Book Extract: Rethinking sales compensation

Book Extract: Rethinking sales compensation

Let’s consider some common assertions with respect to sales compensation that in my experience, are often false.

The fear is that “complex” plans can cause salespeople to spend too much time calculating payoffs instead of selling and taking care of customers. Conventional wisdom is that “a good compensation plan is simple and predictable … A well-designed plan fits on a card small enough to be carried around in the salesperson’s wallet.” Maybe not. Many sales situations involve complex bundles of activities: group sales efforts, product plus service offerings, multibusiness participation on solutions sales, and so on. You can pretend the complexity isn’t there, but it is.

Behind the simplicity assertion is an implicit view of sales­people: they may not be bright enough to understand a comp plan that’s bigger than a business card. But this claim is contradicted (often by the same person making the assertion) by fears that a complex plan will drive gaming behavior by salespeople who maximize income with minimal effort. Will reps game the system, any system: complex or simple? Yes. But then the issue is crafting a win-win plan, not fear of taxing their brains. In a strategically effective plan, the company wins when the salesperson wins a bonus. Consider sales comp plans at firms like IBM, Oracle, and others that have strategies with complex sales tasks. The plans are many pages long, with multiple permutations and complex payout schemes. That complexity reflects selling realities. I have yet to meet the sales force that, in the aggregate, does not understand within a week the implications for (in the phrase used at IBM) “hitting big casino” and maximizing income. Available data across firms indicates no difference in the percentage of reps who meet and beat quota under more or less complex comp plans. As one CEO says, “Sales­people become experts in their sales plan, regardless of its simplicity or complexity, and you can count on unintended consequences.” Why? If a policy determines how you will eat, you will study it in detail. As for predictability: it’s the market that ultimately determines predictability or volatility, not your comp plan.

Read the full article on the Business Standard.

Reframing Sales Effectiveness

Strategy + Business Magazine

I’m calling it early: Aligning Strategy and Sales is the best sales book of the year. I know we’ve got a few months left in 2014, but I’m not too worried that I’ll be proven wrong—I’ve been waiting for a sales book like this one for a long time and the odds that another will appear before December 31 are long indeed.

With rare exceptions, sales books are about one of two things: the sales process or sales skills. The process books are aimed at providing the sales force with a path it can follow to close deals; the skills books are aimed at bolstering an individual salesperson’s results. Good ones of both ilks can be worth their weight in gold. “But,” warns Cespedes, a consultant and senior lecturer at Harvard Business School, “they also treat selling in isolation from strategy, and the focus of much sales training can have a perverse effect: It often leads a company’s sales force to work harder but not necessarily smarter .” Worse, he adds, the sales force can get “better and better at things that customers care less and less about…and the cycle can be self-reinforcing.”

Read the full review in Strategy + Business magazine.

5 Dangerous Sales Compensation Myths Debunked

5 Dangerous Sales Compensation Myths Debunked

Sales compensation is a perennial topic at most companies. There are many different ways to pay salespeople, and money is important. Business history is full of firms that got what they paid for (e.g., reps who, responding to their volume-driven incentives, failed to execute premium-priced sales strategies) and didn’t get what they didn’t pay for (individually-focused incentives in a team selling approach).

But the compensation conversation has also generated some assumptions that, in my experience, are often false. Here are five common “truths” you should reconsider.

Read the full article on HubSpot.

ISBM Webinar (November 20)

ISBM

For most companies, the most expensive part of implementation is aligning sales efforts and investments with strategy goals. Yet, research indicates a big gap. On average, companies deliver only about 50% of the financial performance that their strategies and sales forecasts promise. That’s a lot of wasted money and managerial effort.

Join us for a 1 hour ISBM webinar with author and Harvard Business School professor Frank Cespedes as he discusses tools to help close that gap and improve selling and strategy in your organization. Informed by his experience as a business manager, Board member, and academic, Cespedes will highlight what his recent research can tell us about improving performance in this area and increasing enterprise value. He will also leave you with diagnostics that you can use with colleagues in your organization after the webinar.

Start Time: November 20, 2014 1:00 PM Eastern

Read more and register for the webinar here.

How to Select Sales Managers Who Can Actually Manage

How to Select Sales Managers Who Can Actually Manage

Sales leaders face a conundrum when selecting sales managers from the rep ranks. Most firms have examples of successful salespeople who are disasters as managers because they persist in the same behaviors as a manager that helped them excel as an individual contributor. With this in mind, some industry thought leaders believe sales management candidates should be pulled from another talent pool entirely.

On the other hand, a sales manager can benefit from experience as a rep in that particular sales organization to boost credibility among their direct reports. And credibility is required to conduct candid performance reviews, make compensation decisions, implement necessary account reallocations, and other vital sales management responsibilities. Considering these two conflicting facts, what’s a sales leader to do?

To identify salespeople who can become effective sales managers, leaders need to clearly define the specific behaviors required of managers, and then test for them effectively. And this actually isn’t so hard if you use the right framework and assessment techniques, and then use that knowledge and tools to communicate shared expectations with those aspiring to be sales managers.

Read the full article on HubSpot.

The Revival of a Salesman: The Importance of Sales and Strategy to Business

Harvard Business School

Professor Frank Cespedes sits down to talk to Brian Kenny about his new book Aligning Strategy and Sales: The Choices, Systems, and Behaviors that Drive Effective Selling about why it’s imperative that a company’s sales force inform its strategy.

“The Business” is an official production of the Harvard Business School. We publish twice monthly, and you can find all interviews at www.hbs.edu/thebusiness. Subscribe to “The Business” on iTunesU or SoundCloud.

Listen to the interview and read the full transcript at Harvard Business School.

Do’s and Don’ts For Sales Force Training

Do’s and Don’ts For Sales Force Training

Firms in the United States invest three times more in selling than advertising, 20 times more than online media and 100 times more than social media, according to research presented in a 2013 Harvard Business Journal article. In fact, the money spent on sales training is often the biggest learning expense in firms, fragmented across branches, business units and functions.

Worse, it’s getting more expensive. Due to big data and analytical tasks facing many sales forces, productivity ramp-up times have increased. Each new sales person now represents more spending and more time that has to be devoted to training. Further, even in a recession, sales turnover averages 25 to 30 percent annually, according to research done by industry research organizations Chief Sales Officer Insights. At many firms, that means the equivalent of the entire sales force must be replaced and trained every four years or so.

It’s never been more important to get the most from sales force investments. The following “do’s” and “don’ts” for CLOs focus on sales tasks and behavioral goals to maximize learning ROI and minimize retention issues:

Read the full article on Chief Learning Officer (CLO).

Putting Sales at the Center of Strategy

Harvard Business Review

For many years Document Security Management (a pseudonym) had a thriving business in retrieving and shredding or securely storing organizations’ documents. Executives and their assistants loved its one-stop-shopping value proposition, and the sales force cultivated deep relationships with them. By the early 2000s, however, it was clear that cheaper digital storage technology, especially the cloud, would disrupt the company. So DSM introduced its own cloud-based storage and directed the sales force to bundle it with traditional services.

The results were disastrous. Many of the salespeople lacked the technical knowledge to work effectively with clients’ IT departments. Pricing was a problem, because the physical and digital services had very different cost structures. And in spite of being trained to bundle offerings—a key to the new strategy—reps often sold only the lower-priced, digital service. Contract renewals for traditional services fell sharply, as did profits. DSM modified its sales compensation plan, but then digital sales dipped; meanwhile, new competitors began signing clients. Ultimately DSM spun off its digital unit.

What went wrong at DSM goes wrong at many companies: Management embarks on a strategy without considering the realities facing the people who must execute it with paying customers.

Read the full article in the Harvard Business Review.

Listen to the HBR IdeaCast.

5 new, potentially good reads for September

National Jeweler

Online book discussion site Goodreads just released its list of recently published books for its users this month.

As it has done for the past few months,National Jeweleragain has sifted through the virtual stacks to find a handful of recent releases that may be useful to business owners, including a book about closing the gap between business strategy and sales efforts, looking beyond the obvious to find the information needed to make critical decisions, and how to regain lost minutes and hours from “time bandits.”

Read the full article on National Jewler.