A sales organization s effectiveness is reflected by the strengths inherent in three major asset categories:

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1 A nticipating the financial, market and organizational dynamics that may have an impact on a sales organization s future performance is not easy. It can be even more challenging to get Human Resources (HR) and Sales to work together to respond to those dynamics today, rather than tomorrow, especially in an environment of uncertainty and rapid change. By creating an early warning system to forecast the need for organizational change, HR and Sales can spot vulnerabilities in a sales organization, and then respond accordingly. Each function brings important perspective to this forecasting. Sales has the pulse of the customer base, products and operations. HR brings sensitivity to the many tangential issues that attach themselves to any change effort, providing an objective view of what works and what does not when making change happen. Together, HR and Sales can employ a broad set of financial and organizational indicators as an early warning system to forewarn the executive team of future organizational challenges and analyze what is going on from a line manager s perspective. Creating an Early Warning System A sales organization s effectiveness is reflected by the strengths inherent in three major asset categories: 1. Stability of customer base, 2. Operational proficiency, and 3. Human capital efficiency. The early warning system allows HR and Sales to scan the relative strength of the sales organization in each of the three critical asset categories. Possible performance indicators for the three asset categories are shown in Figure 1.

2 Figure 1: Early Warning System Asset Categories and Possible Performance Indicators Asset Category Stability of Customer Base Operational Proficiency Human Capital Efficiency Possible Performance Indicators Is last year s net new customers number higher or lower than customers lost? What percent of sales volume comes from the top 20 percent of our customer base? Are sales per sale channel/distributor increasing or decreasing? What percent of total revenues come from sales of new products? Has there been a significant market change in the industry? How do we rank in market share versus our nearest competitor? Is our average margin increasing or decreasing relative to competitors? Is our revenue growth versus competitors increasing or decreasing? Is our cost of sales and general and administrative expenses as a percent of sales decreasing or increasing? Are profit margins increasing or decreasing? Are sales force compensation expenses growing faster or slower than the margin contribution? Is actual net income over the last two years above, below or at budget? Is actual net income over the last two years above, below or at target? Is customer satisfaction increasing or decreasing? Is net income per sales person increasing or decreasing? Is quality (as measured by returns, write-offs, callbacks, back orders) improving or declining? How many management levels does the sales organization have? What are the spans of control in the sales force? Are overall company labor costs as a percent of sales increasing or decreasing? Is the sales force turnover rate decreasing, stable or high? Source: Sibson Consulting To create and employ an early warning system, HR and Sales should collaborate on four actions: 1. Select four or five indicators in each asset category that are the most relevant. 2. Calibrate overall performance for each indicator. Consider performance over the last three years. 3. Weight the scores based on the relative importance and accuracy of each indicator. 4. Compile the ratings for each asset category into an overall score for each of the last three years and then evaluate the sales organization s performance in light of the score. By answering the indicator questions and debating the issues, the sales organization can plan for and take the actions necessary to keep the organization on track towards achieving its desired results. 2

3 Setting an Example: Four Steps to Take Consider the example of a high-tech firm that assessed its sales organization and the actions it took to strengthen its sales performance. * Step 1: Refine the initial framework. The high-tech firm chose four indicators to assess the solidity of its customer base: Net new customers last year, Percent of sales volume from the top 20 percent of the customer base, Sales through average distributor, and Revenue growth versus competitors. Step 2: Calibrate overall performance for each indicator. The firm then assembled a team of controllers, sales administration representatives and HR managers to assess performance for each of the four indicators for 2009, 2010 and As shown in Figure 2, the 2011 assessment found that: Net new customers in 2011 was greater than customers lost, meriting a rating of 4 on the gauge. Percent of sales volume from the top 20 percent of customers in 2011 was 65 percent, so that indicator got a rating of 5. Average sales through distributors were increasing somewhat, so the team assigned a rating of 4. Finally, revenue growth versus competitors was on the upswing, producing a rating of 5. Step 3: Weigh the relative importance and accuracy of each indicator. The team weighted each indicator from 1 to 4, with 4 indicating the most important indicator of customer solidity. That weighting, multiplied by the performance rating, determined the overall rating for each indicator. The ratings were totaled to yield an overall rating for the category. The customer solidity score for 2011 was 4.6, as shown by the shaded box in Figure 2. * Although the example focuses on assessing the solidity of the customer base and providing gauges for assessing four indicators, similar gauges can be developed to assess operational proficiency and human capital efficiency. 3

4 Figure 2: One Firm s Indicators of the Solidity of the Customer Base in 2011 Source: Sibson Consulting Step 4: Establish an overall score and then evaluate the sales organization s performance. The high-tech firm completed the exercise for the other two asset categories: operational proficiency and human capital efficiency. When those assessments were completed, they compiled the ratings into an overall score for each asset category. (See Figure 3.) Next, they evaluated the sales organization s performance in light of the score. For example, if the trend is positive, is it positive enough? If the indicators show stable performance, is top management comfortable with that trend or should the sales organization be reaching for more? If the trend is negative, what can be done to turn things around? 4

5 Figure 3: Sample Summary of All Indicators Source Sibson Consulting In the high-tech firm example, the overall score was 19, which management regarded as an indication that the sales organization was well positioned with a solid customer base and a stable but aging sales force. While the firm did not foresee any immediate threat, it ultimately embraced a strategy aimed at energizing its platinum and gold accounts through extended outreach and incentives for early contract renewals. It also revved up its sales force by pairing experienced mentors with new recruits and instituting inducements for passing on your knowledge. Conclusion By leading cross-functional teams to analyze any potential speed bumps the sales force will be facing, Sales and HR can forecast the challenges that lie ahead and prepare to meet them. Once the performance indicators and relative weights of an early warning system have been developed, it can be helpful to analyze the trends every six months and keep score over several years. Trends over time provide a good indication of the sales organization s overall health, as well as the effectiveness of actions taken to reverse any downward trends. About the author: Joseph DiMisa is a senior vice president and leader of Sibson Consulting s Sales Force Effectiveness Practice and author of two books on sales force effectiveness. He can be reached at or jdimisa@sibson.com. 5

6 This article is from the April 2012 issue of Perspectives, Sibson Consulting s e-magazine. It is available on the following page of Sibson s website: perspectives/volume_20_issue_1/full-steam-ahead.html Sibson Consulting, a Division of Segal, provides strategic HR solutions related to the planning, implementation and operation of total rewards, compensation, retirement and health benefit programs. Sibson's services encompass talent management, benefits, organization design, sales effectiveness, change management and HR technology. For more information, visit Copyright 2012 by The Segal Group, Inc., the parent of The Segal Company. All rights reserved. 6