Yesterday, our sales function essentially consisted of a single salesperson. Tomorrow, sales will be the responsibility of a tightly synchronized team.

Principle 1: centralize scheduling

Our first principle dictates that, as we push towards division of labor, our very first specialist must be a scheduler.

We’ll elect to call our scheduler a sales coordinator.

It’s important to note that this person is not a sales assistant. The word assistant would imply that it’s the salesperson who allocates work. The opposite – as indicated by the direction of the arrow – is the case. The sales coordinator allocates work to the salesperson.

This means that the salesperson must transfer any and all scheduling responsibilities to the sales coordinator. This may be a more significant undertaking than it sounds when you consider that, in most cases, the salesperson’s scheduling responsibilities are not limited to the management of their own calendar. In most cases, salespeople are interfacing with production and customer service, coordinating the delivery of their clients’ jobs.

At this point in the discussion it’s premature to allocate specific activities to resources but it will do no harm to draw four very general conclusions:

1. Our sales coordinator must perform all scheduling
2. Our salesperson will spend more time selling
3. Our salesperson should work in the field (not in an office)
4. Our sales coordinator should work from the head office

The first two conclusions are not at all contentious. But the second two are less obvious, but important, none the less.

Salespeople work in the field: not an office

Traditionally, salespeople split their time between the field and an office. And this is unavoidable when you consider the diverse range of activities for which salespeople are responsible.

If we have a choice, however (and we soon will), it makes sense to have salespeople spend all of their time in the field, for two reasons:

1. If we are going to spend the (not insignificant) money required to employ field salespeople, it makes sense to have them selling in the field where, presumably, they’re more effective
2. A fundamentally different approach is required for scheduling field- and office-based activities – meaning that it’s impractical to schedule a blend of both

Where the second point is concerned, field activities tend to be allocated to specific time slots – and protected with significant time buffers. (Prospective clients would rather salespeople’s visits are pre-booked – and have little tolerance for salespeople who fail to appear when scheduled). This is not the case with office tasks. In most cases it makes much more sense to allocate activities to a list – and then sort that list dynamically to ensure that activities are completed within an acceptable lead-time. (In the first case, the worker goes to the work, in the second the work comes to the worker.)

When salespeople visit the office, they inevitably bring their field practices with them – meaning that they are shockingly inefficient, compared to a dedicated office-based person. Of course, this sets a poor example for their office-based colleagues.

The sales coordinator works from head office

It would be tempting to assume that the sales coordinator should operate in close proximity to the salesperson – but the opposite is true. The sales coordinator should operate in close proximity to the business functions with which sales must integrate.

We’ve already discussed that the integration between sales, engineering and production is becoming increasingly important for the modern organization. Well, it just so happens that integration is significantly easier to achieve if the individuals responsible for scheduling each function operate in close proximity to one another.

Additionally, if you consider the salesperson’s perspective, the salesperson will feel less disconnected from the organization as a whole if their sales coordinator is operating from head office.

The relationship between the sales coordinator and the salesperson

Although we are (for simplicity) drawing our inspiration from manufacturing, there is another type of production environment that is a better analogy for the sales function). It’s the project environment. Certainly, it’s healthy (particularly in major-sales environments) to recognize that sales opportunities are projects – and then to manage them as such.

We’ll expand on this idea shortly, but for the meantime, let’s consider the relationship between the sales coordinator and the salesperson by contrasting sales with another project environment where we have senior people working closely with schedulers.

That environment is the executive suite. In the executive suite of a decent-sized firm we will likely encounter at least one executive who works closely with an executive assistant. Unlike a plain-vanilla assistant, an executive assistant assumes overall responsibility for the initiatives (projects) in which the executive is involved – and, also, assumes responsibility for the executive’s calendar.

The executive assistant maintains an awareness of all the initiatives upon which the executive is working (and their relative importance) and plans the executive’s time so as to maximize the yield on their limited capacity.

If we take the preceding sentence and substitute executive assistant for sales coordinator and executive for salesperson, then we have a perfect functional description of the role of the sales coordinator. And if we reflect on the nature of the relationship between the executive assistant and the executive, then we will observe exactly the relationship that must exist between the sales coordinator and the salesperson in order for the sales function to be productive.

This discussion also sheds light on the inevitable questions about whether, in practice:

1. Salespeople will find it demeaning for someone else to plan their calendars
2. Potential customers will find it disturbing if salespeople fail to set their own appointments

The answer to both questions is a firm no. Treating salespeople like executives does not demean salespeople and, if anything, it elevates their standing in the eyes of potential customers.

Principle 2: standardize workflows

We’ll return to the subject of resourcing (and our diagram) in a moment. First we must standardize our sales-related workflows.

Our second principle dictates that we use a standard sequence of activities to:

1. Originate opportunities (identify or generate sales opportunities)
2. Manage opportunities (prosecute opportunities – resulting in either a win or a loss)

It makes sense to treat these as two workflows (rather than one) because opportunities tend to be originated in batches but prosecuted one at a time. Because opportunities tend to be originated in batches (via either prospecting or promotional activities) the idea of standardizing the first workflow is not a foreign one.

However, the case for standardization is not so clear when opportunity management is concerned. It’s easy to see that standardization will yield internal efficiencies, but we must explore whether or not our ability to win orders will be negatively impacted by standardization.

Or, to frame this consideration as a question: do our salespeople require unlimited degrees of freedom in order to effectively win orders?

The case for standardization

To address this question, we should first acknowledge that, whenever we are selling, a potential customer is buying. Therefore, our opportunity-management workflow is the flip-side of our potential customer’s procurement workflow.

So, we can reframe our question: do our customers require unlimited degrees of freedom in order to make an effective purchasing decision?

Viewed from this perspective, the answer is, not necessarily. Increasingly, organizations are standardizing their procurement procedures for those products or services they purchase regularly. What’s more, different organization’s procurement procedures, for similar products, tend to be remarkably similar.

If we consider major purchases, I suspect the greater variation we see in procurement procedures is more a consequence of an absence of procedure than it is evidence of the absence of a need for one. In other words, I’m suggesting there probably is an objective ideal procedure for making major purchases – it’s just that, because organizations make major purchases infrequently, they haven’t gotten around to figuring out what it is!

I’ve often asked groups of salespeople who sell major products (enterprise software, for example) if there’s a right and a wrong way for organizations to purchase a product like theirs and I’ve always been impressed by how well-reasoned and unanimous salespeople’s responses are.

My suggestion, then, is that there is an ideal opportunity-management workflow for both minor and major purchases. Where minor purchases are concerned, this is more likely to be determined, in advance, by your customers but there’s unlikely to be enormous variation, from customer to customer. Where major purchases are concerned, customers are unlikely to be aware of the ideal procurement procedure, presenting you with an opportunity to take the lead and help them discover it.

If you sell major products (where major refers to the magnitude of the decision, not the dollar value), your entire opportunity-management workflow should be designed around the concept of you taking the lead – but we’ll return to this point in a moment.

The anatomy of an opportunity-management workflow

Your opportunity-management workflow is little more than a sequence of standard activities. Here’s a typical sequence for a minor product (or service):

If we think of a sales opportunity as a project, then the table above is our project plan. In other words, it’s our sales coordinator’s job to schedule each of these activities in the sequence specified with each potential customer. And, as indicated by the objective column above, it’s our salesperson’s job to sell the next significant activity at each meeting.

At the first meeting in the sequence, the salesperson should sell the workflow as a whole. Now, because opportunity-management workflow is not a particularly client-friendly term, it’s more likely that the salesperson will present this critical sequence of activities as your engagement model. (From now on, we’ll use these terms interchangeably.)

Major product sales

Where major-product sales are concerned, it’s necessary to make one fundamental change to the design of the opportunity-management workflow.

As hinted a moment ago, the absence of a formal procurement procedure provides an opportunity for your organization to take a leadership position. Specifically, if your potential client is not practiced in purchasing whatever it is that you’re selling, then you should take the opportunity to manage their procurement procedure for them.

You do this by breaking your opportunity-management workflow into two parts:

1. Sell a solution-design workshop, feasibility study or similar
2. Via the solution-design workshop, sell your ultimate product or service

The solution-design workshop is a structured procurement procedure – facilitated by you, on behalf of your potential client. In many cases the solution-design workshop will be more than a single workshop: it’ll be a sequence of activities, like the following:

1. Pre-workshop research
2. Solution-design workshop (attended by all decision makers and key influencers)
3. Preparation of outcomes document (often a PowerPoint presentation)
4. Formal presentation of findings meeting (attended by all decision makers)

More often than not, it will be possible to charge for a solution-design workshop – and if you can, you should! But regardless of whether or not you charge, your solution-design workshop must be structured so that it delivers true stand-alone value to your potential client. (In other words, it cannot be a thinly-veiled sales presentation.)

When you are delivering a solution-design workshop, you have an obvious conflict of interest. This means that you must to go to special trouble to ensure that your methodology is robust and your reasoning, immaculate.

Principle 3: specialize resources

If we return to our project analogy for a moment, we now have a project plan (our opportunity-management workflow), a project manager (our sales coordinator) and a resource pool containing a single resource (our salesperson).

It’s time now to add to our resource pool so that we can exploit some of the potential of division of labor.

A nice starting point is to consider all of the activities performed by a typical salesperson and determine which can be allocated to other resources.

Beside each activity above is a proposed activity type. Some of these are obvious – and some are a little contentious. So, let’s be sure to resolve the contention, if we can, before we re-allocate four of the five following activity types:

1. Promotion
2. Administrative
3. Sales
4. Technical
5. Semi-technical

Promotion

It is possible for salespeople to generate their own sales opportunities but, the fact that they can does not constitute an argument that they should (and this statement applies to almost every other activity above too). The thing is, the generation of sales opportunities is extremely resource intensive if they are originated one at a time – and salespeople lack the resources required to generate them in batches. Typically the batch-generation of sales opportunities requires the ability to procure and manipulate contact lists, the ability to produce funky promotional campaigns, the resources to broadcast personalized e-mail (or snail mail) and perhaps even the ability to promote and coordinate events.

Salespeople lack these capabilities, so it makes sense to allocate responsibility for prospecting to the marketing department – and for marketing types, the generation of opportunities belongs to a subset of marketing called promotion.

But before we hand over prospecting to the marketing department, we need to be very clear on two points:

1. The person responsible for opportunity generation must be part of the sales function (not the marketing department)
2. A sales opportunity is only an opportunity if the potential customer has already been sold an initial meeting with the salesperson

If your firm is big enough to have a marketing department, it’s big enough for people in that department to be pulled in all directions at once! Because your sales function can’t operate without sales opportunities – and because sales is a critical function – there’s a pretty sound argument that the generation of sales opportunities should take automatic priority over any other demands on marketing people’s time. But, in reality, that will never happen!

The solution is to add a promotions coordinator to the sales function and make this person responsible for the administration of all promotional activities and, therefore, for the generation of sales opportunities. Your promotions coordinator should then use the marketing department as a resource for the creation or promotional collateral and so on.

If yours is a small firm (with no marketing department), point one is no big deal. If you need to add a promotions person, simply add a promotions coordinator to the sales function and have them outsource work that would otherwise have been performed by the marketing department.

Now, where point-two is concerned, if your promotions coordinator is responsible for the generation of sales opportunities, we need a functional definition of sales opportunity. You should define a sales opportunity as: a prospect who has requested a meeting with a salesperson or who is likely to accept one if offered.

In other words, I’m suggesting that the responsibility for selling the salesperson’s initial meeting with a potential customer must rest firmly on the promotional coordinator’s shoulders (and not the sales coordinator’s).

Administrative

It should be easy to see why data entry, reporting, calendar management and travel arrangements have been categorized as administrative activities but, what about appointment-setting and follow-up calls? How can they possibly be administrative?

Let’s start with follow-up calls.

As we have discussed already, at each meeting within the opportunity-management workflow, it’s the salesperson’s job to sell the next critical activity. If the next activity has already been sold, the scheduling of that activity is purely an administrative function. The standardization of the opportunity-management workflow has automatically eliminated the requirement for salespeople to make unplanned and unstructured telephone calls.

Now, it is true that prospective customers will often need to be called multiple times before a meeting is finally scheduled, but hustling ain’t selling: it’s hustling – and good administrative people make much better hustlers than salespeople!

On the occasion that an administrative person discovers that further input from the salesperson is required before the next activity in the workflow can be scheduled; the administrative person should either schedule another meeting with the salesperson, or a teleconference. In either case, this additional meeting does not constitute a material change to the opportunity-management workflow; it’s just a repeat of the preceding activity.

If you think about it, the initial appointment-setting call is no different from follow-up calls. If (and only if) the meeting has already been sold, the call is simply a scheduling exercise.

Here’s a real-world example:

Nigel is the director of sales for a large recruitment firm (one of our silent revolutionaries). Because he also happens to be most capable public speaker in the sales department, he’s now addressing a room full of senior executives – introducing a controversial approach to headcount management.

At the close of his presentation, he will ask delegates to complete a feedback form and encourage them to tick a box at the bottom of the form to indicate that they would like to schedule a best-practice briefing with Rick, the firm’s local consultant (salesperson).

It’s Nigel’s expectation that a little more than 20% of delegates will tick that box and virtually all of them will meet with Rick. What’s interesting is that Rick’s sales coordinator is unlikely to call any of them. Setting those appointments is such a simple undertaking that she will simply send each an e-mail, asking them to nominate their preference from a number of available meeting slots.

This is an example of an effective promotions campaign: evidence that, if promotions is done properly, even the initial appointment-setting call is purely administrative in nature.

In due course, we will pay much more attention to promotions. I understand that the generation of opportunities is a tough problem for many organizations – and that my new definition of opportunity makes this problem even more onerous – but, for the moment, I have to ask you to suspend your disbelief!

As perhaps you’ve already guessed, all administrative tasks (including both initial appointment-setting and follow-up calls) will become the responsibility of the sales coordinator.

Technical

Every major-sales environment has the same problem.

Salespeople become entangled in the delivery of the solutions they sell – and this entanglement cannibalizes their selling capacity.

This inevitable entanglement has a simple cause. The thing is, above a certain level of product complexity, a perfect hand-off from sales to production is impossible. Not just difficult: impossible. This means that, beyond this complexity threshold, information will always be lost when sales hands-off the project to production. This information-loss cannot be eliminated with more detailed briefings, more documentation or management exhortations to better communicate.

This graphical depiction of the complexity threshold shows that hand-off difficulty goes to infinity when

complexity increases beyond a certain point. The markers on the x-axis suggest the degree of complexity in

three environments: (a) make to stock; (b) make to order; (c) engineer to order

There are only two possible solutions to this problem:

1. Propose only products that are simple enough to sit beneath the complexity threshold (limit customization to a fixed menu of options)
2. Eliminate the requirement for a hand-off altogether

Of course, in major-sales environments, the second option tends to be the default approach. What happens is that the salesperson never fully hands-off to production: they remain on-call, post-sale, to answer questions and to interface with the client.

There is, however, another approach: one that has a profound impact on both sales effectiveness and service quality. The alternative approach is to add a third party to the mix: a person we’ll call a project leader.

In a major-sales environment there are two approaches to the avoidance of hand-offs.

In the default approach, the salesperson remains engaged through delivery.

This results in a reduction in the salesperson’s selling capacity and, consequently,

late engagement with potential clients. It also defers resolution of the inevitable tension

between sales and production until after the sale is won.

In this alternative approach, the project leader and the salesperson work side-by-side for most of the opportunity-management workflow.

Here are the essential characteristics of this approach:

1. Because the salesperson has no post-sale responsibilities they have more selling capacity. This enables them to engage earlier with clients than they otherwise would – meaning that initial contacts are conceptual in nature.
2. At the point at which the client wishes to discuss (in concrete terms) their requirements, the salesperson introduces the project leader.
3. The project leader takes responsibility for requirement discovery and for solution design (in many cases, these will occur in the form of a formal solution-design workshop).
4. From this point until the point of sale, the salesperson and the project leader work together. The project leader is responsible for the technical component of the engagement and the salesperson, the commercial component.
5. Post sale, the project leader champions the project as it moves through production. This means that the project leader replaces the salesperson as the primary point of contact for both production and the client.

The sole responsibility of the project leader is to manage the interface between production and both the client and sales. When they do their job well:

1. The product presented to the client is both saleable and deliverable (taking into account features, price, delivery lead-time, etc)
2. The product that is ultimately delivered to the client fulfills the client’s requirements, without compromising the profitability of the organization (understanding that the client’s requirements may well have changed – or been reinterpreted – during delivery)

Because the project leader seeks to optimize the numerous trade-offs though both the opportunity-management and delivery phases of the engagement, it should be clear that their role is critical and their contribution invaluable. For this reason, the project leader should always have protective capacity (they should never be over burdened with work). Accordingly, it is not a problem that the project leader works both in the office and in the field. If we are deliberately maintaining the project leader at less than 100% utilization, it is obviously not necessary to maximize their efficiency.

Semi-technical

Semi-technical activities include the generation of standard proposals, the processing of repeat transactions and the provision of after-sales support.

All these activities – as well as any others that are semi-technical in nature should be allocated to the customer service team.

Curiously, most organizations already have customer service teams. However, the primary responsibility for customer service rests with the salesperson. The result tends to be that the customer service representatives are disillusioned and generally unprepared to take ownership of customer service cases (we’ll use the word case to refer to a unit of customer-service work).

This means that two changes must occur. The customer service team must rapidly develop both the capability and the capacity to take full ownership of the entire customer-service case-load. And, salespeople must extricate themselves from customer service.

In practice, the latter is not as difficult as it sounds. With two simple initiatives, it can be accomplished quite quickly:

1. Salespeople must avoid taking ownership of customer-service cases in the first instance. This is easier than it sounds. For example, if a client asks a question about an incorrect order, the salesperson might use their cell phone to initiate a three-way conference call between the client, a customer-service representative (CSR) and themselves.
2. Customer service representatives must assume ownership of cases as soon as they encounter them. With this in mind, it is useful, in the design of your customer-service workflow, to stipulate that the CSR must send the client an e-mail when each case is opened and closed. Obviously, the first e-mail should make it clear that the CSR is the person responsible for resolving the issue and is, consequently, the primary point of contact.

The customer-service team must be head-office based (close to production). If there’s a requirement to perform field visits in order to resolve customer-service cases (perhaps to inspect a problematic product), the CSR should task the project leader to perform this visit and report back with the necessary information.

If we return to our project analogy – where we compare a sales coordinator with a project manager – we can now see that our sales coordinator has inherited a resource pool consisting of three resources (salesperson, project leader and customer service representative).

This means that, in order to prosecute each sales opportunity, the sales coordinator will break the opportunity into a series of activities and allocate each activity to one or more of these resources, in accordance with the routing specified in the opportunity-management workflow.

The client’s perspective

It’s easy to see that this model is quite ordered and logical from the organization’s perspective: but what about the client? In asking our clients to interface with multiple people, haven’t we just made their worlds more complex?

It’s true that in this model, clients will interface with four people (sales coordinator, salesperson, project leader and customer-service representative).

It’s also true that, today, most clients ask for – and most organization’s strive to provide – a single point of contact. However, reality is a little more complicated than this.

It’s a mistake to commence this discussion with an assumption that the traditional model delivers good customer service. It simply doesn’t.

It’s also a mistake to take clients’ claim that they’d rather have a single point of contact at face value. In practice, clients can be quite aggressive in seeking-out relationships with other individuals if they sense this is in their best interest.

My experience is that the following statements are closer to the truth (particularly in major-sales environments):

1. Clients don’t mind multiple points of contact, but they want a single conversation. In other words, they will willingly speak with multiple people within your firm as long as they do not have to repeat themselves.
2. If clients have a choice between dealing with a single generalist and multiple specialists, they would rather speak with specialists.
3. Although we talk about the client as if this were a single entity, in most cases, there are multiple people client-side involved in the purchase and consumption of your products.

You will discover that this new model provides a vastly better quality of service, provided you ensure that:

1. There is a clear delineation of the responsibilities of the four parties with whom clients interact
2. Sales coordinators (who are planning all opportunity-management activities) and CSR’s are in close communication with one another

Principle 4: formalize management

As discussed, the downside of division of labor is that it causes environments to become fragile. Although it’s the responsibility of the sales coordinator to synchronize the various team members, management oversight is critical for a number of reasons:

1. Sales coordinators tend to be younger and less-experienced than both salespeople and project leaders. Accordingly, the sales coordinator’s mandate is very limited. If the sales environment is operating exactly as it should be, they have total control over the schedule. However, a relatively small disturbance in the operation of the environment can render them impotent.
2. The sales function must integrate effectively with other functions (production and marketing, to name two). Because the sales coordinator tends to be relatively inward-looking, it’s necessary for a more senior person to interface with those other departments.
3. In most sales environments there are multiple sales coordinators (one for each salesperson). This means that a more senior person must manage any contention between sales coordinators (or salespeople).
4. As with any environment, there’s a requirement for a senior person who is somewhat detached from the day-to-day minutiae, to perform a periodic audit

Hence the requirement for a sales manager.

The sales manager’s most important duty is to chair a regular (at least weekly) sales meeting. To be effective the sales meeting must have an explicit agenda, it must run to the agenda, and it must be short (20 minutes)!

The model for an effective sales meeting should be the standard factory (stand-up) work-in-progress meeting.

The enduring challenge with sales management in general, and with the conduct of sales meetings in particular, is the absence of objective information. Many organizations have given up on sales meetings because, in the absence of objective information, they are ineffective, at best; caustic, at worst.

With division of labor, an interesting change has occurred, with respect to management information. Previously, all sales-related information was owned by the salesperson – who was free to reveal (or not) this information when it was advantageous to them.

In the new model, the sales coordinator is the central information repository. Not only are they aware of sales activities before the salesperson (they schedule them), but they receive accurate and timely updates from the salesperson (the salesperson can only disadvantage themselves by failing to communicate).

Provided, then, we have the necessary technology (a subject we’ll get to in due course), we are now in a position to have an objective – and therefore productive – sales meeting.

In addition to the conduct of sales meetings, the sales manager should be responsible for:

1. Accompanying salespeople in the field to share best practice between salespeople
2. Accompanying salespeople on (typically) late-stage meetings to assist in the winning of deals
3. Participating (along with other senior managers) in the formulation of offers and other decisions that must be made by a multi-functional committee
4. Whatever activities are required to maintain the overall health of the sales environment and the quality of the interface between sales and other functions

It should go without saying that this new model empowers the sales manager. With the critical combination of information and control (via the sales coordinator) they are transformed from a lobbyist to a true manager.

* * * *

In chapter one, we encountered James Sanders Group (one of our quiet revolutionaries). We discussed Jennifer’s enormous productivity and the productive relationship she has with David (her sales coordinator) and Phillip (a project leader). We also discussed the critical role that customer service has played in the remarkable transition that has occurred at JSG.

This chapter should have shown how our four key principles lead logically to this end result. In part two of this book we’ll pick up on the many threads left open in this chapter. We’ll talk more about major-account selling, about promotions, technology, and so much more.

But before, we dive deeper into the practical workings of SPE; we should widen our focus and consider the sales function as a single cog within a much larger machine or, if you like, as the machine within the machine.

The issue is not that these questions expose weaknesses in Sales Process Engineering (SPE). The issue is that these questions stand in the way of our discussion even getting started!

Considering the radical nature of the change we’re contemplating, it’s only natural to ask:

1. If the standard sales model is so dysfunctional – and if there’s a better method available – why haven’t more companies adopted it already?
2. If the standard model has evolved over many years – and withstood the test of time – how can it be that this model is fundamentally flawed?

Why do we persist?

There are two (interrelated) reasons why we persist with the traditional approach to the design of the sales function.

First, the standard model conforms with all our assumptions about how sales should be made. And, second, it is impossible to inch your way to the new model – a revolution is required.

Deeply-held assumptions

If we are to evaluate the standard model with reference to long- and deeply-held assumptions about how to generate sales then the standard approach to the design of the sales function measures up well.

Ask yourself, do you agree with the following statements:

1. Sales of expensive products and services are highly dependent upon personal relationships
2. A successful sales function is highly dependent upon star performers
3. Salespeople should be encouraged to operate autonomously – to view their territory almost as if it is their own business
4. Customers require – and benefit from – a single point of contact with their suppliers
5. Sales improvement is all about improving conversion (plugging the leaky funnel)

Each of these statements sounds innocent enough, right? But, for most salespeople – and their managers – these statements are more than true. They are axioms (fundamental, self-evident and unquestionable truths). Attempts to challenge them will be met with injured feelings, or even hostility.

Consequently, any approach to sales improvement that is in alignment with these axioms will feel right. But an approach that conflicts with one or more will almost certainly be dismissed out of hand. As you’ll discover in due course, SPE conflicts with every one of these axioms – and with numerous other commonly-held beliefs about sales too.

Sadly, the serious consideration of SPE tends to require at least one of the following conditions:

1. The performance of the sales function must be so bad as to shake management’s faith in the standard model to its very core
2. A senior executive with no prior exposure to sales (perhaps an engineering or production specialist) must turn their attention to the sales function

Almost without exception, our silent revolutionaries began their investigation of SPE only when both of these conditions were in place!

Incremental change won’t cut it

The other hurdle to the adoption of SPE is the magnitude of change required for the successful transition.

Consider just a few of the changes that have to occur:

1. Salespeople must willingly give-up ownership of their calendars and ownership of sales opportunities
2. Salespeople must be prepared to spend all of their time in the field (in practice this means a five- to ten-times increase in territory size: and, consequently, a lot more travel)
3. Management must be prepared to add new team members and – possibly – to see some existing team members exit the organization
4. Management must be prepared to assume (and, ultimately, reassign) responsibility for the origination of sales opportunities

And then there’s the impact on the rest of the organization:

1. In many cases, customer service needs to be reengineered to cope with the additional load
2. The new project leadership function must be tightly integrated with production and customer service
3. If production scheduling has devolved into brinkmanship to accommodate the demands of a small number of increasingly-powerful customers, this negative trend must be reversed

When you consider the counter-intuitive nature of SPE and the significance of the transition from the standard model, it’s little wonder that the standard model persists.

But it can only persist so long!

There’s a slow trickle of sales managers (and even salespeople) who are recognizing the dysfunction within their sales functions. And there are numerous executives from other functions who are growing restless with the under-performance of sales and who are starting to suspect that the emperor has no clothes!

How did we get here?

The standard sales model didn’t used to be dysfunctional.

For much of the history of industry, this model has been the optimal one. (In fact, there are situations today, where the standard model is still quite appropriate.) What has happened is that industry itself has undergone two sea-changes and sales has stayed pretty much the same.

From production- to sales-focused

In the 1989 classic, Field of Dreams, Kevin Costner’s character plows under his corn and builds a baseball field in the hope that if he builds it, he will come. Fortunately ‘Shoeless’ Joe Jackson and his colleagues arrive just in time to rescue the hapless farmer from bankruptcy.

Today, the phase build it and they’ll come is often used to reference the unrealistic expectation that production is sufficient to create a market. However, for most of the history of industry, production has, in fact, been sufficient.

Until recently, the salesperson’s job was to take a highly differentiated product and demonstrate it to potential customers. Sure, there was a requirement for some salesmanship but, for the most part, the sale was really made in production.

Today, because the market is so much more competitive, it’s unusual for a product to be highly differentiated. It’s common for customers to choose product a over product b and reasonably expect to pay a similar price for a product that performs almost identically. It’s true that we still have true ground-breaking products, but these are much more likely to be the exception, rather than the rule.

Because production has been the primary success driver for most of our recent history, this is where our capital and our brainpower have been invested. And the return on this investment has been staggering. Over the last 100 years we’ve seen orders of magnitude increases in productivity (measured against any reasonable standard) and orders of magnitude improvement in quality.

We’ve seen at least three major revolutions in production. Frederick Winslow Taylor introduced scientific management at the start of the last century. Ford’s approach to mass production drove costs down to unprecedented levels. And, in the 1950’s W. Edwards Deming jump-started the quality movement, contributing to the rise of Japan and subsequently revolutionizing operating procedures in production facilities the world over.

Of course, the rate of change we’ve seen in production cannot be sustained forever. Increasingly, managers are recognizing that their advances in production have exposed sales (including distribution) as the weak link.

Today, sales is the new frontier. We’re already seeing the focus of senior management shift to sales (and with focus comes capital and brainpower). My prediction is that the next 50 years will bring revolutions in sales similar in scope and consequence to those we’ve seen in production.

Let this book be the first shot across the bow of the good ship Orthodoxy!

From make-to-stock to engineer-to-order

As mentioned previously, the fundamental assumption that sits at the base of the standard sales model is that: sales is the sole responsibility of an autonomous agent.

If we consider how a typical organization has been structured for most of the history of industry, this assumption is a perfectly reasonable one.

Make-to-stock

Above is a traditional value-chain. The production facility produces to maintain a stockpile of inventory. The salesperson sells from this inventory.

In this environment, it makes perfect sense for the salesperson to operate autonomously. The firm as a whole benefits when its salespeople sell as much as possible. Because inventory is already sitting in a stockpile, orders can be fulfilled as soon as they are received. And because of this stockpile, there is minimal requirement for interaction between sales and production.

Make-to-order

Increasingly, this is not how value-chains are configured. We have seen a recent and dramatic shift from make-to-stock to make-to-order environments. The latter reduces holdings costs and provides customers with greater choice. In a make-to-order environment it no longer makes sense for the salesperson to simply sell as much as possible. The salesperson needs to sell only what production has the capacity to produce. Rather than operating autonomously, the salesperson must subordinate to production.

This is complicated by a further twist in the value chain. Today, an increasing number of products (as well as almost all services) are actually designed (engineered) as they are being sold. In an engineer-to-order environment, tight integration between sales, engineering and production is critical. The degree of integration determines both the likelihood of the sale being won and the quality of the product delivered.

In such an environment, sales cannot possibly be the sole responsibility of an autonomous agent. In fact, for this reason, the standard model damages both sales performance and product quality (and, therefore, customer satisfaction).

In summary, the standard model always has and perhaps always will make sense in make-to-stock environments – where it is possible for the sales function to operate at arms-length from production. Such environments include:

1. Most consumer goods (typically sold in retail environments)
2. Consumer and small-business financial services (insurance and investment products)
3. Packaged software

However, in make-to-stock and (particularly) engineer-to-order environments, the requirement for tight integration between sales, engineering and production renders the standard model dangerously inappropriate. Environments like:

1. Business services (consulting, legal and finance)
2. Design-and construct building
3. Enterprise software

Now we understand why sales environments look the way they do today – and why change is not necessarily an appealing proposition – let’s return to the task at hand: redesigning the sales function.

Direction of the solution

Let’s consider how we might go about causing a dramatic increase in the productivity of the sales function. What might be the direction of the solution?

We should immediately discount traditional sales-improvement initiatives (sales training, for example). History suggests that, at best, such initiatives produce only incremental results.

For inspiration, we might look to manufacturing. This makes sense because we know that this is one part of the organization that has seen a dramatic increase in productivity in recent times.

Do we know the cause of this dramatic change? As it happens, we do.

In 1776, in his magnum opus, An Inquiry into the Nature and Causes of the Wealth of Nations, Adam Smith predicted that division of labor would drive a massive increase in productivity. He told the story of a pin-manufacturing operation where 10 workers had divided the production procedure into 18 distinct steps and shared these steps among themselves.

Individually, each worker could produce 20 pins a day. Collectively they were producing 48,000!

The benefits of division of labor are not enjoyed only in manufacturing environments. If we take a stroll around a typical organization, we discover division of labor in all types of production environments, in engineering and even in finance. In fact, the only part of the organization that has not embraced division of labor is sales!

Assuming that there is no reason to immediately disqualify division of labor, let’s assume that this is the direction of our solution.

Playing the Devil’s advocate

But, not so fast!

If we were to commission an experienced salesperson to defend the standard model – to be the devil’s advocate, as it were – can we imagine their objections to the concept of division-of-labor?

These are likely to be their two primary objections:

1. Complexity: “Sales is complex in most environments nowadays. You have multiple influencers and decision-makers. You have numerous conversations with multiple parties spanning weeks or months. This complexity does not lend itself to division of labor.”
2. Personal relationships: “People buy from people. No one likes to transact with a machine. Division of labor will destroy the critical personal relationship between the salesperson and the customer.”

Before we directly address these objections, it’s interesting to observe that these are similar in nature to the objections you might hear from a craftsperson (an artisan) who is being encouraged to transition to a modern manufacturing environment.

This person is likely to suggest that if they do not personally craft their product, any increases in efficiency will surely be offset by a reduction in quality.

Of course, history suggests that the artisan’s concerns are unwarranted! It just so happens that the changes we must make to a production process to improve efficiency are the very same changes that are required to maximize quality. (The quality revolution taught us that the words efficiency and quality are functionally synonymous.)

Complexity

Our devil’s advocate is correct. A modern sales environment is certainly likely to be complex – for all the reasons stated.

But is complexity a reason to avoid division of labor?

If it is, we should see a decline in division of labor as we examine environments of increasing complexity. Let’s consider two extremes in a production context: the assembly of a hang-glider, versus the assembly of a jet aircraft. The notion of a single person assembling even the simplest of jet aircraft is laughable. The fact is, in truly complex environments, division of labor is not just possible: it’s essential.

Our devil’s advocate has identified a potential problem in the application of division of labor – one we’ll grapple with in due course – but they have not dealt our proposed solution a lethal blow.

Personal relationships

It’s true that people enjoy (for the most part) interacting with other people. It’s also true that many salespeople have good relationships with accounts.

However, it’s dangerous to assume (as salespeople frequently infer) that these relationships cause sales.

To see why, we should enquire into the origin of a salesperson’s relationships. Specifically, which comes first, the sale or the relationship? The reality is, for the most part, the salesperson’s relationships are the consequence of sales, not their first cause!

Now, our devil’s advocate is unlikely to take this line of reasoning lying down! His immediate objection will surely be that the distinction between first and proximate cause is purely academic – and that if relationships and sales are related, it matters little how they came to be that way!

It’s here that we must make a critical distinction – a distinction between the initial transaction in a series of transactions and the rest of those transactions. In most cases, the salesperson’s initial transaction signals the acquisition of a new account. All of the subsequent transactions (assuming the same product or service type) are repeat purchases. The first transaction – because it signals the acquisition of an annuity – is many times more valuable than each of the subsequent ones.

Because initial and subsequent transactions are materially different, it doesn’t make sense to lump them together and refer to them all as sales, as our devil’s advocate is doing.

So, for the balance of this book, we will use the word sale to refer only to the acquisition of a new account (or the sale of a new product or service line to an existing one). We will refer to repeat transactions as transactions.

We must consider, now, the contribution that the salesperson’s relationship makes to the retention of existing accounts. There’s no question that this relationship must factor into the retention equation but, what are the other considerations?

As we’ll discuss in much more detail, every organization must have three core functions to be viable in the long run:

1. New-product development
2. Sales
3. Production

It’s revealing to rank these three functions in the order in which we believe they will impact account retention.

In spite of the fact that salespeople, all over the world, are allocated responsibility for retention, it is extraordinarily rare to find a salesperson who will identify sales as the primary influencer of retention! Almost, without exception, salespeople recognize that production performance is the primary. In other words, the number-one thing that an organization must do to retain its customers is deliver on time, in full, without transactional errors.

Salespeople will also willingly volunteer that the number-two thing that an organization must do is ensure that its products are consistently better than – and cheaper than – its competitors’: which is, of course, the responsibility of new-product development.

The shocking reality is that salespeople contribute little to retention, relative to production and new-product development – in spite of the fact that it is their responsibility (consider how many salespeople are actually referred to as account managers)!

If you are deficient in the areas of production or new-product development, it may be that your salespeople’s personal relationships cause accounts to persist with your organization a little longer than they otherwise would. However, to claim that personal relationships cause sales amounts to either equivocation or outright denial (or a little of each!)

Putting division of labor to work: four key principles

With those objections out of the way, we’ve bought ourselves a little bit of time to piece-together our solution. Division of labor is not the solution, after all – just the direction of the solution.

Our devil’s advocate intuitively recognized this when they raised the objection about complexity.

The thing is, when we apply division of labor to any environment, things tend to get a lot worse before they get better! The rewards offered by the successful transaction from the craftshop to division of labor are exciting (as reported by Adam Smith all those years ago) but the transition itself is difficult and extraordinarily perilous.

The fact that production has been the primary focus of industry for the last 100 years is evidence of the difficulty of the transition. The good news is that, if we intend to lead our sales function down the path already taken by production, this is indeed a well-trodden path.

The lessons from manufacturing can be generalized into four fundamental principles:

1. Centralize scheduling
2. Standardize workflows
3. Specialize resources
4. Formalize management

We’ll dedicate the balance of this chapter to the exploration of these principles – in their natural manufacturing context. And, in the next chapter we’ll figure-out how to repurpose these principles for the sales environment. First, however, we need to be sure we understand the nature of the problem we are attempting to solve. To achieve that, we’ll turn our attention to a boat race.

The primary challenge

Two boat races, in fact: both time trials. In each case the oarsmen will attempt to maximize the speed of their vessels.

Autonomous agents

In the first race, each oarsman commandeers his own boat. Each is an autonomous agent. When the starter’s gun fires, each oarsman must do his level best to maximize the speed of his vessel. And he does that, not surprisingly, by rowing as fast as is humanly possible.

This race is an allegory for the craftshop environment in manufacturing (and for the standard sales model).

Division of labor

In the second race, we make one subtle change. We put all the oarsmen in the one boat. The goal is the same: maximize the speed of the vessel. But each of the oarsmen must undergo a radical shift in his approach to the goal. If each oarsman rows as fast as is humanly possible, the speed of the vessel will definitely not be maximized.

If each oarsman maximizes his individual rate of work, the consequences will be a lot of noise, clashing of oars and, possibly, a capsized boat! In this second race (an example, of course, of division of labor) the speed of the vessel is determined primarily by the synchronization of the oarsmen – not by their rates of work.

Now, the shift of focus from individual effort to synchronization may not seem significant but it is – particularly when we consider environments more complex than a row boat. Learning to row in unison with others is tricky, but this skill (in this context) is made easier by two factors:

1. You are operating in close proximity to your colleagues – you simply stroke in time with the oarsman ahead of you
2. You have immediate feedback – you can see and feel the impact of your actions on the performance of the vessel as a whole

These factors tend not to be present in a more typical work environment (few people, today, work in row boats).

In a reasonable-sized manufacturing plant, for example, it’s unlikely that all of the workers contributing to a process are in visual contact with one another. And, in a knowledge-work environment like (say) a sales function, work-in-progress is invisible and lead-times are long – meaning that there is no immediate feedback.

In such an environment, how do workers synchronize their rates of work? The short answer is that, without special intervention, they simply don’t.

Here’s an interesting thought experiment.

Consider the changes we would need to make to our row-boat model in order for this model to be representative of a standard work environment (production or sales).

How about we replace each of the oarsmen with a rowing machine – a powerful solenoid, operated by remote control? And, how about we put each of our oarsmen in a cubicle in an office complex – with a remote control unit?

On each remote control unit is a button that actuates the solenoid back in the boat and causes that oarsman’s two oars to stroke. If each oarsman is isolated from the boat – and from his colleagues – and he is committed to winning that race – how will he determine when to press the button?

Sadly, this humorous scenario is not dissimilar to many modern work environments. To complete the picture, all we need to do is add a manager who attempts to improve the performance of the boat by running from cubical to cubical encouraging everyone to row harder – and then who periodically berates team members for their lack of communication!

Principle 1: centralize scheduling

To claim that division of labor causes workers to become disconnected from the performance of their overall system is stating the obvious. After all, as we’ll soon discuss, a narrowing of the worker’s focus is both a benefit of, and a necessary condition for, division of labor.

It’s inevitable, then, that division of labor will result in synchronization problems.

The solution is to centralize scheduling.

If you think of any work that you perform, that work can be broken into two components:

1. The critical activities that cause matter (or information) to change form
2. The determination of the sequence in which to perform these tasks and of when, exactly, to commence each

The second component of work is what we’ll be referring to as scheduling.

Of course, scheduling is pretty easy when it’s just you doing the work. You can learn the basics in a half-day time-management workshop! However, as you add more workers to the work environment, scheduling rapidly becomes very difficult.

The key to avoid synchronization problems when we apply division of labor is to first split the responsibility for these two types of work. If we fail to do this, the local efficiency improvements that result from workers focusing on a single task will quickly be eaten-up by the general chaos that spreads through the environment (remember the clashing oars in the row boat).

There are many environments where the centralization of scheduling is a well-established practice:

1. The manufacturing plant (where scheduling is the responsibility of the master scheduler)
2. The project environment (where the project manager owns the schedule)
3. The orchestra (in a string quartet, the first violin sets the tempo; however, in the case of a full orchestra, a dedicated conductor is required)
4. The airport (consider the chaos if, in the absence of an air-traffic controller, pilots had to decide among themselves when to take-off and land!)

In each of these cases, scheduling is a specialty. (The project manager doesn’t wear a tool belt and few air-traffic controllers even know how to fly planes.)

Now, it’s true that even the most complex sales environments are less complex than a busy airport but, it’s also true that almost every sales environment is significantly more complex than a row boat. Therefore, if we are entertaining the idea of applying division of labor to sales, we must first acknowledge that the very first activity for which the salesperson relinquishes responsibility will be scheduling.

Post script

Until now, we have accepted that, in a simple environment – like a row boat – division of labor doesn’t require the centralization of scheduling.

However, it’s interesting to consider what we might do if we were really serious about winning the boat race we discussed earlier.

If you look at most competitive rowing teams you’ll discover – you guessed it – centralized scheduling!

Centralized scheduling

In a scull, for example, the coxswain sits in the stern of the boat, facing the oarsmen, and sets the tempo to which the oarsmen row.

If we consider the racing scull for a moment, we can draw two interesting observations that relate to scheduling in all environments:

1. The coxswain is a dead weight (he does not row) and his inclusion increases the weight of the vessel by a significant amount. It’s reasonable to assume, then, that the performance improvement resulting from the inclusion of the coxswain more than compensates for this weight increase. And this is in an environment where the centralization of scheduling is not even critical!
2. The coxswain maximizes the speed of the boat by causing all of the oarsmen to row at the same speed as the slowest oarsman. Therefore, to maximize the speed of the boat, all but one of the oarsmen must row slower than they possibly can.

Principle 2: Standardize workflows

The need to standardize all workflows is regarded as self-evident by many managers. Note the attention paid to standard operating procedures in a modern workplace.

But it’s worth acknowledging that standardization is only a necessity in an environment where division of labor has been applied.

If we were to insist that an experienced craftsperson create (say) violins following exactly the same sequence of steps for each instrument, it’s not so clear that craftsperson’s productivity would increase.

Consider sales environments, for example. Almost every mid- to large-sized firm has invested tens (or, more commonly, hundreds) of thousands of dollars in CRM technology in recent years on the promise of increased sales performance. If you examine business cases for typical CRM implementations, you’ll discover that many of these promises hinge on an assumption that the standardization of salespeople’s procedures will cause an increase in sales.

Of course, it’s rare to encounter an organization that can point to any performance improvement that is attributable to the CRM. The reason for this is simple: capable salespeople neither need nor benefit from the standardization of their operating procedures. In fact, the CRM has provided capable salespeople with additional overhead: data-entry that must be done purely to satisfy management! When you consider the small number of sales opportunities that a typical salesperson is prosecuting at any point in time, it’s clear that the salesperson’s trusty Franklin Planner is significantly more useful than the CRM!

But division of labor changes things: standardization suddenly becomes critical.

When the person who plans the work (the scheduler) is remote from the people who do the work, the standardization of procedures (and workflows) prevents the complexity of environments from multiplying to unmanageable levels.

In manufacturing environments the workflow is referred to as the routing. The routing is the path that work will follow through the plant, taking into account both the activities that will be performed and the resources that will perform them. The general rule in manufacturing is: same product, same routing.

If we apply division-of-labor to the sales environment, we must standardize our workflows for the same reason. For this environment to be manageable and scalable, all opportunities of the same type (same objective) must be prosecuted using the same routing – from the origination of opportunities, through their management.

Principle 3: Specialize resources

In discussing the centralization of scheduling we’ve already broached the subject of specialization. We know that when we apply division of labor, the scheduler is the very first specialist.

Indeed, once we have centralized scheduling and standardized workflows, specialization is relatively easy.

Specialization causes a significant increase in workers’ productivity for two reasons:

1. When a worker performs activities of just one type, they become very good at performing those activities
2. Switching between materially-different activities imposes a significant overhead on a worker. The elimination of this switching (multitasking) increases that workers effective capacity

Of course, specialization doesn’t just relate to people. In most environments, today, activities will be shared between people and machines (including computers). However, we should note that automation has not been the root cause of productivity improvement in the last 100 years. The primary is division of labor. After all, it’s division of labor that has allowed us to simplify activities to the point where they can be performed by machines.

Principle 4: Formalize management

It’s interesting to note that there’s no essential difference between a scheduler and a manager.

To appreciate why, let’s consider when and why the concept of manager sprung into existence (at least in a business context).

In the craftshop environment, there was no such thing as a manager. Division of labor created a requirement for managers because, as workers became specialists, someone had to synchronize the operation of the work environment as a whole. That’s right; manager is just another word for scheduler!

Today, scheduling is still management’s primary responsibility; it’s just that modern managers employ technical types to do the more detailed scheduling, freeing them to focus on compliance and the synchronization of their function with the rest of the organization.

Although scheduling and management are essentially the same, in practice, the manager plays a critical role for two reasons:

1. Division of labor causes work environments to become inherently fragile
2. Because the organization consists of a number of functions – each of which could be characterized as an oarsman in a larger boat – someone must pay attention to the synchronization of the organization as a whole

Specialization is a two-edged sword. It causes a dramatic increase in the productivity of each individual but it also causes each worker to operate in a vacuum – intently focused on their own work in progress (or their task list). To a great extent, the scheduler compensates for this narrow focus, but the manager is still required to ensure compliance with the schedule, to resolve problems as they occur and to make decisions relating to the design and resourcing of the overall environment.

If we consider that the organization as a whole consists of a number of functions (sales, engineering, production, finance, etc) then we can see that the synchronization of the firm is as necessary as the internal synchronization of each function. This is the responsibility of the management structure as a whole, including all executives from the CEO down. In short, it’s the responsibility of each functional manager to ensure that their function makes the necessary contribution to the goal of the organization (we’ll pay more attention to this subject in due course).

You may be wondering why this principle is entitled formalize management, as opposed to just manage. Well, in the context of this book, the distinction is important. A sales manager in a traditional sales environment is not a manager and nor can they be.

Management only becomes possible after the application of division of labor. If the essential responsibility of management is scheduling – and if the salesperson in the standard model operates autonomously (they own their own schedule) – then a sales manager in this environment is a manager in name only.

By the way, the common claim that I manage outcomes is not a defense; it’s an admission of liability. To manage outcomes is to not manage at all. A manager who manages outcomes is a spectator, not a manager!

So, armed with the direction of our solution (division of labor) and the four key principles that enable division of labor to work in practice, let’s turn the page and envision a brand new model for the sales function.

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.

[Listen to a seminar on this subject!]

If your organisation sells expensive (or complex) products and services, odds are, you get most of your new clients by ‘word of mouth’ or referral.

If you’ve tried your hand at lead generation advertising, you’ve probably discovered that, even if an advertisement does make the phone ring, it’s a pyrrhic victory. (Isn’t it true that traditional advertisements tend to attract a calibre of clients better suited to your competitor’s business than yours?)

The problem with ‘word of mouth’ as a primary promotional medium is that, because it’s passive in nature, it’s difficult to scale. In other words, ‘word of mouth’ is limiting your business to incremental (rather than exponential) growth.

So why is it that traditional marketing wisdom breaks down when products are expensive or complex – or, worse still, when products aren’t real products at all, but intangible ‘services’? And is it possible for an organisation that sells such products to develop a more proactive approach to business marketing than a reliance on ‘word of mouth’ business?

The answer to both of these questions lies in the discovery that there are actually two types of customer in this world!

Two types of customer

We like to say that there are two types of customer in the world.

One type of customer ‘buys’ a product. (She focuses primarily on product attributes and price.)

And the other type of customer ‘buys’ a relationship. (She is less focused on the transaction, and more interested in a longer-term relationship.)

A customer tends to be ‘product-focused’ when she’s purchasing a commodity. If she’s choosing between Qantas and Ansett, between Dell and Compaq or between Holden and Ford, she’s likely to make that decision based primarily upon product features and price.

However, if this same customer were choosing a new accounting firm, looking for a financial planner, or organising an African safari, she is more likely to be shopping for a relationship than for the very lowest price.

Now this observation is more than just a curiosity. The choice between product- and relationship-focused customers affects the very design of a business. The fact is, a business designed to serve product-focused customers will drive the relationship-focused variety away in droves! (And vise versa.)

A ‘product-centric’ business promotes features and price – where a ‘relationship-centric’ business promotes a total solution.

A product-centric business exploits the value in a transaction, where a relationship-centric business profits from the value in a relationship (lifetime value).

And a product-centric business grows primarily by expanding its share of market (more customers) – where a relationship-centric business grows primarily by expanding its share of customer (more services for each customer).

A natural advantage for small businesses

While small businesses do not generally have the scale required to compete on the basis of features and price, they do have a natural advantage when it comes to delivering ‘customer intimacy’ – a key requirement of relationship-focused customers.

Furthermore, relationship-focused customers are prepared to pay a premium for these relationships – insulating smaller businesses from the inevitable ‘margin shrinkage’ that efficient markets (read: their larger competitors) inflict upon them.

Smaller businesses tend to recognise this. But few have any idea how to attract, to service, or to profit from relationship-focused customers.

The solution is to turn traditional marketing methodology on its ear and build a relationship- rather than a product-centric marketing program.

Selling a relationship

If you’ve decided you’d rather be in the business of selling relationships than (keenly priced) products, here’s a three-step introduction to our ‘relationship-centric’ marketing model:

1. Take your focus off sales. If your customers aren’t transaction-focused – you certainly shouldn’t be.
2. Create an automated communications program. Because a key ingredient in any relationship is communication, this system should provide your customers with regular (and meaningful) points of contact with you. Your automated communications program should be designed to exploit the value resident in the relationships under your management. However, rather than designing this program to optimise the value of individual transactions, you should design it to maximise customers’ ‘lifetime value’. ‘Lifetime value’ is a measure of the gross profit earned over the life of a typical customer relationship.
3. Identify potential customers and introduce them to your automated communications program. Rather than establishing a relationship with people after they make their first purchase (as is normally the case) you should establish a relationship in advance.

If your potential customers are those who will buy on the basis of a relationship, doesn’t it make sense to deliver this relationship in advance? (You’ll discover, in a moment, just how inexpensive it can be to introduce potential customers to your automated communications program.)

Building an automated communications program

Once you’ve decided to become relationship- rather than product-focused, your first step is to create an automated communications program.

Begin by building a central database, containing the details of existing customers, prospects (potential customers) and centres of influence. (If your database is a little cumbersome, it might be worth considering an off-the-shelf contact management application like Maximizer, Act or Goldmine.)

Your next step is to design a program of communications that will build and nurture relationships with the people on your database.

We suggest that a newsletter should be the backbone of your communications program. This is because a good newsletter is both effective and scalable. (It takes little more effort to send a newsletter to 20,000 subscribers than it does to mail 2,000.) A newsletter can either be a magazine-quality publication or, if your budget won’t stretch that far, it can be a simple two- or three-page letter, laser printed on your corporate stationery.

Either way, your newsletter should be designed to dispense valuable information to your subscribers (not to boast about your organisation). The best newsletters have a do-it-yourself feel. The great thing about sharing your knowledge with your subscribers is that it positions you as an expert in your field – and empowers them to work with you.

If you publish your newsletter quarterly – and this is our suggested frequency – it’s worth supplementing your newsletter with a monthly e-mail bulletin. While e-mail communication doesn’t have the same impact as print, its cost effectiveness makes it invaluable. For this reason, it is essential to capture e-mail addresses at every point of contact with subscribers.

Acquiring new relationships

The best-kept secret when it comes to relationship-focused customers is that you don’t have to wait for them to buy from you before you build a relationship with them. In fact, if you build a relationship with relationship-focused prospects before they need to transact, you are almost guaranteed their future business.

But how do you acquire these new relationships?

Well, if you sell to businesses, it could be easier than you think. You might just find that the names and contact details of your prospects are available from a list broker. For example, if your target prospect is a ‘human resources manager working in a company with 100 or more employees’, this list is available from all good list brokers. Simply buy the list and add the records to your database.

If your prospects need to be better targeted than this, it might be worth commissioning some telephone research to filter these records. For example, if you want to identify those human resources managers who operate a particular software application, it’s still cheaper to have someone ring and ask, than it is to try and build the same list using advertising!

If you cannot purchase (or otherwise acquire) a list of suitably targeted prospects, you may have to resort to less direct forms of ‘lead-generation’.

Now, because you’re looking for relationship-focused prospects, the trick with lead-generation is to promote a relationship – rather than your product or service. The obvious way to do this is to offer prospects a free 12-month subscription to your newsletter. Remembering that your newsletter has been designed to be truly valuable to prospects – this is an offer that’s likely to be eagerly accepted. (About 100 people a month request free 12-month subscriptions to AdVerb via our Website.)

We recommend the following promotional mediums for your relationship-acquisition campaign (listed in typical order of effectiveness):

• Strategic alliances. Your prospects are already other businesses’ clients. Identify businesses that serve your prospects, and convince them to offer a free 12-month subscription to your newsletter to their clients.
• Direct mail. If the lists that you can obtain from your list broker are not qualified enough to warrant the cost of telephone research, you can identify qualified prospects by offering a newsletter subscription to this list. Respondents are likely to have both an interest in your services, and a bias towards relationships.
• Advertising. A successful lead generation advertisement is little more than a good direct mail letter, reformatted for the media in which you’re advertising. Of course, your offer is still a free 12-month subscription to your newsletter.

A recipe for growth

The turning point in the development of any business is the creation of a turn-key marketing program. If you sell expensive (or complex) products and services, our Relationship-centric Marketing Model is such a program.

Once you have recognised that your ideal customers are those who are in the market for relationships (rather than low-margin commodities), the battle is half won.

Now you can take your focus off transactions and apply it to building and nurturing relationships with a growing army of customers who are prepared to pay a premium to work exclusively with you.

It’s easy, once you recognise that there are actually two types of customer in the world!

I’ve been interested to see that, although I’ve cut my available capacity in Australia by almost half, our volume of Aussie sales has stayed exactly the same (in fact, in recent times it has actually been trending upwards).

Furthermore, I’m noticing a dramatic decrease in opportunity cycle-time (measured across won opportunities).

 By ‘opportunity cycle-time’, I mean the duration of the opportunity-management process.  The opportunity management process is also referred to as the ‘engagement model’ (a more client-friendly term).

 It’s interesting and instructive to dig into the cause of these positive effects.

 Because of my limited availability in each country, Andrew (my Sales Coordinator), has had to make the following changes to how he manages opportunities:

1. He encourages interested executives to skip an initial one-on-one appointment (Best-practice Briefing) and jump straight to what used to be the second step in our process: an in-house, half-day Executive Briefing.  If executives need help convincing their colleagues to set aside half a day, Andrew provides them with a kit containing our whitepaper, multimedia presentation and 90-minute keynote video.
    
2. Andrew has also been replacing some meetings (e.g. the presentation of study outcomes) with web-conferences – and scheduling more teleconferences

I have also replaced our encyclopaedic Feasibility Study Outcomes documents with a simpler PowerPoint presentation.  I’ve discovered that the PowerPoint presentation takes almost half the time to produce, that it’s read by more people and that it’s (surprise, surprise) much easier to use in group presentations (including web conferences) than a traditional document.

 The result of these changes is that I have more than doubled my effective capacity while simultaneously improving the performance of our sales (opportunity-management) process.  Of course, the value of this additional capacity is the cost of the additional Business-development Manager that we now do not need to add (plus the significant on-costs associated with such a person).

The bad news is that the measures above have been forced upon us by our US expansion.  I’m not convinced that we would have pursued them without this external pressure.  The lesson is that we should all be alert for opportunities to further exploit our salespeople’s limited capacity by simplifying our engagement models.

When you open your eyes, your bedroom appears roughly as it did the night before. Your bed is below the open window, and your dresser is still adjacent to the door.

However, a second look reveals that the curtains that normally hang above your windows are missing. As is the painting that normally hangs, slightly crooked, on the wall facing your bed.

What’s more, you notice some strange additions to your bedroom furnishings. A plaster bust now dominates your dresser. And an empty hat rack leans precariously against your bed head.

As you rise and navigate your way around your bedroom, you discover that your memory provides the accurate version of reality. In spite of the information tendered by your eyes, your curtains still hang above your open window, and your painting still adorns the wall adjacent to your bed. Your sense of touch confirms that there is no plaster bust on your dresser, and that the hat rack is also a mirage.

You only have to spend a day in a typical marketing or sales department to discover that this scenario is analogous to the environment in which management operates.

Various reports and performance indicators (both formal and informal) provide glimpses of reality. However, this feedback falls short of delivering the accurate and complete viewthat managers need in order to be truly effective.

When hobbled with an incomplete and unreliable view of reality, managers’ activities are, at best, inefficient and risk-adverse. At worst, managers unknowingly engage in activities that are harmful to the organisation as a whole.

Hence the need for an objective management structure!

Reality

By definition, reality must be the starting point for an objective management structure.

Without the ability to accurately perceive reality, measurement and, accordingly, management is impossible.

Of course, the concept of measurement presupposes something to measure.

This means that the ability to perceive reality is not enough. We need also to determine upon what aspect of reality we should focus.

It is perhaps self-evident that our focus must be determined by our goal. After all, a measurement out of context with a goal is just a number (data, not information).

If your goal were to drive from Sydney to Darwin, your current location, speed and direction of travel are information; the weather in Perth is data.

For this reason, the most critical step in designing an objective management structure is defining your goal.

I’ve had many managers assure me that this is also self-evident:

Marketing managers tell me that it’s their goal to generate sales opportunities.

Sales managers advise me that their goal is to generate sales.

In each instance, managers forget that the processes they manage are part of a larger system. As a result, they fail to recognise that their goal must be subordinated to the goal of the system.

One system, one goal!

For simplicity, let’s define a system as a set of interdependent processes.

A fine example of a system — one with which we’re all familiar — is an internal combustion engine (pictured below).

As you no doubt know from your experience with this particular system, the goal of the internal combustion engine is to generate torque (rotational force).

As depicted above, this system consists of four processes:

1. INTAKE (a mixture of fuel and air is drawn into the cylinder).
2. COMPRESSION (this mixture is compressed by the rising piston).
3. COMBUSTION (the fuel/air mix is ignited by the sparkplug).
4. EXHAUST (the resulting exhaust gasses are expelled from the cylinder).

Now, consider this question for me:

If you were the sparkplug in this system, what would be your goal?

1. Would it simply be to generate sparks (as many as possible)?
2. Or would it be to generate (a set quota of, say) 10 sparks a second?

Of course, neither answer is correct.

Your goal could only be expressed in terms that recognise the relationship between your activities and the goal of the system.

Accordingly, your goal would be something like the following:

To produce a spark at the top of each compression stroke.*

* Technically, the sparkplug produces a spark fractionally before the top of the compression stroke.

If your goal must be subordinated to the goal of the system, it’s essential for us to identify your organisation’s goal.

Why does this organisation exist?

Whenever I ask this question of a seminar audience, I get a range of answers:

1. Some managers claim that their organisations exist to manufacture widgets.
2. Others explain that their organisational goal is produce happy customers.
3. Others try and cover all bases with statements that reference the organisation¡¯s relationship with all stakeholders (shareholders, staff, the community, the goldfish in the corporate pond etc.)

In each instance, managers are confusing the goal of their organisations with necessary conditions.

The goal of any commercial organisation is, by definition, to make money.* Necessary conditions are the conditions that must be present to enable this goal to be achieved.

* Goldratt (whose work has had a significant impact on the thinking behind this article) explains that the goal of a business is to make money, now and in the future. I would argue (as, in fact, does he) that the latter part of this statement is redundant (we’re all accustomed to recognising the value of future revenues). To learn more of Goldratt’s work, begin by reading The Goal.

While the idea that the goal of a commercial organisation is to make money may initially cause managers some discomfort (believe me, it does), it also provides the clarity we need to start to piece together our objective management structure.

Unravelling organisational complexity

As our internal combustion example illustrated, all goals at a process level must reflect the contribution that the process makes to the goal of the system as a whole.

Unfortunately, organisations tend not to be as simple as our little engine.

In fact, one of the greatest challenges faced by managers is the requirement to understand the interaction between multiple organisational processes.

As has been explained in recent editions of AdVerb, this challenge has been greatly simplified by Goldratt’s Theory of Constraints (TOC).

In short, TOC recognises that the output of any system is determined by the system’s constraint (or bottleneck). It also points out that:

1. Every system has a constraint (if it didn’t, output would be infinite).
2. At any one point in time, every system has only one constraint.
3. A stable system is one where the constraint remains in one location.
4. Because the constraint is the sole determinate of system output, every management decision should reference the constraint.
5. The investment of resources in any non-constrained process or activity will produce absolutely no return (contrary to the assumptions that underpin cost accounting).

An understanding of TOC enables a manager to ignore organisational complexity when making decisions, and simply consider the impact that the options under consideration will have on the system’s constraint.

Now, because the goal of the organisation is to make money, when we’re discussing system output, what we’re really talking about is money. And when we’re discussing the system’s constraint, our consideration is the flow of money at the constraint.

TOC practitioners use a simple formula to express this concept:

Flow of Money = Throughput / Available Constraint Units

Throughput (T) refers to revenue minus totally variable costs (true gross profit).

Available Constraint Units (ACU) refers to the number of units of constraint that are available over the period of consideration. (If the constraint is a machine, the Constraint Unit is likely to be time-based. If the constraint is a salesperson, the Constraint Unit will be an appointment slot.)

As we’ve established, the goal of every process within our organisational system should reference the organisational goal: maximising the flow of money at the system’s constraint (or T/ACU).

Let’s pause now, for a practical example.

A two-process organisational system

Consider the simple organisation pictured below.

If we assume that the constraint in the organisation above is in the production process, what is the goal of the sales process?

Is it to produce as many sales as possible?

Obviously not!

The sales process should produce enough sales to ensure that the production process operates at peak capacity, all the time. To produce more sales than this would waste resources (and annoy the marketplace).

But, that’s only the half of it.

If the production process is constrained, the sales process should also produce the kind of sales that are going to deliver the greatest return on the Constraint Units consumed.

Here’s the solution:

System Goal: maximise T/ACU (measured at point of sale).

Production Process Goal: maximise T/CU (measured at point of sale).

Sales Process Goal: maintain a production buffer of optimal size (x days’ worth of unstarted work in progress). Maximise the value of the production buffer (T/CU).

To translate this into plain English:

The goal of our simple organisation is to maximise the yield (Throughput) it gets on its Available Constraint Units. (Because the output of a system is determined by the system’s constraint, this is equivalent to saying that the goal of the organisation is to make money.)

The goal of the production process is to maximise the yield it earns on every Constraint Unit it consumes.

The goal of the sales process is to:

• Maintain a buffer (or inventory) of unstarted work in progress (or orders) of an optimal size. If this production buffer is too small, there is a risk that the production process may sit idle from time to time. If it is too large, this indicates that the sales process is wasting resources that would be better deployed at the constraint.
• Maximise the value of the production buffer. The value of the buffer is the total Throughput that the buffer represents, divided by the number of Constraint Units that will be consumed to realise this Throughput. The inference here is that not all Throughput dollars are equal in this scenario. The sales process must focus on winning the sales that produce the greatest yield on the scarce Constraint Units.

The sales process dissected

We have now accumulated all the theory we need to apply our focus to the sales process.

I’m going to assume for simplicity’s sake (and because it is often the reality) that your system constraint is your sales process. In other words, I’m assuming that your production process can handle all the sales that your sales process produces (at least for the duration of this discussion).

Because we’re now shifting our focus from the system (which is a collection of processes), to one particular process within that system, we’re now going to have to think at a more granular level.

Our interest now shifts from determining which process is constrained to determining the exact location of the constraint within the constrained process.

Let’s consider a simple sales process (designed around Relationship-centric guidelines), containing three personnel:

The basic responsibilities of each person are:

1. Marketing Coordinator. Producing sales opportunities.
2. Sales Coordinator. Managing the salesperson’s diary.
3. Salesperson. Negotiating transactions.

Before we even attempt to manage this process, we need to determine exactly where the constraint is.

Now, the nice thing about operating at this level of granularity is that you get to choose! At this level, it’s quite easy for you to shift resources around to ensure that the constraint is exactly where you want it to be (and to ensure that it stays there).

If you consider that, in any process, by definition, it is only the constraint that operates at 100% capacity, ask yourself, who in the process above would you least like to be idle?

It’s obvious, isn’t it?

You would like your salesperson to be operating at 100% capacity, all the time. This is because your sales process will generate a greater flow of Throughput when your salesperson is fully utilised than it will when either your sales or marketing coordinator is flat-out (and your salesperson has idle time).

If you want to ensure that your salesperson is the constraint (and stays that way), you simply over-resource the marketing coordinator and the sales coordinator. In practical terms, this means ensuring that they never have to operate at full capacity (at least where their critical tasks are concerned).

As we did in our previous example, we’re going to take one more precaution to ensure that the constraint stays put.

We’re going to build an inventory (or buffer) of unallocated sales opportunities to ensure that the salesperson never has to sit idle.

The resulting process is pictured below:

Now, let’s apply the same logic to this sales process that we applied a moment ago to our simple organisational system.

We should first remind ourselves that the sales process pictured above is part of a larger system ¡ª the business as a whole.

We already know that the goal of that system is to make money.

We also know that the money that the system makes is determined by the organisational constraint, which happens to be the salesperson.

The salesperson’s Constraint Unit is an appointment slot.

 Accordingly, the goal of the system as a whole is to maximise T/ACU (or Throughput / Available Appointment Slot).

Now, if we shift our focus to the sales process, it is obvious that the goal of the sales process must be the same as the goal of the system. (The sales process is the constrained process.)

Let’s look now at each of the personnel operating within the sales process.

The salesperson’s goal should be to maximise his Throughput per appointment slot consumed (or Throughput / Appointment). It’s worth noting that the salesperson’s goal is not simply to maximise Throughput, nor is it to maximise his conversion rate. Each of these goals is likely to result in behaviour that is sub-optimal in the context of the system as a whole.

The sales coordinator’s goal is to keep the salesperson fully utilised. In other words, it is her responsibility to ensure that every available appointment slot is filled. (An empty appointment slot represents an opportunity cost equivalent to the average Throughput / Appointment).

As you’ve no doubt guessed, the marketing coordinator is responsible for both the size and the quality of the opportunity buffer. The buffer should be maintained at its optimal size (measured in days¡¯ worth of appointments). It should also be composed of opportunities that are likely to yield the highest Throughput / Appointment.

Now that we have established an objective (and systemically congruent) goal for each person in our sales process, performance indicators are pretty much self evident:

Function	Goal	Performance Indicator
Sales Process	Maximise yield on Salesperson	Throughput / Available Appointment Slot
Salesperson	Maximise yield on Appointments	Throughput / Appointment
Sales Coordinator	Ensure salesperson is fully utilised	% of Optimal Utilisation (Optimal Utilisation is 100%)
Marketing Coordinator	Maintain opportunity buffer at optimal size. Maximise value of opportunity buffer	% of Optimal Days. {Throughput / Appointment Slots x Probability}*

* means sum of. Throughput, Appointment Slots and Probability are all estimates. Probability refers to the probability of your converting that opportunity.

Management just got easier

Well there it is: an objective sales process management structure!

Each person’s goal (and the accompanying performance indicator) is congruent with the goal of the system as a whole ¡ª and, accordingly, is reality based.

Each performance indicator is quantitative, rather than qualitative, meaning that no subjective interpretation of results is required.

Each person has only one or two performance indicators (one is optimal), meaning that there is no confusion as to what she should be doing, and how she will be judged.

Each person is likely to have a clear understanding of the contribution she makes to the success (or otherwise) of the system as a whole. As well as being good for morale, this discourages the development of political factions.

Creating a productive environment

As I’m sure you’ve already realised, an objective management structure will make an enormous contribution to organisational productivity.

However, there are three more initiatives we recommend you implement in order to create a truly productive environment.

1. Use run charts. It’s one thing to allocate a performance indicator to a team member. It’s another to find a way to use this information to positively influence her behaviour. If you remind yourself that a performance indicator is just feedback from the system, the solution is obvious: plot it on a graph. Better still, have each team member plot her performance indicator on a run chart. An example of a run chart follows. This was generated within Excel, however, traditional plotting paper does as good a (and some would argue, better) job.
2. Eliminate budgets and bonuses. Managers traditionally have attempted to motivate their teams with a cocktail of artificial stimulants. Budgets, bonuses, performance reviews, quotas and management exhortations are tactics invented by management to cope with the lack of an objective management structure. You’ll find that, if you simply pay your team members what they’re worth — and have each discuss his or her run chart at a weekly management meeting ¡ª your requirement for these artificial stimulants will rapidly dissipate.
3. Replace the word maximum with optimum. In this discussion I have taken a shortcut (for the sake of simplicity) and allowed myself to use the word maximum on a couple of occasions. I’ve referred to maximising the yield on the constraint and to maximising the value of the opportunity buffer.

My preference is, in both cases that you replace the word maximise with optimise.

We’ve already discovered that every process (and system) is constrained. What this means is that, if you scale a process, you will eventually reach a point of diminishing returns.

In the case of maximising the yield on the constraint, you may find the constraint moves (which is generally undesirable), or that your ability to grow your business is constrained (it takes time to recruit and train new staff).

In the case of maximising the value of your opportunity buffer, you’re likely to find that, past a certain point, increased promotional costs are likely to overwhelm any increase in opportunity value.

Now, in both instances, it will take some experimentation to determine those optimas. However, in the short term, I suggest you aim only for incremental improvements in these (and similar) situations. From a systemic perspective, it is far healthier to aim first for stability, and second for incremental improvement, than it is to set stretch goals. (The latter approach is guaranteed to wreak havoc elsewhere in the system.)

My thanks to James Powell (Viago), who provided technical assistance for this article. Viago assists organisations to apply TOC to production processes. www.viago.com.au

Specifically, is your organisation converting the optimal percentage of sales opportunities into sales?

My bet is that you’ll find this question hard to answer … for two possible reasons:

1. You don’t know what your optimal conversion rate is.
2. You can’t bring yourself to be happy with a conversion rate any less than 100% — which makes the concept of an optima superfluous!

This article explores the opportunity management process — that all-important process responsible for converting sales opportunities into sales.

It explains why a conversion rate approaching 100% is undesirable. Why a salesperson and an opportunity management process are not one and the same. And why pep talks and sales quotas are counter-productive.

Is yours really an opportunity management problem?

Most managers blame their salespeople for a lack of sales.

That’s like blaming a light bulb for darkness during an electricity failure.

In all likelihood, there’s nothing wrong with your salespeople’s ability to sell.The problem is more likely to be a lack of sales opportunities.

It’s important to recognise that salespeople are not good at generating sales opportunities. They can do it, but it’s an inefficient use of their time. (It’s also technically possible to use a light bulb to generate electricity, but there are more efficient means!)

For this reason, we divide sales processes into three key components as pictured below (each component is a sub-process).

The first two components of this sales process (relationship acquisition and relationship management) generate sales opportunities; the third (opportunity management) converts those sales opportunities into sales.

Before we consider your opportunity management process, we must ensure that it’s your current process constraint. If your salespeople are currently conducting less than three or four appointments a day — and if you don’t have a rising backlog of sales opportunities — then your opportunity management process is not the constraint.

Accordingly, you need to focus your process improvement efforts elsewhere.

Specifically, you need to work on the upstream components of your sales process to increase the flow of sales opportunities.

(Our article on Relationship-centric Marketing explains how to build the process components you need to generate a predictable and scalable source of sales opportunities.)

Where are the sales?

Once you have a scalable source of sales opportunities, your sales will go up, right?

Yes and no!

As you increase the opportunity flow, your sales will initially rise. However, as the opportunity flow continues to increase, you will reach a point where your sales volume levels out (and your conversion rate begins to drop).

Once you reach this point of diminishing returns, you’ll know that your process constraint has shifted. Yesterday, your process output was constrained by a lack of sales opportunities. Today, it is constrained by a lack of resources in your opportunity management process.

It’s now time to focus our attention on your opportunity management process.

Multitasking: productivity’s public enemy #2

If your opportunity management process is under-resourced, the solution is to employ more salespeople, right?

Not necessarily!

I’d recommend you first perform a time and motion study on your existing salespeople.

When you do, calculate the percentage of your salespeople’s time that is devoted to each of the following activity categories:

• Clerical and secretarial duties. (Data entry, literature fulfilment, report preparation, appointment scheduling, routine follow-up calls etc.)
• Account management. (Routine ‘customer service’ visits and order collection.)
• Proposal generation. (Preparing quotations and generating proposals.)
• Prospecting. (Generating sales opportunities.)
• Fulfilment logistics. (Liaison between clients and the production department and expediting client orders through production.)
• Negotiating sales. (Negotiating sales with near-term sales opportunities.)

My guess is that your end result will look something like the following.

This pie chart would illustrate that your salespeople are devoting only a small percentage (10%) of their time to negotiating sales.

We would argue that this activity is the highest-leverage use of their time.

The other 90% of their time is devoted to activities that could (and should) be delegated to other less-skilled and lower-paid individuals (or to organisational systems).

An additional problem here is that, instead of focusing on one activity, salespeople are sharing their time between six activities, each of which requires a different skill set and different resources.

This is multitasking at its worst!

Goldratt (the developer of the Theory of Constraints) claims that cost accounting is productivity’s public enemy number one. Well, if he’s right, and we believe he is, multitasking has got to be public enemy number two.

Our experience is that the productivity of individuals decreases geometrically as they take on each additional task.

Our estimate is that this decrease in productivity is equal to the square root of the number of disparate activities. In other words, conducting six activities concurrently will take two-and-a-half times longer than performing these same activities sequentially!

As a result, when you divest your salespeople of low-leverage activities, the productivity of your opportunity management process increases dramatically.

Almost certainly, you will discover that you will not need to employ more salespeople for quite some time.

Of course, the pressing question is, who should be responsible for what?

Sales: a process, not a black art

To me, the suggestion that a salesperson should sell, does not seem like a radical one. I’m sure if I suggested to a manufacturer that his lathe operator should operate a lathe, he’d be quite comfortable with that idea!

The reason why managers have historically expected salespeople to be responsible for the entire sales process is that sales has never really been a process, in the true sense of the word.

Traditionally, the sales function has been the least scientific, least measurable, least predictable and least manageable corporate function.

As a result, responsibility for the entire function has been handed to these strange, unpredictable, (and sometimes, dare I day it, unsavoury) individuals we call salespeople.

Salespeople, understandably, have been happy to perpetuate the perception of sales as a black art. Their ownership of the entire sales function puts them in a position of enormous power. (Many sales people regard their client list as an asset that can be auctioned off to the highest bidder!)

That, however, is ancient history (or at least it should be). Today, we know that sales is a process. As a result, there’s no reason why we shouldn’t break that process into its core activities, and match each activity with an appropriate resource — just as we would in the case of a manufacturing process.

We’ve started by looking at your salespeople because they are your scarcest (most expensive) process resource.

To maximise your return on your salespeople’s time (of course, time is a salesperson’s unit of capacity) your salespeople should ideally do nothing other than that conduct appointments with near-term sales opportunities (individuals who have indicated a propensity to purchase).

We recommend that you separate the account-acquisition and the account-management functions. This is because account acquisition is a higher-leverage use of a salesperson’s time.

If possible, your most skilled salespeople should be responsible for account acquisition.

If you must have the same salesperson performing both account-acquisition and account-management appointments, to minimise multitasking, we suggest you split these appointments between different days of the week. (For example, you might schedule account-management appointments on Monday, Wednesday and Friday; and account-acquisition appointments on Tuesday and Thursday).

It should be possible for your salespeople to conduct between three and five sales appointments a day. (Contrast this with your salespeople’s current activity levels.)

Account management

We see considerable amounts of salespeople’s valuable time squandered in the name of account management.

Most account-management activities are either unnecessary or ineffective.

A classic example is the scenario where a salesperson spends his time conducting what the Americans call doughnut runs. A doughnut run is where a salesperson spends all day visiting existing clients with no apparent motive other than the delivery of doughnuts!

Your account-management activities should be planned in line with the only two sensible objectives of this function:

• Extending service utilisation (increasing share-of-customer).
• Procuring repeat orders.

Obviously, extending service utilisation is the highest-leverage activity. The procurement of repeat orders should be handled by customer service personnel (preferably telephone-based).

Where possible, your relationship with clients should be structured in such as way as to facilitate both the procurement of repeat orders and the extension of service utilisation.

To facilitate the procurement of repeat orders, you might agree to provide products on an automatic replenishment basis. Alternatively, you might provide clients with an attractive incentive to sign a service contract.

To extend service utilisation, it is desirable to have your salespeople provide a consultative service to your clients. This service should be designed to assist your clients with the attainment of best practice — as defined by methodology that underpins your basis for communication. (See our article entitled The importance of getting religion.)

If the objective of your salespeople’s account-management activities is to extend service utilisation, it’s essential that any performance metrics (and incentives) reflect this objective.

We frequently hear managers complain that their salespeople are happy to live on the commissions generated by their existing client bases.

Well … can you blame them? The question that must be asked here is: why are salespeople paid commissions on repeat sales from existing clients, when the procurement of repeat sales is a low-leverage activity?

Our suggestion would be to pay commissions for:

• The acquisition of a new client.
• The extension of an existing client’s utilisation of your service.

In each case, incentives can be calculated based upon the projected net present value of the new annuity income stream.

Sales support

Obviously, your salespeople need some organisational support if they are to conduct between three and five appointments a day.

We typically divide responsibility for this support between two roles. (In smaller organisations, these roles may be assigned to the one person.)

Marketing coordinator

The marketing coordinator is responsible for managing the sales process as a whole (just as your production manager manages your manufacturing or fulfilment process).

They typically provide salespeople with support in the following areas:

• All data entry (including the completion of contact reports).
• Campaign management.
• Literature fulfilment.
• Appointment scheduling.
• Preparation of proposals.
• All routine follow-up calls.
• Report generation.

Production coordinator

The production coordinator provides an interface between your clients, your sales team and your production manager.

They have access to both your client database and your production system. They are responsible for negotiating the scheduling of jobs with your production manager — eliminating the common (and counter-productive) situation where each salesperson attempts to hustle his or her own jobs through the production system!

The production coordinator provides salespeople with the following support:

• Generation of quotations.
• All production-related client liaison.
• Receipt of repeat orders (in low-volume environments)
• Feedback on clients’ order status (where necessary).

The single point of contact myth

Whenever we suggest sharing salespeople’s low-leverage activities between marketing and production coordinators, we hear the same objection. ‘But, wouldn’t our clients rather have a single point of contact?’

The answer, at least in practice, is no, they wouldn’t!

Our experience is that clients appreciate being able to have direct access to individuals who can provide the service or the information they require on the spot. (Unless your salespeople are grossly under-utilised, they are never capable of providing this degree of accessibility.)

The fact is, clients will favour a highly efficient (low friction) interface with your organisation — even if that interface involves dealing with two or more individuals.

Process design

Before you can divest your salespeople of these low-leverage activities, you must ensure that your opportunity management process is, in fact, a process — as opposed to an unplanned sequence of ad hoc client contacts.

It will take some experimentation to design the optimal process. However, any process is better than no process at all.

The diagram below pictures the Ballistix opportunity management process.

Aside from enabling the divestment of low-leverage activities, a structured opportunity management process provides the following significant benefits:

• Increase opportunity flow (compress time between expression of interest and sale).
• Eliminate dropped opportunities.
• Enable forecasting (monthly sales projections).
• Continual improvement (identify and elevate constraints).
• Provide potential clients with a structured decision-making process.

Managing the opportunity management process

As indicated above, a structured opportunity management process enables management (continual improvement).

We suggest you manage your opportunity management process using what we call an open opportunity report, similar to the one pictured below.

An open opportunity is an opportunity under management, as opposed to an opportunity that has been won, lost, abandoned or suspended.

The most important information on this report is the total weighted opportunities and average days open.

Total weighted opportunities refers to the total dollar value of open opportunities, discounted for the probability of winning each sale. This probability weighting is determined by location of each opportunity in your process. You can calculate this weighting by examining your historical data.

Average days open enables you to monitor the rate at which opportunities are moving through your process.

On this report, source refers to the source of the opportunity, not the source of the relationship. It is likely that most opportunities will be generated by your relationship management activities (e-mail newsletters and events) or by utilisation extension campaigns directed to existing clients.

Process optimisation

As with all processes, you should manage your opportunity management process for consistent output — and not for month-to-month stretch targets.

Contrary to popular belief, sales quotas, pep talks and internal sales promotions are counter-productive in the long term.

These activities simply time-shift the emergence of sales — producing an unnecessarily lumpy sales curve.

Of course, a lumpy sales curve reduces the efficiency of your other organisational processes and makes it harder for your suppliers to forecast your inventory requirements.

These activities can also be damaging to client relationships. They result in channel loading and depressed conversion rates, as salespeople attempt to fast-track the closure of opportunities.

Your optimal sales volume will be determined by either your production (or fulfilment) capacity or by the capacity of your opportunity management process, which ever is the lesser.

Optimal conversion rate

By now you should have realised why 100% is unlikely to be your optimal conversion rate.

It’s far easier to increase process output (sales) by focusing on improving volume, than it is by attempting to increase conversion rates.

Ironically, almost every sales improvement initiative we come across focuses on improving conversion rates.

These initiatives include:

• Sales training (your salespeople don’t need sales training, they need sales opportunities).
• Software (your salespeople don’t need sales force automation software — they’re salespeople, not clerks — data entry should be someone else’s job).
• Motivational seminars and team-building workshops (if your salespeople have a productivity problem, multitasking’s the most likely culprit, not poor motivation).

If you show me an organisation with a conversion rate approaching 100%, I’ll show you a sales process with a volume problem!

Managing change

By now, you’re probably wondering what your salespeople will think of this process-oriented approach. How will you be able to convince them to relinquish control of the opportunity management process?

The short answer is, don’t try!

It’s far easier to drive change by giving than it is by taking. If you initially focus on increasing the flow of sales opportunities to your opportunity management process, your salespeople will reach a point where they’re crying out for assistance.

Once they realise that they’re grossly under-resourced they’ll be happy to divest some of their low-leverage activities — in exchange for a calendar full of appointments.

When your salespeople are each conducting three to five appointments a day, five days a week, they will have reached their optimal earning capacity.

The benefits for you are obvious. As well as a significant increase in process output (sales), you have decreased your dependence on individual salespeople. You now have a sales process that can be precisely managed — and rapidly scaled.

[Presented at: TOCICO Conference, Miami 2004]

Introduction

The traditional sales process is hard to manage and all but impossible to scale.

This paper introduces a radical new approach to sales process design, resourcing and management.

The result of this approach is a process where:

1. Salespeople consistently perform five appointments a day, five days a week.
2. Appointments are programmed into salespeople’s diaries in descending order of probable contribution.
3. A buffer of sales opportunities is generated and maintained, without requiring any involvement of salespeople.
4. Budgets, targets, bonuses and commissions are eliminated and all activities are synchronised (in real-time) with the goal* of the organisation.

The problem with the sales process

Most sales processes are not processes in any useful sense of the word.

In a production context, the word process conjures up images of a production line — a series of tightly-coordinated activities that deftly converts raw materials into finished goods.

A typical sales process hardly fits this description.

A typical sales process consists of a number of individuals, each of whom is responsible for the entire sales function (and for a number of non-sales activities). Rather than following any formal procedure, these individuals engage in a broad range of ad hoc activities — using intuition to make resource allocation decisions.

A typical sales process is not dissimilar to a manufacturing process prior to the industrial revolution:

1. All tasks are performed by skilled technicians.
2. There is minimal automation.
3. Each technician operates in parallel with others — rather than in series. Accordingly, each worker is responsible for his own end-to-end process.
4. There is enormous variation in output.
5. Because there are no economies of scale, the system is difficult to scale.
6. Technicians receive performance pay, meaning that they are inclined to behave like sub-contractors
7. There are no disincentives for technicians to set up their own competitive businesses.

(Technically, it makes sense to apply the word ‘process’ only to the latter configuration in the diagram above.)

Fortunately, if we are looking to increase the productivity of the sales process, modern manufacturing provides us with clear guidance.

Applying TOC to the sales process

TOC’s five focusing steps* advise us to begin by identifying the constraint.

Because the salesperson is the traditional sales process’s only resource, it’s obvious that the salesperson is the capacity constrained resource (CCR).

To determine how to exploit the CCR, we’ll perform a simple time and motion study.

A review of a typical salesperson’s time and activities is likely to reveal the following breakdown of activities:

As illustrated, a typical salesperson conducts just two business-development appointments a week.

The balance of his time is allocated to:

1. Project management: managing the delivery of prior sales
2. Customer service: receiving and processing repeat transactions
3. Opportunity management and clerical tasks: activity programming, diary management, data entry and literature fulfilment
4. Social activities: appointments with no formal business objective, as well as a range of overtly non-commercial activities (often involving sport)
5. Prospecting: identifying sales opportunities

The following table ranks these activities by time allocated (descending order) and by the contribution each activity makes to Throughput*.

Where the contribution to Throughput is concerned, project management, customer service and social activities are marketed as not applicable. This is because it simply does not make sense to treat these activities as part of the sales process*.

While the exclusion of social activities from the sales process is contentious, we do so for two reasons:

1. We consistently find that we can get a better return on scarce resources from commercial activities than we can from social activities.
2. Even if social relationships are an antecedent of commercial relationships (which is debatable**), such relationships should be regarded by management as a contingent liability.

Of the three remaining activities, business-development appointments obviously make the greatest contribution to Throughput.

These appointments are a higher-probability activity than prospecting. While opportunity management and clerical tasks are necessary, they do not make a direct contribution to Throughput.

Because the conduct of business-development appointments is the salesperson’s most productive activity, we will establish the appointment slot as our unit of constraint. In our experience, a salesperson’s maximum sustainable capacity is likely to be five appointments a day.*

For this reason, the pie chart on the preceding page, displays time allocated to activities in terms of appointment slots consumed.

It should now be obvious that:

1. Our sales process will be at its most productive when we have maximised Throughput per appointment slot available (T/ASA).
2. The measure of the contribution of our salesperson to the process as a whole will be Throughput per appointment slot consumed (T/ASC).

Accordingly, our focus should now be on:

1. Ensuring that our salesperson is fully utilised (all his available appointment slots are consumed).
2. Programming activities into our salesperson’s diary so as to maximise T/ASC.

A word on programming

In our experience, neither salespeople nor management are ever likely to have considered a formal approach to the programming of sales activities.

Consequently, salespeople’s time tends to be programmed by salespeople themselves — with intuition as the prevailing method.

Unfortunately, as is illustrated by the popularity of casinos, the human brain does not excel at performing estimates where probability is involved. The result is that low-probability activities are likely to be given priority over higher-probability activities. (Salespeople over-estimate the value of the unknown.)

This has a deleterious effect on both process throughput and conversion rates.*

The sales coordinator

In order to maximise both the utilisation and the productivity of the CCR (the salesperson), we focus the salesperson exclusively on business-development appointments and add an upstream resource called a sales coordinator.

The sales coordinator is responsible for ensuring that the salesperson is fully utilised at all times (five business-development appointments a day, five days a week).

Consequently, the sales coordinator takes total control of the salesperson’s diary (just as a personal assistant would take control of an executive’s diary).

In order to maximise the salesperson’s productivity (T/ASC) the sales coordinator allocates appointments in the descending order of their probable contribution. Because the sales coordinator’s intuition is no more capable of estimating this contribution than the salesperson’s, these critical programming decisions are made using a formula provided by management.

Feeding the constraint

As suggested previously, we are only interested in the salesperson performing business-development appointments.

These are appointments with a commercial agenda that has been approved in advance by the potential client.

At some stage, the sales coordinator is likely to find it difficult to schedule appointments that comply with this precondition.

This is because, prior to agreeing to such an appointment, the potential client (prospect) must acknowledge a requirement for the product or service that the salesperson is representing.

While, for most organisations, there is no shortage of prospects, there is a shortage of prospects with a current acknowledged need (this is what we call a sales opportunity).

At this point, we are in danger of the constraint shifting from the salesperson to the sales coordinator.

In order to prevent this from happening, we must:

1. Identify the source of — and a method to generate — sales opportunities.
2. Build a buffer of these opportunities (an opportunity buffer) upstream from the sales coordinator.

The source of sales opportunities: four theories

We find that most organisations have designed their sales process based upon one of four theories concerning the (primary) source of sales opportunities:

1. That sales opportunities are a raw material (and, therefore, abundant)
2. That salespeople create sales opportunities (as a result of their prospecting activities)
3. That promotional campaigns generate sales opportunities
4. That existing clients are the source of sales opportunities (either directly, or via referrals)

While there is a set of circumstances in which each of these theories is appropriate, few organisations find themselves complying with those circumstances.

The result, for most organisations, is a chronic shortage of sales opportunities. This persistent scarcity of sales opportunities, in turn, encourages organisations to design their sales processes to maximise conversion rates, at the expense of process volume.

The theory that sales opportunities are a raw material is appropriate only for those organisations with a production — rather than a sales process — constraint.

The theory that salespeople are the primary source of sales opportunities is applicable only in situations where salespeople can prospect and sell concurrently (e.g. door-to-door sales). In other situations, prospecting is such a resource-intensive activity that it consumes the greater majority of a salesperson’s available time.

The theory that promotional campaigns are the primary source of sales opportunities is applicable only to organisations that change their products regularly (entertainment promoters, infomercial marketers, property developers etc). This is because promotional campaigns that directly generate sales opportunities tend to suffer from rapidly-diminishing returns.

The theory that existing clients are the primary source of sales opportunities is appropriate only for organisations with an enormous, under-exploited client base (telecoms, utilities etc). For other organisations, this theory results in a sales process that is a self-contained (self-limiting) system.

Relationships as a source of sales opportunities

Curiously, for most organisations, it is true that clients are the primary source of sales opportunities. That said, if the objective is to increase process output at anything other than an incremental rate, it doesn’t make sense to look to existing clients to drive this growth.

Our solution is to recognise relationships as the primary source of sales opportunities.

Our interest, then, is not just in customer relationships, but in relationships with the organisation’s marketplace as a whole, where this marketplace consists of:

1. Customers
2. Potential customers
3. Centers of influence

We have observed that, in most instances, there is a predictable, linear correlation (suggesting cause and effect) between the number of relationships an organisation has under management and the volume of inbound, unsolicited sales opportunities.

This phenomenon is dependent upon:

1. A base of relationships that is large enough to be representative of the marketplace
2. Some kind of periodic and relevant communication with these relationships

Of course, this observation supports marketers’ concept of brand equity. However the marketing community’s pseudo-scientific treatment of this concept renders it all but useless.

Considering the significance of this observation, a more systematic approach is appropriate.

Accordingly, if relationships under management are a scalable source of sales opportunities, it makes sense to:

1. Build a database that is as representative as possible of the wider marketplace.
2. Communicate periodically with individuals on this database, with communications designed to stimulate the emergence of sales opportunities.

The Relationship-centric Sales Process

This approach results in the following sales process.

In summary, this process functions as follows.*

1. Promotional dollars are invested in the acquisition of relationships — rather than in the direct acquisition of sales opportunities. Relationships are acquired by giving away packaged information (generally a book, white paper, or similar), in exchange for contact information. Because of the relative size of most organisations’ marketplaces, and the attractiveness of the offer, these campaigns are less prone to diminishing returns.
2. Respondents are added to a database, subscribed to a periodical and invited to regular events. (Events are, by far, the most effective method for the stimulation of inbound sales opportunities.)
3. Inbound sales opportunities are managed by the sales coordinator — where opportunity management consists simply of programming opportunities into the salesperson’s diary, in line with an appropriate strategy. (A strategy is the sequence of steps used to convert sales opportunities into sales.)

The promotional coordinator

Now that we understand the nature of the activities required to generate sales opportunities, we can complete the resourcing of our sales process.

Upstream from the opportunity buffer we add a resource we call a promotional coordinator.

The promotional coordinator is responsible for maintaining the opportunity buffer at its optimal size.

In order to achieve this requirement, the promotional coordinator manages a portfolio of relationship-acquisition and -management campaigns.

We now can be confident that the salesperson is both fully and productively utilised — and, consequently, that he will remain the capacity constrained resource.

Managing the sales process

Conceptually, there is little difference between the management of a production process and the management of the sales process pictured on the previous page.

What differences there are, stem from the uncertainty associated with Throughput and intangible nature of both relationships and opportunities.

Throughput

Obviously, where a sales process is concerned, we are dealing with probable, rather than actual Throughput.

Accordingly, Throughput must be discounted for probability (or risk).

We must also acknowledge that the whole-of-life value of one sales transaction may be greater than the value of the initial transaction.

For this reason, Opportunity Throughput (TO) is equal to the risk-adjusted, net present value of the sales opportunity.

Probability

Traditionally, probability is estimated (subjectively) by salespeople. If the opportunity management process consists of one or more standardised strategies this is no longer necessary. All we have to do is select process milestones (stages) and determine the historical probability for opportunities at each stage.

The table below shows a typical set of stages with associated probabilities.

Buffer size

The opportunity buffer consists of all sales opportunities — where these opportunities are at various stages of the opportunity management process.

You could visualise the opportunity buffer as an inventory of pending appointments. If, however, multiple appointments are required to close each appointment, you would have to remember that each appointment is likely to be connected to one or more others.

We can estimate the minimum number of opportunities that are required to keep the salesperson fully utilised by multiplying his daily capacity by the average opportunity cycle time, and then dividing the result by the average number of appointments consumed by each opportunity (some opportunities will never progress to first appointment, while others will consume multiple appointments).

Because Murphy will strike from time to time, this buffer needs to contain protective capacity. Experimentation has lead us to the conclusion that protective capacity should be an additional 50% of the minimum capacity.

The following example relates to the five-stage opportunity management process referenced previously. (It should provide some indication of the volume of concurrent opportunities that can be processed by a single salesperson.)

Programming appointments

You’ll recall that we wish to replace intuition with a more objective method for programming appointments.

We can do this by:

1. Estimating the contribution that each sales opportunity will make if it is allocated to an appointment slot.
2. Indexing the opportunity buffer, based upon this probable contribution.

We start by revisiting our stages and adding the following:

Appointments pending: This is an estimate of the number of additional appointments that will be required to win the opportunity (this number cannot be less than one).

Maximum days: Because opportunities atrophy over time, this figure determines the point at which we will apply an additional discount. (These numbers are cumulative.)

We estimate the relative value of each opportunity using the following formula:

Overdue days is calculated by subtracting the max days value that is associated with the current stage from actual days (the number of days the opportunity has been open thus far.) The result must be a whole number*.

The following table is an example of three opportunities indexed using this method.

Assuming the same geographic region, the sales coordinator will program these opportunities into the salesperson’s diary in the order dictated by the index.

Performance indicators

We discussed earlier that the performance indicator for the sales process as a whole is Throughput per appointment slot available (T/ASA).

If we reflect on the contribution each team member must make to maximise T/ASA, it is easy to derive an objective and a performance indicator for each.

Each of these performance indicators should then be plotted on a run chart — providing each team member with a real-time, objective view of the contribution his activities are making to the goal of the system as a whole.*

This objective approach allows us to dispense with targets, budgets, bonuses and commissions, performance reviews and management exhortations.

The sales process is now easy to manage and, consequently, easy to scale.

The result

The application of TOC to the sales process results in radical changes to process design, resourcing and management:

1. Responsibility for all tasks other than the conduct of appointments is institutionalised.
2. Non-constrained resources are applied to the acquisition and management of relationships and, accordingly, to the generation of sales opportunities.
3. The opportunity-management process is standardised — and optimised, so as to maximise the return on the unit of constraint (appointment slots).
4. Sales process cycle-time is reduced — often resulting in an increase in conversion rates.
5. Salespeople require only product knowledge and communication skills (consequently, they are easier to recruit and retain).
6. Commissions and bonuses cease to be necessary and the staffing mix shifts in favour of (lower-paid) sales support staff.
7. Significant increases in Throughput can be expected for similar Operating Expenses and Investment.

The factory floor as a classroom

There’s a good reason the factory floor makes an ideal classroom for this lesson on sales process design and management. I want to focus your attention on the process in sales process. And it just so happens that manufacturing people know an awful lot about processes.

In fact, I think it would be fair to say that manufacturing process improvement has driven most of the increases we’ve seen in organisational productivity over the last century (from the assembly line to the quality movement).

What is a process?

We’ll start our tour by climbing the stairs to your executive suite. (We’re making the climb because this mezzanine level provides a bird’s-eye view of your factory.) From up here, it’s easier to spot the method in the apparent madness below. As you look from workstation to workstation, you can see raw materials being gradually transformed into finished products. This view provides a practical definition of the word process — a logical starting point for our study:

A process is a sequence of value-adding steps that transforms a set of inputs into an output.

Makes sense, doesn’t it? But try applying that definition to your sales process. You know the desired output of your sales process is sales. But what are the inputs? And what specifically are the value-adding steps that transform these inputs into sales? When pressed, most executives claim that the input into their sales process is leads (or sales opportunities). But this answer exposes a fundamental (and common) flaw in sales process design. If your sales process begins with a pre-existing sales opportunity, your ability to scale this process is constrained by the availability of such opportunities. Now, unless your organisation is in the fortunate position where demand for your product exceeds supply, it’s likely that this source of pre-existing sales opportunities is limited. It’s inappropriate, therefore, to regard sales opportunities as the input into your sales process. Our article on Relationship-centric Marketing explains that sales opportunities emerge from the relationships that your organisation has under its custodianship. The key to generating sales opportunities is to carefully manage these relationships. If a relationship precedes a sales opportunity, from where then do relationships come? Well, generally speaking, relationships come from two sources, existing clients and potential clients. If you’re doing a good job of managing your existing client relationships, you should be more interested in the latter source of relationships than the former. This is because there is a limit to how many sales opportunities you can extract from clients (without damaging the valuable client relationships). Where you have a finite number of client relationships, the potential to acquire relationships with potential clients is limited only by the size of your market. To acquire relationships with potential clients, you need to invest money in a special kind of promotional campaign (we call this a relationship-acquisition campaign). This promotional expenditure is the true input into your sales process. Accordingly, your sales process should probably look something like this:

The lesson

The lesson here is that your sales process should have the same key attributes as your manufacturing process. It should have inputs, outputs and a sequence of value-adding steps. There should be a measurable cause and effect relationship between inputs and output. And it should be designed so that it can be scaled in line with the capacity of your organisation as a whole.

It’s an organisational process

We’ve descended from the mezzanine level, and we’re now strolling through your factory. We stopped and chatted to Terry, a forklift operator who receives raw materials and transports them to the appropriate workstations. We met Sue who operates a sheet metal press. And we even bumped into her husband Bob, who operates a powder-coating booth on the other side of the factory. In chatting to Terry, Sue and Bob, we noticed that each is a specialist. Each focuses on one step in your manufacturing process — each has a trade qualification relevant to the particular tasks that make up that step. While all exhibited a healthy interest in your manufacturing process as a whole, their focus was obviously on their particular areas of expertise. (When I asked Bob if he ever drove Terry’s forklift, he laughed, as if the idea were preposterous.) It’s easy to see that responsibility for managing your manufacturing process as a whole vests with Elliott, your production manager. In contrast to Terry, Sue and Bob, Elliott has only a passing interest in the individual tasks that comprise your manufacturing process. But when we ask him a question about the productivity of this process, he can’t wait to share his control charts with us! If we contrast the division of tasks and resources (in this case people) with a typical sales process, the differences are obvious. Your manufacturing process is an organisational process. However, most sales processes are personal processes. In most organisations, the salesperson is the sales process. If you think of a typical sales process, the salesperson (or people) is responsible for prospecting, data entry, literature fulfilment, appointment scheduling, face-to-face selling, the preparation of reports, customer service and even for expediting orders through the factory. In such a sales process, a salesperson spends a small fraction of her time selling. The rest of her time is devoted to clerical duties, or duties that could be better performed by other specialists (or by specialist business systems). This situation appears even more ludicrous when you consider that a typical salesperson is paid more than a trade-qualified production worker — and perhaps even more than a production manager! There are three main problems associated with delegating responsibility for your sales process (or any complex process) to a single individual: The process becomes highly inefficient. Your salesperson is so busy performing clerical duties that she doesn’t have time to sell. The process suffers from limited capacity (it’s not scalable). Because salespeople are expensive, it’s hard to justify employing more salespeople in an effort to increase sales. (Especially if sales opportunities are in limited supply.) The process is all but unmanageable. Because a single individual owns the process, it is possible only to measure output. It is not possible to micro-manage the steps that make up the process as a whole.

The lesson

Your sales process should be an organisational process, not a personal process. If the idea of your spray painter doubling as a forklift operator is ludicrous, so too should the prospect of your salesperson performing clerical duties. Your salesperson should perform only those duties to which they are ideally suited (both by skill and by salary level). Your sales process should be managed by a person with a global view of the process (and not by a salesperson). Our article entitled Is your marketing manager redundant? suggests that a typical organisation should consider redesigning its marketing manager’s role so that this person becomes a sales process manager.

Design for volume

We’re now standing between two parallel assembly lines. On one line, the mechanical components of your product are being assembled and, on the other, the discrete electronics are being soldered into the controller boards. What’s fascinating is that, even though quite different tasks are being performed on each line, the lines are synchronised so that the controller board for each product is finished (and tested) just as the final nut is tightened on the mechanical assembly. Watching your production process at work is like watching a race car driver in action. Each of his movements is so deliberate, precise and obviously well rehearsed that it’s easy to forget he is travelling around the racetrack at speeds exceeding 300km an hour. Like a racing car, your manufacturing process has been designed for speed (or, more correctly, volume). This is because, as the volume of your manufacturing process goes up, the organisational resources (capital) consumed by this process (on a per-unit-of-output basis) goes down. (Which would you prefer: two slow-moving production lines, or one production line that operates at twice the speed, to deliver the same volume of output?) In comparison with your manufacturing process, a typical sales process has been designed to maximise conversion rates, rather than to optimise volume. In a typical organisation, each salesperson represents an entire process (each salesperson is responsible for acquiring and managing relationships, for generating sales opportunities and for converting sales opportunities into sales). Accordingly, a typical organisation has multiple sales production lines, each with very limited capacity.

The lesson

The obsessive pursuit of unrealistically high conversion rates results in the sub-optimisation of most sales processes. (If you show me a sales process with a conversion rate of greater than 90%, I’ll show you a process that can’t be scaled!)

Your process should be designed to optimise volume for two simple reasons: Just as a fast-moving production line consumes less organisational resources (capital), a high-volume sales process consumes less sales resources (salespeople’s time). Your efforts to increase conversion rates (more sales training, new technology, better sales aids) will only ever produce incremental (and rapidly-diminishing) gains in output. However a similar investment in volume (more relationships under management) will produce geometric increases in sales (even if conversion rates go down).

Manage the constraint

We’ve now stopped at what appears to be the most important step in your manufacturing process. We’re looking at a particularly unimpressive machine (it stamps your product’s main housing out of sheets of aluminium). But, for some reason, this machine is attracting a disproportionate share of attention. This machine has three operators. One is hand-feeding it aluminium sheets from a small pile of inventory. (This is the first time we’ve seen any inventory in your plant.) Another is removing the finished housings from the machine, checking them and then handing them off to a nearby workstation. And the third is watching the whole process and graphing the output of the machine on a piece of chart paper! There’s a simple reason why this machine is receiving all this attention: it’s the bottleneck (or constraint) in your manufacturing process. Your manufacturing team knows that the output of their process as a whole is limited to the output of this constraint. In other words, if this machine can stamp just 20 housings an hour, your manufacturing process can produce no more than 20 complete units an hour. Accordingly, your team recognises that it must do everything it can to maximise the output of this machine. (This also explains the small pile of inventory in front of this machine. Because this machine is the constraint, if it stops due to a lack of inventory, the whole manufacturing process grinds to a halt.)

You can learn more about the Theory of Constraints by reading The Goal (by Eliyahu Goldratt). This brilliant book is a must for those interested in our sales process design methodology.

In a typical sales process, the constraint is the acquisition of sales opportunities. However, rather than mustering all available resources to manage (and preferably, eliminate) this constraint, most organisations do the exact opposite! As mentioned previously, most organisations focus their resources on attempting to convert the small number of available sales opportunities into sales. Meanwhile, the activities that are supposed to generate sales opportunities are either totally ineffective (most branding campaigns), cost-prohibitive (cold calling), or unscalable (referrals).

The lesson

If the generation of sales opportunities is the constraint in your sales process, you need to focus all your management attention on eliminating this constraint. You need a scalable and cost-effective method to generate a predictable flow of sales opportunities. And you need a stockpile of inventory in front of your opportunity acquisition machine to ensure that this machine never suffers a stock-outage. Our Relationship-centric methodology explains that sales opportunities are generated by the active (and strategic) management of relationships with clients, potential clients and centres of influence. Accordingly, you need to pay close attention to your management of the relationships under your custodianship to ensure that you are optimising the flow of sales opportunities. Furthermore, you must ensure that you have more than enough relationships under management to generate the volume of sales opportunities that you require.

Manage by numbers

By the time we complete our factory tour it’s approaching closing time. We catch Elliott’s attention just as he’s about to make a dash for his car, with an armload of control charts and his Hewlett Packard calculator (every engineers’ best friend). We thank Elliott for letting us tour his factory and congratulate him on his efficient manufacturing process. Elliott’s armload of control charts alerts us to the fact that he manages his production process with scientific precision. He performs regular measurements on the productivity and the volume of each component of his process, as well as on the process as a whole. And he uses these measurements to continually fine-tune its design and operation. It’s rare that we find a sales process that’s managed with this kind of precision. Which is strange, when you consider that a sales process is just as complex and just as critical as a manufacturing process. In a typical organisation, the marketing manager manages promotional activities (which should be a component of the sales process). And the sales manager manages the opportunity management process (which is obviously a component of the sales process). But no one manages the process as a whole. Just imagine what would happen to your manufacturing process if it were treated with the same neglect!

The lesson

Someone in your organisation must be made responsible for your entire sales process. They must be responsible for both the productivity and the output of the process as a whole. And they must manage this process by numbers, rather than by intuition. (For more information, read our article entitled How to establish a clear cause and effect relationship between promotional expenditure and sales.) When we look at most organisations, we discover that the sales process is the constraint on the growth of the business. We also discover that the sales process is operating at peak capacity (at least with its current structure). If this is the case with your business, your sales process needs urgent management attention. Until you reengineer this process so that it is both manageable and scalable, your business is limited to organic (incremental) growth. But don’t despair, the answer to your problem is close at hand. You don’t need marketing consultants, sales trainers or sales force automation software, you just need to take a wide-eyed stroll around a modern manufacturing facility.

Today, however, he is particularly animated.

He’s relating the story of how, with the assistance of Justin Roff-Marsh Advertising (now Ballistix), he has shifted his business’s growth into overdrive.

"Consider this," he says – in an effort to justify his excitement – "it took me 22 years to build my business. Come June 2000, it will have taken Justin Roff-Marsh Advertising just 12 months to double it in size."

As Gavin’s story unfolds, it’s easy to understand his enthusiasm. The last six months have seen Gavin replace an unsuccessful advertising campaign with one that generates more new clients than he can possibly handle. He’s replaced an unstructured, labour-intensive sales process with one that operates virtually on autopilot. And he’s replaced a comfortably uncluttered diary with one that’s booked solid – two full months in advance!

An unconventional investment methodology

Gavin Ross is a portfolio manager.

His clients are high net-worth individuals (they must have a minimum of $500,000 to invest) who wish to enjoy the higher returns of direct share investment, without having to make buying and selling decisions themselves.

Gavin provides these clients with an alternative to a managed fund. Unlike a managed fund, Gavin manages the shares in his clients’ private accounts. His clients benefit from lower fees, as well as from a more personalised management service.

Gavin’s clients also benefit from his unconventional management methodology. Gavin classifies himself as a ‘value investor’. Value investing is a method that has been popularised by America’s hugely successful Warren Buffet (the world’s second-wealthiest man).

While many traditional fund managers would like to be regarded as value investors, the quarter-to-quarter reporting requirements (and, in many cases, the sheer size) of their funds makes this longer-term and (more selective) method of investment management impractical.

After a long history in the financial planning industry (he was one of the original founders of the Australian chapter of the International Association for Financial Planning), Gavin launched his portfolio management service 22 years ago.

His business grew steadily, fuelled by a steady stream of referrals from satisfied clients – as well as by regular media exposure. As his clientele grew, Gavin increased his minimum initial investment from $50,000 to its current level of $500,000.

Reluctant advertiser

When Gavin asked Justin Roff-Marsh Advertising to take a look at his newspaper advertisements, he had just about given up on advertising. "I was like most business people," Gavin explains, "I figured that advertising was something you did in expectation of some immeasurable longer-term benefit. I ran ads reluctantly, but I had never known an advertisement to generate more than one or two telephone calls.

"I spoke to Justin Roff-Marsh Advertising because I was intrigued by their editorial-style ads. I had no idea whether or not they worked – I just knew I liked reading them!

"What surprised me about Justin Roff-Marsh Advertising was that, unlike other advertising agencies I’d spoken with, they didn’t seem to place much importance in ads. Their attitude seemed to be ‘sure we’ll fix your ad, now let’s talk about your sales process’.

"I’ve got to admit, their seeming disinterest in advertising unnerved me at first. I couldn’t see much sense working on my sales process when I was coping quite comfortably with my current referral business. I simply had no idea of the level of activity their advertising was about to unleash."

A success story waiting to happen

Justin Roff-Marsh, from Justin Roff-Marsh Advertising, explains that Gavin Ross & Co. was a marketer’s dream come true.

"When we met Gavin, we met a man with a remarkable story to tell. He had an invaluable brand in Melbourne. (He had received regular media attention for years – including once being featured on the cover of Personal Investment magazine.)

"His unconventional investment methodology was exciting. (America has a number of popular value investors, including Warren Buffet and Peter Lynch – but no one has taken ownership of that category in Australia.)

"And his enthusiasm for share investment was infectious. (Invariably, when Gavin visits our office, our entire team gathers in the boardroom to ask his opinion on shares, and to marvel at his down-to-earth explanations of otherwise unfathomable economic principles.)

"Gavin was a success story waiting to happen. He’d already done all the hard work – all we had to do was press the ‘start’ button!

A whole new sales process

The Justin Roff-Marsh Advertising team proposed a three-step sales process. First, advertise to generate responses from qualified potential investors. Second, send respondents a comprehensive information pack to pre-sell Gavin’s service – and invite them to invest. And third, plug respondents into an ongoing communications program – to continue to nurture a relationship with those who don’t invest immediately.

Justin Roff-Marsh Advertising designed Gavin’s lead-generation advertisement to appeal to those Melbournians who already knew Gavin from his regular media exposure. The advertisement mentions his $500,000 minimum initial investment, to avoid generating information pack requests from those who cannot afford his services.

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Justin Roff-Marsh Advertising then created a high-quality, eight-page booklet to replace Gavin’s existing ‘corporate’ brochure. Justin explains why. "Gavin’s existing brochure wasn’t a bad looking document. The problem was, its four pages of unemotive bullet points really undersold Gavin’s unique service offering. We wanted to sell Gavin by empowering the reader with a rudimentary understanding of his unconventional investment methodology.

"Furthermore, we wanted to make Gavin’s sales process less labour-intensive by ‘institutionalising’ much of the information he was disseminating to potential clients in face-to-face meetings."

The resulting document explains the shortcomings of traditional managed funds, and then teaches the reader Gavin’s ‘five laws of value investing’. It details Gavin’s investment management service and helps the reader to determine whether or not Gavin’s service will be appropriate for his or her situation. The document also contains a detailed biography of Gavin Ross.

To facilitate ongoing communication with those respondents who don’t invest immediately, Justin Roff-Marsh Advertising converted Gavin’s existing quarterly report into an ‘open letter to high-net worth investors’. Like his new brochure, this open letter adds value to Gavin’s relationship with potential clients by continuing to teach them about his investment methodology.

The results

At time of writing, Gavin’s new sales process has been operating for around five months.

But Gavin is still having trouble coming to grips with the results it is generating.

He winces a little as he relates the numbers – almost as if he suspects he’s dreaming, and he’s terrified this introspection will jolt him awake!

"The first time the ad appeared in the Melbourne Age, it generated 186 information pack requests. I just couldn’t believe it. I’ve never seen the phone ring like that before!

"When I sent respondents their information packages, I was confident that we would get one or two new clients – just one new client would have more than paid for the ad.

"Nothing happened for about a week, and then the phone started ringing again – with people requesting appointments. In total, I got five new clients from that first advertisement. Between them, these new clients placed just over $3 million dollars under my management.

"The amazing thing is that subsequent advertisements have yielded similar – if not better results."

Gavin currently has a queue of potential clients, waiting up to two months to meet with him. He’s employed additional staff and had his computer network rebuilt – but, for the moment, he just can’t grow any faster.

Gavin concludes, "The future looks exciting. By June next year, I will have easily doubled my funds under management. Once I’ve done that, I’m going to close-off my service to new clients, so I can concentrate on looking after my existing clients – and my new project, of course."

Gavin is reluctant to reveal details of his new project just yet, although he admits it will be in the financial services industry. And, like his portfolio management service, he claims he will be pioneering an investment concept never before seen in Australia.

He is less reserved, however, in his praise of Justin Roff-Marsh Advertising. "You guys took a good business and you transformed it into an absolutely outstanding one. I just can’t thank you enough."