If it’s true that sacred cows make the best hamburgers, then we’re in for quite a feast!

I’ve chosen to close Part One of this book with a frontal assault on the juiciest bovine of all: the unassailable belief that salespeople should be paid commissions. And while I’m at it, I’ll take aim at bonuses, targets and other artificial management stimulants.

A litmus test

This discussion is important for two reasons.

First, commissions and their bedfellows will definitely handicap the performance of the reengineered sales environment I’ve gone to great lengths to describe.

Second, this discussion will force us to confront the significant implications of Sales Process Engineering: both locally and organization wide.

If you are brave enough to follow in the footsteps of our quiet revolutionaries it’s critical that you truly appreciate the essence of SPE. It’s not enough to believe that SPE will work; you must also understand – at the most fundamental level – exactly why it will work. (And if you don’t, it almost certainly won’t!)

So, I’m proposing that you use the (emotionally-charged) question of salespeople’s commissions as a kind of litmus test. If, by the end of this chapter, you are comfortable that there is no place for commissions in a reengineered sales environment, it’s safe for you to proceed.

If, however, this conclusion still does not sit comfortably with you, it makes more sense to treat this book as an exercise in creative thinking (and leave your sales function well alone).

When commissions make sense

At its most fundamental level, SPE involves the transitioning of the responsibility for sales from autonomous agents to a centrally-coordinated team.

When sales actually is performed by autonomous agents, it does makes sense to pay these agents on a commission basis (a percentage of the revenue they generate).

So, if we imagine a computer hardware manufacturer that sells desktop and notebook computers to consumers, via big-box retailers; it’s clear that these arms-length retailers should be paid on a commission basis.

And, if we think about this example, we can identify two conditions that accord well with commission-based pay:

1. These retail agents sell from stock – meaning that there is no requirement for them to interact with the hardware manufacturer on a transaction-by-transaction basis (which certainly would not be the case in an engineer-to-order environment)
2. These retail agents are truly autonomous – they march to their own drumbeats (and they own the relationship with the ultimate customer)

But what happens to the case for commission-based pay when these conditions are not in place?

As we discussed in Chapter 2, when we transition from a make-to-stock to an engineer-to-order environment, the case for autonomy becomes weaker. Increasingly, the performance of the organization as a whole becomes more a function of the quality of integration between sales and production.

And, because autonomy and teamwork are polar opposites, as the case for autonomy becomes weaker, we reach a point where we have to make a clean switch from one to the other (there’s simply no such thing as an autonomous team member!).

The wrong question

We now arrive at the critical question. We should not begin this discussion by asking: does commission make sense? Rather, we should ask: should we sell via autonomous agents or via a centrally-coordinated team?

Once we answer this question, our position on commissions becomes obvious.

Commissions: the case against

In order to understand why, let’s briefly revisit the history of manufacturing.

There was a time (before the industrial revolution) when almost all labor was paid on a piece-rate. Piece-rate pay is the manufacturing equivalent of commission. Rather than being paid in units of time, a piece-rate worker is paid in units of output. (A sewer, for example, might receive 20c for each garment processed.)

Today, however, piece-rate pay is almost extinct. (And, I suspect by now, you have a good idea why!)

What happened is that management discovered that, as the complexity of the environment increased, there was a critical threshold beyond which scheduling decisions had to be made centrally.

Of course, beyond this threshold, piece-rate pay had to be eliminated because it drove workers to work as fast as possible and not to subordinate to the schedule. (Remember, because of the combination of dependency and variability you never maximize the output of a system by maximizing the rate-of-work of each system resource.)

Commissions (or any kind of performance pay) are inappropriate in the reengineered sales environments described in this book for exactly the same reason that piece-rate pay is now inappropriate in manufacturing environments.

And this conclusion does not just apply to the sales function in isolation. As we discussed in Chapter 4, in many organizations it is not healthy for sales to be the organizational constraint. So, in these cases, irrespective of the structure of the sales function, the organization as a whole will perform better when sales is not operating at 100% utilization.

I wish this could be my last word on that subject. However, there’s a number of persistent objections to my position that we must first put to bed:

1. Ours is a mixed environment: salespeople are not fully autonomous – meaning that a mix of salary and commission is justified
2. Even if we don’t need the compensation plan to determine salespeople’s rate of work, we still need performance pay to maximize salespeople’s quality of work (in other words, without commissions, what would motivate salespeople to actually sell?)
3. Commissions enable us to mitigate against the uncertain nature of salespeople’s performance and keep costs under control
4. The theory may make sense, but good salespeople will simply not be prepared to work in an environment without commissions

The fallacy of a mixed environment

I’ve heard many executives argue that it’s beneficial for their salespeople to be partly autonomous. But I’ve never heard anyone argue that it’s beneficial for salespeople to be partly team members.

Perhaps it’s because the latter phrasing exposes the folly of this position!

I’ve already stressed that it is impossible for salespeople to be team members and autonomous agents at the same time. However, an astute reader might argue that this is possible in theory (if not in practice).

Your salespeople can be capable team members and operate autonomously if (and only if) the rest of the organization has the capacity to subordinate to individual salespeople.

At first glance, this condition may not appear to be particularly onerous. However, when we consider the enormous variability in salespeople’s output, we recognize that effective subordination would require a huge amount of redundancy in customer service, engineering and production. (Remember, we’re considering true sales here, not repeat transactions.)

The fact that this is commercially unrealistic in most organization tends not to stop management from pursuing a mixed sales environment. And, the consequences are as unpleasant as they are predictable:

1. Management encourages salespeople to operate autonomously
2. Salespeople proceed from the assumption that more sales is always better (the tacit assumption is that the rest of the organization can keep up)
3. On average, the sales team as a whole sells less than the organization has the capacity to produce
4. However, because new accounts are won infrequently (after all, salespeople spend the greater majority of their time processing transactions), the load on the rest of the organization is irregular
5. On the (not infrequent) occasions that customer service, engineering or production does not have the capacity to honor commitments made by salespeople, on-time performance tends to be compromised (although, the commitments that have been made to new accounts are often met, at the expense of existing ones)
6. Periodically, management attempts to improve the financial performance of the organization with additional incentives and special promotions
7. These incentives tend to increase the lumpiness of the deal flow – meaning that, over time, peak sales increase, at the expense of average sales

The bottom-line is that contradictions cannot persist indefinitely. Your salespeople cannot be both autonomous agents and team members. They cannot be responsible only for sales outcomes and simultaneously be expected to attend sales meetings and maintain the organization’s CRM. And customers cannot belong to both salespeople and to your organization.

Commissions and the quality of work

If salespeople don’t have the opportunity to earn commission, then why would they sell?

I wish I had a dollar for every time I’ve been asked this question by an incredulous executive. You would think the onus should be on the defender of performance pay to present an argument.

After all, receptionists answer the phone when it rings, in spite of the fact that they receive no incremental pay. Your financial controller does a good job of paying bills on time, in spite of the fact that they receive no rebate on each check signed. And even senior executives perform important tasks, absent special incentives (I’m assuming that no one is paying you to read this book!).

Why should salespeople differ from almost every other worker on the planet?

The answer to the question four paragraphs above is simple: absent the opportunity to earn a commission, salespeople will still sell because they are salespeople. (Just as receptionists answer the phone because they are receptionists.)

I often wonder if those executives who ask that question are really enquiring into the motivation of their team members or if they are providing an (unsolicited) insight into their own pathology!

In Drive, his excellent best-seller, Daniel Pink presents a powerful case against performance pay. His conclusion – backed-up by many experiments from the social sciences – is that external rewards retard the performance of knowledge workers and have a positive effect only in situations where workers are performing mindless, repetitive tasks.

In other words, if your team members are responsible for activities any more complex than licking stamps, the work itself is their reward.

Interestingly, Pink’s conclusion points to an interesting defense of performance pay in the traditional sales environment. Consider these two points:

1. In most environments the volume of sales appointments has a far greater influence on sales output than the qualitative performance of the salesperson
2. In almost all environments, salespeople generate their own appointments as a result of mindless and repetitive prospecting activities (internet research, cold calling, etc)

With these points in mind, commissions may be defensible in traditional sales environments, not because they motivate salespeople to sell, but because they motivate them to prospect!

Of course, in our case, this argument is moot because we are definitely going to free salespeople of the requirement to generate their own sales meetings.

Commissions as a hedge against non-performance

The obvious problem with the argument that performance pay provides management with a hedge against the costs associated with salespeople’s non-performance is that the same argument could be applied to everyone in the organization.

But, then sales is a special case for a couple of reasons:

1. The performance of salespeople is highly variable
2. It is easy to isolate the contribution that a salesperson makes (this would not be so easy in the case of a line worker)

As we’ll discuss shortly, SPE inverts these two reasons:

1. The output of the sales function ceases to be highly variable
2. While it’s easy to measure the capability of a salesperson, it is difficult (if not impossible) to isolate the contribution that person’s activity make to the organization as a whole

First, however, let’s consider the wider (and more terrifying) implications of performance pay.

Management abdicates

We’ve discussed earlier that you cannot manage an autonomous agent (these two concepts are antagonistic). Performance pay makes this contradiction explicit! In other words, when a significant component of a salesperson’s pay is performance based, management has formally abdicated its responsibility for sales.

In so doing, management has telegraphed to salespeople that selling is optional! It is now up to individual salespeople whether or not they generate sales – and in what quantity.

If a salesperson is capable of selling, the real cost of their non-performance is not their salary, it’s the profits that the organization does not earn when production is sitting idle!

If a salesperson is not capable of selling, the real cost of their non-performance is still not their salary, it’s the sales opportunities that are lost that could have been won if they were attended to by a more capable individual.

Variability diminished

If sales appointments are the primary driver of sales (and it’s rare that they are not), we can significantly reduce the variability of sales by:

1. Fixing the volume of sales appointments (the same number of appointments, week after week)
2. Increasing the volume of appointments (as the appointment volume increases, the variability of the entire sales function reduces)

Of course, our standard model does this by ensuring that salespeople do nothing other than sales appointments and by ensuring that each salesperson performs ten-times the volume of appointments they would perform in a typical sales environment.

Capability

Many of our silent revolutionaries report an increase in salespeople’s capability. There are three contributing factors here:

1. Predictably, when organizations reduce the size of their sales teams, they retain their more capable salespeople
2. When salespeople do nothing other than sell – four appointments a day, five days a week – they get good at it (or they rapidly conclude that sales is not the right career for them)
3. With control over salespeople – and with accurate and current data – sales management finds it easy to institute a process of ongoing improvement

Salespeople’s position on commissions

If there’s one thing I’ve learned in the last 10 years or so, it’s that sales managers are uniformly terrible at predicting their salespeople’s reaction to our standard model.

Almost without exception, sales managers predict outrage from their team members – perhaps even a mass exodus of talent! And the one component of our model sales managers predict will be the most offensive is the elimination of commissions.

In reality, salespeople’s reaction to this proposition tends to be shocking for exactly the opposite reason. It’s shocking how comfortable salespeople are to give up both their autonomy and their variable compensation plan!

The reason salespeople tend to be so compliant is very simple.

Salespeople (contrary to popular opinion) do not live in a parallel universe. They are a part of the same dysfunctional reality that is causing the rest of the organization (including management) so much pain.

Salespeople may have different theories about the source of their particular set of issues – and they may propose different initiatives as a remedy to these issues – but, when presented with the evidence, salespeople recognize (often faster than management) that a significant number of sales problems, production problems and management problems can be tracked back to the same root cause (their autonomous mode of operation).

And make no mistake; salespeople have more than their fair share of complaints:

1. They hate the volume of clerical and customer-service work that prevents them from engaging meaningfully with potential and existing customers
2. They don’t enjoy spending their evenings in hotels entering data in the CRM, generating expense reports and writing proposals
3. The resent the continual conflict over the allocation of commissions (particularly when accounts span multiple territories)
4. They hate having to advise clients that their promises will not be met – and they resent the fact that they have to live with the continuous uncertainty over production performance
5. They don’t enjoy the underlying – and constant – conflict in their relationships with production, customer service engineering, management and even finance

It may be true that salespeople are in love with the notion of the salesperson as a lone crusader, but salespeople are also realists. They quickly recognize that, on balance, the proposed environment will be infinitely more rewarding to work in.

Sure, they sacrifice their autonomy but, so what? They each get a dedicated executive assistant (sales coordinator) who will free them to do nothing but sell.

And sure, they have to transition from commission to a salary but, what of it? Salespeople understand that the dynamics of the environment in which they operate rob them of the financial upside they signed-on for. And, the truth be known, salespeople have never been entirely comfortable with the notion that they are innately lazy: prepared only to do the right thing on the promise of an incremental financial inducement.

The new compensation plan

So, it’s out with commissions and in with a new compensation plan.

But there’s not much to the new plan. The idea is simple: we pay people what they are worth (perhaps a little more).

And that’s it!

In practice, you should pay salespeople enough to ensure that compensation is no longer a regular topic of conversation – and then insist that they perform the activities required for the organization to achieve its objectives.

So here, from management’s perspective, is the fundamental difference between the two compensation plans:

With performance pay, we make optimal performance optional – and then we attempt to exert control through a compensation plan that underlines salespeople’s autonomy with every pay check!

With salaries, we take the discussion of money off the table. Salespeople willingly subordinate to a central schedule. And they perform necessary activities because they are asked to (and, because those activities are congruent with both salespeople’s job descriptions and the reasonable interests of the organization).

This new plan, then, is not even new: it’s exactly the same plan we use to compensate everyone else in the organization!

And when it comes to calculating salespeople’s salaries, there are no surprises here either. As with all employees, there are two considerations:

1. Replacement cost (how much would you have to pay for another person with a comparable set of capabilities?)
2. Asking price (how much will you have to pay the current candidate to ensure that the compensation plan is no longer a regular topic of conversation?)

It should go without saying that it would be foolish to propose that salespeople (or any team members, for that matter) take a cut in pay when you transition to this new model.

Most of our silent revolutionaries shift their salespeople to a salary that is equal to, or slightly greater than, their average total earnings (typically judged over a three-year period).

If you think about it, both parties are getting a terrific deal here.

1. Salespeople are receiving a not-insignificant pay rise. Obviously the potential to earn a figure is worth nowhere as much as the same figure, guaranteed.
2. Management is increasing the volume of effective work performed by each salesperson by ten times. To achieve the same increase in a typical sales environment, management would have to add nine more salespeople for every one they currently employ! In the new model, the cost is limited to an incremental increase in the salesperson’s compensation and the cost of a sales coordinator.

The other artificial management stimulants

This debate about commissions is like Hydra (the many-headed monster). You successfully lop-off one head and another appears.

I fear that, even if I’ve done a reasonable job of convincing you that there’s no place for commissions in the reengineered environment, your very next question might be: but, what about bonuses.

My observation is that bonus plans have a couple of problems:

1. Because the bonus is remote from the positive behaviors that drive the desired outcome, the first installment of a bonus is a pleasant surprise and subsequent installments are viewed as entitlements
2. Bonuses suggest to team members that they are responsible for outcomes when, in fact, managers should own this responsibility – accordingly, they tend to dis-empower managers

It is certainly true that some degree of variability is required where compensation is concerned. However, my position is that standard salaries provide the necessary flexibility. As your team members become more capable, their market value increases, meaning that you are obliged to grant them pay rises when (or ideally before) they request them.

I suggest that there is absolutely nothing wrong with the traditional contract between employers and employees. Employees want to be able to perform rewarding work in a secure environment. If they were really seeking uncertainty and boundless riches they would not have signed-on to be employees in the first place.

The other stimulants (targets and quotas) are problematic for the same reasons as commissions and bonuses. They tend to suggest that team members own outcomes.

In a team environment, the team cannot own the responsibility for anything! There is no collective consciousness – only a group of individuals. It is critical, therefore, that the manager owns the responsibility for the desired outcome and that team members own the responsibility only for the activities assigned to them.

Here, a military example is illuminating. Imagine, rather than allocating discrete responsibilities to each of his units a commander were simply to assemble all his troops and exhort them to take Berlin!

Reinventing management

On the subject of management, it’s important to recognize that the transition to a reengineered sales environment is extremely difficult for sales managers.

As a result of this transition, sales managers find themselves in a position where down is up and up is down. If sales managers were to refer to a list they had compiled before the transition of everything they know for sure about sales, almost every statement on that list will now be false.

Consequently, it is not sufficient to reengineer the general sales environment. You must also rebuild from scratch the sales manager’s method of operation.

* * * *

You now have a sound understanding of the theory that underpins Sales Process Engineering. Part Two of this book will show you how to convert all this theory into practice.

Case study: Bas Sol, Perth (Australia)

If you are a professional-services firm – or if you track and bill time – I think you’ll find this video very interesting.

It’s an interview I conducted just before Christmas with Rosie Davidson, the CEO of Bas Sol, a Perth (Australia) based accounting and bookkeeping firm.

I must admit that I approached Rosie’s firm with very little prior knowledge of accounting practices.  But, what little I knew, I didn’t like!

My primary problem with accounting firms (from experience as a customer) is their obsession with time-and-material billing. My complaint (as voiced here before) – from a customer’s perspective – is that there’s only a casual correlation between time spent and value delivered.

Things aren’t much better from the firm’s perspective. T&M billing encourages high-value team members to hoard work to inflate their billings and robs the firm of the efficiencies that could be exploited via division of labor.

Although accountants have been generally uninterested in my rantings on this subject, Rosie was all ears!

The bottom line is that Rosie eliminated T&M billing completely, replacing it with negotiated monthly retainers. Now, this wasn’t optional for clients (as Rosie explains in this interview) and it wasn’t phased-in over time. Amazingly, Rosie made the transition without losing a single client.

Internally, quite a bit changed too.

We added a master scheduler to schedule all activities (both production and sales). We took baby-steps towards division of labor. We intercepted all inbound calls (and other distractions) and allocated them to team members in batches. And – hooray – we eliminated time tracking altogether!

In addition to all this, we added some simple sales activities – geared around scheduling new client interviews for prospective clients (with Rosie).

The results? The impact on team morale?

Well you need to listen to this interview and hear it from Rosie! (By the way, the video quality is terrible, but I think you’ll agree that the story more that makes up for this.)

.

Justin Roff-Marsh interviewed by The Independent Entrepreneur

On the subject of interviews, a friend of mine interviewed me recently for his blog.

It’s nice because it’s a relaxed chat that covers a hell of a lot of ground.

Click here to take a listen.

The Machine > Chapter 4: served piping-hot tomorrow

I just sent the draft of Chapter 4 of The Machine (my forthcoming book) to our publisher for comment.

As soon as I’ve made the first round of edits I’ll post it to this blog (meaning it’ll likely land in your inbox tomorrow).

Keep your eyes peeled for this chapter.  It breaks new ground in that it presents a model for the organization as a whole – integrating new-product development, production and sales, and suggesting an optimal constraint location based upon three organizational structures.

This chapter addresses a subject I discuss at least once a week with our clients – but have never attempted to codify … until now.

Alejandro Céspedes wrote to me the other day with the following question:

Hi Justin

Just wanted to ask if you’ve designed a way of managing the sales budget of a company.  In other words, how to review if the salespeople are meeting the budget or not.  Most companies are affected by the end-of-the-month syndrome, and at the same time, salespeople – once they meet that month’s budget – are not interested in selling more.  They’d rather stay still and avoid cannibalizing next month’s sales.

Thanks
Alejandro

 Here’s my response:

Alejandro

Good to hear from you!

Here are the two steps we take to eliminate these problems:

Eliminate monthly budgets – in favor of a T/cu type measure (Throughput per appointment-slot-consumed).

Eliminate commissions. Pay people what they are worth and make performance compulsory.

Justin

Alejandro’s question was a reminder of just how dysfunctional most sales functions really are. His email set me thinking: why have managers (us) historically designed the sales environment this way.  (Presumably, it’s not because we’re daft, or ill-intentioned.)  Among the assumptions that underpin the design of the sales function, there must be some that are false … what are they?

Three fallacious assumptions

Here are some assumptions that I suspect will fail to emerge unscathed from an exposure to reality.  Feel free to critique my selection, or suggest your own.

Salespeople should be responsible for sales. Really? In how many organizations do salespeople actually have significant control over sales? What percentage of your transactions are the result of your salespeople:

1. Originating their own opportunities (as opposed to responding to an inbound enquiry)?
2. Prosecuting these opportunities single handed, without assistance from engineering, estimating or management?

If salespeople aren’t responsible for generating the greater majority of sales (all by themselves), wouldn’t it make more sense to hold them responsible for just the activities that they actually do perform?

Of course, in our model, we have salespeople performing only business-development meetings – nothing else.  (Marketing originates opportunities, project leaders design solutions, etc). This means that they are accountable for only what they do in these meetings.  “Sales” is management’s responsibility.  Just like “production” is the responsibility of your production manager – not a lathe operator or a claims processor.

Monthly is a sensible measurement frequency for sales. It’s true that we calculate our profitability monthly. But does it follow that all internal processes should also be measured just once every 30 days.  Consider your on-time-delivery performance, for example: should you stop and calculate this just once a month? Of course not. It should be calculated for every delivery.

We calculate profitability monthly because profitability is the consequence of a number of events that occur at different frequencies (and out of synchronization with one another). A more frequent calculation would probably generate less information, not more.

If the responsibility of the salesperson is to maximize the velocity of sales opportunities (and, yes, it should be) – and, if the salesperson’s effort is expended in discrete packets called appointments – why wouldn’t we calculate the progress of each opportunity, relative to each appointment?

As with on-time-delivery performance, you may choose to view the resulting number in the form of a rolling average, but that doesn’t alter the fact that the relevant time-horizon for the activity in question is an appointment slot, not a month.

Commissions drive positive behaviors.  I had lunch with a director of a large (publicly listed) technology company in Sydney the other day. After hearing my position on salespeople and commissions, he asked about the negative consequences of eliminating commissions (replacing them with salaries).

I answered his question – as I usually do – with my own question. I asked him if he could first detail the positive behaviors, exhibited by salespeople, that he would be comfortable to attribute to the existing commission plan.

As usual, this question (an innocent one, I’m sure you’ll agree!) was met with a silence you could cut with a knife. He admitted that there were no positive behaviors – only negative ones! And he concluded, of his own volition, that it was probably more appropriate to try and find a justification for the existence of the commission plan than it was to look for a reason to not eliminate it.

As I’ve suggested before, if sales are important for your firm, I suggest that you identify the critical behaviors that contribute to sales, and then make them compulsory (commissions signal to salespeople that these behaviors are optional).

Please comment.

Today, on Harvard Business Review Online, Peter Bregman argues: why not having a plan can be the best plan of all.

Of course, this is just the latest salvo in a long-running battle between the traditionalists – for whom no plan is ever detailed enough – and the now generation – who see planning as getting in the way of making a fortune or two and still getting home in time for some work-life balance.

Bregman, obviously, sides with the latter camp, citing Mark Zuckerberg (who else?) as his first exhibit in his case for the negative position.

Now, you could argue that such jousting is innocent enough. Few might seriously consider adopting the extreme position promoted by either side.

But the danger, to my mind, is that the debate tends to deflect from serious consideration of the nature of planning: and this consideration can yield some interesting ideas.

False alternative

What we have here is a dilemma. The proposition is that, in order to execute effectively, we must both plan and not plan.

Because contradictions don’t exist in reality, we know, right away, that we are proceeding from a false assumption here somewhere.  The assumption is that plans come in one size only (and I think both sides of this debate like to conjure-up plans of the infinitely-detailed variety!).

If we challenge this assumption, we can posit a new proposition: in order to execute effectively, we must plan to the appropriate level of granularity.

Here’s where things get interesting. How, then, does one determine the level of granularity that is fit for purpose?

Uncertainty and granularity

I propose that there’s an inverse relationship between uncertainty and granularity.

In other words, the greater the degree of uncertainty the less granular the plan.

Take Mark Zuckerberg and his Facebook journey.  It’s false to suggest that he started work without a plan.

In the complete absence of a plan, there’s no work; just undirected action (a random walk).  There must have been a plan – an implicit one, perhaps. At a minimum, there was a goal and some necessary conditions. No doubt the goal was to do something cool – most likely, something with commercial potential. And, at least one of the necessary conditions is obvious, considering Zuckerberg’s special talent. It had to involve software.

In Zuckerberg’s situation, such a plan would have been sufficient, in terms of granularity.

But as Facebook has developed – and uncertainty diminished – Zuckerberg’s plans have undoubtedly become more detailed.

Uncertainty and cycle time

So far, so good.

Let’s add another dimension, now: planning cycle time. In other words, at what frequency should plans be revised?

I propose that uncertainty is the driver here too. And again, we’re dealing with an inverse relationship. Greater uncertainty means a shorter planning cycle time.

So if we imagine the evolution of a business.

On day, one, plans are expansive and devoid of detail:

Find a business opportunity that generates a decent return on sweat equity – with growth potential and minimal risk. Commence by running limited tests of the following ideas …

The planning cycle-time would be measured in weeks. A smart entrepreneur might make a list of 10 ideas, create a landing-page for each (offering a free copy of a commercially available book – with appropriate subject matter), and then run a series of AdWords advertisements to see which generates the greatest number of book requests.

Once the entrepreneur identifies an idea that appears to have legs, the next step might be to write a whitepaper and repeat the campaign with more focused content – perhaps testing to see if it is possible to attract delegates to a webinar.

It’s easy to see that as the uncertainty decreases the planning horizon expands and the granularity of each plan increases.

The plan / don’t plan debate is a silly distraction. If there’s goal-directed action, there’s a plan. The real questions should be: at what level of granularity should I plan? And, at what frequency should the plan be revised?

By the way, if you like this subject, Google Colonel John Boyd and read about his amazing career and the planning tool he made famous (the OODA loop).

Late last night I was in conference with a potential client in South Africa (I’m in Australia, right now).

Towards the end of our conversation, he asked if I thought much market intelligence could be gleaned from customer surveys.

I answered (almost instinctively), data, yes; but, intelligence, no.

When pressured for a more coherent answer, I explained that I had never seen customer survey responses that provide any market intelligence. Never. Never. Never!

My position is that, to qualify as intelligence, survey results must be:

1. Unexpected (if you know the answer already, why ask the question?)
2. Actionable (if data doesn’t cause you to do something differently then where’s the benefit?)

Think about the survey results you’ve seen.  How often have you been surprised?  And how often have you been motivated to take some specific action?

Now, of course, I’m not advocating ignorance. Market intelligence is critical. You shouldn’t try to survive without it. It’s just that surveys are a pretty poor way of generating intelligence.

Here’s the thing …

In your business, you bank behavior, not attitudes.

My advice then, is stop measuring attitudes and, instead, measure behavior. Run controlled experiments. Change offers, change headlines, change opportunity-management workflows (not all at once, of course) and measure the impact of changes on, enquiries, conversions and, ultimately, sales.

Now, those who make their living from surveys will argue that attitude is an antecedent to behavior. I’m sure that in most cases it is. And in some, it definitely isn’t (how many smokers genuinely believe that their’s is an intelligent choice?)

But even if this claim is true, this position contains another assumption: that surveys actually measure attitudes. Do they?

Before you answer that question, consider another: which do you think is the more accurate predictor of a client’s future behavior:

1. Their current attitude
2. Their prior behavior

Tell me if you disagree but, to my mind, it’s a no contest!

And behavior is much sexier than attitude for another reason too: it’s inherently measureable (in a much more objective sense than the surveyor’s 1-5 scale).

If you value market intelligence, can the surveys. Objective management is a philosophy, not a once-a-year event!

Recently I posted a quick-and-dirty guide to process improvement. One particularly difficult question that I skipped over in that post was this one:

When you are mapping your workflow, how do you determine the ideal level of granularity?  In other words, how much detail is too much?

Conventional wisdom is that:

1. Planning and execution are two discrete activities (remember this assumption)
2. The key to good execution is lots and lots of planning (which tends to mean planning at a very granular level)

Conventional wisdom is wrong, however.  And this is evidenced by the many examples of poor execution we encounter on a day-to-day basis.

My argument (and this is classic TOC) is that, above a very low detail threshold, more planning actually means worse execution!

In other words, in most cases, to execute better, you should plan only at a high (non-granular) level.

The relationship between granularity and confidence

Let’s imagine that we are planning a simple workflow – getting to work in the morning.  Here’s a high-level (low-detail) plan:

1. Get out of bed
2. Shower
3. Get dressed
4. Drive to work
5. Log-in to computer

And here’s the low-level (high-detail) one:

1. Upon awakening, check to see if alarm is sounding
2. If so, deactivate alarm
3. If not, check to see if current time is greater than [alarm time minus 10 minutes]
4. If so, cancel alarm and get out of bed
5. If not, go back to sleep
6. And so on …

Imagine that you completed the second (low-level) plan, and then compared it with the first – and answered this question for each plan?

Rate your degree of confidence that reality will play-out as specified in the plan? In other words, how confident are you that each of these activities will be performed in exactly the sequence specified?

My guess is that you will be highly confident where the first plan is concerned – and not-at-all confident in the case of the second.

In fact, it’s probably worse than that. In the case of the second plan, you will likely be certain that reality will not play out as specified by the plan.

The irony is that the second plan creates a perception of accuracy, in spite of the fact that your confidence in the plan is practically zero!

Finding the inflection point (essential and non-commutative)

It’s tempting to assume that there’s a linear relationship between granularity and confidence (that they vary in direct proportion).  And, if that’s the case, there’s no correct answer to the critical how much detail question.

The reality is that the relationship is definitely non-linear: as the granularity of the plan increases incrementally, beyond a critical detail threshold, your confidence in the plan plunges rapidly towards zero.

Here’s why:

1. All the activities in the first plan are essential (you simply can’t skip any)
2. Each activity (relative to its predecessor or successor) is non-commutative – meaning that you can’t swap the sequence without dramatically changing the outcome

However, with a slight increase in granularity, these two conditions cease to apply: not all activities are essential and the outcome can conceivably be delivered with an alternative sequence of activities.

So, my suggestion is that you should plan only to the level of detail where you are confident that all activities are (a) essential and (b) non-commutative (relative to their neighbors).

Semantics are important!

I can almost feel your incredulity at this point! How can a plan at this high level of detail be sufficient for execution?

And your reaction is warranted … because it can’t be!

The high-level plan that I’m recommending is sufficient for planning – but not sufficient for execution.  The thing is that planning must continue after the creation of the plan!

To clear the confusion we need two words for planning:

1. Pre-plan planning (the planning phase, terminating with THE PLAN) – let’s call this planning
2. Post-plan planning (the execution phase) – let’s call this fine-tuning

So, in summary, here’s the solution:

1. Create a plan that contains only the degree of detail that enables you to be highly confident that reality will play-out as prescribed
2. Accept that the level of detail in the plan is insufficient for execution
3. Manage prioritization decisions on a day-to-day basis to ensure that reality tracks to the plan

In the post referenced above (quick-and-dirty approach), I talked about the importance of centralizing scheduling and building a management information system (MIS).

If you re-read that article it should be clear now that both of these initiatives are essential for the management of execution.  It should also be clear that the MIS should be designed to enable management to fine-tune the prioritization of low-level tasks so as to ensure the compliance of the undertaking with the high-level plan.

(Execution management is outside the scope of this posting. To explore the subject further, read my brief overview of Critical Chain Project Management.)

Why your CRM has no hope of delivering the expected ROI and why you should probably keep it anyway.

A Customer Relationship Management (CRM) application seemed like such a great idea, didn’t it?

The rest of the organization had reaped such enormous rewards from automation, and the sales process was certainly in need of productivity improvement.

So why is it that the expected return on the (not insignificant) investment in the CRM following what seemed an exhaustive evaluation and selection process never been realized? Why does it deliver so little value to the organization? Why is it so hard to keep the data in the thing current and accurate? And why do salespeople hate it!

To understand what went wrong, let’s start by considering how we expected to benefit from a CRM in the first place:

1. Improve salespeople’s productivity
2. Ensure salespeople apply best-practice in the pursuit of sales
3. Provide everyone in the organization with a view of the customer and their interactions with the firm (360° view)
4. Provide management with access to (valuable) information

Let’s consider each of these objectives in turn.

1. Improve salespeople’s productivity

It’s hard to argue with this objective. Most business owners recognize that, compared to others in the organization, salespeople operate unproductively. Evidence of that is the fact that an average salesperson performs just two true business-development meetings a week. This is downright scary when you consider that business-development meetings are the primary driver of sales volume.

The promise of CRM, then, is to ensure that salespeople can get their non-sales responsibilities fulfilled faster — leaving them more time to sell.

In practice, this isn’t what happens, for three reasons:

1. It takes salespeople longer to enter data into the CRM than it does to use a traditional calendaring system (think Daytimer or similar)
2. The addition of a CRM is generally accompanied by the requirement for salespeople to do more clerical work than they were previously
3. A salesperson who has grown accustomed to spending most of their time on (relatively enjoyable) customer-service activities is highly unlikely to engage in (less than enjoyable) prospecting activities just because of an incremental increase in their availability of time

2. Ensure best-practice in pursuit of sales

Again, this sounds like a worthy objective. But let’s take pause and consider how, exactly, a piece of software is supposed to cause a salesperson to sell better.

Obviously, a software application won’t:

1. Equip salespeople with (technical) product knowledge
2. Train salespeople in communication principles
3. Cause salespeople to drill and role-play their sales presentations

What a CRM will do is ensure that salespeople:

1. Categorize all sales opportunities according to their location in the workflow
2. Record information about the status of opportunities

Now, if you think about it, neither of these causes salespeople to sell better. Formal categorization may be useful for management (we’ll discuss that soon) but it’s of no use to salespeople. Salespeople are perfectly capable of understanding (and recalling) where a prospect is in their decision-making process, without a complex piece of software.

Unlike accounting data, opportunity status information ages rapidly. A sales opportunity is a fluid (non-linear thing). A salesperson needs to recall the current status of an opportunity (and the opportunity’s history) for a month or so, but after that, the data becomes worthless.

3. Provide everyone in the firm with a 360° view of the customer

So, here’s the thinking:

If all notable customer interactions are recorded in the CRM, then our firm can have just one conversation with the customer — in spite of the fact that multiple parties participate (asynchronously) in this conversation

To test whether this is actually achievable in a typical organization, let’s consider the two pre-conditions for this 360° view:

1. All workflows (sales, delivery, customer service, etc) must be carefully engineered and rigidly adhered to
2. Both your organization and your customers’ organizations must embrace the idea of multiple parties participating in the one conversation — this, of course, is contrary to the idea of a single point of contact

In a typical sales environment, the salesperson essentially owns the customer relationship. Accordingly, the salesperson is involved in sales, delivery and customer service. Of course, the salesperson eschews formal workflows, and even if they didn’t, it’s all but impossible to synchronize multiple parties when the salesperson operates remote from internal resources, and those internal resources have limited capacities.

It should be obvious that the idea of a 360° customer view cannot co-exist with the idea of a single-point of customer contact. And you can guess which of these visions is embraced by most salespeople!

4. Provide management with access to valuable information

There’s no question that, without information, management is impotent.

But CRM systems in traditional sales environments do not and cannot provide management with information. Volumes of inaccurate and outdated data: yes; but information: no!

Consider how data finds its way into the CRM:

Salespeople enter it — generally long after customer interactions have occurred (Friday night, perhaps, in a hotel room, at the end of a busy week).

What’s more, in most environments, salespeople have enormous flexibility to flavor data as they enter it — and, what’s more, salespeople are actually under pressure to employ creative license (for example, if management pressures salespeople to maximize their conversion rates, it’s highly likely that they will report the existence of opportunities later in the engagement process than they otherwise would).

The sad reality is that most sales managers were better-off without the CRM. Before the CRM, sales managers had the opportunity to artfully interrogate salespeople to determine what they were up to. Today, everyone knows that the data in the CRM is two-parts rubbish — but salespeople are off the hook because they’ve followed due procedure!

What were they thinking?

Is it any wonder that a significant percentage of of organizations that have implemented a CRM report that they have failed to meet their ROI target?

So what went wrong? Why have so many smart executives made such a dumb decision?

Our contention, at Ballistix, is that, in prescribing a CRM, these executives were medicating the symptoms and ignoring the underlying disease.

The irony is that the disease — the core problem — was staring these executives in the face all along. Our imaginary executives ruminated on the question:

• How do we improve the performance of our sales process?

Without, first, stopping to ask:

• Is sales actually a process?

Had they considered this more fundamental question, our executives would probably have had to conclude that:

• No. Sales ain’t no process!

The disease … and an appropriate prescription

Elsewhere in the organization, we use the word process to mean more than just a procedure.

Consider a production environment (or a project environment, for that matter). When we use the word process the implication is that we have:

1. Division of labor (specialization)
2. Standardized routings (the path that work-in-progress follows through activities and resources)
3. Centralized scheduling (a central drumbeat that ensures synchronization of all resources)
4. A formal management regime (to compensate for the fact that specialization causes work environments to become more fragile)

If these are the four pre-requisites for process (and it’s our contention that they are), let’s consider how a sales environment scores.

Obviously, a typical sales environment falls at the first gate. And, in the absence of division-of-labor the remaining three pre-requisites become redundant.

We must resolve then that a typical sales environment is not a process. And herein lays the problem (as well as the direction of the solution).

A modern sales environment is essentially a craftshop. And a salesperson is a artisan — a craftsperson who owns not just the entire sales function but, in most cases, the entire customer interface!

If, then, the sales function is a person (not a process) does this person need a CRM? The answer is obvious:

1. They don’t need it!
2. They don’t want it!
3. And if you force it on them it will impact negatively on their productivity and on their relationship with their manager!

Of course, this line of reasoning — as well as liberating us from the requirement to spend gobs of money on a CRM — leads us to consider a more fundamental question:

Should sales remain a craftshop — or should we engineer it so that becomes a process in the true meaning of the word?

Fortunately, history helps us out here. It’s obvious that in the 100-odd years since production (and project) environments have transitioned from craftshops to true processes, productivity has increased by several orders of magnitude (measure it against whatever standard you wish: return on capital, return on labor-hours, etc). What’s more, quality has also improved — also by orders of magnitude.

So, in production environments, we’ve done the impossible we’ve simultaneously increased volume and decreased defects. Who would ever have thought that was possible 100 years ago?

If we want to improve the performance of sales then, here is our recommended approach:

1. Recognize that, today, sales is NOT a process (and admit that process-automation tools – CRM – are of little value in the absence of a process)
2. Conclude that, the key to eliminating the litany of problems that afflict the sales environment is to transform this environment from a craftshop to a true process
3. Recognize that this means:
   1. Division of labor (how about salespeople sell and other people do other stuff?)
   2. Standard routings (every opportunity is prosecuted using the same combination of activities and resource types)
   3. Centralized scheduling (all the activities that are performed in order to both originate and prosecute an opportunity are coordinated from the head-office)
   4. Formal management regime (in this new environment, there’s actually a requirement for management — and the potential for management to control what occurs on a day to day basis — imagine that!)

An engineered sales environment

Now you know what I mean when I talk about an engineered sales environment.

I’m actually suggesting that you engineer your sales environment to look like — and to operate like — a production environment (or more accurately, a project environment).

Why, I can almost hear you asking, would you want to do that?

Let’s leave the technical discussion behind for a second and explore what our clients’ sales environments look like when we’re done with them:

Salespeople sell. The most obvious characteristic of the sales environments we build is that salespeople sell. And that’s all they do. Our client’s salespeople spend all their time in the field performing (exclusively) business-development meetings.

That means that salespeople perform four face-to-face meetings a day, five days a week, week in and week out. It also means that the purpose of all of these meetings is to win a new account or to sell a new service line to an existing account (not to perform customer service or take a repeat order).

Sales coordinators own and manage sales opportunities. To enable salespeople to relinquish responsibility for non-sales activities (prospecting, solution design, proposal generation, calendar management, reporting, customer service, project management, and so on) we first transfer the ownership of all sales opportunities to sales coordinators.

Each salesperson has a sales coordinator and each sales coordinator is essentially an executive assistant. That’s right, in addition to owning sales opportunities, sales coordinators own salespeople’s calendars.

The sales coordinator manages each sales opportunity as if it were a project because … well … it is! Specifically, the sales coordinator breaks each opportunity into a sequence of activities and pushes each activity to the appropriate resource at the appropriate time.

Customer service representatives perform customer service. Salespeople are no longer responsible for managing accounts. If our client’s firm has healthy operations, customer service will improve when salespeople have no involvement with it. (The reality is that salespeople are ill-equipped to deliver good customer service.) So, the end result is that all issues and all repeat transactions are processed by the customer service team. In many cases, customer-service makes outbound calls to stimulate repeat transactions.

The quality of customer relationships improve. The new model impacts positively on customer relationships for four reasons:

1. Customer service personnel can contact existing customers by phone more frequently than salespeople ever could in the field
2. Salespeople also visit existing customers more frequently (of course, the difference is that those visits are designed to sell new service lines — not to service existing ones)
3. Customers’ issues are resolved faster
4. In this structured environment, it’s possible to enforce more rigid procedures — which enables the 360° customer view

Project leaders design solutions and lead projects through delivery. In technical sales environments, perfect hand-offs between sales and delivery are impossible. This results in salespeople becoming entangled in delivery.

Our clients resolve this by ensuring that salespeople partner with project leaders. Project leaders are technical people with an appreciation of the commercial implications of projects —and with decent communication skills.

Project leaders are responsible for the technical component of each sales opportunity (freeing salespeople to focus on the critical commercial component). Project leaders discover clients’ requirements, conceptualize and design solutions and (ultimately) chaperone projects through delivery.

More sales activity: fewer salespeople. So, this engineering thing has endowed the sales environment with quite a cast of characters! It’s intriguing, then, to note that our clients make the transition to this new model, in almost every case, without increasing payroll costs.

The reason for this is that, almost every organization has far too many salespeople! In most cases we will reduce sales teams to 20% of their previous size — but we’ll simultaneously increase the total volume of sales meetings performed by each remaining salesperson by a factor of 10 (remember that a typical salesperson performs just two true business-development meetings a week currently).

The result of 20% of the sales team performing 10-times the volume of business-development meetings is that the total volume of meetings doubles.

The remaining salespeople are redeployed to fill other roles or — if they lack the requisite capabilities — the funds released by downsizing the sales team are more than sufficient to cover the cost of additional sales-support personnel.

No increase in promotional costs. You’ll also be interested to know that, in almost every case, we can double the volume of business development meetings, without additional promotional expenditure. The reason for this is that most salespeople disqualify the greater majority of sales opportunities. Because salespeople are time-poor, they are careful to engage only with high-probability prospects (those with a budget, who are currently in the process of purchasing). This qualification (as it’s caused) is good for conversion rates, but it causes salespeople to believe that they have a chronic shortage of sales opportunities.

But qualification has far worse consequences! Qualification causes salespeople to engage late with potential customers — meaning that every selling situation becomes a bidding situation. This impacts negatively on the size of deals won and the margin earned in those deals.

Our approach to promotion, then, is not to spend more money on ads, but to eliminate qualification. We are happy for conversion rates to drop if it is balanced by:

1. A greater volume of sales
2. An increase in the size of an average sale (a total solution, instead of a commodity)
3. More margin (because our client was bidding against fewer — if any — competitors)

The case for CRM

Obviously, this engineered sales environment differs quite considerably from a typical sales environment.

But the implications for your organization are as exciting as this new model is different:

1. Twice the volume of business-development meetings (exciting, because meeting volume is the primary driver of sales)
2. Improved customer service
3. Elimination of tension between sales and delivery
4. Increased deal flow, volume and margin
5. No increase in operating expenses

Of course the critical question, at this point, is what about CRM?

With this new model, not only is there a case for CRM — but the model cannot operate without it.

However, our attitude towards CRM has undergone a subtle shift.

Previously, we looked to CRM to drive productivity improvements — and those procedural changes that did occur occurred as a consequence of the CRM implementation.

Now, we recognize that a meaningful increase in productivity requires drastic procedural changes — and that the requirement for CRM is a consequence of those changes.

Let’s summarize the four key reasons why you need a CRM in an engineered sales environment:

1. Sales coordinators need a view of the status of all opportunities
2. Opportunities must be prioritized
3. Marketing, sales and customer service must work together
4. Management needs information

1. Sales coordinators need a view of the status of all opportunities

As we’ve discussed the engineered sales environment is essentially a project environment.

The sales coordinator needs a CRM for the same reason that a project manager needs a project-management application.

Because the sales coordinator does not have face-to-fact contact with each prospect they will never have the deep (visceral) understanding of the opportunity that the salesperson does. The CRM provides the sales coordinator with a simplified model of each opportunity. This model is detailed enough only to enable the sales coordinator to synchronize the various resources that are participating in the prosecution of the opportunity.

2. Opportunities must be prioritized

Even though salespeople in traditional environments qualify aggressively, they still end-up with more in-progress opportunities than the have the capacity to manage. (Consider how many times you’ve had a salesperson clamor to perform an initial visit with you, only to discover that the salesperson lacked the capacity to provide you with a proposal within a reasonable time horizon.)

In the engineered environment, salespeople have significantly more capacity — but they still have finite capacity. This means that opportunities must be prioritized to maximize their velocity (minimize opportunity lead time).

When you consider that a salesperson may be working across 80-100 opportunities at any one point in time it’s easy to see why software is required to manage the resulting complexity.

3. Marketing, sales and customer service must work together

In point one (above) we touched on the requirement to synchronize resources within the sales function.

However, in this new environment, other functions must also synchronize with sales:

1. Marketing must ensure that there is a sufficient queue of opportunities to enable sales coordinators to keep salespeople fully utilized
2. Customer service must continue to support existing clients’ ongoing service requirements — failure to do so will obviously interfere with the organization’s ability to sell more services
3. Finance must be able to determine when invoices are required (in many complex sales environments, potential clients will buy services during the opportunity-management process)

As does the sales coordinator, these functions all require opportunity-status information. And this information must be current. It must be accurate. And it must be unambiguous.

4. Management needs information

As suggested previously, management needs information to be able to manage. In the absence of this information, a sales manager is not a manager (a hustler, perhaps, but not a manager!).

As with all other environments within the organization, the sales manager’s information requirements can be broken into three categories:

1. Status information: how many opportunities are at each state of the opportunity-management workflow?
2. Flow information: what is the velocity of opportunities (how fast are they moving)?
3. Resource utilization: what is the load on process resources (is there a bottleneck and where is it)?

The sales manager must be able to view reports that summarize these categories of information and then to drill-down to identify particular opportunities or particular resources that require attention.

What now?

If you have a CRM, then, the news is not all bad.

In and of itself, the technology will provide you with very little value. However, it happens to be a pre-requisite for a very necessary – and very beneficial – sales improvement initiative: engineering your sales environment.

My suggestion is that you do the following:

1. Make CRM usage optional for salespeople (stop trying to achieve the impossible)
2. Plan your engineered sales process (you’re welcome to solicit our assistance with this critical step)
3. Re-configure your CRM to look like it did when you first loaded it (perhaps, [a] export the address book data, [b] do a clean-install of your CRM, [c] import the address book data)
4. Provide CRM access only to sales coordinators and customer-service representatives
5. Keep customizations to an absolute minimum (only add a user-defined field if you are prepared to enforce 100% compliance with its usage)

Just DON’T, whatever you do, buy any more technology!  (If you purchased your CRM in the last 5 years, it is almost certain to be capable of doing everything that you need in order to get your new engineered sales process up and running.)

If you proceed carefully, it’s likely that you will produce the outcomes you were looking for when you initially purchased your CRM. Then you can pat yourself on the back and congratulate yourself on your foresight.

Just be warned, if your CRM vendor gets wind of your success, they’ll be knocking on your door, begging for your permission to showcase your organization as another CRM success story!

It seems so obvious.

If that team member has a Blackberry and a company car; if they call on customers and help resolve their problems; then they must be a salesperson, right?

Well, maybe not!

Sure, that’s the way things have traditionally been done: the person in the field is automatically the salesperson. But, in many cases, today, this assumption needs to be challenged.

To understand why, let’s walk in our customer’s shoes for a moment.

Historically, a salesperson would come calling (in person). They’d develop an understanding of your situation. They’d diagnose your problems and propose solutions. And they’d be your single point of contact with the firm they represented.

Today, however, it’s unlikely that your needs are adequately served by the traditional salesperson (in spite of the nostalgic appeal of that concept).

Two things have changed:

1. The market has become more efficient — which means that:

   1. stuff happens faster, and

   2. most of the products you purchase are (essentially) commodities

2. Technology has provided numerous alternatives to face-to-face communication

In today’s environment, then, the traditional salesperson relationship may be less than ideal for a few reasons:

1. The salesperson visits infrequently — meaning that you, either need to carry more inventory, or purchase from multiple vendors

2. Because of the faster pace of enterprise, the salesperson is ill-equipped to serve as your single point of contact with the vendor (they simply don’t know what’s become of the item missing from this morning’s shipment!)

3. It often takes more time to transact with the salesperson face-to-face than it does to communicate via alternate channels

It’s for these reasons, then, that I’d like to propose that, in many environments, the salesperson should not be the person in the field — rather it should be a person on the phone.

Inside Sales becomes the new front line

That’s right; I’m suggesting that the front-line (to use a military metaphor) should move from the field to the phone, meaning that, in future, the salesperson is not the person with the Blackberry and company car.

Tomorrow’s salesperson is office based (situated close to operations). They can be recognized by their casual clothing and their ever-present wireless headset. They earn less than a field representative but they have comparable product knowledge and communication skills. Where a field representative can, at best, perform four to five meetings a day with customers, tomorrow’s salesperson can perform 30 to 40!

Now, at this point, I’ll forgive you for being a little skeptical. After all, isn’t it true that I’m describing Inside Sales — a function you likely already have installed in your firm.

Actually, I’m not. My vision of Inside Sales differs from standard practice in a few critical areas:

1. Inside Sales owns ALL sales opportunities. They do not help field reps prosecute sales opportunities (in fact, the opposite is true but we’ll get to that shortly)

2. Inside Sales owns ALL accounts. Your customers no longer have a single point of contact but they do have a primary contact — and this is a person in Inside Sales, not a field representative

3. Inside Sales makes outbound calls to both existing and potential accounts

Before we discuss what is to become of your field representatives (and yes, there’s a cunning plan!), let’s consider how our customer benefits from their relationship transitioning from the field representative to a person in Inside Sales.

1. The contact frequency increases. If it makes sense to interact twice daily with the vendor (as is the case in pharmaceutical retail, for example), this is possible.

2. The inside salesperson is a more capable primary point of contact. Because they are plugged-in to the ERP (your operations technology), they can answer most questions and process most transactions on the spot. On the occasion that an issue arises that the inside salesperson can’t personally resolve, they will route a task to the appropriate party, while still maintaining ownership of (and responsibility for) the issue.

3. Because the inside salesperson is office-based, your customer is not forced to choose a single communications channel. In fact, within the course of a single transaction, it’s possible for your inside salesperson and your customer to communicate using a mixture of telephone, e-mail, and instant messaging.

Field representatives subordinate to Inside Sales

So, what is to become of field representatives?

In most situations, you will still have a requirement for field representation:

1. Some sales may be significant enough to warrant face-to-face customer contact. For example, a client of ours in Kentucky sells packaging supplies. Individual transactions do not require face-to-face contact. However, this company is migrating its customers from a standard supply relationship to vendor-managed inventory. The transition is a large and complex transaction and definitely does benefit from face-to-face visitation.

2. Field representation may be required for technical reasons. In order to diagnose a problem and propose a solution (for either potential or existing accounts) it may be necessary that a vendor’s representative performs one or more site visits.

My argument, then, is not that field representatives aren’t required. They clearly are.

I’m proposing that, in many (certainly not all) environments, field representatives should not be regarded as the salesperson.

In such environments, it makes more sense for field representatives to subordinate to Inside Sales. What this means is that:

1. Sales opportunities are originated and prosecuted by Inside Sales

2. On those occasions that field representation is necessary, field representatives are dispatched to perform a discrete activity

The words discrete activity are important here because they suggest that field representatives do not take ownership of the workflows (sales or customer service) that contain the activities they are dispatched to perform. For example, if a field representative visits a customer to perform a needs analysis as part of the prosecution of a sales opportunity, the field representative will perform the site survey and report the results to the inside salesperson. It will be clear to all parties (including the customer) that the inside salesperson is running the show.

While this is counter-intuitive, there are many parallels in other fields. Consider an operating (surgical) theatre. The surgeon may well be the most valuable team member but it does not follow that the surgeon runs the operation. This is generally the responsibility of a senior nurse. In fact, in most cases, the surgeon is not even present for the entire operation!

A practical example

We are currently implementing this model for a client of ours, headquartered in Washington DC. They manufacture consumable parts for big industry. An average transaction is somewhere in the five-figure range.

Here’s how the model operates in practice:

1. Marketing (promotions) generates sales opportunities for Inside Sales

2. Where possible, Inside Sales attempts to prosecute those opportunities without the assistance of field representatives

3. Inside sales also fields customer service issues

4. Inside salespeople have clerical and technical support resources — enabling them to spend all of their available time on the telephone

5. Field representatives’ calendars are managed by a small team of sales coordinators

6. When Inside Sales has a requirement for a field visit (of either a customer-service or sales nature) they liaise with the sales coordinator responsible for the appropriate region to schedule this visit

7. Field representatives’ travel is determined primarily by these visit requests from Inside Sales. However, if field representatives have spare (not protective) capacity, sales coordinator will work with promotions to fill this capacity with opportunistic sales or support field activities

This model benefits all parties because:

1. It enables a high contact frequency (which improves customer service and shortens opportunity cycle time)

2. It reduces the effective distance between the customer and operations (improving the quality of both sales and customer service processes)

3. It enables field representation when (and only when) it is actually required

4. It reduces costs (and, of course, some of those cost savings can be passed — directly or indirectly — back to customers)

Your Director of Sales should be charged with the responsibility for maximizing sales, right?

Well, maybe not!

If he or she is, it might be worth reflecting on what this says about how your critical business functions are resourced.

Let’s assume (for simplicity) that your business consists of just two basic functions:

1. Sales
2. Production

Ask yourself, which of these functions should be the system constraint?  If we recognize that a balanced system is a practical impossibility, we have two choices:

1. Maintain protective capacity in sales – so as to ensure that production is always fully loaded with work (and, consequently, operates at 100% utilization)
2. Maintain protective capacity in production – so as to ensure that whatever is sold can be rapidly delivered

Now, option (2) may sound appealing but, in most businesses this is not the optimal resourcing model.  To understand why, let’s start with the goal of the business:

The goal of the business is to make money (now, and in the future).

In practice, ‘make money’ means maximize the return on owners’ equity.  In most businesses, the greater majority of owners’ equity is invested in production (plant).

Therefore, in most businesses, profitability is maximized when production is consistently maintained at 100% utilization.

So this analysis points to option (1) as the optimal one.  This means that, if management wishes to maximize the profitability of the business it will deliberately design the sales function so that it has greater capacity then sales.  It will then resource and manage the sales function to ensure that this protective capacity is maintained at all times.

If management is doing exactly this is, it really likely that the Director of Sales will be issued a general instruction to ‘maximize sales’?

It’s not, is it?  If production has less capacity than sales, operating the sales function at full capacity will eventually cause on-time-delivery performance to drop to the point where clients elect to take their business elsewhere.

If production has less capacity than sales, management is more likely to advise the sales function to subordinate effectively to production.  In plain-English, this means that the job of sales should be to maintain the queue of forward-orders at its optimal size.

So, remember, if you catch yourself regularly advising your sales team to maximize sales, you are making a tacit admission that you have boundless capacity in production.  Is this really optimal?

If not, you have three choices:

1. Reduce production capacity, until you consistently have protective capacity in sales (and, possibly enjoy an immediate reduction in operating expenses)
2. Increase the capacity of your sales (which means, either adding salespeople or talking to us about improving the efficiency of this function)
3. Do both!

Managers and team members alike can often be observed drawing the convenient conclusion that some recent mishap was simply a communication problem.

This conclusion is convenient because, in practice, it’s an excuse to do nothing! After all, aren’t humans (being humans) prone to mis-communication?

Now, if you accept that an inability to communicate is a fundamental characteristic of humans, you really have to expect (and tolerate) all sorts of problems in any environment where humans interact in pursuit of some common objective!

Of course, this assumption (thus stated) is problematic.  After all, humans, relative to any other creature we care consider, are remarkably good communicators. What’s more, it’s easy to identify any number of complex environments where people communicate effectively to consistently perform activities of extraordinary precision (consider, for example, an operating theatre or an airport traffic-control centre).

I put it to you that most communication problems aren’t problems at all: they’re merely symptoms of a deeper problem. Furthermore, our willingness to classify business issues as communications problems:

1. Is insulting to our team members: who almost certainly possess sufficient communication capabilities
2. Prevents us from investigating (and resolving) the root cause of the issue in question

In my experience, almost all the issues that are conveniently classified as communication problems are actually process design problems. And, in most cases, the problem is that a hand-off is necessitating the transfer of complex information from one person to another.

In such cases, it’s important to recognize that complex information (almost by definition) cannot be transferred from one team member to another without information loss. Therefore, it is incumbent upon management to redesign the process so as to ensure that either:

1. These hand-offs are eliminated
2. The requirement to transfer complex information is eliminated

Example A: eliminate hand-offs

As you probably know, we encounter this problem in major-account sales (engineer-to-order) environments. Salespeople take a brief, conceptualize and sell a solution and then attempt to hand-off the specifications for this solution to production. Predictably, production lacks the necessary contextual knowledge to deliver the solution without regular recourse to the salesperson (who, presumably, should be back in the field selling).

The solution is to eliminate the hand-off by introducing a third party: a project leader. The project leader partners initially with the salesperson — his responsibility is to take the brief and design the solution (selling it is the salesperson’s job). The project leader then chaperones the job through production — providing the delivery team with ready access to the critical contextual knowledge.

Example B: eliminate the requirement to transfer complex information

I’ve often observed our consultants attempting (unsuccessfully) to communicate complex briefs to our technology team. What tends to happen is that the complexity obscures the information that is really critical to the developers (the desired outcome). What’s more, the (method-based) brief often overlooks a superior approach to solving the problem.

The solution here is to eliminate any reference to method from the briefs and simply specify the set of conditions that need to be met for the solution to be acceptable (e.g. produce this report with this dataset, with a sub-one-second refresh time).