Taking Information Responsibility

Information specialists are tool makers… They can tell us what tool to use to hammer upholstery nails into a chair.  We need to decide whether we should be upholstering a chair at all.

A requirement of an information-based organization is that everyone takes information responsibility.  The bassoonist in the orchestra takes information responsibility every time he plays a note.  Doctors and paramedics work with an elaborate system of reports and an information center, the nurses’ station on the patient’s floor. The district officer in India acted on this responsibility every time he filed a report.   

The key to such a system is that everyone asks:  “Who in this organization depends on me for what information? And on whom, in turn, do I depend?”  Each person’s list will always included superiors and subordinates. But the most important names on it will be those of colleagues, people with whom one’s primary relationship is coordination.  The relationship of the internist, the surgeon, and the anesthesiologist is one example.  But the relationship of a biochemist, a pharmacologist, the medical director in charge of clinical testing, and a marketing specialist in a pharmaceutical company is not different.  It, too, requires each party to take the fullest information responsibility.

ACTION POINT:  Take information responsibility by getting the right information to the right people at the right time.  

Target Customer Alignment

Wholesaler-distributors' confusion over organization and roles is often the result of trying to meet each and every perceived customer requirement a little better than the competitors. 

Market gaps are "big picture" differences between what or how your customers ideally want to buy and what or how you are currently selling to them.  Closing these market gaps is the basis for aligning your organization.   Or course, some gaps may require new capabilities that are outside the realm of your sales force organization.   

We have found that it can be very powerful to use the Jack Palance line from the movie City Slickers  and ask yourself, "What is the one thing?"  Wholesaler-distributors' confusion over organization and roles is often the result of trying to meet each and every perceived customer requirement a little better than the competitors.  They end up deciding that a Field Sales Rep (FSR) must be an expert in all products, visit each customer in person weekly, personally follow up on every service questions, and then match Costco's in store price!  This confusion is a classic result of applying a sales mentality ("more, better, faster, cheaper") rather than a strategist mentality ("what are the fundamental business drivers?").  

ACTION POINT: By limiting your focus to a few key market gaps you can usually define one or tow overarching design criteria for the sales force organizational structure.

Aligning The Sales Organization

Make sure that success does not require every rep to be Superman or every manager to be Gandhi.

There are four factors that wholesaler-distributors should consider in designing sales force structure.  The acronym TACH can be used to guide the process of aligning your sales organization.

• Target customer alignment.  The fundamental criterion for any sale organization is how well it meets the needs of the market.  Using an external perspective ensures that your structure is not held hostage to history or internal politics. 
• Accountability for performance. Reward and punishment can only affect behavior if the individual has clear objectives and the means to reach them.  An appropriate organization structure is the best way to ensure that these prerequisites are met, and is thus the foundation of real accountability.  Paying reps on net profitability when they have limited control over warehousing, delivery, installation or project management is a great example of false accountability.
• Cost of coverage.  The sales organization should be designed to provide key services to target segments at the lowest cost possible.  This can often mean hiring more staff so that costly FSRs aren't tied up with customer service and administrative duties.
• Human factors.  This is the reality check on the model.  It may be unrealistic to expect a harried counter sales rep to make effective outbound calls in his or her "spare time," or to have a technical specialist traveling out of his or her home territory 80% of the time.  Make sure that success does not require every rep to be Superman or every manager to be Gandhi.

ACTION POINT:  Align your sales team to the market needs, hold them accountable, provide them the necessary support and recognize reality.

Sales Structure IV

Organization structure issues can't be tackled solely by new pay plans, better sales tools, or more skills training.

Now imagine instead that you had a process for reviewing your strategy and structure every two years. This activity forced you to ask the tough questions and make a sober evaluation of your market gaps.  You realized that your products were following the classic life cycle in which traditional sales rep services (for example, application support, value-added solutions, new product information) were becoming less important.  Meanwhile, the declining market was making customers far more price sensitive and savvy. 

You concluded that your sales force was not the most appropriate channel for a large and growing portion of your customer base.  As a result you created a new telesales organization, invested in on-line self service capabilities, and established a process to gradually but deliberately migrate your field sales force, with some reps transitioning to new roles and others focusing on new markets.  The average number of accounts served by each rep remains about the same--and so does each rep's compensation--as the lower value customers move to the new channels.  Your company takes market share even while it remains profitable--perfectly positioned for a "last man standing" strategy. 

It is important to apply sound diagnostics and use the right tool for the job.  Organization structure issues can't be tackled solely by new pay plans, better sales tools, or more skills training.

ACTION POINT: Redefine roles and reallocate resources as the market evolves.

Sales Structure III

Because they are "top guns," the reps are experts at making themselves indispensable at their big-dollar accounts.

Imagine that you are selling a mature product line to a declining customer base.  As sales drop, you use the opportunity to upgrade your field sales force, terminating the lowest performers and spreading their accounts over the higher performing survivors.  Over time, the territories grow--along with average commission checks--even though company revenues are declining.   Because the are "top guns," the reps are experts at making themselves indispensable at their big-dollar accounts. They grow accustomed to sailing their yachts through the seas of poverty, believing that their performance is the only thing keeping the company alive.  At some point the CFO recognizes the problem and the company decides to "re-examine" the compensation plan.

Unfortunately, considering the pay plan in isolation at this point is ineffective at best and probably downright dangerous.  Only radical compensation reductions will bring selling costs back in line.   But such big changes would drive the best reps into the arms of your grateful competitors, taking "their' best accounts along with them.  

ACTION POINT:  Reorganizing a pay plan only is ineffective and dangerous.

Sales Force Structure II

The competitive landscape has changed significantly in most lines of trade...

Your company's organizational structure determines how you allocate your most important asset: human resources.  Organizational structure decisions can frequently determine financial success.  As a simple illustration, consider a company that has a residential division and an industrial division.  Over the past three years, the effect of shifting reps out of the moribund residential market and into the industrial market would have dwarfed any conceivable residential division performance improvements.

No amount of training, measurement, "incentivizing,' or management focus would have been as powerful as simply re balancing resources to fit the market opportunity.

While this may seem obvious at a high level, we have found that a large portion of wholesaler-distributors fail to fully apply the concept of structural alignment.  The competitive landscape has changed significantly in most lines of trade, but many wholesaler-distributors continue to operate under the same sales structure they have had for the past 20 years.  It's easy to fall into the trap of making a series of incremental, tactical changes which, over time, leave yo miles wide of the ideal market position.

ACTION POINT: Recognize that the market landscape has changed, significantly, and look at realigning your sales force structure.

Sales Force Structure

To win in today's market, distributors need to apply a more modern approach--one that focuses on meeting these evolving service needs.

In the 1930's, the French built a series of military fortifications called the Maginot Line.  When these were completed in 1935, the French believed they were safe from German offensives in the West.  We all know how well that worked out.  The fault in French logic was that the Maginot Lines was designed to defend against weapons and tactics used in World War I, but times had changed.  Germany's fast-moving blitzkrieg was light years ahead of the masses of slow-moving troops and trench warfare for which the Maginot Line was built.

The corollary in wholesale distribution is the sales organization.  Historically, wholesaler-distributors had outside sales representatives and customer service representatives (frequently, but mistakenly, called inside sales reps [ISRs]).  These groups often had separate managers and distinct roles.  The customer service group took orders and handled routine inquiries, and outside sales did everything else. If you wanted to win the "war" in the marketplace, you bot more or better, or both, outside sales reps.  Unfortunately the "everything else" for which outside sales representatives are now responsible has grown and morphed far beyond the tranches of the last war.  To win in today's market, distributors need to apply a more modern approach--one that focuses on meeting these evolving service needs.

ACTION POINT: Recognize that sales roles must change for the marketplace of today.

Getting Strategic Clarity

It does not need to be sophisticated or complex, but it does need to be clear before you begin the process of designing your sales compensation plans.

Strategy is about how your company will achieve its financial goals.  It does not need to be sophisticated or complex, but it does need to be clear before you begin the process of designing your sales compensation plans.

An external market perspective (that is, seeing through the customers' eyes) is the essence of a successful strategy.  The process for developing this perspective into an actionable plan is abbreviated as STP: segmentation, targeting, positioning.

Segmentation is the act of grouping similar customers into categories based on what they want to buy, which is often quite different from what you are currently trying to sell them.   Good segmentation involves analyzing the economic and organizational drivers of buying behavior, which are typically not proved by your sales force.  The insight uncovered by segmentation is often eye-opening.

Targeting is the process of identifying the most attractive segments based on their cost to grow and potential to grow.  It can be uncomfortable because it involves going beyond our everyday "manager as cheerleader" mentality and making strategic trade-offs.  Targeting drives discretionary investment and focus; it does not mean turning down business or ignoring markets.

Positioning is the identification of market gaps; Those areas where there is a divergence between what a target customer wants or values and what your are currently offering.  By closing the most critical gaps, you will ensure that your limited resources are aimed at the biggest opportunities.  Positioning is the essence of ensuring that your sales force is working smart, not just hard.

ACTION POINT: Establish the financial goals you wish to achieve and develop an actionable plan using segmentation, targeting and positioning to achieve them.

Management Minute: Staying on Top

The next day, after eating some more dung, he reached the second branch.

A turkey was chatting with a bull. "I would love to be able to get to the top of that tree," sighed the turkey, "but I haven't got the energy."

"Well, why don't you nibble on some of my droppings?" replied the bull. They're packed with nutrients."

The turkey pecked at a lump of dung, and found it actually gave him enough strength to reach the lowest branch of the tree. The next day, after eating some more dung, he reached the second branch.

Finally after a fourth night, the turkey was proudly perched at the top of the tree. He was promptly spotted by a farmer, who shot him out of the tree.

ACTION POINT: Bull shit might get you to the top, but it won't keep you there.

Identifying Market Gaps

Key gaps are usually small in number and pretty fundamental.  

How do you identify key market gaps?  The best place to start is by developing ideal supplier descriptions  for the segments and targets you want to go after.   The following are some additional pointers:

• Get back to basics.  Key gaps are usually small in number and pretty fundamental.  They are often chronic, meaning that you have been talking about the symptoms for a long time.  As a rule of thumb, if you never feel uncomfortable during the positioning process you are not doing real strategy.
• Examine your service levels.  Gaps are often the result of providing undifferentiated levels of service (for example, sales coverage, delivery, price point) to all customers and segments.  This results in under servicing some customers (a capabilities gap) while over-servicing others (a profit gap).
• Consider your overarching message.  Message gaps often extend far beyond blurbs on a brochure or getting sales reps to "talk about the right things with customers."  Every aspect of your business, from the appearance of the counter to the efficiency of the delivery driver to the courtesy of the all center agent, reinforces your brand image in customer's eyes.
• Be specific.  Gaps should be described as specifically as possible.  Don't say "poor communication" if you really mean that "sales doesn't get new product information from marketing in a timely manner," or "poor technology" if the issue is simply that you can't produce accurate small job estimates.
• Look to the competition.  Evaluating suppliers and competitors can be a great way to uncover or clarify your market gaps.  However, it is essential that this analysis comes after your customer segmentation analysis, so that you don't fall into the trap of solving a problem that isn't critical.

ACTION POINT:  Review the pointers above to identify market gaps within your business.

Discovering your true message gap

Facilitating customer migration is now a core focus, and the company has achieved record revenue growth over the past two years.

More than 10 years ago, an industrial distributor recognized that highly centralized customers had fundamentally different needs than those that were more locally run, and created a separate "major accounts" division to handle them.  Although the group was successful, its account base had stagnated. Worse, revenue through the traditional sales channel had been shriveling for several years.

During this time, the company tried a series of tweaks to its sales compensation plan, adding promotions and bonuses for key products, increasing the commission rate on new business, and penalizing sales reps for customer churn.   Ultimately, the CEO determined that the compensation plan needed to be radically overhauled.  A team was appointed to design a new structure that would address the issue.

Fortunately, the team was sufficiently empowered to question some fundamental assumptions.  Using a positioning exercise, they determined that the two existing sales channels were in fact appropriate for the market.  The gap they discovered was that customers were unable to migrate freely between the different sales organizations as their needs changed. --and that they were largely ignorant of the twin capabilities the distributor offered. 

For example, the distributor's large corporate customers had often gone through several waves of consolidation (remember the procurement outsourcing and online marketplace fads of the early 2000's) and decentralized (think of hollowing out corporate overhead in 2009).  This clearly caused their support needs to change.  Due to the separation of the sales forces and territory based measurement, however, reps would never give up accounts to the other side.  As a result, customers that were centralizing abandoned the distributor because the viewed it as a local "mom and pop" with limited scale and sophistication.  Customers that were decentralizing had no local contacts or support.  There was a clear message gap in that customers were not aware of the company's full capabilities. 

In the end, the distributor changed its organizational structure and eliminated all"ornaments" from its sales compensation plan, replacing them with a simple formula plus a residual for all transferred business.  Facilitating customer migration is now a core focus, and the company has achieved record revenue growth over the past two years.

ACTION POINT: Sometimes a critical evaluation of your external positioning can lead to a true breakthrough, especially if you take a rigorously external approach and question your own assumptions.

Positioning III

You simply haven't given the customer anything else to distinguish you by except your price. 

Other issues that may explain market gaps from your customers perspective are:

• Capability is the problem.   The customer values some of the services that you could provide, but you fail to deliver them reliably.  You simply haven't given the customer anything else to distinguish you by except your price.  In this case, you have a capability gap, not a message gap.
• Profit is the problem.  Your vaunted service provides limited economic value to the customer--or at least less value than a lower product cost.  In this case you have a profit gap, not a message gap.  No matter how well you communicate your value, you will not meet a critical customer need.

ACTION POINT: Ensure your capabilities deliver real value that the customer recognizes as real economic value.

Positioning II

you have accepted price complaint feedback from your sales force at face value rather than recognize it as normal negotiation posture. 

Many wholesaler-distributors are frustrated because customers seem to "want the value of our service but aren't willing to pay for it."  At first this may seem like a message gap because, "if customers just came to understand how great we really are they would be happy to pay our premium."  However, if you frame the issue in terms of the customer's business drivers you can see that there are several other possibilities:

• There's really not much of a gap.  The customer really does value your service, at least in some situations, and has demonstrated his or willingness to pay for it by his or her actions.   However, you have accepted price complaint feedback from your sales force at face value rather than recognize it as normal negotiation posture.  Many buyers have been professionally trained to exert constant pricing pressure, and it is only natural to take any opportunity to push for a lower price if there is no real consequence for doing so.  In this situation, you have made the classic mistake of relying on your sales force as the sole channel for customer insight.  In contrast to their words, customer's actions indicated recognition of your value an imply that there may not be a (significant) market gap.

ACTION POINT:  Don't always accept price complaints at face value.

Management Minute: Staying informed

The priest apologized "Sorry sister but the flesh is weak."

A priest offered a Nun a lift. She got in and crossed her legs, forcing her gown to reveal a leg. The priest nearly had an accident. After controlling the car, he stealthily slid his hand up her leg.
The nun said, "Father, remember Psalm 129?"

The priest removed his hand. But, changing gears, he let his hand slide up her leg again. The nun once again said, "Father, remember Psalm 129?" The priest apologized "Sorry sister but the flesh is weak."

Arriving at the convent, the nun sighed heavily and went on her way.

On his arrival at the church, the priest rushed to look up Psalm 129. It said, "Go forth and seek, further up, you will find glory."

ACTION POINT: If you are not well informed in your job, opportunities for advancement will pass right by you.

Positioning III

Rather than running around trying to fix every perceived deficiency, the strategically led firms focuses on fully addressing a few critical things. 

For most wholesaler-distributors, the great merit of going through a disciplined positioning process is that it helps them set priorities based on gaps between external market needs and current internal capabilities.  Rather than running around trying to fix every perceived deficiency, the strategically led firms focuses on fully addressing a few critical things.  

This often involves eliminating harmful practices as much as improving or developing new ones.  Just as targeting was a process of focusing on a narrower group of customers, positioning is a process of focusing on a narrower set of capabilities so that you can be decisively better than everyone else where it really counts.

ACTION POINT:  Focus on the capabilities you can excel in delivering to your targeted customers.

Positioning II

...their biggest weakness is their "inadequate, outdated technology" (even though there is zero correlation between technology infrastructure and profitability).

Many companies run through the usual evaluation of their strengths, weaknesses, opportunities and threats (SWOT) based solely on the opinions of the employees attending the meeting.  They convince themselves that their biggest strength is their "great people" (even if they have performed below industry medians for years) and their biggest weakness is their "inadequate, outdated technology" (even though there is zero correlation between technology infrastructure and profitability).

Bottom line: a strength is only a strength if it provides value to a target customer.  If your customers are manufacturers who are really buying flawless logistics to support 100% up time  your technical expertise is not a strength--even if every single sales rep in your company holds a PhD in engineering.

ACTION POINT: Know and understand what strengths your customers want.

Positioning

The greatest deficiency in most wholesaler-distributor's strategy and business planning is their internal focus.

Every company (except a start up) holds a current position in the market.  This position is based entirely on your customer's perception of you and your competitors.  Aside form the foundation laid by segmentation and targeting, the key to successful positioning is in viewing your capabilities through the lens of your target customers' perspective.

The greatest deficiency in most wholesaler-distributors' strategy and business planning is their internal focus.  They simply fail to examine every issue in light of "how much does this really matter to our target customers?"

ACTION POINT: How much does what you are doing really matter to your target customers?

Benefits of Targeting

Think of every sales call as an investment.  targeting helps ensure that this investment is made thoughtfully, 

Segmentation and targeting always produce critically important insight that often leads to a company making fundamentally different decisions about its sales management practices and compensations structures.  Experience has shown targeting will yield one of the following levels of outcome:

• Minimum. Targeting provides the strategic clarity necessary for tactical sales compensation, management, and territory assignment.   Think of every sales call as an investment.  targeting helps ensure that this investment is made thoughtfully, based on the company's objectives, rather than reactively or based on individual rep's habits.

• Typical. The process produces a strategic reallocation of resources to take advantage of competitive strengths and profit opportunities.  In some mature lines of trade, wholesaler-distributors have made giant leaps in sales productivity by moving from a 2:1 ratio of outside to inside reps to 1:1, 1:2 or even more.

• Ideal. Targeting enables you to identify a market segment in which you have an opportunity to create a truly differentiated value proposition that competitors cannot match.  One national distributor had an epiphany when targeting revealed that its scale provided an opportunity for dominance in a segment that it was not currently even serving. 

ACTION POINTS: Use segmentation and targeting to improve your sales and business focus.

Management Minute: Credit and Risk

After thinking for a moment, the woman drops her towel and stands naked in front of Bob.

A man is getting into the shower just as his wife is finishing up her shower, when the doorbell rings. The wife quickly wraps herself in a towel and runs downstairs. When she opens the door, there stands Bob, the next-door neighbor.

Before she says a word, Bob says, "I'll give you $800 to drop that towel."

After thinking for a moment, the woman drops her towel and stands naked in front of Bob.

After a few seconds, Bob hands her $800 and leaves.

The woman wraps back up in the towel and goes back upstairs. When she gets to the bathroom, her husband asks, "Who was that?" "It was Bob the next door neighbor," she replies.

"Great!" the husband says, "did he say anything about the $800 he owes me?"

ACTION POINT:  If you share critical information pertaining to credit and risk with your shareholders in time, you may be in a position to prevent avoidable exposure.

Targeting V

...you are making hard decisions about where your efforts and investments will be focused.

Determining the relative attractiveness of a segment is the first part of targeting.  The second part is deciding what your company's basic posture will be for each segment.  This is where the tough trade-offs come into play.

Although you are note yet determining exactly how  you will attack each segment, you are making hard decisions about where your efforts and investments will be focused.

ACTION POINT: The most important outcome of targeting is agreement on the areas of the business that will not receive further investment.