Legitimacy of Management

It is the purpose of the organization, and the grounds of management authority, to make human strength productive.

It is the task of management to make the institutions of the society of organizations, beginning with the business enterprise, perform for the society and economy, for the community, and for the individual, alike. This requires, first, that managers know their discipline.  It requires that they know management.  The first task of the manager is indeed to manage the institution for the mission for which it has been designed.   The first task of the business manager is, therefore, economic performance.  But at the same time she faces the tasks of making the work productive and the worker achieving, and of providing for the quality of life for society and individual.  But a leadership group also has to have legitimacy.  It has to be accepted by the community as “right.”  They need to ground their authority in a moral commitment, which at the same time, expresses the purpose and character of organizations.  

There is only one such principle of morality.  It is the purpose of organization, and, therefore, the grounds of management authority, to make human strength productive.  Organization is the means through which man, as an individual and as a member of the community, finds both contribution and achievement.

ACTION POINT: Use your position of authority to bring out whatever strength there is in the people you are responsible for.

Absolute vs Relative Performance V

...sales representatives see the incorporation of hitting management-established goals as a logical evolution to their pay program. 

Most sales reps are astute when it comes to dissecting a sales compensation program.  The first question most reps will ask when relative performance metrics are introduced is: "How will the goals be set?"  We have been part of successfully implementing relative performance metrics into sales compensation programs that were previously based on absolute measures many times.  In these instances, success was due in part to accountability within the sales organization.  Sales representative may not have been paid on achieving objectives such as monthly or quarterly sales goal, but the goal was important to them because their manager made it so.

In these situations, sales representatives see the incorporation of hitting management-established goals as a logical evolution to their pay program.  On the other hand, there are companies in which an almost irrational fear of the sales force exists.  In these companies, the view is that the sales force will leave the company en masse if their pay program were to change to a system that links any portion of their pay to achieving objectives.

Some questions to consider in order to get a sense of how well relative performance metrics would work based on the degree of accountability in your organization are:

• Do goals exist for sales reps today?
• If goals exist, do sales reps pay attention to them?
• Does a sales manager regularly meet with sales representatives to review performance?
• Does the company have a history of success when emphasis is placed on short-term objectives-for example, product promotion?
• Are sales reps special deals mostly absent?

ACTION POINT: If most of the answers to the questions are "no," an absolute approach will be less disruptive and easier to implement.

Absolute vs Relative Performance IV

It is better to not waste time discussing goal-driven program options if a company is unable to implement them.

Assessing the feasibility of using relative performance metrics is the first challenge your sales compensation design team should tackle.  If relative measures are not appropriate, the sales compensation structures and mechanisms available are rather narrow as you are essentially left with absolute program options, the most common of which are detailed later in this chapter.  

It is better to not waste time discussing goal-driven program options if a company is unable to implement them.

ACTION POINT: Does enough accountability exist within our sales organization so that we can use management-defined objectives?

Absolute vs Relative Performance III

Sales rep incomes are tied to goals, budgets, or quotas, creating a degree or accountability for the rep to contribute his or her part of the company's overall objectives.

The distinction between absolute performance is critical when considering sales compensation options.  A sales executive once explained the difference between absolute and relative performance in the context of sales compensation by saying, "On approach is sales rep regulated and the other is management regulated."

The point the executive was making is that relative measurements mean that performance is evaluated relative to management expectations.  Sales rep incomes are tied to goals, budgets, or quotas, creating a degree or accountability for the rep to contribute his or her part of the company's overall objectives.

By saying "rep regulated" the executive was expressing his view that the the only accountability that exists under an absolute program is the amount of income the rep wants to earn.  In other words, the rep is solely accountable to himself or herself and the income the rep wants to make.

ACTION POINT:  Decide how you want to manage performance expectations.

Absolute vs Relative Performance II

It wouldn't matter if the sales rep that generated $1MM missed his or her budget by 30%, was down 20% in sales from the prior year, lost 200 basis points of margin, and had sales in only 2 out of 10 of the company's product categories... 

From a compensation perspective, absolute performance means more is better.  A sales rep that generates $1MM in gross margin would earn more than a sales rep that generated $900K in gross margin using an absolute measuring approach, such as a straight commission program that pays 15% of gross margin dollars.  

It wouldn't matter if the sales rep that generated $1MM missed his or her budget by 30%, was down 20% in sales from the prior year, lost 200 basis points of margin, and had sales in only 2 out of 10 of the company's product categories while the sales rep that generated $900K in gross margin was up 25% from the prior year, beat their budget by 10%, increased gross margin percentage, and had sales balanced throughout the company's product categories.  None of this would matter because in absolute terms, $1MM is better than $900K.

ACTION POINT: Understand that absolute performance make everything but the the total GP irrelevant.

Goal and Vision for Work

“All my life as a musician, I have striven for perfection.  It has always eluded me.  I surely had an obligation to make one more try.”

I have never forgotten these words-they made an indelible impression on me.  Verdi, when he was my age, that was eighteen, was of course already a seasoned musician.  I had no idea what I would become, except that I knew by that time that I was unlikely to be a success exporting cotton textiles.  

At eighteen, I was as immature, as callow, as naive as an eighteen-year old can be.  It was not until fifteen years later, when I was in my early thirties, that I really knew what I am good at and where I belong.  But I then resolved that, whatever my life’s work would be, Verdi’s words would be my lodestar.  I then resolved that if I ever reached an advanced age, I would not give up, but would keep on.  In the meantime, I would strive for perfection even though, as I well knew, it would surely always elude me.

ACTION POINT: Strive for perfection in your work knowing that it will always elude you.

Absolute Versus Relative Performance

Relative performance differs from absolute performance because there is an interpretive or contextual component. 

The first key decision-point deals with how performance can or should be measured.  There are two means of assessing performance: in absolute terms or in relative terms.  For instance, if I told you my daughter shot 90 the last time she played golf, what would you think?  Is this a good score or a bad score?  

If I told you that my daughter plays on the LPGA tour, you would probably offer me condolences.  If I told you she was eight years old, you would either ask me if she only played nine holes, or make some comment about being impressed.  In some cases, 90 is a great score and in some cases 90 is a terrible score.  Measured in absolute terms, 90 is 18 over par.  In relative terms, 90 could range from an awful score to an incredibly good score.  Relative performance differs from absolute performance because there is an interpretive or contextual component. 

ACTION POINT: Understand the distinctions between absolute and relative performance.

Keys to Sales Force Structrue

The sales structure should enable individuals to thrive by providing clear marching orders, realistic performance expectations, the right tools, and a productive, supportive environment. 

Organizational structure decisions can frequently determine financial success.  The following takeaways are ones to consider for your sales force structure:

• Structure should follow from strategy.  Properly aligning your sales organization to fit the evolving marketplace is essential--more important than the specifics of how you manage, reward, and equip your sales reps.  It is also potentially disruptive, which is one of the reasons that many wholesaler-distributors fall into the trap of relying on incremental changes, which, over time, may leave them far away from their ideal market position.
• Your target customers' needs should be the basis for evaluating your sales structure.  There are many established models that can provide useful ideas.  Market gap analysis and role maps are great tools for defining clear sales positions starting from an external, customer-centric viewpoint.
• Sales roles should also consider the inevitable trade-off between accountability and specialization.  It is easier to measure performance when a single individual has end-to-end responsibility for all aspects of the sales process.  However, a competitor who offers specialists for quotations, project management, or application support may be able to provide these services more cheaply and effectively.
• Estimating the average cost of sales force "coverage" for a customer is an important part of structure and, ultimately, compensation design.  This evaluation provides an economic reality check of both your sales roles and your cost to serve different customer segments.
• At the end of the day, every sales position is filled by a flesh and blood human being.   The sales structure should enable individuals to thrive by providing clear marching orders, realistic performance expectations, the right tools, and a productive, supportive environment.  Tacking training, technology, or incentives onto a fundamentally dysfunctional structure will not work.

ACTION POINT: Establish your sales organizational structure based on the key takeaways above.

Human Factors in Sales Roles

Is wearing a red cape a requirement?

Once you have completed role assignments for your sales team step back and think about the positions you have defined to support your strategy.  At the end of the day, these will be filled by living, breathing human beings.  It is management's job to provide a system under which people can be successful.  Consider the following human elements:

• Can a human being do everything you are asking in the role/? Is wearing a red cape a requirement?
• Does the structure provide sufficient autonomy?  Sales reps in particular are highly driven by a desire to control their own destiny.  Putting too many shackles on their role may be highly de-motivating.
• Are the jobs fun and meaningful?  It may be logical to have a quotations specialist position but will it be so monotonous that no one will have any interest in it?
• Does the organization provide enticing career paths, with a clear progression of status and options for different personalities?
• Do we end up with one person in every position?  Our experience is that you should try hard not to have "one" of anything.   Sales reps thrive on internal competition, and management needs to have a relative yardstick for each position.
• Do the positions offer sufficient clarity and focus?
• Does the new organization represent a realistic level of change management?  Is the transition between current and desired state manageable? Will the changes crease so much fear, uncertainty, and doubt that you run a real risk of losing high performers?
• Are the spans of management control realistic?  If you end up with a different boss for each person in a branch who is located hundreds of miles away, you may want to reconsider.

ACTION POINT: There are no simple answers to these questions, but you need to ask them as a reality check before finalizing your organizational structure.

Accountability and Cost of Coverage

Specialization increases efficiency in several ways. 

There are trade offs between a specialized rep focus and the general end to end model.  With end-to-end ownership, there is zero ambiguity about who is responsible for the customers in the reps territory.  As a result, we can measure performance simply by calculating the customers contribution.  Under this scenario the salesman can be held accountable by paying them for performance for their customers.

The salesman has both clarity of objectives (make profit dollars) and sufficient influence (total account control).  However, it is pretty rare to find a single individual sales rep that is really good at merchandising, estimating, relationship development and customer service, not to mention data entry, warehouse picking, and accounting.   Needless to say, the wholesaler-distributor that does not do at least some specialization would be out of business pretty quickly.

Specialization increases efficiency in several ways.  First it allows us to use the lowest-cost resource for a particular function.  Order processing is one example; the typical warehouse picker is paid less than the FSR, so it makes sense to outsource this function to that department.  Second, productivity almost always increases as tasks become narrower. By repeating the same activity over and over, we work at least 15% faster and make fewer errors(Sassons, 1996).  By reducing the number of distractions and amount of "task switching," productivity can be increased by 28% or more (Jackson 2008).  Studies show that it takes almost a half hour to "recover" from a phone call or text message interruption.

Specialization also supports investment in technology and training, since a smaller set of users can be more deeply immersed in the tools.  For example, CRM software implementations are often more successful at wholesale distribution companies that limit them to the telephone sales force because these reps use the same customer history screens hundreds of times a day.

After you have defined the roles for each position in your sales structure, the next question is: how many of each do I need?  By completing the role map in the fourth column below you will identify the performance drivers.  These are the activities that a rep should perform to be successful (as indicated by the metrics in the third column) in the roles (second column), which support the strategy (first column).  Building on this will provide an example of how a sales rep spends his time as seen in the last table.

ACTION POINT: The key to driving accountability within the context of a strategy is to identify the specific areas in which the benefits of specialization outweigh those of end-to-end ownership. Cost coverage is about identifying the performance-driving activities and determining an appropriate time allocation for each.

Work

“The devil finds work for idle hands.”

Work, we know, is both a burden and a need, both a curse and a blessing. Unemployment we long ago learned creates severe psychological disturbances, not because of economic deprivation, but primarily because it undermines self-respect.  Work is an extension of personality.  

It is achievement. It is one of the ways in which a person defines himself or herself, measures his worth, and his humanity.

ACTION POINT: Don’t let your self-respect be undermined by being unemployed.  Remind yourself that there are other ways to define yourself besides work.

Accountability for Performance

But this independence works against the execution of a market strategy and keeps companies from leveraging their scale. 

After you have developed the strategic objectives and roles column on the role map, the next step is to identify the success metrics.  These are measurements you will use to determine success in fulfilling the roles that support the strategy.

The process for defining these metrics is one of the most powerful exercises you can do.  It forces you to clearly translate your strategy into the real world.  It requires that you confront head to head two factors that drive accountability:

• Clarity of objectives
• Sufficient influence over results

The sharp-eyed reader will pause on the word "sufficient."  Defining what constitutes a "sufficient" degree of control over the delivery of customer service has been a stumbling block in wholesale distribution for years.  Traditionally, wholesaler-distributors have relied on a high degree of local branch and sales force autonomy to ensure accountability.  But this independence works against the execution of a market strategy and keeps companies from leveraging their scale.  For sophisticated wholesaler-distributors with mature management processes, the trade-off between accountability and strategy has proven to be false.  They have been able to achieve both by clearly understanding when and how to specialize.

ACTION POINT:  Understand how to specialize to achieve both accountability and strategy.

Role Map II

The more clearly and concisely you can write down a role description, the higher the probability that the role will successfully accomplish its objectives.  

It is important that as you write down objectives for the position, you ask yourself whether they really represent a strategy rather than a goal or a wish.  Strategy is bout "how" the objectives should clearly indicate the segment being addressed and the repositioning needed.  If your objective for the position is something like "grow profitable sales by 30%," you are leaving your strategy in the hands of your sales force--which means you do not really have a strategy.

In the second column of the role map--next to each strategic objective for the position--you can now determine the role that each person in a given position must fill in supporting the corresponding objective.  For example, it it is clear that migrating transaction-only customers from FSRs to ISRs is a key strategic objective, then the FSR's role in supporting this strategic objective might be to allocate at least 75% of his or her time to large account demand-creation activities.   

The small size of the role map is deliberate.  The more clearly and concisely you can write down a role description, the higher the probability that the role will successfully accomplish its objectives.  

ACTION POINT: If you are asking a single sales rep to do 20 different thing, how can you expect him or her to give any one of them real priority?

Mapping Model to Strategy

As a rule of thumb you should have no more than six objectives, and ideally two or three.  

Each of the sales models includes several different sales or marketing positions.  The next step is to map these positions back to your strategy.   The role map in the table below is a powerful tool for this exercise.  It enables you to connect your strategic objectives to roles that the position plays in meeting your objectives and to the measurements that will be used to demonstrate successful performance in the role.  The performance measurements become the baseline for goth your sales management system and your compensation plan.

The first column identifies the strategic objective for the position.  These objectives should be based on your strategic market gaps.  As a rule of thumb you should have no more than six objectives, and ideally two or three.  

ACTION POINT: If you find that you end up with dozens of items, then you do not have sufficient strategic clarity to finalize your organizaiton structure--much less dive into sales compensation. 

Structural Sales Models

At a minimum, you will need to make adjustments to fit your particular situation and market.

The following models outline some generic structural options found in wholesale distribution.  These models are just a starting point.  At a minimum, you will need to make adjustments to fit your particular situation and market.

• Classic Field Sales - Field sales reps (FSRs) act as generalists and are assigned to customers based on geographic territories.  They perform demand-creation activities.   Customer service reps (CSRs) provide demand-fulfilment services such as quotations, transaction processing and so forth.  Specialist reps (SRs) provide episodic product technical, or functional support to FSRs when such support is requested by the customer (that is, when thee is a new business requirement  or problem).  The class field sales model is best for early life cycle products, narrow, deep expensive customer coverage and pioneering demand creation.   They provide high value, high-trust solutions and work in undifferentiated segments within the same geography.
• Inside Sales - FSRs act as demand-creation generalists but are only assigned to the highest opportunity accounts.  Inside sales reps (ISRs) are assigned to customers by geography or segment.  They perform demand-creation activities (outbound calling for example).   CSRs provide primary demand-fulfillment services.  Online services (websites, mobile phone apps) provide supplemental customer service functions.  This model is best for mid-life cycle products, medium cost coverage and low density markets.  Selling is based on product or service differentiation.
• Telesales and marketing - Dedicated market research function identifies prospects.  Telephone sales reps (TSRs) conduct high-volume outbound calling.   Targeted marketing (paid web search, search engine optimization, traditional advertising and so forth) generates awareness.  Online services (websites, mobile phone apps) provide primary customer service functions.  CSRs provide supplemental customer service functions.  This modes is best for late life cycle, highly commoditized products where low cost coverage and selling based on price and availability is directed toward transactional and infrequent buyers.
• Team Sales -Groups of various combinations of FSRs, ISRs, TSRs, CSRs, and SRs assigned to customers based on geography or segment.  This model is best for customers that migrate frequently between segments or different stages of the product life cycle and where there are high-value, complex sales transactions.
• Segmented field sales -  Similar to classic field sales, but with FSRs assigned to customers based on segment.  CSRs may play a stronger role in relationship, awareness, and demand-creation activities to offset reduced FSR call frequency.  This model works best for pioneering demand creation and where industry or segment specific expertise and solutions are required in high density markets.  It provides high value, high trust solutions.
• Functional or staged sales - FSRs or SRs provide demand-creation services and are assigned to customers based on geography or segment. Project teams or implementation experts are used for complex customer conversions (for example, inventory consignment, technical engineering support).  At well-defined stages in the sales cycle, account ownership is passed to ISRs.  CSRs or online services provide demand fulfillment.  This model works best in markets in which different customers are in different stages of the product life cycle or where decision makers in the customer organization change at different stages of the sales cycle.  It is also best for high-value, complex sales transactions.
• Multilevel sales - Similar to functional sales except that FSRs typically retain account ownership at the corporate level.  ISRs and CSRs are typically assigned to specific (local) customer locations.  This model is best for major account selling to large, multi location, decentralized organizations.

ACTION POINT:  Review the various structural models and how they may apply to your organization.