commercial excellence 4.0 winning through client …...and cross-functional decision-making. •...

Commercial Excellence 4.0Winning through client service innovation October 2019

1. Executive summary...............................................................................................52. A new reality..................................................................................................................63. Strategic choices to take.........................................................................84. Actionplanforfirst100days........................................................12Contacts...........................................................................................................................................15Contributors..............................................................................................................................15

Contents

Inthepast,productleadershipandsuperiorcostefficiencywereclearpaths to success. But the rules have changedandthenewgenerationofcompetitiveadvantagesareaboutsuperior commercial execution: ultra-fastdecision-makingbasedonautomatedanalytics;growthdrivenbymicro-segmentationandhighlycustomisedofferings;andinnovativeservicesdeliveredbyanecosystemofconnectedassetsandplatforms.

In this environment companies must invest in their commercial capabilities to stay competitive. But manyleadersareoverwhelmedbythepaceofchangeandthemultitudeofoptions.

Deloitte’s Commercial Excellence 4.0 framework helps clients to structure anapproachandmakestrategicchoices, focusing on what truly matters to their customers.

1. Executive summary

Until now, companies could rely on two traditional competitive positions: product leadership or cost leadership. Superior product attributes, based on steady innovation, provided differentiated value propositions which permitted higher margins.

Cost leadership, on the other hand, was achieved by systematically streamlining all major business processes and implementing ‘lean’ methods across functions and geographies.

Today these strategies, although still important as a base discipline, are no longer sufficient to drive growth and profits. It has become more difficult to win in the market on product innovation alone because commoditisation now happens very rapidly and any advantage lasts only for the short term. Equally, the efficiency levels achieved by many firms are now considerably higher and further cost cuts would jeopardise the ability to grow.

Where can companies invest to develop the next generation of competitive advantage? Our experience shows that the best returns can be realised from superior commercial execution in combination with smart applications of digital technology. Leading companies have already started investing heavily in such capabilities across their profit model, networks and customer engagement. But how can companies decide which capabilities to build and which technologies to invest in?

Deloitte developed the Commercial Excellence 4.0 framework to provide a pragmatic toolkit. By following the framework, companies are guided through a cascade of choices. They choose in particular between one of three commercial excellence archetypes. These are ‘winning formulas’ which we have observed in use among our most successful clients.

We believe that a successful commercial transformation is a well-prepared journey. To kick-start this journey, we designed a 100 day action plan for leaders, naming four objectives to be reached.

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Commercial Excellence 4.0 | Winning through client service innovation

2. A new reality

Thereisevidencetosuggestthatstrategiesbasedpurelyonproductleadershiporcostleadershipareincreasinglystrugglingtodrivegrowthandprofits.Inthissection,welookatwhythishashappenedandhowcompaniescanseektodevelopcompetitiveadvantageselsewhere.Why are traditional competitive strategies not working any more? • High levels of operational efficiency attained:

Manycompanieshavefocusedheavilyon cost optimisation via Operational Excellence (OpEx) to create a competitive advantage.Thescopetocutcostfurtherislimitedthough–doingsomightjeopardisetheabilitytogrow.Afterfourdecadesoflearningandimplementations,85percent4 of companies now have a permanent OpExteam.Otherdatahighlighthowwidespreadthisknowledgeis:thereare3+ million professionals with a six sigma blackbeltcertificate5, which is the highest internationallyacceptedprofessionalcertificateinthefield. • Disruption of traditional value chains:

Newcompetitorsarefloodingmanyestablishedmarkets,takingadvantageofdigitalbusinessmodels,globalisationandderegulation3. • Accelerated commoditisation:Manyindustriesareexperiencinganacceleratedpaceofproductcommoditisation.Aspatentsrunout,competitorsquicklymoveinwith‘goodenough’versionsoftheoriginalproduct.Oneexampleisthechemicalsindustrywherecommoditisationhasrapidlydrivendownprices2. • Difficulty of monetising product innovation:

A look at the performance of large cap biopharma companies between 2010 and2018illustratesthedifficultyreachingpreviously-realisedratesofreturn(seeFigure 1). The average investment to take anassettolaunchalmostdoubledwhileforecastaveragesalesroughlyhalved.

Ø investment to take an asset to launch ($b)

Forecast Ø sales per asset ($m)

Figure 1: Averageinvestmentandforecastsalesperassetof12largecapbiopharma companies, 2010-20181

1 Evolving the product launch paradigm, Deloitte 20182 The chemical multiverse 4.0, Deloitte 20173 Digital disruption – Short fuse, big bang?, Deloitte 201241000respondentsacrossindustriesandgeographies,BTOESsurvey20185ResearchbasedonLinkedInprofileswithcertification,Deloitte2019

0.5

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1.3 1.31.4

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816

702

551

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400443

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2010 2011 2012 2013 2014 2015 201820172017

2010 2011 2012 2013 2014 2015 201820172016

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Commercial Excellence 4.0 |Winning through client service innovation

Where do companies invest to develop the next generation of competitive advantages?Executives are increasingly looking to their commercialanddigitalleadersandgivingthemthetaskofdevelopingdifferentiatingcapabilities.Datacollectionanddatamanagement are emerging as the long-term enablers of success. The ability to connectinternalandexternalinformationseamlessly will enable organisations to reach another level of performance.

Examples of commercial capability investments: • Customer intimacy:Companiesaremergingdispersedinformation to create a single source of truth, or 360° customer view. The goal is to get a holistic picture of the customer experienceandconsumptionacrosslayersofchannelpartners(closedloop)andacrosscommunicationplatforms(singlebrandexperience).Marketingbudgetsareshiftingtowardscustomerexperienceteams6.

• Advanced customer analytics:Companiesareinvestingindatainfrastructure,architectureandanalyticstools.Theobjectiveistoprovideaccurateandreal-timedataanalysistoenablefastandcross-functionaldecision-making.

• Human-to-human (H2H) marketing:ThedifferencebetweenB2BandB2ChasbecomeblurredascustomersexpectB2Cservice levels in B2B settings. More than 50 per cent of professional buyers are now under35yearsoldandareaccustomedtoconvenient online shopping7. The general benchmark for customer experience hasbeenliftedbythelikesofNetflix(trust-enablingofferdesign)andAmazon(seamless customer service).

6 The CMO bar rises with more pressure for growth, Forrester 20187 Online survey of nearly 3000 German sales managers, Deloitte 20188 Deloitte Innovation Survey, Deloitte 2018

Which new commercial capabilities? And which technologies?Thepaceofchangeandthewealthofoptions overwhelms many companies. Thisisevident,giventhedifferentdirectionsin which we see our customers moving andthedifferentapproachestheytaketobuildingnewcommercialcapabilities.

AsDeloitte’srecentinnovationstudyshowed,companiesinvestandinnovateon multiple commercial fronts in parallel: 85%changetheirprofitmodel,78%buildcooperation networks, 76% alter customer engagement. Equally, they invest in or will sooninvestindifferenttechnologies:95%dataanalytics,85%internetofthings,85%artificialintelligence(compareFigure2).

Asaconsequence,wefindthatmanycompaniesareconfusedaboutwhichdirectiontheircommercialtransformationshouldtakeandwhoisinthelead.

Figure 2: Primaryareasofinnovationandinvestment8

By topic

By technology

WeinvestedinthepasttwoyearsWe plan to invest in the next two yearsNot investing

Currently innovatingNot innovating

Profit model (How money is earned)

85% 15% 78% 22%

Network(Cooperation to create value)

76% 24%

Customer engagement(Forecasting customer interaction)

Data analytics

69% 5%

26%

Internet of things

53% 15%

32%

Artificial intelligence

43% 15%

42%

Deloitte believes that winning companies take strategicchoicesandprovidetheirorganisationswith a clear transformation focus. Summarising what wehaveobservedworkingbest for our clients, we developedtheCommercialExcellence 4.0 framework.

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3. Strategic choices to take

DeloittedevelopedtheCommercialExcellence4.0frameworktoprovidecompanieswithapragmatictoolkit.Weputtheemphasisonstrategy(strategicchoicecascade)anddata(Industry4.0concept).

Figure 3: CommercialExcellence4.0layersandcascadeofquestions

The five guiding principles are: 1. Establishthedirectlinkbetweencorporatestrategyandcommercialexcellenceviaacascadeofchoices

2. Chooseoneofthreecommercialexcellencearchetypestoensuretheentireorganisationisalignedandfocused

3. Communicatecommercialtransformationobjectivesconsistentlyandcompellingly

4. Designandoperationalisedigitalandanalyticssolutionstoenableadata-drivenculture

5. Createaccountabilityforimprovementsviathebusinesscase,definedleadingKPIs,andcontinuousmeasurement andrewardingofsuccess

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Exec

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Theframeworkconsistsofeightlayerswithcorrespondingquestions(seeFigure3).

Cascade of questions

Purpose & Vision • What will be our contribution to society? • Whatwillwehaveachieved,bywhen?

Strategy • What is our growth ambition, in which markets? • Whatdifferentiatesus?Whatgivesus‘therighttowin’?

Commercial Excellence Archetype

• Whicharchetypeofcommercialexcellenceisbestsuitedtohelpusachieveourstrategy?

Efficiency&effectiveness,Customercentricity,orServiceinnovation

Key target outcome • What is the single most important target of the commercial transformation?

Value drivers & related KPIs

• Which levers will we improve to reach the target? • Howwillwemeasureandcommunicatesuccess?

Central Digital & Analytics enablers

• Whichdigital&analyticsenablerswillbecentraltooursolution?

Performancemanagementsystem,Closed-loopcustomerinsightssystem,orBusiness ecosystem

Critical capabilities • Which3-5mostimportantcapabilitiesmustwebuildorimprove?

Business case & financial benefits

• What is the business case which forms the basis of the transformation’s sponsorship? • Whichfinancialbenefitscanweexpect?

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Acriticaldecisionpointistheselectionofoneofthreecommercialexcellencearchetypes.Archetypesarethe‘winningformulas’ofcommercialcapability-buildingbasedonDeloitte’sexperiencewithleadingclients.Thesetypesoftransformationsweresuccessfulbecauseoftheirrelentlessfocusonawell-definedsetofobjectivesandenablingcapabilities.Webelievecompaniesshouldchooseonearchetypeatatimetoguidetheorganisationasawhole.Thisdoesnotprohibitsimultaneousinnovationinotherareas,butfocusestheentirebusinessonsharedoveralltransformation goals.Belowwedescribeeachofthearchetypesandsharethefullframework(seeFigure4).

Archetype A: Efficiency & effectiveness

Whenitcomestocommercialdecision-making,manycompaniesdonotfollowadata-drivenapproach:theycontinuetorelyon‘art’and‘intuition’ratherthan‘science’.In contrast, companies that follow this archetypearesetuptodriveefficiencyandeffectivenessthroughtherigoroususeofdata.Efficiencycomesfromreachingdecisionswithlesseffort:fastpreparationofinsights,avoidanceofreworking,seamlesscross-functionalcoordination,etc.Effectiveness,ontheotherhand,comesfromavoidingunder-orover-servingcustomers:inotherwords,accurateexecutionofthecustomer engagement strategy.

Themainobjectiveistoimproveprofitability.Typically,themostimpactfulvaluedriversarecampaigns,salesproductivity,pricingeffectiveness,andforecasting accuracy. The central enabler is a performance management system: technologyplatformsandanalyticstoolswhichallownewwaysoffast,data-drivendecision-makingacrosstheorganisation.Critical enabling capabilities are typically the go-to-market (GTM) strategy, the salesorganisation(includingincentives),customer relationship management (CRM), andtheunderlyingdataarchitecture.Onaveragethebenefitsamounttoa3-8percent EBIT margin improvement9.

Examplesincludeprescriptivealgorithmsthathelpdefinecustomerpaymentstrategies,dynamicsalesforcedeploymentstrategies that optimise customer coverage,andintegratedbusinessplanningtoreducewrite-offsandmissedsalesopportunities.

Archetype B: Customer centricity

Leadingcompaniesofthisarchetypeusepersonalisedanddynamiccustomersegmentation.Theyputinplacededicatedcross-functional insights teams who are responsible for orchestrating customer dataanddefiningthevaluepropositions.Theymeetorexceedcustomerexpectations at every interaction, thereby improvingcustomerloyaltyandbuildingclose relationships.

Theobjectivehereistomaximisegrowthintheselectedcustomersegments.Thedriversofimprovementareup-orcross-selling, customer loyalty, omni-channel management,andofferpersonalisation.Internallyandexternallyconnectedtechnologyplatformsallowadeepunderstandingoftheneedsandattitudesofthebuyer,centrallyavailableinaclosed-loop customer insights system. Critical capabilitiesare360°customerview,dataprivacymanagement(incl.GDPR),artificialintelligence,and(rapid)offerdevelopment.Companies that focus on customer centricity have seen growth premiums of 5-15 percentage points9.

Anexampleistheuseofartificialintelligencetosupportup-sellingandpersonalisationofoffersonthebasisofpast interactions. Another example is Deloitte’s PatientConnect™ which creates a360°patientviewforthebenefitofstakeholdersinthehealthcaresystem.

Archetype C: Service innovation

In this archetype, companies use their superiorunderstandingofcustomerneedsandproductapplicationstocreatevaluebeyondthecurrentoffering.Serviceinnovation transforms the business modelbybuildinganetworkofstrategicpartnershipsandorchestratingadynamicecosystemofoffers.Companiescanachieve superior competitive positions as they lock in customers (raising switching costs)andbuildeffectivebarrierstoentry.

The target is to improve enterprise value, using the principles of venture capitalfirms.Driversarebrandvalue,timetomarket,co-creation,anddatamonetisation.Commercialleadersmustspurentrepreneurialism,andagility&designthinking.Othercriticalenablersaredata&analyticsandpartnering.Successfulcompanies see their valuation move into a higher P/E bracket, typically 2-3x the value ofpureproductmanufacturers9.

Examplesincludedatamonetisationinpharmaenablingperformance-basedpricingandsoftwarecompanies’platform-basedsoftwaredevelopmentanddistributionapproach,e.g.Apple’s App Store ®.

9 FinancialbenefitsbasedonDeloitteprojectexperienceandliteratureresearch

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Figure 4: Deloitte Commercial Excellence 4.0 Framework

Stra

tegy

Exec

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A B

Purpose and Vision

Strategy

Commercial Excellence Archetype Efficiency & effectiveness Revenue growth Service innovation

Key target outcome Profitability Revenue growth Enterprise value


Campaigneffectiveness Salesproductivity Up-/cross-selling Customer loyalty Brandvalue Time to market

Pricingeffectiveness Forecasting accuracy Omni-channel management Offerpersonalisation Co-creation Data monetisation

Central Digital & Analytics Enablers Performance management system Closed-loopcustomer

insights systemPlatform-driven

business ecosystem

Critical capabilitiesGTM strategy Sales organisation 360o customer view Data privacy incl. GDPR Enterpreneurialism Agile&designthinking

CRM tool Enterprise architecture Artificialintelligence Offerdevelopment Data&analytics Partnering


EBIT margin increase:

3-8 p.p.

Revenue growth increase:

5-15 p.p.

Price to earnings ratio:

2-3 x

10


CB

Purpose and Vision

Strategy

Commercial Excellence Archetype Efficiency & effectiveness Revenue growth Service innovation

Key target outcome Profitability Revenue growth Enterprise value


Campaigneffectiveness Salesproductivity Up-/cross-selling Customer loyalty Brandvalue Time to market

Pricingeffectiveness Forecasting accuracy Omni-channel management Offerpersonalisation Co-creation Data monetisation

Central Digital & Analytics Enablers Performance management system Closed-loopcustomer

insights systemPlatform-driven

business ecosystem

Critical capabilitiesGTM strategy Sales organisation 360o customer view Data privacy incl. GDPR Enterpreneurialism Agile&designthinking

CRM tool Enterprise architecture Artificialintelligence Offerdevelopment Data&analytics Partnering


EBIT margin increase:

3-8 p.p.

Revenue growth increase:

5-15 p.p.

Price to earnings ratio:

2-3 x

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4. Actionplanforfirst100days

Buildingnewcommercialcapabilitiesisnoteasy:aDeloittestudyfoundthat68percentoftransformationprogrammesdonotfinishontimeoronbudget10. To kick-start thetransformationtoadata-drivencommercialorganisationinasuccessfulway,leadersshouldconsiderour100-dayactionplan,whichfocusesonfoursteps.

Decidewhointheexecutiveteamwillownthecommercial transformation. Companies regularly struggletodecide:CMO,CDO,orthemarkets?Ourviewisthattheownershouldbepartoftheexecutiveteam.ConsideranExecutiveTransitionLabtopreparetheleaderforthetask.

Ourviewisthatcompaniesshouldonlyinvestincapabilitieswhichbuildcompetitiveadvantageaccordingtostrategy.ConsidertheservicesofMonitor Deloitte strategy consulting to learn from the‘winningformulas’wehaveobservedacrossourclientbaseandtostructureyourapproach.

Gainoutside-inperspectivesbyexposingyourselftoleadingindustriesandgeographies.ConsidermeetinginnovationleadersduringacustomisedLearningJourneyorganisedbyDeloitte’sCenterfortheEdge.Softwarecompanies,forexample,offergreat learning opportunities as they generally have themostadvancedcommercialcapabilities;Chinaisanideallearninggroundtoexplorefast-paced,mobile-firstoffers.

Engageyourcompany’sleadersbyjointlydefiningthevaluedriversandahigh-levelbusinesscase,andagreeingonhowsuccesswillbemeasured.Deloitte’sanalyticsinstitutecanprovidethetoolstomeasuretheKPIsinanautomatedway.

#1 #2

#3 #4Outside-inperspective

Ownership Focus

Engagement

10 Reinvent for value – Stories of transformational journeys, Deloitte 2018

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Notes

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Notes

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Contact us

Gabriele VanoliPartner, Deloitte Switzerland Email: [email protected] Tel: +41 79 579 9331

Barri FalkPartner, Deloitte Switzerland Email: [email protected] Tel: +41 79 579 9331

Nico KleynPartner, Deloitte Switzerland Email: [email protected]: +41 79 737 3707

Wolfram von EhrenDirector, Deloitte Switzerland Email: [email protected]: +41 79 654 0077

Roman BoogManager, Deloitte SwitzerlandEmail: [email protected]: +41 79 635 2841

Contributors

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Commercial Excellence 4.0 | Winning through client service innovation Commercial Excellence 4.0 | Winning through client service innovation

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