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Comments or Suggestions?
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By John R. DeVincentis and Neil Rackham, Chairman, Huthwaite, Inc.
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Salesforces will need to create value, not just communicate it. But even in the same industry, different customers see value very differently.
Suppose a corporate Rip Van Winkle who fell asleep
on the job a generation ago were to wake up today. He would find his company changed
almost beyond recognition. As he wandered through manufacturing, he would rub his
eyes at the sight of strange new machines. “Something’s very different,” he would
mutter. “The shop floor looks like a laboratory. The oil, the grime, and the piles
of half-finished goods have gone. There are no rows of people working at repetitive
tasks. No one is standing around waiting for instructions about what to do next.
There’s not one quality control inspector in sight. Where are the supervisors?
Who is a worker and who is a manager?”
It is a huge transformation, and more than Rip can
absorb on his first waking day,
so off he goes in search of something more familiar. First, he heads for the typing
pool, only to discover that it no longer exists. Then he tries a succession of other
departments. Everywhere he goes he sees new technology, new processes, and above all
a radically new approach to work itself.
Everywhere? Not quite. The sales department, where he used to work, remains much as it
was when he fell asleep. True, most people now have laptop computers, though many of
them seem more decorative than useful. And there are more women in the department;
he would now be a “salesperson” rather than a “salesman.” But most other things in
the office don’t surprise him.
The company decides to give Rip back his old sales job, so he goes out with his manager
to see if selling itself has changed. He finds that for the most part it is comfortingly
familiar. There is certainly a wider range of products, and many of them seem more
complex. Competition is intense, and the pace of work is faster. The hard sell now
appears to be officially discouraged, but even in the old days Rip preferred to sell
through relationships rather than pressure.
He is still expected to fill in call reports, although technology now lets him enter
his lies and excuses electronically. Pay is higher than it was a generation ago, but
it still comes in the form of base plus commission. His sales manager coaches him in
such familiar terms - features and benefits, objection handling, open and closed
questions, and so forth - that he feels as though he has never been asleep. In fact,
just about everything she says comes almost word for word from E. K. Strong’s The
Psychology of Selling, published back in 1925. “Well,” thinks Rip, “selling will
always be selling. I could probably get away with it if I napped for another couple of years.”
But he would be wrong. Powerful new forces have begun to change the world of selling.
Sales functions everywhere are now in the early stages of a transformation comparable
to the one that reshaped manufacturing 20 years ago. According to some estimates, at
least half of today’s selling positions will vanish within five years. Time-honored
territorial structures are disappearing, too. The substance of selling is itself in flux.
Some organizations have already crossed the threshold of this new world. Until a few
years ago, Microsoft, for example, had a salesforce that offered software in bulk to
corporate accounts in typical business-to-business transactions. Today, its sales reps
spend their time organizing and mobilizing networks of independent solution providers
such as systems specialists, trainers, software designers, and installers.
Enron’s salespeople used to traffic in natural gas. Now they are just as likely to offer
sophisticated financial instruments such as options, swaps, caps, collars, floors,
and firm forwards. In the past, when you called Charles Schwab, which pioneered
telephone sales of brokerage services in the 1970s, you talked with a broker (or
salesperson by another name) who transacted your business for you. Now you can
choose to dial up Schwab on the Internet and place your trades yourself.
What is the purpose of a salesforce?
The questions top executives are starting to ask are a sure sign that the nature of
sales is changing. Three years ago, CEOs talking about salesforces would have focused
on compensation, training, and automation. But at recent CEO forums, the issues were
more fundamental. “Do I need a salesforce at all?,” mused the chairman of one technology
company. A CEO asked, “What is the difference between selling and marketing? I’m not
sure I understand the distinction clearly any more.” The head of a big communications
company suggested, “Perhaps the time has come to ask the most basic question of all:
what is the purpose of a salesforce?”
For many years, salesforces have existed to communicate the value of their companies’
offerings. But while the sales function has been busy fulfilling this role, a great
change has swept over the business world. Other functions - manufacturing, engineering,
product development, and even human resources - have been restructuring and realigning
themselves to create more value for customers. Activities that do not add value have
been pared down or eliminated.
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Such new approaches to work as continuous improvement, the reengineering of business
processes, Kaizen, and self-directed work teams have been introduced to create high-quality
products and services more cheaply and efficiently. Put simply, other functions have
become conscious value creators. In today’s enterprises, it is hard for functions and
even individuals to survive – and impossible for them to prosper – unless they clearly
add value for customers.
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"Perhaps the time has come to ask the most basic question of all: what is the purpose of a salesforce?"
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In yesterday’s world, it was feasible to argue that by communicating product information
to customers, the salesforce was actually adding value. “We’re useful to doctors because
we educate them on the latest drugs,” a pharmaceutical rep told us. “We tell them about
new options that haven’t gotten into the reference books. Without us, doctors would
quickly become out of date.”
But buyers now tend to know as much about products as do the people selling them - or
more. The advent of specialization in medicine, for example, means that many doctors
have participated in clinical trials or learned about the effects of new drugs well
before they are approved for release. Buyers in other industries, too, are better
informed than they used to be. So much information about almost everything is now
so accessible that the need for an expensive salesperson to dispense it has come under increasing doubt.
The ubiquity of information is not the only force transforming the sales function.
Another is the decline in differentiation between products. As they become commodities,
their features have less significance for customers. Value migrates from the product
to the way in which it is acquired, and customers start to attach more importance to
the acquisition environment they prefer.
Unfortunately, generations of salespeople have been brought up with the notion that
they create value by bringing in revenue. But bringing in revenue means collecting
value, not creating it. And that is not enough to survive in today’s competitive markets.
Value is in the eye of the beholder
The idea that a salesforce must create value and not just communicate it is simple
and attractive. But what does it really mean? Ask academics or consultants, and they
will tell you that value, at its simplest, is defined by the equation value = benefits -
cost. So there appear to be two ways for sales departments to create value: they can
either generate additional benefits or reduce the cost of the benefits they already provide.
In the first case, a company might increase the ability of its salesforce to deliver
benefits by giving reps more technical support, by improving their problem-solving
capabilities, or by allowing them to spend more time working on customers’ issues. In
the second case, the company must find cheaper ways to sell. Some organizations that
aim to create value by cutting sales costs have relied on telephone selling or part-time
salespeople. Others have abolished the salesforce altogether, moving to channel distribution,
catalogs, or electronic commerce.
It is the customer who decides whether any benefit is real. Different customers, even
in the same industry, have very different notions of value
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Strategically, which way is better: creating new benefits or cutting the cost of old ones?
Most people prefer the former, seeing it as the way to create a bigger pie, capture more
profit, and lavish so much extra value on the customer that competition withers away. A
salesforce that adds new value feels more successful than one that slashes costs. Yet
many organizations have charged down this path only to discover that they have devised
costly strategies that are neither valued nor rewarded by the market, and that make them
less competitive than ever.
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The better approach depends entirely on the customer; indeed, it is the customer who
decides whether any benefit is real. Different customers, even in the same industry,
have very different notions of value. If a company gives its salesforce the ability
to provide new benefits that customers genuinely want, they will cheerfully pay well
for those benefits. But if customers are indifferent, the company may well lose business.
Traditional sales thinking fails to recognize this reality.
Segmenting by size isn’t sufficient
Since the 1960s, most sales organizations have segmented their customers by size, a
practice that has served well for 30 years. But it is no longer sufficient. Consider
the three largest accounts of the Sleepy Hollow Insurance Group: three insurance
brokers of roughly the same size. A key account sales team at Sleepy Hollow would try
to sell its products to all three in much the same way, using similar amounts of resources.
Yet despite their superficial similarities, the three customers have very different needs:
Customer A, an aggressive regional broker, tells Sleepy Hollow, “Don’t send me your
salespeople, just send your quotes. And those quotes had better be fast and cheap, because
you have a dozen competitors who will get our business if they beat you on speed and price.”
Customer B, a broker that has grown through mergers and consolidation, has a very different
story. “We need a lot of help. Every one of our offices does things its own way. We don’t
have a common set of procedures or a common information system. We’ll write a lot of business
with you if your people are prepared to work with each office individually and help it get
its act together.” Here, there is a chance for the salesforce to create real value.
Customer C seeks yet another kind of relationship. “What we want is a strategic partner that
will put its underwriters into our offices, develop cutting-edge information systems with
us to turn quotes around more quickly than anyone had thought possible, and work with us
to develop new and innovative risk management systems. We’d like to leverage some of your
back-office knowhow, and we’d be interested in having your marketing people contribute
to our internal planning process.”
How does a typical salesforce geared to judging its effort by the size of its customer
handle these three requests? Badly. A salesforce dedicated to serving large customers
usually expends too many resources on the first account. This kind of customer does not
want - and will not pay for - an expensive investment in selling time. Companies can waste
or destroy value by putting unwarranted effort into these accounts.
By contrast, large customers of the third kind expect a heavy investment in selling effort.
Yet all too often such an investment can be misplaced, with salespeople seeing themselves as
value communicators when what the customer is looking for is value creators. The selling
effort mistakenly focuses on persuasion rather than on understanding: salespeople spend
time explaining and differentiating products instead of bringing new insights and value
to the customer by diagnosing its problems and needs.
Needless to say, similar problems can undermine the efforts of salesforces dedicated to
serving smaller customers. Although segmentation by size would imply that such customers
can expect only a small sales effort, some of them are actually prepared to pay handsomely
for advice and help. But most salesforces are not designed for this type of customer,
lacking any mechanism to allow salespeople to play a value-added role. As a result, the
opportunity to create and capture value is lost.
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