THE
SALES
GROWTH IMPERATIVE
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THE
SALES
GROWTH IMPERATIVE
How World Class Sales Organizations Successfully Manage the Four Stages of Growth
David J. Cichelli
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Copyright © 2011 by David J. Cichelli. All rights reserved. Except as permitted under the United States Copyright Act of 1976, no part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written permission of the publisher. ISBN: 978-0-07-174235-1 MHID: 0-07-174235-2 The material in this eBook also appears in the print version of this title: ISBN: 978-0-07-173903-0, MHID: 0-07-173903-3. All trademarks are trademarks of their respective owners. Rather than put a trademark symbol after every occurrence of a trademarked name, we use names in an editorial fashion only, and to the benefit of the trademark owner, with no intention of infringement of the trademark. Where such designations appear in this book, they have been printed with initial caps. McGraw-Hill eBooks are available at special quantity discounts to use as premiums and sales promotions, or for use in corporate training programs. To contact a representative please e-mail us at
[email protected]. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that neither the author nor the publisher are engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. —From a Declaration of Principles Jointly Adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations TERMS OF USE This is a copyrighted work and The McGraw-Hill Companies, Inc. (“McGrawHill”) and its licensors reserve all rights in and to the work. Use of this work is subject to these terms. Except as permitted under the Copyright Act of 1976 and the right to store and retrieve one copy of the work, you may not decompile, disassemble, reverse engineer, reproduce, modify, create derivative works based upon, transmit, distribute, disseminate, sell, publish or sublicense the work or any part of it without McGrawHill’s prior consent. You may use the work for your own noncommercial and personal use; any other use of the work is strictly prohibited. Your right to use the work may be terminated if you fail to comply with these terms. THE WORK IS PROVIDED “AS IS.” McGRAW-HILL AND ITS LICENSORS MAKE NO GUARANTEES OR WARRANTIES AS TO THE ACCURACY, ADEQUACY OR COMPLETENESS OF OR RESULTS TO BE OBTAINED FROM USING THE WORK, INCLUDING ANY INFORMATION THAT CAN BE ACCESSED THROUGH THE WORK VIA HYPERLINK OR OTHERWISE, AND EXPRESSLY DISCLAIM ANY WARRANTY, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. McGraw-Hill and its licensors do not warrant or guarantee that the functions contained in the work will meet your requirements or that its operation will be uninterrupted or error free. Neither McGraw-Hill nor its licensors shall be liable to you or anyone else for any inaccuracy, error or omission, regardless of cause, in the work or for any damages resulting therefrom. McGraw-Hill has no responsibility for the content of any information accessed through the work. Under no circumstances shall McGraw-Hill and/or its licensors be liable for any indirect, incidental, special, punitive, consequential or similar damages that result from the use of or inability to use the work, even if any of them has been advised of the possibility of such damages. This limitation of liability shall apply to any claim or cause whatsoever whether such claim or cause arises in contract, tort or otherwise.
Contents Preface
vii
Acknowledgments xi PART 1
Sales Growth Challenges 1 CHAPTER
1
The Sales Growth Imperative 3 CHAPTER
2
How Sales Departments Function 11 CHAPTER
3
Sales Growth Drives Sales-Effectiveness Solutions 36 CHAPTER
4
Sales Growth Phases—How Others Participate 51
PART 2
Sales-Effectiveness Solutions 61 CHAPTER
5
Sales Leadership 63 CHAPTER
6
Opportunity Segments 81 v
vi
Contents
7
CHAPTER
Coverage Design 99
8
CHAPTER
Customer Contact Continuum 115
9
CHAPTER
Job Design and Organization Structure 133 CHAPTER
10
Resource Deployment 154 CHAPTER
11
Sales Talent and Management 178 CHAPTER
12
Productivity Metrics 202 CHAPTER
13
Performance Management and Compensation 219 CHAPTER
14
Sales Operations and Technologies 240
PART 3
Keeping the Sales Force Current 259 CHAPTER
15
Sales Force Transformation 261 CHAPTER
16
Annual Strategic Sales Plan 269
Index
287
Preface Let’s start with a simple and obvious question: Why another book on sales effectiveness? If you are a student of sales management practices, as I am, you most likely have a bookshelf containing sales readings of all flavors and varieties. Yet, as you read and listen to sales-effectiveness advocates, you come away wondering, “Did I miss something?” Even the highly recommended, latest, most popular writings and products leave you scratching your head. “Why is this not clicking for me? Why are the solutions I need not jumping off the page? How come I feel that the writer does not really understand the unique nature of my sales organization?” Further confusion occurs when one highly regarded author seems to obliviously contradict another highly touted sales guru. We, the students, are lost. Some popular thinkers are “sales motivators.” Others believe in the discipline of the selling process. Some admonish sales leaders for not being customerfocused or solution-oriented. There is the automation camp, which seeks to make virtual all things involving sales. And don’t forget the accountability/measurement tribe, the compensation troopers, or the skills and training faction. They, too, and others have solutions to improving sales force effectiveness. Are any of the “solutions” offered by these advocates bad? No. Surprisingly, they are all appropriate to one degree or another. However, the dilemma is in knowing which solutions to use and when. You will find the answer to this dilemma in The Sales Growth Imperative.
SALES DEPARTMENTS MUST GROW REVENUES The Sales Growth Imperative begins and ends with a presumed corporate mandate for the sales function: grow revenues. There is no ambiguity to the outcome—increased sales revenue. The challenge is “how.” Like any other corporate function, sales organizations pursue a strategy using a defined structure and applying management practices. But the choices vii
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Preface
and approaches are endless. Poor decisions regarding any component— strategy, structure, or management—can be painfully costly to the company. Sales leaders “are on the hook” to achieve revenue objectives. However, as The Sales Growth Imperative reveals, the right solutions depend on the growth stage of the industry and company. What works during the Start-Up Phase will not work, for example, when the core product hits market saturation. So the missing ingredient to making good sales leadership decisions is “growth rate.” Frankly, this is not a new concept. Others have provided ample information about how companies move through growth phases. What we present here, which is unique, is an up-close look at the sales department’s journey through these phases. The result provides a road map for managing sales departments as they begin, scale up, mature, and reinvent themselves.
TWO CONSTRUCTS The Sales Growth Imperative uses two primary constructs: the Sales Management System and the Sales Growth Phases. The Sales Management System provides a complete framework for all functions within the sales department, including leadership, segments, coverage, contact continuum, organization design and jobs, resource deployment, sales talent and management, productivity metrics, performance management, compensation, sales operations, and technologies. We bring these well-known sales-effectiveness competencies together in an easy-to-follow format. The Sales Growth Phases describe the four phases of growth—Start-Up, Volume Growth, Re-Evaluation, and Optimization. These four growth phases present typical and predictable challenges to sales force effectiveness consistent with different rates of growth. The Sales Growth Imperative brings these two constructs together to suggest which solutions work best during each phase of growth.
HOW THIS BOOK IS ORGANIZED The Sales Growth Imperative is divided into three major parts: •
•
Chapters 1 through 4—Sales Growth Challenges. These initial chapters provide the following: Present the need for sales growth, give an overview of sales organizations, introduce the Sales Management System, and describe the Sales Growth Phases. Chapters 5 through 14—Sales Effectiveness Solutions. Each of these chapters, starting with Chapter 5 and ending with Chapter 14, addresses one of the 10 sales management competencies presented in the Sales Management
Preface
•
ix
System. We offer sales-effectiveness solutions by each phase of growth— Start-Up, Volume Growth, Re-Evaluation, and Optimization. Chapters 15 and 16—Keeping the Sales Force Current. Chapter 15, “Sales Force Transformation,” suggests how to upgrade an obsolete sales function. And Chapter 16, “Annual Strategic Sales Plan,” describes the tools necessary to help keep a sales organization healthy on a year-to-year basis.
The Sales Growth Imperative presents the fundamentals of effective sales management and then defines the circumstances under which you should use the multitude of sales-effectiveness solutions.
TIDY BUT NOT PERFECT The Sales Growth Imperative goes a long way to clarifying how to manage a successful sales department through different phases of growth. We solve most of the confusion about which sales management solutions to use and when. The book handily addresses the inexplicable conflicts that stalk the sales management profession by simply placing the conflicting solutions within the context of the growth rate of the company. But the model is not perfect. There are many instances in which the suggested solutions may not be the right choice, given a company’s unique characteristics. Instead, sales leaders and corporate executives should read this book as a travel guide of sales management practices and not as a prescriptive cookbook. The primary takeaway from this book is that sales departments must grow revenue, and they will use different sales solutions depending on the growth rate of the company.
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Acknowledgments The art and science of effective sales management are deep with principles and practices. Over the years, many thoughtful sales leaders, authors, scholars, field practitioners, consultants, and vendors have contributed to this wide and diverse body of knowledge. This book rests on these cumulative efforts and is indebted to those who have contributed to advancing professional sales management competencies. The Sales Growth Imperative is our attempt to provide a unified framework to correctly select and apply these sales-effectiveness practices. Our clients are our instructors. With more than 25 years of working with innovative world class sales teams, our clients continue to challenge us to help make them better. While our clients represent all industries from all parts of the globe, they all have one thing in common: the need to improve sales growth performance from their sales teams. From our clients, we have learned that most “sales solutions” work, but they work only in select situations. The constructs and practices described in this book are the day-to-day solutions we provide to our clients. They are the outcome of testing and retesting the ideas and techniques that earned their credibility through actual sales force applications. This work contains many of the sales-effectiveness solutions created by The Alexander Group’s consultants. Like its clients, our consultants don’t believe in prescribed solutions. Instead, they listen carefully to the challenges facing their clients and jointly create sales improvement solutions that fit each client’s unique situation. Each client relationship and each project contribute a tested solution to our understanding of what works and what does not work. This book reflects the summation of thousands of client engagements where clients relentlessly seek to improve sales force outcomes. The Alexander Group is fortunate to have exceptional thought leaders in sales management topics. Gary Tubridy has contributed leading ideas to sales coverage, quotas, sales time, and sales metrics. Marc Metzner has broadened our thinking about sales channels and sales force transformation. Jim Stifler has excelled in providing deeper understanding into sales measurement choices. Mark Donnolo, formerly of The Alexander Group, gave us our first edition xi
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of the Sales Management System. And, similarly, Jerry Colletti did formative work with the sales strategy matrix. Special thanks to my partners, Gary Tubridy and Robert Conti, for their continued support and encouragement. Finally, I wish to extend my appreciation to Lori Feuer, who, as my editor here at The Alexander Group, helped me create the book you are now reading. Lori was ably supported by Nance Walz.
THE
SALES
GROWTH IMPERATIVE
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•
PART
1
•
Sales Growth Challenges
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•
ONE
•
The Sales Growth Imperative Senior management expects sales departments to deliver year-over-year sales revenue growth. Expanding wealth creation derives from higher sales. Owners expect expanding wealth creation. A sales force is accountable for this revenue growth.
WHY GROW? This book promotes a simple premise: For a business to be successful, it must grow; and for it to grow successfully, it needs an effective sales force. For the vast majority of business entities, great products and services cannot create expanding wealth unless there is revenue growth driven by effective selling. However, before accepting the sales growth solutions offered in this book, we need to challenge two assumptions: First, why must commercial entities grow? And second, why is a sales force necessary? Driven by ambition and accomplishment, human endeavor and capitalism provide a rewarding outcome in the form of wealth creation. By adding the word “expanding” to the phrase “wealth creation”—expanding wealth creation—you establish the imperative for continuous revenue growth, which is the founding charter of all sales forces. Consider the alternative: no revenue growth and therefore no expanding wealth creation. To accept no revenue growth, current operations must successfully satiate current and future wealth requirements of the owner. Consider these rhetorical questions from the “no-growth” family business owner: “Why grow? Things are pretty good where they are right now! If we spend money on growth, we could waste both our time and profits and worse, maybe lose it all.” Sounds like something a sole proprietor would say to the next generation of family members eager to grow the family business. However, the math is irrefutable. Without additional revenue growth, there is not enough wealth to share with the next generation of owners. Here is the situation: The business must grow or it will fail. Beyond the realm of family business owners lay the majority of business entities. These small and midsize companies borrow money and hire 3
4
The Sales Growth Imperative
ambitious talent to create wealth for the owners and employees. These constituents expect expanding wealth. Without revenue growth, expanding wealth is not possible. Finally, large companies exist in highly competitive environments. Lack of growth leaves these companies vulnerable to business failures, including less than competitive products, promotion, distribution, and pricing. Needless to say, it’s not greed that drives growth in these enterprises, but survival. However, not all businesses need to grow. Some might have a very narrow purpose. An example might help to illuminate. For generations, one family has won the bid—over and over again—to provide ferry service between an upscale residential island and the commercial district in a wealthy area. The family uses the money to pay for operations and summer jobs for the children. The remaining profits are set aside to pay for college educations. There is no need to grow to increase wealth. The financial need of the children for each generation remains manageable. Even with normal, albeit modest, price increases, the price level is so low that the family keeps competitive control over the ferry service generation after generation. The family’s limited need for expanding wealth reduces the need for aggressive and risky revenue growth that would inevitably raise costs and thus raise prices. These higher prices would put the ferry contract in competitive jeopardy. Why risk it? Other industries may not have the luxury of growing. In mature markets, the customers’ needs are flat—not growing. Current vendors are fully meeting customer needs and thus no growth opportunity exists unless at a competitor’s expense. The only means to gain competitive market share is to reduce prices or wait for a competitor misstep. Further reduction in pricing might not be an option. And competitor missteps may occur only infrequently. In such a situation, growth remains tethered to the buying needs of the customers. Finally, some commodity markets dictate consumption. For firms in these markets, sales growth is subordinate to cost management and productivity improvement.
Shareholders’ Expectations Shareholders of publicly traded companies expect a return on their investments. Sales revenue growth drives economic value for shareholders. Those who purchase shares during public offerings provide working capital for the corporation. The purchase price reflects a presumption by the new shareholder of an expected return on these invested dollars. The shareholder is making a bet on earning a competitive rate of return through payments of profits in the form of dividends or the resale value of the stock. Well-constructed executive compensation packages use stock, or stock-valued incentives, to align the
The Sales Growth Imperative
5
interest of the executive team with that of the shareholders. What’s good for the shareholders should be good for the leadership team and vice versa. The financial well-being of a company drives the market value of its stock. A convenient and neutral arbiter of a company’s value is the secondary resale market for its shares—the stock market. For most companies, it’s a simple formula: the larger and more profitable the enterprise, the higher the stock price. While stocks as an asset class will compete for investment dollars, causing ups and downs in market value, a company’s relative movements within its market provide a pretty good assessment of how well management is increasing shareholder value. Conveniently, the stock market also provides an assessment of future prospects, too. The better the prospects for the company, the higher the market price of a stock. Three variables drive investor assessment: size, profitability, and growth rate. Without growth, a company cannot realize increasing size and, in most instances, future profits. Investors will accept a lower growth rate for substantial dividend payments. However, this assumes that the company can maintain profitable pricing without sales loss to the competition. For the most part, this seems only possible in regulated or near-monopoly markets where management has ensured pricing. In most other cases, the only means to increase shareholder value is to increase size and profits through growth. Setting aside mergers and acquisitions and new products, the sales department has the obligation to drive “organic” growth. This solidifies the sales department’s true north: sales growth.
Employee Expectations Why would employees care about expanding wealth creation? Talented employees expect career and personal income growth. Without the investments provided by wealth creation, the organization would become stagnant. Employees would soon find that there was “no future” in working for the company. One of the primary risks to any company failing to provide growth for its employees is an exodus of ambitious personnel. While the negative impact of this exodus might not be readily apparent at first, over time the declining quality of personnel would soon threaten the ability of the company to respond to competitive threats or shifts in market practices.
But Why Do We Need a Sales Department? Sales forces typically occupy a very prominent role in commercial enterprises. In a sense, we almost take them for granted. In fact, we marvel at companies that can scale up without sales entities. They seem so unusual. For example, businesses built around social networking and viral communities seem to have an almost unlimited supply of customers all acquired without the use of a sales department. However, if you look closer, every commercial business
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The Sales Growth Imperative
entity requires three customer contact protocols to create wealth: access, persuade, and fulfill. But not all enterprises need a sales department. However, even those without sales departments still must access, persuade, and fulfill. For example, your local grocery store—without a sales force—successfully employs all three of these elements in its business model. “Access” is store location. “Persuasion” is weekly advertising and in-store promotions. “Fulfillment” is the stocked shelves and checkout lines. Even our viral companies need to use this model to achieve economic gain. It’s much easier to grasp this concept if you think of the “community” as the product. The Internet company accumulates a community. The community is the product. The real customers are the advertisers. Locating advertisers is the access part of the equation. Securing advertisers is the persuasion component, and paid click-throughs are the fulfillment element. As expected, many viral community owners use sales people to sell advertising. But not every commercial enterprise needs a sales force. A sales force is unnecessary when the customers already have a need for the product and they view the purchase as a low-risk decision. In these cases, the enterprise simply needs to provide product availability. Later, we discuss how rising customer knowledge can lower customer uncertainty, thus potentially reducing the need for high-priced sellers. However, most business-to-business (B2B) commercial enterprises need sales people to help with all or parts of the customer contact protocols of access, persuade, and fulfill.
SALES DEPARTMENTS: THEIR CHARTER, LEGACY, AND FOLKLORE No question about it: The sales function elicits divergent views. Some observers are major advocates of the sales function. They see successful selling as a key to improving company revenue. They promote the interests of the sales department. They celebrate the sales department’s success. They advance the political interests of the sales organization. They celebrate seller-driven customer acquisition. They view talented sellers as company assets eligible for well-earned rewards and acclaim. You might find these attitudes in companies that rely on sales personnel to differentiate their products, particularly in commodity or free-trade sectors. Also, if the company is in rapid growth, an aggressive sales force will help accelerate market share growth thus earning the respect and appreciation of senior management and the workforce in general. Then, there is the alternative, darker view of the sales function. In this world, the sales department is a necessary evil. Sales personnel are expensive
The Sales Growth Imperative
7
and of low utility. For example, product inventors believe that the company’s value resides in the creative and market-making nature of the product and should not need sellers. Elsewhere, finance is unhappy with the amount of money spent on the sales department. Product managers complain about the degree of sales support they get from the sales function. Customer service and fulfillment specialists have disdain for the unrealistic customer commitments made by the sales force. In a worse-case scenario, there is open hostility to the sales department. You might find this distasteful condition in companies that are suffering revenue declines. There are many suspects to accuse during any period of revenue decline, including the very visible and accountable sales department.
REVENUE GROWTH—NOT YOUR MEASURE? Most companies use revenue growth as their primary measure of sales success. Some industries use other “size” measures to record growth. For example, the wholesale/distribution industry focuses on gross margin dollar growth. Some sectors of the financial services market measure asset growth—on which they earn fees. Select parts of the electronic components market measure design specification wins as measures of sales success. Some industries have little influence over pricing, and organizations in these industries tend to use “units sold” as their growth measure. Other industries fortunate enough to have accurate data, use market share information to gauge the sales force’s relative success. At the individual performer level, more specific measures of sales success will reflect the influencing role of sales personnel. Regardless, sales departments have an ongoing responsibility to “add” new revenue—or, gross margin, assets, design wins, units, or market share—to increase available profits that contribute to expanding wealth creation.
Serving Two Masters Sales departments serve two masters: product divisions and customers. These two independent groups define the sales department’s value proposition— that is, increase customer value by accomplishing the product division’s sales objectives. Buyers, competitors, and regulators will affect the preferred sales approach. And specific sales actions will need to pass the tests of other internal sublords such as finance, human relations (HR), information technology (IT), and legal. But the sales department’s charter is clear. To internal resources, the sales department needs to be the vocal advocate for the customers. To external
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The Sales Growth Imperative
customers, the sales department needs to promote the product divisions’ value propositions. This dual accountability creates great challenges for a sales organization. To illustrate, consider two ships at sea. The first ship is the product division. The second ship is the customer. The sales department, acting like a supply line linking these two ships, copes with the turbulent seas as it attempts to sustain alignment between the two ships. When successful, the sales department is in “alignment” with buyer preferences and product manager needs. When not in alignment, a sales department will fail to sell products or meet customer needs. Driven by changes occurring at the product divisions and with the customers, sales departments must continuously adapt in order to successfully maintain optimum alignment.
WORDING CONVENTION: “PRODUCTS” VERSUS “SERVICES” Companies provide different types of value to customers. Some sell tangible products like computers; others provide nonphysical services such as financial instruments. And, still others provide a hybrid offering of both tangible and intangible solutions. This book accommodates all the different types of value, including products, services, and combined solutions. Throughout the book, we refer collectively to all these variations as products.
Access, Persuade, and Fulfill Successful customer coverage requires three customer contact competencies: access, persuade, and fulfill. Access is the art and science of locating potential customers. Persuasion is the process of moving a customer from being a nonbuyer to a buyer. And fulfillment provides the services and products as purchased by the customer. These contact competencies act as descriptors to help define various customer contact methods. The division of responsibility for these three competencies varies widely. In some cases, field marketing is responsible for locating potential customers. Or the salesperson is responsible for locating and signing new customers. In this instance we might call the salespeople new account sellers or “hunters.” Likewise, if a salesperson has access, persuade, and after-the-sale fulfillment support, we call them generalists. Finally, when the salespeople are responsible only for fulfillment, we refer to their jobs as customer care.
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The combination of these three competencies—access, persuade, and fulfill—specifies the configuration of numerous and different types of sales and customer service jobs.
Direct and Indirect Channels A “sales channel” is a sales pathway to customers. A “direct” channel sells company-created products to end users. The end user does not resell or reconfigure the product for sale to any third party. A B2B direct sales force will have titles such as account manager, territory representative, global account manager, national account manager, and others. A team of pre- and postsales specialists might support these direct sales personnel. An “indirect” sales channel is a method to promote products and services to end users by one or more third parties. There are many types of indirect channels, including agents, wholesalers, distributors, retailers, and numerous types of partners. With an indirect channel, there are normally two sales forces. The first sales force sells for the product creator to channel partners and might help with downstream end-user demand creation. Titles for this job include channel manager or partner executive. The second set of sellers works for the channel partners. Channel partners will have their own sales force calling on end users or other subordinate channel partners. Some indirect channel partners create and add value to the final product. Others simply fulfill without adding any product value. As we will discover, while the “path” for direct and indirect channels differs, the objective remains the same: Grow revenue.
Dedication to Revenue Growth The sales departments must grow revenue. From its inception, senior management gives sales leadership the mandate to grow top-line revenue. All future wealth creation stems from revenue growth. This at-birth charter gives the sales department its purpose: provide incremental revenue growth year over year over year. As we will learn later, this blind growth imperative might lead to conflicting objectives and potentially detrimental efforts by the sales department. But, for the time being, we will accept that the unquestioned mission of a sales function is to grow revenues. Some would say that sales departments have no other mission.
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The Sales Growth Imperative
THE SEARCH FOR GROWTH Sales success measures what a sales department actually achieves as compared to what it can achieve. If there is a shortfall—that is, actual sales growth is behind expected sales growth—then a sales department must examine what it’s doing wrong in order to improve sales outcomes. Sales leaders must challenge themselves to find new and improved methods to fully optimize the available market potential. This book suggests the right sales-effectiveness solutions at the right time.
•
TWO
•
How Sales Departments Function Sales departments are complex, changing entities. They differ in their application given the industry, size of company, types of products, sales complexity, and channels employed. However, regardless of their circumstances, sales departments share a common set of competencies as described by the Sales Management SystemTM a comprehensive sales-effectiveness framework.
SEARCHING FOR THE UNIVERSAL SALES MANAGEMENT MODEL First let us define sales effectiveness. It describes the degree of seller alignment between the company’s product ambitions and the buyers’ needs. The outcome of an effective alignment is to improve customers’ outcomes and, at the same time, grow company profits. Is sales effectiveness a situational competency? That is, are the best solutions a function of the industry, size of company, types of products, sales complexity, and sales channels employed? Some would argue that no one model can explain how sales departments work or explain why one sales entity is successful and another is not. Let’s examine these factors and see how they affect sales management practices.
Industry Consider several different industries: aerospace components, pharmaceuticals, consumer packaged goods, and commercial banking. What’s true about the sales forces supporting these industries? Do the sales forces of these disparate industries have anything in common? On the surface, not much. •
Aerospace component manufacturers—such as avionics and flight-deck controls—sell into the “programs” of aircraft manufacturers throughout the world, including North America, Europe, Brazil, and areas of emerging opportunities in Asia. Sales cycles are long, production runs are shallow, and long-term maintenance contracts follow the life of the product. 11
12 •
•
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The Sales Growth Imperative
Pharmaceutical representatives call on general practitioners, clinical specialists, hospital pharmacies, insurance companies, and health-care service organizations. Sales management might organize pharmaceutical representatives by geography, types of doctors, types of buyers, and even size of accounts. Pharmaceutical representatives do not sell to doctors; they influence doctors to prescribe medications. In this case, doctors are not the end-user buyers; patients and their insurance companies are. On the other hand, some pharmaceutical sales representatives make direct sales to central buyers at dispensing clinics and hospitals. Consumer packaged goods salespeople work with their channel partners. These partners might be major or minor retailers or independent brokers. Sales management might assign consumer packaged goods sellers to a retailer’s headquarters or perhaps to a geographic territory calling on retail outlets. Selling consumer packaged goods places a high emphasis on placement, promotion, and order fulfillment. Finally, commercial bankers selling bank services to major accounts employ a different sales model. These “calling officers” maintain ongoing relationships with customers, who will have periodic needs for bank products. Additional sales are available by increasing the number of service offerings the bank provides; this is known as cross-selling. In such cases, sales management assigns sellers to named accounts where they develop long-term relationships with the key stakeholders.
The differences don’t stop with these industries. Every industry has different requirements for its sales personnel.
Size of Company Managing a small sales force clearly differs from managing a large sales force. A small sales force of fewer than 10 sales representatives will not have the extensive management requirements of the sales force of 1,000 sales representatives. Most sales management activities of a small sales force focus on supervising individual sellers and supporting sales opportunities. On the other hand, large sales organizations have to devote a significant amount of time to resource allocation decisions, managerial infrastructure, and reporting systems. It’s hard to imagine how the sales leadership activities of large sales organizations are similar to the sales leadership requirements of small sales organizations.
Types of Products Another distinguishing characteristic affecting the management of sales departments is the types of products sold. For example, some organizations sell tangible, manufactured products. The features and benefits of the products play an important role in buyers’ purchasing preferences. Order fulfillment and ongoing servicing of the product could be important elements of the value proposition, too.
How Sales Departments Function
13
Selling services—nontangible products—require a different type of selling modality. Many services are ongoing. As a result, service management is a large part of the value proposition. Selling a hybrid solution that includes both products and services presents an even greater sales challenge. In such cases, sales management must deploy multiple people in the selling process. For example, there may be an account manager supported by an overlay product and a service team. Each of these product types has its own unique challenges and preferred selling methods.
Sales Complexity Often, sales force complexity and size are highly correlated, but this is not always the case. Some very large sales entities are relatively simple, such as multilevel marketing organizations; whereas, some small sales entities may have many diverse selling roles. However, in most cases, as sales force size increases, so does sales force complexity, thus requiring greater sales management oversight.
Channels Employed Finally, the sales channels employed provide the basis for stark variances among sales organizations. Selling skills and managerial competencies vary substantially between direct and indirect channels. Direct sellers need highly tuned skills to sell to end users. On the other hand, different and just as challenging are the skills needed to sell through channel partners. For example, knowing how to manage partners, over whom the company does not have direct control, presents its own unique challenges. Further, not all indirect channel partners are alike. Sales management methods employed are different for different channel types such as OEMs (original equipment manufacturers), VARs (value-added resellers), retailers, catalogs, agents, distributors, and wholesalers. With all these factors affecting sales effectiveness, one would assume that it’s almost impossible to identify a single solution for achieving sales success. We will show you that this is a false assumption. In fact, we will demonstrate that successful sales entities conduct their affairs in a very similar and predictable manner independent of these distinguishing factors.
THE GOALS OF ALL SALES DEPARTMENTS Regardless of the nature of the product and the types of channels employed, all sales departments share similar goals. These goals are: •
Grow revenue. A sales department’s first and foremost objective is to grow revenue. Expanding economic wealth requires selling resources to locate and close added sales revenue from new and existing customers.
14 •
•
•
•
•
The Sales Growth Imperative
Manage costs. Sales departments need to grow revenue while controlling expenses. The return on investments (ROIs) of sales hold the sales department accountable for securing revenue in a cost-effective manner. Secure profitable revenue. In most instances, aside from start-up investments, sales personnel need to strive to ensure sales results that produce profitable outcomes for the company by securing the right volume, pricing, product mix, and terms. Engage customers in a manner consistent with the values of the company. Sales resources need to present the company’s products and services in a manner that represents the company’s stated market position and company ethos. Manage sales and support talent within company guidelines. Sales management needs to employ management methods that treat employees in a manner compliant with the company’s human resource policies. Conduct affairs of the company in a legal manner. Finally, as with all employees, sales personnel need to conduct the affairs of the company in a lawful fashion.
All well-run sales entities follow these principles as they pursue company commercial interests.
WHY SALESPEOPLE? Any sales job includes one or more of the following tasks: locating customers, presenting the company’s value proposition, securing a purchase commitment, and helping with aftersale support. While these tasks represent job content, the primary purpose of sales personnel is to increase customers’ buying confidence so that they’ll purchase the company’s products. Sales persuasion involves educating customers on how the company’s products and services provide value and how this value is worth the purchase price. Ultimately, selling is about promoting value and reducing purchase risk through buyer education.
SALES MANAGEMENT SYSTEM™ Although the tools of sales effectiveness will vary depending on the sales conditions presented above, exceptional sales management outcomes share a uniform set of competencies. The Sales Management System (see Figure 2-1) presents these competencies. Sales leadership provides the governance and accountability. The eight sales management pillars articulate the key elements of a successful sales organization. Sales Operations and Technologies provide the foundation support for sales leadership and the eight sales-effectiveness pillars. The definition of these competencies follows.
How Sales Departments Function
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Figure 2-1 Sales Management System
Sales Leadership Sales leadership occupies the highest position in the Sales Management System. While often thought of as an individual, such as the vice president of sales, it’s a much more encompassing concept than a specific job role. A better analogy is to think of sales leadership as the sales department’s “guidance” system. Sales leadership provides clarity of direction and meaning to actions. Its importance is easily underestimated. Here are the four key components of a leadership system: 1. Provide an ambitious destination. Sales leadership’s first and foremost task is to provide a goal—an objective to achieve. Effective sales leaders know how to select and promote ambitious bold goals. These goals provide a mission—a purpose, a meaning—for all within the sales department. The destination provides the rationale for all strategy decisions. 2. Allocate and apply resources. There are many avenues but limited resources to reach a destination. The second role of sales leadership is to allocate and apply these limited resources. In simple terms, it’s answering the question, “Who should do what, where, when, and with what tools?” Often, there are more solutions than monies to spend. While most solutions are workable, not all solutions work well together. Sales leadership vets these solutions and assigns them to responsible parties. 3. Solicit and secure commitments. Successful human endeavor requires commitment from those contributing to the solution. Sales leadership has the charter to solicit and secure commitments from sales department personnel, support departments, and partners to achieve sales goals by excelling in their assigned role. Sales leaders can employ various sales
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The Sales Growth Imperative
management styles to attain shared commitment from both those within the sales function and those outside the sales department. 4. Measure outcomes for improvement. Finally, sales leadership must measure performance to ensure progress toward goal accomplishment. Best practices encourage the use of “continuous improvement” measurement systems that adjust resources so that sales objectives may be better achieved. Sales leadership retains its key perch in the Sales Management System by providing direction to all facets of the sales organization through these leadership levers—goals, resources, commitments, and measurement.
The Three Major Competencies The Sales Management System divides sales effectiveness into three major competencies.
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Strategy. Strategy represents the forward-looking responsibilities of the sales function. In its simplest formulation, it answers two questions: (1) Who are the target customers? (2) Who should call on them? In the hierarchy of accountability, the sales function is a service entity for the product divisions. The product divisions, which create, fund, and produce the products, look to the sales department for sales success. Sales segmentation is the process of determining the right types of customers for particular products. And sales coverage specifies who is responsible for calling on these customers. Structure. The structure defines the allocation of resources into roles. The most common visualization of structure is an organization chart. However, the organization chart is only part of the answer. Flowing through organizational boxes are the customer contact processes that provide the movement of actions that translate sales opportunities into paying customers. Providing the right staffing levels to realize the market opportunities helps ensure an effective ROI. Management. Management contains the most visible elements of the Sales Management System including recruitment, training, supervision, measurement, quotas, and sales compensation.
THE EIGHT PILLARS Each of the eight pillars specifies a unique set of competencies. These competencies transcend industries, company size, products, complexity, and channels
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employed. In subsequent chapters, we will learn how and when to select the right sales-effectiveness solutions to meet current sales challenges.
Pillar 1: Opportunity Segments Opportunity Segments group customers into numerous salesaddressable buyer populations. For strategy and analytical purposes, an opportunity segment always includes three elements: products, buyers, and a sales channel. Each opportunity segment offers some degree of revenue growth opportunity. However, not all segments are of equal value. In some cases, sales management may not have resources to support all opportunity segments. Or the ROI for the segment is too shallow to dedicate selling efforts to it. Sales management and product divisions jointly make resource allocation decisions about all the identified opportunity segments. The outcome will result in sales resources being allocated to the preferred opportunity segments, while other segments will have limited or unassigned selling resources. Sales management defines opportunity segments differently from how marketing professionals define market segments. A market segment is a marketing concept normally describing macro opportunities. Marketing professionals use market segments to judge market size, share, and potential. Skilled marketing talent also knows how to break these market segments into more finite categories for forecasting purposes and perhaps sales messaging as well. While all sales organizations have at least one opportunity segment, larger, more complex sales departments will exploit diverse and numerous segments. There are three types of opportunity segments: product priority, customer priority, and channel priority: •
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Product priority segments A product priority segment places the product features at the pinnacle of the opportunity segment value proposition. Engineering-based companies will frequently promote an innovative product as a solution. In such cases, the sales function is primarily responsible for presenting the product to potential buyers. An exceptional product might actually reduce the need for sales promotion efforts. Certainly, product visionaries will feel this way if their product represents a technical breakthrough. Customer priority segments A customer priority segment begins with customer needs. In such segments, knowing customer needs will define product solutions. A keen insight into customer requirements gathered through either research or effective sales discovery methodologies is necessary for success
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in these types of sales segments. Sales talent needs sales messages and advanced sales methodologies to support customer-centric selling. Channel priority segments A channel priority segment places the channel requirements at the top of the opportunity segment. Channel priority segments underscore the importance of the sales channel. Without customer access provided by the sales channel, the company has little opportunity to sell to target customers. For some indirect sales channels, the channel partner will specify the types of products it will sell. Since the channel partner most likely controls customer access, the suppliers need to conform to the channel partner’s specifications. These same “channel” expectations occur in direct channels when sellers request new or different product features to meet customer needs.
Opportunity segment characteristics drive sales solutions. Opportunity segments provide the basis for sales organization planning and direction. Opportunity segments are the “headwater” of every sales organization. Done well, defining, assessing, and provisioning sales resources against opportunity segments is the essence of effective sales strategy planning.
Pillar 2: Coverage Design Sales Coverage Design defines the go-to-market strategy of the sales department. The coverage model specifies sales accountabilities for each opportunity segment. Effectiveness and costs play a role in determining which resources will cover which segments. In some instances, direct sales channels will serve some customers best, while indirect channels will serve other customers better. And, the choices multiply when considering a Web channel, telephone channel, and independent agents. A sales coverage “checkerboard” helps to display the channel coverage choices, as shown in Figure 2-2.
Figure 2-2 Sales Coverage Checkerboard
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Figure 2-3 Complex Sales Coverage Checkerboard
In Figure 2-2, the geographic territory representative is handling all segments of and all steps in the sales process. A more complex model, shown in Figure 2-3, would display various channel resources. Several factors affect sales channel coverage choices: •
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Customer access. The most important factor affecting coverage selection is customer access. Being able to reach customers is the hallmark of an effective channel. As expected, the right coverage mix might be a combination of various channels: direct, VARs, distributors, and telesales. Costs. The cost to reach the customers is a key consideration when making sales coverage decisions. For direct channels, sales costs include compensation, benefits, facilities, IT support, supervision, and training. For indirect channels, sales costs include commissions paid to agents or discounts offered to distributors, field oversight, training, promotional material, and marketing support. Cost per order dollar (CPOD) provides an apples-to-apples comparison among various channel resources. Effectiveness. The effectiveness of the sales channel determines the success rate, including revenue growth, close rates, revenue penetration, and account retention. The relative sales effectiveness of each channel will have cost-impact and market-share implications. Customer control. The degree of customer control will affect channel decisions. If the company seeks high-value, long-term buying commitments from customers, then a direct sales force offers better customer control. However, if the company does not seek, or need, high customer control, then partners can provide sales and service solutions to customers. Interestingly, some producers require that their indirect channel partners facilitate a close customer connection with the factory to provide customer support and ensure long-term customer loyalty to the producer. Seller control. The final factor affecting channel selection is the degree of control over the channel members. Direct sales personnel are more accountable to their employers than are indirect channel personnel.
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The Sales Growth Imperative
Some companies prefer to have much greater sales control of their sellers and therefore prefer a direct sales channel. Others find that the benefits of indirect channels, such as lower costs, more access, and less customer service issues, outweigh the benefits of high seller control aspects of a direct sales channel. As with a direct sales force, an indirect channel—a third party—must be recruited, trained, managed, and compensated. When companies have numerous sales channels, sales management must exercise care not to create overt channel conflict among the sellers where two or more sellers are competing for the same business. Sales leadership needs to provide “rules of channel engagement” to clarify customer accountabilities. Finally, sales management must work closely with product management to ensure that all products have channel coverage so that the sales goals of the product divisions can be met.
Pillar 3: Customer Contact Continuum The Customer Contact Continuum specifies all the various actions, including all customer contact points, internal activities, and systems, used to turn a nonbuyer into a satisfied customer; and, hopefully—if the product warrants—a returning customer. The customer contact continuum is an all-inclusive construct. In a small company, it’s easy to identify each of the contact points and internal actions, but in large, complex entities, there are many parties involved in addition to the sellers. There are many diverse and numerous departments contributing to some part of the customer contact continuum. For example, methods to handle returns belong within the context of the total sales process, as are procedures to address late and nonpayments. In large companies, these functions might not be a part of the sales department. However, they constitute the inclusive extension of the overall customer contact continuum. Business Process Management (BPM) provides the tools to dissect, measure, improve step-by-step business processes, and reallocate resources when necessary. While organization accountability defines responsibilities, process mapping gives a complete picture of all activities and touch points. Advanced process metrics provide the data for continuous improvement. Figure 2-4 provides a simple example of process mapping. The following provides a brief overview of how each element of sales process—access, persuade, and fulfill—contributes to sales success: •
Access. Access includes all methods used to locate qualified customers. Various methods are available to gain customer access: advertising, cold calling, referrals, partner access, trade shows, Internet, telephone, and
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Figure 2-4 Sales Process Map
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others. The access method selected is determined by cost, yield, and customer expectations. Persuade. Persuade encompasses all the actions from purchase considerations to close. Figure 2-4 features a sales person helping (persuading) the customer to reach a buy conclusion. However, for some sales channels, the customer makes the buy decision without the aid of a sales person such as online purchases or purchases at a retail store. Normally, sales personnel have high utility for the following situations: high-risk purchases, buyer uncertainty, product and value education, unique pricing, and complex contracts. Fulfill. Finally, during the fulfillment stage, the company gets the product or service to the customer. In some cases, the sales person might be responsible for fulfillment, but in most cases, a separate group such as customer service or an engagement team provides fulfillment. If purchases continue, the sales person might provide additional customer service support to address out-of-the ordinary occurrences, new pricing, or help with new purchases. Finally, in some cases, customers complete the fulfillment step without any assistance such as retail stores with self-checkout.
It’s convenient to use these three large categories of access, persuade, and fulfill to help group different types of processes. Each category has many solutions and competencies. Not all will be appropriate for all segments. This observation confirms that not all sales management solutions work in all situations. As expected, the sales process is the summation of all the customer interactions plus all the behind-the-scenes actions necessary to complete a successful transaction. While most segments use the same process solutions, many do not. In other words, sales management carefully crafts the sales process for each distinct opportunity segment. Sales planners combine similar customer contact continuum actions into a common framework to ensure low cost and a uniform treatment. However, when an opportunity segment needs a dissimilar customer contact continuum, then sales management must provide dedicated resources
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The Sales Growth Imperative
to address these unique requirements. Regardless, it’s best for multiple opportunity segments to share the same customer contact resources when feasible. The effectiveness of any initial resource allocation decision is not always apparent; however, the outcome is always revealing. Some decisions will prove effective, and others will prove otherwise.
Pillar 4: Job Design and Organization Structure Once sales management identifies the steps, actions, and processes of the customer contact continuum, then sales leadership configures the organization chart with jobs and reporting relationships (“boxes” and “wires”) to assign accountabilities. Sales jobs have many configurations. Sales jobs fall into six categories: •
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Income producers. Income producers occupy a rare outpost of the selling world. Many operate as independent business entities. Others may work for companies, but still exert a strong degree of independence. Their value is customer access and control. Examples include real estate agents, life insurance salespeople, traders, mortgage originators, independent manufacturing representatives, financial advisors, and any other selling resource that owns a “book of business.” These individuals’ worth is a function of their client base. Companies will hire (or partner) with producers to gain new customers. Direct sales jobs. Direct sellers promote the company’s products to a customer population. The customer is the end user of the product without further sales to others. Jobs such as key account managers, account executives, territory representatives, outbound sales, and telesales are examples of direct sales. These are expensive sales resources that must show a return on investment to justify the role and its staffing levels. Indirect sales jobs. People in indirect sales jobs work with partners, who then promote or provide the product or service to the end user. In some cases, they sell to downstream channel partners, who then in turn sell to the end user. Channel partners come in many variations. For example, channel partners include retail outlets, systems integrators, original equipment manufacturers (OEMs), value-added resellers (VARs), distributors, wholesalers, catalog companies, and others. The role of the channel sales representative, who works for the manufacturer (underwriter or service provider), is to help the channel partners sell successfully to their end-user or downstream channel partners. This effort includes recruiting, developing, and managing channel members. In some cases, the channel representatives who work for the
How Sales Departments Function
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manufacturer might even call on end users and then refer opportunities to a channel partner. Overlay specialists. Overlay specialists work with the existing sales force. They provide added focus to a product or market area. Overlay specialists often help with opportunities when the existing account manager needs advanced selling competencies either by product or market type. Business development. Business development resources work with intermediaries to influence those who will make the final purchase decision. They don’t take orders or provide fulfillment. Instead they work with others who will affect end-user purchases. For example, HVAC (heating, ventilation, and air-conditioning) business development specialists from the HVAC manufacturers will meet with architects to encourage the architects to convince their clients to select the company’s HVAC system for their commercial building or home. Likewise, pharmaceutical representatives call on prescribing doctors to influence the doctors to prescribe their product so the patient will make the purchase at a pharmacy. Pre- and postsales support. While not technically sales representatives, preand postsales support jobs provide technical support prior to purchase or installation and training support after the sale. They may have both responsibilities. Pre- and postsales support personnel may or may not report to the field sales organization, but they do work closely with the sellers. The presales jobs have titles such as sales engineer, field application engineer, or assessment specialist. The postsales support model might use titles such as installation specialist, merchandiser, trainer, or fulfillment representative.
Sales Organization Design Sales leadership can configure sales organizations in a variety of ways. The nature of the opportunity segments is the driving factor affecting the selection of sales organization structures. Some of the common models are as follows: •
Geographic sales organization. A geographic sales organization divides accounts by geographic location. This approach assumes that all accounts are similar and that optimizing account logistics drives organization design. Depending on the number of accounts, sales management might further divide management responsibilities into regions, areas, districts, and branches.
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The Sales Growth Imperative
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Stratified sales organization. The stratified sales organization divides selling resources based on the size of accounts. This approach recognizes that value propositions vary by customer size. For example, the company may provide extra pricing flexibility for large customers. In some cases, sales management might assign small customers to telephone or Web solutions. Product sales organization. Product sales organizations group sellers by product type. This assumes that the buyers for products differ. This approach allows highly skilled product sellers to focus only on those customers who have an interest in a specific product. Vertical market sales organization. Another model for sales organization design is the vertical markets sales entity where sales resources focus on specific vertical industries, such as automotive, telecom, and financial services. In addition, many sales organizations use some combination of the above. These hybrid models require rules of engagement to avoid channel conflict and account poaching.
Pillar 5: Resource Deployment Resource Deployment allocates head count to achieve the highest sales ROI. The challenge here is to provide the right level of sales resources that foster growth but in a cost-effective manner. Making decisions about staffing levels or adding channel partners is driven by segment potential, sales expense allocation, and expected sales yield. Several factors affect staffing and partner decisions. These factors interplay with each other providing numerous resource deployment scenario choices—some better than others. •
Market size. The size of the addressable market defines the scope of potential sales revenue. There are numerous means to determine the available market size. First, for companies that are uncertain about market
How Sales Departments Function
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potential, sales management can simply add additional head count to “test” the market depth. Second, in some cases, indirect measures, such as new building construction, predict an uptick in IT equipment purchases. Or, third, a company may purchase published or custom market data to determine the market potential size. As the word “addressable” suggests, not all prospective customers are available to the company. For example, some customers may already have an existing contract with their current vendor. Or, for an indirect channel, a well-positioned partner may carry a competitor’s product and, therefore, may not be willing to carry another line. As Figure 2-5 suggests, not all potential buyers are part of the “addressable” market. Cost of sales. The cost of sales is the summation of all resources needed to support any customer contact element of the sales function. For example, for direct sales channels, this will include salespeople and their salaries, incentives, benefits, training, mobile devices, computers, and office space, if necessary. It also includes the real, but indirect, costs of reporting systems, supervision, support collateral, factory field support resources, field administrative support staff, and headquarter specialists. Productivity. Productivity is the sales yield on the cost of sales. Sales management can evaluate sales productivity by tracking new accounts, close rates, and time to close statistics—sometimes collectively referred to as “sales funnel rates.” In field-based organizations, territory optimization and mapping algorithms help size territories to ensure full customer coverage. Quality of sales. The quality of sales is both a quantitative and a qualitative assessment of the value of sales outcomes. Some customers are very
Figure 2-5 Addressable Sales Opportunity
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The Sales Growth Imperative
valuable paying high prices, making long-term purchasing commitments, and requiring low levels of customer service support. Other customers might be flighty, discount demanding, require excessive customer service support, or require special one-off product configurations. Sales management must evaluate the quality of a sale against the company’s sales objectives. Resource deployment directly affects the profitability of the company. Getting these costly resource decisions made in an analytical demanding fashion helps improve the CPOD. An integral part of the resource allocation decisions are protocols related to account assignment, territory configuration, and customer reassignment practices. The assignment of accounts and the configuration of territories determine the “loading” of sales resources. With a “named account” sales job, sales management assigns specific accounts to specific selling resources, whether those resources are sales representatives, inside sales personnel, or a channel manager. A similar process takes place when sales management defines territories as geographic areas, vertical markets within geographic territories, or predetermined account size. Most sales organizations go through some annual process to rebalance territories. However, other factors can influence this process, such as: •
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Customer potential. The sales potential for accounts plays a significant role when assigning or reassigning accounts. Sales management treats accounts with rising sales potential differently from those whose sales volume is declining or will remain flat. Seller relationship/customer preference. As a practical matter, sales management needs to consider the relationship between the salesperson and the buyer. This relationship might be positive, neutral, or negative. The buyer at an account might express an interest in continuing to work with a representative or may request to work with a different salesperson.
The methodology for account changes offers an opportunity for sales management to provide a rational and transparent process for making account and territory changes.
Pillar 6: Sales Talent and Management Leading sales organizations spend considerable dollars to improve the quality of sales talent and enhance the supervision of the sales force. Each of the following effectiveness attributes apply to both direct and indirect sales channels.
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Sales Talent Of course, one of the most visible elements of a sales organization is its talent— the people resources. Sales management recruits, trains, and develops personnel based on the staffing needs of the organization. Unfortunately, no single formula exists to ensure seller success. At best, sales management develops programs to encourage the likelihood of success. These programs include: •
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Recruitment and selection. The most fundamental process of sales talent management is locating, recruiting, and selecting the right candidates for the sales jobs. This effort will vary based on the types of individuals sought, the availability of talent, the nature of the work, the reputation of the employer, and the compensation package offered. Onboarding. Effective new hire onboarding—that is, the training of new sales personnel—improves the sales productivity of new sales talent. The onboarding period can be brief for less demanding sales jobs and more time-intensive for complex, sophisticated selling jobs. A positive indoctrination into the company’s sales model can provide positive returns by encouraging the retention of an informed, engaged, and committed workforce. Training. Effective sales training addresses three distinct competencies: product training, customer training, and sales process training. Product training includes learning the features, benefits, and applications of the product or service. Comparisons to competitors’ products help sales resources explain the company’s product utility as compared to competitors’ offerings. Customer training provides the methods and messages needed to sell to different classes of customers with different levels of buying needs. And sales process training teaches sales personnel how to execute the company’s sales methodology, submit customer and purchase information, review reports, and optimize sales opportunities. Development and career progression. Development helps employees build their overall personal assets to make them more effective in their current job and prepare them for new or additional responsibilities. Career progression outlines the available career steps and criteria for advancement opportunities. In-service upgrades. In some instances, a strategic change may require a redefinition of needed talent. In such cases, sales management creates processes for assessing and selecting those suitable for the now redesigned future sales organization. This process might also include outplacement procedures of those not destined to remain with the company.
The tools for acquiring, training, and keeping sales talent will vary depending on a company’s objectives for each category of talent.
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The Sales Growth Imperative
Management Supervision includes the jobs and personnel necessary to provide oversight of the execution of the customer contact strategy. Beginning with the first level of supervision, the most common jobs include district manager and telesales supervisor. These jobs supervise individual salespeople. Depending on the scope of the organization, sales management might have several layers. These positions generally reflect a “roll-up” of roles starting with the first line of supervision to area, region, national, and global sales functions. First-line supervisors provide the following to their direct reports: •
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Talent management and coaching. Most first-line supervisors correctly dedicate a significant portion of their time to working with sales subordinates. This time includes training, helping with customers, or providing additional resources as requested by the sales representative. The span of control defines the ratio of subordinates to supervisor. When setting this ratio, sales management attempts to balance workload and costs. A low span of control provides more time to work with sales talent; however, this approach is costly. A high span of control is less costly but it reduces the time available to working with subordinates. Regardless, on-the-job training provided by supervisors usually represents the largest component of training provided to sales personnel. Finally, supervisors also provide ongoing support as their subordinates seek advice on a wide range of selling and sometimes personal issues. Management accountabilities. In addition to managing sales talent, supervisors have numerous additional accountabilities. They help implement field programs, including sales campaigns and other customer initiatives. They resolve customer complaints. They enforce company policies. They ensure legal compliance. And they provide real-time information for sales reporting, forecasting, and customer/competitor research.
Investments in sales talent and supervision help improve the return on human capital. Appropriate selection programs, span of control, and program execution help improve overall sales effectiveness.
Pillar 7: Productivity Metrics Productivity Metrics help sales departments monitor sales efforts and track results. Done well, useful metrics trigger management intervention when results are not consistent with expectations. Sales management uses two types of performance metrics: “leading” and “lagging.” Leading measures, such as headlights on a car, see forward in the selling process to determine if the sales
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input (efforts) are trending correctly to achieve expected outcomes. Lagging measures, such as the taillights on a car, provide an accurate picture of what has already occurred—sales outcomes.
Leading Measures Sales management uses leading measures to monitor sales input activities. These leading measures vary by industry and by company. Sales management may use extensive quantitative trending measures. Or managers may rely on traditional measures that have proven their performance predictability, or they may simply use measures that reflect best-guess judgments (i.e., “gut feel”) for what should be occurring. These are examples of leading measures: •
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Sales forecasts. Sales forecasts provide a forward assessment of potential sales outcomes. Sales forecasts provide important planning information for sales leadership, production, product management, customer service, and finance. Sales management uses forecast information to anticipate goal performance. Production management uses sales forecast information for product planning. Product management uses sales forecast data for competitive analysis and product strategy purposes. Customer service uses sales forecast information to prepare for customer support demands. And finance uses sales forecast information to plan cash flow needs and to report to investors. Sales funnel performance. Prior to the sales, there are many consequential sales funnel events worth tracking—from initial lead through to final sales close. A sample includes the number of sales calls made, lead conversion rates (from suspect to prospect), number of new leads, Request for proposal (RFP) invitations, demos conducted, close rate (ratio of closes to opportunities), and elapsed sales time to close. Market development activities. For a direct sales force, there are educational and entertainment events to help develop customer opportunities. For indirect channels, activities might include distribution of sales collateral, training of channel partners, product placement at retail stores, and co-op advertising. Sales time allocation. Sales time allocation provides an overview of how personnel are spending their time. The importance of measuring sales time begins with the realization that the ultimate asset of any sales department is sales time. Measuring and monitoring sales time provides an ongoing overview of the allocation of time by job function. Figure 2-6 illustrates the time allocation of seller time among different categories. Customer opportunity pursuit (item 4 in the figure) reflects “engaged” selling time where sellers are working on customer opportunities. Sales time data give sales management an understanding of how many FTEs (full-time equivalents) are actually engaged in selling efforts.
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The Sales Growth Imperative
Figure 2-6 Sales Time Categories
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Talent inventory. Another leading indicator of sales success measures sales talent. Such measurements include tenure, previous experience and education, certifications, training programs, turnover rate, and degree of employee commitment/engagement as measured by incumbent surveys.
Each of these leading indicators provides information for assessing the actions and efforts of the sales force to reach and exceed its sales goals. However, these are not the same thing as results, tangible outcomes of sales efforts. Lagging measures provide these metrics.
Lagging Measures Lagging measures—measures that provide information after the sales event—give a factual accounting of what sales outcome actually occurred. These measures provide conclusive evidence of the sales forces’ efforts. There are many types of lagging measures. Here are some of the more prominent metrics: •
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Sales results. There are many different and valid types of sales result measures. Here is a sample list: absolute sales revenue performance, performance-to-goal, new product performance, new account performance, cross-sell and up-sell outcomes, new distribution placements, product mix/ balance, market share performance, win-backs, gross margin dollars, gross margin percent, order size, contract length, customer retention, contract re-signing, customer satisfaction, peer performance ranking, returns, and bad debt. Cost and sales ROI. Cost of selling is another critical measure for the sales force. Sales management monitors sales costs as absolute dollars and as a percent or revenue know as E/R (expense to revenue). Additional analysis
How Sales Departments Function
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compares the return on sales expense/investment (ROI) for different channels, segments, and products. Advanced cost measurement provides benchmark data for activity-based costing (ABC). CPR—conversion, penetration, and retention. Customer conversion, penetration, and retention provide a comprehensive, quantitative measure of the quality of selling. Conversion (C) measures the number of new accounts and competitive wins. Penetration (P) tracks the sales of new or different products to the same customer. And retention (R) measures the continuation of customer purchases, or sometimes is measured as customer loss known as “churn.” Figure 2-7 presents a CPR stack chart showing starting revenue, loss, new revenue, and period-end revenue. Sales management can use this chart to establish goals for each type of revenue. Customer service measures. Sales organizations have learned to use customer service measures to improve selling performance. These measures include customer satisfaction ratings, sales experience evaluations, customer recommendation ratings, customer loyalty, and customer advocacy. In some instances, a company will gather its own customer feedback; in other cases it will employ third parties to assess customer opinions or use mystery shoppers for retail outlets. Forecasting accuracy. Finally, for those companies that need accurate forecasting for production, staffing, or cash management purposes, the role of forecasting becomes critical. Measuring forecasting accuracy helps to improve forecasting estimates.
Figure 2-7 Conversion, Penetration, and Retention
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The Sales Growth Imperative
ABOUT SALES DASHBOARDS With today’s at-a-click computing power, personnel can be overwhelmed by too much data. A sales dashboard reflects what sales management thinks are the most critical measures of sales performance. Sales dashboards often replace numerous disparate reports. The rationalization of sales reporting ensures that sales leadership, sales managers, and sales personnel are all “on the same page” regarding performance outcomes. Well-designed sales dashboards provide trend information and “alerts” for out-of-norm outcomes— often color-coded for emphasis.
Pillar 8: Performance Management and Compensation Performance Management encompasses performance commitments, personal accountabilities, quotas, and incentive compensation. Sales management sets and manages performance accountabilities for individual contributors. In some instances, sales management might tie goals to team or unit performance, particularly if there is cross-sharing of accountabilities. •
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Performance commitments. Performance commitments specify duties and responsibilities of the sales job including sales methods, sales process, and sales outcomes. Performance commitments sit within the framework of job expectations. Management communicates both the broad scope of the job and the specific means of accomplishing the job’s objectives. Sales management holds sales personnel responsible for meeting and exceeding these performance commitments. Personal accountabilities. Whereas performance commitments specify job expectations, personal accountabilities specify personal expectations. These accountabilities request a salesperson to embrace, act, and perform in a manner consistent with values of the company. These accountabilities include personal development, ethics, coworker relations, and personal demeanor. Quotas. Quotas provide a goal for performance accomplishment. In some instances, sales management might provide incentives for goal accomplishment. But not all goals need a reward program; evaluative measurement alone is a compelling motivator. The setting of goals provides sales management with the opportunity to calibrate expected performance. However, not all sales organizations use quotas or goals. Compensation. Compensation when broadly defined includes many elements of remuneration, including base salaries, incentives, and benefits. Even sales support tools can become perquisites with the awarding of
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enhanced automobile policies, leading-edge computers, and advanced mobile communications. Compensation can include recognition rewards such as president clubs, annual trips, or other incentive programs such as merchandise and travel incentives. There are also additional rewards tied to performance appraisals, annual base salary changes, promotions, and title advancement. Sales compensation—the explicit rewards for sales performance— normally plays a significant role in sales force effectiveness efforts. Sales management leads the sales force by providing incentive opportunities for goal accomplishment. These goals can vary depending on the sales strategies for a job in a given year. The compensation payouts vary based on the seller’s performance level—the higher the performance, the higher the payout, and lower performance earns less money.
FOUNDATION PLATFORM
Sitting beneath the eight pillars is the foundation platform featuring sales operations and sales technologies. “Sales operations” is an inclusive term that describes all the support systems that help the sales department to function on a day-to-day basis. Technologies automate mission-critical components of the sales model. There are numerous and varied sales operations and technology solutions to aid sales success. These solutions provide infrastructure support along the eight pillars.
Sales Operations The following occurs in all sales departments. Sales departments may or may not have their own staff to address these operational programs: •
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Measurement and reporting. Measurement and reporting include budgets, sales reporting, trending reports, forecasting, execution/funnel tracking, and effectiveness measurement, including time, cost, quality, and customer service. Talent management. Activities related to talent management include recruitment, selection, training, development, onboarding, career path planning, coaching, and counseling. Accountability management. Accountability management includes performance management, sales compensation, quota allocation and management, sales crediting, and territory/account assignments.
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Communication. Sales communication encompasses leadership messages, policies and procedures, product and customer knowledge management systems, sales messages, customer events, trade shows, and sales campaigns. Provisioning. Sales operations resources manage all the technologies that support the sales department. Sales strategy planning. While the role of sales strategy planning rests with senior sales leadership, more robust sales operations functions provide oversight for the annual sales strategy planning efforts. Sales strategy planning includes reviewing and improving the alignment among sales resources, product objectives, and customer populations.
Technologies Depending on the size, focus, and complexity of the sales function, IT technologies provide leverage support to sales resources. Here is a sampling of various IT platforms used by sales entities: •
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CRM. CRM (customer relationship management) software provides access to customer information, sales funnel opportunities, and other reporting features about customers. This system might also automate the sales planning process for major accounts. Order reporting. Order reporting software provides information about the status of pending and completed orders. Data mining of orders can improve sales efforts and outcomes. Customer service status reporting. For ongoing customers, customer service reporting systems give up-to-date status on customer services issues. Over the long term, such systems provide qualitative assessment of customer service indexes. Forecasting system. Gathering and reporting sales forecasts can be part of the CRM system or a stand-alone reporting system. Account assignment and quota allocation. An automated system for managing account and quota information helps keep this complex topic orderly. Sales crediting splits might also be a part of this automation system. Sales dashboard. The sales dashboard provides comprehensive sales reporting to all levels of the sales organization. Expense management system. The expense management system collects field expenses for approval and reimbursement purposes. This system should also monitor the field assets such as the automobile program, computer, Internet communication services, and mobile devices. Incentive compensation system. If a large number of payees participate in the incentive plan and there are a high number of transactions, then advanced automation support for the compensation plan is necessary.
How Sales Departments Function
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Knowledge system. The knowledge system contains various resources, including proposal preparation tools, pricing systems, training programs, sales messages, and sales collateral. The knowledge system might also provide a gateway to commercial databases for researching prospects, customers, and competitors.
Sales management can gather all these systems for access through a Webbased sales portal.
SUMMARY Sales organizations are complex entities. Beginning with sales leadership through the eight pillars to the foundation platform, sales leadership makes informed decisions to allocate resources, invest in solutions, and focus on opportunities to achieve the company’s sales objectives.
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Sales Growth Drives Sales-Effectiveness Solutions Sales-effectiveness solutions are not universal. They fit a certain circumstance. Based on the phase of the company—Start-Up, Volume Growth, Re-Evaluation, or Optimization—sales management needs to select the correct sales-effectiveness solutions to meet growth phase challenges.
THE DESTINY OF SALES ORGANIZATIONS Sales entities serve the business ambitions of product divisions. This is the destiny of sales departments. In this role, sales organizations act as the customer persuasion agent on behalf of their clients—the product divisions. The ambitions for and fortunes of individual products and product portfolios define the objectives of the sales function. Product life cycle theory richly describes the journey of products through various stages of growth: early adoption, wide acceptance, maturity, and decline. Corporate life cycle theory provides a broader context of how companies move through, address, and prevail through predictable growth challenges. Here is the key point: Sales entities migrate with their client organizations through these growth phases. Sales-effectiveness solutions are not static. That is, sales-effectiveness solutions will vary by stage of growth. To the sales strategist, this pattern unlocks the clue to how to effectively manage a sales entity during and through different phases of growth. To the casual observer, the science of sales management is abundant with prescriptive sales-effectiveness solutions such as selling techniques and styles, channel design, automation systems, motivational events, sales compensation techniques, training packages, selling systems, and too many more to mention. Taken as a whole, not all these solutions could work at the same time—and some actually contradict each other. For example, one sales theory encourages sales personnel to act as independent general managers of their territories, while a competing model suggests that sellers need to comply with a formulistic selling system. Another example suggests that sales personnel 36
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provide over-the-top customer service to pursue long-term customer loyalty. While its opposing model requires sales personnel to refer all customer-service issues to an 800-service number. In another instance, one solution encourages the hiring of seasoned sales personnel. Its opposite model suggests hiring new people to mold and develop. Clearly, there are too many solutions and not enough problems. However, upon closer examination, solutions are neither “good” nor “bad”; they are appropriate or inappropriate. Simply stated, it’s an issue of what works and what does not work as driven by current circumstances. All these solutions are effective; however, they are only effective at certain times.
GROWTH PHASES While there are numerous theoretical gradations of product and corporate life cycles, sales entities travel through four broad growth phases as displayed in Figure 3-1. The following describe the characteristics of each growth phase: •
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Phase I: Start-Up. Young companies scramble to find the formula for sustainable revenue growth. Driven by a vision and motivated to cover increasing costs, successful start-up companies persevere through untold daily—and sometimes entity-threatening—challenges. The sales growth imperative is to grow the company by selling the founding product to the most eager buyer population. Phase II: Volume Growth. During the Volume Growth Phase, companies scale to take advantage of the emerging market opportunities. Continued success encourages the development of new and dissimilar products.
Figure 3-1 Growth Phases
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The Sales Growth Imperative
During this period, acquisition of new companies and technologies will enhance the revenue growth outcomes. However, while overall volume is growing, in the latter stages of Phase II, year-over-year percent increase in revenue begins to drop. The sales growth imperative during this phase is to continue increasing revenues of the core business and to add additional revenue from new products. Phase III: Re-Evaluation. When a company’s overall growth rate drops below 10 percent, a period of re-evaluation will emerge. During this phase, the company will examine the prospects for the core business; review the number and scope of products and product divisions, catalog and value the types of customers served; and then explore new or revised channels to market. After a period of cost-cutting, rationalization, and streamlining, senior management will begin to re-evaluate the company’s products, markets, and sales channels. The sales growth imperative during the re-evaluation phase is to trim the number of products, protect the core business and its pricing, and focus on high-potential new products and markets. Phase IV: Optimization. At the end of Phase III, the company, reaches an inflection point. Continued lack of double-digit growth with unacceptable profit levels motivates senior management to rethink the formerly successful but still in-place product division model. During the optimization phase the company reconfigures its competencies, both product and selling resources, around customer segments. Sometimes there is a simple change in the value proposition, or a major reorganization. The intent is to optimize numerous market opportunities by applying appropriate solutions, disciplined pricing, and sustainable margins. Not all segments will meet the test. The sales growth imperative in Phase IV—Optimization—is to grow revenues and profits within carefully vetted opportunity segments.
THE CHALLENGE OF LOW GROWTH In Figure 3-1, notice how the growth rate accelerates in the early stages but begins to flatten in Phase III—the Re-Evaluation Phase. Of special interest is the pattern of the profit line. As a company adds revenue to the top line in Phases I and II, the profits will appear and accelerate as marginal costs decline. The formula is pretty simple: More revenue lowers the marginal costs, which then produce higher profits. Notice in this example how the profit line grows at a faster rate than the revenue line. Companies adopt processes and procedures in Phase II to ensure continued success. These efforts facilitate further positive scaling of the business, thus rewarding the company
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with more profits—sometimes accelerating profits. However, these “good days” are numbered. During Phase III, growth will plateau. And while profits might hold for a period, their growth rate will also start to slip. What causes a company’s growth rate to falter? Consider this list of potential culprits: •
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Saturation. The most obvious phenomenon is saturation. In other words, the buyer population has bought as much of the core product as it’s going to, and future purchases will either decline or, at best, go flat with replacement purchases. Unfortunately, low growth, flat sales, or declining sales require continuous cost reductions to sustain profits. This scenario presents a depressing prospect of diminishing returns. However, thoughtful strategists recognize that “saturation” should not be a macro judgment. Most companies serve only a narrow market with their core product, often a premium segment. By thinking “outside the box”—as nimble niche competitors do—there may exist vast, untapped markets for the core product that current practices preclude from being seen and exploited. Displacement. For some companies, displacement is lethal. Displacement means that the competition is replacing the core business with a new, dissimilar technology or service solutions. Examples of displacement include the iPod replacing recorded media; e-mail replacing overnight express letters and faxes; mobile phones replacing pagers and land lines; and the Web replacing traditional print media. External inequities. External conditions, circumstances that are sometimes beyond management’s control, can disadvantage a company. Examples include unfavorable currency rates, disparate regulatory practices, economic downturns, unfair protectionism, and new competitors using lower labor costs—for example, start-up airlines monetizing a demographically younger workforce.
However, strategic missteps are often the antecedents to premature revenue growth rate failures. These errors might include one or more of the following: • •
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Product innovation errors. Product innovation errors will make a product less than competitive compared to other vendors. Pricing errors. During Phase III, competitors will find ways to lower production costs and selling expenses. Enhanced value pricing methods will manage the product offerings along a price curve consistent with the value provided. Pricing errors come in two forms: first, retaining—without accommodation—historically high pricing in the face of lower competitive pricing; and, second, letting all prices collapse to the bottom of the market in order to hold market share. Product division organization errors. Up to and including Phase III of growth, most organizations retain a product-division organization model.
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The Sales Growth Imperative
Managed well, this model will scale alongside adjacent competencies of management oversight, sales capacity, marketing, and IT systems. However, as the number of product divisions increases, they compete with each other for limited resources. The outcome is often the inefficient rationing of resources. Finally, unchecked product division offerings can induce overload and confusion among all support units, sellers, and customers. Channel configuration errors. While the channel functions have successfully helped the company to become a larger entity, past practices may no longer be fully appropriate. Sales management needs to look at new channel solutions—the Web, telesales, and partners—to provide new opportunities for sales growth. An informal sales effectiveness theorem predicts that the highly regarded and successful sales coverage model of Phase II will underpower the sales growth potential of the company during Phase III and Phase IV of growth. For example, the sale of car insurance via the Web was fully unanticipated by traditional insurance underwriters, thus allowing new entrants using this method to rapidly increase market share. Cost-control errors. Finally, some companies will panic in Phase III. As flat revenues threaten profits, the natural reaction is to cut costs. However, the better solution is to reallocate costs to more promising solutions whether they are products, customers, or sales channels.
To successfully navigate Phase III, Re-Evaluation, requires courage, foresight, and leadership. Clearly, the company will look different in the Optimization Phase (Phase IV). It will face numerous conflicting challenges. For example, successful companies run multiple businesses including promising start-ups, highvolume growth businesses, and low-growth entities. To succeed in Phase IV, senior management needs to review the strategy of the company from top to bottom. This analysis begins with opportunity segment planning—examining business opportunities based on evolving customer populations, viewing product offerings with a new eye, and revisiting traditional sales channel assumptions. If the optimization phase is handled well, senior leadership can position the company for generational, long-term profitable growth.
GROWTH PHASES AND SALES EFFECTIVENESS Since companies move through growth phases, the sales force, along with other departments, will make this journey, too. What works in one phase may not work in the next phase. The challenge for sales management is to determine which solutions work best during each phase.
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Figure 3-2 Sales Growth Model and Sales Challenges
In Figure 3-2, we redisplay the Growth Phases chart featuring the rate of change in growth. In this figure, the “base growth” rate is the overall growth rate of the sector normalized to zero. The curving line tracks the experience of a hypothetical sales organization at times growing faster than the market sector, and at times growing less than the rate of the sector, as is the case in Phase III. The Sales Growth Model helps identify what works and when. The following provides an overview of each of the four phases and their sales-effectiveness challenges.
Phase I: Start-Up—Sales Effectiveness Conditions The goal of the Start-Up Phase is to find a growth formula that produces accelerating growth rates to cover costs. The formula should be found with haste, before the company runs out of money. During the Start-Up Phase, the sales department shares a close kinship with the product team to discover the formula for sales success. Products get frequent upgrades, modifications, pricing changes, and other on-the-fly adjustments. The nescient sales force moves quickly with the product team to find the right product configuration and the right sales pitch to secure revenue. Some companies will thrive in this
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phase, others will meander, and others will fail. While growth rates can range from near zero to booming of more than 100 percent, most future successful companies rack up impressive growth between 30 and 80 percent during this phase. Yes, there are the truly blowout performers that catch a market trend and ride it to the top with unheard-of compounding growth rates, but these are the rare exceptions. This stage of growth does not lend itself to pensive review of market opportunities. Instead, real-time market observations by both the product champions and the sales department allow for immediate “in-the-field” corrections and solutions. Working closely together, the product designers and the sales staff try to find the formula for scalable sales success. Sales management solutions tend to be informal and flexible. For direct sales organizations, there’s a natural tendency to seek out new hires who know the market and can help land initial sales opportunities. These skilled sellers not only excel at closing new deals, but they also help create compelling sales messages and marketing solutions. Most young companies do not even have marketing resources; instead they rely on the sales force to act as the marketing arm of the company. Once a workable selling equation emerges, all sales resources converge on this proven value proposition quickly emulating its success. Th is sales model undergoes a “field-proof test” to ensure that the company can grow at rates that will drive it to profitability. Meanwhile, sales personnel will continue to test alternative sales solutions until sales management selects a proven formula. This same pattern repeats itself with indirect channels. In the beginning, the young company is seeking any channel partner who can help move product to the eventual end user. Finding the right partners with the right market position is a matter of recruitment, training, and provisioning. Frequently, acquiring new channel partners is difficult for young companies. The prospective channel partner does not know the new company, its product, or the product’s viability. Often, the company must provide favorable terms to the channel partners to secure the partners’ support. Or the company must settle for second-tier partners until its products prove their volume potential. Once sales management identifies a winning channel, the next challenge is to add more channel partners—and quickly. For both channels—direct and indirect—the challenge in Phase I, StartUp, is to find the correct sales solutions that can scale up to capture market growth opportunities. Often, sales management places significant emphasis on hiring the right people with the right contacts to jump-start the selling process. These sellers usually require a premium earning opportunity. Indirect channel efforts focus on signing the right channel partners, and this often costs a premium, too.
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The following information highlights both the proficiencies and the challenges faced by young, start-up sales teams: •
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Start-Up Phase—sales effectiveness proficiencies. A young sales entity is nimble, low cost, and driven. Sales leadership and sales talent are “fearless.” They pursue sales objectives where no assurance of success is evident. People with sales talent must be creative as they seek and test the right sales pitch to win customers. Other traits will include “unflagging,” “driven,” “committed,” and “engaged.” Start-Up Phase—sales challenges and errors. Young sales organizations need to act with dispatch. Overengineering the sales process is unnecessary. They avoid expansive protocols, policies, and practices that take up too much time. And they get past mistakes quickly; discontinue any nonproductive approach, and terminate ineffective sales personnel. Carrying mistakes forward is too risky for a start-up company. The sales growth imperative for sales departments at this phase of growth is to pursue the test and select the winning selling process in order to grab market share and drive volume to produce expanding profits.
Phase II: Volume Growth—Sales-Effectiveness Conditions A company’s goal during the growth phase is to take advantage of its emerging prominence to gain market share, scale quickly, and not miss the opportunity to realize profitable growth. Phase II, Volume Growth, is the golden period for sales functions. The company is succeeding as revenues grow, sales headcount expands, and marginal costs drop, thus driving up profits. This is clearly an exciting and positive time for any sales entity. Sales management commits to the now proven wining sales formula. As headcount expands, support resources expand including investments in sales training and automation. The sales force adopts important and necessary changes:
Specialization by Type of Customer As revenues grow, the number and types of customers increase. Even with the core product, customer buying needs will vary. Several forms of specialization will emerge. Account stratification will allow the sales department to specialize around the size of accounts. An example of stratification has large accounts assigned to key account managers; midmarket accounts assigned to named account managers; and small customers assigned to geographic representatives. Sales management might assign the smallest customers to a telesales function.
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If vertical markets require unique sales solutions, then sales management will assign dedicated resources. For example, telecom, life sciences, or automotive are illustrations of vertical markets. Additionally, sales management might divide customers into two categories: new accounts, and existing accounts. Sales management can then assign “hunters” to nonbuyers and assign current customers to account managers. Indirect channels also experience the need for specialization in a similar manner during this phase of growth. The same specialization opportunities exist for indirect channels: size, buying status, and vertical markets.
Resource Support for Increasingly Diverse Products and Markets In the latter stages of Phase II, senior management and product managers will seek more revenue growth from new products. The increasing number of products challenges the bandwidth of the sales force. Field sellers need help to correctly position these new and diverse products. In this case, additional field support arrives in the form of product overlay specialists—often funded by the product divisions—or market overlay specialists. These specialists provide added support to the field sales organization. Product overlay specialists help with new, unique product offerings to existing customers or existing customers who are not buying the new products. Market overlay specialists help sales personnel promote existing products to nontraditional buyers thereby giving the company access to a new population of potential customers. •
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Volume Growth Phase—sales effectiveness proficiencies. Sales entities move quickly during the volume growth stage. Sales management devotes exceptional energies to recruitment and onboarding of new sales talent. Selling solutions become more formulaic. More sales specialization is necessary to better serve diverse customer populations. Better documentation of methods, policies, and procedures helps with organization expansion. Even with increases in the cost of selling, profits often accelerate in this phase as marginal costs continue to drop. Volume Growth Phase—sales challenges and errors. The biggest saleseffectiveness challenge during the Volume Growth Phase is underinvesting in sales talent. Without the headcount to cover the emerging market opportunities, sales management risks missing the chance for market leadership. Sales management will commit a classic error if it tries to scale up the start-up sales model. Often, the freewheeling sales management experiments encouraged during the initial Start-Up Phase of growth will stunt rapid expansion. A particularly thorny issue is retaining the
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initial successful sellers—the so-called market makers—who operated with significant autonomy and little oversight during the Start-Up Phase. The sales solutions necessary in the Volume Growth Phase will eclipse the practices of these early mavericks. These key sellers, frankly, do not welcome standard practices, prescribed selling systems, and required compliance. The sales growth imperative for sales entities during the Volume Growth Phase is to effectively scale up to serve traditional and new markets with expanding product offerings.
Phase III: Re-Evaluation—Sales-Effectiveness Conditions The sales goal of the Re-Evaluation Phase is to reduce costs and improve sales productivity during a slowdown in market growth. These efforts need to sustain, protect, and produce profits. Phase III, Re-Evaluation, ushers in some of the most challenging conditions for sales departments. At this point, sales are moderate, flat, or declining. The company seeks to return to historical levels of profitable growth. The following sales-effectiveness initiatives will contribute to improving the company’s performance during this challenging phase: •
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Reduce costs. Sales management must reduce costs. During this period, most sales organization costs come under close scrutiny such as headcount levels, compensation costs, travel expenses, and field-marketing costs which include trade shows and customer entertainment. The finance department is more than eager to help sales management cut costs. Find new channels. As the customer buyer population broadens, sales management may find existing sales models too narrowly focused, too inflexible, and too costly. The search for alternative, lower-cost sales channels begins in earnest. Maintain pricing. Additionally, finance seeks every means to protect pricing. New policies now control the setting of prices, terms and conditions, and the use of samples. Reduce churn. An additional effort targets customer churn. Unnecessary customer loss is a high-cost expense. When compared to the acquisition of new customers, retaining existing customers is a bargain. Improve sales productivity. Numerous opportunities exist within the sales department to improve sales productivity. A sample of these include adopting more efficient selling systems, reallocating inefficient sales time to other resources, adopting transparent funnel management solutions
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such as CRM, increasing cross-selling to existing customers, and changing the compensation program to reward growth, profitability, and customer retention. Normally, during this phase, sales management conducts a top-to-bottom sales-effectiveness audit in search of improved sales productivity. Need for value-based selling. In search of better pricing and more committed customers, sales management will introduce value-based sales models that bundle solutions and provide consultative advice to customers.
Additionally, during this phase, sales leadership faces morale challenges from the existing sales force. With highly visible cutbacks, more constraints, and more aggressive personal accountability, salespeople begin to question their future opportunities with the company. In some instances, high-performing sales staff may opt to exit the company. During the Re-Evaluation Phase, the company will need to acquire new sales-effectiveness proficiencies and avoid common errors. •
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Re-Evaluation Phase—sales-effectiveness proficiencies. As the sales department enters this difficult phase, bold sales leadership is the key to maintaining focus and sales force productivity. Honest and direct communication with sales talent confirms that improving sales effectiveness does not take a holiday even when sales challenges and cost constraints are increasing. Sales leadership will need to make investments to increase sales productivity and, when necessary, reallocate and resize selling resources. Inclusive and collaborative planning with product units will help the sales organization to better serve and meet product division objectives. Re-Evaluation Phase—sales errors. The greatest mistake in this phase is assuming the scaling solutions from Phase II, Volume Growth, are still relevant. Additional distracting errors include the pursuit of costly sales force improvement programs such as prepackaged training, radical compensation changes, and overbearing CRM systems prior to addressing the fundamental shift in the charter of the sales force. Many customers at this stage—those buying the core product—may no longer need high-cost sales talent calling on them. Instead, some might be looking for improved field customer service. Unfortunately, most sales departments retain their Phase II high-cost sales force to handle minor customer service issues.
The sales growth imperative at this point is to grow, and to grow profitably. The sales force needs to improve profits by reducing sales costs, improving pricing, and selling a more profitable mix of products.
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Phase IV: Optimization—Sales-Effectiveness Conditions The goal of the Optimization Phase is to realign products and selling resources around high-potential customer segments that the company can grow in a profitable manner. These segments may currently be emerging, unrealized, or potentially unrecognized opportunities. The Optimization Phase heralds the arrival of the concept of “focus,” that is, knowing “what to do” and “what not to do.” The start of Phase IV marks an end of the widespread costcutting efforts of Phase III. Instead, sales management embarks on aligning sales resources with the best growth and profit opportunities. The growing emphasis on “opportunity segments” will challenge the charter of existing silo product divisions and the aloof sales function. During the final stages of the Re-Evaluation Phase, a consensus forms that, “You cannot save your way to profitability.” A new commitment to grow the core business plus adding new product and market segments becomes the driving aspiration of the company and the sales force. However, some of the following unsettling conditions will cause constraints. •
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Niche competitors. The rise of niche competitors becomes alarming. As value disrupters, they seem to offer better solutions at better pricing to existing customers. They also attract new, formerly unseen customers thus becoming “market expanders.” Buyer preferences. In some cases, customers might prefer to move to a new market entrant who offers a better buying experience. In this case, new market “disrupters” upend the traditional way of purchasing from the slow growth, noninnovative dominant players. Traditional sales management practices no longer apply. Examples might include moving away from direct sellers to supporting buyer purchases from Web sites, new retail channel members, systems integrators, or full-service thirdparty solution providers. As customers become more knowledgeable about the product, the need for a high-touch selling model might become less universal. Sales and product management divide. By this time, it’s evident that the sales department and the product divisions do not speak the same language, nor do they share the same planning tools and, for that matter, goals. The efficiencies gained through dedicated product divisions and sales role specialization now become obstacles to future growth. Powerful product leaders feel that sales management is not fully exploiting market opportunities for their products. Sales leadership winces at the overly numerous product managers who still create too many solutions for too few problems. Competition for “sales force mind share” becomes a political
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topic sometimes laced with critical judgment at the sales force’s expense: “The sales department just does not give my product the support it needs.” Successful Phase IV companies often have to rethink their customer, product, and sales coverage assumptions. Successful Phase IV companies do the following: •
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Accelerate innovation. Innovation boldness takes root. This is innovation beyond simple product line extension. Management drives a more comprehensive and profound customer-value innovation, which can come from multiple sources such as product upgrades, new products, new solutions, new customers/buyers, and new channel pathways to market. Reposition the company’s value proposition. Along with enhanced innovation comes a much broader company value proposition upgrade. This new mandate gives the wide-ranging and disparate workforce a unifying theme to serve customers and creates lasting economic value for the company. Establish a new strategic planning platform. In Phase IV, companies need a new strategic planning platform to reorient and provision resources to serve diverse market populations. Senior management needs to replace the historic product-driven strategy planning with a new opportunity segment focus. No one department can move forward without the shared cooperation of product divisions, sales, finance, and support departments. Opportunity segment planning must fully account for each segment’s customers, products, and sales channels. Often, a new strategic planning group will emerge, assigned to the office of the president, to provide the comprehensive oversight for these numerous business opportunities. Because of the complexity of managing such a large entity, senior management embraces advanced opportunity segment analytical planning methods.
The entrance into Phase IV, Optimization, begins a journey of major changes for the sales organization. While traditional coverage methods will continue in one form or another, the requirement to provision new and sometimes competing sales channel models becomes more necessary. For example, companies adopting market business units (MBUs) will need to assign sales resources to serve distinct opportunity segments. In other words, sales resources may no longer sit within a unified sales department. Sales talent dedicated to these large opportunity segments may instead report to new market management leadership. Sales management will need to gain new sales-effectiveness proficiencies and avoid common errors during the Optimization Phase. •
Optimizing Phase—sales-effectiveness proficiencies. Simply stated, the traditional way of doing business will no longer work. Phase IV,
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Optimization, solutions do not emanate from the now dated and fortified silos of product divisions and cocooned sales functions. Sales effectiveness requires a more collaborative planning process built around numerous and diverse opportunity segments. Sales leadership must now expand its definition of selling beyond the successful models from Phase II, Volume Growth. Sales management needs to reposition existing sales models to focus on the best opportunities to expand profitable business. Realignment of selling resources may change the type of personnel now assigned to existing customers. To better allocate resources, sales management needs to adopt more advanced sales strategy planning methods featuring more collaborative planning methods with segment, market, and product management. New sales-effectiveness proficiencies in Phase IV will require a change in recruitment, training, and compensation of the sales force. Optimizing Phase—errors. Absent effective sales leadership, the sales department could devolve into a misaligned and obsolete function. The sales leadership challenge is to help reconfigure sales roles and sales personnel to be more contemporary with the target and preferred opportunity segments. Increased agility and responsiveness to the emerging strategic focus of the company requires open and innovative sales coverage solutions. Sales force transformation methods will help guide the sales department to its new mission of profitable revenue growth for existing and new target market segments. The most damaging error is to presume that investments in an unchanged structure will produce expected sales-effectiveness improvements. Finally, chasing the latest sales management fad or expensive automation tool most likely will not improve the prospects of the sales department.
The sales growth imperative during the Optimization Phase is to grow and to be profitable. This includes protecting and growing the core business and developing segment-specific solutions, some of which may be innovative, nontraditional, and outside the historic scope of the sales department.
SUMMARY The growth rate of a company has a direct and significant impact on the role and evolution of the selling resources. Sales competencies change and evolve through the four growth phases of Start-Up, Volume Growth, Re-Evaluation, and Optimization. Sales management must provide the right solutions as the demands on the sales force change.
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QUESTIONS AND ANSWERS ABOUT GROWTH PHASES Here are some thoughtful questions about growth phases: 1. How long does each phase last? The length of time varies by company and by industry. Some technology companies find themselves going through all four phases within a decade, some even faster. However, the newspaper industry has been traveling through these phases for well over 100 years. 2. Can we skip Phase III and just keep growing? Not likely. Most companies, regardless of their bravado, usually stumble into Phase III with neither the knowledge of how they got there nor the readily apparent tools to solve their slow growth dilemma. To have uninterrupted growth, the successful company needs to create innovative products, add new solutions, recraft the organization, and reconfigure sales resources—simultaneously, without making a mistake. 3. Our company has products and solutions in all four phases; is that possible? Yes, and by definition your company is a Phase IV company. That is, you need to run multiple businesses successfully—the ultimate challenge in corporate-land. 4. What happens after Phase IV? The growth phases wrap around on themselves starting over again by adding new businesses—strategic business units. It’s a continuous loop. 5. We seem to be caught between Phase II, Volume Growth, and Phase III, Re-Evaluation. In other words, we seem to grow, then shrink, then grow, and then shrink again. Is this possible? Yes, particularly for technology companies, the innovation of new technologies may be sporadic, causing ups and downs in the company’s growth trajectory. 6. Is it easy to identify when one phase of growth ends and another begins? Growth phases are more like eras rather than distinct, nonoverlapping blocks of time. It’s not possible to cite the specific end date of one phase and the beginning date of the next phase. Instead, these eras move along overlapping in multiyear transitions from the prominent condition in one phase to the prominent condition of the next phase.
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Sales Growth Phases—How Others Participate As the sales department moves through the four phases of growth—Start-Up, Volume Growth, Re-Evaluation, and Optimization—so do other internal and external entities. Actions by others will complement or challenge the charter of the sales function.
THE IMPACT OF GROWTH PHASES ON OTHERS The sales department is not alone as the company migrates through the four phases of growth: Start-Up, Volume Growth, Re-Evaluation, and Optimization. Other functions are also evolving at the same time. As these other functions change, their interactions with the sales department will also change. What follows is not an exhaustive view of the four-phase journey of these other functions. The intent is to provide a companion view of what is happening between the sales department and other functions—both internal and external—as a company transitions from one phase of growth to the next.
Product Divisions The sales department is a service provider to the product divisions. As the product units create new and updated products, the sales force provides customer contact solutions including locating, persuading, and closing sales opportunities. Meanwhile, product divisions will grow, evolve, and change. They will have new and different expectations of the sales force. Absent careful and attentive management, these two closely aligned resources will face significant challenges during Phase III, Re-Evaluation. Product divisions evolve through the four growth phases: •
Phase I: Start-Up—product divisions. Young companies seldom think of their new product as belonging to a product division. The idea of product divisions is a future construct when there are multiple product lines. 51
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Start-up product visionaries expect revenue growth from the sales function. These early product champions work seamlessly with their partners in the sales department. These product advocates focus mainly on product features, production, and pricing. Often, the new product or service needs lots of tinkering. This is where the product leaders spend most of their time. However, they join sales calls with sales representatives to help better define the start-up’s value proposition. Real-time testing of product messages takes place in front of customers. Both sales leaders and product management allow real-time customer feedback to drive changes in product features and sales messages. The search for the right sales formula is a joint effort between the product designers and the sales resources. Phase II: Volume Growth—product divisions. During the Volume Growth Phase, multiple product divisions emerge. Each product division has its own product set, manufacturing, and marketing support. There is rapid product development, including new products, product extensions, and product upgrades. While the core business gets the largest amount of sales resource support, new successful product/service solutions get additional attention from the sales function. The company may even buy additional companies to add new product opportunities. More analytical-based market planning allows for better selling opportunities. Better price management allows for continued profitability as volume grows. Trade shows, advertising, and outbound telemarketing help find fresh sales leads for the sales force. Multiple product divisions seek the support of the sales department to promote the core business, sell new products, and crosssell the burgeoning family of products to new and existing customers. Product managers expect full support of their products from the sales force. Product divisions expect the sales force to sell more volume, sell to all market segments, and sell all products. Phase III: Re-Evaluation—product divisions. During the Re-Evaluation Phase while product managers search for new long-term growth above 10 percent, they must—in the short run—improve profitability. During this phase, product management makes every effort to reduce costs as the company’s historical top-line growth stalls. Product managers experiment with price reductions to test price/volume elasticity. If volume increases, then productivity increases will help increase profits. If volume fails to materialize, then additional cost-cutting will be necessary to achieve profit objectives. These cost-control efforts by the product division include enhanced process improvement, supply chain optimization, capacity reductions, and cuts in staffing levels. Concurrently, product rationalization efforts attempt to trim the expensive and bloated product portfolio. During this phase, product management looks to the sales force to continue to grow revenue, retain customers, manage pricing, and control costs.
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Phase IV: Optimization—product divisions. During the Optimization Phase, a new charter for product management emerges. A more coordinated market management platform replaces a product-centric view. Division leaders carefully vet opportunity segments for investment potential. New configurations of products and services allow for premium price offerings. Sales management needs to provide new, diverse sales and delivery models to the product division. These solutions might feature premium selling or hands-free buying and numerous configurations between these two choices. The intent here is to find opportunity segments that offer profitable growth. The sales function needs to improve current selling models and provide new sales platforms based on target opportunity segments and their sales coverage needs.
The journey of the product divisions is the prime driver for the sales force. As products move through their life cycles, the sales department adjusts by changing its strategy, structure, and management methods.
Customers As buyers of the company’s products and services, customers also change during the four phases of growth. •
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Phase I: Start-Up—customers. Depending upon the desirability of the new product, customers will react differently. If the product has high utility and market appeal, then management’s focus should be to ensure product availability. In this case, the primary role of the sales resources is ensuring order availability and fulfillment. However, most products must compete for customer dollars. In such cases, proactive sales efforts need to educate customers on the virtues of the product. During this phase most customers are reluctant and dubious. The best potential buyers will be early adopters. Selling in Phase I normally requires education, assurance, and ROI justification to reduce buyer resistance. The company depends on successful selling at this stage to secure customers. Phase II: Volume Growth—customers. During the Volume Growth Phase, the company’s products become better known and more accepted. Customers expect exceptional customer service such as ease of purchasing, accommodation of special requests, and solutions to order issues. In this phase, large existing customers look for strong customer service support from their sales representative. Fortunately, noncustomers will respond favorably to documented testimonials, enthusiastic referrals, and a growing positive reputation. Phase III: Re-Evaluation—customers. At this point, customers are well aware of the company’s value proposition. There are multiple solution providers: some with better products, some with better pricing, and
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some with better service. The uniqueness of the product has given way to a “commodity” mentality. The primary users of the product no longer need to have a sales person explain and promote the product to them. Customer purchasing department protocols become more evident. The use of RFPs (requests for proposal) becomes more common. While sales relationships are important, price competition becomes more significant. Customers are looking for price savings and sometimes see expensive, visible sales resources as an unnecessary burden to the price. They might consider other low-cost producers and channels to provide the product. Phase IV: Optimization—customers. In the Optimization Phase, customers become more calculated buyers. Vendors will fall into several major categories such as commodity provider, preferred supplier, and strategic partner. After reducing the number of potential vendors to a manageable population, they will expect different levels of sales support depending on their buying preferences. From commodity providers, they often require no sales support and prefer to purchase online or from a telephone-based customer service representative. From the preferred suppliers, they expect sales resources to be available when new or different purchasing needs arise. The rest of the time they expect the customer service function to meet their needs. For strategic partners, they expect engaged value-added selling resources to help craft new solutions to improve outcomes.
Customer buying habits will change as customers’ knowledge of the product or service offering evolves. New, high-risk solutions require significant seller support, whereas known products with less purchasing risk require less selling advocacy. As the risk decreases, some customers may still want sales support for more complex products and those with long-term purchase durations.
Channel Partners Many companies use intermediaries such as channel partners to sell/provide products to end users. These partners include agents, brokers, distributors, wholesalers, retailers, dealers, OEMs (original equipment manufacturers), system integrators, and influencers, such as consulting engineers, solution designers, and architects. Some companies use partners exclusively to reach customers; others use direct sales resources only; and, of course, many companies use a combination of both direct sales and indirect channel partners. As expected, channel partner strategy evolves as the growth of the product sector matures through the four phases. The following discussion presents what happens during the four growth phases for an indirect only channel strategy. •
Phase I: Start-Up—channel partners. Start-up companies seeking to use indirect channel partners start with a clean slate. Because they cannot
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afford their own direct sales force or if a direct sales force is an impractical channel solution, these young companies must find partners to promote and, in some cases, fulfill their products. Some of the more established channel partners may be reluctant to carry the new company’s product line for fear of alienating existing vendor relationships. During these early stages, sales management tries many different channel partner strategies including securing the leading channel player, partnering with second-tier channel partners, or finding alternative channel partners that may support the new product. This is a period of experimentation and discovery as the new company searches for the right channel strategy. Managers of a young start-up should use their best judgment to find a winning channel model, but they should expect numerous avenues of investigation and testing before a preferred and scalable channel model emerges. Phase II: Volume Growth—channel partners. During the Volume Growth Phase, the addition of more channel partners helps drive additional top-line growth. Channel management scales up the successful channel strategy discovered during the Start-Up Phase. Management adds many new channel partners. Channel contracts and support become uniform. The general premise holds: More channel partners are better. In the latter stages of the Volume Growth Phase product, management adds additional products to the now successful existing channel model. Management pays special attention to keeping channel conflict low among the partners. There may be specialization in a product line to distinguish one channel partner category from another. During the Volume Growth Phase “channel stratification” occurs. The larger channel partners get dedicated resources and programs best suited to their needs. The middle-sized channel partners participate in “the standard” channel partner program. Very small channel partners receive limited resources. Contracts and commission schedules may differ by these categories of channel partners. Meanwhile, all these programs need to remain consistent with federal and state laws regulating equal treatment often accomplished by opt-in investments by the channel partners. Phase III: Re-Evaluation—channel partners. During the Re-Evaluation Phase it becomes clear that not all channel partners perform alike. There is a significant difference in performance between the top-performing channel partners and the lower-performing channel partners. Pareto’s 80/20 rule becomes prophetic as 80 percent of the sales volume comes from 20 percent of the partners. Because of the expense of managing the channel network, some form of channel partner rationalization takes place to reduce the number, redundancy, and low productivity of channel participants. Expect cutbacks in commission schedules and support programs.
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Phase IV: Optimization—channel partners. The Optimization Phase requires a complete redesign of the channel strategy. As the company moves to an opportunity segment model, management will realign the channel partners to better serve these unique market opportunities. Training, investments, and partner programs will differ by business segment. Partner programs will diverge with high-touch supply chain intense solution providers meeting the needs of significant buyers, and different partner resources will manage the low-touch fulfillment needs of other customers.
Like a direct sales force, the indirect sales channel moves through the phases of growth adjusting to reflect product maturation and customer buying preferences.
THE EVOLUTION OF OTHER RESOURCES As the company moves through the four phases of growth, other functions within the company are evolving, too. Each department has its own evolution; these functions will face new challenges in each phase and develop solutions to meet those challenges. Some of these solutions will affect the sales department, sometimes in a positive way and sometimes in a challenging fashion.
Product Marketing and Promotion Often part of the product division organization, the product marketing/ promotion team, helps generate new customers for the product. To be successful, team members must work closely with the front-line customer contact resources to help convert product interest into product sales. During the early phases of growth, marketing/promotion occupies itself with product literature, Web sites, and promotion/advertising/PR all within a painfully limited budget. During the Volume Growth Phase, a well-tuned lead generation program will help grow revenue through new customers. As product management launches new products, a focus on product campaigns helps boost initial product sales of new and updated products. However, during the Re-Evaluation Phase, sales management often views marketing and promotion efforts as ineffective, too product-centric without a strong buyer-centric focus. This condition leads to more buyer-centric marketing support. The Optimization Phase sees the evolution of the marketing/promotion function to a “market management” competency that helps craft product and selling strategies to serve unique opportunity segments.
Production Those responsible for production (or service or underwriting) struggle in the Start-Up Phase to stabilize and improve the product offering. Production
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managers strive to improve the quality of the product. Expected volume growth will help decrease the marginal cost of producing the product. During the Start-Up Phase and the Volume Growth Phase, additional capacity will help meet product demand and lower the overall marginal cost to produce. During the Re-Evaluation Phase, as prices are declining, the producing functions will try to lower production costs. Production management undertakes many efforts, including supply chain optimization, Six Sigma production improvement, and better supply sourcing. Management might even seek low-cost production areas of the world for manufacturing purposes or for customer service support. Costly production infrastructure becomes a liability during the ReEvaluation Phase. Instead of improved profitability as volume increases, the opposite occurs—margin erosion—as price reductions attempt to absorb the overcapacity output. Production management now must reduce production capacity. During the Optimization Phase, production resources become more nimble and market situational. Management reduces ownership and production assets. This frees the company from the costly overhang of capital investments. Just-in-time product solutions become the competency of production management. Careful planning with opportunity segment management provides the basis for producing only those products that have the right buyer fit at the right price with the right profit margin.
Research and Development In many companies, research and development (R&D) is an identifiable function. In other companies, it’s an integral part of product management or production management. Regardless of where it resides, R&D provides the forward-looking advances to ensure product competitiveness. Product improvement helps keep the products competitive whether these products are durable or nondurable goods, or nonphysical service offerings such as financial instruments. In the Start-Up Phase, R&D is simply part of the initial effort to get the product into the market. It is during the Volume Growth Phase that R&D efforts get their own funding and resources. Each product family normally has a budget set aside for R&D efforts. R&D management helps improve the current products and devises product extensions of the core product. These R&D efforts are highly product-centric, focusing on exploiting advancing technologies, applications, and solutions. During the Re-Evaluation Phase, senior management may view R&D efforts as excessively costly and disconnected from buyer needs. The critique is that these R&D efforts are good at producing many variations of the current product but increasingly struggle to find major advances. And, to the frustration of R&D management, when new breakthroughs do occur, division management often subordinates these promising products in order to prop up the now teetering core business. Absent new revenue dollars, management often
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slashes R&D budgets to protect profitability. During the Re-Evaluation Phase, sales management often notes that either current R&D efforts lack innovation or worse, these efforts develop products that have no immediate market potential. In the Optimization Phase, opportunity segment management requires R&D management to more fully align new products with reachable buyer populations and available sales channels. The charter of R&D is to invest in technologies and service solutions that the company can fully exploit. For those new, groundbreaking solutions, the need for distinct, dedicated sales and marketing functions will require the need for a separate SBU (strategic business unit) to nurture the new product to better exploit its potential. During the Optimization Phase, R&D will rediscover its primary objective to develop products that customers want to buy. In a sense, the evolutionary process takes R&D activities back to its early Start-Up Phase, creating innovative products to gain volume growth. Sales management needs additional and often different resources to successfully market these new, promising products.
Finance No other department has a better ringside seat to witness the impact of sales growth performance on the company than the finance department. An early focus on revenue growth in the Start-Up Phase aligns finance and sales leadership. During the Volume Growth Phase, finance strives to secure sufficient capital to support the growth ambitions of the company. Profitable revenue growth improves the company’s ability to self-finance or secure external capital funding. Finance supports sales efforts to gain volume growth and market prominence during the Volume Growth Phase. If available, extra monies or favorable capital costs support the expansion of production, investment in internal resources such as the sales function, and the acquisition of value-added companies. However, during the slow growth Re-Evaluation Phase, finance exerts its role in protecting the profitability of the company, which includes reducing costs by trimming headcount, reducing excess production capacity, increasing productivity, and protecting pricing. Further efforts to reduce unit costs help drive industry consolidation with the stronger market leaders acquiring the weaker players. The primary purpose of these acquisitions is to drive profits by reducing duplicate overhead costs. Sales organizations during this phase, with finance’s help, are trimmed and reconfigured to lower costs and improve productivity. In the Optimization Phase, finance function transitions to a portfolio model that evaluates and funds opportunity segments. New accounting models based on business opportunities replace classic department-centric budgets. Enhanced cost-allocation methods allow core business cross-funding to support new, emerging growth opportunities.
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Executive Leadership The executive leadership of the company, the CEO (chief executive officer) and later the additional COO (chief operating officer) need to provide management context as a company moves through the four phases of growth. Successful start-ups benefit from a hands-on executive team. Collaborative esprit de corps is the hallmark of agile young companies. Positive employee-centric support and collective accomplishment reduce the need for formal structures, polices, and procedures. Leadership “by doing” is characteristic of start-up companies. In the Volume Growth Phase, the need for more scalable systems brings the rise of managerial competencies. This includes the division of labor, reporting systems, and investment in tools to better accomplish tasks. The rise of bureaucracy is necessary to help manage the growing company. The Re-Evaluation Phase requires both courage and foresight from company leaders. Significant morale challenges will present themselves as the company simultaneously sheds excessive costs and headcount while rallying the remaining personnel to persevere going forward as they now face a more hostile competitive environment. While there will be cutbacks, senior leadership must lay the groundwork for renewed growth from both the core business and new business entities. The search for business segment leaders becomes the most important leadership role during the Optimization Phase. Finding business leaders with vision, confidence, and good judgment will drive the opportunity segments to success.
Strategic Planning What about strategic planning? What role does strategic planning play as a company moves through the phases of growth? Actually, start-up and volume growth phases have little need for long-term strategic planning. These are all about execution excellence. However, as growth rates decline during the ReEvaluation Phase, the need for making informed decisions about business opportunities becomes much more important. Companies seeking to regain profitable growth will need strategic planning insight. In the Optimization Phase, strategic planning provides the analytical foundation for making decisions about opportunity segment investments. In this role, strategic planning operates as lead scout of the company’s future business strategy. Combining future market trends and company competencies, the strategic planning function can provide a suggested path for future profitable growth.
Competitors A company occupies a market space with its competitors. These competitors can be well-established companies or other start-up companies vying for the
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same customer opportunities. During the Start-Up Phase, the traditional pattern is for one or two pioneering companies to define the initial market space. Numerous competitors then quickly follow these early market makers. The growth in young companies can be explosive. During the Volume Growth Phase, some companies will excel; others will not. Those that succeed drive success through rapidly evolving innovative solutions, improved service offerings, better pricing, and aggressive sales and marketing efforts. Each competitor attempts to establish dominant market share to control solution adoption, pricing, and customer loyalty during the Volume Growth Phase. Unfortunately, some competitors will expend their capital before they earn enough sustaining monies. These companies will cease business or morph into another market entity where they may have a better opportunity to succeed. The leading companies may buy competitors whose products will complement their current product offering. Larger, established competitors might also buy young start-ups to complement current product offerings. Several paths are available during the Re-Evaluation Phase. First, a company in this phase can decide to take the route of the “low-cost” provider, stripping all costs out of the company and forcing others to match its competitive pricing. Another approach is to pursue an “up-scale” market segment where better prices ensure better margins. A third condition features industry consolidation, where buying competitors reduces duplicate management costs. This approach will help lower the marginal cost of overhead. Finally, corporate raiders stalk the ramparts looking for poorly performing companies with excessive overhead. Aggressive cost-cutting ensures acceptable returns. During the final phase—Optimization—competitors attempt to find uncontested and unique market opportunities that provide handsome growth and profits. Significant fracturing of the market into many, many subsegments occurs. Those who can successfully manage numerous niche segments assure their company’s future. Extensive analytical research helps fully define how competitors seek to win. The strategies and tactics of the segment leaders foster success at the expense of their competitors.
SUMMARY As the company moves through different phases of growth, all functions must migrate as does the sales department. Growth transitions help explain the focus, motivation, and actions of internal complementary resources, external partners, and market competitors. The sales function moves in tandem with these entities accommodating and adjusting to others’ goals, objectives, and tactics.
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Sales-Effectiveness Solutions
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Sales Leadership Sales leadership provides the overall direction for the sales department. Effective sales leadership is the most powerful factor affecting sales force success. Through the four phases of growth, sales leaders reveal their competencies along with the following dimensions of sales effectiveness: sales strategy vision, sales force advocacy, sales culture, and sales execution proficiency.
LEADERSHIP OVERVIEW Sales leadership occupies the top position of a Sales Management System. Simply stated, effective sales leadership is the most important variable that ensures a company’s sales success. However, the requirements for effective sales leadership will evolve as the company moves through the four phases of growth.
We will discover in the following chapters the technical solutions necessary to keep a sales department at peak performance, including which sales training or compensation program to use. These are the visible programs that sales leaders sponsor. In this chapter, we focus on the role of sales leadership to steward a sales department successfully through each phase of growth. Sales leaders set the organization’s objectives, organize personnel, ensure performance efforts, and reward outcomes. A sales force welcomes an effective 63
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sales leader. Sales personnel want their sales leaders to organize and direct them to ensure clarity of objectives, coordination of efforts, and accountability of actions. Employees intuitively know that effective sales leadership will help them improve their performance. There is another complementary leadership factor that sales leaders bring to their organizations: emotional context. Sales leaders provide emotional context by linking people together in a community of shared efforts. Employees want to have meaning to their work. They want to share these efforts with other like-minded professionals. They don’t like to contribute where there is chaos, inefficient use of time, and conflicting agendas. Some people think that great sales leaders must be charismatic, personalitydriven creatures. While social skills can facilitate many interpersonal exchanges with customers, internal stakeholders and sales personnel, there are many more important skills necessary to be a great sales leader. While an introvert might struggle to create personal connections, possessing a high-profile persona does not ensure success.
Personal Traits of Great Sales Leaders Sales leadership is more than a job or a person. It’s a guidance system for the sales department. Individuals—such as the vice president of sales—harness this guidance system to direct sales resources to excel in growing revenue. Sales leaders are accountable for achieving the company’s revenue growth goals. Successful sales leaders, like other great leaders, exhibit the following personal traits: •
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Be a visionary. Great sales leaders formulate, promote, and confirm their strategic vision. This vision forms the backbone of the company’s sales culture. Have high business acumen. Being an equal partner among the executive committee members requires a keen degree of business acumen that allows a great sales leader to correctly understand the company’s business plans, goals, and limitations. Be an exceptional manager. Effective management of the sales organization requires deep understanding of all aspects of the sales department. It also requires exceptional competency to hire and direct managerial talent to execute the sales department’s mission. Finally, excellent management necessitates an in-depth working knowledge of the company’s administrative processes and systems that make sales excellence possible. Be innovative. Sales force innovation ensures that the sales force will not slip into obsolescence. New ideas, varied approaches, and enhanced solutions need the vigorous support of the sales leader.
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Be courageous. A courageous sales leader sets overly ambitious goals. Additionally, a sales leader needs courage to make difficult, often uncomfortable, and perhaps not popular decisions. This includes being frank with peer executive committee members, supporting or not supporting initiatives, managing expenses, and dealing directly with performance issues. Project personal authority. Personal authority gives a sales leader the right to ask for and receive subordinate support. Sales leaders garner personal authority through numerous cumulative factors such as organizational accountability (they are the boss), executive commitment (the CEO supports them), applicable experience (know what they are talking about), demonstrate evidence of character (have the right values), have a history of past success (they have proven themselves), and have effective personal relationship skills (they listen and support others). Instill commitment. An effective sales leader gives purpose and direction to the sales force’s efforts by defining, articulating, and promoting the sales function’s charter and mission. This vision must anticipate the future goals of the organization and justify (and challenge) current practices in pursuit of alignment with the company’s short- and longterm objectives. Successful leaders understand that people, by nature, are “tribal” and for the most part want to be “part of something that is successful.” Balance natural dichotomies. Like any other organizational entity, sales departments and their leaders face natural dichotomies that present conflicting choices. To effectively address these ever-present dichotomies, a sales leader must use wisdom—that is, informed judgment—when favoring one path or another as these natural dichotomies present themselves on a recurring basis. Here is a sampling of some of these dichotomies: Proven practices versus innovation. When should new ideas overtake current practices? Past experiences help build a body of practices that establish what works and what does not work. However, innovation can provide much needed improvement ushering in advances over current practices. A sales leader needs to bring balance to these two competing solutions. Determining the “yield” on adopting new practices when displacing current practices requires thoughtful calculations before a sales leader can make changes. A great sales leader always considers both approaches—current practices versus innovation—before moving forward. Compliance versus discretion. In most instances, sales leaders need a high degree of compliance—execution excellence—in the efficient
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support of practices; however, given frequent unpredictable conditions, allowing discretion of action sometimes provides a better outcome. Knowing when to “hold the line” or let others try something new is a perplexing dichotomy. Analytics versus intuition. Analytic-based decision making helps improve the likelihood of making a correct decision. But, sometimes intuition can trump even the most comprehensive data-driven proposed course of action. Sales leaders know when to make decisions using “numbers” and when to follow their “gut-feelings.” Bias to action versus cautious consideration. As a general rule in business, one should never delay the inevitable. Any inaction by a sales leader can prove to be costly. However, chaotic and ill-advised changes can diminish a leader’s ability to lead. Sales leaders will favor action versus caution given the situation. Sales leaders who tend to favor, on an ongoing basis, one approach over the over will produce less than effective outcomes. Accommodating versus critical. When should a sales leader accommodate less than expected outcomes; and when should that leader provide critical feedback on underperformance? Theorists would argue that direct and affirmative feedback, even when critical, is better than not addressing performance shortcomings. But seasoned executives know that it’s sometimes better to accommodate subpar performance, giving a struggling individual or team the opportunity to self-correct. This is not an issue of compassion versus harshness—performance improvement is always necessary; but the path to performance improvement might not always feature a direct, critical approach. Loyalty versus utility. When considering the fate of sales personnel and their future careers with the company, sales leaders balance the value of loyalty versus utility. In some cases, while performance may not be exceptional, the individual’s loyalty contributes to the fabric of the organization. Compassionate treatment of employees helps secure additional commitment of the workforce. However, each performer brings some level of utility to the enterprise. Judgments made on utility are efficient but cold. In some cases, sales leaders might need to tolerate high-utility performers although their loyalty might be low. Or sales management might need to stand by a loyal but less-than-effective performer to reduce the upheaval of replacing personnel. Of course, high loyalty and high utility gives the sales leader an exceptional lieutenant. Balancing loyalty with utility presents one of the most confounding dichotomies. For better or worse, sales leaders affect the success of a sales department.
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LEADERSHIP—DIMENSIONS OF SALES EFFECTIVENESS Four factors illustrate dimensions of sales leadership effectiveness: strategic sales vision, sales force advocacy, sales culture, and sales execution proficiency. These are discussed below.
Strategic Sales Vision Strategic sales vision is a combination of planning long-term sales strategy while successfully pursuing and exceeding short-term sales goals. This “connected” alignment between today’s realities and tomorrow’s pending challenges provides the full context of strategic sales vision. Strategic sales vision requires a deep understanding of the company’s current and future competitive position. A sales leader who uses a strategic sales vision applies both internal and external interpretative data to draw accurate inferences on what the sales department should be accomplishing in the short term while simultaneously planning for future sales challenges and actions.
Sales Force Advocacy The second sales leadership factor is sales force advocacy. A sales leader stands by his or her sales team. A sales leader needs to provide continuous advocacy to help the sales team reach its objectives. Sales leaders project this unbridled advocacy to the sales department, to other departments, and to customers, too.
Sales Culture A sales culture cannot be solely measured by its component parts: competency, engagement, performance commitment, ethics, continuous improvement, and win-win collaboration. While all of these elements are part of a sales culture, a sales culture also reflects the motivational mood of the sales force. Are sales personnel upbeat, optimistic, and hopeful? Or are they demoralized, suffering in silence, and walking through their jobs and simply complying? Sales leaders are responsible for managing sales culture through listening, communicating, and inspiring their sales team. Additionally, a great leader articulates and promotes professional values of competency, commitment, performance, and good company citizenship. These enduring values provide a platform for requesting and receiving the highest work efforts from all sales personnel.
Sales Execution Proficiency A sales leader is responsible for sales execution. The sales department has numerous accountabilities on a day-to-day basis. The sales leader must ensure
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that all expected actions of the sales department are being handled at the highest level of performance. An effective sales leader selects and articulates goals. These goals should meet and exceed business expectations. Goals provide the “destination” for a sales organization. Great sales leaders do not flinch when facing tough goals. Instead, they have the courage to insist on accomplishing these goals. The very essence of leading is defining, accepting, and pursuing difficult performance goals. Managing a sales organization requires the help of many. Assigning tasks to others, having supervisors implement and manage programs, and ensuring execution of the sales strategy requires that the sales leader build and oversee accountability among managers and supervisors. Finally, a great sales leader drives continuous improvement. As the company migrates through the growth phases, sales leadership must continually challenge current practices by improving processes, programs, and performance.
LEADERSHIP—SALES-EFFECTIVENESS TOOLS Effective sales executives employ many powerful leadership tools to help manage the sales force. These include listening, communicating, and engaging.
Leadership Listening Methods Great sales leadership begins with knowledge. And knowledge requires listening. For sales leaders to make the right decisions, set the appropriate goals, develop a strategic sales vision, and deal with challenges, they require active listening. The act of listening is a leadership message in itself. Subordinates want to do what is expected. Leaders who listen and take an active interest in employees’ day-to-day jobs elevate employees’ commitment. These are effective listening methods employed by senior sales leaders: •
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Walk-around. The expression “walk-around” is an informal description of on-site, real-time listening to sales personnel, sales management, and support resources to learn what is occurring. For sales personnel, this might mean a “ride-with,” where senior leaders take a day to ride with a salesperson to learn what is occurring during the course of daily selling. Performance reporting. The quality of sales leadership depends on the quality of sales reporting. Sales reporting includes information about sales actions, processes, and outcomes. A sales leader cannot provide informed direction to the sales force without a robust array of sales statistics. And forward-looking sales projections provide critical information to others, such as division managers as they make production decisions, short-term investments, and long-term commitments.
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Customer meetings. Customer meetings can reveal much about sales challenges and success. Traveling to meet customers on a regular basis keeps a sales leader informed on what customers think about the company’s product, customer service, and, of course, the sales experience. Additionally, this act communicates to customers their importance to the company. Five whys. A noted method to discover the cause behind symptoms is asking “why” five times. This often reveals the source of the problem. For example, if a salesperson says, “The customer is unhappy,” follow these five whys. The first why: “Because they got their shipment late.” The second why: “The customer submitted the order late.” The third why: “They did not know how to use the Web site to make an order adjustment as part of ordering.” The fourth why: “The Web site does not provide clear direction on how to handle order adjustments.” The fifth why: “The Web site designers did not test every customer action and provide easy-to-follow help instructions.” The solution: Fix and retest the Web site for user ease. SWOT. Another leadership listening method is to ask for a SWOT analysis when considering changes or investments. The method examines internal strengths (S) and weaknesses (W) and external opportunities (O) and threats (T). A SWOT analysis helps to preclude any unconscious bias that overlooks either internal or external considerations. Internal assessments. Internal assessments can assume many forms. The most common and ongoing are informal, personal canvassing of key sales personnel, including individual contributors, staff resources, and sales management. For larger organizations, field surveys can gather perspectives held by field personnel. These surveys can investigate practices, employee engagement, and program effectiveness. Sales management can augment these surveys with focus group interviews among internal teams. Finally, analytical assessments provide detailed information about current programs and practices using observable measurements to provide quantifiable information about time use, costs, program execution, and success rates. Figure 5-1 displays illustrative questions and overall responses to a survey concerning sales personnel engagement. External research. External research about customers, competitors, and channel partners provides fact-based information for decision-making purposes. Such research helps sales departments meet customers’ needs, deal with competitive threats, and assess the quality of channel partners’ effectiveness. Primary research includes gathering data directly from the target audience. Sales management can complement this research with secondary research developed by others and purchased from third parties.
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Figure 5-1 Sales Personnel Engagement
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Web community. Web communities provide an excellent listening (and communication) opportunity for sales leaders. Internal Web boards allow sales personnel to share information and suggestions. These postings give a voice to field personnel regarding the application of sales practices. To ensure positive communication, label the community site: “Success Center.” Suggest the following: “Postings should feature successful outcomes and solutions.” Additionally, field personnel can post problems—without criticism and accusations—on an “Open Issue” board.
Leadership Communication Methods The following are multiple ways for sales management to deliver sales leadership messages. The intent of these communication efforts is to share important messages within and sometimes outside the sales department. •
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Speeches and briefings. One of the most common and effective means of delivering leadership messages is through speeches at national and regional gatherings and at local briefings with sales managers and sellers. These events allow sales leaders to provide a statement of destination, intent, and commitment to the goals with accompanying actions. There are other means to deliver these messages such as Webinars, all-hands conference calls, videos, and even blog/e-messages. Strategy statements. A strategy statement provides another vehicle for carrying the leadership message to the field. Sometimes known as a “sales blueprint” or “strategy guide,” these documents provide a more complete explanation of how the sales department will meet its objectives. Policies and practices. Policies and practices formalize leadership’s intended methods to sales success. Likewise, execution “playbooks” further specify the sales department’s preferred approach and application of sales resources.
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Leadership Engagement Methods In addition to listening and communicating, a sales leader needs to “engage” with the sales personnel. Engagement methods serve several objectives. First, they provide the leader with another venue for listening and communicating. Second, they allow department personnel to meet and bond with the sales leader. And, third, they allow sales personnel, including sellers, managers, and support personnel, to participate, contribute, and influence the sales department’s success in a visible and concrete fashion. •
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Events. The most popular of these engagement methods are classic sales department events, including sales rallies, national sales meetings, president’s clubs, local meetings, and trade shows. Each of these events provides an excellent opportunity for sales leaders to engage with field and staff personnel. Planning sessions. Sales planning sessions provide an excellent platform for formulating sales strategy and sales practices. These interactive opportunities allow the give and take of implications and choices. Each year, a sales department should have a formal planning process preparing next year’s strategies and tactics. Separate planning events should take place with the product division to gather and coordinate sales efforts for the coming fiscal year. Sales management should conduct similar sessions with finance, too. In larger sales organizations, the sales leaders should conduct ongoing sales strategy planning sessions quarterly and even, perhaps, monthly with the sales leadership team. Informal events. Finally, no sales leaders should underestimate the impact of informal events to instill commitment and bonding. These include attending local seasonal events (summer picnics or holiday events), luncheons, after-work dinners, and informal social gatherings.
The Virtues of an Annual Strategic Sales Plan A sales leader’s most powerful leadership tool is the annual strategic sales plan. An annual sales plan provides the most comprehensive vehicle for listening, communicating, and engaging the sales leadership team, and it also provides a means to connect and collaborate with key internal stakeholders found in the product divisions and the finance department. Each year, beginning at the start of the second quarter, sales leaders begin the process of analyzing market conditions, sales effectiveness, and pending division strategies. This process allows the sales leader to guide the sales force’s strategic vision. In Chapter 16, “Annual Strategic Sales Plan,” we describe how to prepare the plan.
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FIVE ELEMENTS OF A LEADERSHIP CHANGE MESSAGE All great leadership change messages contain the same five elements to acknowledge existing conditions, confirm direction, and garner commitment. These five elements are: 1. State existing condition. The first element of the leadership message is to state the current condition of the company, particularly the weakness that needs fixing. 2. Disconnect from the past. To avoid being trapped using past practices, the sales leader dismisses hobbling historical solutions, methods, and practices as invalid given current conditions. 3. Describe future direction. The sales leader then describes the future success awaiting the team. The sales leader challenges the sales team to achieve this new goal using new methods. 4. Acknowledge past efforts. The sales leader should give the sales team thanks and gratitude for past efforts and accomplishments. 5. Call for volunteers. The sales leader then restates the future objective and calls upon the sales team to accept the challenge as laid before it. Here is an example using the five elements of a sales leadership change message. “As you know, we continue to increase sales, but we are losing margins due to low pricing. We can no longer just sell price. Instead, we need to sell value. In the future, we will provide our customers with value by offering solutions rather than discounted products. This will require enormous change on the part of all of us. We are fortunate to have this choice given to us. Some of our competitors will not survive this price war. These promising choices now available to us are the direct result of your past efforts. And we thank you for your contributions. However, team, we cannot remain here; that is, selling high volume with no profits. I am asking you to join with me to change how we bring value to our customers and earn the profit we deserve.”
SALES LEADERSHIP—GROWTH PHASES The following observations describe the appropriate sales leadership actions for each phase of growth. We divide these observations into the four dimensions of sales effectiveness: strategic sales vision, sales force advocacy, sales culture, and sales execution proficiency.
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Sales Leadership in the Start-Up Growth Phase In some respects, young companies offer sales leaders many simple choices. Should we put a sales territory in Kansas? Should we hire this person? Although these choices are not always easy and mistakes are common, these circumstances are much simpler than the challenges faced by sales leaders of more mature, complex sales entities. When working with a clean slate, start-up sales leaders can bend conventional rules of sales leadership to address the rapidly changing circumstances. Fast-moving conditions will require fast-moving decisions. This style will sometimes earn the start-up sales leader the distinction of being a maverick. However, on closer examination, we find that the same leadership components are present in every phase of growth. What differs is the speed and application of the leadership traits required in start-up companies compared with companies in other phases of growth.
Strategic Sales Vision—Start-Up Sales leaders in the Start-Up Phase have little need for strategic sales planning. Most actions are day-to-day events that require immediate attention. “Learning by doing,” allows a sales leader to make real-time adjustments as the sales department pursues its very simple and obvious goal: “Get more sales.” However, a wise sales leader will ensure that decisions made today will not preclude changes and different solutions necessary in the future.
Sales Force Advocacy—Start-Up Sales leaders commit to successful sales personnel. However, they are quick to “pull the plug” on someone not producing. A start-up company does not have the luxury of waiting for a salesperson to develop into a successful seller. Early success is necessary for continued employment with a young company. The sales leader celebrates winners and quickly moves low performers off the payroll.
Sales Culture—Start-Up Start-up sales leaders lead by hands-on involvement with day-to-day decisions, including constructive, value-added interactions with customers and product champions. Sales leaders earn commitment from others by shoulder-to-shoulder shared engagement in the effort to succeed. Sales teams drive themselves with shared commitment to do well. Young companies need more action and less caution. Without forceful actions to meet and address emerging conditions, sales leadership could doom early sales efforts. “Work hard; play hard” also is a common value. As a result, this period often reflects the peak of adrenaline-driven esprit de corps.
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Sales Execution Proficiency—Start-Up Sales leaders quickly process countless incremental decisions, relying on the law of averages to drive out the right solution. The motto is, “What do we have to lose? Let’s try it.” The need for full-time sales supervision is low. In other words, the sales department does not need much oversight during the StartUp Phase—the sales department is just not that complex. Active involvement by the sales leader in major deals helps connect the sales personnel with the goal of achieving revenue results. With little need for common practices and policies, sales leaders rely on situational management to address conditions as they arise. However, sales leaders use this engaged selling time to discover the preferred selling model.
Sales Leadership in the Volume Growth Phase After the period of “sales solution discovery” in Phase I, sales leadership shifts the focus to “sales volume expansion” in the Volume Growth Phase. During this phase, the sales organization needs high-volume growth to amass market share. Although this high growth rate will remain positive, later it will eventually decline in year-over-year growth. Sales leaders adopt numerous uniform practices, impose rules, and invest in infrastructure to foster sales organization expansion during this phase. This transition from discovery to expansion requires that important and potentially risky investment decisions be made. Presuming sales management has selected the right sales growth model, as tested in the Start-Up Phase, the solution for successful expansion awaits implementation in this phase. Sales leadership needs to move the sales organization from an informal sales model to a much more sophisticated and planned selling approach. This uniform approach will allow rapid expansion during this phase of growth.
Strategic Sales Vision—Volume Growth Sales leaders establish “bold goals” about sales growth potential and sales organization size. Being too cautious and undersizing the market will result in lost opportunities. External research in market growth will help confirm the market’s expanding opportunities. Sales leaders need to use scalable constructs, growth models, and growth algorithms to make scalable investment decisions. Ambitious projections about future opportunities help to create the strategic vision for the future sales organization. Tactical day-to-day decisions must serve the long-term growth ambitions of the sales function. Active listening to product management as supported by market research, customer trends, and feedback from sales personnel confirms market growth
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opportunities. Sales planning documents projecting sales growth for one-, three- and five-year time horizons help others grasp the importance and implications of sustained and aggressive growth. Each day, sales management tests tactical decisions against this plan. As new data emerge, sales management makes appropriate changes to the multiyear sales planning document. Sales management must make aggressive investments in sales resources. Finally, sales management needs to ramp up sales goals. Often, during this phase, field personnel underestimate the market opportunity for the product.
Sales Force Advocacy—Volume Growth The sales department during this phase needs increased expense dollars to fund its growth. Sales leaders develop proven algorithms that demonstrate return on invested dollars. Sales leaders meet with and educate executive committee members, including those in finance, on the need to increase the rate of forward sales expenses (spending before revenues) during this period of growth. Because the sales department needs to adopt a common selling model for scaling purposes, leadership messages to the field force need to re-enforce these solutions and celebrate those who are succeeding, using the now uniform goforward sales model. The sales department will need additional tools, staff support, and programs to drive revenue growth during this phase.
Sales Culture—Volume Growth Rapid growth provides exceptional opportunities for sales personnel with higher income, greater professional stature, and new promotional opportunities. Sales leadership messages bring a positive outlook to the benefits of expansion. Sales leaders should convince sales talent of this “sense of destiny” available to the company, sales department, and them personally. Expect frustrations to emerge as growth exceeds infrastructure. However, leadership should assure sales personnel of continued investment in the sales function to support improved outcomes. As management adds new sales personnel, sales leaders should dramatically increase leadership messages and events. “Positive,” “aggressive,” and “expansive” should be the underlying themes emanating from the sales leader. Sales rallies (promotional sales meetings) provide an excellent platform for pushing the positive message of “winners.”
Sales Execution Proficiency—Volume Growth To handle revenue growth, the sales organization needs to adopt uniform rules, practices, and selling models. New organizations’ structures are necessary to manage the different types of customer populations and to best handle major accounts, middle-market accounts, and small businesses. More
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compliance is necessary to help execute the now-proven successful sales model. Sales leaders support new measures of execution excellence such as scorecards and rating systems. During the later stages of Phase II, product divisions will seek sales support to help sell the burgeoning collection of updated and new products. These new and different product opportunities will require sales leaders to adopt methods for continuous improvement in sales skills, messaging, and assignment of accounts.
Sales Leadership in the Re-Evaluation Phase The Re-Evaluation Phase brings new and confounding tests to sales leadership. With volume growth rates potentially below general market trends, sales leadership faces the dual demands of reducing costs while producing more sales. Without significant positive revenue growth, productivity improvements and cutbacks become necessary. Meanwhile, product divisions—striving to reverse the tide of insufficient growth—place greater and greater demands on the sales force. Sales leaders have the added burden of keeping the sales force positive and motivated as criticism of the sales results mount. New controls and cutbacks hobble the sales force’s efforts to regain revenue growth. In addition to managing the sales department on a day-to day basis, sales leaders must increasingly turn their attention to other internal constituents such as product divisions, finance, and IT. Sales leaders must now collaborate with product divisions to balance increasing demands on sales resources. IT needs to provide much improved tools to upgrade sales productivity. And sales leadership must partner with finance to help manage sales force costs in a prudent and responsible fashion.
Strategic Sales Vision—Re-Evaluation Articulating simple and compelling future goals becomes increasingly difficult as the number and diversity of demands increases. Sales leaders will be more cautious during the Re-Evaluation Phase, thus ensuring that the planning personnel test all scenarios prior to taking action. SWOT analysis suggests that the company has changing prospects based on strengths, weaknesses, opportunities, and threats. Planning must now account for productivity efforts, reduction in resources, and shifts in sales emphasis. Sales management needs to fully review these shifting priorities with internal customers—the product divisions. Sales goals become more granular regarding types of customers, volumes, product mix, and pricing. Without full disclosure and consensus among all parties, the misunderstanding of resource allocation decisions will plague the sales department as others—such as product managers and finance—lodge complaints about the sales focus and outcomes.
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Making the right decisions becomes more fact-based and analytical in nature. Because the risk of errors is so significant during this phase, sales leadership employs advanced research and analytics to better improve sales planning and tactical decision making. And even when it’s necessary to draw upon intuition to make critical decisions, postevaluation provides feedback on whether the new approach is superior to the replaced practice.
Sales Force Advocacy—Re-Evaluation Sales leaders now must protect their sales talent from increasing internal critics as market growth trends slow to 10 percent or less. Sales leadership needs to educate internal constituents on how selling into slow growth markets creates an inverse relationship between sales volume and return on sales expenses: The cost of increasing sales time and resources may not improve sales ROI. More aggressive selling may threaten floor pricing practices. After the proper resizing and realignment of sales resources, sales leadership needs to demonstrate how the sales force contributes to the customer value proposition. These research-based numbers describe to what extent sales expenses can contribute to acquiring, keeping, diversifying, and expanding customer purchases beyond today’s performance levels. This research will confirm what the sales department can and cannot do in the current market with the current products.
Sales Culture—Re-Evaluation The sales culture enters a rocky period during the Re-Evaluation Phase. Sales success is declining, and criticism is mounting. Personnel growth opportunities also are declining, and cutbacks in headcount and expenses undermine the building of future confidence. Sales leaders must make a significant investment in active listening, communicating, and engagement events. Location visits, surveys, and informal feedback from the field contribute to understanding the mood and attitude of the field force. Honest communications about challenges and opportunities increase sales personnel capacity for commitment and loyalty. Sales personnel fill any “silence” with their own (often negative) interpretation of what’s going on. However, hearing bad news is better than hearing no news at all. And, empty “rah-rah chants” are embarrassing and confidence-eroding. Engagement in planning sessions and location feedback sessions helps the sales force to understand the company’s challenges. They are more willing to support the difficult road ahead if they feel “included” and “consulted.”
Sales Execution Proficiency—Re-Evaluation Sales leaders must meet a variety of objectives, including achieving overall sales volume goals, meeting individual product sales goals, reducing
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costs, and improving sales productivity. Each of these eff orts requires a high level of execution competency. Well-informed sales representatives, sales managers, and support staff have assigned accountabilities. Executing these demands assignment clarity, performance measurement, and outcome accountability. Sales leaders need to implement continuous process-improvement programs to monitor and improve the health of all sales processes on an ongoing basis. Likewise, outcomes need detail tracking, too. Rigorous measurement and accountability will improve sales performance.
Sales Leadership in the Optimization Phase As a company enters the Optimization Phase, improved opportunity segment planning opens vistas of new customer types. The bounds of the current sales coverage now limit growth. Active sales leadership is necessary to align sales resources with better growth opportunities found in more favorable markets. The perplexing challenge is to continue to serve historic markets, while at the same time create new coverage solutions, perhaps managed by others, to “optimize” these growth opportunities. This phase marks a profound change for the sales department. Most visages of a unified sales coverage model now give way to segment-specific selling entities. Yes, traditional selling resources will remain—selling to existing customers. But new, nonconventional sales methods might best serve new markets. A sales department, in this phase, is no longer a single entity. As segment managers identify profitable growth opportunities in new/mini/ micro/underserved markets, they will devise selling solutions to best serve these markets. These selling solutions may look nothing like the old sales model.
Strategic Sales Vision—Optimization Sales leaders during the Optimization Phase must fully grasp the evolving nature of the customer populations. In the past, the strategic sales vision focused on setting sales goals and organizing the sales department. Going forward, the strategic sales vision becomes more process-oriented. In other words, sales management must now determine how best to identify market opportunity segments for new coverage solutions. This effort requires joint planning with product divisions and segment managers. By reorienting their sales planning process to be customer-centric, multiple solutions for sales coverage become available. Some of these sales solutions will reside in the sales department. Other sales solutions might reside outside the sales department, such as new sales teams, Web solutions, telesales, and new indirect channel partners.
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Sales leaders who create a successful strategic sales vision move beyond sales goals and execution excellence and instead adopt more advanced process planning methods to identify, sell, and serve new and diverse markets.
Sales Force Advocacy—Optimization The sales leader embraces new sales solutions that serve current and new segments. Sales leaders become less provincial regarding sales force advocacy during the Optimization Phase. No longer focusing on just the selling resources within the sales force, sales leaders provide a charter for sales excellence regardless of sales force ownership. Sales leaders promote the principles of effective sales management, sales planning, and sales deployment. As segment leaders become more responsible for selecting and managing sales resources, sales leaders need to provide direction on how best to sustain excellent selling competencies. A sales leader can promote sales force excellence by educating stakeholders, establishing principles, and monitoring outcomes. While segmentation might drive disaggregation of the sales force, sales leaders should not stand as a witness to the dilution of well-known sales-effectiveness practices.
Sales Culture—Optimization A new focus on customer-centric sales solutions provides the sales leader with a platform to promote best-of-breed selling based on segment needs. Over the phases of growth, the sales culture has evolved. Beginning with the innovative sales discovery in the Start-Up Phase, excellent sales execution during the Volume Growth Phase, and improving sales value during the Re-Evaluation Phase, the Optimization Phase reorients the sales culture to be more customersegment centric. In the Optimization Phase, sales leaders will help build the sales force culture by educating sales teams about their customer responsibilities. A sales culture built on increasing customer value provides the broadest platform for exceptional performance. Sales planning sessions, sales leadership messages, and sales strategy documents provide sales leaders with the means to promote this new, “customerfirst” sales vision for the company.
Sales Execution Proficiency—Optimization The Optimization Phase presents significant challenges to sales leaders. Sales execution, during the Optimization Phase, is more about effectiveness than efficiency. An effective sales leader knows which solutions to apply to different situations. Managing diverse segments and sales channels requires insight by sales leaders to select from many sales methods. With multiple sales entities, sales execution proficiency will occur at the sales unit level. Sales leaders need to educate all those responsible for managing sales resources on how to
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improve sales effectiveness. The greatest learning a sales leader can provide to those directing sales resources is to acknowledge that while there are many sales solutions, only a few solutions are appropriate given the selling circumstances. Knowing not to chase fads, apply universal solutions, and use programs that don’t match the phase of growth brings an advanced level of understanding to those responsible for sales execution proficiency.
SUMMARY Competent sales leadership provides the basis for guiding, improving, and transforming a sales entity. As companies move through the growth phases, sales leadership requirements will shift, and the successful sales leader will shift with these requirements.
WHAT CAUSES SALES LEADER TURNOVER? The growth phases present many challenges to sales leaders. The highest turnover of sales leaders occurs during the Re-Evaluation Phase. Why? While most sales leaders can successfully navigate across the phases of growth, some stumble during the Re-Evaluation Phase. The Re-Evaluation Phase brings many performance and political challenges to sales leaders. The most common error is to assume that the successful sales solutions of the Volume Growth Phase will continue into the Re-Evaluation Phase. Senior management will not support sales leaders who do not achieve target goals, who are insensitive to product manager’s needs, and who ignore the call for cost reductions and productivity improvements. As a result, turnover of the sales leaders tends to spike during the Re-Evaluation Phase of growth.
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Opportunity Segments Sales organizations use opportunity segments to plan, deploy, and utilize sales resources. An opportunity segment is the intercept among three changing variables: a customer population, a product set, and a sales channel. Opportunity Segments describe who the customers are, what gets sold to these customers, and who sells it. The following sales-effectiveness practices change through different growth phases: segment characteristics, product configuration, buyer profiles, and competitor position. Opportunity segments are the headwaters of the Sales Management System. They’re the starting point for developing an effective sales organization. Each opportunity segment consists of a customer population, products/services, and sales resources.
Opportunity segments provide the basis for allocating resources. Opportunity segments that offer high growth potential and promising profit outcomes get additional selling resources. Less promising opportunity segments wait for favorable sales ROI before sales management commits sales resources. In some instances, however, low return but high strategic importance segments may get substantial sales investment.
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TYPES OF OPPORTUNITY SEGMENTS As outlined in Chapter 2, opportunity segments contain three elements: product, customers, and a sales channel.
In Chapter 2, we describe three types of opportunity segments: product priority, customer priority, and channel priority. •
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Product priority opportunity segments A product priority opportunity segment begins with a great product. Because the product is often a technical or a service breakthrough, the highest “value” of the segment is the product. The next step is to find a customer population willing to buy the product. With a customer population identified, sales management can configure a sales channel solution to reach those customers. The order of planning for product priority opportunity segments begins with product first, customers second, and sales channel third. Customer priority opportunity segments Customers are at the apex of the customer priority opportunity segment. Market managers begin with a deep understanding of customer needs. They oversee the development of products/solutions that will match customer expectations. The order of customer priority opportunity segments begins with customer needs first, product features/solutions second, and sales channel third. Channel priority opportunity segments A channel priority opportunity segment recognizes that customer access—via a sales channel—is the starting point for opportunity segment planning. In these markets, without access to customers, through a sales channel, there is no chance to sell products and services. Channel marketing managers specify the types of product that will best fit the sales channel. As a result, the product design needs to meet sales channel requirements. For example, if an indirect channel partner is the best means to access a customer population, then the product must be consistent with the channel partner’s value proposition. Fully understanding the needs of the sales channel will directly influence the
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Figure 6-1 Opportunity Segment Growth
design of the product or service. For example, OEM channel partners specify components for their final end-user product. Companies will have all three types of opportunity segments: product priority, customer priority, and channel priority. While not prescriptive, a company might find itself adding new segment types as revenue growth increases. In Figure 6-1, additional opportunity segments accumulate as the company grows. A company needs to plan go-to-market strategies based on its opportunity segments. These segment types might emerge in a different order from that presented in Figure 6-1, but growing companies will most likely have more than one opportunity segment type.
WHAT IS A SEGMENT? In pursuit of effective sales and marketing solutions, senior managers will frequently miscommunicate with each other because of the semantic trap attendant with the word “segment.” Unfortunately, the word segment has numerous meanings depending on the context of its use. Of course, the generic definition of segment is “a group of like items.” But here is the trap: Which “like things” are being referred to? Without the right syntax, two good strategists conversing with each other about the future planning and application of sales and marketing resources might be hearing completely different implications when the word segment is used. Below, you will notice how different definitions for segment tend to bleed across each other—thus ensuring the opportunity for unintended confusion.
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Market/customer segment. Market/customer segments group customers into like categories. Often beginning with a macro view of potential customers, marketing professionals can make estimates of overall market potential, competitive position, and buyer preferences. Additional efforts by marketing management will further define customers into subsegments using demographic categories, purchase history, or other customer-defined criteria. Product/solution segment. Product managers define product/solution segments as a grouping of like products. These groupings might share a common technology, application, or user type. Often, companies organize their divisions by product type, thus ensuring excellence in product development and manufacturing. In some companies, management will refer to these product segments as “product families.” Channel/sales segment. Sales departments often organize sales personnel into groups depending on the sales channel approach such as direct and indirect customers, global accounts, major accounts, named accounts, telephone sales, and many other gradations. Sales management will often become more granular by examining subbuyer populations using additional factors such as total revenue potential, winnable estimate, cost to sell, cost to serve, and retention prospects.
Each of these three definitions of segment is true. However, in large, complex companies, the use of the word “segment” presumes a significant contextual meaning. Planning leaders must define their segment types carefully before drawing presumptive conclusions about internal and external business conditions or before suggesting necessary next steps. A more inclusive and necessary definition of the word segment incorporates all three of these perspectives—market/customer, product/solution, and channel/sales. •
Opportunity segment. An opportunity segment is the intersection of a market/customer, product/solution, and channel/sales. To fully define an opportunity segment, sales planners must define which products will be sold to which customers by which sales channel. Business unit management, marketing, and sales management can more completely plan go-to-market strategies by using opportunity segments to plan strategies, tactics, and resource allocation.
We do not suggest replacing or retiring any of the traditional segment definitions. They play a role when examining those focused topics. However, when planning encounters an environment with numerous product families, a variety of customer types using a range of selling resources, then using the more inclusive and complete opportunity segment definition becomes mandatory for planning purposes.
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DIMENSIONS OF SALES EFFECTIVENESS— OPPORTUNITY SEGMENTS The following opportunity segment elements define the characteristics of available segments. These elements help sales leaders evaluate and test opportunity segments: •
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Segment characteristics. Segment characteristics provide the “size” information about the segment: How large is the segment? How much share of the segment does the company have? What is the growth rate of the segment? What is the long-term potential of the segment? How much does it cost to serve the segment? And what would the company’s sales goals be, both short and long term for the segment? These questions present numerous analytical opportunities to size and project the revenue and profit opportunity for the segment. Much of this effort requires external analysis of segment characteristics. Product configuration. Products have many features; these include design, physical and/or service elements, packaging, promotion, and pre- and postsales service support. Product configuration will vary by opportunity segment. Skilled product divisions know how to configure their products to match the needs of the opportunity segments. Buyer profile. A buyer profile specifies the value proposition that will win a buyer’s purchase. It describes the buyer’s circumstances, such as motivation, limitations, and buying preferences. By articulating the different types of buyer profiles, internal teams can develop sales messages and selling methodologies to successfully win buyers in multiple opportunity segments. Advertising, promotions, demonstrations, and sales collateral anticipate each segment’s buyer profile. Competitor position. Competitor-position analysis provides the dimensions of competitors’ market position, strengths, and weaknesses. Advanced competitive analysis compares relative product offering and market position to that of the competitors. While the market might be large, competitor position with current customers may preclude achieving aggressive growth goals. Insights into competitors’ offerings provide additional information to bolster sales messages when competing against competitors.
Select industries have to also consider other factors such as laws and regulations that may affect their opportunity segments. These elements provide the basis for judging the attractiveness of a customer population for sales coverage purposes.
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OPPORTUNITY SEGMENT TOOLS Opportunity segments reflect a “bet” by the company that it has the right products to sell to the right customers with the right sales channel. In the early phases of growth, companies will make this bet on a hunch, intuition, and maybe some research. Later, when faced with numerous opportunities, the company will need to delve into the worthiness of each segment. Whether driven by informal judgments or extensive analytics, sales leadership contributes to this planning as a company pursues its business opportunities. Every company needs to build its own decision model to determine which segments are attractive to the company and which segments might not provide the right return. Figure 6-2 displays an example of such a decision model. In this case, the model examines each segment factor—product, customer, and channel—and provides weighted assessments. Opportunity segments with higher scores are more attractive to the company.
Figure 6-2 Segment Assessment Example
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Figure 6-2 is an illustration of two opportunity segments—core product to large customers and core product to small customers. Notice how the weightings of the factors shift depending on the “priority” type for each segment. For product priority segments, the model more heavily weights product features. However, for the second segment, because it is a channel priority, the model gives more weighting to channel features. As displayed in Figure 6-2, each feature of each opportunity segment element—product, customer, and channel—needs assessing. In Figure 6-2, the “better” opportunity segment is segment 2—core product to small business market. Of course, a more comprehensive method quantifies the size, growth, profit, and costs to serve a segment. Also, some factors could be contingent on certain factors, which means that the company cannot commit resources to a segment unless all contingent elements have a score of, say, “3.” Figure 6-3 provides an additional explanation of the rating for each feature. As the company grows in complexity, the need to evaluate opportunity segments will increase. Additional factors such as segment cannibalization, cross-segment pricing seepage, strategic importance, and long-term objectives will be important factors for many companies. While the analytical methods can become complex, the basic approach is to judge the worthiness of each opportunity segment. While it may seem odd
Figure 6-3 Opportunity Segment Elements Rating Guide
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that sales management is doing what appears to be “strategic analysis,” these processes are essential for assessing the utility of deploying expensive customer contact resources to various opportunity segments.
DIMENSIONS OF SALES EFFECTIVENESS— GROWTH PHASES The following describes the application of opportunity segments during each phase of growth.
Opportunity Segments in the Start-Up Growth Phase While investors might want to see exhaustive analysis of the company’s opportunity segments, start-up management has a simple goal: get customers to buy. Ongoing use of analytics, modeling, and surveys will come later in the growth cycle. A young company has few precious resources, and the scarcest is time. The sales organization needs to produce revenue and produce it quickly. What is the best way to evaluate an opportunity segment? Easy: Go try to sell something. See what works and what does not work. Try a variety of approaches and a variety of buyers. Let multiple resources discover the viability of an opportunity segment by simply doing—that is, seeing if customers are willing to buy. In many respects, after the sales call, real-time assessment is the best method for assessing a segment’s viability.
Segment Characteristics—Start-Up Generally, the market appears so huge to the start-up company, correctly “sizing” the market should take no longer than some intuitive, but practical analytics. How many households are in the United States? How many companies have bank loans? How many companies could use mobile devices? How many companies operate truck fleets? General questions will reveal the overall size of the market at this stage of growth. Later, sizing information will become more important, but in the beginning, general estimates are suitable.
Product Configuration—Start-Up It’s incorrect to assume that, “The product is what the product is,” in a start-up company. Product designers are hard at work, upgrading and improving the product offering. They also are learning by doing. It’s conceivable that the product will change and rapidly gain new features, will be displaced by the next generation, or will be custom-configured for initial customers. Rapid product advances is the norm during this phase of growth. The sales department needs to be nimble as the product advances. Like the sales department, the product group
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is starved for investment dollars, so rapid and sometimes erratic development takes place with little formal research and testing unless required by law.
Buyer Profile—Start-Up One of the wild cards for start-up companies is the appetite for the product. If the product dramatically solves a problem; meets a need; or performs better, cheaper, or both than a competitor’s product, the company may have a “winner” on its hands. On the other hand, the buyer population could be deeply reticent. In such cases, sales management must focus on early adopters to gain favorable reference accounts. Buyer profiles might be uniform or disparate. Buyers might be informed or ignorant. The purchase could be a high-risk decision requiring careful vetting of the purchase, or it may represent a low-risk decision easily corrected or ignored if the product turns out to be less than satisfactory. Sales personnel work on their “pitch” to test different messaging for buyer types. There is widespread variation in the selling approach as frontline sellers look for winning value propositions.
Competitor Position—Start-Up For the most part, start-up companies should avoid trying to fully emulate competitors. The market is so frothy that the competitors themselves are uncertain of the right sales solutions. Of course, when attempting to penetrate an existing market, the start-up player needs to be keenly aware of the competitors’ value proposition so that the young company can successfully differentiate itself. Research into competitor actions might be informative; but it can also distract management momentum and a needed propensity to action. Formal strategic analysis is a luxury that few start-up companies can afford. Additionally, the process of analysis may be distracting and not timely enough for a fast moving, flexible entity. However, adopting the thinking, terminology, and frameworks around sales planning using opportunity segments will provide dividends in the future.
Opportunity Segments in the Volume Growth Phase In the Volume Growth Phase, there is a natural drive to isolate and focus on what’s working. The experimentation of the Start-Up Phase now recedes, and the winning sales formula ramps up. The population of customers is expanding rapidly. Sales management begins to recognize the dissimilar needs of different-sized customers. Large accounts require special focus to keep and grow existing revenue. These customers often seek value-added assistance. The middlesized accounts present an array of needs not easily classified. Some want high service; others are most interested in low price. Others don’t want any vendor engagement. Some are loyal; others are not. Small accounts tend to be
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transaction-oriented—but a select few can consume considerable resources— without the attendant returns. Additionally, the company might need to divide the customers between existing customers and noncustomers, creating segments that are “farmer” versus “hunter” populations. In the later stages of the Volume Growth Phase, the company will add new products to help stem the accelerating decline in core business. Regardless of whether the company develops or acquires these new products, sales management will most likely need to expand the number of opportunity segments. Sales leadership uses expedient (and sometimes hobbled together) situational solutions to serve these new segments. Following are the opportunity segment solutions for the Volume Growth Phase.
Segment Characteristics—Volume Growth Once the company has confirmed the revenue potential for the target market, sales management can scale sales resources to capture market share. Now, less cautious, sales management begins to add headcount and field resources in a programmatic way. Sales management develops confidence in shorthand scaling algorithms that provide a formula for adding field resources. Sales management might tie these scaling algorithms to potential growth, customer populations, and actions of competitors. But, more often than not, sales management has a simple payback formula that quantifies the return on the cost of every dollar invested in sales resources. Sales management defines the segment characteristics as its ability to grow in a predictable manner according to the scaling algorithms. Here are examples of these algorithms: “Add another major account representative that costs XYZ dollars and expect ABC sales dollar production within the first year.” Or, “Add a new location at XYZ costs and expect ABC sales volume dollars within the first two years.” During this phase, as sales volume increases, marginal costs drop, driving up profits. Sales management and finance seldom conduct specific profit analytics. The accepted formula says, “As we add top-line volume, bottom-line profits will increase.” The unfolding rapid company growth uses a “plug-and-plan” approach to growing the business. During the Volume Growth Phase, the primary limitation to sales growth, beside production constraints, is sales resource funding.
Product Configuration—Volume Growth The “core” business product/service offering is succeeding. In the early stages of the Volume Growth Phase, the core business product team is excelling at ramping up product availability and improving product execution. A wellversed product theme promotes an assured product message. Product-centric collateral begins to appear, providing helpful selling tools to the field organization. The product division begins creating multiple versions of the core
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product. Varied but fixed pricing packages become available for different buyer types, reflecting the growing list of product configurations. Requests for special product applications begin to grow as customers seek more tailored solutions. Product management starts to add new but compatible products that are complementary to core business. Anticipating a future slowdown in the core business, or concerns about market position, senior management may make strategic acquisitions to “round out” the family of core products. Product managers proliferate; each an advocate for his or her assigned product. Competition for sales force “mind-share” increases as more product managers seek to promote their products. There is growing concern about “orphaned” products not getting the attention they need.
Buyer Profile—Volume Growth The number and scope of buyer types increase dramatically. The customer population moves beyond first adopters to widespread and diverse customer types. The following customer subopportunity segments emerge: •
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Customers: users versus nonusers. The traditional population of sales opportunities begins to separate between users and nonusers. Initial sales messages were missionary in nature promoting the use of the new solution. As the Volume Growth Phase continues, buyer population splits between those who will use the product (or a competitor’s product) and those who will not purchase. As the population of nonusers declines, the remaining population of nonusers becomes increasingly concentrated as “diehards,” those reluctant to make the move to the new solution. Sales messages need to match these two different populations. Product importance: high versus low. For some customers, the product is immensely important; for others, less so. Along the arc between these two extremes rests a span of buyer types who either have a high need for the product or who do not see the product as a critical purchase. Selling methods must accommodate this range of buyers. Size: large versus small. One of the most visible splits among buyers is the size of purchase. Customers who make large purchases expect attentive selling solutions, whereas those who purchase small quantities expect simple sales messages and product availability. Degree of touch: intense versus hands free. Some buyers will need intense seller support as they make their buying decision; others will be savvy buyers who might seek “hands-free” purchase options. The sales department needs to mirror this degree of risk/uncertainty when selling to cautious buyers versus confident buyers. Competitor customers: loyal versus shoppers. As the company is succeeding in the growing market, competitors are gaining new customers, too. Some
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of the competitors might secure customer loyalty, making it difficult to “switch” suppliers. These customers will need inducements to get them to stop buying from a competitor and switch to your company. Other customers show low loyalty and are willing to switch for a minimal improvement in functionality or a slightly better price. These shoppers are practical buyers who foreshadow the emergence of RFP purchasing that becomes more rampant in the Re-Evaluation Phase of growth.
Competitor Position—Volume Growth Meanwhile, competitors are making sales strides, too. Product divisions carefully monitor competitor actions to preclude being leapfrogged by new features or technical solutions offered by competitors. More aggressive competitor research is necessary to track competitor actions. Those companies not investing in their products are quickly bypassed by the market leaders. Some of these companies fail; and, in some cases, the stronger players purchase the weaker companies. Paradoxically, as the rate of product enhancements quickens, the disparity in product offerings among companies becomes less distinct, almost to a point of parity, among competitors. Sales differentiation based on product features becomes increasingly more difficult. Ironically, as the opportunity segment of the core business initially demanded greater uniformity of sales execution for scaling purposes, growing buyer diversity challenges these uniform selling solutions.
Opportunity Segments in the Re-Evaluation Phase As growth declines, profits erode quickly. Large volumes of core businesses are breaking even, slightly making money, or in some cases losing money. Overall, the company’s cost structure has grown too large and is no longer competitive. Numerous product versions overpopulate the company’s value proposition. Sales management continues/attempts to drive volume growth through penetration selling (cross-selling and up-selling) to existing customers. This productpush strategy strives to gain more “customer wallet share.” In the later stages of the Re-Evaluation Phase, some segments will require price discounts to hold share as customer churn increases. These price reductions may occur as direct price reductions, better terms and conditions, free samples, or no-charge/ discount service periods. The company—and the sales force—enters a period of forced productivity improvement and top-down cost-control initiatives.
Segment Characteristics—Re-Evaluation In this phase, the company acquires a keen understanding of the size and value of the core business. Sales management conducts a full analysis of the revenue, cost, and profits for the now well-established sales coverage populations
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divided by size (major accounts, named accounts, and territory accounts), industry, and/or buyer type (current or new customers). Sales leadership develops strategies to improve growth and profitability by: • • • • • •
Increasing the value of each sale through solutions selling of premium value offerings. Improving productivity through better performance management, improved training, or more aggressive compensation plans. Eliminating excessive headcount and nonproductive personnel. Transferring low-end selling to lower cost sales resources. Removing nonselling tasks from the high-cost sales jobs. Shedding nonvaluable customers.
The focus in this phase is on increasing the economic value of each target opportunity segment.
Product Configuration—Re-Evaluation By the time a company has reached the Re-Evaluation Phase of growth, there is normally a proliferation of products with numerous and competing product divisions. “Product rationalization” efforts during this phase will consolidate the product divisions and reduce product redundancies and help eliminate marginal product variations, which product management spawned during the Volume Growth Phase. Production capacity reductions take place during the Re-Evaluation Phase, too. The divestiture of products resulting from poor fit, poor competitive position, or poor profit prospects occurs, too. Extensive efforts to reduce product costs include supply-chain enhancements and the adoption of quality improvement programs.
Buyer Profile—Re-Evaluation Buyer power increases in the Re-Evaluation Phase. Buyers become savvier. They acquire advanced knowledge about the product offering. They become less riskadverse and are willing to experiment with their purchasing commitments. They also demand more from suppliers. And they require suppliers to compete with each other through RFP (request for proposal) processes and competitive vendor “bake-offs” where vendors openly compete with each other to secure the customer’s business. Buyers will often switch suppliers to save fractions of a percent on their purchases. Some customers will substantially reduce the number of approved vendors and negotiate favorable terms with a few, select preferred vendors.
Competitor Position—Re-Evaluation Traditional competitors face the same conditions and pursue the same profitimprovement and customer-retention tactics. The company is fully aware of competitor actions and invests to match and exceed competitor product
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features, pricing, and service levels. Competitive advantage is short-lived. Products reach a point of parity. Many small, undercapitalized marginal competitors exit the market. The remaining companies compete aggressively and trade market share points among themselves. For some market segments, the greatest competitive threat comes from initially misjudged, insignificant niche companies. These nimble, nontraditional niche competitors take market share with an improved solution, a disruptive channel model, or a lower cost allowing for deep price discounting. Often dismissed as “fringe” competitors, the successful niche competitors drill up into the market from under the established players. They succeed with alarming speed being free of bloated bureaucracies, tired products, expensive staffing models, and rigid customer contact practices.
Opportunity Segments in the Optimization Phase If a company survives the Re-Evaluation Phase, then its future fortunes depend upon a new sales strategy. Success can no longer depend upon riding up the bubble of a scaling product. Corporate success will depend on running multiple businesses simultaneously rather than doing one thing really well. A new charter of corporate success will emphasize a customer-centric multiple opportunity segment approach. Corporate leadership will need to reconfigure the functional areas of the company. The mindset of those running semiautonomous sales department and independent product divisions will hinder future growth and profit objectives.
Segment Characteristics—Optimization During the Optimization Phase corporate management will manage a portfolio of opportunity segments each with its own value proposition, product configuration, and tailored sales coverage model. More advanced strategic planning tools will help assess the economic value of each opportunity segment. Corporate leadership now correctly defines Opportunity Segments as business opportunities containing a product offering, a target customer population, and a suitable selling resource. These advanced planning tools will include analysis of segment attractiveness such as growth rate, customer availability, profitability, competitors’ positions, and other environmental factors. Additional assessments include market share strength, product competitiveness, brand value, reputation, and economic strength. Corporate leadership will make the resource allocation decisions based on these Opportunity segment assessments. The outcomes of these allocation decisions will have a profound impact on most company functions including the sales department. The value proposition of each opportunity segment is unique to that opportunity segment. For example, some high-margin opportunity segments
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may require high-touch, engaged support. Others might need low-cost customer service teams or a hands-free, Internet purchase model. Depending on the scope of the opportunity and the uniqueness of resources needed to support the opportunity segment, different sales resource solutions are available. Items in the list that follows range from the highest degree to the lowest degree of segment dedication: •
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SBU. An SBU (Strategic Business Unit) has it own production, marketing, and selling resources. An SBU has its own dedicated sales resources to promote its products to specialized markets. MBU. An MBU (Market Business Unit) has its own marketing and selling functions, but relies on other internal or external entities to produce its products. The selling resources are exclusive to the MBU. Dedicated product and market sales specialists. The next option for focused selling resources is to assign sales resources to promote a specific product or sell to a specific vertical or buyer segment. Market management will ensure that products meet the customer needs. Product and market overlay specialists. While dedicated sales specialists have their own accounts, overlay specialists work with current account managers to promote product solutions or to sell to unique customer populations. Opportunity segment sales messaging. Finally, the minimal level of opportunity segment dedication is to have carefully crafted sales messages prepared for each customer population. Market managers prepare these messages and train the sales force to deliver them to prospective and current buyers. For call centers, these messages might be prescripted and display when sellers access a customer’s profile.
THE GOVERNANCE CHALLENGE OF THE OPTIMIZATION PHASE The Optimization Phase introduces the era of multiple business entities and solutions dedicated to specific market opportunities. Neither product management nor sales leadership has the authority or perspective to reconfigure resources to match the now redefined and revalued market opportunities. This creates a governance challenge at the corporate level. Who will decide which segments get which resources? Who decides which products will be funded? Milked? Or divested? Which customers will get which types of sales resources? Fortunately, there are several solutions to address this governance challenge. For example, the executive committee can establish a strategic planning council with staff support or assign these duties to a central market management department.
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Product Configuration—Optimization Product configuration becomes much more sophisticated during the Optimization Phase. The focus on low-cost production solutions required during the Re-Evaluation Phase now shifts to highly flexible and custom manufacturing processes. This shift also occurs for companies providing services. Market management replaces rigid service solutions with flexible, intuitive service offerings. Product development becomes much more customer-centric. Opportunity segments help define customer needs. Product development matches those needs. Gone are the days of untethered product development efforts. Extensive customer research by opportunity segment reveals customer requirements. Market management, product managers, and sales resources work closely together to develop attractive products for each opportunity segment. The outcome is for market management to carefully control product design and production capacity by specifying the best product choices for the most attractive opportunity segments.
Buyer Profile—Optimization Researching and developing detailed buyer profiles become core competencies in the Optimization Phase. Market-driven opportunity segment planning requires a deep understanding of customer buying preferences. Market-based opportunity segments exist because buyers have unique needs. There are many valences on which to measure and define a buyer preference. Some of the categories include the following: •
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Buyer needs. Do customers need your product? The foundation of any selling process is to gauge the degree of need. Customers who think they need the product often require less selling resources; whereas, customers who do not see the need for the product might require additional selling intensity. Buying capacity. Dividing customers by buying capacity ensures that sales management correctly matches the selling resources to the buyers’ potential. Buyer loyalty. Loyal customers are harder to lose and are difficult to break free from current suppliers. Buyer demands. To what extent will customers purchase the “standard” product offering? To what extent do they wish to purchase custom solutions? Price sensitivity. Buyers exhibit different levels of price sensitivity. Sales solutions must successfully address those that are price conscious versus those that are not. Purchasing status. Buyers may already be buying your product or may purchase a competitor’s product. Their purchasing status will affect sales processes.
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Buying risk. Customers have different levels of risk. Customers who perceive purchases as being high risk require special attention. Customers who view purchases as low risk need less attention. Buyers can reduce their risk by increasing their knowledge. The more knowledgeable the customer, the less risk they perceive in the purchase. These and other buyer factors will affect selling strategies.
Competitor Position—Optimization Well-managed competitors will seek higher growth and a more profitable business, too. Competitors also prefer to avoid fighting no-win price wars over undifferentiated products, as was the case during the Re-Evaluation Phase. Market management needs complete competitor knowledge to help guide product development, creation of value propositions, and redefine Opportunity Segment attractiveness. In hostile markets, competitors can easily eclipse a favorable market position. The company needs to make investments in competitor research to be fully informed of threats.
SUMMARY While young companies may not embrace formal opportunity segment planning in the early phase of their growth, it will become paramount when the company must make calculated resource decisions to find and occupy growth markets with favorable cash flow and healthy profits.
TYPES OF OPPORTUNITY SEGMENT SPECIALIZATION The following types of opportunity segment specialization will emerge through the Growth Phases: •
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Segment value propositions. Product divisions will improve the value of their products by making them more segment-specific. Market managers will help define buyer needs so that solutions, products, and service offerings match the buyers’ expectations. This effort will require new competencies within the product divisions to better identify, define, size, and prepare effective segment sales messages for use by sales personnel. Virtual integration. Using the backbone of advanced CRM (customer relationship management) software allows for virtual and tighter integration of specialized customer contact resources from market promotion, to sales, to fulfillment, and, finally, to ongoing customer service support.
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Dedicated markets. New, dissimilar segment opportunities might require dedicated field overlay support and perhaps new, dedicated sales entities. Market business units. Market business units (MBUs) do not have their own production but do have their own marketing and selling resources. MBUs focus on a defined customer population. Product divisions configure, at the request of MBUs, products and services to meet the market segment. Strategic business units. Strategic business units (SBUs) include production, research and development (R&D), marketing, and sales focused on a specific business opportunity. These autonomous units (like a start-up) must resolve the untold number of daily challenges growing a business face. Line of business. Line of business (LOB) units represent a family of products. LOBs are stand-alone business units of the company. LOBs have one or more dedicated sales teams.
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Coverage Design Sales management makes selections on how to reach customers with sales resources. These choices can vary from direct sellers to the use of indirect sales partners. As a company grows and matures, the use of new sales channels may help the company reach markets beyond the traditional channel approach. During the four phases of growth the following factors will affect channel selection and deployment decisions: buyer preferences and product features, channel competencies, channel ROI, and competitor impact. Sales Coverage Strategy defines a company’s go-to-market strategy. In its simplest form, a go-to-market strategy outlines who will sell the company’s products to which customers. As we will learn, most established sales organizations have a well-articulated and functional sales coverage model. It seems almost implausible that the current coverage approach would be anything but appropriate for the company. But, through the lens of time, most sales leaders know that the sales coverage model will shift as product types and buyer populations—that is, opportunity segments—change.
Making sales coverage decisions are big bets for a company. The investment in coverage resources precedes revenue and profit performance. Poor decisions by sales leadership can be costly to the company. Likewise, changes to the current sales coverage model have their own risks. Incorrect disruptions in the current selling approach can leave the company with declining 99
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sales and possibly damaged favorable customer relationships. For example, the decision to hire direct sales personnel and abandon an established distributor network can be costly if the new direct sellers cannot match the distributors’ market reach. It’s hard to go back. Former spurned partners will be reluctant to “trust” a manufacturer or service company that made such a decision at their expense.
OVERVIEW OF COVERAGE DESIGN CHOICES Sales coverage strategy describes the different means of accessing, persuading, and fulfilling customers as grouped into sales channels. A sales channel is a pathway to customers. The summation of a company’s sales channels and their responsibilities equates to a company’s coverage design. A company can employ one too many different sales channels. The nomenclature for describing sales channels continues to evolve as new and different channel intermediaries emerge to serve morphing Opportunity Segments. Driven by the ambitions and creativity of channel partners and facilitated by new and emerging communications, IT, and logistics solutions, both direct and indirect channel solutions are growing and changing. This will continue unabated into the future. The two major categories of channel types are direct and indirect. Direct means that the producer sells to end users with its own employees. An indirect channel is not a producer. An indirect channel buys from the producer (or represents the producer) and sells to the end user or another intermediary in the demand chain. However, the continuous change in channel models makes it difficult to describe direct and indirect sales channels in a black-and-white fashion. Figure 7-1 provides an overview of channel types and their function. While the list in Figure 7-1 displays the most common types of channels, many subtle variations of each type exist. For example, there are many types of field sales, including global accounts, key accounts, named accounts, vertical markets, and geographic territories. Likewise, in the indirect space, there are many types of retailers, for example, big-box, mass market, and specialty retailers. Of special interest is the hybrid or virtual design channels where companies stitch together different channel parts to provide a unique channel solution. For example, Apple sells music through its Web-based Apple iTunes channel, and this music is played on the Apple iPod platform sold through Apple’s corporate retail channel. Another example is the sale of zero profit (loss leaders)
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Figure 7-1 Sales Channels
mobile devices from different manufacturers through retail stores operated by network providers with the primary strategy of capturing network monthly usage and purchase fees.
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DOES THE WEB SELL? We know that the Web is an education provider for products. We know that the Web offers buyers a chance to evaluate products through expert and community opinions. We know that the Web acts as the product for content and service providers. We know that the Web provides order fulfillment functions. But does the Web sell? Does the Web persuade customers to purchase? The use of “suggestive purchase” methods by search engines and e-mail solicitation pushes the Web into the realm of being a sales agent—a seller.
DIMENSIONS OF SALES EFFECTIVENESS: COVERAGE DESIGN Sales coverage choices flow from opportunity segment requirements. Each opportunity segment normally has one to several best-fit sales coverage solutions. As the product mix changes and buyer preferences evolve, corporate management redefines the opportunity segments. The coverage design planning process begins with the preferred target, opportunity segments The following factors affect the choices for the right coverage design.
Buyer Preferences and Product Features Buyer preferences and product features bring unique characteristics to each Opportunity Segment. The coverage design provides a bridge between these two independent elements. As such, the sales channel design, selection, and investment is an outgrowth of creating a suitable sales link between the value of the product and the buyer’s purchase preference. Creating well-aligned sales coverage solutions is a constant challenge. Unfortunately, the available sales coverage solutions do not always conveniently align buyer preferences and product features. This scenario always has limitations and requires sales coverage compromises in one form or another.
Buyer Preferences Buyers do not share uniform buying preferences. Collectively, they represent a wide range of purchasing needs and behaviors. The most common factors influencing buyer preference are: •
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Number of potential buyers. How many customers are potential buyers ready to purchase—from “high number of potential buyers” to “low number of potential buyers”? Importance. How important is the product to the customer—from “mission critical” to “incidental”?
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Risk. What risks does the purchase present to the customer, to the user, to the approver—from “high risk” to “low risk”? Uncertainty. Does the customer have uncertainty about the product’s features, benefits, and application—from “high uncertainty” to “low uncertainty”? Costs. Will the cost have a significant impact on the company or budget— from “high-cost impact” to “low-cost impact”? Purchase authority. Where is the purchasing authority for the product— from “central purchasing” to “local purchasing”? Stakeholder count. How many stakeholders need to approve a purchase— from “a single buyer” to “numerous buyers”? Timing. What is the customer’s timing—from “immediate” to “some unknown point in the future”? Product distinctiveness. How does the customer view the product offered by the company—from “highly distinctive” to “not distinctive”? Price/terms sensitivity. Is the customer’s buying decision sensitive to minor differences in price or terms—from “high sensitivity” to “low sensitivity”? Presales support. Does the customer need additional presales support prior to making a decision, such as education, demos, application tests, and comparative evaluation processes—from “high presales support” to “low presales support”? Postsales support. Does the customer need after-the-sales support—from “high postsales support” to “low postsales support”? Repeat purchasing. Does the customer plan/need to repurchase the product in the future—from “high repeat/ongoing business” to “single purchase event”? Affiliation needs. How important is the personal relationship to the buyer—from “high affiliation needs” to “low affiliation needs”?
Each of these buyer preferences plays a role in the calculus of how customers view purchase decisions.
Product Features We use “product features” in the broadest term to capture the utility and value of the products and services. Many of these factors complement the abovelisted buyer preferences. • • •
Product utility. Do the product’s features meet customer needs—from “high utility” to “low utility”? Distinctiveness. How distinctive is the product—from “visionary” to “conventional”? Complexity. How technically complex is the product—from “extremely complex” to “simple”?
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Reputation. How does the company’s reputation affect the product’s market position—from “enhances market position” to “distracts from market position”? Competitive position. How does the company’s product compare to competitors’ offerings—from “superior” to “inferior”? Price position. What is the strategic price position of the product—from “premium pricing” to “low price leader”? Unit volume. How many units does the company plan/need to sell on an annual basis—from “high number” to “few”? Profitability. What are the product’s profitability expectations—from “high-profit expectations” to “low-profit expectations”?
These product features help define which channel will best support the coverage design.
Channel Competencies Sales channel competencies complete the investigation of which channels will best bridge the sales link between buyers and products. The list of sales channels in Figure 7-1 describes the function of the channels. Below are the dimensions that define sales channel characteristics: • • • • •
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Reach. How many customers can the channel reach—from “extensive market reach” to “limited market reach”? Inventory. Does the channel need to carry product inventory—from “extensive product inventory” to “no product inventory”? Presales support. Can the channel provide extensive presales support—from “high presales support” to “no presales support”? Postsales support. Can the channel provide postsales support—from “extensive postsales support” to “no postsales support”? Custom configuration. Does the channel need to do any custom configuration of the product to meet customer needs—from “each sale requires extensive custom configuration” to “no configuration needed”? Competencies. Does the channel need previous selling competencies to sell the product or call on the target customers—from “requires high selling competencies” to “no previous experience required”? Financial commitment. How much financial investment must the channel members make—from “high financial commitment” to “minimal financial commitment”? Quality of personnel. What is the quality requirement for channel personnel— from “high-quality personnel” to “acceptable foundation personnel”? Dedication of resources. To what extent does the channel willingly dedicate resources to the product and the buyer populations—from “substantial resource dedication” to “minimal resource dedication”?
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Qualifications. Does the channel need unique qualifications such as certifications, licenses, and legal status—from “extensive qualification required” to “minimal qualifications required”? Longevity. Does the channel have the expected longevity to serve the life cycle of the product—from “high longevity” to “low longevity”? Reputation. Does the channel’s reputation make a difference—from “exceptional reputation needed” to “lack of reputation not a hindrance”?
These channel features help answer the question, “What is the right method/resource to sell product X to customer Y?”
Channel ROI Sales return on investment compares the cost of the channel with the economic return. Market reach describes how many customers the channel can access. In Figure 7-2 we examine how these two factors can help evaluate channel appropriateness. The cost element of ROI includes all expenses necessary to support the sales channel, including staffing, compensation, benefits, overhead, infrastructure, discounts, partner concessions, sales support, customer support, factory liaison, and rebates. The market reach defines the number of customers to whom the channel can successfully promote the products. A channel’s market reach is affected by the number of available buyers, channel headcount, close rates, length of sales cycle, and sales support costs.
Competitor Impact The company has to be mindful of its competitors’ sales coverage strategies, too. The competitive advantage of competitors’ coverage strategies can dictate success or failure. Competitors may have a dominant channel strategy or are weak and are struggling to establish a winning sales approach. Competitor market research will reveal competitors’ channel strategy strengths and weaknesses. The caliber and deployment of competitors’ direct
Figure 7-2 Channel Outcomes: Sales ROI and Market Reach
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or indirect sales channels could require matching channel investments to sustain a sales presence with customers. An indirect sales channel strategy adds several layers of complexity, as suppliers compete to sign the best partners. This “sales effort” to indirect channel partners requires its own value proposition, selling, and sustainable management infrastructure. Changes in sales coverage strategies by competitors can benefit or harm a company’s market potential.
COVERAGE DESIGN TOOLS Use the following tools in coverage design planning to help select the right sales channels. A channel decision tree, as presented in Figure 7-3, identifies the company’s key buying conditions and then maps out all the potential channel choices. The illustration of Figure 7-3 is unique to one company. Each company would test numerous decision-tree variables to best capture the issues and choices unique to the company. This type of chart can help sales planners visualize the overall channel strategy.
SALES CHANNEL DISRUPTORS A more risky but potentially more rewarding sales channel strategy approach is to be a “channel disruptor.” A channel disruptor finds an unconventional go-to market strategy not in use. A radical coverage strategy could pay substantial dividends by opening a completely new unoccupied opportunity segment for the company to dominate. A creative sales strategist might find a new way to link buyers and products. For example, selling car insurance via the Web leaps over the traditional insurance agent sales channel approach.
Figure 7-3 Channel Decision Tree
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SALES COVERAGE GROWTH PHASES The following sections outline the changing nature of the coverage design during the different phases of growth.
Coverage Design in the Start-Up Phase Because of limited capital resources, the Start-Up Phase requires careful selection of a preferred coverage design. In most cases, the start-up company’s lack of funds limits its sales coverage choices. Companies, during this phase, face practical go-to market channel selection decisions. The expedient path is to take a “safe” approach to channel strategy. A safe approach uses accepted sales channel methods already established by others. Regardless, experimentation during this phase will help the company discover the right coverage design. Getting revenue is the primary concern during this phase so that “time to cash” drives initial coverage decisions. Quickly exploring and testing different coverage choices should help the company identify a workable start-up channel strategy.
Buyer Preferences/Product Features—Start-Up Most young companies focus on improving product design, production, and effectiveness. Awareness of buyer needs is (hopefully) inherent in the product design process. Many product-centric start-up companies are not always clear on how to approach the market. For example, the product designers may initially anticipate several versions or value price points for the product. These multiple product considerations act as a precursor to potential multichannel coverage strategies. Regardless, sales management is looking for the best way to ramp up cash flow to support the company’s operations. Generally, the features of the product will drive the channel choice. Hard-to-sell, complex, high ROI products will best be sold by a direct channel. Simple-to-sell, low-complexity, and low-sales ROI should find their way into indirect channels to ensure low-cost market reach. However, exceptions will always exist. For example, dedicated and technically advanced sales channel partners with high customer access may be in a better position to sell the high-price, complex product. As mentioned, following a traditional channel approach might work for some start-up companies while others might try a radical, never-before-tried sales model to reach customers. Experimentation is good, but budget limitations will constrain expansive channel investments.
Channel Competencies—Start-Up During the Start-Up Phase, sales management will look for channel solutions that meet the following objectives: market reach, variable costs, and scalability.
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The channel solution should provide access to customers who offer the best revenue opportunities. Because of limited funding in the Start-Up Phase, variable channel costs are important. Finally, as the company achieves success, additional channel resources need to be available to support added growth.
Channel ROI—Start-Up To secure cash, sales management strives for favorable sales ROI. Interestingly, some well-funded companies are willing to accept negative ROI to achieve economies of scale or capture dominant market share. However, most sales entities seek to improve the ROI in sales resources as quickly as possible by increasing sales and thus driving down the unit cost of selling. As sales management evaluates sales channel choices during the Start-Up Phase, selecting a favorable ROI channel will help improve the company’s prospects to survive the initial stages of growth.
Competitor Impact—Start-Up Sales management in start-up companies are aware of what the competitors are doing. However, there is not much the young company can do regarding their actions. A start-up company is not yet strong enough to displace competitors and their channel strategies. Start-up companies might have trouble attracting the right channel talent such as experienced hires for direct jobs and well-positioned channel partners for indirect access. Normally, a start-up company coexists with its competitors in a frothy business environment during the Start-Up Phase. Quickly finding a scalable channel strategy is of paramount importance. However, the conditions associated with limited funds, traditional selling methods, and competitor positioning will influence—for good or bad—a start-up company’s channel strategy. During the Start-Up Phase, practical channel solutions will prevail. The preferred channel strategy is what creates revenue for the company. Sales management will quickly experiment with various sales channel models. Extensive research and analysis is neither appropriate nor plausible. The right approach is to test various approaches and use the one that works the best.
Coverage Design in the Volume Growth Phase During Phase II, the Volume Growth Phase, success has arrived for the company. The search for the right channel strategy is now paying dividends as the company begins to sell larger volumes and variations of the core product. While the year-over-year change in growth rate will begin to flatten or decline, the company is still adding impressive sales volume each year. This volume growth is helping to bring down unit costs, thus driving up profits. The sales channels are becoming stronger and more populated. As for the direct
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channel, additional sales resources help drive sales volume growth. The same is true for indirect channels as the company continues to add additional partners.
Buyer Preferences/Product Features—Volume Growth The company’s products are now entering mainstream acceptance. From the company’s perspective, buyer preferences are best grouped by account size. Larger customers expect different sales treatment from that received by midsize and small customers. For indirect channels, the same pattern emerges. Larger partners have different needs from those of smaller partners. The core product continues to win and keep customers. The product team continues to make incremental enhancements and often adds multiple product extensions. The company develops or purchases new products to complement the core business. These new products have yet to prove their investment worth.
Channel Competencies—Volume Growth Sales coverage expands quickly. Expanding headquarters (HQ) and field staff resources provide administrative support, solutions, and procedures to ramp up the successful channel strategy. Stratification of the customer contact resources becomes more prevalent. Specializing around account size helps tune the channel selection process. Better channel communication tools and collateral become available. Consideration of multiple channel solutions begins in earnest. Companies using indirect channels start to consider adding select direct channels. And organizations using direct channels start exploring the applicability of indirect partners. Improving coverage through better Web solutions and telesales resources adds additional elements to the coverage design. At the later stage of the Volume Growth Phase, as sales growth rates start declining, sales management ponders these questions: “Can the existing coverage design take the company to the next level?” “Where will growth come from?” “How much additional headcount is needed?” “How will new products get the proper attention?”
IS CHANNEL CONFLICT BAD? Channel conflict occurs when two or more parties are representing the same product to the customer. Is it bad? For the channel partners, the answer is yes. They are competing for the same customer, thus causing “customer ownership” frustrations. But is this always bad for the company? Reducing channel conflict through rules of engagement and product assignment to specific channels will help reduce unnecessary channel conflict. However, not all channel conflict is bad for the company. Sales management should tolerate some minor degree of channel conflict in the effort to ensure complete market coverage.
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Channel ROI—Volume Growth Fortunately, good things are happening with the company’s ROI performance. For the most part, additional revenue is helping to reduce the producing unit’s costs as the company spreads increased volume across fixed structural costs. Additionally, the coverage design contributes to improving sales channel ROI by employing tiered coverage resources to match the revenue stratification potential of the customers. Big customers get expensive resources; whereas small customers get less expensive resources. This allows sales management to contribute to profit growth by improving sales ROI. For indirect channels, it means adding more partners. For direct sales, it means splitting territories and adding more headcount. Sales management also increases “sales loading” on all direct sales resources, which means significantly increasing sales/quota performance for existing sales resources. While absolute costs will increase, the outcome is to have sales volume performance increase at a faster rate than selling costs, which produces improving sales ROI. However, for any sales channel that does not provide increasing sales ROI, sales management may need to make major changes in the coverage design. For example, if a company uses indirect sales agents to sell its products, most likely the commission percentage cost will be constant even as the volume increases. If growth continues to go up, payouts to agents could increase significantly. Absent a renegotiated partner agreement, sales management might find that hiring a direct sales force would be less expensive than staying with the partner model.
Competitors’ Impact—Volume Growth During this phase, sales management takes a close look at competitors’ channel actions. While not often explicitly stated, sales management adopts a commitment to match any effective competitor channel strategy and investment. Field sales resources are quick to notify sales management when competitors are changing and improving their coverage design. The Volume Growth Phase sees the rapid expansion of successful sales coverage solutions plus improving sales ROI.
Coverage Design in the Re-Evaluation Phase During the Re-Evaluation Phase, the current coverage strategy may begin to limit the company’s growth. Competitors may begin to find new, less expensive or more innovative channels to reach current and underserved customer populations. The ability to hold customers, sell new products, and sustain pricing may start to overwhelm the once successful and uncontested channel strategy. At this point, sales management must undertake an honest
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review of the current coverage model. Deeper understanding of opportunity segments will allow sales leadership to evaluate channel performance. During this phase, sales management needs to improve existing channel sales performance, productivity, and sales ROI.
Buyer Preferences/Product Features— Re-Evaluation Buyers during the Re-Evaluation Phase become much more informed. They articulate their preferred sales contact approach. They describe the level of sales engagement they need. And some might even displace vendors’ sales personnel with a customer-controlled RFP (request for proposal) process. If they do not communicate their preferred vendor engagement approach, they will simply move to other vendors that better match their buying requirements. The company needs to calibrate and size the sales organization based on these customer buying preferences. In some cases, the company may decide that the current sales model is no longer suitable for some customers. It will need a different channel approach. Finally, the company might determine that some customer populations are no longer attractive and that the company should “deselect” the unfavorable customers! Meanwhile, during this phase, the product organization needs to rethink its product strategy. Products must match the available sales channel competencies. Product management might need to trim the product portfolio to better “fit” the company’s evolving sales channel model. Product management will need to proof-test the salability of products before asking the sales channel to promote them.
Channel Competencies—Re-Evaluation Current channel strategies show signs of aging and lagging during this phase. As the evaluation of buyers and products is underway, so is the assessment of current channel resources. This is a top-to-bottom review of sales competencies, channel focus, resources allocation, and comparative performance. For direct channels, this will mean a full review of sales jobs and talent. For indirect channels, this will require a similar comprehensive evaluation. More aggressive performance goals will help separate the future contributors from those that will no longer be associated with the company. The search and deployment of complementary, supplemental, or replacement channel resources means a shift, perhaps significant, in channel strategy. Standards of performance, certification levels, and channel investments at this stage will improve the overall coverage strategy. Channel partners enter a consolidation phase. Dominant channel partners emerge with the power to influence the company’s market access, discounts, and pricing.
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Channel ROI—Re-Evaluation The evaluation of channel ROI is most important during this phase of growth. The following is a checklist of channel ROI assessment factors: •
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Cost allocation. Sales management employs more explicit cost-allocation methods to ensure that sales channel ROI calculations are complete and comprehensive. Cost benchmarking. Sales leadership collects market data to evaluate the cost of the company’s sales channels as compared to those of other competitors. Productivity assessment. Sales management collects, tracks, and acts on sales productivity trending information that affects sales ROI, such as close rates, time to close, and overall time allocation. Resource allocations. Sales leadership begins to make resource allocation decisions based on sales ROI of various channels.
Sales channel ROI information will become decisive in realigning channel resources to cover the preferred Opportunity Segments.
Competitors Impact—Re-Evaluation Competitors’ channel strategies—almost ignored to this point—now become the active focus of sales leadership. Competitive advantage achieved through innovative channel solutions of existing or emerging competitors present risks to the company. Matching, flanking, or undermining competitor channel actions become part of the proactive coverage strategy of the company. Working against a bias of “we are our own masters,” imprinted during the Volume Growth Phase, sales leadership must accept the reality that competitors might now have a better approach to channel coverage. This better approach requires action on behalf of the company’s sales function. The Re-Evaluation Phase sees wholesale assessment, improvement, and revamping of the traditional sales channel strategies.
Coverage Design in the Optimization Phase As expected, coverage practices from Phase III, Re-Evaluation, will continue, for the most part, in some form during the Optimization Phase. While sales management continues to work to improve current coverage practices, new and dissimilar channel strategies may now be necessary during the Optimization Phase. As the company becomes more Opportunity Segment focused, both product groups and sales entities may need to find new and better sales coverage solutions. The charter for the sales department in the Optimization Phase is to continually review and improve current channel practices and be willing to adopt new coverage solutions as promising Opportunity Segments dictate.
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Buyer Preferences/Product Features—Optimization During the Optimization Phase, buyer preferences become more disparate and fluid. Buyers will exhibit a variety of sales channel needs. Some will seek a lowtouch, low-price provider. Others will want highly engaged selling resources. Some will be looking for the company to package the product with other service offerings. And, now, no longer loyal to their initial product provider, they will explore new products and alternate channel sources. Product divisions must now fully evaluate products within the world of buyer preferences and available channels. Product management, which fully vetted the product portfolio during the Re-Evaluation Phase, now applies a new double test for product selection: What do buyers want? How do they want to buy? While the product divisions will continue to search for new, breakthrough technologies and solutions, the support and promotion of products need to fit an overall business model based on Opportunity Segments. More cross-product division planning helps identify synergies among products to configure better customer value propositions.
Channel Competencies—Optimization Sales leadership during the Optimization Phase now adopts and regularly applies a uniform set of sales channel tests when evaluating new or revised goto-market strategies. These tests might include some of the following factors: • • • • •
Alignment. Does the channel provide the right alignment between the product features and the buyers’ needs? Focus. Is the channel unencumbered with other duties to allow sustained focus on promotion of the product to the target buyer population? Skill. Does the channel have the skill to deliver the sales message and successfully close the deal? Reach. How much market reach does the channel have? Are there enough selling resources to successfully access the available buyers? Competitiveness. How much competitive pressure does the channel face?
The need for new, Opportunity Segment dedicated channel resources might see the exclusive assignment of selling resources or channel partners to serve specific market segments. In this case, the establishment of an independent MBU (market business unit) with its own sales resources might best optimize the segment opportunity.
Channel ROI—Optimization The robust use of ROI analysis in Phase III, Re-Evaluation, helped rationalize (i.e., “correctly size”) the channel resources. Sales management might have reduced headcount or trimmed the number of channel partners during the
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Re-Evaluation Phase. These new fully allocated costing methods to measure sales ROI now become part of the overall segment portfolio planning process that judges the effectiveness of channel solutions. In some cases, Opportunity Segments may not meet the sales channel ROI viability tests and may not be funded for sales development purposes. More sophisticated ROI methods will help evaluate channel ROI based on strategic intent: • •
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New market selling. New market selling may accept lower sales ROI as the sellers and partners open new markets. High-growth scaling. When growing a business, as the absolute cost of selling resources are increasing, company leaders expect an improving sales ROI. Protection. When protecting either a base of business or current pricing, or both, sales management will need to absorb the cost of repositioning channel resources to serve a mission different from pure growth. Management should consider these one-time repositioning costs as “investments” and not allocate them to the channel ROI. However, once repositioned, sales ROI will continue to justify staffing and resource allocation of the channel. Access to other markets. In some cases, a sales channel—while not meeting sales ROI requirements—is necessary to allow access for other more profitable business. In such cases, sales leadership relaxes sales ROI requirements to help cover the marketing role of the channel and thus not judge the channel exclusively on its sales contribution and ROI outcomes.
Competitors’ Impact—Optimization Competitors’ actions during this phase weigh heavily on the planning process for coverage design. Competitors’ potential impact should contribute to viability analysis that assesses advantages and weaknesses. Expect competitors to present continuing “threats” to the various sales coverage strategies. Each of these threat conditions needs a qualitative judgment and qualitative estimate of how the competitors’ channel strategy might affect the company’s prospects.
SUMMARY Successful sales growth prospects rely on a brilliant sales channel strategy expertly executed. Sales management must continually evaluate the sales channel strategy and improve this strategy by selecting, assessing, managing, and improving the right sales coverage solution.
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Customer Contact Continuum The customer contact continuum accounts for the steps, processes, and responsible parties as a customer prospect moves from being a nonbuyer to a paying customer. While normally very simple in the early stages of growth, the customer contact continuum becomes increasingly complex, and in some cases unwieldy, as the company becomes larger with increasing numbers of products and types of customers. Mapping and managing this process improves sales effectiveness in both design and execution. The customer contact continuum describes the step-by-step process of finding, getting, and keeping customers. Interestingly, evaluating and improving the customer contact continuum requires an awkward planning discipline for most sales leaders. Most sales leaders begin their sales planning processes with an existing organization chart then assign any new customer contact tasks to the available parties found on the chart. Unfortunately, starting with an organization chart traps the strategic sales planner in a preconfigured organization design, potentially reducing the discovery and the use of better customer contact methods.
A more comprehensive approach is to set aside the current organization structure and define the preferred customer contact steps. Once sales leaders fully define and test the most appropriate contact method, then the task 115
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assignment to the right entities can proceed. This approach frees sales leaders from attempting to force-fit sales solutions to current organization structures. Instead, sales leaders can begin with a preferred “contact vision.” Done annually, this planning method allows sales leaders to continually rethink which customer contact steps are necessary and how best to make them effective. The purpose is to keep sales resources contemporary with the natural evolution of products and buyers. Using this approach, sales management has the highest chance of avoiding sales ineffectiveness caused by an obsolete or poorly performing customer contact model.
OVERVIEW OF CUSTOMER CONTACT CONTINUUM PLANNING The customer contact continuum contains all the elements needed to manage turning a nonbuyer into a customer. The more visible elements of the customer contact continuum include marketing programs, sales efforts, and customer service support. However, behind these visible customer events rest many unseen but mission-critical process steps. These steps might include order fulfillment practices, proposal preparation, accounting procedures, team planning, partner support systems, and many, many more subsystems that enable the customer buying process to move forward in a positive fashion. Taken as a whole, sales leadership is responsible for ensuring that all these components work in a coordinated fashion to accomplish sales objectives. In large companies, improving the customer contact continuum can prove vexing because many of these subsystems lay buried within distant silos of the company making them difficult to reach and change. The customer contact continuum contains three primary components: •
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Access. Access is the process of locating viable customers. This means “finding” customers who are willing to buy. In large companies, the marketing department contributes to this effort. Persuade. This is the process of “closing” customers. Often assigned to sales resources, other resources—such as advertising and placement in retail channels—help persuade the customer to make a purchase. Fulfill. Fulfill means “delivering value” to the customer. This value may be exclusively contained within a physical product, a service, or some combination of the two.
The error we are attempting to avoid is to simply assume that the marketing department provides access, the sales department persuades, and the customer service group fulfills. When examining the customer contact continuum
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Figure 8-1 Customer Contact Continuum
Figure 8-2 Customer Contact Continuum Sample Functions
through the different phases of growth, we learn that these major accountabilities will shift and change driven by the requirements of diverse and changing opportunity segments. Figure 8-1 shows the structural outline of the functions of the customer contact continuum: access, persuade, and fulfill. This basic framework allows for more detailed identification of necessary actions. In Figure 8-2, we add the typical customer contact continuum functions. Within each of these functions, there are numerous execution steps. A starting point is to document all the steps necessary to fully realize a successful sale. A revealing statistic is to add up all the unique actions necessary to complete the sale.
PADEM (PAY’-DEM)—CUSTOMER CONTACT CONTINUUM IMPROVEMENT STEPS To improve the overall operation of the customer contact continuum, sales leadership needs to adopt the PADEM process improvement methodology to ensure that each step adds value at the lowest cost. Following are the individual components of PADEM: •
Plan. Planning identifies the customer outcome objectives for each opportunity segment. In some cases, the company is seeking higher revenue. For other segments, the company might want some balance
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of product mix, type of account, and profit contribution. This effort defines the success unencumbered by current practices and limitations. Assess. This step evaluates current practices, both effective and ineffective. This includes items such as organization entities, process steps, technology support, governance, jobs, reporting and control systems, and any other part of the customer contact ecosystem. This step also identifies areas for improvement such as sales failures, reduced customer satisfaction, and time-to-sales inhibitors. Design. The design step postulates the best approach to the customer contact continuum and describes the preferred future state. This comprehensive overview includes people, organizations, processes, and technologies. This effort also defines the gap between current practices and preferred practices. Companies preparing for change will develop transformation solutions to help move the company from the current state to the future state. Execute. The execute step is the successful operation of all the functions comprising the customer contact continuum. To effectively move a prospect from a nonbuying status to a loyal customer requires the realtime operation of the customer contact functions. Measure. The ability to successfully execute each step as designed by management provides the basis for process measurement. Measures of task execution provide variance scores from prescribed processes. Measures of results help determine the effectiveness of both the process design and the function execution.
As we will learn during our review of sales effectiveness during the growth phase, PADEM skills become more critical, particularly during the Re-Evaluation Phase when companies often lose sight of how to meet customer needs.
DIMENSIONS OF SALES EFFECTIVENESS— CUSTOMER CONTACT CONTINUUM Once sales leadership has identified the right opportunity segments and sales coverage strategy, the next step is to create a preferred customer contact continuum for each opportunity segment. As we will learn, this requires almost no effort during the initial phase of growth, yet becomes almost fully consuming during the Re-Evaluation Phase. The following factors determine the types of solutions employed during each phase of growth.
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Objectives Each opportunity segment will have a business objective, something that defines success or failure. An opportunity segment reflects the intersection of three elements: a type of buyer, a grouping of products, and a sales coverage solution. Each segment could have one or more of the following stated objectives: •
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Revenue. Sales management expects a certain level of revenue production for each segment. Sales management may specify the size, type, terms, and timing of this revenue goal. Product. Product objectives define the types of products, their application, and their configuration. Product management will expect that a certain mix of products be sold within a segment. Profit. Profit expectations provide resource justification for support of the segment. Cost. The overall cost to secure revenue provides a yardstick for managing total contact expenses. Account. Additionally, a segment might have account objectives, such as number of new accounts, expansion of existing accounts, retention of accounts, and, in some cases, elimination of low-value accounts. Satisfaction. Sales management should set an objective for customer perceptions, including customer satisfaction, loyalty, or recommendation confidence. Customer economic value. While difficult to value, some companies create economic models that “value” a customer. The factors affecting customer value include lifetime purchases, growth potential, competitive importance, cost-to-serve, and the extent of beneficial collaboration. These objectives will shift depending on the phase of growth.
Design Designing a customer contact continuum requires a deep understanding of how current functions work and how changes in, replacement of, or termination of functions will improve customer outcomes. The methodology begins by identifying functions of the customer contact continuum. As mentioned earlier, the key here is to avoid beginning with the current organization structure. This effort should produce very granular function definitions down into subsystems, and then again down into the actual process steps. By taking this detailed approach, sales planners can gain valuable insight into how the company’s customer processes improve or degrade customer value. Design of an effective and efficient customer contact continuum becomes increasingly complex when numerous opportunity segments vie for resources. Here are possible methods to serve multiple opportunity segments.
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Duplicate solutions. An effective, yet expensive, customer contact approach is for sales management to assign dedicated resources to each opportunity segment. In this model, sales management ensures unencumbered efforts. In other words, dedicated resources can best serve their target customer segment without the distraction of dissimilar products and varied customer populations. Unfortunately, such an approach is expensive and thus is practical only when the opportunities are significantly large enough to support their own sales function. Shared solutions. Most companies have sales resources serving various segments. When the number of segments remains manageable and similar in composition, generic sales resources can effectively serve several segments at once. A well-managed shared model drives efficiency up and costs down. It’s only when the segments’ demands exceed the capacity of the shared, generic sales resources that this approach becomes less effective. Hybrid/virtual models. A hybrid/virtual customer contact continuum uses different functional components in flexible configurations. For example, the same customer service function that handles inbound customer issues can simultaneously offer additional products to customers based on their current purchasing profile. Usually, powerful customer relationship software (beyond funnel management data) provides a “smart” platform so when the next, noncustomer dedicated telephone representative answers the phone, he or she can offer the right value proposition at the right time to the virtually known customer. The smart customer management system quickly advises the representative in realtime what to offer the customer.
Sales management can successfully use this same approach for field sales personnel. Suggested sales pitches, based on buying history—driven by a robust data mining effort—can offer prepackaged sales messages for territory and named account sellers. The natural tendency is for sales management to pile on new tasks to possibly antiquated customer contact resources. The eventual problems inherent in this overloading are hard to detect at first. Existing resources often welcome these initial demands. As these new customer duties, steps, and activities continue to increase, they will cause, at some point, the existing system to fail. Sales leadership only begins to appreciate the limits of the current customer contact continuum when it no longer provides the value it once did. Eventual investment in planning tools to help improve the customer contact continuum will ensure that resource investments and customer contact protocols remain current and manageable.
Assessment We introduced the assessment method of PADEM earlier. In large complex sales organizations, ongoing dashboards of assessment input, process
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effectiveness, failure rates, sales quality, and customer assessment provide a means of ensuring operational excellence. Competitive benchmarking allows similar operations to evaluate their customer contact processes as compared to others. Mystery buyers traveling the customer buying experience provide important illustrative examples of what is working and what is not working from the buyer’s perspective.
Oversight and Governance Managing a simple customer contact continuum requires minimal managerial oversight and governance. In organizations with simple customer contact continuums, individuals and department heads can quickly see how the various functions and processes are working. Sales management can see breakdowns and complaints as they occur and direct the responsible parties to fix problems with a new procedure, policy, or corrective practice. However, as the number of products and markets increase, sales and service methods become overly layered and complex. At this point, no one can provide the proper oversight, ensuring that all the functions and subsystems are working together. Repeated organizational changes misfire and incoherent procedure directives are symptomatic of an overloaded customer contact continuum. Better process management will require dedicated resources to plan, assess, design, execute, and measure (PADEM) the increasingly complex customer contact continuum. The customer contact continuum is a living network of tasks and responsibilities that changes as the company moves through the growth phases. Managing contact functions and processes requires awareness of how to set objectives, design better solutions, assess current practices, and provide appropriate oversight and governance.
Customer Contact Continuum Tools Most sales organizations adopt solutions as they need them. This is because the future is so uncertain that sales leaders often wait until there is a problem or an obvious need for a solution before making changes or adopting new practices. Actually, this is a realistic and preferred approach given the nature of the uncertain environment. Frankly, overstudying and planning for future sales management issues that may or may not arise is a poor use of resources. As sales management knows, many problems are self-correcting. As personnel see problems, they create solutions that fix issues as they arise. However, accumulated decisions do have consequences as an outgrowth of this “just-fix-it” approach. As sales management forges ahead addressing issues as they arise, the accumulated practices and procedures become more and more difficult to change. At some point, once flexible and efficient entities
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Figure 8-3 Customer Contact Continuum Sample Elements
can become rigid, ineffective, and unchanging silos. At this point, “just-fix-it” solutions become less impactful and often counterproductive. The most powerful tool for effectively managing the customer contact continuum is process mapping. Process mapping visually displays the customer buying experience. Highly detailed process maps can fully document each stage of interaction and accountability revealing problems and conflicts. An effective process map can simulate what is occurring at each step of the customer contact continuum. In Figure 8-3, we provide a simplified process map. This illustrates how various functions/actions move the sales process forward. More complex process maps document the steps of each function. Figure 8-4 provides an illustration—in this case, deal pricing—of how additional detail reveals accountabilities and potential areas for improvement.
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Figure 8-4 Deal Pricing Steps—Process Map
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Figure 8-5 Customer Contact Performance Goals
To evaluate the customer contact continuum, sales management needs to establish goals and measure performance against these goals. Figure 8-5 illustrates select customer contact continuum goals and the company’s performance in relation to those goals. The trending information in Figure 8-5 might use “moving averages,” thus showing the true trend—say, for the last six months—which would reflect the overall progress on the customer contact performance metric. In some instances, a monthly result might be negative, but the overall trend is positive and vice versa. When the customer contact functions become overly complex, more powerful tools such as process mapping and performance variance measurement allow sales departments to assess and improve their performance. Finally, contact process maps also help with the allocation of responsibilities. Once sales planners fully document the contact functions, then sales leadership can make organizational assignments. In Figure 8-6, we see the assignments of process steps to various organizational entities. To ensure a flexible—even an agile—sales coverage resource, begin with process maps to correctly make assignments and avoid mistakes. Use the process map to continue to test the effectiveness of the customer coverage continuum.
Figure 8-6 Customer Contact Continuum Resource Assignment
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C.A.R.E.S. MODEL: CUSTOMER ACCESS RETENTION EXPANSION AND SERVICE For some sales entities, fully embracing the customer contact continuum helps all internal parties grasp the importance of a beginning-to-end customer process. The C.A.R.E.S. Model provides a good palette for educating and managing multiple resources. • •
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Customer (C). This includes prospects and current customers. Access (A). This encompasses all the methods used to locate prospects including advertising, promotion, PR, outbound calling, referrals, and cold calling. Retention (R). Retention focuses on keeping customers buying. Separate strategies often provide the right focus for reducing customer churn and maintaining purchasing commitment. Expansion (E). Expansion includes any new sales to existing customers. These additional sales might be from the same product set or a dissimilar product set. Sometimes direct sales channels refer to this as “attachment” or “penetration” selling. Telecenters will refer to this as cross-selling and up-selling. Service (S). Service covers all after-the-sale support, including purchase, installation, and other ongoing service issues.
CUSTOMER CONTACT CONTINUUM THROUGH THE FOUR PHASES OF GROWTH The nature and complexity of the Customer Contact Continuum will change through the four phases of growth.
Customer Contact Continuum in the Start-Up Phase Fortunately, young companies do not have to suffer the tyranny of bureaucracy, rules, and procedures. In this phase, most contribute in a positive and often nonscripted manner to meet customer needs. Collaborative team efforts book and fulfill initial orders. This “nonconventional” sales centric customer-first attitude accelerates a sense of engagement and personal accountability. At this stage, the customer contact continuum is evident for all to see. Since volume growth is paramount, sales management can immediately address any impediment that slows revenue growth. Immediate corrective actions are usually the right solution. Often, sales personnel and their internal counterparts, will work out a solution to fix any process
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problems. However, the increasing number of one-off issues will grow, thus increasing the number of “special handling” and “work-around” solutions. But in this phase, sales leadership will find these situations manageable.
Objectives—Start-Up Since this phase is all about volume growth, almost anything goes that helps get revenue in the door. The customer contact continuum objectives are to grow revenue. This objective will sometimes subordinate other objectives— objectives that may become extremely important in the future—such as profitability, product mix, and even exceptional customer service.
Design—Start-Up The best way to describe the design of the customer contact continuum during the Start-Up Phase is expedient. During this phase, senior management wants to keep costs variable. Therefore, formal assignment of customer contact functions to departments will not occur until the later stages of this phase. More typically, the initial efforts will require company personnel to “wear many hats,” thus contributing simultaneously as marketers, sellers, and customer service personnel in a culture of learning, participation, and accomplishment. Because buyer needs are undifferentiated and product offerings are narrow during this phase, this situation curtails the need for multiple, complex customer contact models. This lack of complexity reduces the need to invest in comprehensive and overly abstract contact design efforts, too. If a suggested design idea is good, then the straightforward design test is, “Let’s try it and see if it works.” Sales management will embrace any change in contact functions that improves volume growth during this phase. Flexibility, inventiveness, and practicality are the hallmarks of customer contact continuum design during the Start-Up Phase.
Assessment—Start-Up Assessment requirements of the customer contact continuum are practical and minimal during the Start-Up Phase. Customer line-of-sight allows for easy hands-on assessment of how best to meet customer needs. The assessment criteria are simple: Favor what increases sales volume growth and stop what decreases sales volume growth. The sales model is simple enough to allow these decisions to be made without extensive study, analysis, and trend reporting.
Oversight and Governance—Start-Up One of the endearing features of a start-up company is its lack of need for command and control authority. Because the number of choices is narrow, the need for oversight and governance solutions is minimal. Allowing personnel, who are actually touching the customer, to be empowered to make “spot decisions” reduces the need for reporting controls.
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The Start-Up Phase allows for real-time practical customer contact solutions. This is a welcome and positive condition. However, as the business begins to grow rapidly, the need for scalable solutions will begin to remove discretion and increase the need for executable discipline within the Customer Contact Continuum.
Customer Contact Continuum in the Volume Growth Phase During this phase, overall revenue growth is in double digits. However, during this phase, the inflection point of year-over-year growth will begin to decline. Sales management now has multiple objectives to address, including growing the total volume, adding new customers, keeping existing customers from defecting, and launching new products. The most significant goal is to scale the core business to capture market share. This focus will require sales management to identify the best selling model to produce the highest growth performance. The specialization of duties will allow this scaling process to proceed. Like Henry Ford’s Detroit factory: more, bigger, and the same will win the day. Adopting a standard selling system will help propel the sales force to greater sales performance. However, sales management cannot ignore the second objective of keeping current customers. The revenues from current customers become so significant, that investments in keeping customers will compete for resources once dedicated to getting new customers. Obviously, the same customer contact model for getting customers may not be effective at keeping customers.
Objectives—Volume Growth The customer contact continuum objectives are clear: Help scale sales resources to increase volume. If the company has a direct coverage channel strategy, then this means hiring more salespeople. If the coverage strategy is indirect, then adding additional partner resources is the solution. The objective is to find a customer contact approach that locates high numbers of available customers, qualifies their desire to buy, requires minimal resources to close, and achieves a high close rate. The second objective is to develop processes to keep current customers. This means reducing customer churn and increasing customer repurchase. Specialization around customer type helps keep the customer contact continuum simple. If major account customers need a different customer contact approach, then sales management will need to craft a unique customer contact solution to hold and grow these customers. Finally, successfully launching and sustaining new products will require additional customer contact planning competencies. Current customer
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contact methods may not fully support the new product if it represents a dissimilar technology or requires selling to a new set of buyers. In such cases, sales management needs to lay out a well-tuned contact strategy that may use all, part, or none of the current contact model.
Design—Volume Growth Designing a customer contact strategy for the Volume Growth Phase involves three actions: discontinuance, proficiency, and accommodation. •
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Discontinuance. All throughout the first phase of growth, sales and marketing develop inventive practices to sell product and meet customer needs. This leads to numerous creative solutions and approaches. However, during the Volume Growth Phase, sales management must select those approaches that have the best chance of scaling the business. Sales management might need to discontinue some practices because they are too difficult to provide, they serve a nonfruitful market, or there are other better sales solutions available. Sometimes it is not even a conscious act. The less desirable sales methods simply fall by the wayside. Proficiency. Sales management develops customer contact proficiency by applying the principles of engineering efficiency. To fully scale the sales opportunity, the customer contact continuum must isolate and institutionalize specific actions that move a nonbuyer to a customer. Looking past new sales and customer service organizations, sales management encourages a more systematic approach to execute the customer contact continuum. Later, sales planners and sales strategists will criticize these scaling solutions of the Volume Growth Phase as rigid and bureaucratic. However, this process of improving the efficiency of the customer contact continuum is necessary at this stage to provide a platform for scaling up the accessible sales volume. Surprisingly, most of these new practices, which will drive the new efficient customer contact processes, will not occur as a result of researched and pretested regimes. They will simply emerge as the best approach given the circumstances faced by those who are contributing to the sales process—the many steps found in the customer contact continuum. In other words, the efficiency and productivity experts do not show up in this phase. We see them later in Phase III, Re-Evaluation. Accommodation. In the latter part of the Volume Growth Phase, product divisions will seek to move new and dissimilar products through the existing sales channels. The current customer contact continuum will welcome and quickly accommodate products that are synergistic with existing products and also serve the same buyer populations. Sales management will realize additional sales productivity as these new products move to existing customer populations.
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The continuing evolution of the sales function as it scales to secure new volume will self-generate the best solutions to meet customer needs. This creative self-discovery of the right customer contact solutions is a virtue of this phase of growth.
Assessment—Volume Growth During the Volume Growth Phase, sales management correctly uses sales outcome assessment measures such as total sales, percent growth, total number of new accounts, unit sales, and, for some industries such as distributors, gross margin dollars to judge sales force effectiveness. Sales management might also use some simple customer contact measures such as close rate, length of sales cycle, and cross-sell ratio. For telephone-based sellers, the assessment measures might include call time, number of calls, and total connect time. And for channel partners, sales management might use assessment measures related to market share, number of customers, and outlet balance. However, notice how these measures do not assess the customer contact process itself—only its outcomes. Rather than study the effectiveness of the subprocess and steps that make up the customer contact continuum, most sales managers in the Volume Growth Phase fix problems when then arise rather than systematically assessing current practices and making improvements. This is a logical approach during this still fluid state of the improving customer contact continuum: “No need to study it, just try it, and see what happens. If it doesn’t work or doesn’t make things better, then try something else.”
Oversight and Governance—Volume Growth The Volume Growth Phase features discontinuing ineffective practices, getting proficient at doing a few things really well, and accommodating new and complementary products. A well-designed customer contact continuum should successfully accomplish these tasks. Organizational assignment becomes the de facto oversight and governance model. Sales management makes departments accountable for sections of the customer contact continuum. The focus in this phase is “execution excellence,” and control resides in following the now successful and intentionally simple customer contact process. Unfortunately, this approach will eventually create challenges as department heads develop their own rules, regulations, policies, and IT support tools to help them better manage their section of the customer contact continuum. As the company enters the Re-Evaluation Phase, the efficiencies of the Volume Growth Phase will become a hindrance to the sales force. Sales leaders will judge them as too rigid, too bureaucratic, and too internally focused—thus, not serving customer needs.
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Customer Contact Continuum in the Re-Evaluation Phase During the Re-Evaluation Phase, sales management must upgrade the now faltering customer contact continuum. Because of the numerous types of buyer populations and ever-increasing product portfolio, the sales organization is now attempting to process and manage too many sales and service interactions. Meanwhile, cost cutting prevails. Finance is seeking greater productivity increases. And the product divisions need to change and simplify the product and price offerings. All of this means that the once-effective customer contact continuum is now broken with glaring ineffective elements. For example, the company’s “push” selling approach to large accounts is no longer suitable. Or customer service is so poor—customer satisfaction is eroding. Or pricing might be so inflexible that it does not provide enough buyer choices. During this phase sales management becomes fully aware of these failings. However, cost reductions take precedence over investments. And sales management will have to delay some necessary changes until Phase IV, Optimization, begins.
Objectives—Re-Evaluation The objective for the customer contact continuum in the Re-Evaluation Phase is to bring down costs. Sales management can accomplish this in a variety of ways; for example, reduce sales headcount, eliminate overhead staff, drop programs, combine functions, and reduce sales coverage and customer service to some customers. Additionally, sales management can attempt to increase productivity by increasing sales per seller, eliminating inefficient time use, ignoring low-quality sales opportunities by favoring high-return selling, and automating processes to improve time to close.
Design—Re-Evaluation Redesigning the customer contact strategy in the Re-Evaluation Phase requires identifying and dropping extraneous costs and processes. Sales strategists map the customer contact continuum to isolate opportunities to eliminate costs and speed up success. Forced headcount reductions will help eliminate unnecessary steps and actions since there will be fewer personnel available to perform these low-value actions. Consolidation of multiple locations and activities will reduce duplicate overhead. Shifting accountabilities to lower cost resources— such as telesales personnel, the Web, new channel partners, or offshore service centers—further helps to reduce costs. Additionally, sales management will hunt down and close the following “leaks.” •
Sales leaks. Sales management will attempt to close any “sales leaks” where the company should be winning orders but is not.
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Price leaks. These come in many versions, including price discounting, favorable terms, excessive sales expenses, and free promotional products. Profit leaks. Can occur anywhere within the customer contact continuum. A focused effort on finding the most significant contributors to profit leaks will require an investigative effort around productivity, pricing, terms, and overhead. Retention leaks. Finally, sales management must protect the existing base of business to avoid lost business—that is, retention leaks.
Sales management will look for any source of expense/profit “leakage” to evaluate and close off.
Assessment—Re-Evaluation The primary focus of assessment during the Re-Evaluation Phase is on costs. The following measures help to track progress on costs and profits: •
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E/R. The expense-to-revenue measure—expressed as a percent—describes how much the customer contact continuum costs as a percentage of revenue. Sales management can further apply this same calculation to subsystems within the current customer contact continuum. E/R percent takes on additional meaning when compared to historical trends and external benchmarks, or when presented as a cost objective. However, the E/R measure can tend to “move about” if revenue recognition is erratic in any manner. Activity-based costing (ABC). This is a more comprehensive approach to understanding and assigning costs to actions. ABC calculates a fully loaded cost for each step of the customer contact continuum. With these assigned costs, sales management can make in-depth assessments of expenses along the customer contact continuum.
There are other measures of customer contact continuum effectiveness in addition to cost management. These measures include revenue growth, product mix, and customer loyalty/satisfaction.
Oversight and Governance—Re-Evaluation Many voices, stakeholders, and centers of influence compete for control of select elements of the customer contact continuum during the Re-Evaluation Phase. This disjointed approach leads to various programs and initiatives; some effective, some well-intentioned, and some counterproductive. Finance wants certain levels of cost reductions. Product managers and marketing personnel want to protect current and future programs. Sales management is reluctant to reduce or eliminate well-crafted solutions successfully deployed during the heady Volume Growth Phase. In fact, significant uncertainty arises among all parties regarding the right course of action that progress enters a state of limbo where ineffective past practices continue and new solutions fail to take hold.
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Customer Contact Continuum in the Optimization Phase During the Optimization Phase, sales management undertakes a more studied and disciplined approach to improving the effectiveness and efficiency of the customer contact continuum. Based on a new understanding of how buyers want to buy, sales management can now update the customer contact continuum. Opportunity segments become better defined. The customer contact continuum planning process stops relying on expedient organic evolution and begins with a “customer first” blank sheet. All customer contact actions must now demonstrate how they contribute to customer value. Sales management moves past the simple, cost reduction focus of the Re-Evaluation Phase. Carefully vetted opportunity segments give sales management an improved sales charter.
Objectives—Optimization The objectives for the customer contact continuum in the Optimization Phase are twofold: 1. Develop segment-specific contact solutions. During the Optimization Phase, sales management fully embraces opportunity segment planning. As a result, the customer contact continuum models need to align fully with the opportunity segments that will produce the most value for the company. Some markets will require a commodity low-cost strategy; others will require high-value margin with rich solutions; and a third category might require “mass customization.” Each of these opportunity segments requires a carefully tuned customer contact continuum. 2. Deploy lean and agile resources. As described above, while the first objective for the Optimization Phase is to create opportunity-specific customer contact solutions, the infrastructure must be lean and agile; otherwise costs will balloon out of control. Investments in training, information systems, sales collateral, marketing solutions, and inventive partner programs will help correctly leverage costly sales resources. Sales management will need to exercise superior judgment when deciding that some opportunity segments require new dedicated resources, while other segments can thrive using the traditional (but now more agile) customer contact platform. The more holistic the planning approach, the better the customer contact continuum outcome. Not since the first phase of growth, Start-Up, has the “voice of the customer” been the starting point of selling strategies and sales tactics.
Design—Optimization Designing a customer contact strategy for the Optimization Phase requires new thinking. Instead of fixing programs as problems arise, sales management
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begins with the buyer populations of each opportunity segment and determines the best customer contact strategy to serve them. This “white board” approach allows for creative thinking, innovative techniques, and appropriate investments to sell and serve customers better. Instead of using process improvement tools to reduce costs and eliminate blockages, sales management uses them to fully lay out the most effective and cost-efficient customer contact methodology. Full and positive use of PADEM methodologies prevail during this phase.
Assessment—Optimization While developing new customer contact approaches for each opportunity segment, sales management also identifies the right performance metrics to ensure ongoing effectiveness. Some of these measures focus on input activities; others provide in-process monitoring; and a third category tracks output results. Sales management creates a “process dashboard” to provide real-time assessment of the customer contact continuum. Process improvement teams review each segment’s customer contact steps on a regular basis to ensure alignment, efficiency, and effectiveness.
Oversight and Governance—Optimization Because the customer contact continuum spans multiple departments, senior management during the Optimization Phase might assign oversight for this mission-critical function to a dedicated team. Assigned various labels such as “voice of the customer,” “customer experience,” or “customer process advocate,” this group provides ongoing reports and suggestions on how to improve customer contacts. Where this group reports, and its degree of authority, depends on internal conditions unique to the company.
SUMMARY During the early stages of growth, the evolution of the customer contact continuum occurs in a natural fashion. Sales management, product management, marketing, and other departments make hundreds of decisions to support an effective customer contact strategy. Only later, when the customer populations become numerous and diverse, products multiply, and ineffective customer contact methods begin to hurt sales does the need for more comprehensive planning arise. Sales leadership can employ the competencies of process improvement to ensure that the customer contact continuum is correctly supporting the company’s customer management objectives.
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Job Design and Organization Structure The most visible aspect of a sales department is its sales jobs and reporting relationships. Job design and organization structure include defining job content and assigning jobs to sales units. Keeping sales jobs and organization units contemporary with the product divisions’ ambitions and the buyers’ needs requires ongoing sales planning efforts as the sales department moves through the four phases of growth. Effective customer contact continuum planning identifies the necessary steps that should be taken to successfully serve customers. Sales planners group these tasks into impactful and meaningful jobs. The most visible jobs have direct customer contact responsibilities. Sales management also must staff numerous other positions necessary to support the direct customer contact resources. Field support personnel may include presales support professionals, proposal preparation specialists, field marketing communications personnel, and sales administration and operations staff.
A sales organization structure groups jobs into logical configurations for effectiveness, management, and accountability purposes. Sales leadership makes important strategic and tactical decisions when designing sales jobs and 133
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accompanying sales organization structure. Decisions about jobs and organization are the gateway to many of the tactics employed by the sales department. For example, later decisions about headcount, talent, measurement, and performance management all begin with types of jobs. In a practical sense, the sales department must assign its full list of responsibilities to jobs and then hold the incumbents within those jobs accountable for the accomplishment of those responsibilities. This marks the transition point within the Sales Management System from “strategy” to “tactics.”
Overview of Job Design and Organization Structure Sales jobs and attendant sales organization configuration share some common principles regardless of industry: •
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Job focus improves performance. Incumbents in sales jobs perform better when they have a narrow focus. For example, jobs in the Start-Up Phase have focus because the objectives are narrow and the choices limited. Whereas, in more complex sales entities, such as those in Phase III, Re-Evaluation, will have too many avenues and choices available; therefore, sales management must more tightly prescribe job roles and accountabilities. Job content must be worthy of human endeavor. Expect more engaged and motivated personnel when sales management configures jobs that logically contribute to the company’s mission and allows employees to distinguish themselves. A sales organization’s whole must equal the parts. A sales organization’s design must account for all the subfunctions. Each activity and responsibility needs to have an assigned owner. Sales organization structure must distribute accountabilities and authority equally. Sales organizations—by design—distribute accountabilities and authority to subunits within the company. Giving jobholders accountabilities without complementary authority degrades organizational effectiveness and demotivates the jobholders.
Sales jobs and sales organization design provide the accountable structure for accomplishing the sales department’s objectives. Of course, the nature of the job and the sales organization design will change as the sales department moves through the growth phases. Figure 9-1 presents the typical pattern for the organizational change of sales entities during each phase of growth. Each phase features a prominent organization design: •
Start-Up. The primary sales coverage model during the Start-Up Phase is a geographic assignment of accounts. A precursor to geographic assignments might feature the new salesperson’s “book of business” brought with him or her when hired.
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Figure 9-1 Organization Changes for Direct Sales Force
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Volume Growth. During the Volume Growth Phase, different buyer needs based on the current volume or prospective volume of the account influence sales job design. Sales force stratification occurs in the Volume Growth Phase. Sales management assigns large accounts—those at the top of the pyramid—to key or major account sellers. Sales management assigns the middle-sized accounts to named account managers. Territory (geography) sales personnel handle the smaller accounts. In some cases, sales management might assign small accounts to telesales and Web sales. Re-Evaluation. Increasing specialization occurs during the Re-Evaluation Phase, including the use of product and market sellers and product and market overlay sales specialists. Of interest, these roles remain within the confines of the existing sales organization. Optimization. During the Optimization Phase, newly revisioned opportunity segments might require dedicated resources assigned to either the existing sales organization or a new business entity such as a market business unit.
A similar pattern occurs with indirect channels. In the Start-Up Phase, the recruitment of channel partners is open with all channel partners treated alike. The producer offers some degree of “protection” to assure the channel partners that the company will not shrink their market space. However, during the Volume Growth Phase, sales management discerns differences among the channel partners. Some have more customer access. Some are much better sellers. Some are more committed. Some need more resources to exploit rich market opportunities. As with the direct sales force, in some cases, the company will “stratify” the channel partners based on results/needs—providing more resources to those who make greater commitments and produce higher results. During the Re-Evaluation Phase, partners often need more help to sell through to the end users. Field specialists provide partner end-user support.
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Finally, during the Optimization Phase, management will segment channel partners by their customer populations, ensuring that channel partners have the peaked competencies to sell to the targeted segments.
Dimensions of Sales Effectiveness: Job Design and Organization Structure For each phase of growth, we examine the progression of job designs and organization structures for the following dimensions of sales effectiveness: design principles, job constructs, organization features, and governance models.
Design Principles Each phase of growth has different requirements for sales effectiveness. The design principles by phase will help guide decision making about jobs and organizations. These factors will affect the quality of job and organization designs: • • • •
Clear. Sales jobs and organization units need a clear mission. Sales management must structure jobs and the organization to serve this mission. Connected. Each person in each unit needs to see how he or she contributes along the Customer Contact Continuum in pursuit of sales success. Accountable. Sales management needs to define measurable accountability for managers and sales representatives. Contemporary. Sales jobs and sales organizations need to align with current company objectives and customer buying preferences. Rigid, nonchanging sales jobs and organization structures will degrade the sales function. Continually refreshing the sales jobs and organization entities will help keep the coverage model contemporary with current conditions. These principles apply regardless of the phase of growth.
Job Constructs When crafting sales jobs, sales management must avoid the following sales job design errors: •
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Blended. A “blended” sales job contains two dissimilar activities. An example would be for sales management to assign a geographic territory representative both direct accounts and sales channel partners. Both of these jobs are necessary. However, when combined, they create a dilemma for the incumbent: Which job should he or she be performing? It’s best to keep jobs unblended. Corrupted. A “corrupted” sales job has so many activities and tasks that it overwhelms the primary selling duties. This occurs when other activities
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“back up” into the sales job. For example, when customer service issues are distracting the buyer, salespeople may find themselves dealing with service issues. While this might be an appropriate activity for some sales jobs, it should not occupy significant portions of a salesperson’s time. A corrupted sales job has the salesperson spending too much time on nonselling activities. Overloaded. Sales management can “overload” a sales job by asking that too much be accomplished. Such an overloaded list might include selling to existing customers, retaining existing business, selling new products to new customers, and selling new products to existing customers. Sales personnel find it difficult to execute add-on and value selling. As job complexity increases, the number of sales personnel who can succeed drops significantly. Dated. Finally, sales jobs are continually evolving. For example, when sales management assigns sales personnel to a new and unserved territory, the primary selling activity is account acquisition. Later, the sales person might be dealing with many existing customers. At this point, the job has transformed from customer development to customer retention. As a result of this transformation, the “hunter” sales job no longer exists, and sales management has de facto replaced it with a “farmer” sales job designed to retain existing sales volume. Expect little new revenue from this sales resource.
Designing effective sales jobs begins with the question: “What do I want the person to do?” A good exercise for the sales planning team is to list all the requirements of a sales job. Next, allocate available time to these tasks. This exercise will reveal that poorly designed sales jobs often have too many requirements.
Organization Features Why bother with organizational structure? Why not simply tell people to do the right thing and not impede their good judgment and work ethic with limiting job descriptions and organizational hierarchy. The romantic mythology of the self-management once practiced during the early stages of the Start-Up Phase will never die. Sales organization structure provides a very important and much needed “command-and-control” function. Organizational hierarchy allows the sales executives to replicate the company’s Customer Contact Continuum across a large number of sellers in order to reach a high number of customers. These are some of the positive features of an effective sales organization structure: •
Shared charter. A unified sales organization needs to have a shared charter. All members of the sales organization need to serve this charter. This way there is no “disconnect” between what corporate management expects from sales management and what sales management expects from each sales subunit.
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Leanness. Keeping the sales organization lean encourages personal accountability. Sales management should strive to reduce an excessive sales headcount, unnecessary staff overhead, and redundant sales management. Span of control. The ratio of supervisor to subordinate is an important sales-effectiveness variable. A low ratio of subordinates to supervisors could be unnecessarily expensive and might cause excessive oversight—not a particularly effective management outcome. On the other hand, a very high ratio of subordinates to supervisors may reduce supervisor control. The “science” of determining the right span of control rests with returnon-time algorithms. The “art” of determining the right span of control rests with good judgment from sales leadership. Both these approaches add value to the decision regarding span of control. Communication systems. Effective communications systems help drive organizational success. Numerous communication systems travel through the organizational structure, confirming accountabilities, delivering results, and capturing feedback from the field. These systems take many forms including meetings, speeches, Web and e-mail, and for some companies, social networks for sharing ideas and suggestions.
Governance Models Like all leaders, sales management seeks the right balance between “empowerment” and “execution excellence.” Empowerment confers a high degree of autonomy on salespeople and managers. This autonomy often fosters creativity and exceptional energy; however, the downside is that occasional discordant practices must be tolerated. On the other hand, more “execution excellence” ensures uniformity of action but suppresses unconventional solutions, creative engagement, and motivation for some incumbents. As we will learn, the nature of the organization mission will determine the balance between empowerment and execution excellence.
Job Design and Organization Structure Tools We present three tools to assist with job design and organization structure: the Sales Strategy MatrixTM, sales time measurement, and sales coverage pyramids. The shaded box within Figure 9-2 of the Sales Strategy Matrix displays the responsibilities of a general sales representative. A general sales representative, according to the Sales Strategy Matrix, needs to accomplish all sales elements: Sell existing products to current buyers (lower-left quadrant). Sell new products to existing buyers (lower-right quadrant). Sell existing products to new buyers (upper-left quadrant). And sell new products to new buyers (upper-right quadrant). The multifaceted roles
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Figure 9-2 Sales Strategy MatrixTM
found in the general sales representative job create one of the most economical but difficult to successfully perform sales jobs.
Sales Strategy Matrix The Sales Strategy Matrix helps sales planners analyze and design sales jobs. Sales planners can use various performance elements to describe current conditions and specify preferred practices. For example, in Figure 9-3 we see the distribution of current sales revenue. Notice how in Figure 9-3 most of the revenue from the sales job is repeat business with current customers. However, sales management would prefer a different mix of business as shown in Figure 9-4, preferred revenue performance. Further investigation into the content of the job reveals potential solutions for serving different product and buyer quadrants. For example, a common solution to help the overly stretched general sales representative, who is often occupied with current customer service issues, is to provide overlay specialists who could help the general sales representative open new accounts (vertical overlay specialist) or sell new products (product overlay specialist). Another approach could dedicate new sellers to open up new markets with new products.
Figure 9-3 Current Revenue Performance
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Figure 9-4 Preferred Revenue Performance
Figure 9-5 shows how these adjunct jobs help cover all the quadrants in the Sales Strategy Matrix. Notice in Figure 9-5 how the new product and vertical market overlay specialists help cover the extremes of the Sales Strategy Matrix. Vertical specialists work with the account manager to reach new buyers with existing products, and likewise product specialists help the account manager sell new products to the existing buyers. However, the matrix also suggests that a new, dedicated sales force might best sell new products to new buyers. A second valuable investigative tool for designing sales jobs is sales time measurement. Sales time is a precious commodity. Sales time is finite. More complex sales organizations need to measure how sales personnel are spending their time. There are a variety of methods to accomplish this from sales force canvassing to more statistically accurate, random time diary recordings. Again, using the Sales Strategy Matrix, sales management assigns the collected data to the four quadrants. In Figure 9-6, we show the current allocation of time. Clearly, sales personnel are spending all their time with existing customers. Sales management would like to see more time spent acquiring new customers. Figure 9-7 shows the preferred distribution of time for the account manager job. When comparing Figure 9-6 of actual time to Figure 9-7 of preferred time, it is clear that sales personnel are spending too much time with existing
Figure 9-5 Sales Job Specialists
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Figure 9-6 Current Time Allocation
customers. An in-depth process and time study would reveal what is causing this singular focus on existing customers. Figure 9-8 shows another illustration of time utilization broken down into time categories. Charts like this provide an overview of how sales personnel are spending their time. As Figure 9-8 demonstrates, sales personnel are spending too much time with customer service issues (see first circled area) and not enough time prospecting and selling. Sales management will need to further investigate the customer contact continuum to see why customer services issues are “corrupting” the sales job. Also, note how much excessive time sales resources are spending on administrative tasks. The results indicated they are spending 22 percent of their time when the preferred allocation for administration should be only 5 percent of the total available time.
Sales Job Types Assignment of selling objectives defines sales job content and allocation of sales time. Figure 9-9 presents different job types. Sales job focus depends on the allocation of time among buyers (current and prospective) and products (current and new).
Figure 9-7 Preferred Time Allocation
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Figure 9-8 Current and Preferred Time Allocation
AVOID CLASSIC SALES JOB ERRORS The following describe several sales job design errors: •
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General manager sales representative model. The general manager model establishes the salesperson as the owner of his or her accounts and gives the salesperson complete discretion of what and how to sell to customers. In this model, the only outcome of interest to company management is profits produced. While appropriate for some income producer jobs, most companies expect sales personnel to execute a preferred selling approach. The general manager model works at odds with this goal. Personal sales assistants. Many sales representatives correctly argue that they could be more productive if they had a sales assistant to handle the “back-office” parts of their jobs. While logical in its argument, such an approach produces inefficient processes, frustrated assistants, and higher costs. The better approach is to reengineer the sales job and assign nonselling tasks to a central group who can use economies of scale and institutional knowledge to solve customer problems. Faux teams. Sales teams are effective when collaboration of multiple parties is necessary to sell successfully. Such teams are necessary when several resources such as presales, contracts, pricing, and postsales support talent help make the sale. A team requires shared goals, joint decision making, and reallocation of responsibilities as conditions require. A “faux” team includes personnel within the same unit, but they do not work collaboratively together on a day-to-day basis. For example, a sales district with autonomous territory representatives does not
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constitute a “collaborative sales team” and sales management should not tie measures and rewards to their collective results. However, effective sales managers can use the positive power of peer esprit de corps when working with local autonomous sales representatives.
Figure 9-9 Job Types
Customer Pyramid Another useful tool is the customer pyramid. The customer pyramid visually displays the stratified customer population with the appropriate assigned sales organization. In Figure 9-10, we see a classic customer pyramid displaying the population of customers stratified by sales volume potential. The customer pyramid helps assign sales units to customer populations.
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Figure 9-10 Customer Pyramid
Sales Jobs and Organization Structure through the Four Phases of Growth As a company moves through the four phases of growth, both the sales jobs and the sales organization structure will change.
Job Design and Organization Structure in the Start-Up Phase A start-up company does what works. Types of jobs and organization models are flexible and fluid. In the very early stages of the Start-Up Phase, there is little need for formal job descriptions and organization charts. They are unnecessary because such documentation quickly becomes dated. The sales team experiments, along with the product visionaries, with how best to sell the product. It’s not surprising to find the head of the company intimately involved in the initial sales efforts. All are searching for the right sales formula for winning customers. If the company has hired some experienced sales personnel, they may have previous relationships with prospective customers.
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Design Principles—Start-Up During the Start-Up Phase, a key design principle is to resist trying to predefine job duties and organization structures. Continued efforts to sell the product will prove the winning selling methodology. The primary design principle is to “do what works.” However, account ownership needs some parameters, and sales management should anticipate the future sales organization structure. Additionally, sales management should avoid making promises about the future of jobs and organization structures based on the current practices used in the Start-Up Phase.
Job Constructs—Start-Up At some point in the Start-Up Phase, sales management will need to more fully define the job content. Sales management defines the job content using two elements: the type of territory and select elements from the customer contact continuum. The most common sales job is a geographic territory representative. In its simplest form, sales management assigns territories by metropolitan statistical area (MSA), state, county, zip code (or codes). Geographic territories work best when the number of available accounts is high and local prospecting is necessary to identify potential buyers. When the number of potential buyers is few and well known, then sales management can implement named account territories. With a formal customer contact continuum planning process a long way off, most sellers in this phase do the major components of the customer contact continuum: access (find customers), persuade (sell to customers), and fulfill (service and keep customers.)
Organization Features—Start-Up Less is better. During the Start-Up Phase complex organization structures are unnecessary. Often, sales managers are sellers, too. Simple structures allow the company to move and reassign resources as necessary. However, when a successful sales model emerges, sales management should find a single structure to replicate as sales grow. For example, if geographic sales territories work best, then sales management needs to plan for eventual expansion of territory sales jobs assigned to sales districts as volume grows.
Governance Model—Start-Up A simple organization needs only modest managerial oversight. It is a mistake to attempt to adopt “big company” solutions for control of a small company. Informal decision making, situational solutions, and field testing of ideas all displace the need for intense managerial governance and oversight. Sales leaders simply don’t need a highly bureaucratic command-and-control system in the Start-Up Phase. Such systems are more distracting than helpful.
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Job Design and Organization Structure in the Volume Growth Phase Now is the time for more uniformity of sales jobs and greater organization clarity. During the Volume Growth Phase, sales management will move toward more sales specialization— specifically stratified sales jobs. These jobs will need an enabling sales management organization structure, too. The complexity of numerous products and dissimilar types of buyers will become more prevalent during the Volume Growth Phase. The primary focus during the Volume Growth Phase is to scale a replicable sales resource. Experimental approaches to sales jobs along with informal organization structures will give way to a more formulaic approach. More formal job designs will specify responsibilities for jobs such as major account, named account, and territory sales jobs. Sales management will focus on recruiting and “onboarding” new sales talent into the increasing number of job openings.
Design Principles—Volume Growth As the market for the product expands rapidly, sales management needs to grow the sales force quickly to fully exploit the expanding market. Successful efforts will see the company grow at rates greater than those of competitors. This will be an advantage for the company in the future with better customer access and pricing power. The preferred design principles for job design and organization structure are to be simple and scalable. While sales management entertained numerous and flexible job models and convenient organization structures during the exploratory Start-Up Phase, scaling requires a much more disciplined approach. Jobs need clear accountability. Organization structures need uniform simplicity. The same sales jobs and organization structures should be able to work in many places at once and in the same manner. This allows for repeatable scaling. One-off accommodations and special deals cooked up during the Start-Up Phase will need to end. To do otherwise means that sales management risks missing the market growth opportunities. During the end of the Volume Growth Phase, product managers will seek greater “sales force mind-share” in order to promote their new or reconfigured products. Sales management should require product divisions to provide additional field funding support for new products when they differ from the current offerings and, especially, when sellers must sell these new products to new buyer populations.
Job Constructs—Volume Growth Staying with the theme of keeping things simple, sales jobs should remain unencumbered by extraneous tasks. During the Volume Growth Phase, sales
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management will define jobs that provide the best opportunity to capture revenue. However, while the general geographic territory representative job will continue, other jobs are necessary to meet the needs of different buyer populations such as large, medium, and small customers. While the Start-Up Phase placed the greatest job emphasis on new volume selling, the arrival of large, continuing customers requires the need to move beyond simple “hunting.” An effective account management model is now necessary. This approach is important for the largest customers who are increasing their “spend” with the company. Depending on the scope of the accounts, sales management creates and staffs jobs to serve these high-end customers. Here are several job designs that sales management might implement for the largest customers: •
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Key/major account manager. Sales management will assign key/major account jobs to large accounts that feature “central decide/central buy.” The most senior sales personnel occupy these jobs. They are responsible for all revenue for these assigned large customers. National account manager. A national account manager shares selling duties with local sales personnel. A national account manager will secure approved-vendor status so local sales personnel can sell to the customer’s local buying points. Global account manager. A global account manager provides worldwide oversight to customers in buying locations throughout the world. Normally, local sales personnel report to local sales management, and have a dotted line (indirect report) to the global account manager, who devises the account strategy and coordinates worldwide selling activities.
Sales management will assign dedicated resources to the middle- and smallvalue accounts. These are sample titles for middle- to small-sized customers: •
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Named account manager. A named account manager calls on a list of assigned accounts. Sales management will group these accounts within geographic area, but the named account manager will call on only the accounts on the assigned list. This is an effective job for midmarket accounts. Territory representative. A territory representative calls on all the accounts within a geographic territory that sales management has not already assigned to the key account manager or the named account manager.
There are many other types of jobs that sales management can assign, including inside sales jobs, telemarketing, and new account selling. It’s best if each job has an uncluttered, nonconditional sales objective. This will keep each job simple and focused.
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Organization Features—Volume Growth While we have featured the “stratified” sales organization, it represents one of several scaling choices. The following describes this and other available organization scaling choices: •
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Stratification growth model. As mentioned, the most popular action is to stratify customers and sales resources. Sales management divides customers into levels for coverage purposes. The largest customers get “major” account sales resources. Account managers cover the middle-market named accounts. And, territory reps cover the small customers. Sales management jobs oversee these sales entities. Cottage growth model. The cottage growth model calculates a profit and loss (P&L) statement for each new location. Locations (“cottages”) act as stand-alone entities that must justify their existence by moving into the “black” as soon as possible. Adding new locations in the early stages is relatively expensive when compared to total company revenues. Of course, this relative cost will drop as sales management adds more and more field locations. Each new location replicates existing locations. Some sales entities use this model to hopscotch to the most favorable markets. It allows select investment to enter the best markets first. Local general manager model. Similar to the cottage growth model, the general manager model appoints a P&L general manager to open each new area. However, rather than replicating the established model, the general manager exercises judgment to build the right organization given local market conditions. Sales management uses this approach when local markets are dissimilar and only local managers can make informed decisions on the right sales organization design. Territory growth model. The territory growth model assumes that the company has already deployed a marketwide sales force. As growth increases, sales management adds more sales resources by “splitting” existing territories and adding headcount.
Each of these models provides a means to scale the organization as the market produces more volume growth.
Governance Model—Volume Growth Because the scaling solution requires a uniform market approach, the use of local discretion diminishes. As jobs and organization structures take hold during the Volume Growth Phase, standards of execution excellence become a major component of the governance model. Sales management adopts selling systems for the different types of jobs. These selling systems arrive with
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compliance and reporting requirements. To successfully scale, local decision making retreats.
Job Design and Organization Structure in the Re-Evaluation Phase During the Re-Evaluation Phase, sales management now faces modest to flat growth rates and perhaps absolute decreases in the core business. However, product management is still expecting additional support for new products and efforts to acquire new, nontraditional customers. This is a confounding challenge, because as the need for costly selling is increasing, finance is seeking cost reductions. Simply stated, the challenge faced by sales management is to “do more with fewer resources.” These dual pressures will require significant shifts in sales job design and organization structures. In the later stages of Phase III as the company rationalizes (reduces) products and customer populations, additional changes in job design and organization structures will occur.
Design Principles—Re-Evaluation Sales management needs to serve two objectives during this phase: first, reduce the selling costs of the core business; and second, give greater focus to more promising products. To reduce sales costs, sales management will have to accomplish one or more of the following: reduce headcount dedicated to some efforts; shift work to lower-cost resources; and improve the overall productivity. To give greater focus to promising products, sales management needs to shift some resources to specialists who can help penetrate target markets. Sales management needs to trim the sprawling sales organization. Investments in lower-cost resources such as Web purchasing, greater telephone coverage, and the expanded use of variable cost partners will help reduce the cost of selling.
Job Constructs—Re-Evaluation In addition to rebalancing sales headcount, sales management will need to fully examine the content of the sales jobs. Using Customer Contact Continuum process improvement tools, sales management needs to reduce and eliminate, where possible, unproductive time that has crept into the sales roles. In particular, underperforming hybrid jobs and sales-time–corrupted jobs need to be redesigned to reduce lost productivity. The need to separate “hunting” and “farming” is a popular and positive move during this phase. Additionally, excessive customer service issues are most likely degrading the amount of selling time available. Higher investment in customer service support, extensive use of 800 numbers, and Web self-serve tools can help increase available sales persuasion time.
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The increasing use of market and product specialists requires sales management to establish coverage protocols for successful coordination of field efforts. This increasing use of both market and product overlay specialists means the sales representative’s job also changes, becoming more multifaceted and requiring more internal coordination of customer contact strategies.
Organization Features—Re-Evaluation Phase III marks the beginning of the end of the unified, stratified yet still monolithic sales department. In some cases, the size of the sales force is becoming too large to manage. Sales management uses increasing oversight accountability systems to improve sales performance. The upbeat rhythm of execution excellence found at the pinnacle of the Volume Growth Phase can sometimes drift into nontrusting oversight and compliance during the Re-Evaluation Phase. However, a more positive approach challenges the now shrinking sales organization to regain its relevance by succeeding in finding new customers, promoting new value propositions, reducing costs, and selling more profitably. More focus on buyer types drives the need for specialty sales units that serve vertical or product applications. These new, energetic sales units need flexibility. Sales specialization by buyer types creates the need for additional sales messages, solutions, and dedicated selling resources. Multifaceted sales department resources such as low-cost sales channels, specialty sellers, technology-enabled hands-free buying, and telesales personnel will grow relative to the traditional field organization. These units will need their own senior level sponsors. Sales management should resist the pressure to disperse these functions into local sales units. Central solutions work best.
Governance Model—Re-Evaluation For the first time, the sales department needs focused sales planning help. In larger organizations this might mean a full-time sales planner or planning unit. Just-in-time organic decision making is no longer feasible. Increased use of opportunity planning and risk analysis becomes fundamental to making good deployment decisions. Sales organization design needs more active engagement by line of business management and finance during the newly adopted and more formal sales planning process. Less local decision making occurs. Field sales managers now implement centrally defined sales accountabilities systems. Additionally, record keeping, sales reporting, and proactive sales funnel management define this phase.
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Job Design and Organization Structure in the Optimization Phase During the optimization phase, the planning process for jobs and organization structures must begin anew. Both Phase I, Start-Up, and Phase II, Volume Growth, focused on volume growth. Phase III, Re-Evaluation, required cost and productivity improvements. During Phase IV, Optimization, sales leadership needs to redefine the charter of the sales department to be more customer-centric. Opportunity segment planning will reveal which buyer segments offer the best chance for profitable revenue growth. The sales department must move forward, uninhibited of past practices, to configure sales solutions—jobs and organization structures—to serve the most promising buyer populations.
Design Principles—Optimization The rethinking of the sales functions begins with the advent of the Optimization Phase. The sales planning process accepts the premise: “Not all business is good business; only some business is good business.” In partnership with the product divisions and finance, sales leadership needs to allocate resources to the most promising and more strategically important opportunity segments. However, thoughtful management of the core business requires ongoing planning and resources, too. Senior management, supported by strategic planning, charts the future focus of the company. Further planning efforts translate these broad objectives into revenue and profit streams defined as opportunity segments. Opportunity segments specify a product, buyer population, and a sales coverage solution. The design principle for sales jobs and organization structure is to allocate the right level of customer contact resources to optimize the segment opportunity. In many respects, the outcome of this approach will simplify the content of the sales jobs and also streamline the sales organization structure, thus improving effectiveness and productivity. Specialization around opportunity segments may find an increase in the number of sales jobs, but not necessarily an increase in sales headcount. However, opportunity segments that offer the promise of entering the Volume Growth Phase will get the substantial scaling resources necessary to lock up market share. The guiding design principle during this phase is to develop sales jobs and organizations to match the opportunity segments.
Job Constructs—Optimization Sales management needs to ensure highly aligned customer contact focus during the Optimization Phase. That is, the content of sales jobs is no longer
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about market reach but instead is about market effectiveness. Some segments, such as the core business, may need to focus on customer retention and price realization management. On the other hand, some new opportunity segments might require advanced selling skills to bring together more complex, multisourced solutions. There is no longer a simple definition for sales jobs. Sales management will craft each sales job to match the target customer population.
Organization Features—Optimization During this phase, the once unified national sales organization structure morphs into a variety of forms. The “classic” field sales organization will continue, perhaps with a new charter to grow and make profitable the core business. Some opportunity segments will require new organization entities and a dedicated sales force. Examples include: •
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Field business units. Field business units serve local geographic markets. The buyer characteristics and needs are unique to the area. This local focus might reflect conditions caused by state or local legislation, local buyers, or concentrated local industries. Facility business units. At times, a local manufacturing facility produces unique products exclusively for the local market. In this instance, local management will operate as an independent entity and most likely have its own local sales resources. Examples include a printing plant or a major destination hotel. Channel business units. In some cases, a type of channel partner requires its own dedicated distribution, product, marketing, and sales force. For example, big box retailer partners often require extensive and unique support. A channel business unit could focus entirely on these big customers. Market business units. MBUs focus on a unique grouping of customers based on the customers’ buying needs. Sometimes these are vertical markets; other times, corporate management will create an MBU to promote a specific application. An MBU will have its own marketing and sales resourses, but will share production with other MBUs. Strategic business units. Finally, in some cases, senior management will create SBUs with dedicated production, product management, marketing, and sales resources to serve unique opportunity segments. An SBU has full profit and loss responsibilities. Most successful SBUs will make their own journey through the four growth phases.
Sales management will need to rethink the classic sales organization structure during the Optimization Phase. New micro markets will spawn multiple sales units to serve different and unique market segments.
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Governance Model—Optimization Sales planning and strategy become an integral part of the company’s strategic planning process. Sales management correctly assigns sales recourses to the numerous opportunity segments. Careful customer contact continuum planning will drive the correct coverage jobs and organization structure. Local discretion gives way to multiyear planning processes. Sales management will continue to seek ways to reduce costs and improve sales outcomes for traditional buyers of the core product. However, prospective customers in emerging opportunity segments will need more flexible selling solutions.
SUMMARY Two of the most visible elements of a sales organization are the jobs and the organization structure. As a company moves through growth phases, both these elements of the sales model will change. It’s inevitable. To avoid sales force obsolescence, sales management needs to keep sales jobs and sales organization structures in alignment with product divisions’ needs and buyer population requirements.
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Resource Deployment Sales personnel provide the means to affect sales strategies. The number and placement of sales resources must balance effectiveness and cost considerations. As a sales organization moves through the growth phases, sales management makes resource deployment decisions based on market reach objectives and buyer preferences. Territory configuration affects headcount allocation and placement. Support resources increase too as frontline sales personnel headcount increases. Resource deployment is the allocation of sales headcount to customer opportunities. Methods to allocate sales resources vary from informal judgments to advanced algorithms. Resource deployment must account for market potential, productivity, sales costs, and span of control to arrive at the right staffing model. Additionally, sales resources extend beyond frontline sales personnel. They also include management, sales support, and administration personnel, those residing in the sales department (at headquarters and in the field), and those located in other departments. As a sales department grows, it needs more headcounts to extend the market reach of the company. The methods to determine the levels of resources will evolve through the phases of growth.
Numerous variables affect resource deployment decisions: •
Market size. The size of the market has the largest impact on resource levels. Large markets with a high number of potential accounts need a large 154
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coverage force to reach all the viable buyers. Whereas smaller markets with fewer accounts need less coverage resources. These two ends of the market spectrum—numerous customers to few customers—span many staffing considerations. Customer value and repurchase status. Additionally, the value of each customer adds another factor. Some customers have high economic value because they buy large volumes; while other customers make only minor purchases. The type of purchasing also affects resource staffing. Recurring purchases might require less overall headcount when compared to singleevent purchases. For some recurring revenue, some customers repurchase in a dependable fashion. Sellers refer to these customers as “sticky.” On the other hand, some repurchasing customers may exhibit low vendor loyalty. Finally, brand value, customer knowledge, price variance, and previous customer service experience affects customer repurchasing behavior, which, in turn, affects sales staffing levels.
Market size estimates take on additional meaning when sales planners subdivide the market into the opportunity segments. This level of refinement can provide more precise staffing estimates. •
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Sales costs. Sales costs affect available selling resource headcount. Because selling costs vary by channels, sales management often begins with an overall cost-of-sales budget. Finance should express this amount as a percent of revenue and not as a fixed dollar amount. Sales leadership needs to carefully allocate the sales budget. In some cases, there is not enough money in the budget to fully cover the available market. And, when allocating sales costs, sales management must account for both the direct cost of headcount, salaries, and sales compensation and the indirect cost of discounts, sales support to partners, and sales infrastructure such as sales management, automation, car program, mobile communications, and administrative support. Customer needs. Customers have different levels of needs, sometimes described as “high touch” or “low touch.” Figure 10-1 illustrates several different types of customer needs and the implications for sales headcount. Customer needs will affect the number of resources required to staff the field, telephone, or channel management organizations. Sales productivity. Sales management can use these tools to assess sales productivity: Sales yield directly influences resource headcount. Improving sales productivity reduces headcount requirements. Sales time analysis examines selling time versus nonsales accountabilities such as customer service, marketing support, or administrative compliance. Altering the allocation of time can improve sales production.
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Figure 10-1 Customer Needs and Sales Resource Count
Sales funnel metrics provide a ratio of new opportunities to closed sales, plus statistics of sales progression, including duration to close, and “fallout” rate by sales stage. Sales experience affects productivity, too. For example, new hire productivity will not match the loss of high-producing sales personnel. Market absorption rate predicates the decline in sales productivity as the market for the product expands and saturates. Market saturation will decrease sales productivity. In Figure 10-2, the return ratio is highest for stage A and lowest at stage C, meaning that sales productivity gains are highest in stage A and lowest in stage C for each added seller. A sales response algorithm provides the correct calculation for this scenario. Sales productivity projections must account for this market-based decline in sales productivity as volume grows.
Figure 10-2 Market Absorption
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Competitor actions. At times competitor actions can “trump” any analytical calculation of headcount provisioning. A competitor can flood the market with sales personnel and thus displace others. Or a competitor can deploy high-end and expensive sellers to “outsell” the other vendors. If market share or future growth is significantly threatened by a competitor’s resource decisions, then sales management must counter such moves by meeting and exceeding the competitor’s resource tactics. Territory loading and logistics. Considerable science is available to determine the territory loading and logistics: Workload analysis helps correctly balance job content assuming 40 to 50 available weekly work hours. Territory logistics account for the travel time and accessibility of customers. Accelerating advances in mobile and electronic communications continue to upend historical “drive-time” territory optimization models used for over 75 years. Recent and continuing productivity gains by sales personnel, who use mobile and electronic communications, dramatically affects territory loading and logistics assumptions. These increasing productivity advances will force the recalibration of territory loading and logistics assumptions. Additionally, these mobile communication advances usurp the need for sales offices acting as a hub-and-spoke control system. Sales personnel can now work from home, carry a larger territory with more accounts, and handle many day-to-day tasks electronically.
Resource deployment determines the number and placement of field sales resources. Factors such as market size, sales cost, customer needs, sales productivity, competitor actions, and territory loading and logistics affect the staffing levels and locations of sales resources.
DIMENSIONS OF SALES EFFECTIVENESS— RESOURCE DEPLOYMENT Taken as a whole, the market size is the starting point for developing potential headcount estimates and placement of selling resources. Of course, the correct methodology is to follow the Sales Management System from Pillar 1, Opportunity Segments, through to Pillar 5, Resource Deployment, to better formulate staffing and deployment solutions. • •
Pillar 1, Opportunity Segments, provides the market size information defined at the sales coverage level. Pillar 2, Coverage Design, describes the types of sales channels needed to cover the market.
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Pillar 3, Customer Contact Continuum, specifies all the process steps necessary to convert a prospect to a buyer. Pillar 4, Job Design and Organization Structure, assigns duties to responsible organization entities. Pillar 5, Resource Deployment, places the right number of people into correctly designed roles at the right locations.
The dimensions of sales effectiveness that follow evolve and change as the company moves through the four growth phases: buyer preferences, territory configuration, headcount allocation and placement, and support resources.
Buyer Preferences How buyers want to buy influences the configuration, placement, and headcount of the sales force. Buyers want significant sales representative presence under one or more of the following conditions: •
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Solutions discovery. Customers will seek the assistance of external experts— such as sales consultants—when the company is attempting to formulate new and untested solutions. They wish to have a partner who can help contribute to their company’s efforts to create more effective solutions beyond those that currently exist. Such buyers seek sales personnel and vendor support that can help craft and deliver these advanced solutions. High-risk/high-uncertainty purchases. High-risk purchases occur when buyers are making costly and potentially politically sensitive purchase commitments. High uncertainty—caused by lack of knowledge—increases the sense of risk associated with a purchase. Buyers will seek the counsel of seasoned, trusted sellers to help reduce risk and uncertainty. Accountability. Buyers will want on-site sales representation for purchases affecting company-critical operations. These buyers want the sales person to ensure successful delivery, implementation, and after-sale support. Technical knowledge. Customers buying through distributors may want additional application or technical knowledge beyond the scope of the distributor’s representative. In such cases, the buyer will ask for direct factory support from the manufacturer’s sales representative.
Buyers need little or no on-site sales representation when one or more of the following is true: •
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Standing orders. Buyers with standing orders may need to see sales personnel only periodically such as during contract negotiations or service issues. The rest of the time, buyers continue to receive products regularly or order on-demand using the Web or an order desk. Customer service teams. Companies that sell products with the need for extensive after-sale customer service support assign customer support teams
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to the buyer. The account is turned over to a customer service manager. The buyer does not expect to see the seller again, unless the buyer needs new and dissimilar services. Low risk/low value. Buy decisions that are low risk and are of relatively low economic value do not need sales personnel support. Instead, these customers rely on reputation, brand, availability, convenience, and price. Depending on market presence, the buyer can make the purchase at a retail store, from a supplier, or via the Web.
Buyer preferences will shift over time as the product becomes more known and widespread. The use of engaged sales personnel might be very high in the early stages of growth and become less prominent in the later stages.
Territory Configuration Territories group together current and prospective accounts for sales coverage purposes. There are many types of territories: • •
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In geographic territories all accounts are assigned within a geographic zone such as defined by ZIP codes, cities, counties, states, provinces, or countries. In named account territories a list of accounts is assigned for coverage purposes. If there are numerous named accounts, sales management further delineates the named account territories by geography. Vertical territories accounts are grouped by industry type, giving the salesperson substantial insight into industry and customer needs. Tax-supported territories have government agencies as customers.
It’s not uncommon for a geographic representative’s territory to overlap a named account territory. In such instances, the named account manager calls on the larger customers in the same geographic area occupied by the geographic territory representative, who calls on the smaller accounts. Likewise, telesales personnel may have their own exclusive target accounts within the same geographic territory. There are other types of territories. For example, sales management configures some territories to match the channel partners. These channel-partner territories align with the channel partner’s outlets, too. Sales management might configure territories to match a certain type of buyer at an account. While geographic representatives or named account representatives normally call on all buyers within a single customer, sales management might assign buyers within one account to different sales territories. For example, one sales person might call on the purchasing department and another sales person might call on a different buyer such as the IT vice president. Normally, assigning buyers within an account to different sales territories is appropriate when the products being sold are different.
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Conversely, in some cases, sales management does not assign territories. For example, call center managers may have telesales personnel handle calls on a first-in, first-taken basis. Another example where sales management does not assign accounts occurs when sales personnel pursue sales leads through “daisy chain” referrals, moving on to new prospects as recommended by satisfied customers. In this model, sales management makes no prospect assignments.
Headcount Allocation and Placement Headcount allocation specifies the staffing levels for all sales jobs. Headcount placement decides where these job assignments reside. In most sales organizations, current staffing levels are normally the outcome of cumulative decisions over the years to add or drop sales headcount as the market potential warrants and the cost structure allows. Not all sales leaders use rigorous, repeatable analytical modeling to make these staffing decisions, but the outcome often proves remarkably optimal and appropriate. However, when major dislocations to the current selling model present themselves, this try-test-revise headcount allocation approach becomes less effective. Sales planners will need to employ more studied analytical methods to estimate correct staffing levels. This will include sales yield, sales time analysis, funnel metrics, market absorption rate, and workload analysis. Headcount placement continues to undergo major revolutions. Historical models based on the science of account locations, call patterns, and geographic proximity no longer hold the same currency in today’s electronically connected world. As personnel costs are increasing, the relative cost to communicate is decreasing. In other words, the location of sales personnel is becoming less a matter of sales efficiency and more a matter of sales effectiveness. It might be better to have a highly skilled salesperson covering major accounts or a broad region than to have numerous but ineffective local representatives. E-mail, internal social networks, teleconferences, video meetings, and Web-based communication are reducing the need for universal face-to-face selling. Likewise these same technologies are also reducing the need for supervisor proximity.
Support Resources In addition to the sales force, numerous other functions require headcount changes as the sales force moves through the four phases of growth. These functions include both sales department headcount and the headcount of other enabling departments. As the company grows, it will affect the following support headcount within the sales department: •
Sales management. The supervision of sales personnel begins with frontline managers. The span of control for this sales job will vary depending on
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the growth rate and caliber of sales personnel. The ratio of first-line sales managers to direct reports can vary from 1 to 5 all the way up to 1 to 15 in some cases. The average ratio is close to 1 to 8 for most field sales functions. The spread of these ratios reflects the degree of need for supervisory oversight. In some cases, first-line management needs to have hands-on access to direct reports to guide inexperienced sales personnel. However, when sales teams have extensive experience and have long service with the company, the span of control can be as high as 1 to 10, if not higher. Moving up to the next level of management, similar ratios are appropriate for area managers who oversee sales districts. Again, experience level will affect this ratio of area managers to district managers. Finally, moving up to the third level of field management, the same ratio calculus determines the span of control of regional managers providing direction to area managers. Customer support. Customer support teams scale in size with customer count and the extent of customer service needs. As expected, as sales personnel headcount increases, so does that of customer support personnel. Field administration. Depending on automation investments, the need for field administration personnel will vary. Highly automated sales processes and ordering systems require reduced field administration headcount. Conversely, those with limited automation solutions must scale their administration personnel to match the growth in field headcount. Field marketing. In some companies, customer marketing solutions reside in the field close to customers. These field-oriented marketing departments work with sales personnel to create sales collateral, assist with pricing, provide market-specific sales training, and assist with major sales opportunities. HQ IT support. Although automation decreases the need for field administrators, it increases the need for IT systems personnel at HQ. Sales operations. Sales operations headcount supports staffing, development, forecasting, reporting, automation design, and sales planning. As a sales force increases in size, so must the sales operations support staff.
Other enabling departments see their headcount change as the sales force headcount changes: •
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Sales accounting. Located with finance, sales accounting provides all the administration support for data intensive systems such as order entry, sales reporting, and sales compensation. Sales finance. Sales finance helps the sales department develop and evaluate sales revenue and sales cost scenarios for planning, investment, and deployment purposes. Preparing regular and accurate sales forecasts becomes critical input into the company’s external valuation and internal investment choices. As the company gets bigger, so must this supporting function.
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Human resources. The HR department helps with talent management. The need for HR field support increases during periods of extensive headcount change, particularly during aggressive growth.
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Each dimension of resource deployment effectiveness—buyer preferences, territory configuration, headcount allocation and placement, and support resources—changes during the four growth phases.
RESOURCE DEPLOYMENT TOOLS Sales management can employ several methods to size field resources. These include: •
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Experience/judgment. Experienced sales leaders develop a feel for the market that suggests go-forward staffing levels. These judgments often prove remarkably accurate, particularly for the sale of a single-product family into a homogeneous market. Sales expense budget. Another method to “size” the field sales organization is to staff the field up to the available sales expense funding. Competitor positioning. Matching the competitors’ deployment models ensures competitive coverage. Sales response algorithms. Adding incremental headcount provides a return on sales investment. However, as the market grows, the sales response declines. Logarithmic formula anticipates the rate of return thus ensuring optimal staffing—not too many personnel and not too few. Potential/activity model. Once sales management determines the segment’s market potential, sales planners can use activity calculations to determine the proper staffing levels. An example of this method is discussed next.
Potential/Activity Model—Illustration Follow these steps of the Potential/Activity Model to estimate the necessary sales force headcount. Ó Ó Ó Ó Ó
Step 1: Determine segment potential. Step 2: Measure available sales time. Step 3: Calculate sales yield. Step 4: Determine headcount. Step 5: Assign sales personnel to markets.
Step 1: Determine Segment Potential As previously presented, there are multiple methods to determine the size of the available revenue within a segment. Figure 10-3 suggests one approach. Notice how the true amount of available revenue is substantially less than the market universe from $1.2 billion to $31.5 million.
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Figure 10-3 Available Revenue
The Sales Strategy Matrix can locate the source of these dollars as displayed in Figure 10-4. Figure 10-5 summarizes the revenue sources by type of selling as displayed in Figure 10-4.
Step 2: Measure Available Sales Time Next, use sales time surveys to determine available selling time. Figure 10-6 presents the outcome of this research. For this sales force, engaged selling time represents 35 percent of all available time.
Figure 10-4 Revenue Sources by Type of Selling
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Figure 10-5 Revenue Sources—Summary
Step 3: Calculate Sales Yield To determine the sales yield, use a workload analysis to calculate sales performance outcomes. As displayed in Figure 10-7, it takes 10 prospects to close 1 sale, a 10 percent close rate. The total time invested to close is 16.5 hours. Notice that each sales hour produces $909 of revenue. Of special interest, Figure 10-7 reveals some potential levers for improving sales productivity. These include improving the close rate (beyond the poor 10 percent rate—1 closed sale for every 10 new opportunities) and reducing the time needed to research opportunities (now equal to an excessive 6 hours per opportunity).
Step 4: Determine Headcount Figure 10-8 presents the steps required to determine the necessary headcount.
Figure 10-6 Available Sales Time
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Figure 10-7 Sales Yield—Workload Analysis
As Figure 10-8 demonstrates, a total of 53 (52.88) sales personnel are necessary to acquire $31.5M in new sales for the fiscal year.
Step 5: Assign Sales Personnel to Markets The final step is to map the available market potential. Figure 10-9 displays eight sales regions with the necessary headcount to support the expected revenue for each region. Of course, further account location analysis will determine territory assignments for the sales personnel. The potential/activity model provides an analytical means to estimate staffing and placement of sales resources.
Figure 10-8 Headcount Calculation
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Figure 10-9 Sales Resource Deployment by Region
RESOURCE DEPLOYMENT THROUGH THE FOUR PHASES OF GROWTH The following presents how the resource deployment dimensions of sales effectiveness evolve through the four phases of growth.
Resource Deployment in the Start-Up Phase A start-up company is looking for willing buyers to purchase its still-evolving product. The division of responsibilities between sales, marketing, and product management remains fluid. What needs to get done, gets done. Active concerns about getting sales to offset expenses drive any action that closes deals. Management makes expedient decisions about staffing and the location of selling resources. If the product or service features extensive intellectual property (IP) content, a high purchase price, and requires consultative selling, sales management might recruit a few highly skilled sellers. These sellers could be located at HQ or close to major accounts. If the product, on the other hand, requires hands-on persuasion of reluctant local buyers, then sales management needs to deploy skilled sellers to cover these market opportunities. These may be direct sellers, highly trained (and motivated) dealers, VARs, or other channel partners. Finally, a product with high appeal, and low purchase risk requires marketwide availability. In such situations, a blanket market coverage strategy might see the deployment of one or a combination of the following: local territory representatives, telesales, distributor sales, retail, and Web purchasing. Of course, market size and expense
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limitations will determine the number of selling resources sales management can deploy.
Buyer Preferences—Start-Up Whether the company is creating a “new” market, entering an existing market with dissimilar solutions, or entering an existing market with a product similar to what’s already out there, the company needs to provide enhanced persuasion efforts to kick-start the sales revenue growth. An unknown product with high purchase risks needs considerable seller engagement to educate the buyer, reduce the perceived risk, and facilitate internal acceptance of the purchase. This is particularly true when a product is new to the market and not widely known or accepted and might displace acceptable current solutions and practices. Sales management hires skilled sellers to guide (persuade) the buyers and other customer stakeholders to make the purchase. If there are few potential buyers, the seller population will remain low until the expanding market justifies hiring more personnel; or revenue provides more expense dollars; or investors provide more funding. Depending on the company’s market opportunity and tolerance for expense absorption, the buyer preferences govern the levels of resource deployment. When buyers demand high seller engagement accompanied by long sales cycles and low close rates, then sales management needs to provide costly hands-on sales talent, which creates a resource limiting condition. This same condition can exist when soliciting channel partners, too. One of the sales virtues of the Start-Up Phase is the shared value that “everyone is a seller.” Although dedicated headcount will remain constrained until proven growth begins, all management talent is willing and often competent to contribute to the customer-specific sales efforts.
Territory Configuration—Start-Up During the Start-Up Phase, depending on the sales coverage model—direct or indirect—sales territories evolve to meet buyer preferences. It’s best not to overengineer the territory structures and rules. Start-up companies need sales force agility. Excessively prescribed limitations often impede the company’s early growth. The sales force might begin with no territories at all. In such cases, the market might be so large and the number of sales personnel so few that the odds of them bumping into each other at accounts might be implausible. In this model, sales personnel own their active deals and all other accounts are “open” for sales promotion purposes. Later, as account ownership issues arise, sales management will need to institute sales territories such as a geographic or named account. However, sales management needs to avoid restrictive sales representative proprietary
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territories during this early stage of growth. Sales management will need greater flexibility to add and further specialize territories in the next phase of growth.
Headcount Allocation and Placement—Start-Up During the Start-Up Phase, sales management limits headcount levels to match the market potential, buyer preferences, and expense limitations. Sales management exercises caution prior to adding personnel. Sales management should avoid premature sales staffing during this phase of growth. Premature sales staffing occurs when sales management adds too many sales resources to an exploratory market, with an experimental value proposition, and featuring a formative delivery model. Expect high turnover under such conditions. In the very early stages of start-up, sales management works with product advocates to proof-test the sales value proposition. Only real customer sales experiences can confirm the sales value proposition. With a proven sales value proposition, sales management can add headcount with confidence as justified by market opportunities and expense limitations. Factors such as buyer preference, location of buyers, and buying methods will influence the placement of the sellers. The quality and maturity of the required sellers will affect the placement decision, too. Sales management can disperse sales personnel afar—to match buyer locations—when employing experienced sellers. Less experienced sellers will need to be closer to company points of influence such as a district office to benefit from closer oversight. During this phase of growth, sales management has little need to use efficiency algorithms. Experience, good judgment, and common sense are sufficient competencies to make headcount allocation and resource placement decisions during this phase of growth.
Support Resources—Start-Up Most start-up sales organizations have little in the way of “overhead” support resources. The need is low and sales management cannot justify high headcounts of nonselling staff. However, while the organization chart will not show extensive direct staff support, it is occurring. For example, product advocates are working to craft workable sales messages. Finance is tracking and reporting sales results. Field sales managers are doing their own recruiting. On-the-job sales training occurs regularly as sales supervisors ramp up new hires. IT personnel are helping with Web sites, sales portals, quote systems, order systems, and customer service tracking. While “direct” staff support seems scant during this phase, sales management is actually consuming significant support from others. Sales management’s need for this support is often intermittent, thus precluding the need for
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dedicated personnel. However, as sales volumes and sales headcount increases, the need for dedicated support staff will increase accordingly.
Resource Deployment in the Volume Growth Phase Proven growth is now occurring. The company has uncovered a market opportunity with substantial upside growth. Now is the time to make investments in the sales organization, particularly headcount. It seems that the more success the company has, the more volume becomes available. The updated core product has become more stable and the delivery more accomplished. Product managers are offering additional product extensions to serve various segments of the growing market. Volume growth is critical at this stage to ensure dominant market presence and continued marginal cost reductions. Profits continue to grow. Sales resources need to expand rapidly during this scaling phase. In the later stages of the Volume Growth Phase, inevitable market saturation of the core product will drive the need for new products.
Buyer Preferences—Volume Growth The challenge is to take full advantage as the size of the potential market expands. In some cases, potential buyers are developing anticipatory purchase ambitions. Some have heard about the solution and recognize how their company will benefit from such a purchase. Others are still taking a wait-and-see attitude. A small block might outright decide not to make such a purchase in the near term. Surprisingly a large number of potential customers—for one reason or another—are not aware of the product, and, as a result, have not even considered such a purchase. Along with growth, the needs of existing customers increase, too. For example, they may have customer service issues. They may need ongoing selling to retain existing revenue or focused sales efforts to re-sign sales contracts. Customers also exhibit different buying preferences based on their purchasing volume. The larger customers need and expect sales resources that are highly skilled and knowledgeable. They want the seller and a supporting team to appropriately advise their company on the product’s application. They want the vendor’s sales resources to work effectively with other stakeholders within the purchasing company to help facilitate a purchase decision. Headcount will need to expand and be specialized based on the growing population of products, prospects, and customers.
Territory Configuration—Volume Growth During the Volume Growth Phase, sales management makes rapid changes in territory configurations. Sales management begins retiring the informal
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territory configuration models of the Start-Up Phase with more structured territory configuration solutions. Sales management must make room for many more additional territories as volume begins to scale. This means that sales management must cut current territories and reallocate the accounts to new territories. In a rapidly growing market, sales personnel will welcome having their territory reduced to a manageable size. However, other salespeople will see it as a “takeaway.” Regardless, adding additional territories increases sales coverage and is necessary during this phase of growth. Next, sales management needs to respond to evolving buying preferences. Primarily driven by account size, sales management will stratify the accounts and create territories consistent with these size differences. Most likely, the stratification will include major accounts, middle-market named accounts, and geographic territory accounts. Territories might even distinguish between current customers (farmers) and new customers (hunters). In the latter stages of the Volume Growth Phase, sales management may create specialized territories to cover select buyer segments tied to product purchase or vertical market needs. Sales management creates “rules of engagement” to ensure that there is minimal channel conflict among the sellers and other channel partners. These rules of engagement specify account ownership policies, account change policies, and sales crediting practices. Sales management, based on market potential, increases sales headcount significantly as territory models proliferate.
Headcount Allocation and Placement—Volume Growth Sales management is ready to make significant investments in headcount during the Volume Growth Phase. Along with increasing diversification of buyer preferences and new territory configurations, sales management increases staffing proportionally. Using a now proven sales model, sales management confidently uses simple algorithms, which predict additional revenue growth for each addition to field headcount. While anticipating ramp-up time, sales management can closely calculate the ROI on each additional hire. With market potential still uncontested, additional headcount provides real-time confirmation of the growth potential of the market. Extensive sales potential estimating and time utilization modeling is unnecessary. Experience has taught sales management that additional hires bring new revenue. As sales management specializes territories, sales planners retool generic staffing algorithms to now fit the multiplying territory types. While these new algorithms are not as precise as the original scaling algorithms, they are accurate enough to make the next hiring commitment. Figure 10-10 illustrates a typical staffing algorithm.
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Figure 10-10 Staffing Algorithm for Territory Representatives
Notice in Figure 10-10 how the cost of selling is going down as the salesperson becomes more productive each ensuing year, even as compensation costs increase. Sales management uses this type of algorithm to predict return on sales costs for additional headcount as the company scales its selling resources. The placement of sales personnel becomes more analytical. Tools such as mapping software for geographic sales personnel, cluster analysis for named account territories, and authority centered analysis for major accounts contribute to the correct domiciling of sales personnel. Concurrently, mobile and electronic communications are increasingly shrinking the distance among assigned accounts.
Support Resources—Volume Growth As standardization of processes arrives in the Volume Growth Phase, the need for staff support increases. The following support requirements bring additional headcount during this phase: •
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Recruitment and selection. Rapid headcount growth requires additional HR staff support to recruit, select, and hire the increasing number of sales professionals. Product and market overlay specialists. As new products arrive, the need for field product specialists increases. Likewise, as sales management identifies vertical markets for sales focus, the use of market overlay specialists increases, too. Sales management. With the increase in staffing levels, sales management headcount also increases. Often, during this phase, many of the new hires are inexperienced and need considerable supervisory support thus reducing the ratio of sales headcount to sales manager. Sales territory planning. With the increasing number of specialized territories emerging, sales management must use planning professionals to fully allocate the territories and manage all assignment changes. Sales training. As the number of new hires and product offerings increase, the need for sales training increases too, causing an appropriate increase in training staff.
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Sales reporting and forecasting. New, more complex reporting requirements increase the need for regular and informative quantitative reporting. Additional headcount may be necessary to support more expansive and informative sales reporting. Automation support. Overall automation increases sharply with the system support needed for many of these applications: proposal preparation, call planning, contact management, customer relationship management, sales reporting, expense management, forecasting, and customer service management.
Resource Deployment in the Re-Evaluation Phase With the decline in revenue growth, staffing levels come under close scrutiny. As the core product reaches a degree of market saturation and new products have yet to provide replacement revenue growth, sales management must find the means to improve sales productivity. One such place is to closely examine headcount. Additionally, the reallocation of selling resources might change the mix of resource talent including staffing requirements for different and changing types of sales territories. Sales management will closely examine future sales resource growth. Sales management also will need to re-evaluate sales support headcount.
Buyer Preferences—Re-Evaluation As buyer populations expand, their needs diverge. Some buyers seek increased advice for mission-critical applications. A large number of customers simply seek good customer service support from the company’s sales resources. In some cases, customers even ask for less sales force involvement. Preferring a more hands-on, dedicated customer service team. Finally, a segment of customers may need no sales support and seek from the company ease of purchasing rather than sales force involvement. Meanwhile, formerly unaddressed market segments need creative coverage solutions. These potential customers might prefer much lower costs as provided by a nontraditional low-cost channel. Or they prefer to buy the product bundled with other vendors’ offerings. Or they may wish to have a more simplified product offering provided by a specialty, perhaps third-party, sales resource.
Territory Configuration—Re-Evaluation Having built a comprehensive sales organization based on numerous territory types, sales management needs to determine if further specialization is necessary. Demands to support promising future growth products continue from product divisions even as sales management is under pressure to reduce costs and improve productivity. The rate of return for traditional market segments
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may be eroding. Rationalization of the customer base may call into question traditional coverage solutions. What were once robust market development territories have now matured into relationship-centric customer service entities. Large numbers of customers may no longer qualify for expensive direct sales support. Some organizations leverage direct outside sales with inside salespeople creating a lower sales/service cost model. These outside/inside teams allow the sales force to focus on large revenue growth opportunities while inside sales personnel handle small orders, re-signing of contracts, low-risk purchases, and other customer service issues. In this model, the number of accounts for the outside salesperson expands, while dedicated inside sales personnel handle most of the day-to-day customer service issues, leaving the outside salesperson to focus on selling major contracts. The evolution of indirect channels also follows the same arc. While specialization is increasing, cost controls require channel management to rethink full-market coverage. Like a direct sales force, the cost to support a marketwide indirect coverage model with an unlimited number of channel partners becomes questionable. While additional forms of channel specialization need to occur, expansive undifferentiated channel coverage is not the basis for future profitable revenue growth. As with the direct sales force, sales management increases indirect channel specialization while downsizing the traditional, ubiquitous marketwide indirect channel coverage model.
Headcount Allocation and Placement—Re-Evaluation Substantive headcount changes occur in the Re-Evaluation Phase. As revenue growth of the core business declines, pressure mounts to reduce unnecessary costs, including sales costs. While productivity improvement can help lower the cost of selling, often headcount reduction and reallocation of personnel are necessary. The scaling algorithms of the Volume Growth Phase no longer have currency. As the marginal productivity rate reaches diminishing returns, scaling algorithms become inoperative. At this point, the need for more analytical methods to reconfigure staffing levels becomes more appropriate. The potential/sales activity model allows more finely tuned decisions about headcount levels. Of course, the potential/sales activity model presents a couple of challenges: •
Addressable market potential. Addressable market potential requires segment research to determine the full market potential and then adjust that number by removing unaddressable revenue (not available to the company) and current/repeating revenue. Additional adjustment to this
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remaining number for estimated market growth or decline determines the final addressable market potential. Sales yield per hour. As sales time surveys reveal, loss of selling time to other activities leaves only a portion of the total time dedicated to productive selling. These productive selling efforts produce expected revenue per hour known as sales yield. Of course, sales management can improve sales yield a number of ways such as making more selling hours available, reducing time on low-return accounts, improving selling skills, and motivating sales personnel.
Needless to say, sales management needs to improve the productivity of the “traditional” field sales organization and, most likely, reduce or reassign existing personnel during the Re-Evaluation Phase.
Support Resources—Re-Evaluation Support resources undergo close scrutiny and possibly major changes during the Re-Evaluation Phase. Excessive headcount dedicated to staffing and training a scaling sales organization is now downsized. Headcount reduction of product and market overlay specialists occurs, too. Span of control among all levels of sales management widens, thus reducing the number of field management personnel. However, additional headcount may be necessary to help launch new products, improve sales planning, and upgrade IT solutions. New product launches will require additional field headcount, most likely staffed or funded by product divisions. More planning staff may be necessary to help with segment sizing, territory configuration, forecasting, and reporting. A substantial investment in IT solutions to bring together now hopelessly unconnected processes and administrative and reporting systems will increase IT headcount and related infrastructure expenditures.
Resource Deployment in the Optimization Phase The Optimization Phase brings a more studied approach to resource deployment. A portfolio of opportunity segments requires sales coverage solutions. The sales planning process helps specify the headcount for these customer-centric segments. Using ROI analysis helps to determine if the required resource commitments justify the expense. In practice, the overall cost of selling will increase as a percent of revenue during this phase; however, because of better sales force planning, the ROI on these selling resources should offset the increase in absolute sales expenses. The construct of a monolithic sales department gives way to thinking in terms of micromarkets, custom markets, and alternative markets each with its own expected returns.
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Resource deployment decisions become driven by business case dynamics and proof sets.
Buyer Preferences—Optimization Gross generalizations about buyers now give way to well-researched needs assessment. The voice of the customer (that is, buyers’ need) now guides Resource deployment decisions for each opportunity segment. In some cases, unique solutions for each buyer bring forth the need for mass customization competencies. At this point, sales management might exit certain markets because they neither provide revenue growth nor defend valuable revenue. New and emerging buyer preferences centered on price, availability, and service provide dislocation challenges for the traditional sales organization. For example, as customers migrate to the Web to make purchases, sales management needs to downsize direct selling resources and upsize Web channel resources. In other cases, customers may be looking for high-talent advisory support to guide them through challenging solution development. In summary, resource deployment decisions begin with customers’ buying needs.
Territory Configuration—Optimization As companies evolve into managing many minisegments, headcount decisions can become either more complex or simpler based on the configuration of the territories. If sales management plans to use a single selling resource to cover multiple Opportunity Segments, then headcount decisions must undergo thorough time allocation and sales yield analysis. However, if sales management dedicates sellers to sell exclusively for a promising opportunity segment, then the headcount planning process becomes simpler by employing the scaling algorithms used in the Volume Growth Phase. Advanced sales messaging tools will help extend sales personnel effectiveness, but there are limits. The rise of more specialized territories may or may not increase overall headcount. But it will certainly shift the mix of territories and thus the types of sales resources needed by the company. Finally, new business units—MBUs and SBUs—will have their own sales resources. Selling resources of these units will follow the same dimensions of sales effectiveness depending on their phase of growth. If senior management formulates them in the Start-Up Phase, then they will need less formal territories and rely mostly on sales personnel accountabilities such as deal ownership (leads they create), book of business (customers with whom they have a relationship), or broad geographic territories. However, if senior management formulates these entities during the high-volume growth phase, then sales management will employ much more formal territory configuration methods typical of the Volume Growth Phase.
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Headcount Allocation and Placement—Optimization Multiple headcount allocation and placement changes take place in the Optimization Phase. Senior management and sales management are ready to “make sales bets” on promising opportunity segments. The core product with its traditional sales coverage model will continue to shrink but in a planned and strategic fashion. Sales and market management will develop value-added solutions. With limited resources, sales management will consider all these factors when making resource allocations: •
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Value and size of current volume. Current volume brings economic value to the company. The larger the volume, hopefully, the better the economic return. However, in some instances, higher volumes do not always translate into higher economic value to the company. The segments with low returns will need further examination. Strategic importance. Strategic importance affects headcount considerations. Often, the strategic future products produce minuscule volume as compared to the core product. However, the strategic importance of the product to the company’s future requires substantial investment in sales resources, often beyond the amount of revenue now produced by the new product. Share of addressable market. Market share can present a confounding decision scenario. Low share can suggest immense opportunity for growth. But to gain market share will be costly. So sales planners must ask: Is this opportunity worth the investment of the company’s limited sales resources? ROI planning should help provide the answer. Growth rate. Sales management gives more sales resources to segments with high growth rates. Segments growing slowly without the promise of higher growth will lose sales resources. Cost to sell and serve. The overall cost to sell and serve the segment further affects staffing levels. Sales management analyzes these costs and compares them to revenue segment opportunities. Buyer location. Sales management realigns sales personnel placement consistent with the method and location of buyer decision making within the target opportunity segments. In some cases, decision making may be at a corporate office. In other cases, decision making might be at a local level.
For national accounts, customers have two levels of decision making: first, approving the vendor at the corporate location; and second, making the purchase decision at the local level. As a result, sales management needs to deploy selling resources at both the HQ and local level.
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Support Resources—Optimization Support resources will change as the company moves into the Optimization Phase. Investments in sales operations back-office systems should help reduce administrative headcount. The rise of market management personnel aligned with the opportunity segments will transfer headcount from sales planning to marketing planning professionals. Sales management will make incremental investments in support resources as opportunity segments warrant further investments.
SUMMARY Resource deployment undergoes dramatic and substantive changes as the company moves through the four phases of growth, including upsizing in the Volume Growth Phase, downsizing in the Re-Evaluation Phase, and rightsizing in the Optimization Phase.
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Sales Talent and Management Investments in sales talent and supervisory practices provide measurable improvements to sales performance. As a company moves through the four phases of growth, the use and application of sales talent, training programs, selling systems, and supervisory models will change. The most prominent and costly element of a sales organization is sales talent. Without the right sales talent and supervisory oversight, a sales organization will not function correctly. Accordingly, most sales leaders invest significant resources to recruit, train, develop, and manage sales talent.
Sales talent and supervisory solutions abound. Sales management can choose from numerous programs to improve hiring methods, selling systems, and sales supervision. In fact, there are seemingly an unlimited number of programs and techniques available to achieve sales force success. Even seasoned sales executives find themselves in a sea of confusing and sometimes conflicting choices when selecting sales talent and supervisory solutions. As we will learn in this chapter, most of these choices are effective, but only for a given type of opportunity segment and growth phase. In other words, these solutions are situational to their environment, and regardless of what a 178
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vendor or internal advocate might say, no solution is universally effective for all circumstances. For example, consider an often repeated and widely accepted conjecture: “Sales representative turnover is bad. We must do everything to reduce turnover!” Really? This cannot be true in all cases. In some instances, such as outbound call centers, call center management expects a certain degree of turnover. No selection or onboarding process can successfully screen for the best outbound sellers. In this case, call-center managers accept a certain degree of turnover. Likewise, some companies recognize that a sales job might not be a career-length position. It’s best that some sales personnel move on to their next challenge (maybe to supervision?) or to another selling position rather than become satiated and stale. On the other hand, to support the original assertion that turnover is bad, sales management at other companies can point to selling situations where long service improves performance, thus making low turnover highly prized. For example, this is particularly true for senior strategic account sellers handling the largest customer accounts. These examples about turnover illustrate the flaw in presuming that a “single” human capital approach or outcome is best.
SALES TALENT PRINCIPLES While there are numerous practices and programs, the following principles do transcend all selling circumstances: •
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People want to succeed. As a presumption, most people want to succeed at their jobs, careers, and other life challenges. Most recruitment processes find candidates with a desire to contribute to the company’s success. Occasionally, someone will join the company who does not want to be there. These peoples’ behaviors will be immediately apparent. Management should terminate them as quickly as possible. Seller success is a management competency. While the mythology of “natural born” sellers continues to thrive somewhere over the horizon, for the most part, management practices determine seller success. Management controls the value of the product, the target customers, the degree of sales support, the extent of sales training, and the quality of manager oversight. All these factors significantly affect seller success. While a small cadre of great sellers—less than 15 percent in any sales force—can perform successfully in almost any situation, management needs to provision the sales force so that 65 percent to 75 percent of the sellers reach and exceed quota. While the 15 percent will continue to excel, most sales leaders recognize that this small population is not scalable and that the company should not stake its future success exclusively on such rare talent.
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Growth phase suggests the right type of seller. As a company moves through the four growth phases, the nature of selling will change. The products will change; buyer preferences will change; and, as a result, the types of sellers will also change. Often, this change is evolutionary over time. To the casual observer and even the day-to-day participants, it is not readily noticeable. However, the profile of successful sellers in the Start-Up Phase will differ from the profile of successful sellers in the Re-Evaluation Phase. New jobs will emerge, and the need for different talent will accompany these job changes. Yes, a small population of start-up sellers will survive these phases of growth, but not all sellers can successfully transition across the selling demands required in each phase of growth. Only two conditions exist where such longevity is more than a fluke occurrence. First, the nature of the start-up job has not changed and will not change. For example, cold calling on noncustomers—such as life insurance sales. However, even this example is subject to challenge as many insurance sales agents have morphed into “financial planners and asset managers” and are not simply policy sellers. The second example is where the seller has a rare gift to adapt to changing selling environments without erosion of competency, motivation, and results.
SALES MANAGEMENT PRINCIPLES The following are select principles governing effective sales supervision practices: •
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Sales managers have the highest impact on sales success. Most sales leaders concede that the largest variable affecting seller success is the effectiveness of first-line supervisors. The first-line supervisor trains, encourages, and provides suggested sales solutions to sellers. Becoming an effective sales manager is a learned skill. Effective sales supervision is more than the summation of personal experiences. Being an effective first-line supervisor is a learned skill for everyone. While a small number of managers have natural managerial skills, sales leaders recognize the need to train supervisors in the art and science of effective sales management. The role of sales manager changes with the growth phase. As with all other elements of a successful sales department, the role of the sales manager will change through the four phases of growth. A sales manager begins with shared discovery during the Start-Up Phase. During the Volume Growth Phase, sales managers become proficient at adopting scalable selling systems. The Re-Evaluation Phase requires productivity improvements and cost management. And becoming more agile in the Optimization Phase requires new and flexible sales manager competencies.
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DIMENSIONS OF SALES EFFECTIVENESS— SALES TALENT AND MANAGEMENT The following dimensions of sales effectiveness change during each of the four phases of growth: talent assets, training, sales methods and selling systems, and supervisory models.
Talent Assets Talent assets is an all-inclusive term covering all elements of recruiting, retaining, and developing sales personnel. Thinking of sales personnel as “assets” gives the proper context to manage this mission-critical company resource. These are the major components of talent assets: •
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Sourcing. Sourcing is the process of having qualified candidates available for consideration. In some instances, passive actions such as Web site job-opening listings provide enough qualified applicants. In other cases, when the need for additional personnel is significant, more active sourcing models are necessary, including advertising (Web and print), referral programs, employment agencies, executive searches, social networks, Web sourcing, alumni chapters, company-sponsored job fairs, and stealth competitor raiding. Recruitment and selection. Recruitment and selection include identifying candidates for consideration, screening, and selecting those who will receive an employment offer. The recruitment process will vary depending on the type of job. Companies with a favorable employment reputation will need to put forth little effort to have candidates present themselves for consideration. Unknown companies, or companies with a less than stellar employment reputation, might need to exert more influence to encourage candidates to present their credentials for consideration. Likewise, the selection process can vary from an informal interview to a comprehensive evaluation including structured interviews, assessment tests, and sales simulation exercises. Offer and acceptance. The employment offer includes a statement of the job content, supervisor assignment, and the remuneration package, including base pay, incentive compensation, and benefits program. Many offer letters include stipulations regarding passing heath physicals, drug screening, and character investigation. Onboarding. Onboarding is the process of initial indoctrination of the new employee to the company, immediate manager, and job. A minimal approach relies on the first day of employment to orient the employee, fill out paperwork, and meet coworkers. More intense onboarding uses a very deliberate, step-based onboarding process beginning before the
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first day of employment. First, a senior executive contacts the new hire, thanking the new employee for joining the company, and scheduling a meeting during the first week of employment. Second, the supervisor contacts the new employee welcoming the new hire to the company. Third, sales management also appoints a mentor to help the new hire. This mentor contacts the new hire prior to the first day of employment. Others contact the new employee with information about benefits, IT tools, mobile communications, and helpful company practices related to initial responsibilities. More extensive onboarding activities continue with the first day of employment and might extend several weeks, to a month, including bonding activities with coworkers, training sessions, and company cultural indoctrination events. Some activities might even include spouses and significant others. Career development. Career development practices for sales talent varies significantly. Some companies view sales positions as a career designation and define personal growth as increasing sales results and attendant compensation levels. Other companies invest in sales personnel development by providing multilevel progression within the same job family (such as movement from sales representative, to senior sales representative), promotions, career-long training, certification programs, and career advancement to more significant sales jobs and possible promotion to sales management positions. Engagement. Many opportunities exist to improve sales personnel engagement with the company. These opportunities include local and national recognition programs, contests, regional meetings, and an annual national meeting. Leadership messages, performance recognition clubs, and workforce-wide acclamations contribute to employee engagement. Some companies have leading sales personnel participate in sales planning and program development, thus increasing the seller’s loyalty and engagement. Retention. Sales management needs to establish a retention objective for sales personnel. For example, the retention objective might be to “hold 80 percent of the new hires for at least two years.” Or to “retain the top 25 percent of sales personnel for at least five years.” Or to “retain successful major account sellers for their career length. Depending on the company’s retention objective, sales management can employ various means to retain valued sales personnel, including providing higher earning opportunities, as well as career and promotional development programs. Stock programs, multiyear incentive payouts, and compensation tied to cumulative career-to-date sales volume also offer additional means to retain seasoned and valuable sales talent.
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Rechartering, rationalization, and outplacement. For organizations making major changes to current staffing models, the following actions may be necessary: recharter, rationalize, and outplace. Rechartering occurs when the current sales jobs become obsolete and sales management needs to redefine roles and reassign personnel. These changes may be minor or major. If the changes are minor, then sales management can use orientation and training programs to facilitate incumbent migration to the new roles. If the changes are major, then sales management might require a formal internal selection process to keep only those sales personnel capable of being motivated to make the change to the new responsibilities. And, at the same time, terminate those who will not be continuing with the company. Rationalization occurs when the headcount is too high and sales management needs to decide how many and who should remain or depart from the company. Outplacement programs are for those individuals without future jobs with the company. Sales management needs to ensure that termination practices are fair and free of discrimination.
Improving sales talent assets requires identifying program objectives and making investments to accomplish those objectives.
Training Sales training ensures that sales personnel have the skills and knowledge they need to perform their jobs. For many sales organizations, sales training represents a significant investment. As we will demonstrate, the nature and amount of this investment varies by phase of growth. Sales management has many vehicles to deliver sales training including classroom sessions, Web training, self-study, manager-instructed training, and other programs. There are many content components to sales training. Each of these elements contributes to improving sales force performance: •
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Personal skills. Personal skills allow sales personnel to perform their jobs regardless of the specific selling role. Examples include time management, desktop applications, personal confidence, accounting, and writing, speaking, and meeting management skills. Company policies. Companywide training programs include ethics, workplace practices (discrimination, lifestyle tolerance, and antiharassment), and company corporate values and vision. Industry perspectives. Industry perspectives give sales personnel industry content knowledge to better understand the marketplace, the company objectives, the customers’ needs, and competitors’ positions.
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Product knowledge. Product knowledge provides a deep understanding of company products, including features and benefits. Information about customer use and competitor products provides additional learning opportunities. Applications/solutions. Customer-centric product training shows how the customers apply the company’s products in various situations. It also teaches sales personnel how to custom-configure solutions from among the company’s products and services to meet the customers’ evolving needs. Selling competencies. Selling competencies include all the “nuts and bolts” of selling, including lead generation, territory planning, solution/value presentation, handling of objections, price and contract offers, negotiation skills, closing techniques, installation support, after-sale assurance, and methods for resolving customer service issues. Sales methods and selling systems. Sales methods and selling systems provide a template for sales actions. Sales methods specify the sales approach such as consultative selling, relationship selling, solution selling, productpush selling, and many others. Selling systems are more inclusive; they combine selling methods, contact strategies, contact event reporting, and funnel management tracking and reporting. During training sessions, sales personnel become proficient in the company’s sales models and selling systems. Programs, initiatives, and campaigns. Sales training also educates sales personnel about new internal programs, customer initiatives, and product campaigns. New internal programs might include upgrades to the reporting system or a revision in the CRM program (customer relationship management). Examples of customer initiatives include a major account codification process, target market research, or a contract upgrade program. Product sales campaigns focus on short-term sales efforts for key products. Administrative systems and automation tools. Sales departments’ efforts rest on many administrative and automation systems. Sales personnel access most of these systems via a company intranet and include such tools as proposal preparation, ordering, order tracking, reporting, expense submission, access to training programs, pricing, sales collateral preparation, sales force automation, and CRM. Effective training programs help sales personnel to learn to use these systems and tools quickly and effectively.
Sales Methods and Selling Systems Sales methods and selling systems describe how sales personnel sell (method) and manage the selling process (system).
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Figure 11-1 Sales Methods
Sales methods define the “style” or the “mode” of selling. Figure 11-1 lists some of the more common sales method approaches. Most sales methods prescribe how sales personnel should interact with their customers, including theme of contact and style of selling. Sales methods confirm that selling is about perception management—convincing customers that the company’s products will meet and exceed their needs at a fair price. Sales methods provide numerous techniques to secure customer purchasing confidence. Selling systems are complete customer-contact platforms employing multiple sales messages and numerous sales methods, and they often require coordinating the efforts of varied internal resources.
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Opportunity segments specify the right type of selling system; for example, major account selling requires one type of selling system, whereas, repeating orders from small businesses need another type of selling system. All selling systems have the following features: • • • •
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Opportunity Segment suitableness. Sales management selects the type of selling system by the characteristics of the opportunity segment. Sales method. Selling systems have one or more sales methods based on the diversity of buyers within the opportunity segment. Contact strategy. The selling system prescribes a suggested customer interaction strategy, selling technique, and sales process management. Reporting systems. Most selling systems have custom-tailored reporting systems to track sales progression, provide sales funnel reports, and report sales results. Smart database. If the selling system requires a diverse team of resources, then a CRM system allowing for the sharing of account information, contact outcomes, and sales progression information ensures that all members of the sales team have contemporary information. Training modules. Selling systems need ongoing sales training to ensure that all sellers and support personnel are working competently with the selling system approach to win sales.
Selling systems bring a prescribed approach and process to sales efforts. Numerous selling systems exist. Figure 11-2 presents a list of the more common selling systems. These and other selling systems define the contact method, the persuasion message, the means to keep track of results, and the procedures to provide data to others who share customer accountabilities.
Supervisory Models There are many levels of sales management, including district, region, area, and national sales managers. The first level of sales management works directly with sales personnel. There are several types of first-line sales supervisors: •
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Team leader. In some sales organizations, local managers might appoint a seasoned sales representative to be a team leader to provide additional hands-on support to new and inexperienced sales personnel. The primary responsibility of a team leader is to sell and help others make quota. The team leader element of the job is secondary and may represent less than 20 percent of the total job time. Branch manager. Branch managers wear two hats. They supervise a sales team, and they also have their own accounts.
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Figure 11-2 Sample Selling Systems • • • •
Strategic account manager. Some strategic account managers have direct reports as part of their account team. District manager. The district manager has direct responsibility for sales personnel at a location or for a defined list of named accounts. Telesales supervisor/manager. A telesales supervisor/manager has responsibilities for telephone-based sales personnel. Channel manager. A channel manager is responsible for a set of channel partners.
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First-line sales managers will normally have most of these accountabilities: • •
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Staffing. Finding and hiring the right sales personnel. For larger companies, the HR department might provide field staffing support. Training and coaching. Most sales training takes place on the job. The firstline supervisor provides feedback and suggestions on how to improve sales outcomes. Talent development. Ensuring that sales personnel are attending training programs, understanding their career options, and receiving constructive appraisal are actions assigned to first-line managers. Motivation and enthusiasm. While the company will have many programs to reward exceptional performance, the first-line sales manager is instrumental in motivating sales personnel to be enthusiastic contributors. Solving issues. Sales managers help solve difficult customer sales and service issues. Sales reporting and forecasting. Sales managers often have to prepare reports on sales actions and outcomes, expenses, and sales forecasts. Sales quotas. First-line managers normally help provide estimates for quota allocation purposes. The quotation allocation process normally occurs prior to the start of the next performance period. Policy and legal compliance of subordinates. Sales managers are responsible for enforcing company polices and legal compliance requirements of their direct reports. Administrative systems. First-line sales managers have numerous and necessary administrative chores including requests from HR, IT, finance, and marketing.
The role of sales manager will shift as the sales force moves through the four growth phases.
DO TOP SALES REPS MAKE BAD SALES MANAGERS? Is there truth to the now widely accepted view that the top sales representatives do not make good sales managers? Before answering this question, we must answer a precursor question: Are the “top” sales personnel, that is, the highest sales performers, the best sellers? Often, the best sellers—those who bring the right balance to the selling task and comply with company policies, operate as good corporate citizens and are not selfish—are not always the most successful in terms of sales production. Actually, the top sellers are sometimes self-centered and, yes, a bit selfish. Not good traits for a manager. Therefore, the statement as written is true: The top sellers often make poor supervisors. However, the “best” sellers often are ideal for the role of sales manager. They bring the “whole package” to their new roles as sales supervisors.
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SALES TALENT AND MANAGEMENT TOOLS Several tools are available to help improve sales talent and sales management outcomes. Some of these tools are featured below.
Talent Analysis Sales management needs multiple methods to evaluate sales talent. Examples include assessing new hire candidates, appraising annual performance, evaluating learning outcomes, giving sales event feedback, providing career promotion evaluation, and selecting personnel for new sales assignments. Sales management can perform these assessments by applying the following techniques: manager ratings, validated testing, 360-degree peer ratings, sales simulations, customer surveys, or some combination of these techniques. In Figure 11-3, we provide examples of performance factors that sales management might use as part of various evaluation events including new hires, current job performance, and promotion considerations. Importance of this factor: “5” is most important
NEW HIRE FACTORS Intelligence Previous Experience Ambition Technical Knowledge Presentation Emotional Intelligence Capacity to Learn CURRENT JOB APPRAISAL Rate of Learning Coachable Balance Performance Impact on Others Customer Evaluation Risk Taking Compliance Creativity Goal Performance PROMOTION CONSIDERATION Success History Capacity to Perform Competency Desire Peer Concurrence Temperament
Figure 11-3 Talent Evaluation Factors
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Figure 11-4 Quota Performance and Years of Service
Notice how the rating system asks for two judgments. The first rating asks, “How important is the factor?” This allows the rater to adjust the importance of each factor before rating the employee. The second rating then tells the manager to rate the employee on this factor. When assessing sales production, sales management can use additional statistics to investigate sales productivity and longevity. Figure 11-4 shows the relationship between quota performance and years of service. In Figure 11-4, we are looking for a pattern of sales volume and years of service. We want to determine if more experienced sellers produce better results. The chart confirms this hypothesis as a trend, but not in a compelling fashion—the correlation is relatively low. Turnover presents a complex challenge for sales management. Is all turnover bad? Using the chart in Figure 11-5, sales management is able to categorize different types of voluntary turnover.
Figure 11-5 Voluntary Turnover Analysis
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WHAT CAUSES TURNOVER? Loss of hope drives turnover. Why do employees terminate? They give up. It’s that simple. They give up on getting higher pay, reaching quota, pleasing their supervisor, getting a promotion, having a better work/life balance, having a shorter commute, and any of dozens of other reasons. To solve a turnover problem, investigate why employees feel loss of hope.
Talent Programs For larger sales organizations, a number of talent programs help improve performance: •
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Knowledge networks. Sales Web portals allow sales management to provide current and highly accessible information. Additionally, seeking to tap into the deep sales knowledge of the field organization, internal social networks give sales personnel a chance to share success information with each other. Sales playbooks. Sales leaders find that existing sales personnel can handle a variety of selling situations if provided the right at-a-fingertip sales approach and messages. Sales playbooks document how to deliver high-value messages to a variety of likely potential buyers. The playbooks provide the following for any given Opportunity Segment: buyer needs assessment methods, preferred product offerings, techniques to manage expectations, sales process steps, value proposition models, and applicable branching sales messages by stakeholders. “Branching” sales messages anticipate typical customer responses and suggest corresponding sales messages.
Sales Management Analysis Sales managers also need evaluation for development purposes. Figure 11-6 offers some evaluation factors for sales supervisors. Importance of this factor: “5” is most important
Figure 11-6 Evaluation Factors for Sales Managers
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Sales Management Programs Sales leaders can offer many programs to sales managers including the following: •
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Sales manager training. Being an effective sales manager is a teachable competency. Sales manager officer training can provide new sales managers with the education and confidence they need to lead their sales personnel. Mentor program. New sales managers benefit from having a peer mentor provide informal advice and encouragement. Special briefing sessions. Sales leaders owe first-line managers the professional courtesy of learning about major announcements regarding strategy, programs, and initiatives prior to field roll-out. First-line sales managers need to feel “in the loop” on major changes and announcements.
SALES TALENT AND MANAGEMENT THROUGH THE FOUR PHASES OF GROWTH The following presents how the dimensions of sales talent and management effectiveness evolve through the four phases of growth.
Sales Talent and Management in the Start-Up Phase Young companies will search for the right sales talent and sales management model. Some companies might not need a formal sales force during the very early stages of the Start-Up Phase. For these companies, the company founders and other key stakeholders handle sales, particularly if the nature of selling features a low number of high-value orders. Other start-up companies will “bootstrap” themselves and add sales talent and sales management as volume justifies additional headcount. Finally, some companies, with substantial backing, will use investor monies or corporate parent funding to jump-start the new company by front-loading the sales effort with substantial resources. Each approach works. The right approach depends on the company’s product, customer type, market position, and financial support.
Talent Assets—Start-Up For start-up companies that need sales talent to help grow the business, a company has three choices to pursue. The first is to find experienced sales people who “know the market.” These seasoned resources provide an immediate lift to
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the company. Paying a premium for these “market makers” can give the company the added boost it needs to launch and grow the company during its early turbulent Start-Up Phase. With minimal “self-learning,” these carefully selected sales resources provide rapid “time to cash,” which start-up companies—on a tight budget—desperately need. The recruitment model for this approach is to seek, recruit, and hire the most qualified and “connected” sales talent. Senior sales management might even retain search consultants to find these market makers. A second approach starts with a fresh group of eager, inexperienced sales personnel that will grow with the business. Many cutting-edge start-up technology companies follow this path. They celebrate their lack of experience. They see it as a virtue. These companies dismiss using “old school” players and practices. They want to be free from the old way of doing business. Here is how the company leadership views its mandate about talent: “We will write our own rules as the business grows.” Some of these companies focus on hiring “scary smart” people, who can solve issues “on the fly” and not use dogma and tradition to make the decisions. The focus here is to hire go-getters who will chase a goal until it is achieved. A third approach recognizes the advantage of using established channel partners. For some products, this is the only approach available. However, in other circumstances, sales management might select an indirect channel strategy because of its reach and cost variability. However, partners’ competing business priorities can often diminish their sales effectiveness. Whether the start-up company selects seasoned sellers, the inexperienced/smart/eager go-getters, or well-positioned channel partners will depends on corporate philosophy. All three approaches have advantages and disadvantages.
Training—Start-Up Most training programs during the Start-Up Phase are expedient at best. Actually, there is little need to invest in formal training programs. Most of the sales representatives along with sales managers are exploring how best to sell the product. There is still uncertainty about how to close sales rapidly. Sales practices are generally informal, undocumented, and subject to frequent changes. Learning often occurs at a supervisor’s elbow on the job and in the field in front of prospects and customers. The training that does take place is usually ad hoc and occurs when the need arises. There is no formal curriculum. Online learning and classroom instruction will occur in the future. Aside from basic personal skills training, any purchased training seems ill-suited to the company’s needs. “Canned” sales training sessions do not
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address the company’s unique challenges. For start-up companies, attendees often think that prepackaged training is a waste of time. One training bright spot that emerges during this phase is peer training. When encouraged and supported by management, peer training taps into realtime solutions crafted by other sales personnel. Community Web software can facilitate quick disseminations of “best-of-breed” ideas.
Sales Methods and Selling Systems—Start-Up Sales management quickly looks for one or more sales methods that will produce results. Sales management, internal product champions, and the sellers test sales pitches to find a selling approach that succeeds. However, effectiveness of the company’s emerging sales methods will vary. Recently hired seasoned sales personnel will bring their own selling approach that may or may not match the company’s current pitch. They will need to “unlearn” their current selling method and begin using an unfamiliar sales method. Expect variance in outcome. Conversely, expect a less experienced sales force to more willingly adopt an untested sales method. However, execution success will vary. A deep and complicated selling system is wholly unnecessary during this phase. Sales processes are or should be simple. Sales personnel handle the external actions, while support personnel handle pre- and postsales activities. There is little need to document the selling system. Oversight is simply a matter of talking to the right person. Since headcount is relatively low, formal selling systems are just too cumbersome for young companies during the Start-Up Phase.
Supervisory Models—Start-Up “Whatever works” sums up how companies approach the role of local sales management during the Start-Up Phase. In many cases, the local sales manager continues to be a primary contributor to sales results, even keeping accounts and making significant sales contributions. The extent of administrative systems is relatively shallow, so there are only minor distractions caused by reporting requirements. The excitement of growing a business is infectious. Sales managers often will have team sessions—informal social events, at work or elsewhere—to keep sales personnel on track and connected with the business. A favorite refrain is, “Work hard, play hard.” Sales managers will experiment with different supervisory models. While this diversity of effort is creative and helpful in finding the right sales execution model, it does create competing “islands.” Without some coordination, local sales managers might develop some policies and sales practices that are not sustainable moving forward.
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Sales Talent and Sales Management in the Volume Growth Phase Now that the company has found its footing and has an opportunity to grow quickly, a more consistent and scalable model is necessary to manage sales talent. Sales management must now replace the free-form model of the Start-Up Phase with greater consistency and discipline. As headcount demands increase, the sales department needs dedicated resources to locate, select, and hire new sales talent. Field sales manager practices will move to greater adoption of HQ-devised programs and reporting. The company will train field personnel to use common sales methods and selling systems. Sales management adopts consistent selling, sales talent, and sales management programs to fuel scalable growth.
Talent Assets—Volume Growth Because of the increasing need for additional sales talent, sales management assigns this hiring task to dedicated staffing specialists. The greater the need for headcount, the greater the investment in staffing personnel. Here are different gradations of central support: • •
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Limited need for headcount. The HQ group prepares guides for local managers to recruit and hire new sales personnel. Moderate need for headcount. The central group provides coordination activities to locate, schedule, and vet interviewed candidates. Local management handles contact and interview responsibilities. High need for headcount. A central group such as HR assumes direct responsibility for sourcing, hiring, and effective new hire training.
In the cases above, sales management adopts a uniform approach to hiring new sales personnel. Sales management also adopts a uniform and documented approach for performance management, career development, and promotional consideration. Talent management focuses on ensuring that new hires are successful as soon as possible. Sales management seeks to retain the best sales talent through numerous and effective sales management programs.
Training—Volume Growth During the Volume Growth Phase, sales management makes major investments in the training of new hires and existing sales personnel. For larger sales departments “sales university” expands beyond introduction/new hire content into multiple curriculum topics such as selling skills, personal skills, company practices, industry insights, product training, and application and solution training. A sales training group develops tailored curriculum content for the sales force. A course catalog shows offerings, dates, and times. Course work is both
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online and classroom delivered. Extensive training on the company’s sales method and selling system improves overall sales force productivity. Staff specialists provide additional training on systems and reporting to round out the instructional curriculum. Sales management awards sales certificates to those who complete the defined multitopic course work. The intent of sales training is to “mint” successful sellers to match the company’s market growth opportunities.
Sales Methods and Selling Systems—Volume Growth To allow the company to scale up during this high-growth period, the sales department needs uniform sales methods and selling systems. Since the core market selling efforts will occupy most of the sales department’s selling energies, sales management can employ a uniform sales method. Select segments may get an enhanced version of the sales method to accommodate unique buyer characteristics. Custom-configured selling systems further leverage the sales force with other internal resources. A compatible CRM system allows the sales department to impose a sales process, track performance, and link together the efforts of multiple customer contact personnel.
Supervisory Models—Volume Growth Sales managers must now execute using predefined sales methods and selling systems. The role of the sales manager remains as an advocate for seller learning and performance improvement, but now the job takes on the added duties of enforcement of proven sales models. As new hires enter the sales organization, the sales manager helps execute centrally designed onboarding, training, and sales methodologies at the local level. In addition to working with and training sales personnel, sales managers help by adding sales ballast to important customer opportunities. Additionally, sales managers provide active management regarding account assignments, quota allocation, and sales crediting practices. Sales leadership provides training programs to help sales managers achieve success through the success of their sales subordinates.
Sales Talent and Sales Management in the Re-Evaluation Phase With growth rates of the core business declining, sales management needs to rethink its selling strategy during the Re-Evaluation Phase. Too many sales programs are showing signs of misalignment between buyer preferences and product divisions’ goals. To reduce costs, senior management calls for the reduction in overhead expense and in redundant and nonprofitable products, and improvement in sales productivity.
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The sales department built its infrastructure based on expanding growth. In the rush to scale the organization, the sales department may have over-shot the market with resources that are too numerous, too expensive, and too misaligned. As the Re-Evaluation Phase gets underway, the sales department will need to make changes to sales talent and sales management practices.
Talent Assets—Re-Evaluation Sales force morale issues begin to emerge during the Re-Evaluation Phase. The once aggressive, fast-growing, and expanding sales department now begins to shrink. As quota assignments increase, sales performance as compared to quotas declines. The number of new hires for expansion purposes dwindles. Quality sales people begin to resign in search of opportunities with better prospects. Most new hires are replacements. Sales management faces the challenge of retaining qualified sellers, while at the same time reducing overall costs including staffing levels. Additionally, new sales force reassignments disorient some long-service sellers. To keep these experienced sellers, sales management might attempt to implement stopgap retention strategies. Sales personnel who are not productive, will not adapt to new market selling, or are simply no longer needed will enter an outplacement program. Having lost the benefit of progressive career opportunities driven by growth, sales management must find ways now to instill confidence and commitment among the sales talent. Leadership messages, sales manager support, and opportunities to excel all provide means for the sales force to retain some sense of optimism. Unfortunately, some of the early market makers (seasoned successful sellers) from the Start-Up Phase of growth no longer find the current sales environment suitable for their brand of selling. Some (perhaps, too many) will depart the company. Sales management, however, needs to retain only those salespeople who show flexibility and can successfully adapt to the now shifting fortunes of the company.
Training—Re-Evaluation New selling skills are necessary during the Re-Evaluation Phase. As customers become more price conscious, the company needs to equip sales personnel to successfully sell to a more diverse and knowledgeable buyer population. Additionally, product divisions are bringing new products to market. Sales management needs to add the following to the training curriculum: •
Customer valuation. Procedures for valuing customers help determine which accounts should get focused sales efforts and which accounts to deemphasize.
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Keeping customers. Methods and means to keep and renew customers. Contract negotiations. Better selling tools to deal with price shoppers and aggressive negotiators. Value selling. How to sell on value and not on price. New product offerings. Training on product features and selling methods for new products. Solution selling. Advanced training sessions on selling integrated solutions, often described as “full-service” or “end-to-end” solutions. These solutions often combine both products and services into a complete solution package.
While the training investment for new hires will decrease as additional pricing declines, repositioning training for new roles will increase.
Sales Methods and Selling Systems—Re-Evaluation Several new sales methods emerge in the Re-Evaluation Phase, including value selling and solution selling. Another sales practice emerges in which sales management moves low-profit customers from high-cost sales channels. Sometimes sales management requests sales personnel to facilitate this “matriculation” process—moving accounts from one sales channel to another. Selling systems become more formal and extensive. Because sales productivity needs to increase, sales management leverages the sales force with other marketing and selling resources such as trade shows, direct marketing, telesales, and Web-based promotions. All these cross-platform actions need central coordination. Sales management needs to fully integrate these numerous contract strategies and selling models into a unified selling system supported by a strong CRM system. Of interest, at this point, are sales force automation tools—designed to help salespeople increase personal productivity—which now must graduate into full-featured CRM holistic platforms. At this stage, selling systems become more expansive and prescriptive.
Supervisory Models—Re-Evaluation The Re-Evaluation Phase brings new and conflicting challenges for first-line sales managers. With a narrow and extensive sales management apparatus still in place from the Volume Growth Phase, sales managers must now accommodate new directions from HQ sales leadership and product divisions. In addition to the ever-present requirement to grow sales revenue, new duties now become part of the sales manager’s accountabilities: •
Do more with less. As sales management reduces costs by removing field administration support and sales headcount, sales managers must do more with less.
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Territory realignment. With the changing nature of the opportunity segments, sales management will need to reconfigure traditional geographic and named account territories. These activities have frontline impact on direct reports. Manage different field talent. While account manager headcount might remain flat or decline, the headcount of new product and market overlay specialists will increase, thus requiring additional coordination attention. Productivity initiatives. In addition to cost-reduction actions, sales management will attempt to increase productivity by offloading nonproductive time. Additionally, sales management might abandon lowvalue customers. Sales methods and selling systems. Continued evolution of the sales methods and selling systems means more sales training, program announcements, and kick-off events. Manage morale. Changes in expense allocation, territories, and personnel require sales managers to address rumbling morale issues caused by these changes. Extra help with change management tools will assist the sales managers during these transitions including personal coaching, leadership messages, and team-building efforts.
The Re-Evaluation Phase will bring many changes to the sales organization’s sales talent and supervisory practices.
Sales Talent and Sales Management in the Optimization Phase Sales resources receive a new and ambitious charter in the Optimization Phase: “Help the company to grow again in markets where the company can make money.” The now toddling costcontrol–centric sales organization of the Re-Evaluation Phase will now redefine itself in the Optimization Phase around business-centric opportunity segments, some of which will reside in new SBUs, MBUs, and specialty sales organizations. The current field sales organization will continue to sell core products to key customers, but sales management will expand these roles to be more than product push resources. Product divisions and sales management will devise unique value offerings depending on the buyer profiles of the opportunity segments.
Talent Assets—Optimization The sales department needs a much broader palette of sales competencies to successfully meet the diverse customer situations. Competencies could include
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complex, multifaceted solutions, vertical markets, or unique applications. Internal recruitment into these roles needs an assessment methodology to screen for the right personnel. External resources will require more advanced sourcing and selection processes, too. Broad market sellers will need additional training on multiple sales methods to sell to diverse buyers.
Training—Optimization Sales management will dismantle one-size-fits-all training solutions to make training more Opportunity Segment targeted. This means that the training staff will need to provide more virtual, custom-configured training modules to meet disparate training needs for sellers. Broad market sellers will need to have multiple selling solutions available given the diversity of buyers. This means that sales training will move from competency building to sales solution availability. New opportunity segments with dedicated sellers will adopt practices from the Start-Up Phase, long abandoned when the core business went through the Volume Growth Phase. This means more informal, situational training. Sales managers will train sales personnel on the job as the sellers and managers make real-time adjustments to seek the growth formula for the promising opportunity segments.
Sales Methods and Selling Systems—Optimization Sales management will graduate from chasing sales method fads that many sales leaders pursued in the Re-Evaluation Phase. A simple realization comes upon sales management: Many sales methods are necessary to successfully sell to the fragmenting market opportunities. No one solution is correct, and many sales methods are necessary and healthy. Sales management develops numerous selling systems to match the selling objectives. It’s best to keep these unique selling systems on the same robust CRM platform to facilitate reporting and sales force performance management.
Supervisory Models—Optimization Relief arrives for sales managers during the Optimization Phase. With a focus on customer-centered selling, sales managers can help sales personnel select the right choices for each buyer situation. Hopefully, more agile and integrated administrative machinery reduces the amount of compliance activities that burdened the sales manager’s job during the Re-Evaluation Phase. With more powerful selling sales messages and selling tools now available from HQ, sales managers can help sales personnel access a library of solutions to serve their assigned accounts.
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SUMMARY Sales talent and management practices move with the evolution of the growth phases. Changes to talent, sales training, selling methods, selling systems, and supervisory practices will continue to change as sales leadership keeps the sales function in alignment with the company’s strategy and buyer needs.
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Productivity Metrics Sales organizations are performance entities. Productivity metrics provide the means to monitor and improve sales performance. Performance metrics can notify sales management when strategy, structure, and management programs need adjustments or upgrades. Managing sales force productivity is an ongoing requirement for effective sales management. Productivity metrics provide ample information to track outcomes and change solutions in a continuous fashion.
THREE CLASSES OF MEASUREMENT Sales organizations employ three classes of measurement for productivity metrics: •
Planning analytics. Planning analytics are tools designed to plan the use of sales resources. These measures include segment sizing such as potential estimates, market share, and scope of addressable market. More detailed analysis of customers’ buying practices can reveal trends and micromarket opportunities, too. Using the planning features of productivity metrics, sales management can make resource allocation decisions regarding the types and number of sales channel resources. Sales management also employs planning analytics to determine headcount allocation and 202
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placement. Planning analytics provide managerial tools for planning revenue growth, share, resource use, cost, and profitability. Productivity metrics. Productivity metrics monitor sales force production at all levels, including overall sales results, specific segment productivity, and sales channel performance. Additionally, sales productivity metrics can help estimate outcomes for various sales channel configurations. They also provide measures of customer contact continuum effectiveness such as time use and execution accuracy. Such measures can help evaluate the return on sales investments by calculating expense/revenue and sales ROI. As ongoing performance tracking tools, productivity metrics provide realtime statistics on sales programs and sales outcomes. Productivity metrics estimate, evaluate, and measure sales yield. Performance ratings. Performance ratings assess unit, team, and individual performance. Performance ratings help sales management review high-, medium-, and low-performance outcomes. Sales management seeks to learn lessons from high-performing sales resources for application elsewhere. Middle-performing sales personnel—the largest group—offers high returns for only modest performance improvements. Low-performing sales resources require corrective action by sales management. Performance ratings give comparative measures of performance for sales units, teams, and individuals.
Sales measures can have multiple uses. For example, sales management can use CPR (conversion, penetration, and retention) analysis for strategic planning for segments and resource allocation decisions, as well as a performance metric for ongoing sales outcomes, or as a performance rating to judge various selling entities. Additionally, measures such as sales volume, close rates, profitability, and product mix are all useful for planning analytics, productivity metrics, and performance ratings. In this chapter, we focus on productivity metrics.
WHAT ABOUT DATA MINING? The arrival of powerful business intelligence software allows companies with a high number of transactions to investigate data trends and relationships that are not easily seen through personal experience. These tools are most effective as planning analytics—sizing and targeting customer practices and populations for innovative product and sales solutions. Additionally, sales personnel find these data mining tools of value, too. Current thinking suggests that when sales personnel have the tools to investigate their sales trends, patterns, and outcomes, they can self-correct their sales actions to increase sales performance.
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GENERAL PRINCIPLES OF MEASUREMENT When selecting and using any measure, consider these general principles: 1. Measurement provides evaluative feedback to management initiatives. Without measurement, sales management could not evaluate the effectiveness of programs and initiatives. 2. Measurement communicates importance. As a communication device, measurement indicates that management places high importance on the measure. 3. Measurement increases engagement. “What measures, gets done” is a proven concept. People respond to measurement and strive to make progress with the measures they can influence. Of course, measurement has limitations: • • • •
Irrelevant measures distract. Irrelevant measures absorb time and distract without benefit. Too many measures confuse. While each measure might have meaning, too many measures with so-called meaning become meaningless. Erroneous measures frustrate. Measures that do not produce accurate results frustrate managers and sales personnel. Compliance measures belittle. Compliance measures monitor sales personnel actions, which are often administrative in nature, such as timely submission of expenses forms. While some compliance measures are necessary to ensure execution of select action, most are punitive in nature. Sales management should use compliance measures sparingly. Particularly egregious compliance measures track and report on all sales personnel when the problem rests with a few nonconforming people.
Measurement is a powerful management tool and productivity metrics provide necessary data to monitor and improve the performance of the sales organization.
DIMENSIONS OF SALES EFFECTIVENESS— PRODUCTIVITY METRICS Sales management has a deep range of available productivity metrics. Productivity metrics break down into four categories. In Figure 12-1, we display the different categories of measures: results, projections, quality, and inputs. Financial measures provide concrete numbers. Diagnostics metrics are secondary measures that provide evaluative assessment about the methods and impact of sales efforts. Leading measures occur before the sales event. Lagging measures occur after the sales event. These four types of productivity
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Figure 12-1 Types of Productivity Metrics
metrics provide us with the dimension of sales effectiveness for the productivity metrics pillar highlighted in the Sales Management System illustration at the beginning of this chapter.
Results Productivity Metrics (Financial/Lagging) Sales management makes active and extensive use of result measures. Result metrics provide the definitive statement of accomplishment: How much was sold, to whom, and by which salesperson? Results metrics occur after the company’s financial transaction with the customer. They are the most common measures of sales success. Senior management uses results measures to evaluate the sales department. Sales management uses results measures to assess and reward sales resources. Several of the results metrics flow to the company’s income statement. Results measures fall into five categories: 1. Revenue measures. Revenue measures report on sales performance, the revenue a customer provides to the company for the delivery of products and services. These monies can be single purchase amounts, recurring measures such as monthly fixed charges, or varying usage charges. Sales management can track revenue in a number of ways: • Responsibility: sales person, territory, district, region, channel, and the sales department total • Product: existing products, new products, single product, class of products, solution, and line of business • Deal type: order size, average order size • Lost revenue: win/loss ratio, cancelled revenue (churn) • Backlog: booked orders prior to revenue recognition 2. Cost measures. Sales departments have many forms of costs including fixed and variable costs. Sales costs affect the overall profitability of
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the company and need constant oversight by sales leadership. Unit, activity, and assigned costs help assess the relative value of different sales investments. These are examples of cost measures: • Fixed costs: nonvariable remuneration costs, infrastructure including technology and facilities, provisioning costs such as auto programs, laptop computers, and mobile devices • Variable costs: incentive compensation, travel, and entertainment • Discounts/promotions: price off, promotional product, performance discounts 3. Profit measures. Profit measures describe what is left over when finance subtracts costs from revenues. Sales departments use a variety of profit measures such as: • Gross margins: gross margin dollars, gross margin percent • Contribution margins: contribution percent, contribution dollars, unit contribution margin • Price realization: sale price as a percent of list price 4. Customer measures. Sales departments can learn by calculating measures of customer performance, including: • Revenue: total revenue, lifetime revenue • Costs: acquisition costs, retention costs, customer discounts • Profit: customer gross margin 5. Ratios. The following ratios provide additional tools to assess sales force effectiveness. The measures can apply to sales personnel, sales entities, products, and customers: • E/R. The expense to revenue measure is calculated by dividing the expense dollars by the revenue dollars. Answers the question: How much does this function cost the company as a percent of revenue dollars? • Growth rate. Calculate growth rate by subtracting the ending dollars from the beginning dollars divided by the beginning dollars. Answers the question: How much did we grow as a percent over last year? The number could be negative • ROS. Return on sales is also known as “operating profit margin.” Calculate by dividing net income (before interest and taxes) by sales. Answers the question: How profitable is the outcome? • ROI. Return on investment is arrived at by subtracting cost of investment from the gain divided by cost of investment. Answers the question: Does this investment earn a suitable profit? Positive number above the investment cost means yes. Negative number means no. Rank order investments by ROI from high to low to allocate resources. However, allow critical strategic initiatives to trump higher ROI outcomes when necessary.
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Projections Productivity Metrics (Financial/Leading) Projections are financial expectations before the sales transactions. Sales departments use sales projections to track performance in anticipation of revenue recognition. Sales management expresses projections as goals, estimates, forecasts, and pending status. Projections provide a means to “see into the future.” The more complex and costly a sales organization becomes, the greater the need for accurate projections. Sales management uses these data to monitor above and below expected performance for further management investigation. Product managers use these data for operational planning, production, and division sales expense management. Finance uses projections to help plan company cash management. Investors rely on projections to make investments. Here are examples of financial projections that sales departments find useful: • • • •
Forecasts: revenue, cost, profit, product, customer performance Quotas: sales goals, product goals, customer goals Number of opportunities: Number of new leads, proposals pending, proposals—days outstanding Sales funnel value: Economic value of leads, prospects, proposals submitted, proposals rejected, proposals accepted
Quality Productivity Metrics (Diagnostic/Lagging) Quality measures provide an assessment of the “goodness” of the sales outcomes. While revenue measures treat all dollars alike, quality measures attempt to qualify the value of the dollars. These measures can help improve sales-effectiveness programs and efforts. They also help decide where sales management needs to make adjustments and then follow up to assess results. These measures should continue to evolve as the sales department evolves. These quality measures may vary by type of sales job. Examples of quality productivity metrics follow: • • • • • •
Market: market share, segment share, share growth rate, market ranking Sales event: win rate, average order size, length of contract Sales process: time to close, funnel dropout rate Sellers: quota attainment, forecast accuracy Product: product mix, cross-sell ratio, attach rate (the ability to sell additional complementary products as part of the primary sell) Customer: loyalty/satisfaction, willingness to recommend, CPR (conversion, penetration, and retention)
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Inputs Productivity Metrics (Diagnostic/Leading) Inputs metrics monitor the investments and activities that take place before the sales transaction. Some input measures, such as headcount, are quantifiable. Others are more “soft” measures, such as extent of training and hopefully will translate into improved sales results. Where possible, sales management tests and builds algorithms that link input investments to projected outcomes. As an example, “calls made per day” might correlate well with sales leads and thus results. The following are examples of inputs productivity metrics: 1. Activity metrics. These metrics track the number of events as a precursor to sales outcomes: • Contact actions: number of sales calls, number of new leads, call frequency, call length, lead quality, sales execution • Opportunities: approved budgets, request for proposals (RFPs) received, trade show interest, marketing response rate, design wins—e.g., winning a design specification for future purchase such as a custom semiconductor design selection 2. Sales resources. Metrics tied to sales resources include: • Headcount: mix of jobs, headcount levels, tenure, turnover • Competency: experience level, training accomplished, certification, start-up time to full productivity • Time allocation: selling versus service time, customer engaged time • Employee motivation: engagement, commitment, ambition Overall, productivity metrics provide a means to steer the sales organization to sales success. Each type of measure—results, projections, quality, and inputs—contributes to better sales management decision making.
PRODUCTIVITY METRICS TOOLS Productivity metrics provide many tools for sales management to monitor and improve sales outcomes.
Management with Metrics Humans respond to measurement. The importance of a measure will influence how a sales organization, its managers, and sales personnel respond. If the measure affects sales personnel’s economic, social, or self-image needs, then the measure will cause a person, team, or unit to improve performance. Of course, the metrics selected must matter. Sales management needs to exercise care when selecting and giving marquee status to a measure. When
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sales management selects mission-critical measures, employees—for the most part—will strive to improve performance on those measures. However, sales personnel will show low commitment to performance improvement if a measure is irrelevant, mostly punitive, not accurate, or one of too many.
Measure Selection As we demonstrate later in this chapter, sales management uses different productivity metrics, depending on the phase of growth. However, another factor also important in metric selection is the number of sales transactions. In some companies, there are few, large sales transactions. Other companies have many, sometimes tens of thousands of orders—such as distributors— within a month. Relevancy of productivity metrics varies by the number of transactions. In Figure 12-2, we group the types of measures that might have value depending on the number of transactions. In some cases, both categories—low number of orders and high number of orders—can use the same measure.
Sales Forecasting A key responsibility of sales departments is sales forecasting. In addition to the sales department, many functions in a company depend on this data for
Figure 12-2 Productivity Metrics by Order Volume
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making expense decisions and resource commitments. Service entities need to know sales forecasts to staff for coverage purposes. Finance needs to understand company cash flow to meet expense commitments. Manufacturing needs to know sales forecasts for production scheduling. And investor relations need sales forecasting to provide investor guidance. Sales departments have numerous methods to develop a sales forecast, including the following: •
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Management judgment. Those sales leaders that are intimately familiar with sales activities develop a sixth sense about sales trending. While these “seers” usually cannot explain their methods or rationale—translate this to mean, “it’s just a feeling”—often they provide a fairly reasonable projection. However, when growth rates slow, some sales leaders remain erroneously optimistic. Input algorithms. Particularly during the Volume Growth Phase, sales leaders and sales planners develop shorthand estimates of revenue growth depending on inputs. An example of these input algorithms might assume the following: “For each new salesperson hired, the company adds an additional $1.5 million annually in revenue by the second year of employment.” While seldom formally calculated, there is normally solid underlying trend evidence to support this input assumption. Field estimates. When sales personnel have good visibility and know the buying intentions of their accounts, then field sales can provide good sales forecast estimates. This approach is particularly valuable when the number of accounts per sales person is few and sales volume per account is large. Statistical forecasting. Significant literature exists on statistical forecasting methods. There are numerous—and some very advanced—statistical forecasting tools, which attempt to use historical data to estimate future outcomes. Here are some of the most common statistical forecasting techniques: Plotting. The simplest exercise is to plot sales trends data using a spreadsheet. Often, the data reveals a conclusive pattern. Regression. Both linear and nonlinear regression offer a means to forecast from historical data trends. A forecaster can improve the correlation of the regression by removing outlying numbers and making other manual adjustments for seasonal or one-time events. Sales planners can further improve forecast predictability by smoothing the data by applying logarithms and square roots. Decomposition. Sales planners can use methods to decompose the data to statistically wring out cyclical and seasonal trends. This method uses moving averages: simple, center, double, and weighted.
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Macro Economic Trends. Some industries can predicate their sales forecasts using macro economic trend data such as the GNP price deflator or other macro trend information such as consumer confidence or purchasing manager buying index.
Metric Presentation The effectiveness of productivity metrics increases as the utility of the data presentation improves. Here are examples of data presentations moving from least impactful to most impactful. •
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Tables. Presenting information in tables helps display sales results. Spreadsheets effectively display sales results by time intervals—across the columns—and sales results for products or customer types—down the rows. Flash reports. A flash report provides a subset of data—key sales indicators—in a table format using color coding of results to highlight above or below average performance. Trending graphics. Trending graphics showing sales results over time periods help improve sales performance understanding. These charts are often the go-to utility charts used by most sales leaders, managers, and sales personnel. Particularly helpful are comparative charts showing period-over-period performance. Other compelling charts show performance among different groups: regions, districts, and sales personnel. Custom reporting. Custom reporting using easy search and report criteria allows sales management and sales personnel to “investigate” different populations of sellers, customers, and products. This type of reporting is helpful for discovering trends or unusual occurrences that might become part of a commitment objective. Commitment reports. Commitment reports provide real-time reporting on progress in relation to stated objectives, goals, and targets. A variance report displays (graphically) progress on preestablished goals. Push alerts present messages about out-of-line performance highlighting areas that need immediate investigation. Interactive sales dashboards. Interactive sales dashboards display select performance indicators showing absolute, comparative, and relative performance in relation to goals in a graphic format. Sales dashboards also allow the publication of commitments and the establishment of push alerts. What-if scenario testing allows for changing of assumptions to estimate outcomes. Finally, the more powerful dashboards provide “predictive selling” suggestions identifying customer populations and specific accounts where greater sales potential exists.
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PRODUCTIVITY METRICS THROUGH THE FOUR PHASES OF GROWTH The following presents how the dimensions of productivity metrics effectiveness evolve through the four phases of growth.
Productivity Metrics in the Start-Up Phase Sales organizations during the Start-Up Phase focus on getting sales—as much as they can, as fast as they can. Sales management is in constant contact with the company’s sellers—encouraging, helping, and celebrating sales success. Sales management has little need for extensive metrics. The complexity of the business does not need advanced statistical modeling methods or extensive use of projections. The sales report is almost binary: “Did we sell anything or not?” However, like larger, more complex sales organizations, sales management still “lives by the numbers.” While the extent of metrics may be limited, key measures remain a cornerstone of sale management efforts in the Start-Up Phase. From the first lead, the first sale, sales management will be reporting sales results. Simple spreadsheets will easily display sales outcomes. Of course, the reporting will vary depending on the number of sales transactions— some metrics are better for reporting few, high-value transactions. Others do a better job reporting on many transactions with moderate to low value.
Results Productivity Metrics (Financial/Lagging)—Start-Up Sales revenue is the primary measure. A simple spreadsheet showing sales volume by seller, district, and region, or channel partner across monthly time intervals is the most logical and appropriate metric. Reporting by customer type is interesting, but not critical. Because the Start-Up Phase usually features a single product, there is no need for a product sales metric, unless there are add-on selling opportunities. If add-on selling opportunities exist, then tracking sales by product type would be valuable for sales reporting purposes. For businesses that have few transactions of high value, tracking “deal closes” adds additional reporting insight. And for businesses that have many transactions of medium to low value, the number of new accounts and average sales per account will give additional perspectives on sales results.
Projections Productivity Metrics (Financial/Leading)—Start-Up During this phase of growth, a simple sales forecast of overall sales outcomes for the next sales period is sufficient. Sales cycles can be short to long from weekly, to monthly, to quarterly, and to semiannually. Longer-range forecasts
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are often too speculative to be of value. However, some sales efforts, such as sales of major programs to a government entity, require sales forecasts well into future years. For businesses that have few transactions of high value, sales funnel projections provide an excellent in-process view of pending orders. And for businesses that have many transactions of medium to low value, plotting recent trending sales performance provides directional information.
Quality Productivity Metrics (Diagnostic/Lagging)—Start-Up As sales management’s efforts to find the right selling formula begin to produce results, the quality of selling becomes more important and more measurable. These metrics will help evaluate different sales methodologies making it possible to find the right scalable selling solution. Fortunately, the metrics remain relatively simple. Where available, measures of market share and measures of market share growth rate provide a qualitative view of how the company is performing, as compared to competitors’ outcomes. For businesses with few transactions of high value, win rate, time to close, and funnel dropout statistics provide assessment of major sales efforts. And for businesses that have many transactions of medium to low value, market share and industry growth ranking provides a sense of competitive sales accomplishment.
Inputs Productivity Metrics (Diagnostic/Leading)—Start-Up Sales management can easily observe input measures during the Start-Up Phase. These would include the number of leads, number of leads converted to prospects, and the number of prospects that become customers. The number and quality of sales personnel also is a key input metric of sales success.
Productivity Metrics in the Volume Growth Phase Sales management is now overseeing rapid sales growth during the Volume Growth Phase. During this period of scaling growth, sales management settles on a preferred and successful sales formula. The market is responding positively to the company’s product, value proposition, and sales approach. Company success depends on growing high volume as fast as possible. As volume grows, unit costs will drop and thus produce increasing profits. Additionally, first-mover advantage rewards the company with larger market share allowing for dominant brand positioning, which confers premium pricing strength. Also, during this phase, the concern over keeping existing
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customers increases. Finally, during the later stages of the Volume Growth Phase, the company will dramatically increase its number of products including product extensions and new product families.
Results Productivity Metrics (Financial/Lagging)—Volume Growth Sales revenue continues as the primary result measure. Sales management improves the simple spreadsheet showing sales volume by seller, district, and region, or by channel by graphically plotting performance. Measures of customer success report the number of new customers, retained customers, and customers who are increasing their purchases. With the arrival of new products, sales tracking by product type is necessary and appropriate.
Projections Productivity Metrics (Financial/Leading)—Volume Growth Sales forecasts by seller categories, customer status, and product type become increasingly important in the Volume Growth Phase. As the business grows, numerous departments need to make investments to support the company’s sales success—growth brings practical problems that need support, solutions, and investments. More formal forecasting methods become appropriate, including gathering field sales estimates. Additionally, sales planners develop advanced ROI algorithms to justify planned investments such as hiring additional sales personnel.
Quality Productivity Metrics (Diagnostic/Lagging)—Volume Growth As sales volume increases, sales management seeks to improve the quality of and accountability for selling. Sales management gathers more detailed reporting of sales performance by sellers and sales units for comparative purposes. Measurement of sales results compared with quotas validates sales performance. Sales management also gathers more comprehensive market share information for comparative purposes. Forecast accuracy becomes more important as a productivity metric. Sales management is responsible for product mix and cross-selling, too. CPR measurement helps evaluate the quality of selling. Customer-satisfaction measures help to identify areas for improvement and customers who may be at risk of defecting. For businesses with few transactions of high value, win rate, time to close, and funnel dropout, statistics continue to provide assessment of major sales efforts. And for businesses that have many transactions of medium to low value, market share and industry growth ranking further helps assess sales effectiveness.
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Inputs Productivity Metrics (Diagnostic/Leading)—Volume Growth The Volume Growth Phase is the era of “execution excellence.” As the volume continues to scale, management creates selling systems to ensure a uniform sales approach. The company might employ several selling systems, depending on the types of customers. Compliance with these systems increases during this phase, with mandatory reporting on calls made, sales funnel progress, and close rates. For some companies, the use of CRM helps track selling system execution. Sales management also gathers and reports on detailed information about headcount expansion including measures of the quality of sales personnel, extent of training completed, and new hire time-to-success measurement.
Productivity Metrics in the Re-Evaluation Phase During this phase, the company enters a period of declining growth. While still positive, each measurement period shows a year-over-year reduction in growth. This declining growth rate could drop below the growth rate of the industry. A more difficult condition exists when the growth rate no longer provides unit cost savings. Structural inflation on the dominant core product increases the breakeven level for the company. Aggressive cost management from finance arrives. This includes reducing selling costs and improving sales productivity. Finally, with the pressure to maintain volume, sales personnel often find they need to compete on price, thus eroding the company’s profit margin.
Results Productivity Metrics (Financial/Lagging)—Re-Evaluation During the Re-Evaluation Phase, extensive use of revenue measures continues, but a new focus on cost and profits becomes paramount. As the volume growth rate for the core product drops, decisions about costs and profits now significantly affect sales management decisions and practices. ROS results affect the company’s commitment to various market/product segments. Sales management applies cost and profit measures to sellers, sales units, channels, products, and customers. Close attention to the E/R ratio evaluates the cost of sales resources. Gross margin, contribution margin, and price realization (discounting) measures monitor the profitability of sales outcomes. Sales management needs to improve costs through productivity gains or resource cutbacks. Investment in sales programs, sales solutions, and selling resources needs ROI justification.
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Projections Productivity Metrics (Financial/Leading)—Re-Evaluation The importance of accurate sales forecasting continues to increase during the Re-Evaluation Phase. Previously dependable scaling algorithms become ineffective. Sales planners use more advanced statistical forecasting methods. Sales management further qualifies these projections with more extensively gathered field input. More extensive research into market demand and competitive position helps guide senior management when making market commitments as the sales organization “faces the new realities” of a slow growth, mature market.
Quality Productivity Metrics (Diagnostic/Lagging)—Re-Evaluation During the Re-Evaluation Phase, sales management employs extensive use of sales quality metrics to assess sales force productivity, sales time utilization, and sales program effectiveness. Sales management uses these measures to test and qualify critical decisions affecting reallocation of sales resources, including reassignments and cutbacks. Of particular importance during this phase is to evaluate how sales personnel and sales units improve selling outcomes: solution selling (multiple bundled products and services), cross-selling (new products, same customer), penetration selling (more products to the same customer), and conversion selling (acquiring new customers).
Inputs Productivity Metrics (Diagnostic/Leading)—Re-Evaluation Sales activity metrics become less important during this phase, as sales personnel begin to make “good business decisions” about which customers will provide desired growth revenue and profits. Careful account culling helps improve the outcome of invested sales efforts. Sales management expects sales personnel to change their selling behaviors— that is, move beyond pure volume and focus on profitable revenue growth.
Productivity Metrics in the Optimization Phase Senior management’s new strategic conclusion of, “Not all business is good business; only some business is good business,” changes the charter of the sales organization. Whereas in the past, sales management drove the sales department to increase revenue, a much more studied approach is necessary before making sales resource commitments during the Optimization Phase. The opportunity segment planning process reveals a much more complex set of business opportunities. The core business might benefit from major cost reductions—including the sales function—to provide
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a positive profit. Or the core business could benefit by focusing on underserved pockets of fast-growing and profitable buyers. Or sales management might pursue both strategies: low-cost selling to price-sensitive buyers and value selling to premium buyers. New products require fresh thinking about sales coverage, too. Perhaps the existing sales force can represent these new offerings, or maybe another, nontraditional sales resource might better meet the needs of the segment. New sales models will be necessary. As with most companies in the Optimization Phase, there will be opportunity segments across all the phases of growth requiring custom sales solutions with properly selected productivity metrics.
Results Productivity Metrics (Financial/Lagging)—Optimization Sales management has new challenges in the Optimization Phase, in particular providing flexible, just-in-time selling solutions for diverse and viable opportunity segments. While growth of productivity metrics is cumulative through the phases of growth, sales management needs to rationalize all measures during the Optimization Phase. Often the sales department is plagued with an abundance of measures, particularly result measures. There may be report, after report, after report—each given little attention except for select key measures. To reduce the reporting clutter, sales management acquires several needed tools: •
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Sales dashboard. A Web-accessed sales dashboard displays key result metrics that sales management can view at a glance. Sales management provides this same reporting competency to all sales layers down to sales personnel. “Drill-down” capability allows for further clarification when users want to see behind the summary statistics. Custom reporting. Additionally, easy to use custom reporting allows users to investigate sales results and trends. This provides a means to better understand the “why” behind the numbers. Alerts. Sales management uses self-configured alerts to monitor abnormal sales outcomes. Sales management receives alerts as “push messages” and highlights them on the sales dashboard.
Projections Productivity Metrics (Financial/Leading)—Optimization For all sales units, sales management develops strong revenue, cost, and sales profit forecasting capabilities. These numbers help set standards for quota performance and sales funnel performance. With many opportunity segments vying for consideration, sales planners work with division product planners to evaluate the ROI and ROS of sales
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resource investments. Sales management needs comprehensive planning tools to estimate sales production and costs. Using historical sales data and benchmark information, sales management prepares projections for various sales investments. Sales planners create advanced custom modeling systems to test the outcomes of sales scenarios.
Quality Productivity Metrics (Diagnostic/Lagging)—Optimization Each opportunity segment needs measures of sales quality. These include market share, sales event performance, sales process execution, quota performance, product performance, and customer metrics. The selection of the right measures will depend on the characteristics of each opportunity segment.
Inputs Productivity Metrics (Diagnostic/Leading)—Optimization Sales management needs to be agile and disciplined. Sales management moves to a “sales planning” approach to serve opportunity segments. The planning process establishes the sales model, contact strategy, and sales talent profile necessary for success. These predefined input elements become part of the planning and success evaluation process. Sales management uses measures of plan execution to evaluate sales strategy implementation and operation.
SUMMARY Sales management needs to invest in productivity metrics to help guide sales force performance. There are four types of productivity metrics: results, projections, quality, and inputs. While the use of revenue result measures remains constant, the use of other productivity metrics varies by growth phase.
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Performance Management and Compensation Sales organizations use multiple methods to describe, measure, and manage sales personnel performance, including stating the job’s performance responsibilities, communicating individual personal accountabilities, measuring sales quota performance, and rewarding outcomes using incentive compensation. Performance management methods and compensation plans offer numerous techniques to help direct sales personnel efforts. Positioned as the eighth pillar in the Sales Management System suggests that the most suitable performance management and compensation programs serve the strategy, structure, and management practices of the sales function. As such, sales leadership crafts these performance systems to match the overall go-to-market approach of the sales department.
Sales organization environments are rich in sales performance data. It seems almost too easy to gather up these measures and assign them to sales personnel, attach consequences to the outcomes, and sit back and let the measurement systems manage the workforce. Of course, experienced sales executives look past these simplistic presumptions. Without a comprehensive performance management framework, sales management can create confusing, redundant, and demotivating performance programs. 219
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WHY PEOPLE DO WHAT THEY DO There are more than 20 well-researched motivation theories. Each provides explanatory insights into how to manage and motivate a workforce. For our purposes here, we distill these findings into a simple model that assumes that employees respond to one or more of three motivating factors: economic, social, and self-construct. Unfortunately (and thankfully), humans (including salespeople!) are not predictable. For any given situation, money, social recognition, self-construct, or all three may drive sales personnel actions to realize positive returns or avoid negative outcomes. The following describes these three motivating factors including both positive and negative implications: •
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Economic. It is often said that salespeople are money-motivated. Well, yes, but not always. Economic motivation does confirm the importance of incentive pay. Sales management is fully aware of how incentive compensation affects most sales personnel. But there are always some salespeople who simply do not focus on the incentive plan, particularly if management provides a poorly designed program. Economic motivation is more inclusive than sales compensation covering such remuneration elements as total pay competitiveness, base pay, long-term capital acquisition (for retirement), benefits, vacation policies, future pay progression opportunities, and company viability to continue to provide employment. Economic motivation has both positive and negative implications. On the positive side, sales personnel will strive to increase economic gains. And, conversely they will avoid behaviors that reduce economic opportunities. Social. The social motivation factor acknowledges that the views of others affect people. We do things knowing that what we do will make an impression on other people. Most sales personnel seek the positive feedback of managers and coworkers. They care about affiliation. They care what others think of them, most of the time. Positive feedback motivates better performance. Special recognition by managers and peers is a source of pride. Top ratings and rankings provide confirmation of others. However, avoiding negative ratings also drives behaviors. Few sales representatives want to receive a negative rating or find themselves at the bottom of performance rankings. Most strive to perform so that the judgments of them by others are positive and not negative. Self-construct. The unknown magical ingredient that makes us unique is our own vision of ourselves—known as our self-construct. Salespeople have a view of themselves—who they are and what they want. Sometimes this self-construct is in alignment with their sales job, and sometimes it is not.
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When aligned with job, career, and employer, the self-construct provides the basis for compelling self-motivation. However, when salespeople are not having their personal needs met, they look elsewhere. In such cases, the effectiveness of economic and social motivating factors is less, too. Self-construct, like the other two factors, operates in both a positive and a negative fashion. Sales personnel will strive to perform when their actions contribute to their self-construct and underperform when their efforts detract from their personal self-construct. To add to the complexity of human motivation, people do not respond in the same manner, the same way over time to these three factors. In other words, economic, social, and self-construct motivational factors are in constant motion. Some factors are important at one time, while others are more important at another time. Although salespeople (and others) are highly susceptible to motivational inducements, they will not necessarily respond in a uniform fashion given their individual response profile to these three motivational factors.
MANAGEMENT THEMES—HOW PHILOSOPHY OPERATES Corporate management has choices for managing the company’s workforce. Management philosophy favors one of these choices. Whether explicit or implicit, management philosophy provides the foundation for the use of various management practices including performance management and compensation systems. In some cases, management is very explicit about how it wishes to manage the workforce and presents this position in a corporate vision or mission statement. In other cases, forceful leaders—often founding personas—create a philosophical imprint that defines the company’s cultural and management theme. Finally, in still other cases, the company’s management philosophy meanders, shifting with the movement of executives and situational business conditions. Management philosophy affects the company’s use of performance management programs and incentive compensation plans. As such, the programs need to align with the philosophy of the company to be effective. In many companies, the management philosophy might differ from one organization unit (e.g., sales) to another (e.g., operations). These are the eight most common management philosophies and their performance management implications: •
Reward results. The “results” philosophy advocates measuring and rewarding performance outcomes. It’s the most popular management approach in use today. Most sales departments use this approach.
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Management ties incentive rewards to goals established by management. Management rewards sales personnel for accomplishing and exceeding these goals. A strong results management philosophy taps into economic motivation (more pay), social motivation (rankings), and self-construct (being a “winner”). Serve super agents. To “serve super agents,” the company acknowledges that sales personnel and their “book of business” drive the company’s success. Examples include real estate agents, currency traders, stockbrokers, and life insurance salespeople. In each case, the company provides marketing and back-office support to its sellers and agents making it easy for them to conduct their business. The most common pay program for these sellers is a full commission plan. This type of role attracts people who seek high pay (economic) and often prefer a high degree of independence (self-construct). Of course, industry sales accolades satiate personal acclaim (social) needs. Coddle customers. Some companies place customer satisfaction at the pinnacle of their management model. Leadership ties all measurement and reward systems to improving customer ratings, satisfaction, and the likelihood of favorable ratings of the company to others. Customer ratings drive economic rewards. Exceptional customer service receives social acclaim. The company attracts personnel who like serving customers. Belong to the best. The “belong to the best” management theme promotes institution affiliation. Management uses social and self-construct messaging as part of the ongoing enculturation process. This model rewards organization loyalty. Management ensures economic well-being with no-layoff policies. Management makes extensive use of positive (social) interactions to confirm institutional commitment. Pay might be modest, but benefits are normally above average. Excel at execution. Organizations that excel at execution place a high premium on accomplishing input tasks. Reducing variance on task execution helps improve sales outcomes. Management promotes: “Get the little things right, and the big things will take care of themselves.” This management model relies on extensive measurement systems including BPI (business process improvement) and Six Sigma quality-control methods. Exceptional performance requires conformity to practices. Economic rewards, social acknowledgment, and self-construct motivation elements all serve execution excellence practices. Thrive on teams. Some organizations believe in the power of team management. The company organizes itself around teams: task, crossfunctional, planning, solution, and many others. This management model places emphasis on team collaboration and accountability. Team rewards
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(economic), team collaboration (social), and a shared destiny (self-construct) drive this management philosophy. Shower shareholders. A shareholder-driven management philosophy places shareholder interest at the center of management decision making. This management model uses stock for rewards (economic), shareholder value creation awards (social), and company ownership (self-construct) as motivating factors. Wow the workforce. Companies that place employees at the center of their management models seek to meet both the professional and the personal needs of employees with liberal benefit programs (economic), special recognition events (social), and employee-centric culture (self-construct).
Each of these eight management models works. But, each has a different way to access employee motivation factors: economic, social, and selfconstruct. Management needs to examine all programs when determining the right performance management mix.
DIMENSIONS OF SALES EFFECTIVENESS— PERFORMANCE MANAGEMENT AND COMPENSATION Sales management can select from among many performance management programs to help direct sales personnel efforts. The following four performance management and compensation dimensions of sales effectiveness change and adapt as the sales department moves through different growth phases.
Performance Responsibilities Performance responsibilities specify job duties including sales methods, process, and practices. Performance responsibilities sit within the framework of employment and job expectations. Management communicates both the broad scope of the job and the specific means to accomplish the job’s objectives. Sales management holds sales personnel responsible for meeting and exceeding these performance responsibilities. These responsibilities include both selling and nonselling tasks such as compliance with procedures, completing documentation, providing timely and accurate information to managers, treating customers consistently with management objectives, and following their manager’s directions as requested.
Personal Accountabilities Whereas performance responsibilities specify employment and job expectations, personal accountabilities describe personal actions and investments.
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Personal accountabilities request a salesperson to embrace, act, and perform in a manner consistent with the values of the company. These accountabilities include personal development, ethics, coworker relations, and personal demeanor.
Quotas Quotas define goals for performance. In some instances, sales management provides incentives for achieving goals but not in all cases; evaluative measurement alone is a compelling motivator. The setting of goals provides sales management with the opportunity to calibrate performance expectations. However, not all sales organizations use quotas or goals. Sales quotas begin with the financial forecast for the coming fiscal year. Finance is responsible for bringing together the various market views to establish a realistic and financially feasible revenue projection and cost estimates. Key senior leadership, including operations, sales, finance, and marketing confirm the sales goals for the next fiscal year. Leadership assigns these sales goals to sales management. Sales management then goes through one of several quota allocation methods to assign sales objectives throughout the sales organization, usually down to individual contributors. Sales management has a variety of means to allocate quotas. These techniques will vary based on the amount of market data available and the number of accounts handled by the sales personnel. Generally, when sales management has extensive market trend data, management can prescribe quotas with confidence. The more accounts a salesperson carries, the less likely the salesperson will have a definitive view of how much customers will purchase in the coming year. In such cases, sales management will develop sales quota algorithms to help allocate quotas to sellers. Of course, the opposite is true with uncertain market data; sales management must make educated estimates for quota assignments, often engaging field participation in the effort. When a salesperson has very few strategic accounts, sales management often must rely—and significantly—on the seller’s estimate of sales performance for the coming fiscal year. The following are examples of various quota allocation methods: •
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Top down. Companies that have stable market trends, with high volumes being sold to numerous customers, often use top-down quota allocation methods. Advanced quantitative algorithms account for price changes, market share shifts, buyer projections, and product manager campaigns. In such circumstances, sales management assigns quotas with minimal sales representative input. Top-down/bottom-up market potential. Both sales management and sellers actively contribute in a top-down/bottom-up quota allocation method.
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Sales management assigns quotas in a top-down manner using market share trend estimates to allocate quotas to named account and geographic territories. Concurrently, sellers (bottom-up) provide their own estimates of sales potential for their assigned customers. These two sets of numbers must eventually agree. Each level of sales management works to resolve any differences. Once the numbers agree, sales personnel then receive their final quota. Key account manager quota. Sales management assigns large accounts to key account sellers. These large accounts might generate significant amounts of revenue for the company. Account managers responsible for these accounts are intimately aware of the customers’ needs, preferences, and purchasing plans. The account manager presents all these observations in an account plan to senior sales management. Sales management reviews, challenges, edits, and approves the account plan. This final account plan includes the quota assignment for the key account(s).
During the year, sales management often needs to make quota changes. Quota management guidelines provide the rules for making quota changes resulting from circumstances beyond the influence of the salesperson, such as product availability and relocation of buying decisions. Sales management will also have rules for making quota changes caused by external factors such as government regulations or natural disasters.
Sales Compensation Compensation, when broadly defined, includes many remuneration elements such as base salaries, incentives, and benefits. Compensation can include recognition rewards such as president’s clubs, annual trips, or other incentive programs such as merchandise and travel incentives. There are also additional rewards tied to performance appraisals, annual base salary changes, promotions, and title advancement. Surprisingly, some sales teams provide indirect remuneration in the form of enhanced automobile policies, leading-edge computers, and advanced mobile communications for the top performers. Sales compensation—the explicit reward for sales performance— normally plays a significant role in sales force effectiveness efforts. Sales management uses incentive compensation to lead the sales force to reach and exceed sales goals. These goals can vary depending on the sales strategies for a job. And they can vary from one year to the next. Compensation payouts vary based on the seller’s performance level—the higher the performance, the higher the payout; and the lower the performance, the lower the payout. There are numerous variable compensation plans as displayed in Figure 13-1.
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Figure 13-1 Variable Compensation Plans
The following describes the different types of variable compensation plans presented in Figure 13-1: •
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Unit rate plans. Unit rate plans provide a payout for each occurrence, such as a percent of each dollar of revenue, a percent of each gross margin dollar, or a payment for each unit sold. Income producers are often paid using a unit rate formula. Income producers include life insurance salespeople, real estate salespeople, stockbrokers, traders, independent manufacturers’ representatives, and multilevel marketing sellers. Companies normally do not provide a base salary to income producers. Instead they might receive a recoverable draw. Market practices determine income producers’ unit rates. These well-known commission rates seldom change. However, depending on the volume of transactions, the labor market—over time—rebalances the headcount of income producers by increasing headcount during periods of economic expansion and decreasing headcount during periods of sales retrenchment. 3⫻ uncapped plans. 3⫻ uncapped plans begin with target total compensation as a starting point. This number reflects management’s preferred competitive position when considering market rates. Market data confirm that the more valuable, complex, technical, and difficult the sales event, the higher the target compensation level. Most business-to-business direct and indirect sales jobs use the 3⫻ uncapped design. The 3⫻ uncapped design begins with a target total
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compensation amount split into two components, a base salary and a target incentive. This is the pay mix. Sales jobs with high personal influence over the customer purchase decision tend to have a deeper pay mix—that is, the base salary is lower and the target incentive amount is higher. Jobs with less personal influence over the buyer tend to have a less aggressive pay mix with a higher base salary and smaller proportional incentive component. The leverage expresses the upside earning potential for the highest performers, defined as the 90th percentile performance. To calculate the upside earning, multiply the leverage by the target incentive. In a 3⫻ uncapped plan, the leverage is three times the target incentive, which means that the best performers will receive approximately three times the target incentive for their outstanding performance. If territories are similar in size, a commission formula can determine the payouts depending on level of performance. If territories are dissimilar in size and management seeks to have similar earnings for goal achievement, then provide a payout program tied to percent of quota achieved. 2⫻ capped plans. 2⫻ capped plans are similar to 3⫻ uncapped plans in that they have a target compensation level with a pay mix splitting target compensation into a base salary and target incentive amount. Instead of 3⫻ uncapped earnings, the upside is limited to two times the target incentive and capped at this amount. Several types of customer contact jobs use this design, including consumer packaged goods sales, presales support, and field marketing personnel. Add-on plans. Additional types of sales compensation plans exist, including the add-on plans. These plans provide additional incentives with no pay at risk. Sales management uses add-on plans for contests or special awards for exceptional performance. Normally, these add-on plans provide a modest incentive payout for goal achievement. Gain-sharing plans. Companies that use gain-sharing plans to reward all employees for overall company performance usually have sales models where sales personnel are not pivotal to the company’s sales success.
Most sales compensation programs benefit from adopting program principles for eligibility, total target compensation, mix, leverage, performance measures, measurement period, payment period, and sales crediting. As sales jobs change, sales management must update the sales compensation plans in a manner consistent with these corporate principles. As the company moves through the four growth phases, the application of performance responsibilities, personal accountabilities, quotas, and sales compensation will change as well.
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SALES COMPENSATION DESIGN PRINCIPLES Develop sales compensation design principles to help guide regular changes to the sales compensation program. The following provides an abridged illustration of select principles: •
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Eligibility. Those jobs eligible for at-risk 3⫻ uncapped sales compensation plans must have direct customer contact and be responsible for persuading customers to act. Those eligible for 2⫻ capped plans must have customer contact, but final persuasion rests with others or other means. All other employees can participate in add-on plans. Employees can participate in only one type of incentive plan. Total target cash compensation. The pay plan will set target compensation at the 60th percentile of labor market competitors composed of a preidentified list of companies. Pay mix. The pay mix will be no less than 85/15 and no greater than 50/50. The greater the degree of influence to cause the customer to act, the deeper the pay mix. Performance measures. The sales compensation plan will have no more than three measures, one of which will be a sales production measure. No measure can be worth less than 15 percent of the pay program. Measures include what a salesperson can affect and excludes those measures that a salesperson cannot affect such as corporate measures. The sales compensation plan will not measure and reward compliance actions. Quota performance. At least 60 percent and no more than 75 percent of all sales personnel should reach and exceed goal. Sales crediting. Divide sales credit by a fixed formula among those who contribute to sales success. For commission-paid sales personnel, split the sales credit. For those paid on a quota-based program, double-lift the quota and double-credit the sales outcome.
PERFORMANCE MANAGEMENT AND COMPENSATION TOOLS These tools consist of performance management solutions and reward programs.
Performance Management Solutions Sales leadership can employ many performance management tools. Select from this list: •
Self-tracking and reporting. A simple but compelling performance management tool is providing sales representatives with the ability
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to track and monitor their own sales efforts. This includes the use of customer relationship management (CRM) software to track sales pipeline opportunities. Likewise, regular tracking of sales results and trends provides real-time feedback on sales results. Companies with large numbers of sales representatives with high numbers of order transactions need simple but powerful Web-based business intelligence tools. Shared reporting of local sales team progress adds additional motivation for improvement. Weekly or monthly sales pipeline/quota status meetings—either in person or by phone—provide added motivation for reps to perform well. Active coaching. Engaged sales manager coaching provides a connected experience for sales personnel. Sales manager oversight, advice, and constructive feedback provide a powerful performance management solution. Annual development review. The annual development review, sometimes referred to as the “annual performance review,” offers an excellent opportunity for the sales manager to provide a comprehensive review of all performance responsibilities and personal accountabilities with the salesperson. Programs that give the employee active input into the development process improve employee connection and commitment. Career progression. As sales organizations become larger and more complex, they use numerous types of sales jobs such as key accounts, named accounts, overlay specialists, market specialists, and others. Additionally, growing sales organizations need promotable talent. These jobs allow sales management to offer career progression to those who excel in their current duties. Promotions offer additional motivation for those who seek both pay and professional growth. Sales teams. Teams, such as local sales units, can provide a strong professional network for sales personnel. Regular sales update meetings, which include learning opportunities such as sharing best practices and reviewing successful selling techniques, help build team loyalty and commitment. Rotating the chairperson responsibilities provides an additional sense of accountability to team members. “Call-out” recognition for special accomplishments allows for shared acclaim and the bolstering of personal pride. Rankings. Public ranking of performance provides riveting social motivation. Those performing well sit at the top of the rankings. Those who are struggling find themselves ranked at the bottom. Most people are highly motivated to improve their low-ranking status. If this is not possible, they often terminate their employment. While some sales leaders view public rankings as personally harsh, evidence suggests that it’s an excellent method to upgrade an underperforming sales force.
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Reward Programs Reward programs help focus efforts, motivate performance, and reward results. Numerous reward programs offer rich choices: •
Sales compensation. Sales compensation is the most powerful performance management tool available to sales leadership. Most sales organizations use variable pay plans to reward sales performance. Full commission programs, using well-known industry commission rates, effectively reward income producers for sales results. Sales representative incentive plans feature a total target cash compensation, a base salary, a target incentive amount, and an upside earning opportunity with payouts tied to performance outcomes. If territories are equal, calculate a commission rate to provide target payouts for achieving target goals. If territories differ in size, assign a quota and pay a percent of target incentive for quota performance progress. Prior to the start of the fiscal year, sales management should meet with executive leadership, including product divisions, finance, and marketing, to review and confirm the performance measures for each sales compensation plan—every job should have its own sales compensation plan. Achieving performance measure consensus ensures sales force alignment with the strategic needs of the company.
SALES COMPENSATION FORMULA Sales representative compensation plans use a variety of formula types. Some of these formula techniques include: 1. Flat rate: A single unchanging payout rate. 2. Ramped rate: Payout rates that either increase or decrease at different performance levels. 3. Variable rate: Different payout rates for products or customers depending on importance or profitability. 4. Linked formula: To balance performance among two or more measures, use linked formulas: hurdles (prerequisite condition must be met before payout on second measure), matrixes (payout grid with increasing rewards for success on two measures at the same time), and multipliers (performance on a second measure affects payout of a first measure). •
Contests and spiffs. Contests and spiffs (i.e., special performance incentive field funds) provide short-term rewards for campaigns and initiatives. Generally, sales organizations spend an additional 3 to 5 percent of total compensation on contests and spiffs. Best practices suggest that
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management reserve contests and spiffs for “new” activities and not be redundant with the sales compensation plan. Ensure that at least 30 percent of personnel receive a payout. However, avoid excessive use of contests; they are additive by nature. Recognition programs. Annual recognition events such as the president’s club provide an exceptional platform to reaffirm individual and shared success. Either as a stand-alone event or tied to the national sales meeting, these programs offer a chance to celebrate individual and team sales results. If the program is part of the national sales meeting, then have all sales personnel attend the president club’s awards presentation. If the president’s club is a stand-alone premium event with travel to a destination resort, then limit the “winners” to 15 to 30 percent of the sales force. Invite the top 10 percent, district best performers, most improved, and other noteworthy categories.
Additional Motivational Considerations Sales management can also leverage additional motivating factors: • •
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Account assignments. Sales management can assign favorable accounts to proven sales performers. Planning committee assignment. In recognition of exceptional performance, management can select future leaders to participate on sales planning committees. Mentor program leader. Sales management can offer further development opportunities to successful, seasoned sales personnel by assigning them as mentors for new sales associates. Privileges and perks. Low-cost privileges and perks can further reward best performers. These might include administrative assistance, a favorable parking space, a nicer office, better equipment, richer expense treatment, and other minor considerations bestowed to consistently high-performing contributors. Elevated titles. Sales management can provide elevated titles to superior, long-service performers.
Sales management has varied and diverse performance management tools for recognizing and improving sales performance.
PERFORMANCE MANAGEMENT AND COMPENSATION THROUGH THE FOUR PHASES OF GROWTH The following presents how the four sales-effectiveness dimensions of performance management and compensation—performance responsibilities, personal
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accountabilities, quotas, and sales compensation—change during the four phases of growth.
Performance Management and Compensation in the Start-Up Phase From a performance management point of view, start-up companies have the virtue of transparency. That is, performance is unambiguous: either the salesperson closed the deal or the salesperson did not. With so much riding on the company’s initial success, getting sales revenue should be the one and only true measure of sales outcomes. While sales management might find other performance management measures such as pipeline progress or sales activities interesting, these measures are indulgent luxuries at this stage of growth. Additionally, management takes a practical accommodation approach to other performance expectations such as performance responsibilities and personal accountabilities. During this phase, sales management is looking for selling models that work. Sales management uses a wide lens to test, confirm, and reject sales practices based on outcomes. The reward systems should share the same stark impact: pay for sales results. The sales compensation plan should avoid soft measures, learning measures, and any other measure that does not recognize revenue success.
Performance Responsibilities—Start-Up Experienced sellers enjoy the selling environments of start-up companies. No single selling model dominates the job requirement. There is no forced compliance to a predefined selling system. Instead, sales management encourages sales personnel to find a creative approach to closing sales. Additionally, recordkeeping and reporting are informal and simple. Sales management has yet to employ elongated input-intensive sales funnel reporting or forecasting systems. Order entry and contracts are as simple as they will ever be. Inexperienced sellers find the selling Start-Up Phase more unsettling and challenging. Lack of structure and prescribed sales methodologies can make them anxious and uncertain about their performance as they simultaneously learn to sell and find a successful sales formula.
Personal Accountabilities—Start-Up Most young companies are tolerant of diverse job efforts and personal styles. Of course, no company should accept aberrant, harmful, or illegal behavior. Job duties are still fluid during this phase as sales management tests various
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sales models. Most start-up companies have yet to solidify and impose their corporate culture for job-related personal actions, self-development practices, coworker relations, and personal demeanor.
Quotas—Start-Up Start-Up Phase companies might use sales quotas as a “marker” for expected performance. However, early stage start-up companies have no basis for setting objectives; as a result, the sales goal is simply, “Sell more.” As better sales estimates become available, sales management might establish short-term quotas such as monthly or quarterly to keep track of ongoing performance. However, since territories are normally considered “equal” during this phase, sales management does not need to use quotas in the compensation program to equalize incentive opportunities. In some instances, sales management might wish to implement a “minimum sales goal” for use during a new hire’s probation period.
Sales Compensation—Start-Up Like other performance management programs, sales compensation in the Start-Up Phase needs to serve a very utilitarian purpose—increase sales results. If sales cycles are short, transactions numerous, and territories relatively the same size, then sales management can use a commission rate (calculated to pay the target incentive amount at target performance) to reward performance. An increase in the incentive rate after target performance provides added motivation to sell more. Additional measures for this type of selling are unnecessary. For sales organizations with few large orders, sales management should pay handsomely at contract signing.
Performance Management and Compensation in the Volume Growth Phase Because the Volume Growth Phase needs scaling solutions, sales management employs new performance management solutions. As sales roles specialize around size and types of customers, sales personnel will execute new selling systems. A sales organization can no longer rely on the good instincts of the start-up sales team. Market opportunities are expanding, and sales management must use solutions that will provide the managerial and administrative infrastructure necessary to direct a growing sales entity. The Volume Growth Phase brings more specific job descriptions and selection criteria. Sales management adopts more formal performance management programs and personal accountabilities expectations. The use of
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quotas and their importance increase. And compensation plans matching the growth in jobs become more numerous.
Performance Responsibilities—Volume Growth As a sales organization scales with market growth, sales management adopts new selling roles and selling systems to support these growth opportunities. Development of job-specific selling systems means that salespeople have specific accountabilities regarding their sales jobs. New training programs teach sales personnel how to execute these selling systems. Adoption of these selling methodologies is not optional. New performance management requirements monitor sales force compliance with these selling methods. The use of sales opportunity tracking tools such as CRM provides a means for sales management to ensure compliance with these new approaches. More comprehensive sales reporting tools allow managers to provide timely performance feedback to sales personnel. These reporting systems require sales personnel to input information about sales forecasts, sales progress, and special sales initiatives. Sales personnel get access to new reporting tools so they can keep track of their own performance. The company implements an annual development review process to review progress and suggest areas of improvement. Discussions about career progression give sales personnel a sense of future opportunities based on performance. Sales teams provide professional support and performance encouragement.
Personal Accountabilities—Volume Growth As the Volume Growth Phase unfolds, sales management develops a wellarticulated charter for personal accountabilities. Sales management has certain expectations of how salespeople will conduct themselves. They have expectations about personal development, ethics, the treatment of customers, and the treatment of coworkers. Active manager coaching helps reinforce these personal accountabilities. The company will publish a code of ethics during this phase and may require employees to attend corporate citizenship classes where they will be educated about their personal accountabilities as employees of the company.
Quotas—Volume Growth Sales management makes more active use of sales quotas during the Volume Growth Phase. As the number and diversity of sales jobs increases, so does the range of sales performance expectations. Management uses quotas to balance earning opportunities across territories of different sales potential. All these conditions lead to the increased use of quotas to manage sales performance. Sales management adopts more formal quota allocation methods at the start of the fiscal year. Midyear quota management policies help manage and
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rebalance quotas during the fiscal year. As sales roles increase, sales management will adopt numerous quota allocation methods to match the different types of sales jobs. For example, large account sales roles will use an account management quota allocation method. Named account territories will use field input to help distribute the annual sales objective. Geographic territories with high numbers of accounts will have quotas assigned to them based upon market-trend algorithms. The Volume Growth Phase presents two perplexing quota problems. First, in some cases, market volumes are growing faster than the sales force normally anticipates. This causes under-quota assignment of quotas. Sales management must be vigilant not to allow an expanding market to offer rewards for exceeding easy quotas. In such instances, sales management sometimes shortens the quota performance period to something less than an annual assignment. In this manner, sales management can respond more quickly to unanticipated market growth trends. It’s not uncommon to see sales management overassign quotas, so that the summation of individual sales quotas exceeds the sales department’s total sales objective. A second challenge arises in latter stages of the Volume Growth Phase when product divisions begin introducing new products. Sales volume performance for the new products is uncertain. Poorly estimated demand, unexpected shifts in product launch dates, and competing initiatives make new product forecasting challenging. To protect the integrity of the quotas, a common practice is for sales management to exclude the new product volume in the annual quota. Instead, sales management launches new products with special contests or spiffs. Once sales management identifies the predictable sales volume of the new product, then sales management can incorporate the product’s anticipated volume in the annual quota. Sales management must make other adjustments to the quota system during this phase of growth. For example, new policies regarding shortfalls and windfalls will protect the company and the employees. More explicit rules regarding midyear quota changes will curtail the practice of excessive quota changes and generally reduce quota change misunderstandings.
Sales Compensation—Volume Growth Because the Volume Growth Phase creates many new sales jobs, sales management must create corresponding sales compensation programs for these jobs. For example, key accounts and major account sales jobs could have large orders, high volumes, or long sales cycles. Most of these customers are savvy purchasers of the company’s products. The use of high-risk incentive designs is less prevalent. The pay mix for these positions might feature an 80/20 pay mix. Named account representatives and channel managers jobs may have pay mixes of 75/25. Territory representative jobs might continue with 60/40 or
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50/50 pay mix incentive plans. The performance measures will differ by each of these jobs. To help balance product mix, the sales incentive formulas may feature a linked incentive design to richly reward successful selling of both the core products and the new products. Without careful oversight by sales management, sales compensation can inadvertently become excessively lucrative. With volumes growing rapidly and quotas lagging, sales personnel could find themselves substantially exceeding expectations and thus earning high incentive payments as compared to competitive labor market rates. While at the time, these “win-win” incentive payments may seem motivational, they will create an excessive costs burden for the company as prices decline during the next phase of growth. Sales recognition programs become important to the sales force. The annual president’s club recognition trip is a pinnacle sales management event. Considerable effort and expense propels this recognition program to the top as the premier rewards event in the company’s sales culture.
Performance Management and Compensation in the Re-Evaluation Phase The Re-Evaluation Phase features declining growth rates for the core products. Lacking expanding revenue growth, sales management cannot expect continued profit growth from declining marginal costs. During this phase, sales management needs to reduce costs, improve sales productivity, control pricing, and focus on profitable revenue growth. A greater emphasis on improving sales force performance encourages the use of more defined and aggressive performance management programs. An emphasis on valueadded selling requires sales personnel to promote the company’s solutions and premium value proposition. Sales management monitors these sales performance responsibilities to ensure full adoption of these enhanced sales models among sales personnel. Sales management must update both the quota and the sales compensation programs to reflect the new challenges facing the sales department.
Performance Responsibilities—Re-Evaluation As sales management attempts to reduce sales costs and improve sales force productivity, sales jobs will change. Sales management will try to improve sales productivity by eliminating nonproductive tasks with sales representative jobs. These actions will mean “more quota loading” for sales personnel. Sales responsibilities will increase in size. Rationalization of the customer base will reduce nonvaluable customers from territories. Performance ranking systems will highlight those who are succeeding versus those who are not.
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Sales management will have little tolerance for those who are not in compliance with the administrative requirements of the job. Finance will exert more control over expense management, further increasing the compliance atmosphere of the sales function.
Personal Accountabilities—Re-Evaluation The morale of the sales force begins to fray as the Re-Evaluation Phase ushers in increasing cutbacks with higher compliance requirements. Sales management must bolster sales force commitment during this retrenchment period. This includes reinforcing the company’s values and pride. Local sales management efforts are pivotal during this stage. Coaching, performance feedback, and sales encouragement from the first-line supervisor give sales personnel perspective and hope.
Quotas—Re-Evaluation Sales management must ensure that quotas represent true market opportunities. Hoping for a return to former growth rates, finance might overestimate a reasonable sales objective. Sales management must ensure that sales personnel do not have quotas that are unreasonable. If less than 50 percent of the salespeople are achieving quota, sales management must alter the quotas to allow for a higher success rate. In some instances, quotas may even be less than the previous year’s quota as the company sheds unprofitable business.
Sales Compensation—Re-Evaluation During the Re-Evaluation Phase, sales management does a complete overhaul of the sales compensation program. With good intentions, sales planners now have compensation programs that are overly complex with too many performance measures. The pay plans no longer align sales force efforts with company objectives. Beginning a new phase, sales management crafts sales compensation programs that link sales representative performance with the company’s current goals. New measures of revenue retention, price realization, account profitability, and solutions sales replace a hodgepodge of unconnected and disparate measures. Extensive use of a linked incentive formula rewards both volume performance and strategic sales outcomes. To retain experienced sales personnel, sales management uses cumulative sales career-to-date payout schedules to recognize top, long-term performers. Expansive president club recognition events often fall prey to cost-cutting initiatives during this phase. The participation in sales planning sessions by key sales force opinion leaders helps improve understanding of the company’s objectives and current limitations.
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Performance Management and Compensation in the Optimization Phase After the cutbacks of the Re-Evaluation Phase, sales management begins to focus on Opportunity Segments that offer the best growth opportunities in the Optimization Phase. Working with product divisions, sales management participates in a reorientation of sales resources to match more promising buyer populations. New and different sales channels offer alternative pathways to customers. Specialty business units deploy their own selling resources. Sales proficiency requirements increase. In some respects, the Optimization Phase features a return to more customer-intimate sales accountabilities once evident in the Start-Up Phase. However, instead of relying on informal sales guesses, sales management makes careful sales resource commitments using preprogrammed sales methodologies to dominate target segments. An exceptionally talented sales force will emerge during this phase—one that can successfully sell the company’s products, services, and solutions at premium pricing.
Performance Responsibilities—Optimization The most successful sales people will demonstrate a high degree of sales agility based on situational selling requirements. Like a Shakespearean actor who can play many parts, sales management needs sales personnel to deliver dissimilar sales messages to unique buyer populations. In the Optimization Phase, sales representatives are responsible for delivering precision messages and value propositions depending on the segment characteristics. Sales management will use both highly specialized sellers in some instances and generalists in others. Sales management will set explicit performance responsibilities for these roles.
Personal Accountabilities—Optimization As with performance responsibilities, sales management will again promote preferred personal accountabilities for sales talent. Sales management will most likely request those who do not support these accountabilities to leave the company. The company will benefit from an emotionally mature and professionally confident sales force.
Quotas—Optimization The quota system will continue to grow in sophistication and importance. Corporate leadership will create accurate and rational sales forecasts for disbursement to the sales force as quotas. Multiple quota methodologies will receive continued sales management investments. Quota-setting accuracy
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will increase because of investments and segmentation planning. More advanced market potential analysis, competitor positioning, and product attractiveness will produce a more disciplined process and more accurate quota assignments.
Compensation—Optimization Sales management will simplify sales compensation plans. A comprehensive review of all performance management programs will correctly reallocate performance management in a more balanced fashion among performance programs, sales managers, and reward systems. Regular ongoing analysis of the sales compensation program will ensure alignment with sales objectives and job responsibilities. Sales management will be more deliberate in the annual sales compensation redesign process. Annual top-to-bottom intensive review will preclude the sales compensation plans from being misaligned with the company’s objectives.
SUMMARY Sales performance management and compensation provide the governance model for requesting and receiving outstanding seller performance.
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Sales Operations and Technologies Sales operations and technologies are supporting solutions for the sales function. These tools and accountabilities ensure that the sales function can perform in an exceptional manner. Each element—functional solutions, organization governance, IT investments, and expenditures—varies as the company moves through the four phases of growth. Sometimes known as the “back office” of the “front office,” sales operations and technologies provide all the support functions necessary to operate the sales department. All of the eight pillars and sales leadership depend on this platform to provide day-to-day infrastructure support.
Correctly provisioning the sales function with the programs, tools, and necessary administrative support is the goal of sales operations excellence. In larger sales organizations, sales management groups these functions into a sales operations department with a director or higher-level manager. However, many sales departments, particularly in small companies, find these functions spread among numerous departments including finance, accounting, HR, and general administration. 240
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SALES OPERATIONS AND TECHNOLOGIES COMPONENTS Sales operations and technologies cover a broad spectrum of programs, tools, and systems all dedicated to supporting effective selling. Figure 14-1 provides an overview of the various sales operations and technology responsibilities. The following describes the solutions presented in Figure 14-1.
Sales Strategy Planning Sales strategy planning represents the highest order of sales operations support. By analyzing and developing information and preparing alternative choices for sales strategy planning, sales operations resources provide forward-looking sales solutions: •
Opportunity segment planning. As a sales organization moves through the phases of growth, opportunity segment analysis, sizing, and deployment
Figure 14-1 Sales Operations and Technologies Solutions
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will help correctly allocate sales resources. This effort includes researching customer buying trends, competitor actions, company competencies, and relative return on invested sales expenses. Providing scenario choices to senior sales leadership will accelerate decision making around sales resource allocations. Channel strategy. Selection of the best channel resources to cover customer populations requires research, testing, and trade-off choices. Sales operations help sales leadership to examine channel coverage choices from direct, to indirect, to telesales, to Web-based selling models. Organization structure. As sales objectives shift, the structure of the sales department and reporting relationships will need planning and change management solutions. Job design. Job content continues to evolve through the growth phases, and documentation of job descriptions provides a means to communicate current and future scope of duties. Process improvement. Sales operations provide methods to measure and reward sales process and workflow steps along the customer contact continuum for assessment and improvement purposes. Headcount allocation. Creating and testing headcount allocation algorithms help sales leadership make headcount staffing and placement choices. Forecasting. Sales operations provide tools to gather and estimate sales revenue forecasts for sales, finance, and production planning purposes. This forecasting process provides multiperiod estimates for the next performance period, this fiscal year, and—as developed during the annual sales planning process—the next fiscal year. Sales-effectiveness program initiatives. Each year sales leadership undertakes one or more sales program improvement initiatives. Often, sales operations personnel provide support for these efforts.
Measurement and Reporting Sales operations personnel maintain numerous measurement systems, including: •
Sales results. Sales operations need to provide comprehensive sales result reporting systems for monitoring, analysis, and feedback purposes. Standard reports provide interval reporting on sales outcomes. These systems should be ubiquitous, allowing multiple ways to view the data from different perspectives including by sales unit, by sellers, by customers, and by product type. These reports should present information by numerous result factors such as revenue, profit, deal size, lost sales, churn, and contract length.
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Pending sales. Sales operations keep sales leadership informed of the status of sales prospects/projections and deal backlog. Execution tracking. Numerous sales management programs require field force input and compliance. Execution tracking provides reporting to line sales management on “what is complete and what is missing.” Budget and expense reporting. Tracking overall sales expenses and variable expenditures to ensure field sales management remains within the established expense budget. Time measurement. Sales organizations have only one asset—time. When sales expectations exceed sales resources, time allocation measurement helps sales leadership find and correct “sales time leakage.” Field feedback. In large sales organizations, gathering and tabulating field sales observations provide valuable planning and background information for sales leadership and product management. Sales dashboard. Sales dashboards are summary trend reporting systems featuring critical performance metrics that normally require intervention when results display out-of-norm conditions. Multiple dashboards serve different audiences from sales leadership, to region management, down to district manager and, even, sales personnel.
Talent Management Talent management includes many programs: •
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Recruitment/staffing/onboarding. When a sales organization is growing quickly, sales operations can provide comprehensive recruitment, staffing, and onboarding solutions to the field organization. This may include maintaining an applicant management system. Total compensation management. Overall compensation planning includes job pricing, base pay management, sales compensation design, and administration. Training and development. Sales departments are learning entities. Field sales resources need access to training via classroom, Web, and on-the-job coaching. Sales operations provide the instructional material and may, in some cases, conduct such sessions. Maintaining training transcripts allows for training scheduling. As part of talent management responsibilities, sales operations often design and administer the annual personal development and career path planning program. Sales managers use this program to provide development coaching to their sales personnel. Succession planning. When appropriate, overall annual succession planning provides information for the upward movement of management talent. Organization charts. Sales operations also maintain and publish field organization charts and directories.
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Performance management programs. Sales operations professionals design and support all performance management programs including performance appraisal (part of the development plan), ranking results, learning progress, and execution requirements. Partner programs. Using indirect channels requires numerous subsystems to function correctly including contracts, commissions, product fulfillment, training, collateral support, service support, warranty programs, returns and credits, partner leadership councils, performance reward programs, and partner annual meetings.
Accountability Management Accountability management programs hold sales personnel accountable for assigned responsibilities. These include: • •
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Territory assignments. Sales operations manage and oversee account and opportunity assignments to selling resources. Quota allocation and management. Sales operations professionals—often working with sales finance—manage the process of annual quota allocation and, of course, midyear quota adjustments. Sales crediting. Sales crediting rules specify sales result ownership rules for accounting and compensation purposes. In complex sales entities, multiple parties contribute to sales success. Sales crediting rules and adjudication procedures determine how to award sales credit splits. Sales compensation. Since each job has a custom-fitted sales compensation plan, any changes to job content or performance measures require design updates. The annual planning process for the next fiscal year provides an opportunity to review alignment of all plans with sales objectives. Ongoing management of the sales compensation plans addresses issues of crediting, payout calculation, and the impact of territory and quota changes. Transaction management. The continued smooth movement of order transactions requires ongoing sales operations audit oversight.
Communications and Events Sales departments use numerous communication systems and schedule many events, including: •
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Field sales communications. Sales operations should coordinate strategy, leadership, management, and administrative communications to the field organization. Policies and practices. Sales operations, when necessary, draft, maintain, and publish applicable sales policies and practices. Knowledge system. An integrated knowledge system provides at-a-fingertip access to sales messages, marketing collateral, product
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information, technical specifications, and competitor profiles for field personnel. Sales campaigns. Sales operations provide design and administrative oversight to sales campaigns and other field sales initiatives. Customer events and trade shows. Trade shows and other customer events such as sports and charity promotional sponsorships require a substantial investment of time and personnel. National and other internal meetings. Most medium-to-large sales organizations sponsor an annual national sales meeting for leadership messages, motivation, field communication, and professional development purposes. Larger sales departments might even have local, quarterly meetings. Sales operations professionals either provide or use vendors for session management, communications, and logistics. Local meetings. For larger sales organizations, providing suggested agendas and meeting content helps local sales managers improve regular meetings.
Enabling Resources Sales organizations require a large number of enabling resources, including: •
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Mobile communications. Mobile communications include telephony, Internet, and electronic communications tools with supporting software to access company systems and, in some cases, provide local (on-device) applications for seller use. Computing tools. Both personal computers and Web-accessed software applications provide computing resources for field and manager personnel. Company credit cards. For travel and entertainment expenses, sales operations ensure that the credit card program covers sales personnel’s on-the-job expenses. Automobile program. For sales resources needing automobiles, sales operations monitor the automobile program to ensure that the transportation program is meeting sales personnel needs. Lead generation management. Sales operations can provide lead generation management support to help assign and track leads.
Technologies A sales department may or may not use all the technologies noted here or own or manage them. Some of these systems may use desktop solutions; others, enterprise software; and still others, hosted applications. Some may reside in the sales department, or other departments may provide the administration support to these technologies. Because these technologies affect sales resources,
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they need coordination and oversight by sales operations personnel, regardless of type, location, and responsibilities: • •
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Forecasting system. Forecasting systems gather and estimate sales forecasts. Data and analytical tools. For sales planning and assessment purposes, sales operations functions use advanced data and analytical tools to examine historical performance and plan future strategy. Service incident reporting. Track nature and resolution of customer service incidents. Billable time recording. Input system for professional service charges. Organization directories. Listing of personnel and contact information including organization charts. Sales reporting dashboard. Sales results reporting, including data mining tools and sales dashboards. Knowledge system. Knowledge systems contain marketing collateral, policies, practices, sales messages, proposals, training material, and other sales-centric information. Training platform. Organizations with high headcount and extensive training programs often will have a training platform that delivers instructional material, evaluates student progress, and tracks curriculum accomplishment. Applicant system. For companies hiring large numbers of sales personnel, an applicant management system keeps track of candidates and their status. Expense recording. System to submit sales expense for reimbursements. SFA/CRM. SFA and CRM systems track and manage customer sales data, including contact information, sales call outcomes, and sales opportunity management. Account/territory/quota/crediting system. The assignment system gives sales management the ability to manage account assignments, territory configuration, quota allocation and management, and sales crediting assignments for sole, split, or double sales credit. Compensation administration. Compensation administration technologies help calculate payouts, report earnings, and administer the sales compensation programs. Sales Web portal. Web site for all things sales. Collaboration software. To facilitate the work of many sellers and support personnel on specific customer opportunities, collaboration software allows for multiple parties to coordinate their sales efforts. Survey systems. To gather seller and customer views, sales operations uses Web survey systems to gather responses. Contract/pricing system. The contract/pricing system helps prepare contract estimates and prepare custom configured proposals.
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Solution design tools. Solution design tools allow sales personnel to configure unique solutions for customers. Call-center software. Call-center software manages inbound and outbound customer contact calls.
DIMENSIONS OF SALES EFFECTIVENESS— SALES OPERATIONS AND TECHNOLOGIES As a company moves through the various growth phases, the use and application of sales operations solutions and technologies migrate, too. Young, small companies will have little need for sophisticated application solutions; however, they will need many “basic” tools such as mobile communication, Internet access, collateral access, and expense administration. Of course, larger more mature sales organizations will need more advanced (and expensive) support solutions. As the need for various solutions evolve, so will the organization governance overseeing these programs. The following dimensions of sales effectiveness change through each phase of growth.
Functional Solutions As a sales organization grows, it faces different sales operations challenges in each phase of growth. Like most other entities, sales departments tend to solve problems as they arise. Actually, this approach to selecting and employing functional solutions is preferred to acquiring solutions prematurely. For example, most sales entities need a CRM system, but not all. For example, such a system for a start-up company might distract sales personnel and provide very little return to sales management. However, the opposite problem is harmful, which is delaying the acquisition of needed tools and programs, a common problem in the Volume Growth Phase.
Organization Governance As presented in this chapter, there is a long list of sales operations responsibilities, programs, and technologies. Who owns and funds these programs? Who manages them on a day-to-day basis? Which programs should the sales department oversee within the sales operations functions, and which should reside with other groups, either internally or externally? Organization governance practices suggest the following: •
Retain in-sales operations. Keep within the sales operations function those programs that affect customers’ purchase decisions, require deep sales force content knowledge, need constant and substantive interpretation, and are a mission-critical component of sales excellence.
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Let others handle. Assign tasks and programs to others that have companywide application, require special skills that the sales operations group does not possess, and fall into the category of tactical execution such as expense management systems, compensation administration, and other such operational programs.
IT Investments Aside from payroll dollars, another large expense for sales departments is IT investments. Sound IT investments can provide remarkable breakthroughs in sales productivity. Sales management has many choices when making IT investments. Sales management can build its own desktop solutions, have internal IT resources create a custom application, use components from the company’s backbone enterprise resource planning (ERP) system, purchase enterprise applications for installation on the company’s computers, and, finally, rent hosted solutions from specialty application providers. All choices offer advantages and disadvantages ranging from cost considerations, upkeep obligations, ease of administration, expense recognition, and solution applicability. Sales management can choose from the following IT approaches: •
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Desktop solutions. Desktop solutions provide immediate, low-cost, and often highly effective administrative answers. They provide an early look at what full-featured systems might require in the future. However, they are often designer/user-specific. Many exist as highly effective point-in-time solutions, but they often lack strong administrative tools, audit protocols, archiving capabilities, and extensive database management features. Custom solutions. Sophisticated programming tools are now available to in-house development teams. These programming tools give programming resources the means to craft a custom application to meet the sales department’s needs. Limitations often include expense, timing, and making timely and cost-effective upgrades. ERP components. ERP systems feature fully integrated database and application software. Many of these systems come with “front-office” modules. Test them for appropriateness for your sales-effectiveness application. If suitable, they dramatically reduce the need for integration among diverse data systems since they share a common data warehouse of company information. Enterprise solution. IT departments purchase enterprise solutions for self-management. Well-designed packages have many features that allow them to fit most circumstances. Up-front costs are often substantial. Costs continue on an annual basis in the form of maintenance contracts. Hosted applications. The popular SaaS (software as a service) model continues to grow as vendors provide ever increasingly powerful Web-compatible and
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locally configurable solutions. Up-front costs are minimal. Start-up time is brief. However, costs continue on a monthly basis indefinitely. Company confidential information resides on third-party servers. And database and application integration is problematic. Business intelligence software reporting packages. Whether hosted or purchased, business intelligence software provides advanced analytical tools and tracking software for analysis and reporting purposes. Other reporting packages allow for user-configured reports and extensive data analytics.
Expenditures Finally, the use and deployment of all these sales operations programs and IT solutions cost money. Sales management must wisely decide when to make such expenditures. Some investments may not ever be necessary. Other situations might require short-lived investments. Finally, certain investments are almost mandatory, and not providing them can cripple a sales organization.
SALES OPERATIONS AND TECHNOLOGIES TOOLS Sales organizations cannot function without infrastructure support. Whether housed within the sales department or provided by other departments or third parties, sales operations and technology solutions play a critical role in sales force effectiveness. As a “back-office” resource, sales operations personnel, programs, and activities are an expense to the company. While these solutions enable sales efforts, they still incur costs. As a “staff ” function, the purchase and application of sales operations and technologies solutions need careful cost/benefit justification. To manage these resources and solutions, sales leadership must apply proper oversight and management to receive value for dollars expended. These are some of the tools needed to manage sales operations and technology solutions: •
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Annual assessment. At the end of the fiscal year, sales management should review all sales operations programs and technologies for effectiveness. Sales management should review program status and costs. Field interviews and surveys can rate program effectiveness, in both design and application. Regular review of programs with variable costs by internal audit will help spot any irregularities. Sales operations and technology planning. As a continuation of the assessment process, sales management should have a one-, three-, and five-year plan for implementing, upgrading, replacing, or discontinuing sales operations and technology solutions. Sales management should
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document these decisions in a planning document. A steering committee representing key stakeholders from both headquarters and field functions should review and approve this planning document. Cost analysis, expenditure management, and investments. The demands for central support for numerous sales operations solutions and technologies can overwhelm the cost budget of the sales department. Additionally, bureaucracy tends to breed additional bureaucracy. Sales management must use diligent planning and cost-analysis practices to avoid creeping expansion of less than mission-critical solutions. Sales management should favor lean management and just-in-time solutions within the sales operations and technology planning framework. Several metrics help monitor these expenses including cost-per-order dollar and cost per capita (sales headcount). Sales management should pay special attention when adding expense costs such as new staff headcount. Vendor selection processes. Finally, when making external purchases of services, sales management needs to use appropriate vendor selection methods including requesting proposals from multiple vendors, demonstrations, and, if possible, no-cost testing of the solution prior to purchase. Purchasing professionals can aid in negotiating favorable prices and terms.
SALES OPERATIONS AND TECHNOLOGIES THROUGH THE FOUR PHASES OF GROWTH The application of sales operations solutions and technologies will change through the four phases of growth.
Sales Operations and Technologies in the Start-Up Phase With a mandate to grow and a simple sales model to accomplish this goal, sales organizations in the Start-Up Phase give scant attention to infrastructure solutions such as sales operations and technologies. A practical/tactical mindset creates and adopts solutions as needed. Other departments such as finance, operations, and HR provide lending-hand support to the sales department during this phase. Sales management naturally avoids bureaucracy and overly complicated systems. The head of sales and his or her administrative staff handle many of the in-department sales operations activities and functions. Even field sales management might create desktop solutions such as standard reports for systemwide use. This “bootstrap” practice brings forth appropriate solutions that fit the situation and fill a need.
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Functional Solutions—Start-Up Sales departments need some basic sales operations solutions and technologies during the Start-Up Phase. These include sales reporting via spreadsheet, communications via e-mail applications and mobile phones, basic sales collateral, lead management, and sales funnel tracking using spreadsheets, and sales compensation calculation. Depending on the sales requirements, a start-up sales department might need to outfit its sales force with computing resources, too. Early use of a simple SFA (sales force automation) tool might include low-cost packages or company-configured database/spreadsheet tools.
Organization Governance—Start-Up Most start-up sales organizations depend on the head of sales to be the parttime head of sales operations. To avoid distractions, sales leadership will have others perform interim sales operations functions during this phase of growth. Typically, sales operations have no full-time personnel occupying assigned roles. Administrative and accounting personnel may provide assistance on a part-time basis. Field sales management might also share some of the sales operations duties. In the latter stages of the Start-Up Phase, full-time personnel will begin to arrive. Sales leadership will need two types of staff generalists. One type of resource will be numbers-focused, doing all the sales reporting, budgeting, and forecasting. The second type of resource is people–focused, helping with the recruiting, staffing, and training of new personnel.
IT Investments—Start-Up “Less is more” is an excellent approach for IT investments in the Start-Up Phase. As sales leadership searches for a scalable sales model, sales management should view IT investments as temporary. Sales leadership would make a misstep at this point by purchasing and installing an expensive IT application. The likelihood that any IT solution purchased at this stage will meet the sales department’s future needs is purely speculative. While not as glamorous as polished software packages, desktop solutions using spreadsheets, local databases, and e-mail packages can provide extensive IT functionality without significant costs.
Expenditures—Start-Up Each new sales professional arrives with a cost requirement including compensation, benefits, and taxes. Depending upon the sales channel, additional expenses also accompany each new sales person such as mobile communications, telephony, Internet access, transportation, expenses, personal computing needs, and, for call centers, extensive call-center infrastructure. Most
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sales executives defer the purchase of expensive training packages, extensive software applications, and additions to HQ staff. However, as the sales department continues to grow, sales operations resources, and IT expenditures will grow at an increasing rate particularly during the Volume Growth Phase.
Sales Operations and Technologies in the Volume Growth Phase As the company’s sales headcount increases in the Volume Growth Phase, sales management needs to upgrade the informal approach to sales operations solutions and IT technologies that were cobbled together in the Start-Up Phase. Sales management adds substantial field headcount to keep pace with the number of new customers and sales transactions. Sales role specialization increases, and many new sales jobs emerge. As the company is scaling, it can no longer use part-time sales operations support, or one-off spreadsheets for mission-critical activities. Sales management makes major sales operations investments, as the conditions require. To support this build-up in field forces, back-office resources increase, too. Dedicated personnel handle specific sales operations responsibilities such as staffing, reporting, and compensation management.
Functional Solutions—Volume Growth The growing sales force needs several sales operations solutions including robust sourcing, recruitment, selection, and onboarding process for new hires. Sales operations management working with HR defines program features and expected outcomes. Some combination of HQ, HR, and sales operations personnel coupled with field HR and local sales management counterparts provide the means to quickly acquire new sales talent. Sales compensation plans become more complex and diverse requiring stronger design, management, and administration support. Field management needs more powerful sales reporting, account assignment, and quota management software to support the increasing number of selling roles and attendant headcount.
Organization Governance—Volume Growth At the start of this phase of growth, sales management often has very few direct sales operations staff members. Many organizations are willing to support the sales department’s many sales support programs. However, citing the need for more closely aligned efforts, sales management brings many of these efforts in-house to the sales department. Sales leadership appoints a director level professional to oversee the growing requirements of sales
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operations and technology support. New manager level departments assume responsibility for staffing, training, sales reporting and forecasting, events, and variable compensation programs. Actual program operation administration remains with others such as mobile communications, Internet, computing, transportation provisioning, and incentive compensation payout calculations.
IT Investments—Volume Growth The sales department needs a fresh and substantial investment in IT solutions during the Volume Growth Phase. During this period of rapid customer and sales resource growth, sales management needs to consider a number of IT systems: •
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Sales force automation. SFA provides sales personnel with the tools they need to help track their customers’ contact information and sales initiatives. The need for SFA software increases in relation to the number of accounts that sales personnel actively track. Service incident tracking. Incident tracking systems record every customer issue for resolution purposes. Sales personnel need to know of any problems with their current customers. If a separate customer service organization provides after-the-sale customer support, then the sales force needs to have access to the information it receives so that they can prepare appropriately for sales calls. Unhappy customers are poor sales targets. Expense management. As sales force headcount increases, sales operations needs a fully automated way of recording and reconciling seller expenses. Sales reporting. Sales leadership needs timely and accurate sales reports. As pulled from the order system, sales reporting systems should provide sales management with numerous reports by sales units, sales personnel, product type, and customer type. Sales Web portal. A dedicated sales Web portal provides access to sales reports, expense management, SFA solutions, sales training modules, sales collateral, standard proposals, and pricing tools. Account/territory/quota/crediting system. As the number of accounts and sales personnel increase, an assignment system helps manage account ownership, territory configuration, quotas, and sales crediting. Applicant system. As sales management adds additional sales talent, an applicant tracking system will facilitate the overall management of job candidates. Training platform. A training platform provides an integrated learning experience for teaching sales personnel selling skills, product
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knowledge, and the use of internal administrative systems. Sales management can deliver many operational topics via self-paced Web learning tools. Beyond Web training, the training platform provides a means for salespeople to enroll in classroom sessions and access additional learning material.
Expenditures—Volume Growth With growth in sales resources comes increases in sales expenses. Sales expenses, cost-per-order dollar rise during the Volume Growth Phase. While some sales management relative costs will decline, the need for additional staff and systems to manage the growing sales organization will increase absolute costs. However, growth in total revenue is improving product margins and thus company profitability. In summary, during the Volume Growth Phase, total costs will increase, cost-per-order dollar will increase, and, hopefully, profit per sales dollar will increase as marginal costs decline.
Sales Operations and Technologies in the Re-Evaluation Phase As sales growth in the core business drops and new products have yet to improve the volume growth, sales management will need to reduce sales costs. This includes costs found in sales operations and technologies. Sales management can improve sales costs two ways: improve productivity or reduce absolute expenses. Scaling a sales organization during the Volume Growth Phase substantially adds direct or indirect headcount costs. Whenever possible, sales management must pare back sales operations costs and reduce back-office processes that contribute to higher costs. Sales management must also upgrade or replace systems that do not improve sales productivity. As an example, sales personnel will need pricing solutions to identify unprofitable customers.
Functional Solutions—Re-Evaluation During the Volume Growth Phase, the sales department makes added investments to turbo power revenue growth. However, during the Re-Evaluation Phase, while revenue growth continues to be a sales outcome priority, sales operations also needs to improve sales costs. Sales operations and technology solutions now must demonstrate a worthy ROI prior to making investments. Programs to increase sales productivity become as important as total revenue growth during this phase. Sales management needs to re-evaluate every current dollar spent to test for applicability, effectiveness, and efficiency. Most of the investments during this phase will focus on cost reduction and sales productivity improvement.
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Organization Governance—Re-Evaluation Most sales departments have full-time resources dedicated to sales operations and technology solutions. The first order of business is to reduce the excessive bureaucracy and programs left over from the Volume Growth Phase including expansive recruitment and training machinery. Operational activities such as standard reporting, transaction administration (such as sales compensation calculations), and staffing belong with specialists such as sales accounting and HR. Sales operations management continues to provide custom reporting, project management, and sales planning support. Sales management may dedicate additional resources to improve execution excellence, increase productivity, and reduce costs.
IT Investments—Re-Evaluation The sales organization needs incremental investments in IT solutions during the Re-Evaluation Phase. The following IT systems will get upgrades: • •
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Contract/pricing systems. Sales management gives sales personnel much stronger tools for pricing and managing sales margins. Forecasting. To monitor sales efforts, stronger forecasting and sales funnel reporting improve sales projections needed for sales and financial planning purposes. Sales diagnostic tools. Self-diagnostic tools allow sales personnel to conduct analysis on sales results to better calibrate customer focus, time use, pricing, and sales messages. Performance commitment systems. As part of the adoption of advanced CRM systems, sales management will look for specific sales commitments from sales personnel including product, customer, and profit outcomes. Automation systems can help solicit, track, and report on these commitments. Compensation administration. With the rise in the number of sales jobs and performance measures, compensation automation systems provide the backbone support for the sales compensation program.
Expenditures—Re-Evaluation Sales management needs overhead costs to decline during this period of reevaluation. Sales management must reduce the cost of running sales operations and technologies. If there are reductions in sales personnel, there should be similar, if not proportionally greater, reductions in sales operations personnel. Some programs will reach their “sunset” status with various practices, submission requirements, and output reports coming to an end. Sales management must improve the sales cost-per-order dollar.
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Sales Operations and Technologies in the Optimization Phase Having reduced costs during the Re-Evaluation Phase, sales management needs to reorient the charter of the sales function. The sales department can no longer be a “product-push” resource but instead must be a much more strategic talent that crafts sales solutions based on opportunity segments. Having weathered the downsizing of the Re-Evaluation Phase, sales operations and IT solutions need to contribute to this more strategic approach to selling. Sales operations programs and technologies will need new investments to contribute to segment-based selling strategies. Additionally, new selling resources beyond the central sales force will emerge. Sales operations and supporting IT technology must contribute to this customer-centric focus, whether sales resources report to the head of sales, a market segment leader, or a business unit executive.
Functional Solutions—Optimization New sales operations and technology solutions need to guide selling resources to segment opportunities so that the right resources are calling on the right accounts and delivering the right sales messages. Sales operations tools need stronger segment discovery, sizing, and value propositions. Methods to provide and deliver sales outcomes need a defined process approach. IT technologies need to provide “virtual” solutions so that customer segment sales efforts can be managed effectively.
Organization Governance—Optimization In addition to its now “right-sized” resources, the sales operations function gets a new, formal responsibility: sales strategy planning. This includes researching buyer populations, working with product management to craft segment solutions and messages, and designing sales delivery competencies to optimize market segments.
IT Investments—Optimization A major review of all technology solutions takes place in the Optimization Phase. Many point solutions and disparate programs need upgrading to a more uniform and integrated solution. New technology applications include: •
CRM system. To manage the vast array of customer types and product objectives, a full-feature CRM system will provide the information platform for managing these dynamic conditions.
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Solution design tools/knowledge system. Advanced customer-driven solutions require power design tools and support knowledge to equip sales teams with the means to meet segmented customer needs. Collaboration tools. More advanced collaboration tools allow virtual sales teams to work together on diverse sales opportunities.
Expenditures—Optimization Sales operations and technology costs will rise during the optimization phase. New planning talent will add additional costs. Replacement of numerous, disparate stand-alone technologies will increase costs, too. Be prepared to spend dollars on “back-office” solutions during the optimization phase.
SUMMARY Sales operations and technologies solutions, while not a “front-line” resource, fill a critical role in effective sales management. Each growth phase uses these solutions in an evolving fashion including functional solutions, organization governance, IT investments, and expenditures.
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Keeping the Sales Force Current
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FIFTEEN
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Sales Force Transformation Sales force transformation occurs when current sales practices are no longer meeting the company’s strategic needs. During each phase of growth, the sales force will reach limits of effectiveness. Transformation investments help successfully move a sales function from one phase of growth to the next. Sales departments often require substantial transformation efforts to move from Phase III, Re-Evaluation, to Phase IV, Optimization.
STRATEGIC SALES THEMES OF GROWTH PHASES Each phase of growth has a strategic sales theme: Phase I—Start-Up: discover growth Phase II—Volume Growth: scale to grow Phase III—Re-Evaluation: improve profits Phase IV—Optimization: grow profitably During each phase of growth the sales department develops strategic, structural, and management solutions to achieve its primary growth phase objective. Figure 15-1 presents the short-term goals for each growth phase: •
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Phase I—Start-Up: discover growth. The primary focus of the sales department is to sell products in order to secure cash flow. Without revenue success, the young company will not survive and soon will expend its initial investment dollars. Phase II—Volume Growth: scale to grow. The now increasingly successful sales organization needs to expand to continue getting new customers, keeping existing customers, and selling new products. Phase III—Re-Evaluation: improve profits. With a decline in growth of the core business, the sales department needs to improve profits by protecting the core business, managing prices, and reducing costs. 261
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Figure 15-1 Growth Phase Strategic Themes •
Phase IV—Optimization: grow profitably. The company looks to the sales department to contribute to profitable growth by building new value propositions, entering new markets, and providing sales focus through sales specialization.
Each phase requires a change in practices from the previous phase of growth.
SALES FORCE OBSOLESCENCE AND TRANSFORMATION As the company moves through each phase of growth, business strategy requirements will make select sales management practices obsolete. In most cases, sales management anticipates the impending changes and makes investments to ensure smooth transition through each phase of growth. In other cases, sales management either delays or does not anticipate the impending transition, thus making the eventual changes both substantial and difficult. The concept of obsolescence does not mean that sales talent is obsolete and that sales management needs to replace the current personnel. Instead, it means that the strategy, structure, and management practices have become less effective. However, with proper application of sales planning processes, sales leadership can provide the right planning direction to overcome impending obsolescence inherent in each phase of growth.
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Figure 15-2 displays the common symptoms of sales force obsolescence for each phase of growth: •
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Phase I: Start-Up. A start-up company needs to adopt a scalable sales model. It needs uniform sales messages and sales roles. A sales organization becomes obsolete near the end of the Start-Up Phase by not providing expanding, scalable sales coverage. Phase II: Volume Growth. The sales department stratifies sales roles based on customer needs: large, medium, and small. Meanwhile, product divisions are launching upgraded and new products. Obsolescence is evident when the sales force fails at any of the following objectives: keeping current business while successfully selling to new customers; selling new products to existing customers; or selling new products to new customers. Phase III: Re-Evaluation. The Re-Evaluation Phase requires the sales force to improve profits by protecting share, managing prices, and reducing costs. Failure to meet these goals is an indication of sales force obsolescence. Phase IV: Optimization. The Optimization Phase presents the most challenges for the sales force. It often means making substantial changes to the sales coverage model. The sales function’s inability to successfully sell numerous products to diverse markets suggests sales force obsolescence.
Figure 15-2 Sales Force Obsolescence
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Sales management can overcome sales force obsolescence by making improvement investments during each phase of growth. Figure 15-3 presents the different transformation investments necessary for each phase. •
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Phase I: Start-Up. Sales force transformation during the Start-Up Phase means identifying uniform sales messages, adopting a successful selling system, and ramping up recruitment, new hire training, and ongoing training solutions. Phase II: Volume Growth. During the Volume Growth Phase, successful sales force transformation sees a better focus on customer type through account stratification specialization. Protection and growth objectives and the dissimilarity of customer needs require adoption of multiple sales messages and selling systems. Sales transformation might even see the deployment of “hunting” specialists for new accounts, selling new products, and opening new markets. Phase III: Re-Evaluation. Sales force transformation efforts begin with account assessment steps to eliminate low-value customers. It continues with productivity upgrades tied to process improvement, sales role simplification, and the use of multiple channels to serve diverse markets. Sales force transformation also holds sales force personnel responsible for sales profitability improvement through price and product mix management within their control.
Figure 15-3 Sales Force Transformation Investments
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Phase IV: Optimization. The Optimization Phase requires significant transformation investments to realign the sales force around opportunity segments. This effort begins with joint planning teams representing product, marketing, and sales. As these market planning teams evaluate each opportunity segment, sales management must configure customerintense sales coverage solutions. Some of these solutions may not currently exist or may require deconstruction or changes to the current customer coverage model. Some of these solutions might require new channels or forms of sales specialization, and, in the case of new opportunity segments, perhaps nontraditional coverage solutions.
Transformation efforts from phase to phase require intense sales management focus to anticipate and correctly provide sales solutions.
SALES FORCE FAILURE IN THE RE-EVALUATION PHASE Sales organizations reach a pinnacle of sales volume production improvement during the second phase of growth: Volume Growth Phase. As the market expands for the product, a successful sales department builds extensive and proficient selling and staff resources to gain market share. During this phase, a unified, well-managed sales entity becomes the hallmark of exceptional performance. Unfortunately and paradoxically, the sales effectiveness virtues of the Phase II sales model—execution excellence—become the source of sales force obsolescence in the Re-Evaluation Phase. Sales management configures highly scalable sales entities in Phase II. Simplicity reigns with few specialized sales jobs (mostly stratified) and few sales messages. Management oversight features a highly compliant command and control sales governance model. As the company enters Phase III, Re-Evaluation, the market rate growth of the core business declines. Customer retention becomes more difficult. New products need attention. And pricing pressures increase. Without proactive transformation efforts by sales leadership to improve productivity, cut costs, focus on new products, and manage pricing, sales management can cause the sales department to become misaligned with the company’s objectives; a prescription for sales force obsolescence. As the market moves the company along to Phase IV, Optimization, any missed steps in the Re-Evaluation Phase will become a hindrance to the natural transformation of the sales department as it enters Phase IV. Absent aggressive efforts by sales management, a critical atmosphere can emerge where stakeholders express their frustrations: Senior management cites lack of growth; product divisions complain about uneven product sales; finance documents
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excessive costs; and, field sales management resents unreasonable compliance pressures. Meanwhile, customers become much more fragmented. Their needs foreshadow the rise of opportunity segments, requiring highly tailored custom and micromarketing and selling solutions.
10 ATTRIBUTES OF A WORLD CLASS SALES ORGANIZATION These attributes describe world class sales effectiveness: 1. Internal partnerships. To ensure effective sales planning, the sales department will work closely with product divisions, marketing, and finance. 2. Segment focus. Sales planning processes will link to buyer opportunity segments. 3. Coverage alignment. Sales leadership will configure sales coverage resources to effectively serve customer needs and product divisions’ ambitions. 4. Value-added selling. Selling efforts will add value to the sales process through consultative and solution selling competencies when appropriate. 5. Sellers first. The company values sales personnel as critical marketmaking assets. 6. Engaged sales managers. Sales managers will work closely with sales personnel to build a community of shared success. 7. Measure what matters. Sales management will measure sales efforts and outcomes to provide self-improving feedback to all personnel. 8. Seamless automation. Sales personnel will have seamless automation tools to support all critical customer interactions. 9. On-demand provisioning. Sales operations personnel will make all tools and support resources available for the immediate on-demand needs of sales personnel. 10. Ongoing sales planning. Sales leadership will engage in extensive annual sales planning to plot the course for sales force investments and its success.
FROM RE-EVALUATION TO OPTIMIZATION: THE SALES FORCE TRANSFORMATION PROJECT Sales organizations that are adopting opportunity segment planning may need to undertake a major sales force transformation project. Such an effort can move the sales force beyond the now-failing sales model of the Volume
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Growth Phase into a more agile and focused selling resource needed for optimizing opportunity segments. A high-level project team should oversee all elements of the sales force transformation project. A sales force transformation project includes the steps of the PADEM: plan, assess, design, execute, and measure. The following provides more detail for each of the project components.
Plan A sales force transformation effort should begin with a charter statement— an objective, a bold plan for sales force achievement purposes. The following statements are examples: • • • •
Be a world class sales organization. Exceed competitor growth and profit levels. Produce double-digit growth and profit outcomes for each sales segment. Leave no sales goal unachieved.
To ensure effective sales force transformation, sales management establishes performance milestones to judge transformation effectiveness. Some of these milestones might include sales growth results, costs, number of personnel succeeding, balanced product performance, customer goals, customer assessment, and product division assessment.
Assess In addition to collecting information from executive stakeholders, sales management, field personnel, and HQ specialists, the project team should gather additional empirical information such as market size, external sales benchmarks, competitor position, sales time utilization, customer contact continuum steps, sales productivity yields, funnel statistics, performance data, and market compensation data. The project team should use all collected data to identify current status and future preferred status. The “gap” will define the nature and degree of needed changes.
Design The program design phase includes reviewing sales management elements and then designing sales-effectiveness solutions for sales leadership, opportunity segments, coverage design, customer contact continuum, job design and organization structure, resource deployment, sales talent, management, productivity metrics, performance management, compensation, sales operations, and technology.
Execute The implementation phase includes two elements: first, a multiyear road map of changes; and second, the immediate rollout of the new selling solutions.
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Additionally, sales force transformation efforts include major changes to roles and responsibilities of current job incumbents. A dedicated change management team assumes responsibility for mapping, designing, developing, and executing the change management strategies, including communications, active listening, briefings, hot-line, Web community, rollout, training, internal selection, outplacement, and ongoing morale assessment. Finally, sales administration systems, including technology and Web tools need to be upgraded to support the new selling paradigm for the company.
Measure Once sales management introduces the new sales model, responsibilities, and accountabilities, ongoing measurement is necessary to course-correct any misapplication of design or execution. This includes gathering customer feedback and field and product division perspectives. Regular senior executive team updates provide a status readout of sales force transformation progress.
SUMMARY Sales force transformation efforts are an ongoing responsibility for sales departments. By anticipating the phases of sales force growth, sales management can provide the leadership necessary to keep the sales force aligned with corporate objectives and buyer needs. Finally, to reduce the need for extensive sales force transformation projects, sales leadership needs to adopt a formal sales planning process that evaluates, updates, and executes new sales models as product and customer strategies shift. (See Chapter 16 for ideas on annual sales planning.)
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SIXTEEN
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Annual Strategic Sales Plan The annual strategic sales plan takes the company’s business objectives and translates them into specific actions for sales achievement purposes. Sales leadership creates this plan prior to the start of each fiscal year. As a “living” document, sales management reviews this plan on a monthly basis to assess accomplishments, make adjustments, and record revisions. Effective sales planning provides a road map for sales success. An effective annual strategic sales plan offers sales leadership multiple benefits. For example: • •
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Goal setting. The sales plan gives sales leadership an opportunity to set bold goals for the sales organization. Collaborative input. The process of assembling the sales plan affords field personnel, HQ staff, and key stakeholders numerous opportunities to contribute to shaping the sales department’s goals, strategies, and tactics for the coming year. Communication. A well-formulated plan provides an excellent vehicle to communicate to the sales team and others within the company the direction and intent of the sales force.
Regardless of the phase of growth, all sales departments should prepare an annual strategic sales plan.
THE ANNUAL SALES PLAN AND GROWTH PHASES The need for annual sales planning changes with each phase of growth. Figure 16-1 shows how sales objectives change from phase to phase. As a company moves into Phase III, Re-Evaluation, and then into Phase IV, Optimization, the need for more advanced strategic sales planning increases significantly. The following provides a brief overview of the sales planning processes required in each phase of growth. Of interest, the adoption of planning methods is cumulative. That is, each phase adopts either additional planning or more expansive competencies without eliminating previous planning tools. 269
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Figure 16-1 Growth Phases
Start-Up Phase Companies in the Start-Up Phase need a simple sales plan: How much does the sales department expect to sell each month? Also included in the sales plan are investments in sales messages and collateral. Target account action steps present focused sales efforts by account. Staffing projections provide headcount estimates.
Volume Growth Phase Sales departments in the Volume Growth Phase will need substantial investments to scale the sales function to increase revenue and grow market share. ROI on sales investments including headcount, technologies, and staff support will justify the necessary investments. Sales management must also demonstrate how new products will receive focused sales efforts.
Reevaluation Phase Cost reductions and productivity improvements are the foremost feature of the annual sales plan during the Re-Evaluation Phase. Additionally, reconfiguration or reallocation of sales resources to better add value helps redefine the sales organization’s focus.
Optimization Phase The Optimization Phase calls for a new strategic charter for the sales department based on customer-centric segments. Extensive opportunity segment planning helps assign sales resources for the most effective use of sales expense dollars.
Timing Sales leadership drafts the first edition of next year’s fiscal plan six months prior to the beginning of the fiscal year. Members of sales management participate in review and refinement of this projection. During the latter six months of the
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current year, reviews and additional information from stakeholders such as marketing, operations, and finance help refine the annual strategic sales plan. Final senior executive review and approval occur prior to the start of the new fiscal year.
FORMAT OF ANNUAL SALES PLAN The following section presents a suggested outline for a comprehensive annual strategic sales plan. This example meets the needs of sales departments deep into the Optimization Phase of growth. Much simpler versions of this plan will meet the need of companies in the earlier phases of growth.
Annual Strategic Sales Plan Sections The following are the major sections of an annual strategic sales plan: • • • • • • • •
Section A: market overview Section B: sales goals Section C: customer segments Section D: customer contact continuum Section E: sales investments and costs Section F: support resources and systems Section G: next fiscal year sales and improvement initiatives Section H: long-term perspective: strategy and investments
Section A: Market Overview The market overview section confirms the company’s business objectives. Key stakeholders such as product marketing, division management, finance, and others will have crafted the market objectives for the company. This section gives sales leadership an opportunity to confirm these objectives: 1. The overall business opportunity. This section describes the overall market for the company’s family of products. Broad-market measures help define the full-revenue opportunity. Addressable market describes revenue available to the company. Figure 16-2 displays a market size report.
Figure 16-2 Market Size
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The Sales Growth Imperative
Figure 16-3 Buyer Types
2. Current and future buyers. A specific listing of products and markets identifies the company’s offering set. Figure 16-3 presents a chart for listing current and future buyer types and expected volumes. 3. Competitors’ market position. The company’s share of the market space provides a comparative observation about current market strength. Figure 16-4 provides a means for recording competitors and their share of the market.
Figure 16-4 Competitor Volume and Share
4. Expected change in product/market strategy: next year, long term. As planned by division product management, the sales plan describes expected changes to the products and preferred markets for the next fiscal year and beyond. Figure 16-5 provides a method to record qualitative market changes.
Figure 16-5 Product and Market Changes
5. Known sales challenges. Described in terms of difficult challenges facing the sales department to achieve the strategic sales goals, this section lists the sales department’s internal limitations. If necessary, a second section
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describes limitations within the control of other company resources. The final element lists limitations caused by conditions outside the scope of company’s resources. Figure 16-6 gives a format for reporting sales limitations and challenges.
Figure 16-6 Product and Market Limitations/Challenges
Section B: Sales Goals Strategic sales goals answer the question, “What is important for next year?” While all sales goals are important, strategic sales goals place a bias, an emphasis, on select goals that will have a key impact on the success of the company. Some of the goals will provide immediate returns; other goals will enable the success of subsequent efforts to more fully realize the company’s strategic objectives. 1. Sales goals by product by month. The spreadsheets shown in Figures 16-7 and 16-8 list all the products down the left side and the months along the top. Sales goals for each month, adjusted for days of selling, plus seasonal trends, specify the planned sales results. Figure 16-7 reports on total sales per month. Figure 16-8 displays net monthly new sales per month.
Figure 16-7 Sales per Month
Figure 16-8 Net New Sales per Month
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The Sales Growth Imperative
2. Product and market focus goals. This section highlights the “key” selling goals for the fiscal year. Sales leadership quantifies volumes commitments for all such goals. Goals are expressed in terms of revenue (and, maybe, sales profits) from specific products to specific market segments. Figure 16-9 presents product goals by market segments.
Figure 16-9 Product Sales Goals by Market Segments
3. Revenue accountability. A revenue accountability chart describes which jobs are responsible for which types of revenue. The four types of revenue come from the Sales Strategy MatrixTM. Figure 16-10 displays how to present revenue goals by type of revenue and by job function.
Figure 16-10 Revenue by Sales Job
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4. Results improvement goals. Sales leadership, in this section, identifies specific sales improvement goals such as cost control, productivity improvement, or sales-effectiveness/efficiency objectives. All goals are tangible with quantitative result measures. Figure 16-11 provides a means to record improvement goals.
Figure 16-11 Improvement Goals
Section C: Customer Segments Customer segments are types of customers who require tailored sales solutions. Sometimes these segments simply require unique messaging; others are so dissimilar that they will require dedicated selling resources. The summation of revenue objectives by customer segment will equal the sales commitment for the coming year. 1. Customer types: economic value, positing, strengths, and weaknesses. Develop a comprehensive list of customer segments and quantify current revenue and cost burden. Document the company’s strengths and weaknesses for each customer segment. Figure 16-12 displays economic value by customer type.
Figure 16-12 Customer Type Value
2. Value propositions by customer segment—messaging. Document value proposition for each customer segment. Describe sales message branching for each type of customer segment. Figure 16-13 provides a means of recording value messages by customer type.
Figure 16-13 Customer Type Value Messages
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The Sales Growth Imperative
3. Sales goals by segment: acquisition, retention, and expansion. Explicit revenue goals defined by new accounts, retained accounts, new products to existing accounts, and expansion of current purchases create the goal commitments by customer segments. Figure 16-14 displays the type of sales goals by selling type.
Figure 16-14 Sales Goals: Acquisition, Retention, and Expansion
4. Opportunity segments. Sales management defines opportunity segments as a product, buyer, and sales coverage model. Opportunity segment planning provides a means for sales, marketing, and operations to establish business priorities, investments, and expectations. Figure 16-15 presents a method for describing and sizing opportunity segments.
Figure 16-15 List of Opportunity Segments
5. Competitor analysis and assessment. Benchmark data provide a comparison of customer segments including competitors’ revenue, growth rates, and customer perceptions. Figure 16-16 reports on competitor profiles.
Figure 16-16 Competitor Profiles
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Section D: Customer Contact Continuum The customer contact continuum describes the fully integrated array of contact resources that move a customer from undefined opportunity, to prospect, to buyer, and to ongoing customer. A sales process map documents who does what and when in order to win and keep business through the use of a flowchart. Sales management creates a sales process map for each customer segment. Selling systems describe the role and methods of sales resources: 1. Sales process map: access, persuade, fulfill. The sales process map documents all actions of the sales process including sales and service contacts, whether personal or electronic. The sales process map is a flow diagram of actions. The sales process defines each action step. Figure 16-17 displays overall responsibilities for each major process element.
Figure 16-17 Customer Contact Continuum Actions
2. Coverage solutions, jobs, systems, and processes. Coverage solutions assign accountabilities to jobs for each step in the sales process. Figure 16-18 presents the job accountabilities.
Figure 16-18 Job Accountabilities
3. Branching sales messages by segment. Construct sales messages by segment. Figure 16-19 shows a message branching model depending on customer profile.
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The Sales Growth Imperative
Figure 16-19 Sales Messages by Segment
Section E: Sales Investments and Costs Sales investments and costs help sales management allocate resources: 1. Sales funnel outcomes by segment. Key sales funnel outcomes describe sales productivity rates by sales action. Use these estimates for testing productivity scenarios. Figure 16-20 displays revenue by sales funnel milestones.
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Figure 16-20 Sales Funnel Revenue Estimates
2. Cost-per-order dollar (CPOD) by segment: return on sales costs. Actual costs by type of resource provide quantitative information to develop a “cost-per-order dollar” calculation used to assess the return on sales costs for various actions. Figure 16-21 presents the CPOD by product, by segment.
Figure 16-21 Cost-per-Order Dollar
3. Overall costs. Sales management needs to provide a total expense budget with goals and variance outcomes. Figure 16-22 provides a format for recording cost objectives by month.
Figure 16-22 Sales Expense Costs
280
The Sales Growth Imperative
Section F: Support Resources and Systems Sales departments rely on numerous support resources and systems. These tools and solutions help realize sales objectives: 1. Field marketing support, collateral, and sales messages. Field marketing support provides customer messages, customer sales collateral, and electronic communications. Figure 16-23 lists segments and responsible support resources.
Figure 16-23 Marketing Support
2. Territory/account assignments. Territory/account assignments ensure correct accountability of accounts to sales channels whether direct, indirect (partners), telephone, or Web resources while maintaining seamless customer choice and experience. Figure 16-24 presents resources responsible for account and territory assignments and any impending issues.
Figure 16-24 Territory and Account Assignment
3. Talent acquisition, development, and retention. Customer contact resources personalize the selling process. Acquiring, developing, and retaining this talent requires fully defined methodology and procedures. Figure 16-25 displays responsible parties for different talent populations.
Figure 16-25 Talent/Job Staffing
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4. Performance management. To bring meaning to goals, multiple performance management systems need to operate effectively, including, quotas, incentive compensation, CRM and funnel management, order/ pricing/contracts, forecasting, and sales reporting. Figure 16-26 provides a means to list all the key sales performance programs, responsible parties, and their current effectiveness status.
Figure 16-26 Performance Management Programs
Section G: Next Fiscal Year Sales and Improvement Initiatives When making resource decisions for the coming year, sales management has many choices that range from strategic to tactical. After testing these changes within the simulation and yield model, any of the following initiatives may become part of the improvement plan for the next fiscal year. Ordered from most strategic down to most tactical they are as follows: 1. Opportunity segment assessment. Looking at customers differently is the most counterintuitive but creative exercise for a sales function. Overlooked segments, changed segments, and emerging segments are often lost in the current coverage model. Many disciplines should scan, analyze, and recommend nontraditional customer segments. Figure 16-27 provides a means to assess different segments.
Figure 16-27 Opportunity Segment Assessment
2. Sales opportunity and goals. The sales opportunity and capacity analyses dissect customer segments into total market, addressable market, and assured market share. The capacity analysis documents the available
282
The Sales Growth Imperative
selling resources for each customer segment. Figure 16-28 shows revenue opportunity by segment.
Figure 16-28 Opportunity Segment Goals
3. New and revised sales process maps. As customer knowledge changes, competitors make inroads, and new products emerge, sales management should update and revise sales process maps to reflect changing actual practices. Figure 16-29 displays the status of sales process maps.
Figure 16-29 Status of Sales Process Maps
4. Scenario testing and yield assessment. Use an integrated “what-if ” model to test various sales resource configurations. Use Figure 16-30 as a format to select the most promising investment of sales time and dollars.
Figure 16-30 Sales Yield Testing
5. Transformation and realignment of resources. With either new or revised customer segments or sales process maps, develop a transformation process to realign existing resources. Figure 16-31 outlines the PADEM transformation process.
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Figure 16-31 PADEM Transformation Process
6. Investments in productivity tools, solutions, and programs. Assess current productivity tools, (e.g., CRM), solutions (e.g., sales messages), and programs (e.g., compensation) to improve sales productivity. Figure 16-32 provides a listing and rating format.
Figure 16-32 Program Investments
284
The Sales Growth Imperative
Figure 16-32 (Continued)
Section H: Long-Term Perspective— Strategy and Investments The final section of the sales plan examines long-term market and strategic company shifts. These perspectives are future-oriented and may verge on speculative. However, they test the notion that not everything that exists today will be the same in the future. Observations about probable impact on selling solutions documents long-term opportunities and challenges that may affect successful selling efforts:
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1. Deep market transitions. Shifts in the core business market, nimble niche competitors, customer needs, global markets, and many other changing factors can have a profound impact on company success. Scanning future market trends may alter the company with respect to threats and opportunities; it may also ensure sales force preparedness. 2. Broad shifts in company strategy. As the company evaluates and balances its portfolio of products and markets, the sales department needs to anticipate the shift in company strategy.
IN CLOSING Sales force effectiveness is an achievable objective using the right tools depending on the product sales objective and buyer needs as driven by the growth rate of the industry and the company. There are no “best” solutions; only solutions that are either appropriate or inappropriate for the conditions facing the sales organization. Avoid sales force obsolescence by planning for the future effectiveness of the sales organization.
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Index ABC. See Activity-based costing Access, 116 coverage design, as factor of, 19 as customer contact competency, 6, 8–9, 20–21 definition of, 8, 20–21 Account assignment, 26 Accountability management, 244 Activity-based costing (ABC), 31, 130 Add-on plans, 227 Addressable sales opportunity, 25 Agents, 9, 13 Ambition, in sales leadership, 15 Annual strategic sales plan, 71 customer contact continuum in, 277 customer segments in, 276–277 format for, 271–285 growth phases and, 269–271 market overview in, 271–273 next fiscal year sales/improvement initiatives in, 281–283 Optimization, 270 Re-Evaluation, 270 sales goals in, 272–275 sales investments/costs in, 278–279 Start-Up, 270 strategy/investments in, 284–285 support resources/systems in, 280–281 timing and, 270–271 Assessment, 120–121 Optimization, 132 Re-Evaluation, 130 Start-Up, 125 Volume Growth, 128 B2B. See business-to-business BPM. See Business Process Management
Business process management (BPM), 20 Business-to-business (B2B), 6 Buyer preferences/product features, 158–159 factors influencing, 102–103 Optimization, 113, 175 Re-Evaluation, 111, 172 Start-Up, 107, 167 Volume Growth, 109, 169 Buyer profile Optimization, 96–97 Re-Evaluation, 93 Start-Up, 89 Volume Growth, 91–92 C.A.R.E.S. model, 124 Catalogs, 13, 22 Channel competencies dimensions of, 104–105 Optimization, 113 Re-Evaluation, 111 Start-Up, 107–108 Volume Growth, 109 Channel conflict, 109 Channel decision tree, 106 Channel outcomes, 105 Channel partners Optimization, 56 Re-Evaluation, 55 Start-Up, 54–55 Volume Growth, 55 Channel ROI, 105. See also Return on investments Optimization, 113–114 Re-Evaluation, 112 Start-Up, 108 Volume Growth, 110 287
288
Index
Commitment, 15–16 Communications/events, 244–245 Company guideline compliance, 14 Company size, as sales effectiveness factor, 12 Competitor Impact, 105–106 Optimization, 114 Re-Evaluation, 112 Start-Up, 108 Volume Growth, 110 Competitor position, 85 Optimization, 97 Re-Evaluation, 93–94 Start-Up, 89 Volume Growth, 92 Competitors, 59–60 Complex sales coverage checkerboard, 19 Conversion/penetration/retention (CPR), 31, 203 Cost management, 14 Cost-per-order dollar (CPOD), 19 resource deployment affect upon, 26 Coverage design, 18–20, 99–100, 157 cost as factor of, 19 customer access as factor of, 19 customer control as factor of, 19 effectiveness as factor of, 19 elements of, 102–106 indirect channels in, 20 Optimization, 112–114 overview of, 100–101 Re-Evaluation, 110–112 seller control as factor of, 19–20 Start-Up, 107–108 tools for, 106 Volume Growth, 108–110 CPOD. See Cost-per-order dollar CPR. See Conversion/penetration/ retention CRM. See Customer relationship management Customer(s), 17–18, 82 contact performance goals, 123 engagement, 14 needs of, 155, 156 Optimization, 54
Re-Evaluation, 53–54 and sales department, 7–8 segments, 275–276 Start-Up, 53 users vs. nonusers, 91 Volume Growth, 53 Customer contact competencies, 6, 8–9, 20–21 Customer contact continuum, 158 in annual strategic sales plan, 277–278 elements of, 118–123 growth phases and, 124–132 Optimization, 131–132 overview of, 116–117 Re-Evaluation, 129–130 resource assignment, 123 in Sales Management SystemTM, 20–22, 115–116 sample elements, 122 sample functions, 117 Start-Up, 124–126 tools of, 121–123 Volume Growth, 126–128 Customer Pyramid, 143, 144 Customer relationship management (CRM), 34 Data mining, 203 Deal pricing steps process map, 122 Design, 119 Optimization, 131–132 Re-Evaluation, 129–130 Start-Up, 125 Volume Growth, 127–128 Design principles, 136 Optimization, 151 Re-Evaluation, 149 Start-Up, 145 Volume Growth, 146 Displacement, 39 Distributors, 9, 13, 22 Employee expectations, 5 Enabling resources, 245 End-users, 9 E/R. See Expense to revenue
Index
Errors avoidance of, 142–143 channel configuration, 40 cost-control, 40 Optimization, 49 pricing, 39 product division organization, 39–40 product innovation, 39 Re-Evaluation, 46 Start-Up, 43 Volume Growth, 44–45 Executive leadership, 59 Expenditures, 249 Optimization, 257 Re-Evaluation, 255 Start-Up, 251–252 Volume Growth, 254 Expense to revenue (E/R), 30, 130 Finance, 58 Focus, 47 FTE. See Full-time equivalent Fulfillment, 116 as customer contact competency, 6, 8–9, 20–21 definition of, 8, 21 Full-time equivalent (FTE), 29 Functional solutions, 247 Optimization, 256 Re-Evaluation, 254 Start-Up, 251 Volume Growth, 252 Gain-sharing plans, 227 Geographic sales organization, 23 Governance models, 138 Optimization, 153 Re-Evaluation, 150 Start-Up, 145 Volume Growth, 148–149 Growth. See also Sales growth as business survival, 4 low, challenge of, 38–40 as luxury, 4 Growth phases, 37–38 annual strategic sales plan and, 269–271 impact on others, 51–56
289
job design/organization structure, 144–153 performance management/ compensation, 231–239 productivity metrics and, 212–218 Q&A about, 50 resource deployment and, 166–177 sales effectiveness and, 40–49 sales talent/management and, 192–201 strategic sales themes, 261–262 Growth phases and sales operations/ technologies, 250–257 Headcount allocation/placement, 160 Optimization, 176 Re-Evaluation, 173–174 Volume Growth, 170–171 Inputs productivity metrics Optimization, 218 Re-Evaluation, 216 Start-Up, 213 Volume Growth, 214 Industry, 11–12 as sales-effectiveness factor, 11–12 Inequities, external, 39 IT investments, 248–249 Optimization, 256–257 Re-Evaluation, 255 Start-Up, 251 Volume Growth, 253–254 Job constructs, 136–137 Optimization, 151–152 Re-Evaluation, 149–150 Volume Growth, 146–147 Job design/organization structure, 158 elements of, 136–138 growth phases and, 144–153 Optimization, 135, 151–153 overview of, 134–136 Re-Evaluation, 135, 149–150 Sales Management SystemTM, 22–24, 133–134 Start-Up, 134, 144–145 tools for, 138–144 Volume Growth, 135, 146–149
290
Index
Lagging measures, 30–31. See also Productivity metrics Leading measures, 29–30. See also Productivity metrics Legal conduct, 14 Line of business units (LOBs), 98 LOBs. See Line of business units Management judgment of, 210 as Sales Management SystemTM competency, 16 themes, 221–223 Market absorption, 156 Market business unit (MBU), 95, 98, 113, 152 MBU. See Market business unit Measurement, 33 classes of, 202–203 principles of, 204 selection of, 209 Measurement/reporting, 242–243 Metric presentation, 211 Motivation factors, 220–221, 231 Objectives, 119 Optimization, 131 Re-Evaluation, 129 Start-Up, 125 Volume Growth, 126–127 OEMs. See original equipment manufacturers Opportunity segments, 157 buyer profiles and, 85 channel priority, 18, 82–83 channel/sales, 84 characteristics of, 85 competitor position and, 85 customer priority, 17–18, 82 dimensions of, 85 elements rating guide for, 87 growth, 83 growth phases and, 88–97 list of, 276 market/customer, 84 Optimization, 94–97
product configuration and, 85 product priority, 17, 82 product/solution, 84 Re-Evaluation, 92–94 specialization types of, 97–98 Start-Up, 88–89 tools of, 86–88 types of, 82–84 Volume Growth, 89–92 Optimization Phase, 36 annual strategic sales plan, 270 assessment, 132 buyer preferences/product features, 113, 175 buyer profile, 96–97 channel competencies, 113 channel ROI, 113–114 competitor impact, 114 competitor position, 97 coverage design, 112–114 customer contact continuum, 131–132 defined, 38 design, 131–132 design principles, 151 errors for, 49 expenditures, 257 functional solutions, 256 governance challenge of, 95 governance models, 153 headcount allocation/placement, 176 imputs productivity metrics, 218 IT investments, 256–257 job constructs, 151–152 job design/organization structure, 135, 151–153 objectives, 131 opportunity segments, 94–97 organization features, 152 organization governance, 256 oversight/governance, 132 performance management/ compensation, 238–239 performance responsibilities, 238 personal accountabilities, 238 product configuration, 96 productivity metrics, 216–218
Index
projections productivity metrics, 217–218 quality productivity metrics, 218 quotas, 238–239 resource deployment, 174–177 results productivity metrics, 217 sales advocacy, 79 sales compensation, 239 sales execution proficiency, 79–80 sales leadership, 78–80 sales methods/selling systems, 200 sales operations/technologies, 256–257 sales talent/management, 199–200 sales-effectiveness conditions for, 47–49 sales-effectiveness proficiencies for, 48–49 segment characteristics, 94–95 strategic sales vision, 78–79 supervisory models, 200 support resources, 177 talent assets, 199–200 territory configuration, 175 training, 200 Organization features, 137–138 Optimization, 152 Re-Evaluation, 150 Start-Up, 145 Volume Growth, 148 Organization governance, 247–248 Optimization, 256 Re-Evaluation, 255 Start-Up, 251 Volume Growth, 252–253 Original equipment manufacturers (OEM), 13, 22, 83 Oversight/governance, 121 Optimization, 132 Re-Evaluation, 130 Start-Up, 125–126 Volume Growth, 128 PADEM, 117–118, 267–268 Performance management solutions, 228–229
291
Performance management/compensation elements of, 223–227 growth phases and, 231–239 Optimization, 238–239 performance commitments of, 32 personal accountabilities and, 32 quotas of, 32 Re-Evaluation, 236–237 sales compensation and, 32 Sales Management SystemTM, 32–33, 219 Start-Up, 232–233 tools for, 228–231 Volume Growth, 233–236 Performance responsibilities, 223 Optimization, 238 Re-Evaluation, 236–237 Start-Up, 232 Volume Growth, 234 Personal accountabilities, 223–224 Optimization, 238 Re-Evaluation, 237 Start-Up, 232–233 Volume Growth, 234–235 Persuasion, 116 as customer contact competency, 6, 8–9, 20–21 definition of, 8, 21 Potential/Activity Model headcount in, 164–165 market assignment in, 165 sales time measurement in, 163 sales yield in, 164 segment potential in, 162–163 Product configuration Optimization, 96 Re-Evaluation, 93 Start-Up, 88–89 Volume Growth, 90–91 Product divisions Optimization, 53 Re-Evaluation, 52 and sales department, 7–8 Start-Up, 51–52 Volume Growth, 52 Product features, 103–104 Product marketing/promotion, 56
292
Index
Product sales organization, 24 Product type, 12–13 Production, 56–57 Productivity metrics, 28–31 elements of, 204–208 growth phases and, 212–218 inputs, 208 lagging, 28, 30–31 leading, 28–30 management with, 208–209 Optimization, 216–218 projections, 207 quality, 207 Re-Evaluation, 214–216 results, 205–206 Sales Management SystemTM, 28–31, 202 Start-Up, 212–213 tools for, 208–211 Volume Growth, 213–215 Profitable revenue, 14 Program investments, 284–285 Projections productivity metrics Optimization, 217–218 Re-Evaluation, 216 Start-Up, 212–213 Volume Growth, 214 Quality productivity metrics Optimization, 218 Re-Evaluation, 216 Start-Up, 213 Volume Growth, 214 Quotas, 32, 224–225 Optimization, 238–239 Re-Evaluation, 237 Start-Up, 233 Volume Growth, 234–235 R&D. See Research and development Re-Evaluation Phase, 36 annual strategic sales plan, 270 assessment, 130 buyer preferences/product features, 111, 172 buyer profile, 93 channel competencies, 111 channel ROI, 112
competitor impact, 112 competitor position, 93–94 coverage design, 110–112 customer contact continuum, 129–130 defined, 38 design, 129–130 design principles, 149 expenditures, 255 functional solutions, 254 governance models, 150 headcount allocation/placement, 173–174 imputs productivity metrics, 216 IT investments, 255 job constructs, 149–150 job design/organization structure, 135, 149–150 objectives, 129 opportunity segments, 92–94 organization features, 150 organization governance, 255 oversight/governance, 130 performance management/ compensation, 236–237 performance responsibilities, 236–237 personal accountabilities, 237 product configuration, 93 productivity metrics, 215–216 projections productivity metrics, 216 quality productivity metrics, 216 quotas, 237 resource deployment, 172–174 results productivity metrics, 215 sales advocacy, 77 sales compensation, 237 sales culture, 77 sales errors for, 46 sales execution proficiency, 77–78 sales force failure, 265–266 sales leadership in, 76–78 sales methods/selling systems, 198 sales operations/technologies, 254–255 sales talent/management, 196–199 sales-effectiveness conditions for, 45–46 sales-effectiveness proficiencies for, 46 segment characteristics, 92–93
Index
strategic sales vision, 76 supervisory models, 198–199 support resources, 174 talent assets, 197 territory configuration, 172–173 training, 197–198 Request for proposal (RFP), 29, 111 Research and development (R&D), 57–58, 98 Resource allocation in sales leadership, 15 evolution of, 56–60 support, 44–45 Resource deployment cost of sales as factor in, 25 elements of, 157–162 factors affecting, 24–26 growth phases and, 166–177 market size as factor in, 24–25 Optimization, 174–177 productivity as factor in, 25 quality of sales as factor in, 25–26 Re-Evaluation, 172–174 Sales Management SystemTM, 24–26, 154–157 Start-Up, 166–169 tools of, 162–165 Volume Growth, 169–172 Results productivity metrics Optimization, 217 Re-Evaluation, 215 Start-Up, 212 Volume Growth, 214 Return on investments (ROI), 14 resource deployment affect upon, 24 Revenue growth, 13. See also Sales growth dedication to, 9 as measure of success, 7 Reward programs, 230–231 RFP. See Request for Proposal ROI. See Return on investments Sales advocacy, 63, 67 Optimization, 79 Re-Evaluation, 77 Start-Up, 73 Volume Growth, 75
Sales channel disrupters, 106 Sales channels, 101 in coverage design, 20 direct, 9 indirect, 9 as sales effectiveness factor, 13 and sales force, 9 types of, 9, 13 Sales compensation, 225–227 design principles of, 228 formulas, 230 Optimization, 239 Re-Evaluation, 237 Start-Up, 233 Volume Growth, 235–236 Sales complexity, 13 Sales coverage, growth phases and, 107–114 Sales coverage checkerboard, 18 Sales culture, 63, 67 Re-Evaluation, 77 Start-Up, 73 Volume Growth, 75 Sales dashboard, 32, 217, 243 technologies and, 34 Sales department accountability of, 8 charter/legacy/folklore of, 6–10 customer contact competencies of, 6, 8–9, 20–21 customers and, 7–8 divergent views of, 6–7 goals of, 5, 13–14 masters of, 7–8 need for, 5–6 product divisions and, 7–8 Sales Management SystemTM and, 11 Sales effectiveness company size as factor of, 12 defined, 11 factors of, 11–13 Sales execution proficiency, 63, 67–68 Optimization, 79–80 Re-Evaluation, 77–78 Start-Up, 74 Volume Growth, 75–76
293
294
Index
Sales force, 3, 5–6. See also sales department failure in Re-Evaluation, 265–266 obsolescence, 262–263 obsolescence solutions, 264–265 and sales channels, 9 tasks of, 14 transformation of, 261, 262–265 transformation project, 266–268 types of, 8 Sales forecasting, 209–211 Sales funnel metrics, 156 performance, 29 rates, 25 Sales growth, 5 of family business, 3 improvement of, 10 shareholders and, 4 Sales growth model, 41 Sales jobs business development as, 23 direct, 22 income producers as, 22 indirect, 22–23 overlay specialists as, 23 pre- and postsales support as, 23 types of, 8, 22–23, 141, 143 Sales leadership change message, 72 communication methods, 70 components of, 15–16 effective, 67–68 engagement methods, 71 growth phases and, 72–80 listening methods of, 68–70 Optimization, 78–80 overview, 63–66 Re-Evaluation, 76–78 sales advocacy in, 63 sales culture in, 63 sales execution proficiency in, 63 within Sales Management SystemTM, 15–16 sales strategy vision in, 63 Start-Up, 73 tools for, 68–71 traits of, 64–66
turnover, causes of, 80 Volume Growth, 74–76 Sales management accountabilities of, 28 analysis of, 191 principles of, 180 programs, 192 sales representatives as, 188 as support resource, 160–161 universal model of, 11–13 Sales Management SystemTM coverage design in, 18–20, 99–100 customer contact continuum in, 20–22, 115–116 defined, 14–15 eight pillars of, 16–33 job design/organization structure in, 22–24, 133–134 major competencies of, 16 opportunity segments in, 17–18, 81 performance management/ compensation in, 32–33, 219 productivity metrics in, 28–31, 202 resource deployment in, 24–26, 154–157 sales department and, 11 sales leadership within, 15–16, 63 sales management in, 26, 28 sales operations/technologies in, 33–35, 240 sales talent in, 26–27 sales talent/management, 178–179 Sales messages, 278 Sales methods/selling systems, 184–186 Optimization, 200 Re-Evaluation, 198 sample of, 187 Start-Up, 194 Volume Growth, 196 Sales operations accountability management in, 33 communication in, 34 measurement/reporting in, 33 provisioning in, 34 sales strategy planning in, 34 as support resource, 161 talent management in, 33
Index
Sales operations/technologies components of, 241–247 elements of, 247–249 growth phases and, 250–257 Optimization, 256–257 Re-Evaluation, 254–255 Sales Management SystemTM, 240 Start-Up, 250–252 tools for, 249–250 Volume Growth, 252–254 Sales organization design of, 23–24 destiny of, 36–37 growth phases of, 37–38 world-class attributes of, 266 Sales personnel engagement, 70 Sales process map, 21 Sales productivity, 155 Sales Strategy MatrixTM, 139–141 current revenue performance example, 139 current time allocation example, 141 preferred revenue performance example, 140 preferred time allocation example, 141 sales job specialists example, 140 Sales strategy planning, 241–242 Sales talent analysis of, 189–190 career progression, 27 development of, 27, 182 factors in, 189 in-service upgrades for, 27 onboarding of, 27, 181 principles of, 179–180 recruitment of, 27, 181 Sales Management SystemTM, 26–27 selection of, 27, 181 training of, 27, 183–184 Sales talent/management, 28 elements of, 181–188 growth phases and, 192–201 Optimization, 199–200 Re-Evaluation, 196–199 in Sales Management SystemTM, 178–179
295
tools for, 189–192 Volume Growth, 195–196 Sales time categories, 30 Sales-effectiveness solutions, 36 Saturation, 39 SBU. See Strategic business unit Segment assessment, 86 Segment characteristics Optimization, 94–95 Re-Evaluation, 92–93 Start-Up, 88 Volume Growth, 90 Shareholders, 4–5 Specialization, by customer type, 43–44 Start-Up Phase, 36, 53 annual strategic sales plan, 270 assessment, 125 buyer preferences/product features, 107, 167 buyer profile, 89 channel competencies, 107–108 channel ROI, 108 competitor impact, 108 competitor position, 89 coverage design, 107–108 defined, 37 design, 125 design principles, 145 expenditures, 251–252 functional solutions, 251 governance models, 145 inputs productivity metrics, 213 IT investments, 251 job design/organization structure, 134, 144–145 objectives, 125 opportunity segments, 88–89 organization features, 145 organization governance, 251 oversight/governance, 125–126 performance management/ compensation, 232–233 performance responsibilities, 232 personal accountabilities, 232–233 product configuration, 88–89 productivity metrics, 212–213
296
Index
Start-Up Phase (continued ) projections productivity metrics, 212–213 quality productivity metrics, 213 quotas, 233 resource deployment, 166–169 results productivity metrics, 212 sales advocacy, 73 sales challenges/errors of, 43 sales compensation, 233 sales culture, 73 sales execution proficiency, 74 sales leadership in, 73 sales methods/selling systems, 194 sales operations/technologies, 250–252 sales-effectiveness conditions for, 41–43 sales-effectiveness proficiencies for, 43 segment characteristics, 88 strategic sales vision, 73 supervisory models, 194 support resources, 168–169 talent assets, 192–193 territory configuration, 167–168 training, 193–194 Stock, 5 Strategic business unit (SBU), 95, 98, 152 Strategic planning, 59 Strategic sales themes, growth phases and, 261–262 Strategic sales vision, 63, 67 Optimization, 78–79 Re-Evaluation, 76 Start-Up, 73 Volume Growth, 74–75 Strategy, 16 Stratified sales organization, 24 Structure, 16 Supervisory models, 186–188, 200 accountabilities, 188 Re-Evaluation, 198–199 Start-Up, 194 types, 186–187 Volume Growth, 196 Support resources, 160–162 annual strategic sales plan, 280–281 Optimization, 177
Re-Evaluation, 174 sales management as, 160–161 sales operations as, 161 Start-Up, 168–169 Volume Growth, 171–172 SWOT, 69, 76 Talent assets, 181–183 Optimization, 199–200 Re-Evaluation, 197 Start-Up, 192–193 Volume Growth, 195 Talent management, 243–244 Talent programs, 191 Technologies, 245–247 account assignment/quota allocation in, 34 CRM in, 34 customer service status reporting in, 34 expense management system in, 34 forecasting system in, 34 incentive compensation system in, 34 knowledge system in, 35 order reporting in, 34 sales dashboard in, 34 Territory assignment of, 280 loading/logistics, 157 types of, 159 Territory configuration, 159–160 Optimization, 175 Re-Evaluation, 172–173 Start-Up, 167–168 Volume Growth, 169–170 3x uncapped plans, 226–227 Timing, annual strategic sales plan and, 270–271 Training Optimization, 200 Re-Evaluation, 197–198 Start-Up, 193–194 Volume Growth, 195–196 Turnover, 80, 190, 191 2x capped plans, 227 Unit rate plans, 226
Index
Vertical market sales organization, 24 Volume Growth Phase, 36 annual strategic sales plan, 270 assessment, 128 buyer preferences/product features, 109, 169 buyer profile, 91–92 channel competencies, 109 channel ROI, 110 competitor impact, 110 competitor position, 92 coverage design, 108–110 customer contact continuum, 126–128 defined, 37–38 design, 127–128 design principles, 146 expenditures, 254 functional solutions, 252 governance models, 148–149 headcount allocation/placement, 170–171 inputs productivity metrics, 214 IT investments, 253–254 job constructs, 146–147 job design/organization structure, 135, 146–149 objectives, 126–127 opportunity segments, 89–92 organization features, 148 organization governance, 252–253 oversight/governance, 128
297
performance management/ compensation, 233–236 performance responsibilities, 234 personal accountabilities, 234 product configuration, 90–91 productivity metrics, 213–215 projections productivity metrics, 214 quality productivity metrics, 214 quotas, 234–235 resource deployment, 169–172 results productivity metrics, 214 sales advocacy, 75 sales challenges/errors for, 44–45 sales compensation, 235–236 sales culture, 75 sales execution proficiency, 75–76 sales leadership in, 74–76 sales methods/selling systems, 196 sales operations/technologies, 252–254 sales talent/management, 195–196 sales-effectiveness conditions for, 43–45 sales-effectiveness proficiencies for, 44 segment characteristics, 90 strategic sales vision, 74–75 supervisory models, 196 support resources, 171–172 talent assets, 195 territory configuration, 169–170 training, 195–196 Wealth creation, expanding, 3–4 World Wide Web, 102
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About the Author David J. Cichelli is Senior Vice President of The Alexander Group. He has been an instructor for several academic programs, including one at Columbia University. He is a frequent speaker at national association meetings and serves clients from a variety of industries, including financial services, high-tech, software, telecom, and healthcare. Cichelli authored WorldatWork’s one-day class on sales compensation. He is also the author of Compensating the Sales Force: A Practical Guide to Designing Winning Sales Reward Programs, which is now in its second edition (2010). He lives in Scottsdale, AZ.
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About the Alexander Group, Inc. The Alexander Group helps Global 2000 companies achieve sales-effectiveness excellence. We deliver winning sales strategies, innovative coverage solutions, and powerful sales-support programs. Since 1985 we have helped our clients develop a wide range of sales solutions to ensure sustained revenue growth. Our Sales-Effectiveness Consulting Services As the leading firm in sales-effectiveness consulting, we help our clients examine opportunity segments for the right sales coverage solutions. We help define sales strategy, plan organization design, and create management programs to ensure sales success. The Alexander Group is the recognized thought leader in sales-effectiveness management. We are the preferred consultants to premium sales organizations. We have helped thousands of clients, including worldwide sales organizations, realize the full benefits of effective sales management solutions. From sales force assessment, benchmarking, and transformation to program design, implementation, and administration, we provide full sales strategy planning support. Visit us online at: www.alexandergroupinc.com www.salesgrowthimperative.com
