Four appointments a day, five days a week

Jennifer retrieves her Blackberry from her purse and flicks it free of its protective case in one easy gesture.

Moments later, she’s talking to David – her assistant back at head office. “Good meeting,” she answers, “you can go ahead and schedule the RDM. Yep, you can keep talking to Debra. And the opportunity’s actually a retro-fit … say fifty-grand.”

“I’m all over it.” David reassures Jennifer as he updates fields in the CRM. “So, you’d better hot-tail it over to Tyson Engineering.” Phillip left here half an hour ago, so he should be ready for the presentation when you get there.”

Jennifer, David and Phillip all work for James Sanders Group, a manufacturer of point-of-sale displays and internal fit-outs. JSG is one of our quiet revolutionaries.

JSG is an engineering-centric company. They got to be successful by solving tough problems and building really cool stuff!

In recent times JSG had been suffering a slow leakage in sales. The problem was not that they were suffering at the hands of a large competitor – that’s a battle they were well equipped to fight. What was happening was that numerous small competitors (some of them recent market entrants; others, offshore manufacturers) were chipping away at their base: winning numerous small jobs, often at crazy margins.

JSG had recognized that this was not a trend that they could reverse solely with superior production performance. They knew that they needed sales activity: boots on the ground.

Easier said than done, however! Each time JSG added a salesperson, the new recruit would win a job or two and then become entangled in account management. Before long, account management would become so all-consuming that sales activity would grind to a halt. While this was happening, JSG’s competitors were simply side-stepping those complex jobs and focusing on winning the easy stuff.

Initially, JSG looked to account managers (as they had taken to calling them) for a solution to the problem. Ultimately, it became clear that this was process problem – not a people problem.

The snippet of conversation above speaks volumes about the consequences of JSG’s revolution.

Jennifer is JSG’s salesperson. And that’s the first unusual thing. In spite of the fact that JSG services the whole of Australia (an area roughly the size of the continental USA) JSG has just one salesperson. The reason is that Jennifer is exactly 10-times more productive than one of JSG’s competitor’s salespeople. A competitor’s salesperson averages two sales meetings a week: Jennifer consistently performs 20!

David is the key to Jennifer’s efficiency. David and Jennifer talk at least four times a day. Like an air traffic controller, David is Jennifer’s eyes and ears. He carefully monitors the status of all sales opportunities – freeing Jennifer to focus only on sales meetings as they appear – as if by magic – in her trusty Blackberry.

David’s official title is sales coordinator. His responsibility is to manage JSG’s portfolio of open sales opportunities. He manages each opportunity like a project. He works tirelessly, trying to schedule the next activity in sequence for each. In most (but certainly not all) cases the next activity is a meeting with Jennifer. And, of course, Jennifer’s objective, at each meeting will be to sell the next activity – generating still more work for David.

David frees Jennifer of the requirement to do anything other than face-to-face business-development meetings. In addition to appointment-scheduling, David performs all of the clerical tasks associated with the management of sales opportunities: data-entry, reporting, literature fulfillment, expense tracking, and calendar management.

David routes non-administrative tasks to other specialist resources within JSG. Customer support issues and simple request-for-quotes are routed to customer-service representatives. And requirement-discovery and solution-design become the responsibility of project leaders.

As each task is handed-off, David logs the date in CRM, as well as a prompt for himself to follow-up prior to the task’s expected completion date. In many cases, these tasks are pre-requisites for meetings he has already scheduled for Jennifer. It’s critical, therefore, that he keeps all the parts of this machine working in unison.

Phillip also makes a significant contribution to Jennifer’s tremendous efficiency. Phillip is a project leader. His job is to manage the interface with production. Prior to each sale, Phillip works closely with Jennifer. She introduces him to clients early in each engagement to discover their requirements and to conceptualize and design solutions.

Solution design is always a collaborative process. Clients have their say, of course: they want Rolls Royce solutions on Corolla budgets. Phillip represents production: he must ensure that whatever is specified can be delivered on time and within budget. And it’s Jennifer who uses a mixture of hustle and artful diplomacy to close the gap between both parties.

Post-sale, Phillip is responsible for managing the relationship between production and the client. He’s on hand to negotiate change requests and to fine-tune the production plan on those occasions that it becomes obvious that there’s a gap developing between the client’s expectations and the direction of the project.

There’s no question that Jennifer is busy. Twenty business-development appointments a week is a lot of work – and then there’s the travel. A lot of travel!

But the interesting thing is that Jennifer loves working in this environment. There’s no stress. She doesn’t feel like a juggler with a hundred balls in the air. Clients are happy too. They understand where her responsibilities begin and end, and they always know exactly who to talk to if something appears to be going wrong.

All Jennifer has to do is show-up at meetings and talk to people – and she’s really good at that. The selling looks after itself.

Management by numbers

Matthew is one of James Sanders’ two sons. Today he is in charge of operations – and the sales function is now simple enough to be managed as part of operations.

On the face of it, managing sales is relatively easy. Matthew chairs a weekly sales meeting. The meeting consists of a review of a simple dashboard. First order of business is to ensure that opportunity flow is healthy. It’s critical that there’s a queue of sales opportunities sufficient in size to keep Jennifer busy. And the size of the buffer of forward-booked meetings in Jennifer’s calendar is important too.

Matthew knows that the profitability of the firm requires a steady flow of work to the plant. Any hiccups in meeting volume will result in idle machines and workers in a month or so.

Matthew keeps an eye on other indicators too. He scans run-charts looking for unhealthy trends and scrutinizes cycle-times for critical activities to ensure that protective capacities are being maintained where necessary.

Matthew’s biggest sales challenge is maintaining the support capacity required to keep up with Jennifer’s unrelenting flow of orders.

Prior to the revolution, Jennifer was one of five account managers. Today, four of those account managers have been converted into project leaders – all of whom are now sprinting to keep up with Jennifer. To free project-leadership capacity, Matthew has been building a team of customer-service representatives. But this team is under the pump too. Every month, it seems like there’s a couple of new faces in there!

Arresting the decline

JSG is clearly a different organization today.

There is a clear delineation between the critical sales activity and solution-design and production. Jennifer performs a fixed volume of business-development meetings every week – and the rest of the team sprints to keep up.

Obviously a complex job is likely to consume incrementally more of Jennifer’s capacity than a simple one. But that’s okay. Even when this is factored in, Jennifer still performs more business-development meetings in a week than the rest of the account-management team used to in a month. And, when there’s a hole in the production schedule, Jennifer does whatever’s necessary to win the jobs required to keep the plant busy.

But the impact has not just been on sales. The revolution has impacted every corner of the firm. Conflict has disappeared. People are happier and more willing to help-out when required. Strangely the firm seems quieter today than it ever has before – in spite of the fact that production is busier than it has been in years.

For JSG, the new model means a stronger and more consistent flow of jobs, a better interface between sales and production, and a less stressful work environment for everyone. And, as should be expected, the impact of the revolution on JSG’s profitability has been significant.

Theory into practice

This chapter has showed you the implications of sales process engineering for one business environment (an engineer-to-order manufacturer).

Chapters 2 and 3 will show you why sales process engineering (SPE) is so important in today’s business environment, introduce you to SPE’s four fundamental principles and then explain how these simple principles lead logically to the end result exemplified by JSG’s story.

In subsequent chapters you’ll learn how to apply these principles to create profound improvements in the performance of other business environments:

1. Indirect sales (when sales are made through distributors, resellers or manufacturers’ representatives)
2. Commodity sales (when solution-design is not a critical component of the engagement)
3. A micro-business or a start-up (when resources are limited and specialization appears impossible)

One message that will play over and over throughout this book is that you cannot improve the performance of sales by focusing solely on the sales function. And this theme will be tackled head-on in Chapter 4.

In Part 1’s final chapter, we’ll explore the case for the elimination of salespeople’s commissions. Part 2 is dedicated to the practical application of SPE in your organization.

Let’s go to work!

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The Titanic is Sinking

All is not well in sales.

The sales environment, in a typical organization (most every organization, in fact), is seriously dysfunctional.

But rather than focusing on the obvious dysfunction, management is busy with incremental improvement initiatives:

1. Sales training
2. Sales force automation (technology of various types)
3. Bolt-on lead-generation activities (outsourced telemarketing, for example)

Because none of these initiatives address the root cause of the dysfunction, they amount to nothing more than arranging the chairs on the deck of the sinking Titanic.

And make no mistake, the Titanic is sinking!

It’s not that sales is getting worse: the issue is that the rest of the organization is getting so much better, while sales clings to the same structure, the same management approach and the same practices that have been in place for the last fifty years.

Quiet revolutionaries

In a small number of companies, across two continents, a quiet revolution is in progress.

These companies (you’ll meet some of them in due course) have challenged the most fundamental assumption about how the sales function should be designed. Consequently, they have built sales environments that barely resemble those in their competitors’ organizations.

And they’ve seen massive performance improvements!

Improvements in the internal operation of sales:

1. Field salespeople are spending 100% of their time in the field: performing four business-development meetings a day, five days a week
2. Customer commitments are consistently met, administrative work is always done on time and sales orders appear more frequently and more consistently

And improvements in the relationship between sales and the rest of the organization:

1. Hand-off problems between sales and production have been eliminated
2. Marketing works closely with sales to ensure that salespeople are maintained at 100% utilization – and marketing has recruited the assistance of engineering (or senior management) to ensure offers are truly compelling

As mentioned, these changes are the consequence of challenging a single assumption about the design of the sales function – the assumption that: sales should be the sole responsibility of autonomous agents.

Are things really that bad?

Before we meet the new assumption embraced by these revolutionaries, it’s worth exploring the claim that sales is dysfunctional. Are things really that bad?

Consider the goal of the sales function (its reason for existence). The goal cannot be just to sell. The goal must be to consistently sell all of the organization’s production capacity (which may consist of traditional plant and equipment or knowledge workers).

In most organizations, sales consistently fails with respect to this goal. The modern organization’s capacity to produce has accelerated past its capacity to sell, and idle machines and production personnel cost shareholders dearly, month after month and year after year.

Why, then, is sales underperforming? One reason is that salespeople aren’t selling. A typical salesperson performs just two business-development meetings a week. You read it right. Less than 10% of a typical salesperson’s capacity is allocated to selling. And that figure is pretty standard across industries and across countries. The greater majority of a salesperson’s day is dedicated to customer service and administrative activities, solution design and proposal generation, prospecting and fulfillment-related tasks.

Let’s turn our attention to management. Why has management not fixed this problem? In many organizations, management has tried. Attempts to reallocate salespeople’s work have resulted in service quality problems (the right hand doesn’t know what the left is doing). The other alternative is simply to recruit more salespeople and many firms have tried that too: with interesting results.

Typically, when you add salespeople to an established team, costs go up immediately (easy to predict, right?). But sales don’t. In fact, in most cases, sales never increase to the level required to justify those additional costs. The reason is that salespeople do not generate the greater majority of their sales opportunities. Most sales opportunities spring into existence in spite of (not because of) salespeople’s prospecting activities. In most organizations, existing customers are by far the greatest source of sales opportunities. When management adds salespeople to an existing team, the same pool of sales opportunities is simply distributed across a larger team of salespeople. (In fact, management recognizes how very difficult prospecting is when they examine candidates for the new sales positions – looking to see who has the largest client list!)

But management’s problems don’t stop here. Salespeople are incredibly difficult to manage – particularly successful ones! You can’t direct your salespeople as you can production or finance personnel, you can only implore them. And successful salespeople are both a blessing and a curse. Sure they generate orders: but at a price. They run roughshod over production and finance personnel, they ignore management directives and they make frequent references to their clients, implying that they can leave and take the organization’s clients elsewhere – which, in fact, they can.

In summary then, when we examine sales we see a critical organizational function that consistently underperforms, that cannot be scaled (economically), that is in regular conflict with other functions and whose key assets are, in fact, a contingent liability.

The claim that sales is dysfunctional is no exaggeration!

A new assumption

It’s not hard to validate the claim that sales is typically the sole responsibility of autonomous agents.

When we employ salespeople we advise them that they will be held accountable for outcomes, not activities. We pay them commissions (in part, or in full), rather than fixed salaries. And we encourage them, in most cases, to manage their territories, their accounts and their sales opportunities as if they were, well, theirs.

It’s true that, increasingly, management is attempting to rein-in salespeople’s autonomy. We ask salespeople to report their activities in the organization’s CRM. We pay them a mix of salary and commission. And we, at least, pay lip service to the notion that these are company accounts.

But we forget that, where true opposites are concerned, no compromise is possible. Salespeople can march either to their own drumbeat or to the beat of a central drummer. When faced with the demand to do both, salespeople will always pick the least-worst option.

When you consider that the entire organization – not just sales – is engineered around the assumption of salesperson autonomy, it’s easy to see that salespeople will always choose autonomy.

If you doubt the casual assertion that the entire organization is engineered around the assumption of salesperson autonomy, answer these three simple questions:

1. If an important sales opportunity is lost, who is ultimately responsible?
2. If an important customer is dissatisfied, who is ultimately responsible?
3. If an account falls into arrears on its payments, who is ultimately responsible?

The connection between dysfunction and salespeople’s autonomy is also easy to spot.

Salespeople spend so little time selling because they have so many responsibilities competing for their limited time. They have so many responsibilities because each salesperson is a self-contained sales function.

Salespeople conflict with other functions because, in their world-view, they see only their opportunities and their accounts. However other functions (production, engineering, finance) also have limited capacity and are in receipt of competing demands from multiple salespeople.

Salespeople conflict with management because there is simply no place for management in a typical sales function. If salespeople own their own activities and are held accountable only for outcomes (as is so often advertised) there is literally nothing for management to do. Managing outcomes is, after all, an oxymoron, no matter how many times you say it!

If the assumption that sales is the sole responsibility of autonomous agents is the root cause of this dysfunction, it’s clearly time for a new assumption.

The good news is that if we approach this question with a clear head, the answer is oh so obvious.

We discussed that, relative to other organizational functions, sales is sinking fast. What, then, is causing the rapid ascent of these other functions? In particular, what has caused both the productivity and the quality of manufacturing to increase by many orders of magnitude over the last 100 years?

The answer is: division of labor.

Division-of-labor enabled manufacturing to transition from cottage industry to the modern plant. And division of labor has had the same catalytic effect on project environments (think construction and aerospace), finance and even marketing.

Division-of-labor is such a powerful concept that it pre-dates modern industry. We find the first evidence of division-of-labor at the origin of life itself!

There’s one little corner of civilization where division-of-labor is conspicuously absent. The fact is that the modern sales environment resembles manufacturing, as it used to look 100 years ago!

But that’s about to change.

The quiet revolutionaries have scrutinized sales for evidence that this function is somehow unsuitable for division of labor. Their search has been fruitless. The new assumption, around which their sales environments have been engineered and upon which this book is based is as simple as it is powerful.

Sales is the responsibility of a centrally coordinated team.

This book shows how this innocent-looking assumption leads logically to a radical new approach to the design and management of the sales function. It will show you to apply this approach to your organization (irrespective of the size of your firm or the complexity of what you sell). And it will introduce you to a diverse range of organizations that have trodden this path already (our quiet revolutionaries).

You are in for quite a journey!

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Let’s consider why.

Imagine you have something to sell – a widget, say. Tell me, for how much should you sell it?

The answer to that question is more obvious than you think. To calculate the optimal sale price you don’t need to know:

1. Raw material cost
2. Labor hours
3. Overhead allocation ratios

You don’t need to know any of that because the answer is: you should sell that widget for as much as you can get!

That’s right, the optimal sale price is not determined by internal factors, it’s determined solely by what the market is prepared to bear. You cannot – let me say it again, CANNOT – calculate the price of a product.

All you can do it estimate it. And you must recognize that, in most situations (certainly in those environments where we’re most likely to see T&M billing) it’s simply impossible to estimate the the price with a high degree of accuracy.

The primary assumption behind time-and-material billing (T&M) is that you can calculate the price of something by simply counting the number of minutes required to produce it.

But you can’t. Effort does not equal value. In many cases, it doesn’t even approximate it!

One of the problems with time is that it’s inherently measurable. Because it can be counted in intervals as small as a minute, we’re lulled into the false impression that we are calculating (as opposed to estimating) value.

The alternative

How then should we estimate value? And how should we track productivity?

If we use time to estimate, it’s important to recognize that we’re using time as a proxy (a yardstick) for value.  Time does not equal value.

My advice, where time is concerned, is not to estimate time in increments any smaller than half a day. In other words, do not ask, how many hours will this job take?, ask how many half days?

Where short-duration tasks are concerned, my preference is to ignore them altogether. Just factor them into the multiplier you are using for half-day slots!

I’d rather, however, that you find some other proxy for value. We’re working with a bookkeeping firm currently. When I challenged them to identify a better proxy for value than time they came up with a great one – transactions (debits and credits). It’s obvious that the volume of transactions processed is a greater determinate of client value than time consumed.

And how do we track productivity? Well, we start by burning timesheets!

You DO NOT make money out of expending effort. You make money out of delivering value. And the connection (in most cases) between these two factors is very tenuous.

Timesheets encourage team members to be busy. This drives multitasking, and the hogging of work that could otherwise be passed-off to lower-paid people. Both destroy value. Furthermore the maintenance of time-tracking systems, consumes enormous resources and the completion of timesheets insults your team members at 10-minute intervals.

You need to recognize that individual jobs (or projects) do not make you money. Your portfolio of work makes you money. Once you realize this, you can focus on managing the portfolio, rather than the jobs.

You don’t make money by keeping your team busy. You make money by delivering jobs. And the two are NOT the same thing. People work best in fits and starts. And team work necessitates relay-racer behavior (person B hovers, waiting for person A to finish his work – and then sprints to hand-off the job to person C).

You need to mobilize your team to get jobs out. Think of the pit crew in a Formula 1 team. Timesheets are not conducive to this environment.

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After more than 12 years, we’ve retired AdVerb – the long-running Ballistix periodical.

We’ve replaced AdVerb with SPE Update – an email update of new posts, as I publish them, on my blog.

As you probably know, my blog has been in existence for some time now. But I’ve been frustrated by the fact that most of the content is hidden away. This is sad if you share my (entirely unbiased) opinion that some of the content is pretty damn impressive!

Consider just these recent posts, for example:

• Why CRM sucks: why you should never have bought the damn thing (and why you should probably keep it)
• The Holy Grail of technical sales: how to disentangle salespeople from production
• A quick and dirty approach to process improvement

And my next news item bodes well for the quality of future posts!

Let’s re-start the conversation

If you used to be a member of my old Yahoo group, you’ll remember that this forum facilitated an ongoing (and energetic debate). I’m hoping to re-start this on my blog. Accordingly, as you read posts in this update, please click-through to the blog to review comments and join the conversation.

A book in the works

We’re happy to have just inked an agreement with Greenleaf Book Group in Austin Texas – who will be publishing my forthcoming book (tentatively entitled ‘The Machine’).

This will be a traditional book (not a compilation of articles).  It’s my intention for it to be a comprehensive treaty on Sales Process Engineering – both the theory and its application.

I’ve penciled out a day a week to write this book – and my target is to produce one chapter draft each week. It’s my intention to post each chapter on my blog as I complete it, meaning it’ll arrive in your inbox within hours (if you’d like to be notified faster, just follow me on Twitter: @justinroffmarsh).

On new media

I’m frequently asked for my opinion on new media (blogs, Twitter and all that).

I may post on this in the next month or so, but let me share some quick thoughts (in part, because I can’t bear to publish something that doesn’t add at least some value).

Obviously, there’s a lot that’s new about new media.  The technology, for one.

But, there’s a lot that’s not so new. You may recall that, years ago, I used to spruik about a concept called Relationship-centric Marketing. The basic idea is that you should approach a sale in two stages:

1. First, win a relationship, by establishing yourself as a thought leader, publishing a periodical (and a manifesto), running events and, as a consequence of all that, acquiring subscribers
2. Second, manage your subscriber-base in such a way as to harvest a rich crop of sales opportunities (and ultimately sales)

Now, there’s nothing wrong with this model (it’s one I’ve always adopted, for example). However, for most organizations it’s impractical, for one of three reasons:

1. The organization sells a low-involvement product
2. The organization isn’t a thought leader and doesn’t have the (not insignificant) resources required to become one in the short term
3. In the short run there are much, much, greater gains to be had by reengineering the sales function

Proceeding cautiously

So, here’s my opinion on new media. On the one hand, I’m excited, because it slashes the costs associated with establishing and maintaining thought leadership.

On the other hand, I’m reticent to issue a general call to arms (as so many others have) for the same reasons I stopped spruiking about Relationship-centric Marketing some years ago.

So, if you do take some first steps with new media, terrific (it’s fun to be an early adopter!) But, my advice is to proceed cautiously. If you’re already a thought leader, you don’t need my input, you’re already well and truly on your way.  But if you’re not, perhaps your first objective should be to simply get acquainted.  Stick with the basics: personal LinkedIn and Facebook profiles, and a Twitter account. Oh, and set up a Google Reader account and and search for (and subscribe to) a few blogs relating to subjects in which you’re interested.

Remember focus is less about what you choose to do than it is about the many things you choose not to do! (With thanks to Eli Goldratt, who stressed this point at this years annual TOC conference.)

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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.

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Here’s the most obvious symptom of the problem:

When salespeople make a technical sale, they inevitably become entangled with production. Their involvement in production cannibalizes their (already limited) business-development capacity – leading to the boom-and-bust problem that plagues so many businesses.

To explore the source of this problem – and to uncover its solution – let’s consider these three scenarios.

Scenario 1: simple sales environment

In a simple sales environment, the relationship between sales and production is, well, simple!

The Coca Cola rep assesses a mom-and-pop store’s requirements and dispatches an order to production from her handheld computer. Production can fulfill that order without any recourse to sales.

That means that sales and production can be situated end-to-end with a perfect hand-off of information between them (per example 1, above).

So far, so good.

Scenario 2: complex sales environment (typical)

So, what happens when we’re dealing with complex sales (in a technical environment)? Can we adopt the same structure?

The software company salesperson discusses his client’s unusual problem, conceptualizes a solution and successfully pitches a custom application. He then carefully completes and submits the specification document provided to him by production.

The $64 question is: can production complete and deliver the application without recourse to the salesperson? Intuitively, the answer is no. Production will definitely need to consult with the salesperson during the production process – and it’s likely that the client will need to do likewise.

Imagine what happens if production attempts to resolve this problem (as they often will) by providing salespeople with a more detailed specifications document to complete. If this document grows from 2 pages to 5 – or from 5 to 50 – do you think the problem will be resolved?

You’re right: it won’t. But to make progress here, it’s critical we understand why.

Complexity versus hand-off difficulty

We’ve already discussed that, in a simple environment (like the Coca Cola one), hand-offs are easy. What happens when environments become more complex?

The thing is that, the relationship between complexity and hand-off difficulty happens to be non-linear.

Specifically, as complexity increases past what I call the complexity threshold, hand-off difficulty goes to infinity! In other words there’s a point beyond which hand-offs are not just difficult; they’re impossible.

I’m not aware of a method to calculate the exact location of this threshold, but here’s a rough rule of thumb:

1.   Make-to-stock environment: EASY

2.   Make-to-order environment: HARD

3.   Engineer-to-order environment: IMPOSSIBLE

So, where our software company is concerned, if perfect hand-offs are impossible, salespeople have no choice but to maintain an involvement in production after the sale is won (example 2, above).

Production needs the salesperson involved to resolve the numerous ambiguities in the specifications. And the client needs the salesperson involved too because they don’t feel comfortable that production truly understands their needs.

The good news is that salespeople’s continuing involvement in production resolves the worst of the hand-off problems. The bad news is that this model has two serious shortcomings:

1. Because salespeople tend to be busy, time spent in production is time that can’t be spent on business development. Of course, this results in a smaller opportunity pipeline; but the really bad news is that salespeople’s limited capacity tends to cause them to engage later in clients’ buying cycles – at the expense of both margin and deal size (read more about this problem here).
2. The resolution of the inevitable tension between sales and production occurs after the sale is made (you promised the client what!!). Of course, this tends not to have positive implications for customer satisfaction (or profitability).

Scenario 3: complex sales environment (optimal)

In identifying the real reason for salespeople’s entanglement in production, at least the direction of the solution to this problem starts to come into focus.

If perfect hand-offs are impossible, the key is not to try and fix them but, rather, to engineer the requirement for them out of the workflow. The third example in the diagram above shows how this can be done. This model introduces a new resource: the project leader.

The project leader is a technical person who is comfortable in the sales environment. This person belongs to neither the sales or the production team. This is because their reason for existence is to manage the interface between these two functions.

The project leader’s primary responsibilities are to:

1. Pre-sale: discover the clients’ requirements and design the solution
2. Post-sale; oversee (but not manage) production to ensure that the project stays true to the client’s (commercial) expectations

The value of the project leader, becomes more apparent when we track a client engagement from start to finish:

Because the salesperson has been disentangled from production, she now has the capacity to engage early in the client’s buying cycle.

This early engagement results in the first one or two meetings being conceptual in nature.

When the client is ready to brief the vendor on it’s requirements, the salesperson introduces the project leader?

The project leader discovers the client’s requirements, designs a solution and generates a proposal.

The salesperson and the project leader negotiate a resolution to the tension between sales and production (the project leader wants a solution that is deliverable: the salesperson wants one that is saleable). They may even involve the client in this discussion.

Once the client is happy with the solution proposed, the salesperson is responsible for negotiating commercial terms and getting the contract signed.

As soon as the contract is signed, the salesperson exists this engagement (although ideally she will continue to engage with the client on other opportunities).

During the production process, the project leader will chair periodic project-leadership meetings. These meetings will be attended by the client, the production team leader and the project leader. The purpose of each meeting is to maintain the fit between the project plan and the client’s commercial requirements. Major projects tend to drift off-track because (a) some assumptions made during solution-design turn out to be incorrect, (b) the client’s business environment changes during delivery and, (c) the client fails to dedicated the expected resources to the project.

Once the project has been delivered, the project leader will chair a formal debriefing meeting to (a) ensure that the client appreciates that the project was successfully delivered and, (b) create an ideal environment for the salesperson to prospect for new opportunities

In summary, then, this new model delivers the following benefits:

1. Salespeople engage earlier with (more) potential clients (as opposed to engaging only when opportunities have degenerated into bidding wars) – which impacts positively on margin and deal size
2. The trade-offs between features and price are negotiated prior to the deal being won – which impacts positively on customer satisfaction and profitability
3. The project leader takes an active role in maintaining the commercial integrity of the project – which also impacts satisfaction and profitability

Cost justification

When we present this (optimal) model to clients, most are excited. The greatest concern, however, is the impact on cost. There are two reasons why cost tends not to be an issue in reality.

1. Most of the activities performed by the project leader in this new model are being performed currently – it’s just that they are shared between sales and production. This means that, in many cases, you can transition to the new model by simply restructuring – without adding personnel. The most common way to achieve this is to convert your more technical salespeople into project leaders – and have your remaining salespeople focus exclusively on business development.
2. If you do choose to add new personnel in order to transition to this new model, you must contrast any increase in operating expense with the current opportunity cost of your salespeople’s lack of business-development activity. The bottom line is that, if your salespeople are not worth more to the firm when they are selling than they are when they are performing production-related activities, then they should not be salespeople in the first place.

In practice, when we are helping our clients to make this transition, we take a hard line on the issue of costs. Specifically, our policy is to never propose a transition plan that causes operating expenses to increase in the short term (you’re welcome to use the comments section to ask why!).

In most cases, we achieve this by dramatically reducing the size of the sales team and converting most of the existing salespeople into project leaders. Because SPE always increases the volume of business-development meetings performed by the remaining salespeople by an order of magnitude, 20% of the sales team will perform 200% of the current volume of business-development meetings.

As I mentioned at the outset, this is the most valuable idea we bring to the table whenever we work in a technical (engineer-to-order) environment. In fact, for many firms, fixing the interface between sales and production represents perhaps the most exciting short-term opportunity to develop a competitive advantage.

And this is an advantage that can be sustained for at least as long as competitors insist in maintaining the traditional approach to the structure of the sales environment (where salespeople operate as autonomous agents).

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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).

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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!

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It’s an introduction to Sales Process Engineering (45-minute introduction to SPE, and 15 minutes of question time).

This event was hosted by Constraints Management Group. It’s a preview of my two sessions at their annual conference (CMUC2010) in April.

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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, you should start by Googling Critical Chain Project Management.)

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