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Benchmarking Sales Excellence
Customers now rank sales person effectiveness above product quality and features. In a two-part article, based on The HR Chally Group's latest benchmarking research, CEO Howard Stevens looks at how sales organisations are responding to these changing needs and the future challenges in resourcing and managing this critical role.
Most parents would encourage a child who wanted to be a doctor, dentist, lawyer, politician or business executive, but I suspect few would feel as enthusiastic about them pursuing a sales career.
Traditionally sales has a negative image. Yet in certain respects it has more to recommend it than many of the professional roles mentioned. Take the average return on investment in education, for example. Sales people typically get back 20 times what they invest in the first 10 years of activity, compared with three or four times for a lawyer. They also experience lower rates of heart disease, suicide and marriage breakdown. More importantly, for the majority of organisations the sales person now represents a key competitive advantage.
For the last 30 years The HR Chally Group has been compiling data on sales forces around the world to benchmark sales excellence. During this time we have interviewed over 100,000 business decision-makers at all levels across all sectors and carried out both quantitative and qualitative evaluations of over 200,000 salespeople and their performance in terms of revenue generation. By tracking this information over time we test out assumptions, see what is real and compare different market sectors, to help our clients increase their sales and management productivity and profitability.
Over the last eight years we have also gathered information on more than 7,000 sales forces, rating sales people against 15 different criteria that are shown to have a statistical correlation with vendor selection. The results are published in our current World Class Sales Benchmarking study. Since the previous reports in 1994, 1997, 2000, and 2002 customers have witnessed major upheavals in the marketplace, driven by rapidly advancing technology, global competition, shifting demographics and the consequences of mature markets.
As customers address these changes they are seeking support from suppliers in three critical areas:
· ability to focus on their core competencies and outsource the balance of their business needs.
· sufficient understanding of their business needs to provide solutions in addition to products and services.
· hard proof of having added value in excess of price.
Several other issues have emerged that are worthy of attention. Because problems need to be resolved rapidly customers will contact sales management directly if sales people are not authorised to make decisions. Significantly since 1998 customers have considered the effectiveness of sales people as more important than product quality or features. However, the sales person's failure to understand the customer's business continues to be a major criticism. It follows, therefore, that companies can make more progress by focusing on training in this area than on any other factor.
A changing role
The sales person's role is evolving partly in response to technological advances. Many aspects of customer service - order taking, service delivery and technical support - are now directly fulfilled via the Internet or by other personnel using electronic processes. Liberated from managing day-to-day transactions and administration, sales people are being deployed closer to the customer and have more time to focus on providing total solutions. They are being required to become consultants who understand the customer's business, supported by additional technical, logistics and project management specialists. Rather than acting as order takers, they have to elevate their point of contact to the economic decision maker and, perhaps most importantly, add value to their customer's business.
Selling on price continues to diminish as a competitive advantage unless, of course, cost-reduction is an added value in itself. With the uptake of Total Quality Management (TQM) in manufacturing, engineering, marketing and IT over the last four decades any competitor can quickly match your product, service, price, feature, option, delivery service and cost of manufacturing, etc. However, what is more difficult to duplicate is the personal added value provided by your sales person beyond delivering your product or service. As underlined by the research the key point of difference is now the effectiveness of your sales people.
Critical sales skills
To evaluate a vendor's potential to meet these needs, we asked customers to judge sales forces on specific characteristics, which have been ranked in descending order of importance. The first three outweigh all others, and roughly speaking the first two account for around two thirds of everything a good salesperson has to do.
· Personally managing customer satisfaction. Essentially this means being a single point of contact that the customer can hold to account for getting things done. They do not particularly mind if the individual is not an expert themselves, just that they take responsibility for the results.
· Understanding our business.
· Acting as a customer advocate. It's a surprising statistic that around 25% of the time, your company's systems or processes are the cause of problems for some customers, which sales people spend almost 50% of their time resolving.
· Is knowledgeable about applications as well as products.
· Is locally or easily accessible. This mainly relates to the use of voice mail and the increased stress on a customer with a problem if they don't know whether their message got through and when someone is going to respond.
· Solves problems and is innovative in responding to our needs. A classic case is being willing to independently purchase and supply your competitor's product or service rather than letting the customer down. What matters is how well they are being taken care of.
Interestingly, sales effectiveness is not particularly related to the compensation level or 'prestige' of the industry. Of the markets we monitor sales organisations in Fine Paper and Business Forms far outranked Computers and Software. Effectiveness tends to be higher where people sell a commodity product or service (service matters more when the vendor admits there is no competitive advantage) and is lower in sectors like Delivery/Freight and Telecommunications that are dominated by a single major competitor.
Future trends
Although our survey data shows that many sales organisations are well on the way to meeting or exceeding customer expectations crucial challenges still remain. We have identified five clear trends that in our opinion will be critical to their continued progress.
· The core competitive battle will be Sales and Customer Relationship Management (CRM).
· Databases will drive success and sales.
· Sales will become more professional.
· Personal sales relationships will increase in importance.
· The key myths about sales people will hamper the competitive loser.
Here we explore the first two issues relating primarily to greater systemisation of the sales function. The remaining trends surrounding professionalism, recruitment and management will be the subject of a future article.
Sales and CRM will drive competition
Customer Relationship Management - by which I mean actually tracking and holding on to customers rather than a software program - will be the key battleground. You only have to look at the hard facts about customer loyalty to understand why.
For years we have known that raising customer retention rates by only 5 % increases sales by a minimum of 25 % (HBR Oct '90). In some industries it is much higher - software (35%), industrial distribution (45%), credit cards (75%) and advertising (95%). Yet how many sales organisations are addressing the issue?
Signing up new customers drives the sales culture. The champagne corks pop when we close a new piece of business but it is customer retention that we should be celebrating. That's what really adds to the bottom line - profitability per customer is shown to climb by 5 % a year for almost 16 years.
Another sobering thought is that being 'good' in the eyes of your customer is no longer enough. Eighty percent of all companies deserting their previous vendors described them as 'good' to 'very good', although customers who rated their vendors as 'very good or excellent' were 42% more likely to remain more loyal (HBR Nov/Dec '95).
In practice 95% of sales forces are unaware of their turnover in customer activity. Those that do track customer churn are likely to base it on anecdotal evidence from sales people whereas a more objective measure is to actively rate customer satisfaction. The only true indication that this is happening is if customers are actually sharing details of their business plans with you.
Databases equalize competitors
Suppliers have already seen the positive impact of Total Quality Management on their manufacturing, quality control, logistics and other critical processes. When the Japanese car maker Toyota was preparing to enter the US market, for example, they benchmarked a food store, based on the simple premise that they were shipping a damageable commodity with a short shelf-life (bananas) 3,000 miles and still making a profit.
In virtually every industry use of TQM and ISO methods has essentially created close to parity amongst competitive offerings. Sales is the one exception and the reason why sales person effectiveness now accounts for 39 % of a business-to-business customer's choice of vendor, compared with price (18%), quality (21%) and offering a total solution (22%). However, the benefits of TQM validate extending it to the sales operation to bring about improvements between their companies and their customers.
Within every organisation a wealth of data exists on competitors, customers and salespeople but less than one in ten sales forces collects it in any meaningful way. Nor is it competitive to rely on intuition and common sense. If it was, we wouldn't have the situation across almost all sales forces where 75% of defections of a major customer come as a surprise. Instead it will require investment in sophisticated systems and databases to manage, communicate and track sales, delivery and service processes.
Greater objectivity will be needed in hiring people for what is now regarded as a critical role. US research by the International Personnel Management Association shows that current approaches like a typical interview, a personality test, or a scoreable interview are actually little better than tossing a coin. Recruiters can expect to achieve a mere one % improvement over chance at worst, seven % at best. A good interviewer using these techniques may be able to describe how someone sounds, acts, looks etc but what they can't do is to predict success in the job.
The next goals for world class organisations will be to improve the recruitment, development and management of sales people and, who knows, create a profession we would be proud for our children to work in.
Benchmark practices for World Class Sales
All top ranked companies in the survey have addressed at least six of these eight critical benchmark processes.
1. Establishing a customer-driven culture. One indicator is whether you have a customer advisory board that sits in on your strategic meetings while you discuss future products and services and organisational plans.
2. Market segmentation. Only by specialising can salespeople acquire the understanding of the customer's business that is necessary to add value.
3. Managing adaptability. Your systems are the probable cause of customer problems 20% to 25% of the time. How quickly you get the system fixed is down to total quality control.
4. Information technology.
5. Customer feedback and measuring customer satisfaction. The only effective way to get intimate information is by phone.Customers will be much more honest and candid than they will be face-to-face.
6. Sales service and technical support systems.
7. Recruiting and selecting salespeople.
8. Training and development.
Howard Stevens is Chairman and CEO of The HR Chally Group and co-author of 'Selling the Wheel'.
The HR Chally Group is an internationally recognised technology leader in assessing and predicting future performance for sales, service and management positions, evaluating developmental needs and sales force benchmarking. It is partnered in the UK by sales consulting company, Miller Heiman. For more information please contact Lynda Marston on 0 or visit www.millerheiman.com.
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