How rethinking commercial models can generate growth

Businesses can accelerate growth by revamping commercial models to address changing customer needs and newly acquired digital assets.

In brief

• Companies considering changing product and services offerings can put their current commercial model under the microscope to determine what is necessary to support the new vision.
• Customer prioritization, portfolio strategy and other factors may need to be considered when redesigning commercial models.
• Given current market conditions, the window to pivot the business and gain market traction is becoming shorter with little margin for error.

Under pressure to accelerate growth, many executives are rethinking their business models and addressing patchwork adjustments made during the pandemic. Selecting the right approach and the correct pace of change can improve the new model’s chances of success.

Many companies are transforming their business models by combining new digital assets with their legacy, product-focused offerings. In fact, according to the EY CEO survey 2022 , CEOs cite “developing innovative delivery systems and channels for interacting with customers” as a top source of growth for their companies during the next five years.

Commercial model evolution triggers

The shift towards seeking more resilient and agile commercial models has been driven in large part by three trends:

1. Accelerated innovation and digitization: Embrace flexible models to thrive in a dynamic economic environment and meet customers’ changing needs to keep pace with the rapid innovation and digitization of our world (product, service and data)
   
   
2. Change in monetization strategies: Shift to recurring, subscription or outcome-based revenue models to increase stability during uncertain economic times and enable opportunities to cross-sell/upsell that deepen customer relationships
   
   
3. Evolution in channels and customer engagement: Replace traditional interactions with digital methods, as the impact of “relationship selling” is waning and the customer engagement process must rely more on impersonal, yet value-added, interactions

However, few have realized the full benefits due to reliance on traditional go-to-market or commercial models, rather than developing the new model needed to succeed. For instance, companies often underestimate the complexities of moving into adjacent markets and the balancing act required to maintain strong sales for core offerings.

Transformational pursuits require executives to rethink all aspects of their commercial models — the channels, selling motions or actionable steps required to sell a product, as well as collaboration points, purchase influencer and customer sophistication. Meanwhile, the window to pivot the business and gain market traction is becoming shorter with little margin for error.

Key considerations when transforming commercial models

Reinventing an existing commercial model is challenging under the best of circumstances. The challenge is often compounded by the complexities of integrating acquisitions where the new set of products are adjacent to the core and require a different sales process. This leaves many executives wondering, “Why have my transformative efforts not produced results?” There are five key factors companies should consider to realize the value of integrated solutions (e.g., products, services and technology) versus stand-alone products:

• Portfolio strategy: Recognize what targeting new or different segments means for your product and services portfolio and how it must evolve. This requires an end-to-end portfolio review, including which new solutions could be combined to meet customer needs, which are best to offer independently and may need to be de-emphasized.

• Customer prioritization: Identify which customers are primed to adopt integrated solutions and require your focus and investments vs. which are better off with your core legacy offerings.

• Value proposition: Align your company’s and each solution’s value proposition to reflect customer needs and priorities. Also, define how to bundle and price integrated solutions rather than stand-alone so customers are clear on which benefits you will deliver and the value they will receive.

• Customer journey: Redesign your “ways of working” to align with target customers and decision-makers, as these individuals may differ from previous contacts. Decide whether it makes sense to run an integrated model that replaces aspects of the legacy sales model with new sales motions or processes or run parallel models for digital and traditional offerings. This helps commercial teams (marketing, sales, service) clarify roles, ownership and sequencing of activities and empowers them to engage with customers when, where and how they see fit.

• Talent development: Selling and supporting solutions and recurring services require different skill sets than traditional product sales. Decide which competencies are needed for your talent to succeed in the new world.

Three ways to transform commercial models

Executives often ask, “Do I really need to embark on a multiyear transformation effort to realize the promised value?” The answer can be both yes and no. Some companies successfully evolve their commercial models in different ways and time horizons, based on a careful review of the above considerations. It may be that a company’s commercial model needs to operate at two speeds, supporting two structures, or that the commercial model can leapfrog to an integrated path. Before embarking on change, companies may need to examine the scale and pace of change required.

Option 1: Amplify the new, streamline the core

The first path is a hybrid approach. Companies decide what needs to be separate vs. where they can still leverage the core enterprise “as is.” Establishing an organization focused on driving growth of new solutions, with commensurate investment, helps accelerate customer engagement and scale. In parallel, driving efficiencies in the core business helps maintain momentum and release funding sources. This bifurcated approach fits best when specific customer segments demand sophisticated, integrated solutions, while the needs of other proven or established segments are largely met by core legacy offerings.

For example, a major industrial company pursued this dual approach as it expanded from volume-based offerings to more sophisticated, data-centric and service-focused solution. The company changed how it segmented customers and tiered accounts and mapped offerings to match these groups. This led to realignment of the salesforce and prioritization of service levels, achieving significant cost savings in the legacy business and redeploying capital to new high-growth solutions.

Option 2: Incubate, then scale  

A second path is to carve out the selected solutions, such as products, services and technology, that can provide the most long-term value, then build the sales motions and methodically tailor go-to-market strategy around this offering subset. If the approach gains significant traction, companies can roll it out more broadly. If the incubated offering disrupts a market and gains accelerated share, a broader business can quickly follow.

For example, a Fortune 500 industrial automation provider evolved from simply manufacturing “widgets” to offering analytics, maintenance management and manufacturing systems to optimize customers’ equipment efficiency and performance. In the early stages, it was necessary to build new capabilities like customer success, sales motions and incentives separately, which helped sustain the business’s growth trajectory. As the company planned for integration, it refined the combined solution portfolio it was selling, upskilled customer-facing personnel, realigned sales compensation and enhanced varied support capabilities, among other changes.

Option 3: Big bang transformation

The third path entails a radical transformation across the organization, quickly integrating offerings and shifting the customer engagement model across segments. Some companies are unable to change incrementally due to cultural inertia, others want to transform their image for investors, and many have ambitions of exponential growth but realize they must “rip off the Band-Aid” to capture the high-paced growth potential.

In one example, an automotive company acquired numerous software and software-as-a-service (SaaS) businesses to help customers purchase and move cars but also to give the company tools to sell, manage, service and maintain vehicles. It needed to quickly pivot this business to gain market traction and stay ahead of competitors. By embarking on a radical transformation, reorganizing around solution families and what to sell to whom, the company gained an early advantage.

Adapt your model rather than fearing failure

Pursuing growth by integrating traditional offerings with new services and digital assets is an increasingly attractive option that requires evolving a company’s commercial model. Some executives never try, afraid of the challenge to both reinvent the business and maintain continuity with core offerings. Of those that do, many companies often fail to adapt and realize the full potential of change.

Lack of focused action leads to missed opportunities and often loss of competitive advantage. However, companies can capture value by transforming the right components of the commercial model at the right time and to the right degree, based on an organization’s ambition, market opportunity and customer base.

Michael Anders, Rudy Colberg, Jared Selsberg and Juhi Gupta contributed to this article.