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:

1. Develop and commercialize new products and processes;
2. Upgrade existing products and processes;
3. Reduce costs; and
4. 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...