How to Evolve Organizational Models to Navigate Manufacturing's Shifts?

Welcome to this month's newsletter dedicated to sharing best practices observed among leading manufacturers in managing their commercial excellence. This month, I'll address a question that several industrialists have posed in recent weeks: What organizational model is most suitable in the face of major economic challenges, starting with the acceleration of digitalization, or the need to monetize sustainable offerings? Knowing how to answer this question leads to exceptional results, as evidenced by recent events such as Koch Industries announcing a record ’23 year ever despite decreasing markets and Holcim achieving a 5% growth in a declining market, and despite the high carbon content of its products, although they are perceived as more advanced in sustainability.

Moreover, it's noteworthy that employees often experience greater job satisfaction when their efforts result in significant outcomes.

To achieve this, there is no one-size-fits-all organizational model. However, leaders can make choices that foster ecosystems conducive to increasing organizational maturity and resilience.

How to optimize it ????

Let's illustrate this with the example of designing a pricing organization. A recent pricing conference in Barcelona clearly showed that companies crossing certain maturity thresholds generate surplus value, while others struggle to do so.

When it comes to implementing such changes, six key decisions in pricing organizations can help optimize efforts effectively:

1.???? ?? Role of the Center:

Increasingly, organizations designate the pricing function as a strategic business partner, particularly in decision-making processes related to pricing for key business activities such as new product introductions, brand positioning, and offer design

2.?????? Functional Home:

The nature of the business often determines where the pricing function resides. For industrial goods, it's often aligned with sales for efficiency and change management, or with marketing to align strategy with competitive positioning.

3.???? ?? Level of Dedication:

The degree of centralization in pricing depends on various factors such as local regulations or the fragmentation of the customer base. However, a centralized calculation logic is typically optimal, with adaptations made based on local specifics.

4.???? ?? Team Size:

Whether a small team of pricing champions or a larger team, the presence of pricing intelligence across functions like product management or key account management is crucial. The complexity and scale of the business may justify a larger pricing team, with potential significant improvements in net sales to EBITDA ratios.

5.?????? Governance:

Effective governance structures vary based on the number and impact of decisions to be made. However, cases presented at the Barcelona conference confirm that greater CEO involvement correlates with higher pricing impact.

6.???? ?? Key Skills in Pricing Org:

As the competition for top pricing talent intensifies, organizations aim to leverage dynamic pricing based on AI or utilize tools like Python and Machine Learning to measure elasticity and competitor response to price changes.

However, several pitfalls may hinder the effectiveness of pricing organizations: ??

Inappropriate Skill Mix:

Central analytical teams may lack pricing optimization skills, or vice-versa, leading to underutilization of resources.

Rigidity and Slow Decision-Making:

Fear of suboptimal decisions may lead to overly bureaucratic pricing committees, slowing down the decision-making process.

Poor Integration of Governance Decisions:

Manual calculations and processes may not effectively integrate governance decision into workflows

Limited Skill Sets:

Some teams rely on outdated pricing rules, resulting in significantly lower impact compared to organizations that continuously enhance their capabilities.

Misaligned Expectations:

Varied expectations of the pricing function can lead to discrepancies between being seen as a business partner or merely a service center, affecting bottom-line impact.

Siloed Structures: Integration Woes

Establishing a pricing ecosystem, much like in other functional areas, requires careful decision-making. From my experience, it's entirely feasible to turn this into a game-changer with effective dialogue between management and frontline teams.

Feel free to reach out to me for further discussion. You can book a meeting with me here. ????

Best Regards,

Olivier