Match your sales force structure to your business life cycle

Although companies devote considerable time and money to managing their sales forces, few focus much thought on how the structure of the sales force needs to change over the life cycle of a product or a business. However, the organization and goals of a sales operation have to evolve as businesses start up, grow, mature, and decline if a company wants to keep winning the race for customers. Specifically, firms must consider and alter four factors over time: the differing roles that internal salespeople and external selling partners should play, the size of the sales force, its degree of specialization, and how salespeople apportion their efforts among different customers, products, and activities. These variables are critical because they determine how quickly sales forces respond to market opportunities, they influence sales reps' performance, and they affect companies' revenues, costs, and profitability. In this article, the authors use timeseries data and cases to explain how, at each stage, firms can best tackle the relevant issues and get the most out of their sales forces. During start-up, smart companies focus on how big their sales staff should be and on whether they can depend upon selling partners. In the growth phase, they concentrate on getting the sales force's degree of specialization and size right. When businesses hit maturity, companies should better allocate existing resources and hire more general-purpose salespeople. Finally, as organizations go into decline, wise sales leaders reduce sales force size and use partners to keep the business afloat for as long as possible.     

How to sell services more profitably

When products become commodities, manufacturing companies may seek to differentiate themselves with value-added services--a potentially profitable strategy. Unfortunately, companies often stumble in the effort. Reinartz and Ulaga conducted in-depth studies of 18 leading companies in a broad variety of product markets to learn what distinguished the successes from the rest. They discovered four steps to developing a profitable services capability. RECOGNIZE THAT YOU ALREADY HAVE A SERVICE COMPANY: You can identify and charge for simple services--as Merck did when it stopped quietly absorbing shipping costs. Switching services from free to fee clarifies their value for managers as well as for customers. INDUSTRIALIZE THE BACK OFFICE: To prevent delivery costs from eating up service-offering margins, build flexible service platforms, closely monitor process costs, and exploit new technologies that enable process innovations. The Swedish bearings manufacturer SKF provided off-site access to an online monitoring tool that could warn of potential failure in customers' machines. CREATE A SERVICE-SAVVY SALES FORCE: Services require longer sales cycles and, often, decisions from high up in a customer's hierarchy; what's more, product salespeople may be inimical to change. Schneider-Electric did a major overhaul of its sales organization and trained its people to switch from cost-plus pricing to value-based pricing. FOCUS ON CUSTOMERS' PROCESSES AND THE OPPORTUNITIES THEY AFFORD FOR NEW SERVICE OFFERINGS: You may need to acquire new capabilities to take advantage of those opportunities: The industrial coatings specialist PPG had to learn how painting robots function after it offered to take over Fiat's Torino paint shop. Services can both lock in customers and help acquire new accounts. They should be developed with care and attention.     

The ultimately accountable job: leading today's sales organization

In recent years, sales leaders have had to devote considerable time and energy to establishing and maintaining disciplined processes. The thing is, many of them stop there--and they can't afford to, because the business environment has changed. Customers have gained power and gone global, channels have proliferated, more product companies are selling services, and many suppliers have begun providing a single point of contact for customers. Such changes require today's sales leaders to fill various new roles: Company leader. The best sales chiefs actively help formulate and execute company strategy, and they collaborate with all functions of the business to deliver value to customers. Customer champion. Customers want C-level relationships with suppliers in order to understand product strategy, look at offerings in advance, and participate in decisions made about future products--and sales leaders are in the best position to offer that kind of contact. Process guru. Although sales chiefs must look beyond the sales and customer processes they have honed over the past decade, they can't abandon them. The focus on process has become only more important as many organizations have begun bundling products and services to meet important customers' individual needs. Organization architect. Good sales leaders spend a lot of time evaluating and occasionally redesigning the sales organization's structure to ensure that it supports corporate strategy. Often, this involves finding the right balance between specialized and generalized sales roles. Course corrector. Sales leaders must watch the horizon, but they can't take their hands off the levers or forget about the dials. If they do, they might fail to respond when quick adjustments in priorities are needed.     

Leading change from the top line. Interview by Thomas A Stewart and David Champion

Most CEOs who specialize in turning around struggling companies focus on costs. But for Fred Hassan, chairman and CEO of Schering-Plough, the primary focus in a turnaround is the top line. Since 2003, when Hassan took the helm at the global pharmaceutical company, he has overseen a remarkable recovery in performance. And consistent with his philosophy, the turnaround started with sales. Considering sales reps as less than crucial to strategy, Hassan cautions, is a big mistake. At Schering-Plough, he has concentrated on motivating and organizing salespeople to create trusting relationships with doctors. "You have to differentiate the salesperson in the customer's mind--just like you differentiate brands," he explains. A doctor may see 60 pharmaceutical reps on a regular basis but actually trust far fewer. To earn a spot in this inner circle, Schering-Plough reps try to turn each customer encounter into an occasion to help doctors provide better care for their patients. Schering-Plough also restructured its sales forces so that reps carry not just one kind of product, as they do in most pharmaceutical companies, but several. Covering a broad range of treatments gives reps more ways to build value-adding relationships with doctors. In this interview, Hassan discusses his success at Schering-Plough and his experiences at other pharmaceutical companies. During his career, he has built a reputation for being in tune with the front lines, as well as for reaching out to the managers who supervise salespeople. He has found that this level of personal attention not only makes reps feel respected but also gives him valuable strategic insights.     

How right should the customer be?

If your salespeople aren't sure who their boss is--the district manager? the regional manager? the customer?--it could be a sign that your company's sales force controls are working at cross-purposes and that your sales function is in trouble. Sales force controls are the policies and practices that govern the way you train, supervise, motivate, and evaluate your sales staff. They include the types of compensation you offer your people and the criteria your sales managers use to evaluate the reps' performance. These controls let salespeople know which trade-offs the company would prefer them to make when the inevitable conflicts arise between what they want to do (spend lots of time and money to get a sale) and what they actually can do (use limited resources and still get the sale). When sales force controls aren't aligned--when, say, the system simultaneously encourages reps to be entrepreneurial but also to file detailed call reports and check in frequently with their bosses--individuals become discouraged and unproductive, and they eventually leave the company. The authors' research suggests there are significant differences between the control systems of companies that encourage salespeople to put the customer first-outcome control (OC) systems--and those that encourage reps to put their managers first--behavior control (BC) systems. In this article, they list the characteristics of OC and BC systems, describe the potential fallout from conflicts within these systems, and explain how you can tell which control system is appropriate for your firm. In most cases, the right choice will be a consistent system somewhere in the middle of the OC-BC continuum.     

How you slice it: smarter segmentation for your sales force

Three years ago, 70-year-old Hill-Rom Incorporated was in a position familiar to many mature businesses: The company was strong but needed to be stronger. It was a top producer of hospital beds and specialty mattresses, its core product lines. It also had competitive complementary lines of stretchers, furniture, and architectural equipment. It had an extensive customer base, a respected sales force, and solid profit margins. But by the time Ernest Waaser took over as chief executive in early 2001, revenue growth had been slowing, and competition was on the rise. To secure Hill-Rom's place in the market, Waaser decided to focus first on the sales organization--partly because the cost of sales had risen gradually over the past five years and partly because acquisitions and other initiatives had made the sales organization more complex. The CEO took several steps to restructure the sales force. First, the company changed its customer segments to better reflect customers' demands and financial status, ultimately targeting two main groups: key and prime customers. It then changed the overall structure of the sales organization so it could tailor its approach to these two segments; key customers received more specialized service than prime customers. Finally, Hill-Rom adjusted the sales force after the company took an in-depth look at historical data on products and services and sales completed. Reasons for staffing changes were carefully communicated to the sales force. Because of Hill-Rom's initiatives, the cost of sales is down, short-term revenue growth is up, the outlook for long-term revenue growth looks bright, sales and profit margins are up, and customer satisfaction has increased. Best practice, indeed.     

Leveraging the psychology of the salesperson. A conversation with psychologist and anthropologist G. Clotaire Rapaille

We have to admire salespeople's resilience in the face of endless rejection, their certainty that things will work out in the end. At the same time, we're repelled by what their job can do to them. (Think Death of a Salesman and Glengarry Glen Ross, dramatic portraits of hollowness and moral capitulation.) Just what type of person goes into sales, and how do salespeople cope with their jobs? For insight into these questions, HBR approached G. Clotaire Rapaille, a psychologist, anthropologist, and marketing guru who researches the impact of culture on business and markets. In particular, he studies archetypes--the underlying patterns in psychology that illuminate the human condition--and shows organizations how to use those patterns to sharpen their sales and marketing efforts. He points out, for instance, that a keen understanding of the Great Mother archetype has helped Procter & Gamble achieve great success with Pantene hair products. By promoting nutrition--and reminding consumers that hair must be nurtured--the Pantene brand appeals to the maternal instinct. Rapaille says that salespeople have their own archetype: They are Happy Losers who relish rejection and actually seek out jobs that provide opportunities to be turned down. That, of course, has implications for how they should be managed. Rapaille's research shows that the leading motivator in sales is not money; it's the thrill of the chase. "Hold huge company meetings where you give a salesperson the gold medal of rejection," he advises. "Jonathan sold 500,000 computers last month, but he was rejected 5 million times! It may sound ludicrous, but this is the way to get fire in the belly of your sales force--particularly in America, where beating the odds is highly prized".     

Holes at the top. Why CEO firings backfire

When a company does well, its CEO is showered with money and adulation. When it does poorly, the CEO gets the blame--and the boot. For better or worse, investors now view chief executives as the primary determinant of corporate performance. But the reality is that most companies perform no better after they dismiss their CEOs than they did in the years leading up to the dismissals. Worse, the organizational disruption created by a rushed firing can leave a company with deep and lasting scars. Far from being a silver bullet, the replacement of a CEO often amounts to little more than a self-inflicted wound. The blame for such poor results, the author argues, lies squarely with boards of directors. Boards often lack the strategic understanding of the business necessary to give due diligence to choosing a replacement CEO. Concern over restoring investor confidence quickly--rather than doing what's right for the company--drives the selection process. And all too often, companies continue to be dogged by the same old problems after the new CEOs come on board. But a good board can make a CEO replacement pay off if its members first develop a better understanding of the business context, worry less about pleasing the investment community and more about a replacement's strategic fit, and take an active role in overseeing the new CEO and the performance and direction of the company. In the long run, such approaches are likely to foster stability at the helm--making it less likely a company will have to fire its CEO in the first place.     

Motivating salespeople: what really works

No sales force consists entirely of stars; sales staffs are usually made up mainly of solid perfomers, with smaller groups of laggards and rainmakers. Though most compensation plans approach these three groups as if they were the same, research shows that each is motivated by something different. By accounting for those differences in their incentive programs, companies can coax better performance from all their salespeople. As the largest cadre, core performers typically represent the greatest opportunity, but they're often ignored by incentive plans. Contests with prizes that vary in nature and value (and don't all go to stars) will inspire them to ramp up their efforts, and tiered targets will guide them up the performance curve. Laggards need quarterly bonuses to stay on track; when they have only annual bonuses, their revenues will drop 10%, studies show. This group is also motivated by social pressure-especially from new talent on the sales bench. Stars tend to get the most attention in comp plans, but companies often go astray by capping their commissions to control costs. If firms instead remove commission ceilings and pay extra for overachievement, they'll see the sales needle really jump. The key is to treat sales compensation not as an expense to rein in but as a portfolio of investments to manage. Companies that do this will be rewarded with much higher returns.     

Discovering new points of differentiation

Most profitable strategies are built on differentiation: offering customers something they value that competitors don't have. But most companies concentrate only on their products or services. In fact, a company can differentiate itself every point where it comes in contact with its customers--from the moment customers realize they need a product or service to the time when they dispose of it. The authors believe that if companies open up their thinking to their customer's entire experience with a product or service--the consumption chain--they can uncover opportunities to position their offerings in ways that neither they nor their competitors though possible. The authors show how even a mundane product such as candles can be successfully differentiated. By analyzing its customers' experiences and exploring various options, Blyth Industries, for example, has grown from a $2 million U.S. candle manufacturer into a global candle and accessory business with nearly $500 million in sales and a market value of $1.2 billion. Finding ways to differentiate one's company is a skill that can be nurtured, the authors contend. In this Manager's Tool Kit, they have designed a two-part approach that can help companies continually identify new points of differentiation and develop the ability to generate successful differentiation strategies. "Mapping the Consumption Chain" captures the customer's total experience with a product or service. "Analyzing Your Customer's Experience" shows managers how directed brainstorming about each step in the consumption chain can elicit numerous ways to differentiate any offering.     

Corporate insider trading and return skewness

Corporate insider trades predict idiosyncratic return skewness. CEO purchases are followed by an increase and CEO sales by a decrease in idiosyncratic skewness. The evidence suggests that this effect is driven by personal preferences rather than behavioral biases such as overconfidence. Our findings are consistent with the interpretation that CEOs, who are generally considered to be underdiversified, optimize their holdings by taking their preference for positive return skewness into account. We observe particularly robust results for CEO sales, which substantiates the less common notion that insider sales can be informative for investors.     

Price smarter on the Net

Companies generally have set prices on the Internet in two ways. Many start-ups have offered untenably low prices in a rush to capture first-mover advantage. Many incumbents have simply charged the same prices on-line as they do off-line. Either way, companies are missing a big opportunity. The fundamental value of the Internet lies not in lowering prices or making them consistent but in optimizing them. After all, if it's easy for customers to compare prices on the Internet, it's also easy for companies to track customers' behavior and adjust prices accordingly. The Net lets companies optimize prices in three ways. First, it lets them set and announce prices with greater precision. Different prices can be tested easily, and customers' responses can be collected instantly. Companies can set the most profitable prices, and they can tap into previously hidden customer demand. Second, because it's so easy to change prices on the Internet, companies can adjust prices in response to even small fluctuations in market conditions, customer demand, or competitors' behavior. Third, companies can use the clickstream data and purchase histories that it collects through the Internet to segment customers quickly. Then it can offer segment-specific prices or promotions immediately. By taking full advantage of the unique possibilities afforded by the Internet to set prices with precision, adapt to changing circumstances quickly, and segment customers accurately, companies can get their pricing right. It's one of the ultimate drivers of e-business success.     

The new science of sales force productivity

For years, sales managers at many companies have relied on top performers and sheer numbers of sales reps to stay competitive. But while they may have squeaked by on this wing-and-a-prayer technique, their sales teams haven't thrived the way they once did. Today's most successful sales leaders are taking a more scientific approach. Savvy managers are reshaping their tactics in response to changing markets. They are reaching out to new customers in innovative ways. And they are increasing productivity by helping the reps they already have make the most of their skills and resources. Leaders who take a scientific approach to sales force effectiveness have learned to use four levers to boost their reps' productivity in a predictable and manageable way. First, they systematically target their firms' offerings, matching the right products with the right customers. Second, they optimize the automation, tools, and procedures at their disposal, providing reps with the support they need to boost sales.Third, they analyze and manage their reps' performance, measuring both internal processes and results to determine where their teams' strengths and weaknesses are. Fourth, they pay close attention to sales force deployment--how well sales, support, marketing, and delivery resources are matched to customers. These four levers can help sales leaders increase productivity across the board, the authors say, though they have the greatest impact on lower-ranked performers. The overall effect of increasing the average sales per employee can be exponential; it means a company won't have to rely on just a few talented individuals to stay competitive. This is especially important because finding and keeping star salespeople is more difficult than ever. What's more, managers who optimize the sales forces they already have can see returns they never thought possible.     

Personal acquaintances and salespeople in financial services: Differences between customers and friends

The existence, benefit and management of customer–salesperson relationships in the marketing of financial services are topics of increasing interest. Much of the sales and marketing literature implies that because of time spent together, salespeople and some of their customers develop close relationships that are akin to friendships. Evidence from social psychology confirms that strong relationships are founded in deep knowledge of others gained over long periods after sharing personal information. This paper reports on the results of a study of salespeople's assessments of their personal acquaintance with customers and friends in a financial services setting. The results indicate that salespeople do not classify customers as friends on all the dimensions of personal acquaintance. Furthermore, the nature of personal acquaintance differs between ‘good’ customers (those salespeople enjoy serving), and ‘bad’ (those they do not), with the exception of the personal acquaintance dimensions of interaction frequency and personal disclosure. We discuss the implications for practice and make recommendations for future research.     

Build loyalty in business markets

Companies often apply consumer marketing solutions in business markets without realizing that such strategies only hamper the acquisition and retention of profitable customers. Unlike consumers, business customers inevitably need customized products, quantities, or prices. A company in a business market must therefore manage customers individually, showing how its products or services can help solve each buyer's problems. And it must learn to reap the enormous benefits of loyalty by developing individual relationships with customers. To achieve these ends, the firm's marketers must become aware of the different types of benefits the company offers and convey their value to the appropriate executives in the customer company. It's especially important to inform customers about what the author calls nontangible nonfinancial benefits-above-and-beyond efforts, such as delivering supplies on holidays to keep customers' production lines going. The author has developed a simple set of devices-the benefit stack and the decision-maker stack-to help marketers communicate their firm's myriad benefits. The vendor lists the benefits it offers, then lists the customer's decision makers, specifying their concerns, motivations, and power bases. By linking the two stacks, the vendor can systematically communicate how it will meet each decision-maker's needs. The author has also developed a tool called a loyalty ladder, which helps a company determine how much time and money to spend on relationships with various customers. As customers become increasingly loyal, they display behaviors in a predictable sequence, from growing the relationship and providing word-of-mouth endorsements to investing in the vendor company. The author has found that customers follow the same sequence of loyalty behaviors in all business markets.     

Solve the succession crisis by growing inside-outside leaders

In his analysis of 1800 successions, Harvard Business School professor Bower found that companies performed significantly better when they appointed insiders to the job of CEO. Other researchers, including Jim Collins in Good to Great, have come to similar conclusions working from different data sets. Yet Bower finds far too many companies have no succession plans; as a result, when the time comes to name a new chief executive, more firms turn to outsiders. Both insider and outsider CEOs have strengths and weaknesses at the start. Insiders know the company and its people but are often blind to the need for radical change. Outsiders see the need for a new approach but can't make the necessary changes because they don't know the organization or industry sector well enough. What companies must do, then, is find a way to nurture what Bower calls inside-outsiders--internal candidates who have outside perspective. Often such executives have spent much of their time away from the mainstream of the organization, and away from headquarters, living with new opportunities and threats. Before becoming CEO, Procter & Gamble's A.G. Lafley, for instance, worked for years building P&G's Chinese cosmetics operation rather than the core detergent business. IBM's Sam Palmisano was a champion of software and open systems at a time when Big Blue was essentially a closed-system, hardware-oriented company. Nascent inside-outsiders should enter the CEO-training process by the time they are 30 and be given the opportunity to manage a whole business, so that they become good insiders. But they also need to be mentored with an eye toward preserving their outsider perspective, so they learn how to turn their new ideas into great businesses and are protected from old-timers who might be inclined to teach them a lesson.     

Business marketing: understand what customers value

How do you define the value of your market offering? Can you measure it? Few suppliers in business markets are able to answer those questions, and yet the ability to pinpoint the value of a product or service for one's customers has never been more important. By creating and using what the authors call customer value models, suppliers are able to figure out exactly what their offerings are worth to customers. Field value assessments--the most commonly used method for building customer value models--call for suppliers to gather data about their customers firsthand whenever possible. Through these assessments, a supplier can build a value model for an individual customer or for a market segment, drawing on data gathered form several customers in that segment. Suppliers can use customer value models to create competitive advantage in several ways. First, they can capitalize on the inevitable variation in customers' requirements by providing flexible market offerings. Second, they can use value models to demonstrate how a new product or service they are offering will provide greater value. Third, they can use their knowledge of how their market offerings specifically deliver value to craft persuasive value propositions. And fourth, they can use value models to provide evidence to customers of their accomplishments. Doing business based on value delivered gives companies the means to get an equitable return for their efforts. Once suppliers truly understand value, they will be able to realize the benefits of measuring and monitoring it for their customers.     

Discovering your authentic leadership

The ongoing problems in business leadership over the past five years have underscored the need for a new kind of leader in the twenty-first century: the authentic leader. Author Bill George, a Harvard Business School professor and the former chairman and CEO of Medtronic, and his colleagues, conducted the largest leadership development study ever undertaken. They interviewed 125 business leaders from different racial, religious, national, and socioeconomic backgrounds to understand how leaders become and remain authentic. Their interviews showed that you do not have to be born with any particular characteristics or traits to lead. You also do not have to be at the top of your organization. Anyone can learn to be an authentic leader. The journey begins with leaders understanding their life stories. Authentic leaders frame their stories in ways that allow them to see themselves not as passive observers but as individuals who learn from their experiences. These leaders make time to examine their experiences and to reflect on them, and in doing so they grow as individuals and as leaders. Authentic leaders also work hard at developing self-awareness through persistent and often courageous self-exploration. Denial can be the greatest hurdle that leaders face in becoming self-aware, but authentic leaders ask for, and listen to, honest feedback. They also use formal and informal support networks to help them stay grounded and lead integrated lives. The authors argue that achieving business results over a sustained period of time is the ultimate mark of authentic leadership. It may be possible to drive short-term outcomes without being authentic, but authentic leadership is the only way to create long-term results.     

THE CEO: A VISIBLE HAND IN WEALTH CREATION?

Commensurate with the growth of their pay packages and public visibility, the role of the CEO in the corporate value creation process has increased significantly in recent years. This article argues that sustained wealth creation in a corporation has three distinct elements. The first and most basic is the selection of the lines of business in which to operate; this element is probably the most visible manifestation of CEO action in large corporations today. The second element is the value creation model, which answers the question: How is this particular set of businesses expected to add value over and above the sum of the values of each business or asset category standing alone? The third element is the internal governance system, which establishes the corporate structure and administrative processes of the firm and, perhaps even more important, defines the corporate values that drive the strategic and operational priorities of the different business units. The authors suggest that the essence of the work of the CEO is to develop and maintain a balanced relationship among these three elements of wealth creation and to ensure that the relationship evolves in the face of changing circumstances. CEOs are inevitably faced with dilemmas in managing this process—in particular, the need to balance continuity and change and to maintain the integrity of short‐term performance disciplines while encouraging not only investment in growth opportunities (which can hurt near term performance), but also experimentation and collaboration among business units (which are difficult to measure and reward with most performance measurement and incentive schemes). Adding to the difficulties of managing such dilemmas, visibility and a strong public image are often thrust upon (if not sought by) CEOs, who must then determine how they can use that image to strengthen the commitment of their employees and investors.     

Innovation killers: how financial tools destroy your capacity to do new things

Most companies aren't half as innovative as their senior executives want them to be (or as their marketing claims suggest they are). What's stifling innovation? There are plenty of usual suspects, but the authors finger three financial tools as key accomplices. Discounted cash flow and net present value, as commonly used, underestimate the real returns and benefits of proceeding with an investment. Most executives compare the cash flows from innovation against the default scenario of doing nothing, assuming--incorrectly--that the present health of the company will persist indefinitely if the investment is not made. In most situations, however, competitors' sustaining and disruptive investments over time result in deterioration of financial performance. Fixed- and sunk-cost conventional wisdom confers an unfair advantage on challengers and shackles incumbent firms that attempt to respond to an attack. Executives in established companies, bemoaning the expense of building new brands and developing new sales and distribution channels, seek instead to leverage their existing brands and structures. Entrants, in contrast, simply create new ones. The problem for the incumbent isn't that the challenger can spend more; it's that the challenger is spared the dilemma of having to choose between full-cost and marginal-cost options. The emphasis on short-term earnings per share as the primary driver of share price, and hence shareholder value creation, acts to restrict investments in innovative long-term growth opportunities. These are not bad tools and concepts in and of themselves, but the way they are used to evaluate investments creates a systematic bias against successful innovation. The authors recommend alternative methods that can help managers innovate with a much more astute eye for future value.