ANNOUNCER: HBR On Strategy.
HANNAH BATES: Welcome to HBR On Strategy, case studies and conversations with the world’s top business and management experts, hand-selected to help you unlock new ways of doing business. Today, we bring you a conversation with Harvard Business School professor Frank Cespedes, who argues that getting your sales team on board with your strategy shouldn’t be an afterthought. After all, the engine of many businesses is a strong sales core. In this episode, you’ll learn how hiring, compensation, performance management, communication, and leadership development can help your company align its strategy and sales. And what can go wrong if your strategy and sales aren’t in sync. This episode is from October 2014. Just a note — we recorded this by phone. While the audio quality isn’t great, the conversation is. I think you’ll enjoy it. Here it is.
SARAH GREEN: Welcome to the HBR IdeaCast from Harvard Business Review. I’m Sarah Green. I’m talking today with Harvard Business School professor Frank Cespedes, author of the article “Putting Sales at the Center of Strategy” and the book, Aligning Strategy and Sales. Frank, thanks so much for talking with us today.
FRANK CESPEDES: My thanks to you, Sarah. My pleasure to be here.
SARAH GREEN: Excellent. Thank you. I’d like to start today by just defining the problem. What does it look like when strategy and sales aren’t in sync and why does this happen in the first place?
FRANK CESPEDES: Well, as with most significant business issues, there’s not just one cause of the problem. There are typically multiple reasons why this happens in a company. But here’s what I would cite as the usual suspects. First, many companies really do not have a strategy. They confuse their vision or their mission statement or their values with a strategy. Those are different things. Strategy involves explicit choices about where to play in a market, where not to play, who are and are not our customers, and how we propose to win in the areas where we choose to play. And this must be explicit because it’s obviously difficult, if not impossible, for people to execute a strategy that doesn’t exist or that they don’t understand. I guarantee to our listeners on this podcast that whatever else the people in their companies are good at, they are not good mind readers.
SARAH GREEN: Um-huh.
FRANK CESPEDES: So, strategy must be explicit. The second cause is that the planning process in many companies is impractical. The typical S&P 500 company now spends about four to five months per year in strategic planning. Meanwhile, the market is doing what the market will do and sales must respond issue by issue and account by account. So, even if the output of planning is a great strategy, which is clearly a big if, the process itself often makes it irrelevant to sales executives, who have to make important decisions throughout the year in response to external buying cycles at different customers, not internal planning cycles in their companies. And then third, and last, sales itself often contributes to the problem. There’s ultimately no such thing as great selling if that selling is not linked to the company’s strategic goals. And many sales managers ignore this or, rationally responding to their volume metrics, they ignore it. But the investors in capital markets don’t ignore that. So, those I think are some of the typical causes of the problem.
SARAH GREEN: I wanted, to ask as we’re sort of looking at the problem here– and I was looking through the article in the book– a number of your examples are from areas that are moving to the cloud or moving to digital, where the things that salesmen or saleswomen are selling are cheaper than the things they’re accustomed to selling. Does this sort of shift to digital provide special problems or challenges for salespeople from a strategic viewpoint?
FRANK CESPEDES: I don’t think the problems there are qualitatively different than what you see in other companies. And in fact, I think one of the myths– and I think it is a myth that is quite pervasive in the business media– is that sales is somehow being disintermediated by e-commerce. And that’s just not true. I mean the empirical data simply doesn’t support that. If you look at the Bureau of Census data, for example, you’ll find that the number of people in sales occupations in 2012, which is the last year we have good data for, is just about the same number that were there in 1992, 20 years previous, obviously before the rise of the internet. And that data almost certainly underemphasizes, undercounts the numbers, because in an increasingly service economy, as I’m sure you know, business developers in most companies are called things like partners, or managing directors, or vice presidents. They’re not put in a sales category. So, I don’t think there’s anything qualitatively unique about being, let’s say, in a tech business versus others. I think the reasons I’ve cited are frankly more fundamental than technology as a disruptive innovator.
SARAH GREEN: Um. So, let’s move on and talk a little bit about the solution. And I know you could write a whole book about it. You did write a whole book about it. But just, if you will, briefly gesture towards what the solution might look like?
FRANK CESPEDES: Well, the basic idea is this. I start from a premise that I think is undeniably true. In business, value is created or destroyed in the marketplace with customers. It’s not created in meetings. And the market includes the industry you compete in, the customer segments where you choose to play, and the buying processes at the customers that you do sell and service. And those factors must inform any coherent strategy and the required sales tasks. And by sales tasks, I mean what it is that sales people in that business must be good at to deliver value and implement that strategy effectively. Then assuming the company has a coherent strategy, the issue is aligning actual selling behaviors. And it is about behaviors. Business is a performance art. It’s not about good ideas. The issue is aligning the actual selling behaviors with the required sales tasks. And managers basically have three levers to do that. First and foremost, people. Who the salespeople are, what they know, how you hire and develop their skills so they can execute your strategy’s tasks, not those of a generic selling methodology or what they may have learned at another firm that made different strategic choices. The second lever is what I call control systems. These are the company’s performance management practices, including, clearly, sales compensation, incentives, and the metrics that are ultimately used in that firm to measure sales effectiveness. And then the third issue I call sales environment. And what I mean by that is the wider company context in which sales initiatives get developed and executed, how communication works or doesn’t work across organizational boundaries, how sales managers, and not just sales reps, are selected and developed. The point of the framework, I think, is that selling effectiveness is ultimately an outcome of these factors, not only the result of what you might call heroic efforts in the field. And I think this has some very practical implications. If you’re a sales manager, this way of thinking may change how you select and use the available selling resources, how you develop and allocate sales people, and how you look at your own career and development needs. And if you’re a CEO, board member, or another C-suite leader evaluating sales numbers, frankly it can help you to avoid being a sucker for glib generalizations and outright stereotypes about selling, which are pervasive. And believe me, as someone who works with lots of companies and has served on boards, that happens. Unfortunately it happens.
SARAH GREEN: Um. I’d like to spend a little more time, if we can, on the incentives issue that you mentioned. Because I think whether it’s a generous expense account or working on commission, some of these policies really hit salespeople right in their wallets. Can we just spend a little bit more time on how important it is to get that right and what the right structure looks like?
FRANK CESPEDES: Well, the basic issue I think when it comes to sales compensation is this. If you look at sales comp plans– and you should. Because I guarantee you, sales people look at them– what you’re going to find is that the vast majority– the latest research I’ve seen says about 70%, seven out of 10, focus pure and simple on top-line sales volume. Now, what is the message that that incentive plan gives to the sales force? The basic message is a variation on the old biblical aphorism, “go forth and multiply.” And that’s exactly what sales people do. They go forth and they sell to anyone at a given price. And as a result, what they’re bringing in to the selling company is a very, very diverse stream of customers, that has very, very different implications for how the company has to service, allocate other resources. And ultimately in companies– and this is why it’s a strategy issue, not only a sales issue– the vast majority of investments in any company are made in the service of customer acquisition or customer service activities. So, notice what happens as a result of those sales comp plans. Very soon, it really does not matter. Whatever the strategic planning documents say, the de facto “real strategy,” quote, unquote, of the company, is the investments that have been put in place as a result of that essentially ad hoc process. So again, I think that the core issue with compensation is not whether we include expenses or we don’t. That will affect behavior. But it affects it at the margin. The core issue is what companies bonus their sales people on. And frankly, for most companies, they’re not simply about volume. They’re going to be about something else. And there’s just a disconnect. The result is sort of a variation on the old Groucho Marx routine, who you going to believe, your eyes or your paycheck?
SARAH GREEN: Hm. Interesting. I’d like to walk through an example, if we can, of a company that went from unaligned to better aligned?
FRANK CESPEDES: OK. Actually, how about two examples?
SARAH GREEN: OK. That sounds good.
FRANK CESPEDES: One of them is disguised and it’s about a start-up. The other is public and it’s about an established corporation trying to deal with market changes. So, there are two ends of the spectrum. And that might be both interesting and useful for our listeners.
SARAH GREEN: Definitely.
FRANK CESPEDES: Now, I called the start-up Business Processing, Inc. And like many young companies, it grew to a certain level of sales, but then stalled when it tried to scale the business. And the problem, or one of the major problems, was that the leadership team, in its efforts to start the business, had accepted, as I said just before, any business. And had never thought through what it’s strategy and value proposition meant for its target customers. And when it did finally clarify this, it sold more, it sold faster, and more profitably with a smaller force. Now, I cite this example because, in my experience, surprisingly few firms are clear about who is and who is not their kind of customer. And that is a basic strategic decision. It’s at the core of any strategy. Now I have a chapter in the book about how to identify the best customers for your business. And again, I think that’s a crucial part of any coherent strategy worthy of the name. Now the other example, public example, is Dow Corning. For decades, Dow enjoyed a profitable double-digit growth by selling innovative silicone products for what I think we would call a solutions-oriented, high-end sales force that bundled those products with relevant technical services. But growth stopped in the late ’90s, early part of this century, as smaller, disruptive sellers entered the market through e-commerce, online channels of various sorts. Now, Dow floundered for a few years. But eventually, it realigned its sales approach and strategy by thinking through the different sales tasks for the different types of customers that it was facing and as a result developing different business models and sales behaviors for each group. And then using those management levers that I talked about previously, sales hiring and development, sales control systems, including compensation and performance metrics, and sales force environment, including what the different sales approaches meant for when and when not field selling efforts were appropriate. Now, I mention this example because all the talk about quote, “disruptive innovation” I think leads many companies into an either/or mentality that ignores reality. And that leads to assumptions that, again, sales, forces are somehow becoming obsolete in the internet age, an assumption simply not supported by the empirical data. Like Dow, most companies must deal with both types of customers in their businesses. And I think what the Dow example illustrates– it’s in the book– there are practical ways to do this, very practical things that managers ultimately get paid to manage.
SARAH GREEN: Fair enough, fair enough. OK, I just want to say we’ve talked a little bit about what sort of very senior-level executives can do to align sales and strategy. I just wanted to conclude by asking you, if you find yourself in the thick of this as a manager, but not someone senior enough to redo the incentive system or to redo the hiring system, are there steps that you can start to take with your sales team to make some headway here?
FRANK CESPEDES: Yeah. Well, let’s start with the sales manager. How about that?
SARAH GREEN: Hm.
FRANK CESPEDES: What would be sort of the key messages for the sales manager? And here I think there are basically three. First, as always, people. I mean that’s just fundamental. You need disciplined hiring that’s linked to your strategy. And if you don’t understand the strategy, you’ve got to find out. You got to find out if there is a there, as Gertrude Stein said about Oakland. You need focused and customized training initiative. Beware of the training guru who says they’ve got some all-purpose selling methodology. There’s a century of research about this and the results are very definitive. Again, sales effectiveness is a function of the sales tasks. So, when I hear these gurus talk about the all-purpose methodology, I’m always reminded of Peter Drucker’s comment. Peter Drucker was once interviewed by a business magazine. And the reporter said Mr. Drucker, how does it feel to be a management guru? And Drucker said, do you know why business people call them gurus? Because it’s easier to spell than charlatan. And there’s truth to that in the training area. And then because markets do change, it is not the responsibility of the marketplace to understand and be kind to any company strategy. It’s the responsibility of managers and leaders to adapt. That’s the way the world works. You’ve got to pay attention to broadening your sales peoples’ skills as markets and sales tasks change. Someone once said to me that many companies maintain their equipment better than they develop their people. And, unfortunately, there’s a lot of truth to that, especially in sales, where there’s significant turnover percentages. And I believe almost all serious research about people in business underscores the fundamentals I just talked about and conversely debunks all these glib prescriptions that one sees about talent acquisition. The second thing I’d point to is performance reviews, especially in sales. They are grossly underutilized levers for influencing behavior in many sales organizations. Busy managers either treat them as drive-by conversations that are really about compensation, not review, evaluation, and development. Or, unfortunately, it’s a little bit like Garrison Keillor’s Lake Wobegon, where everybody is above average. So much of strategy sales alignment is only visible and manageable through ongoing account and performance reviews. And that’s a trainable skill. And there’s lots of improvement in most sales forces when it comes to conducting performance reviews. And then the third issue I’d mention is– I’m going to call it perspective. But Sarah, that may not be exactly the right word. But my point is this. Strategy is about confronting external market facts. And customers ultimately determine what are the relevant selling behaviors today, not yesterday. And you can’t do that from headquarters or the branch office or solely through data analytics. A character in a novel by John le Carre said something that in my opinion every sales leader, and for that matter C-suite executive, should have engraved on their desk or perhaps even tattooed on some prominent body parts. And the quote is “a desk is a dangerous place from which to view the world.” And I think that’s true, especially the sales world.
SARAH GREEN: Well, Frank, that is I think a great place to wind up for today. Thank you again for taking some time to chat with us.
FRANK CESPEDES: My thanks to you. It really has been my pleasure and honor to do this. Thank you.
HANNAH BATES: That was HBS professor Frank Cespedes, in conversation with Sarah Green Carmichael, former host of the HBR IdeaCast. If you liked this episode, check out HBR Ideacast on Apple Podcasts, Spotify, or wherever you get your podcasts. They release new episodes every week. HBR On Strategy will be back next Wednesday with another hand-picked conversation about business strategy from the Harvard Business Review. In the meantime, we have another curated feed that you should check out: HBR On Leadership. And visit us any time at HBR.org, where you can subscribe to Harvard Business Review and explore articles, videos, case studies, books, and of course, podcasts, that will help you manage yourself, your teams, and your career. This episode of HBR On Strategy was produced by Anne Saini, and me, Hannah Bates. The show was created by Anne Saini, Ian Fox, and me. Special thanks to Maureen Hoch, Adi Ignatius, Karen Player, Anne Bartholomew, and you – our listener. See you next week.
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