within few years, consequences the long run – Why? b) Increased organisational Quartz has become the the second largest management consulting firm in Denmark – thanks to a combination of high professional ambitions and consultancy because doing things right way matters services that are based on a deep understanding of the customer's situation. only little if we are not doing the right things. c) Profound customer and market insights © Quartz Strategy Consultants A/S. All rights reserved
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