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.
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