I plead guilty to enjoying a cold beer or two, and I’ve watched with amazement as the decade-long bull market in the craft beer industry shows no signs of abating.
After several years of slashing costs, trying to get every ounce of efficiency possible out of the organization in order to meet analyst and stockholder demands, most studies show that CEOs have come to the conclusion that it’s time to grow the top line. Organizations will usually focus on ways to improve the effectiveness of their operations first, minimizing costs wherever possible. However, cost reduction does not grow the business, and pressure will continue to mount on CEOs to increase revenue and margin.
Unfortunately, many CEOs face a common problem of sales organizations not delivering on promises made due to the inability to effectively execute the strategy to grow the business at the desired or required pace. This is not to say there isn’t talent in the organization, nor the will to execute the strategy. On the contrary, most organizations have a certain level of talent with a strong belief they will be successful in delivering the sales plan targets, but too many quarters of missing the mark against sub-optimal targets leave most CEOs wanting more. Survey after survey over the past several years draw the same conclusion: Chief executives need – and want – to grow the business, but do not have confidence in their organizations to effectively execute their growth strategy.
This article focuses on four of the numerous reasons why sales organizations underperform:
Inability to move the performance curve
After spending millions on the latest training programs that promise a significant uplift in the performance and subsequent motivation of the sales force, one thing remains: the same 20% (top performers) are still generating two-thirds or more of the sales revenue. The financial impact projected as a result of the training does not materialize because most training sessions deliver theory, not skill development and transfer. Until sales executives take action on the bottom 10% to 20% (non-performers), and implement solid coaching with viable metrics on the rest of the organization, they will not achieve the financial potential of their organization. The mid 60% to 70% (nominal performers) is where the major improvements will occur and the greatest financial benefits will be realized. The investment in training dollars will pay off when sales management realizes its responsibility to have a much greater hands-on approach and a requirement to move a significant number of nominal performers to top performers.
Fear of Pricing
As the competitive environment increases, pricing of one’s goods or service becomes even more important. Most organizations are apprehensive about aggressively pricing their products, because their sales organization is too timid to defend the price of the goods or services with the value delivered. The more latitude the sales organization is given to discount price, the more price erosion will occur. Those pricing functions that have a tendency to be overly influenced by “the market” can potentially leave a significant amount of profit on the table. The price should reflect the value to the customer; once effectively articulated, most customers will pay for that value. Managing to higher pricing benchmarks set will require the sales organization to raise its game.
This brings us to the next point: The inability of the sales organization to articulate the value and benefit of their product to the customer can have a devastating effect on the company’s margins. If ever there was a need to enhance a sales organization’s capability, this is it.
The number one reason given by most sales representatives for not making the sale is price. All too often they will quickly look to discount the price in fear of losing the sale. Top performers will sell the product at fair or above value, but nominal and poor performers will look to discount every time. The more flexibility a sales organization has to discount a product, the more money gets left on the table.
Addressing the sales representative’s ability to effectively articulate the value proposition of the goods or services delivered is critical in today’s competitive environment. Employment of the three C’s – Courage, Confidence and Conviction – is mandatory in preventing price erosion. Failure to do so will have chief executives struggling to maintain margins gained through hard-fought cost-reduction programs, as there is only so much cost that can come out of an organization.
Management by Assumption
On a percentage basis there are very few entrepreneurs or highly self-motivated people who require minimal supervision, even in sales who work on commissions or are heavily incented with bonuses. Unfortunately, given that 80% of an organization’s sales force are either nominal or non-performers, this doesn’t do much for helping an organization grow at the required pace. Sales executives are usually former members of the top 20% performers who are self-motivated and driven to succeed. They also naturally assume that majority of the other sales professionals are as well, and do not see the need to rigorously manage them because they, themselves, did not need to be. They believe that by simply sharing with their teams the disciplines and best practices that made them successful, they will automatically embrace them and achieve a similar level of success.
Best practices and recognized success disciplines have to be properly implemented just like any other process or organizational change, but sales leadership has not been trained to do this nor do they like it and so this responsibility has historically been abdicated. The paradigms and culture in these organizations have been ingrained over decades so it will not only take an extremely strong leadership team with the resolve and grit to make it happen, but it will also take time. Unfortunately, when sales leadership does not have the time or the resolve, they turn to the next best thing – the latest and greatest (and also very expensive) CRM platform to do the management for them.
The CRM Myth
“If only we had this platform or that system we could knock it out of the park.” CEOs often hear this excuse from their organization for not being able to achieve the top line and margin growth so needed by the company. CRMs don’t manage people, people manage people. That does not dismiss the importance of having the right systems and tools to effectively manage your business, but all too often, sales organizations and sales leadership have false hope that a new platform or the latest technology will be the ultimate answer to improving performance and will successfully move the 80% of nominal and non-performers into a higher performing category. After all the training has failed, the compensation program changes, and restructuring occurs, the conclusion is “it must be our outdated technology.”
Truth be known, most CRM platforms are underutilized. They store reams of data which are useful, but most often do not capitalize on those system capabilities that enable sales leadership to effectively manage the activities and key performance indicators that drive the behavior to achieve the results. Add to that, the poorly laid out processes upon which the platform is designed and the lack of technical competence of the sales force to effectively use the system, you ultimately end up with a very expensive underutilized CRM. To be sure, a properly designed and utilized CRM is a valuable tool, but it is not a substitute for managing the sales organization.
This article was not meant to be unsympathetic to the challenges of sales leadership and their organizations. Their challenges are complex. But the gap between performing and poor-performing organizations is widening. Those executives who address the issues in the near term will be much further ahead, as it is not a matter of if chief executives will have to address these problems with their sales leadership, but rather a matter of when.
Ted Binkoski is the Vice President of Business Identification for Alexander Proudfoot, a leading operational improvement firm. His expertise of revenue growth initiatives, sales performance and effectiveness, and overall productivity spans across multiple industries.