Creating Profitable Opportunities in a Commodity Business (Case Study)
Challenges
Executives of this Fortune 100 company faced a challenge: drive growth and increase margins in a fiercely competitive commodity business. Should their main emphasis be on reducing costs or growing through innovation?
The Chief Technology Officer (CTO) strongly supported growth through innovation. However, he needed to convince senior management, who questioned the need for additional R&D. How could he and his staff better identify promising opportunities? How could they convince senior management? Once projects were in the pipeline, how could they focus resources on those tasks that would create the highest value?
Solution
The CTO turned to “Value-Based Management” after hearing about the process at an industry conference. He piloted the process in a series of workshops where cross-functional teams, led by SmartOrg, developed graphic value maps of several projects using Decision Advisor® software. The software evaluated the maps and provided on-the-spot results.
“The transparent process and real-time evaluation engaged everyone in the decision-making process. We openly discussed issues and agreed on project value, risks and uncertainties. No black box!” (Chief Technology Officer) After deploying SmartOrg processes and software, the company made significant progress as illustrated by the examples below.
Turning Around a Stalled Project
The project leader was frustrated. Her project had reached a crucial point in the development process. The project team was unable to agree on how best to proceed. Progress had stalled. To open discussion, the leader convened a Decision Advisor workshop. Project team members, working together, quickly identified and agreed on the most valuable areas to apply their efforts. The project leader and her team revised the plan, refocused their efforts and met the deadline for a successful launch.
Improving Stage Gate™
Performance
Within a year following deployment of Value-Based Management processes and software, the company analyzed roughly 30 projects, representing about half of their portfolio. Project leaders reported significant improvement in the flow through the Stage Gate “funnel” because they were able to identify and kill losers much earlier in the process. Projects that remain in the funnel have a much higher probability of creating— or exceeding—forecast value.
Improving Portfolio Value
The SmartOrg process enables project leaders to address technical hurdles with the highest risk early in the development process. The cumulative impact of this risk-management strategy on portfolio performance has been “enormous” says the CTO. The company believes they improved their investment productivity by over 100% within a 12-month period. “However you look at it, we have substantially reduced wasted effort and significantly improved profits—not bad for a commodity business,” says a company executive.