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A new approach to help companies improve their product development and commercialization (PD&C) capabilities links PD&C to shareholder value, identifies value drivers, and enables senior management to engage in the PD&C process. The approach grows out of our experience in organizational change and capability building.
PD&C encompasses four distinct missions:
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Develop and commercialize new products and processes;
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Upgrade existing products and processes;
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Reduce costs; and
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Improve organizational PD&C capabilities.
At times, calls for better results from PD&C will prompt shifts away from mission 1 to missions 2 and 3. But we believe that management’s goal should be just the opposite: to reduce investment in missions 2 and 3 and reinvest in mission 1.
Identifying value drivers
We have developed a new diagnostic tool that enables management to link PD&C value drivers with shareholder value creation for any specific project or portfolio of projects. In order fully to understand the impact of PD&C on shareholder value, a company needs to review its past success rate, the net present value of success, and development costs and cycle times (Exhibit 1). Analysis reveals that leverage points vary by industry, and sometimes defy conventional wisdom (Exhibit 2).
For some companies, it will be important to increase the value of a success (Exhibit 3). Other companies with similar PD&C performance might have very different value drivers and priorities, however. By linking potential shareholder value and PD&C, our diagnostic provides senior management with sound fact-based analysis to fuel the conviction they will need to drive a powerful change program.
Organizational change
The approach then utilizes these quantitative goals as the basis for a major organizational change effort. The scope of the change program can be tailored to each situation, but can be quite ambitious, including building capabilities, creating the right environment, and designing business and management processes. The approach has already been used in several companies to achieve quantum improvements. 
About the Authors
William J. Emptage and Patrick B. Walsh are consultants in McKinsey’s Minneapolis office. Pantelis A. Georgiadis and David W. Summa are consultants in the Chicago office.