Commercial Management and Investible Units

We have high hurdles to get R&D prototypes into commercialization+. You must show evidence to a jury of your peers that your product can be commercialized at peak annual sales you claim. Success in this trial (often) gives your product passage into commercialization and immediate revenue to your project team. The corporation buys the right to commercialize your product. A guilty verdict is failure: the corporation most likely will not purchase your pre-commercial prototype and it does not graduate into commercialization (although you are free to find a buyer on the open market).

The game plan for our R&D teams is to graduate pre-commercial products (i.e., prototypes) into commercialization. Commercialization refers to all activities required to take an R&D prototype and make it ready for the marketplace. In pre-commercial products often many technical design features are yet to be finalized. For example, in the pharmaceutical industry we often do not have the optimal manufacturing process (route), form (liquid, powder, etc.), formulation (tablet, injectible) or packaging of the product. The markets and distribution channels have not yet been finalized. Regulatory approvals may not have been obtained.

Much energy is expended on defining the demarcation between prototype and commercialization: when is a prototype ready for commercialization activities? The throw-away term used in World Class R&D is Evidence of Commercialization (EOC). At what point is there enough evidence that the prototype can be commercialized subject to the industry’s expected profit margins. As should be clear, it’s not just the physical characteristics of the prototype that define this point: it’s the market. We decide at a point in time to move a prototype into commercialization based on an assessment of future market conditions and our ability to position this physical product (and its extensions) in that market.

Commercial Management refers to all the activities leading up to graduation+ of pre-commercial products into commercialization. Products routinely fail during commercialization. Commercial Management refers to activities that make late stage failures much less likely. Individuals involved in commercialization ‘reach back’ into pre-commercial activities; individuals who build the prototypes stay involved in the commercial activities. Although the demarcation is fluid, the decision to graduate products is fixed. Parties on both sides of the line want assurances their interests are being taken into account at the point of decision.

R&D prototypes are sold at graduation. This sale is typically contingent on future success. The seller will stick around to ensure the buyer nurtures the product to its fullest potential. The buyer works with the seller prior to the sale to ensure the prototype is designed so it can reach its fullest potential. On both sides of this transaction, individuals are fully informed of the efforts of the other party. So this is not a simple buyer-seller transaction. Sellers seeks buyers best at nurturing their prototype. Buyers pay more to sellers who do their best to ensure success at commercialization.

Home Page May 2010