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.
