Opportunities for Action in Consumer Markets. Fixing the Fatal Flaws of Your Sales Force

Transcription

1 Fixing Flaws 8/11/03 9:42 AM Page 1 Opportunities for Action in Consumer Markets Fixing the Fatal Flaws of Your Sales Force

2 Fixing the Fatal Flaws of Your Sales Force Your sales force is one of your most strategic levers for improving growth, market share, and profitability. A great sales organization will identify opportunities for competitive advantage and profit. Most consumergoods companies spend as much as 7 percent of sales on the cost of their sales force, and the force is responsible for up to an additional 20 percent of spending on deals and promotions. But few companies feel confident about their return from that investment. Fewer still are realizing the competitive advantage they hope to create. I could fire them all, and we wouldn t see an effect for years, the CEO of a $5 billion company said recently. What do they do? I don t know. How do they add value? I really don t know. Today, given relentless retailer consolidation and international expansion, an effective and efficient sales force is more important than ever in fighting the war for visibility, shelf space, and promotions. As retailers have grown larger and more powerful, they ve also become more sophisticated about category dynamics, product margins, sales velocity, promotions, consumer behavior, and returns and they are demanding more from their suppliers. Consumer goods companies must respond to these demands while continuing to provide coverage to the lowvolume accounts. Sales force value added must be visible, or the sales force should be reduced or replaced. The Boston Consulting Group has conducted more than 200 sales-force-strategy projects in the past five years, across all major sectors and geographic areas, working with a wide range of organizational styles and problems. The critical factors for a powerful, efficient

3 sales force don t change: strategy and customer segmentation must be aligned with economic drivers and resource allocation. Yet over and over again, we see companies unable to realize their potential because they are saddled with at least two, three, or more of what we ve come to think of as the fatal flaws of sales. Remedies require detailed, thoughtful nuts-and-bolts adjustments. To have the best sales force in 2010, you have to begin to create it in Here s how you can start. 1. Recruit What You Want, Not What You Have It s no longer possible to succeed in sales the oldfashioned way, with a sample pack, a price list, and an order form. Yet most sales forces lack the necessary skills for today s selling environment. Sales representatives need all the capabilities that go with running a big company: knowledge of logistics, information technology, branding, pricing, and customer service. These are the attributes we look for when we help our clients assess and recruit a top-tier sales team: Intelligence: gets it ; processes information quickly. Problem-solving skills: assesses tradeoffs and rapidly drives to solutions; recognizes problems from prior situations and retains the analytical frameworks for solving them. Raw creativity: thinks energetically and proposes original ideas. Consumer knowledge: has a passion for understanding consumer needs and shopping behavior.

4 Tenacity: is principled; is tough under pressure and defends well-founded opinions; is resourceful. Integrative skills: connects the dots; synthesizes across disciplines and across offerings. Adaptability: deals with fluid situations; develops solutions to complex problems. Logic skills: substantiates claims; draws sound conclusions from a sequence of facts. Communication skills: engages others with clear, confident arguments. Track record: has superior credentials and experience. If your current sales force lacks these qualifications, don t expect your reps to recruit the people who have them; you ll only get more of the same. Instead of hiring what you already have, look for the people you want and don t settle for less. This flaw is the toughest to correct, and the solution starts at the top. 2. Avoid an Inverted Sales Force: Green at the Frontlines, Entrenched at the Top Selling is an apprenticeship profession. Successful reps develop by learning from experienced mentors. But most sales organizations aren t structured to make that happen. Frontline positions are commonly assigned to the most junior employees, and too often those reps aren t screened for the key success factors of today s selling environment. The recruiting process may underemphasize the analytic capabilities re-

5 quired for a rep to describe the company s value proposition and return-on-investment calculation. And district sales managers are often too burdened by administrative duties to coach the frontline reps. Reps often graduate to managerial roles as soon as they acquire some experience. That means people who have spent little time in the field are making strategic decisions. All too quickly, they become entrenched in the organizational culture and are unable to see or respond to subtle changes in the competitive environment. What s more, star reps in particular are often promoted to managerial roles despite the fact that they may not be suited to manage or coach people. If the compensation system is properly aligned to reward stellar performers (with a variable component that flattens but isn t capped), one of the best solutions to these problems is to encourage some district sales managers to rotate back to the frontline. That keeps them up-to-date, and the company benefits from their outstanding sales skills. In addition, we recommend an apprenticeship program of at least 12 months that screens for skills, sets expectations, provides coaching throughout the program (with extensive help during the first two or three months), and certifies basic skills after six months. Your goal is experience and intelligence at the frontline and compromise breakers and change agents at the top. (See Exhibit 1.) 3. Make Compensation Congruent with Company Economics Few companies have payout schemes that are aligned with their growth and profitability. (See Exhibit 2.) Yet by linking compensation with their economics, companies could greatly improve sales and margins in less than six months. An effective plan matches sales

6 Exhibit 1. A Screening and Apprenticeship Program for Reps Screening for skills, plus expectation setting Continuous coaching throughout the program Extensive coaching in the first two to three months Certification of basic skills after six months 1 week Prescreen Assess skills Shadow a rep Group training 2 3 weeks Learn the company s history Role-play Start-up 4 weeks Partner with a successful rep Cut teeth on easy accounts Coaching in the field 2 3 months 6 months Attend two half-day sessions per week Complete homework assignments Receive early feedback Six-month report card Receive certification of basic skills Fine-tune techniques Annual review Yearend Receive a formal evaluation Formulate an individual development plan SOURCE: BCG analysis.

7 Exhibit 2. Payouts and Profits: The Misalignment of a Typical Sales Force Sales force compensation (index) SOURCE: BCG analysis Contribution of the sales force to company profits (index) force rewards with company goals, measures performance precisely and fairly, encourages salespeople to stretch their efforts, and provides rewards that attract and retain the best performers. By contrast, a poorly designed plan could unwittingly direct the sales force to focus on the wrong customers, to discount unnecessarily, and to overpay for poor performance. It could inhibit teamwork and discourage the force from taking the time to educate customers about new products. It can signal that the only way to make a living wage is to leave the frontline. A winning incentive plan is precise, fair, and simple. Precision guarantees that salespeople are rewarded only for those aspects of the selling process over which they have control. A fair plan ensures that equal stretch yields equal reward. And a plan that is

8 simple with no more than four or five components will be easy for reps to understand, measure, and control. The plan should pay for individual performance and maintain a spread between strong and weak reps. But it should also make it possible to reward group performance when, for example, a multifunctional account team is selling many categories of products to a retailer, and collaboration across categories and functions is important. 4. Recognize That Sales Force Size Isn t Fixed Most sales organizations are far too rigid to adapt to a changing environment. Markets move so quickly that the gap between estimated and actual needs for resources can get very big, very fast. To mitigate the effects of channel shifts and market changes, sizing should be reviewed at least every two years. Given the evolving retail landscape in most countries, we often find that at least 20 percent of a sales force s time should be reallocated every two years. Another critical time to update or flex the size of the sales force and its assignments is right before a product launch. Too often, companies will move more than half of the force to support the launch. As a result, mature products are neglected and vulnerable to market-share losses. Instead of spreading the sales force too thin, companies need to find creative ways to increase its capacity. For relatively small and brief resource gaps, companies can rotate internal resources by assigning marketing personnel to the field, for instance, to help cover a peak period. For larger or longer gaps, companies can make strategic use of brokers and distributors or even employ comarketing agreements with a noncompetitor.

9 Flexibility is also crucial when it comes to account segmentation. When companies begin to segment accounts by economics and strategic fit, most discover that they are underresourcing their key accounts. Appropriate coverage (and capabilities) against critical accounts should yield 1.5 to 2.5 times the average category share. Companies may also find that they are overresourcing nonstrategic, declining accounts. For these accounts, the primary objective should be to dampen the declines cost-effectively, while at least maintaining market share. The best methodologies use both a top-down and a bottom-up approach to determine the appropriate number of reps for each account segment. A topdown approach calculates the contribution and cost associated with adding each rep and then adds reps until the increased contribution just covers the incremental cost. A bottom-up approach assesses the necessary depth of coverage how many targeted customers should be called, how frequently they should be called, and how much time is required per call and the number of reps needed to get the job done. The combination of the two approaches strikes the best balance between a long-term and a short-term view of sales force sizing. (See Exhibit 3.) 5. Be Alert to the Cost of Low-Value Work: At $1 per Minute, You Own the Reps Time The average cost of a fully loaded sales rep (including all expenses and allocated management time) is more than $100,000 per year a significant amount for any organization. That works out to about $1 per minute. You own that time, and you should know how it is being spent. Yet all too often, the reports that salespeople turn in are woefully lacking in detail, and

10 managers can t make sense of individual schedules. Days escape into black holes. In nearly every sales-force-effectiveness project that we conduct, we begin with a detailed audit of sales force time. In many cases, we find that less than half of that time is actually spent with customers. (See Exhibit 4.) Reps are burdened with too many administrative chores. Paperwork, budgets, internal meet- Exhibit 3. A Top-Down Approach to Sizing... Present value ($) Contribution of added reps (diminishing marginal return) Cost of adding one more rep (hiring, training, salary, benefits) Number of reps Maximum number of additional reps (where marginal contribution equals marginal cost)... and a Bottom-Up Approach Number of targeted accounts to call on in segment x Number of calls required per account per year x Time required per call Face-to-face selling time required per year for each segment Available face-to-face selling time per rep per year Number of reps per segment SOURCE: BCG analysis.

11 ings, training, travel, and requests from marketing all eat into time with the customer. To increase selling time, first eliminate redundant or outdated paperwork requirements. Then consider centralizing administration to gain scale and utilization benefits. It may take additional resources and Exhibit 4. Most Reps Spend Less than Half of Their Time in Front of Customers Percentage of average rep s time Vacation, holiday, illness 9.1 Training, annual meetings 5.4 , paperwork, other administration 9.6 Time with sales manager 2.3 Travel 15.2 Telephone calls 7.5 Sales preparation 7.8 Face-to-face time with customers 43.1 SOURCE: BCG surveys of reps.

12 productivity may be temporarily affected but the investment is almost always worthwhile. Support may come in several forms, such as back-office processes to reduce paperwork, added merchandisers to perform shelf activities, part-time employees to perform lower-value-added tasks (pickups, drop-offs), and IT applications to reduce and automate manual paperwork. The first step, however, is to enforce a policy of accurate record keeping in order to calculate the time sales reps spend or don t spend with accounts, by activity and by account. Without such metrics, it is extremely difficult to design an effective compensation system, allocate resources, and ensure maximum productivity. 6. Look to the Customer for a Definition of Value Added The days when a sales rep could ride in on a smile and a shoeshine are long gone. Today, leading companies are redefining brands to encompass not just the product, or even its image, but the total consumer experience from purchase to use to aftersales service. Sales teams will be playing a starring role in helping their customers, the retailers, enhance that experience. Instead of being seen as pipelines through which to push products, they will be seen and will see themselves as information and solution providers. Today s world-class sales teams don t just sell products; they provide retailers with the solid evidence that their brand adds the value that consumers demand. We have found that top-to-top discussions between senior executives from both the supplier and the

13 retailer are required in order for them to share strategic goals, identify areas of mutual interest, and establish specific goals and metrics for committing resources and tracking results. These senior discussions need to be supported by an objective, shared fact base that comes from a deep discovery of the end-to-end supply-chain economics, the behavior and dissatisfactions of targeted consumers, and the key opportunities for innovation in a category. The way to retain critical accounts is for sales reps to offer what these retailers value. That might be insight into specific problems, innovation and new products, creative presentation of categories, or the ability to reduce supply chain costs in order to deliver lower prices. 7. Provide Technological Leverage for Efficiency and Effectiveness Most sales forces are woefully behind in their use of technology. Many reps don t have cell phones, personal computers, or wireless hand-held devices. For salespeople to have meaningful contact with customers, they need technology that enables them to have the kinds of discussions a sophisticated category manager will find compelling. Putting the right information in the hands of your salespeople, at the right time, can be a complex undertaking, but that s what makes it such a powerful competitive weapon. In addition to improving selling effectiveness, technology will also enhance selling efficiency. For example, a North American company recently invested in a new order-quotation system that reduced the time required to provide quotes to customers. It enabled salespeople to enter customer data on standard laptops and, through linkages to a centralized system, receive quotes the next day for prices to be offered. It

14 also allowed the company to track win/loss ratios; the data were then used to optimize pricing. After implementing the system, the company found that it had two choices: it could cut the sales force and strive for higher productivity or reallocate the existing force s time to make more sales calls. It decided to reallocate the time, knowing it could track the number of quotes issued and won. More and more companies are benefiting from realtime information and access to their corporate intranets. Sales reps are reachable anytime, anywhere. They are able to react daily to detailed information on what is happening in their territories. They are able to respond immediately to customers with the facts, rather than with I ll look into it and get back to you. The vice president of sales can ask his or her people to check on competitive activity or stockouts during calls in the morning and have all the data back and collated by day s end. To create such value, IT investments need to be focused and carefully implemented. Avoid expensive big bang IT systems: smaller, incremental investments in information have a much higher rate of success. Over the years, value will accrue from developing a sales force that uses real-time information as a selling weapon. 8. Ensure That Sales Drives the System In most companies, the sales organization ranks low in prestige, credibility, and power. Strategies are often developed without participation from salespeople, priorities are changed without their consultation, and targets are set without their input. Reps often complain that they feel like pawns, with little control

15 Exhibit 5. Sales Force Effectiveness Is a Matter of Nuts and Bolts, but the Rewards Are High Results from a Recent Optimization Effort Before 900 reps In the field 165 days per year Making 5.5 calls per day 60% of calls in targeted segments 490,050 calls in targeted segments After 900 reps In the field 175 days per year Making 6 calls per day 85% of calls in targeted segments 803,250 calls in targeted segments 64% increase in targeted calls SOURCE: BCG analysis. over the rules and expectations set for them. Although that is often the case, it doesn t have to be the way of the future. The sales force represents the company s face to the world; it is a direct link to the customer. When we quantify the value of sales force effectiveness for managers, they are invariably surprised at the upside potential. In addition to improving overall productivity, an optimized sales force can yield significant top-line growth and competitive advantage. The cumulative effect of small changes can be substantial. (See Exhibit 5.) * * * Many companies are beginning to discover the need for a radically upgraded sales force to serve increasingly sophisticated customers. But product pushers

16 can t be transformed into insight generators overnight. It takes an initial investment in recruiting, training, and technology, as well as an organization fully committed to its customers. Here s a self-grading test that will help you assess your efforts in the areas that count most in today s selling environment. Give yourself no points if you haven t looked at the area in a few years, one point for doing a little in that area, and five points for achieving world class. 1. Have you established a program that will recruit the people you want rather than carbon copies of the people you have? 2. Do you have experienced reps on the frontline and change agents at the top? 3. Is your sales compensation system congruent with your enterprise s economics? 4. Do you review sales force size regularly, particularly with regard to whether the force is flexible enough to handle channel shifts, market changes, and newproduct launches? 5. Can you account for your salespeople s time, and is it consistently used for high-value tasks? 6. Do your sales reps understand how their customers define value, and are they delivering it? 7. Does your sales force have all the technology it needs for maintaining efficiency and effectiveness? 8. Are your salespeople sufficiently integrated into your organization, and do they get the respect they deserve?

17 If you score less than 30 points, you are missing a huge opportunity for improving growth, market share, and profitability. It s time to address the problem comprehensively. John Bogert Gary Breissinger Cliff Grevler Katrina Helmkamp John Bogert is a manager in the Toronto office of The Boston Consulting Group. Gary Breissinger is a senior adviser to the firm s Consumer practice. Cliff Grevler is a project leader in BCG s Toronto office. Katrina Helmkamp is a vice president and director in BCG s Chicago office and the firm s Global Sales Force topic leader. You may contact the authors by at: bogert.john@bcg.com gbreissi@aol.com grevler.cliff@bcg.com helmkamp.katrina@bcg.com The Boston Consulting Group, Inc All rights reserved.

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