Imagine you are CEO of your company for a day. Once you’ve gotten used to the view from the corner office and enjoyed your first sip of coffee in a fine porcelain cup, where will you focus your time?
Probably one key area will be product strategy. Without top-class products, your company will soon go out of business. So whilst a real-life CEO would obviously have a thousand and one things on which to focus, you might well spend at least part of your day in this area. And perhaps you might start by having a discussion with your team about the 4 Valleys chart below.
- On the vertical side, it shows the lead times for product development
- On the horizontal side, it shows the length of product cycles
Let’s say that you are a Napa Valley type of company. It is characterised by long lead times, just like most pharmaceutical or chemical companies. They have to invest large amounts of cash in R&D and manufacturing, and have no way of knowing at the outset whether the gamble will pay off. Of course, you will hope for a major success – a superb vintage in Napa Valley terms. But sometimes, as in wine-making, problems can occur right at the last moment.
Let’s say that’s your problem today? Now you have some hard decisions. Your project head is still sure everything will work out, but needs more time and money to have a second attempt. However you’ve invested a lot of money on the project, and your CFO is getting difficult calls from investors and the banks; they want to know what’s happening. To top it off, your investor relations head is hearing that a major competitor is preparing a hostile bid – they smell blood in the water and see a chance to get their hands on your company on the cheap.
How would you react?
Would you back your project head and find the cash from somewhere, even if it meant cutting costs and letting good people go in other areas? Would you implement a ‘bet the company’ strategy and plan to sell off a core part of your existing business, as a way of funding the bigger opportunity? Or would you take the first steps towards cancelling the project, by instigating a major review to see if it still made sense to continue?
Tough decisions, all of them.
Many people in your team will get upset, possibly very upset, whatever you do. There is, of course, no “right answer” to the decision you’ve made today. The commercial world is quite unlike the scientific world in this respect. Instead there are various shades of grey. Good CEOs simply have to learn to live with high levels of uncertainty, over an extended time frame. However things go, you’ll certainly feel you’ve earned your pay for the day when you go home.
In another post, I’ll look at what might happen if you were CEO in another type of business:
- ‘Silicon Valley’, where a few weeks’ delay can mean the difference between rags and riches
- ‘Happy Valley’, where lead times are short, but then the product seems to sell forever
- ‘Death Valley’, where it takes so long to develop the product, that the market has disappeared before it launches
Paul Hodges is chairman of International eChem (www.iec.eu.com), trusted advisers to the chemical industry and its investment community. He is a member of the World Economic Forum’s Industrial Council on chemicals, advanced materials and biotechnology, and presents the ACS ‘Chemistry & the Economy’ webinars.