When it comes to business, we talk too much about social media and expect too little. It’s like the old joke about sales people: one person says, “I made some valuable contacts today,” and the other responds, “I didn’t get any orders, either.” Companies measure the market results of their sales investments. But few have measures or even have accountable managers in place for their social media investments, and only 7% say their organizations “understand the exact value at stake from digital.” Meanwhile, according to a Gallup survey, 62% of U.S. adults who use social media say these sites have no influence on their purchasing decisions and only 5% say they have a great deal of influence.
If you have a monopoly, then your reward is a quiet life, one devoid of having to deal with competition. But most firms face changing competition, threats to their installed base, and quarterly investor expectations — all of which place sometimes conflicting demands on sales efforts. Sales forces are expected to both:
Maintain the current business: Be predictable and consistent. Because the company relies on existing sources of revenue to keep the business going, sales faces constant pressure to “make the numbers” and focus on the short term. “Nothing happens until you make a sale” and achieve target numbers, and there are typically firm-wide consequences if you don’t.
Adapt to the new: Keep innovating. Current numbers are important, but preparing for future needs creates the necessary foundation for profitable growth. Sales must also generate new sources of revenue and so learn to sell new products, through expanded channels and applications, to new customer segments. This becomes more critical as market life cycles shorten and the time in which companies can maintain product differentiation shrinks.
The goal of strategy is sustained profitable growth, and that means earning returns above your cost of capital or what economists call “Economic Profit” (EP). Companies seeking profitable growth, therefore, face two interdependent tasks: grow the top line and manage the costs and financial efficiency of their customer-acquisition efforts. While sales growth contains the “sizzle,” continuous cost-productivity improvements are the “steak” that feeds the bottom line.
But these tasks are often disconnected in companies. Employees then view cost-reduction initiatives as “what Finance does” (if Finance does them) in a series of one-time initiatives, not an ongoing process. Conversely, the top line is Sales’ domain and Finance does after-the-fact scorekeeping of revenues and margins. The results of that silo’d approach are not good. An analysis of nearly 3,000 nonfinancial companies from 2007–2011 found that the top quintile of firms accounted for 90% of all the EP measured, while the bottom two quintiles destroyed more than $450 billion in EP during this period.
CFOs can change these results by providing leadership and shining light on key links between sales activities, cost management, and profitable growth. To play that role, a CFO must set clear goals. Cost management requires training, preparation, and hours of execution, so pick your shots, not try to manage too many categories too quickly. Prioritize the important areas (usually those with the greatest saving opportunity) and establish the right metrics for measuring effectiveness on an ongoing basis.
What does it take to be a good salesperson? There’s a wide range of responses. Most reflect what you’d expect to find in the Boy Scout Handbook, with commonly cited traits like modesty, listening, curiosity, achievement orientation, and lack of discouragement. In pop culture, it’s a different story. Salespeople are represented by the likes of Leonardo DiCaprio’s flamboyant character in The Wolf of Wall Street, who addresses a group on how to make a sale by challenging them to “sell me this pen.” And popular business author Dan Pink comes at it from yet another angle, touting a personality study which claims that “ambiverts” (people neither extremely introverted or extroverted) sell best.
These traits are so broad that, at best, they simply say that people tend to do business with people they like (but not always and not as often as many sales trainers assume). At worst, they recycle the old cynical description of a salesperson as someone who practices “the art of arresting the human intelligence long enough to get money from it.” In both cases, they’re stereotypes — formulaic and hackneyed images that obscure the realities.
For the realities, look at successful entrepreneurs—most of whom, in early-stage ventures, must sell—and their diverse paths. Jim Koch, for instance, went from bar to bar with six packs of beer to get Sam Adams started. Larry Ellison adopted famously aggressive sales tactics when he started Oracle Technology, a business where, if you win, you win a long-term contract and a string of licensing fees, and if you lose, you’re out of that account for years. It pays to be aggressive in that situation. But Mary Kay Ash focused her cosmetics salespeople on a combination of visible incentives (the signature pink Cadillacs), the intrinsic rewards and constant celebration of female achievement (when outlets for such achievements were more limited), and the kinder and gentler power of social networks.
The gap between a company’s sales and strategy are important now more than ever. While we may or may not be recovering from a lengthly recession, it has been a slippery slope towards recovery for many years. The average S&P company decreased its COGS by over 250 basis points, indicating that the prolonged recession has had an impact on firms. While this seems like a large number, SG&A has increased a percentage of the firms’ total costs. Shifts being made to include customer-acquisition, back office, and supply-chain costs as well as other go-to-market strategies have steered the focus to productivity improvements.
Most executives are surprised by the amount of money that is spent on sales. U.S. Companies spend 3-times their total media ad spend, more than 20-times their spending on all online ads, and 100-times their current spend on social media annually. The greatest point of implementation for most firms is selling yet, research indicates that less than 50% of employees fully understand their firm’s strategy. In relation to sales and service people at companies, the percentage beings to decrease even further. The outlook is not much better at the board level. A 2013 McKinsey survey of 772 directors found that only 34% of those surveyed believed their boards understood their companies’ strategies, proving that it is not only about sales but good governance as well.
Reducing operating costs is a good way to increase profitability. Aligning both strategy and sales has an impact on cost and revenues. Consider how costs and asset-utilization patterns are established in companies, specifically in B2B organizations that account for much of the economic activity in most countries. For the seller in a transaction, an order touches several functions as it transfers from a customer’s RFP or quote to a purchase order, through pre-sale applications, and post-sale services (ex./warranty or field engineering). The sales process continues through nearly all activities. The sales rep generally receives the customer’s questions, complaints, and is the one who interactions with other functions in order to respond appropriately to the customer’s need. Cost management without the proper attention to the relevant procurement and selling process is essentially limited.
Marketing Book of the Year is an organisation of M&SB and selects the best global Marketing Book of The Year 2014 from the world wide offer in the last year.
Any strategy lives or dies on the basis of its customer value proposition. There are many typologies relevant to crafting a value proposition, because there are many ways to win customers. But the key issue is always: what is the center-of-gravity in our approach? Do we ultimately compete on the basis of our cost structure (e.g., Ryanair and Wal-Mart) or another basis that increases our target customer’s willingness-to-pay (e.g., Singapore Airlines and Nordstrom)? In other words, will we sell it for more ormake it for less — and allocate sales resources accordingly?
Nearly all competitive markets confront firms with this choice. In retailing, there is Wal-Mart, Dollar General, and category killers. But there is also Nordstrom, Louis Vuitton, and many high-end boutiques. In pharmaceuticals, there are blockbuster drugs targeted at mass-markets segments. But there is also Soliris, a drug sold by Alexion to treat certain blood and kidney diseases that afflict relatively few people. Soliris costs $400,000 per patient annually. But insurers pay this price because Soliris is the only safe and effective treatment for these diseases and that price is less than the total cost of alternative treatments. Alexion has grown from $25 million in sales in 2007 to $1.5 billion in 2014.
There’s no question that the corporate marketing function is evolving rapidly to become one of the most strategic functions in the enterprise. And that means the makeup of the marketing teams that leading CMOs must assemble is also undergoing a rapid transformation.
“Marketing is changing quickly, and it’s incumbent on CMOs to adapt to those changes in the teams they build,” said Todd Merry, CMO of global hospitality and food service company Delaware North, in an interview with CMO.com. “We need skill sets previously not required in the marketing suite.”
Marketing is in a state of evolution, explained Caren Fleit, senior client partner with Korn Ferry and head of its global marketing center of expertise, in an interview with CMO.com. And the skills required of the marketing organization are changing rapidly as well—from deep technology knowledge to customer experience expertise to sales enablement.
Companies typically spend more hiring their sales forces than any other function in an organization, yet sales managers often aren’t adept at assessing the right skills to make good hires. It’s time to turn that around in order to drive better bottom-line results.
If you want people in the field to understand your strategic initiatives and demonstrate behaviors that will drive profitable growth, then there must be a clear roadmap to drive that alignment, says Frank Cespedes, author of “Aligning Strategy and Sales: The Choices, Systems, and Behaviors That Drive Effective Selling.” He discusses the issue with Anita Bruzzese in the second part of this interview that looks at hiring and how sales will be affected by an improving economy.
In the preface to Aligning Strategy and Sales, Frank Cespedes writes; “Selling is, by far, the most expensive part of implementation for most firms… The amount invested in sales forces (including salaries, benefits, and other components of SG&A — selling, general and administrative expenses) is about $900 billion annually. This is more than five times the $170 billion spent on all media advertising in 2012 and more than twenty times the $40 billion spent on all online advertising and marketing in 2013.”
According to Cespedes, that gap between your company’s sales efforts and strategy? It’s real-and a huge vulnerability. Addressing that gap, actionably and with attention to relevant research, is the focus of Aligning Strategy and Sales, published by Harvard Business Review Press.
Welcome to a Leadership Channel podcast on TotalPicture Radio, with Peter Clayton. Joining Peter for our interview with Harvard Business School professor and author Frank Cespedes is David Dalka, Business Transformation Consultant, Facilitator, and Keynote Speaker.