CEO lens on the revenue performance problem – Psst…it’s about the system

 

Three years ago, we asked our CEO, George Colony, to interview other CEO’s about their opinions of their sales force.   One of those questions he asked was “are you satisfied that your sales force is getting your company to its strategic objectives?”

What do you think the answer was?

Out of 40 CEO’s he interviewed, 39 said “No.”

We spent a lot of time asking our clients – who are Sales and Marketing leaders – what they thought that meant, and the bulk of them believed it was about the sales force not delivering quarterly results. 

This highlighted a big gap in perspective. 

You see, in many ways what the CEO is selling is different than what the rest of the organization is – he’s selling the stock, which is a reflection of the future, whereas the rest of the organization is focused on selling the various products and services in the company’s portfolio with a quarterly event horizon.  Thus, if the people carrying out the strategy are more focused on the here and now and the CEO has a more forward lean in his head – you can see how this can create the recipe for major friction in the execution of the business strategy.

At the beginning 2011 we framed this problem like this:  The selling system is not adapting quickly enough to accommodate the changing business strategy.

Throughout 2011 and 2012, we spent a tremendous amount of time investigating what a “selling system” really means and the implications of the rate of adaptation.  Here are some highlights:

  •  Why does your company have a sales force? When we asked this question, we found that product, sales, finance, human resources, or marketing executives within the same company don’t have a common view point of the role or purpose of a sales organization.  And if that’s the case, how can you possibly optimize a system with so many varied viewpoints about the purpose of a given business process or function?  There needs to be a way to get everyone on the same page.
  • What is revenue?  This might seem like an obvious question, but when you “follow the money” working backwards from the income statement – which is part of the scorecard that your CEO and CFO use to communicate corporate performance to investors – you see a lot of communication gaps.  The income statement aggregates all of the revenues for the company, but few firms are organized into just one P&L.  Instead, business units (and within them, product lines) have their own targets and revenue goals – should that revenue be the design point of the system?  At the same time, sales organizations are increasingly moving to named account structures where the sales team has quotas more so by accounts rather than by business unit product lines – should that revenue be the design point of the system?  And as marketing programs are increasingly tied to results – which definition of revenue do they use to track their progress against?  Finally, to keep score on all of this, finance typically puts costs and revenues into the P&L buckets – but does this siloed accounting accurately reflect the customer’s cross-functional reality? Customers buy products and services across P&Ls and the investments made to help drive that revenue cuts across product groups, marketing, human resources and sales.  Maybe that simple question about revenue doesn’t have such a simple answer in today’s world.
  • What is a system?  Most business strategies today call for selling more products and services to existing customers, while also combatting rising SG&A costs – which means optimizing a revenue generation system that is adaptive to changing business strategies.  To do this successfully, new cross-functional processes must be developed.  Unfortunately, because budgets and responsibilities are so dispersed across various organization silos and matrixes – it’s extremely difficult for people who believe they are chartered with driving revenue goals to actually get things accomplished.  This isn’t an organizational structure issue –it’s about laying a fabric or architecture to help translate different buyer requirements and revenue streams to different investments.
  • Gaps in understanding basic business reporting terms.  After reviewing earnings call transcripts of 100 public companies, we see a trend.  A high percentage of investor Q&A was devoted to questions about sales models and costs of sales.  So, I interviewed 40 CFO’s to talk with them about these issues.  Almost universally, I got the same story.  First, cost pressures are real – but they are seeing diminishing returns on budget cut issues (a cut in one area puts pressure on another group, so their costs go up), so most CFO’s realize the opportunities for achieving greater margins and operating efficiencies are about reducing waste across the system.  Herein lies the problem – they don’t have enough domain area expertise in each functional groups (HR, sales, marketing, etc) to know which expense items are most important and, (at least the CFO’s I’ve spoken with) feel their peers in these groups lack the financial business acumen required to realize these efficiencies. In other words – there’s a huge gap in an organizations’ ability to prioritize and determine the impact of financial investments in sales and sales support.

Given these inputs, it exposes a fairly big problem across the board doesn’t it? 

First there isn’t anyone one (or any group) really responsible for the optimizing the selling “system” that CEO’s are increasingly referring to the summation of the various investments they make to drive revenue in their organizations.  Secondly, the plumbing of the organization is fundamentally antithetical to a system in the first place.   Finally, if CEO’s are not happy that their selling systems are not adapting to their business strategies – we can only conclude few of them actually have visibility into how fragmented their businesses really are.

How real and timely is this problem? 

CEO’s in market segments such as: financial services, pharmaceuticals, media, logistics, technology, professional services, etc. are all developing business strategies designed to plot a new direction to cope with the changed economy.   Look at this recent quote from Symantec’s CEO talking about a restricting plan in order to implement his new business strategy (which is called Symantec 4.0):

“On our go-to-market strategy what I would say simply, we had talented people everywhere in the world really working hard but that our system doesn't work, or probably better said we don't have a system. Our process, our technology, the tools we have, our knowledge management, our salesforce is not empowered and freed up to sell.”

- Steve Bennett, Symantec President and CEO – January 23, 2013, Q3 Earnings and Strategy Direction Conference Call.

Wow. 

Think about what he’s saying. 

Last year, the firm invested $3.2 billion in Selling, General  & Administrative (take about 20% from this number to estimate how much was directly invested in sales and marketing) costs and the new CEO is more or less saying he didn’t get a return from that investment. 

That’s a big statement. 

Are the people at Symantec the problem?  Certainly not – the sum of the parts are not adding up to the whole.  This isn’t a unique situation and it is forcing sales and marketing executives to rethink how they execute corporate strategy.

So, what’s the answer?

At Forrester – we see two major categories of problems that work against the successful execution of a business strategy. 

1) Organizational drag (or the many different unaligned groups and processes generating outputs that are not designed to operate together when they reach customers) and 2) the weight the comfort zones each of the individual people involved in executing the strategy (how, for example sales people move from selling to lower level buyers to executives).

At our upcoming sales enablement forum, our CEO, George Colony, will share his findings from more interviews with other CEO’s so you can hear what is on their minds.  I will follow George where I will help crystalize what exactly the problem is – how it impacts you (regardless if you are an executive, a product marketer, a demand generator, a sales trainer, or manager), and how you can leverage some really simple patterns to quickly develop the adaptive selling system your CEO is looking for.

Here are some links to other posts from myself and peers related to the forum.

·         Bending the sales productivity curve in the right direction – examples in our “cross-selling” track

·         Getting Zen about Sales Enablement

·         Why You Should Attend Forrester’s Sales Enablement Forum

·         Accelerating Revenue in A Changed Economy

·         SE Forum update:  A Conversation with Norbert Kriebel

·         We Feature Lead Management At Our Upcoming SE Forum!

Comments

Scott, I couldn't agree more!

Scott, I couldn't agree more!

In the selling environment today where the buyer has more control of the buying process deeper into the sales life cycle than ever, it is imperative that sales strategy development and execution are in alignment and more importantly....dynamic. The ability to manage, monitor and measure your strategy in real time is essential. You cannot be effective listening to this game on the radio...email. Gone are the days of effective mid year strategy changes. It's just too late, by that time you are training for the following year or hoping to pull out the game in the fourth quarter.

By using a dynamic set of sales and marketing analytics to gauge selling and buying behaviors, companies can adjust or tweak the game plan monthly or even weekly, if necessary. In large, geographically distributed and multi channel sales organizations this is critical and can give you multiple chances to adjust the game in today's complex selling environment to increase your chance to win.

See you in Phoenix!

Revenue Performance... It's About the System

Scott,

Great post. I think your insight on the organization drag is right on target. I think the comfort zone issue is part of the reason for the lack of change and a barrier to the needed alignment.

Until recently, I've been focused on helping organizations improve sales performance through what I call the alignment of "performance levers." These levers occur at the company, function and individual levels, and in some cases, right down to the task level for a particular role (such as a sales role). My work, within my scope, typically focused at the individual and task levels, primarily, but rose up occasionally to the department level, to include cross-department alignment.

The results I've gotten this way have been dramatic, when I could get top-down support for the change management and alignment. The systems issues and challenges that you mention in this post seem to be at a higher level, at the organization/function levels, but the concepts are the same.

This is a link to a multiple-hour conference presentation I've delivered on my work... a little hard to absorb in this medium, but it should give you an idea. See http://slidesha.re/PerfLevers082011.

I'd be curious to hear what you think. In my opinion, it's like that commercial for beef. "Alignment. It's what's for dinner." In talking about the drag, usually in reference to Lewin's Force Field Analysis, I've often used the metaphor of sitting in a car with one foot on the gas and the other on the brake. If you want to move forward as fast as possible, you first need to take your foot off the brake. ;-)

Looking forward to the Sales Enablement conference...

Mike
http://www.linkedin.com/in/mikekunkle

Starting the conversation already

Lewis and Mike - very high quality comments already. This is why I love my job. We get to pull together the perspectives from people like you (and others joining us in Arizona) and really think through these problems as a community.

I am here reviewing our content and making sure we are asking the right questions at the conference - we want to make sure everyone is appropriately challenged to make sure we all meet the mark of the CEO's mandate. (And by challenged, I mean me too - I will have NO IDEA what our CEO is going to share about his interviews with other CEO's, so me presentation and our whole agenda could be challenged from for this first session.. ha).

Lewis - I love the point about the time dimension - far too often we see clients take corrective action too late.

Mike - I really like the idea of aligning the performance levers. I think that's right on - especially if we can make those levers be "altitude appropriate"

Let's make a pact that we are going to seek out to weave the best ideas together as we prepare for the next generation selling system of the 21st century.

I am really anxious right now - we are still weaving together A LOT of content, but I can't wait to get into conversations like this with you guys and the other really compelling people who are joining us.

Thanks a lot for your comments -lets get the conversations started!!!

Excellent article Scott - Thanks for sharing the insight!

I recently asked the CEO of a prospective manufacturing company, "what percentage of revenue is your marketing responsible for?" His response ... "NONE. I mean we go to shows, but get little out of it."

In fact, most companies I run into act as if marketing is an optional part of sales.

They must not realize we get degrees in Marketing and certifications in sales, not the other way around.