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Aligning Strategy and Sales

The Choices, Systems, and Behaviors that Drive Effective Selling. A conversation with Harvard Business School professor and author Frank Cespedes

 
Harvard Business School professor and author Frank Cespedes, interviewed by Peter Clayton -TotalPicture Radio Frank Cespedes

In the preface to Aligning Strategy and Sales, Frank Cespedes writes; "Selling is, by far, the most expensive part of implementation for most firms... The amount invested in sales forces (including salaries, benefits, and other components of SG&A -- selling, general and administrative expenses) is about $900 billion annually. This is more than five times the $170 billion spent on all media advertising in 2012 and more than twenty times the $40 billion spent on all online advertising and marketing in 2013."

According to Cespedes, that gap between your company's sales efforts and strategy? It's real-and a huge vulnerability. Addressing that gap, actionably and with attention to relevant research, is the focus of Aligning Strategy and Sales, published by Harvard Business Review Press.

Welcome to a Leadership Channel podcast on TotalPicture Radio, with Peter Clayton. Joining Peter for our interview with Harvard Business School professor and author Frank Cespedes is David Dalka, Business Transformation Consultant, Facilitator, and Keynote Speaker.

In Aligning Strategy and Sales, (Harvard Business School Press), Cespedes equips business leaders to link go-to-market initiatives with strategic goals. Cespedes offers a road map to articulate strategy in ways that people in the field can understand and that will fuel the behaviors required for profitable growth. Without that alignment, leaders will press for better execution when they need a better strategy, or change strategic direction with great cost and turmoil when they should focus on the basics of sales execution.

Cespedes shows how sales efforts affect all elements of value creation in a business, whether you're a start-up seeking to scale or an established firm looking to jump-start new growth. The book provides key insights to optimize your firm's customer management activities and so improve selling and strategy. Most sales books go on and on about tactics and techniques, what first got you interested in the vast disconnect between sales and strategy?

Frank Cespedes: TotalPicture Radio Transcript

Peter: In the preface to his new book Aligning Strategy and Sales, Frank Cespedes writes - Selling is, by far, the most expensive part of implementation for most firms. The amount invested in sales forces, including salaries, benefits and other components of SG&A which is selling, general and administrative expenses, is about 900 billion annually. This is more than 5 times the 170 billion spent on all media advertising in 2012, and more than 20 times the 40 billion spent on all online advertising and marketing in 2013.

Welcome to a leadership channel podcast on TotalPicture Radio. I'm Peter Clayton. Joining me for our interview with Harvard Business School professor and author of Frank Cespedes, frequent contributor to TotalPicture Radio David Dalka business transformation consultant, facilitator and keynote speaker.

Frank and David, welcome to TotalPicture Radio.

In reading your book Frank, I was thinking wouldn't it be interesting for an HR or a recruiting leader to shadow a sales manager for a day out in the field during a customer facing sales meeting. I bet they would come away with some really fresh approaches to hiring sales managers for their own organizations. Wouldn't you agree?

Frank: I do agree and I would go farther than that. I think it's not only a good idea; I think for a variety of reasons it's a very important thing to do. You've already sited, Peter, the magnitude of what we're talking about; $900 billion how much more money is spent by companies on their selling efforts and on the things we tend to hear more about - consumer advertising, social media, etcetera - that has ramifications throughout most companies, and in areas where HR managers frankly have expertise but it's often expertise that is either not tapped or is not allowed to be tapped. Let's think about hiring.

You'll see this data in my book as well. Across industries turnover in sales forces averages about somewhere between 25% and 30% annually. Now, what does that mean? What that means is that on average, there are many companies that have to change their entire sales organization about once every four years. That is where much of the hiring goes on. Right now, that hiring is for the most part done by sales managers and we've known these for years through research; sales managers tend to hire according to a classic cloning bias; in other words, this is what got me in this position to hire, this must be what good selling is about so they try to hire in their own image. HR people know a lot more about assessment tools, about hiring. Their expertise is important and you want to shadow that sales manager because what HR needs to do is learn more about what goes on there so they can become true partners with that area of the business where often the most money is being spent and where the people issues are fundamental.

Peter: That's really interesting. This whole conversation around advertising and social media and all of the attention that is being paid to that, I recently interviewed Tom Doctoroff who is the Asia Pacific CEO of J. Walter Thompson who has an interesting new book called Twitter Is Not A Strategy. I asked Tom I said, in the meetings that you're having with your advertising agency and the creative people and the marketing people within large organizations, do you ever bring HR people into these conversations or recruiters because employment branding is really important today, especially when you consider what's going on with social media and he said, you know, that's really interesting; I don't think we've ever had any HR people in our... {laughing}

Frank: But thank you for the suggestion. ☺

Peter: Yeah. Exactly.

Frank: I personally feel there's also a bigger issue around social media that involves not only HR but frankly, other folks in the organization. If I can make an informal prediction; I think you're going to see changes here.

In general, I think that what we've been doing for the last few years in most companies is we talk too much about social media and frankly, we expect too little in terms of business results.

Here's the data; a very good Gallup survey done earlier this year, 62% of US adults who do use social media regularly say it has absolutely no influence on their purchasing decisions. McKinsey did a very good survey, a very good study of how companies use social media and what they found in effect was that there is, for the most part, no business case that supports the investments in many companies and you may notice that it's agencies, ad agencies, in my opinion, are part of the culprits here. It's now become fashionable to say that social media tools are about connecting. They're not about promoting your products and services or selling. Now, isn't that convenient, right?

Peter: Right.

Frank: If it's about connecting and not selling it means, oh well, don't hold me to return on investment metrics. That's not sustainable. That's not sustainable. As the numbers increase, boards, investors, CEOs, marketers and others should and will demand more rigor in that area. I think you're exactly right; one of those areas is going to be what is it that we're doing in our use of social media for a variety of human resource, as well as marketing activities. Right now it's a free lunch.

Peter: Yeah, absolutely. You know, one other thing that's really interesting a week or so ago while there was an article in the Wall Street Journal that Nielsen is now going to start measuring what's going on with YouTube, with Hulu, and with a lot of these other online services serving up videos. That's a first and now all of a sudden, we're opening that can of worms of network television.

Frank: Yeah, imagine that. Measure what you get for what you spend. What a great idea.

Peter: Yeah. David, why don't you jump in here and I know you've got some questions keyed up for Frank.

David: Well, actually I want to just build on what you just talked about.

Peter: Okay.

David: I think from the earliest days of social media I said this is a customer service and innovation device. It's not a promotion device. And that's kind of what we did with BlackRock back in the day; we used phone messages to satisfy customers and innovate what we did as a company, and I think this entire paradigm has it wrong. I mean, what do you think, Frank?

Frank: You know, we have to set priorities. Business, this is what my book is about. Strategy is about choice. It's about tradeoffs and right now we're not making rigorous choices in this area. That's my point of view.

David: That's definitely the case. So anyways, I love this book because in so many sales books they're just about tactics and they go on and on and on about tactics and this individual and managing the individual, and you have this totally different viewpoint about combining it with something external that I call business strategy. Where did you first get interested in that and how did you make that research?

Frank: Well, my academic research always focused on go to market elements, including sales management. Then when I left academia and ran a business for 12 years, like most entrepreneurs I had to meet payroll and sell, and I saw how often sales and strategy were basically ships passing in the night. Then after getting lucky in business and returning to academia, I taught strategy for a few years here at Harvard and the reality is there is remarkably little research about how to link strategy with the nitty-gritty of field execution and especially sales efforts. In fact, if the gods of strategy even mention sales, it's typically advice from a fortune cookie... work as a team or reorganize. In other words, do good and avoid evil.

Conversely, there's obviously a vast literature about selling as you just mentioned, Dave. Much of it, in fact most of it is anecdotal. People in effect generalizing from N=1, but some of it is really grounded in good research but the sales advice is misleading in a different way. The consultants and trainers who make their living that way, they have an incentive and they act on their incentive to promote the universal applicability of a particular selling methodology and they also treat sales in isolation from strategy. The result, I think, is that much sales training has a perverse effect.

People may work harder but they don't necessarily work smarter. Again human resources, to Peter's point, can and should play a very important role in this process. HR managers know a lot about training, about development, about what works, about what doesn't. By its very nature human resources tends to work across functions. They have a perspective across silos in an organization and part of their role is to provide that line of site that's crucial for implementing any strategy. But in order to do that, HR needs to know more about sales. They need to know more about what goes on out there and what are the key elements, and I would like to think that my book might be able to help in that process.

David: You cited that Andris Zoltners survey were only 13% of the executive stated issues external to sales when asked about creating successful sales forces. What should executive teams do to alter the situation in your view?

Frank: Well, my whole research and books starts from a premise that I think is fairly undeniable if you're in a for profit business and that is, that in any business value is created or destroyed in the marketplace out there with customers. It's not created in planning meetings. It's not created in capital budgeting meetings. It's created out there.

So the first step is to have that mindset that says we've got to be doing things both in our strategy and our implementation in sales and other areas that are relevant to our market today and tomorrow. Not yesterday. There's frankly very little reward for nostalgia in business. Strategy is fundamentally about the future. Sales is about getting people to buy today, not yesterday. I think that's the start.

Andy Zoltners results about sales they're not that uncommon. I mean, if you look at other areas of the business they also for obvious reasons, reasons we all know, tend to be more inward focused than external focused; the need to get things done, etcetera, but the reality in any business is that value is what happens out there with customers and that's where sales lives and that's why results like that are not good. They're just not good.

David: At the beginning of this Peter talked about those dollar figures involving sales and involving marketing. Based on your experiences because you've written books on marketing too, which area has the most opportunity for improvement in the 21st century?

Frank: Well, you know, I say this not just because as a father you obviously when someone asks you which of your children do you like most, you know, but I say this because I think it is business reality. Both marketing and sales are obviously important. I think in improving either in both, the first thing to recognize however is that they are different jobs. They are fundamentally different jobs.

Marketers get paid to think in terms of aggregates, segments, markets. Sales gets paid to know everything there is to know about their assigned accounts or territory or customer. Now, both are important. If you're going to scale a business, if you're going to amortize your expenses, you do need to think in terms of segments.

But in the history of business since the Phoenicians, a market segment has never bought a thing. Only customers buy. Only individual accounts buy. So both are important but they're different jobs and from an HR point of view, I think one of the biggest and most recurring mistakes that I see in companies and usually they do this under the banner of "teamwork" or "customer focus" or some other slogan, but I think one of the more destructive things I've seen in my career is basically trying to turn an excellent marketer into a mediocre salesperson or vice versa. Different jobs, different skills. The relationship between marketing and sales in most companies has always been fraught. I have a previous book that I think documents this but it's also under more pressure to improve these days for a couple of reasons and the reasons related to some of the earlier questions, David, that you and Peter raised.

Online media of various sorts not just social media, but online media various sorts makes any marketing and sales gap in companies simply more visible to customers. Companies are more transparent these days, but also more tools for lead generation and outbound marketing are, frankly, productively blurring longstanding distinctions between marketing and sales responsibilities in many firms.

And then finally due to the data revolution, selling itself is a much more analytical activity in many businesses. It's very fashionable these days to talk about the so-called big data. If you really want to understand to date the most specific applications of big data, talk to people who work in sales for consumer package good firms that have to sell to the Wal-Marts and Targets of the world. They're dealing with data that far surpasses the number of likes and tweets that marketers tend to deal with and frankly, they're dealing with more real-time data about consumer behavior than many of the brand managers in their firms are.

So for all of these reasons, the marketing and sales relationship, which has always been a sort of tense relationship is, under more pressure to improve and that's a process and a human resource issue.

David: You mentioned a book in that answer. So that we save Peter from getting a bunch of emails asking what that is, go ahead and plug it.

Frank: There's nothing to plug. It's about 15 years old. You can buy it for a penny on Amazon.

David: That's fine. What's the name of it?

Frank: The book is called Concurrent Marketing and it's about exactly the issue you were raising, Dave.

David: Okay. Great. You suggest that once executive teams become aware of the opportunity to change this external environment that they need to manage sales so it can be strategic, organizationally focused long term and cross functional. What are the barriers to making that a reality?

Frank: Well, whether the sales force needs to be long term or not, whether the relative importance of cross functions, the point is it's going to depend on the strategy and the sales task. I think the most important part to my book, I think, are the following.

First, now what I'm about to say once I say it may sound obvious but all I can tell you in 30 years of working with a lot of companies around the world and getting paid nicely to do it, I have found that this statement even the best companies and best executives periodically need reminding about this. There is no such thing as effective selling if it's not linked to the company strategy and its goals, both quantitative and qualitative goals. In addition, effective selling is an outcome. It's an outcome of what the organization is doing to align those goals with a number of different areas. It's not only an outcome of the individual heroic efforts in the field by salespeople, although obviously those are always welcome.

The basic idea in my book is this; again, in any business, value is created or destroyed in the market with customers. The market includes the industry that you, your company competes in, the customer segments where you choose to play and the buying processes that those customers that you sell and service. If a company has a strategy as opposed to a slogan or an aphorism or a mission statement that is often confused with a strategy, those factors should inform the strategy and as a result the required sales task. In other words, what salespeople have to be good at to deliver value and implement your strategy effectively. Not the tasks in a generic selling methodology or the tasks that another company faces because they've made different strategic choices.

Then assuming strategy the issue is aligning selling behaviors with those tasks, business is a performance art. Business is ultimately about behavior. It's not about good ideas, not about aspirations, not about hopes, wishes or fears. Business is ultimately about performance. Managers basically have three levers to do that, to link the behavior of their salespeople with the tasks. The first is always is people. How do we hire? Who are our salespeople? What do we know? What do we do with them once we hire them? How do we develop their skills?

The other is what I call the control systems; the performance management practices in the firm, including sales compensation and the metrics used to measure effectiveness. I've got colleagues in my university and you'll hear other people say this; they will say that compensation and incentives are way overrated. It's all or primarily about intrinsic rewards. All I can say to that and you'll see the data in the book that is not the planet I have lived on for the last 55 years. These things matter but you've got to think about comp and incentives and sales as a hygiene factor as HR people would say, a necessary but not sufficient cause of getting the behavior you want.

The third lever is what I call the sales environment, that wider company context in which sales initiatives do or don't get executed. How communication works or doesn't work across functions. How sales managers, not just reps, are selected and developed and very, very important how performance reviews are conducted. Performance reviews, not just in sales but in other areas of companies are, in my experience, the most underutilized lever for affecting behavior in organizations.

Now notice the levers I'm talking about and notice what HR brings to so many of those levers. Higher compensation, performance reviews. I ran a business for 12 years. There is, this is a trainable skill. I and my equity partners were horrendous at that when we started but we got better and I thank our HR manager for that. So there are so many areas here where the value added from folks that, the good folks in HR, the value added can be enormous but again, it depends on a partnership with those very, very busy people in the field.

Peter: You know, there's something that I think is contributing a lot to what you were just talking about right now and the improving economy retention now is of course a huge issue with many companies and many HR leaders and now that the things are picking up, there are more opportunities out there and they're terrified that these people that they've been treating badly for the last 7 years are just going to bail at the first opportunity.

Frank: First, I think you're right and the data in sales supports exactly what you're saying, Peter. As I mentioned earlier, on average, you find that turnover in sales organization runs from about 25-30% but obviously in a long-sustained deep recession, turnover after the cuts tends to go down but you can see what happens when people become more marketable. Now, how do you deal with that? Obviously there's the basic supply and demand of compensation, but the other ways you deal with that are understanding who is really important, who is it that we want to go out of our way to keep. In addition, the other things besides compensation and being treated well that tend to promote employee loyalty in sales and in other areas and one of the big ones and what a recession does is simply accelerate this; people saying, look, if I stay here, I'm going to learn things, I'm going to get things that frankly develop me and make me more marketable even if I decide to leave in 3 to 5 years. That's where training comes in.

Training is vital. Somebody once told me early in my career that many companies maintain their equipment better than they develop their people and unfortunately, that has a large element of truth.

Peter: Right.

Frank: Again, that's an area especially in sales where good salespeople develop relationships and very often can take those relationships with them if they choose to leave. There is a demonstrable return on investment there and one where HR can and in many companies does help tremendously.

Peter: Right. The interesting thing about that, the whole training function, is during a downturn or a recession, what's the first thing most companies cut? Training programs, right?

Frank: That's exactly right. The status of training and development is frankly the same status as in advertising. To use the accounting jargon, it gets managed according to so called LIFO principles - Last In First Out.

Peter: Right.

Frank: When do companies increase their advertising budget? When sales are good. When do they decrease it? When sales are bad. So does advertising drive sales or does sales drive advertising? The same is true in training in many companies and as a result, it feeds on itself. It becomes difficult for many C-level executives to actually figure out and measure what they're getting from that investment but to use a wonderful American phrase, you're never going to figure that out if you continue to fund those activities in a bas-ackwards fashion.

David: I love what you said an answer or two ago about business is about the changing of behavior. It's a very refreshing thing to hear people talk about that instead of pie in the sky ideas like you mentioned. What are some of the biggest stereotypes in business? If it involves sales or salespeople, what are the things there that drive you insane that you'd love to see change?

Frank: Let's look at sales because you're raising a really important issue in sales because it is full of stereotypes and it is full of stereotypes in the popular culture as well as in many companies. Now, here's what the research tells us and it's not as though there hasn't been research about what is an effective salesperson for 100 years. Companies have been interested in selling way before anybody could spell MBA. This research goes back a long time.

What the research tells you - and again, your listeners, I hope, will obviously I hope they buy the book and read it, but selling is arguably the most contextually determined set of skills in a company. What I mean is what works there does not necessarily work here. The reason is because of what I said earlier; sales tasks are going to be determined by your strategy, assuming you have one, and what that strategy implies for who is and who is not your customer, their buying processes, etcetera. As I said, there's now over a century of research about salespeople and that research does not support all these glib generalizations about what's a salesperson. A salesperson is extroverted personality, has a limitless fund of stories and jokes, etcetera, etcetera.

Sales talent comes in all shapes and sizes because selling jobs vary hugely in the kind of product or service being sold, the price points, the customers, a rep is responsible for and so on. But the stereotypes about sales personalities still dominate the field. Why is that? The novelist Saul Bellow when he was in a bad mood, Saul Bellow used to say, "Do you know what the difference between ignorance and indifference is? I don't know and I don't care." ☺

Many executives and sales managers first don't know about this research. I hope HR managers do, but many of them simply don't know about this research, so that's the I don't know explanation. Again, as I said earlier, many sales managers have a classic cloning bias; they hire in their own image. Conversely many sales trainers and consultants don't care. They have a hammer, a particular methodology and everything looks like a nail.

Now in my experience, these generalizations are actually destructive and not just abstractions because what they do is encourage quick fix approaches that substitute for more fundamental sales and strategy issues confronting firms. Now, those approaches may be quick but they are very rarely a fix. I think the stereotypes also blind managers to the interactions between strategy, sales task and selling requirements that ultimately they are paid to manage.

It's an excellent question David, and it continues but I think we know the reasons why they continue.

David: So there's one more aspect of that which is you sometimes see salespeople be hired that have never done sales before in their lives and they're superstars yet, the majority of job ads will say must have 10 years sales experience in this industry space knowing all the jargon and this other stuff. What do you think about that dogma? What do you think about those stereotypes?

Frank: I think you're asking two excellent questions there. Let me start with the first part because you're exactly right. I don't want to say it's common, but it's certainly not uncommon for the novice to come in and hit the ball out of the park in sales, as we say. Think about startups; how often that happens in successful startups. Why does that happen?

The reason it happens is because there's a good fit between that person's personality and characteristics and those particular sales tasks. That's the reason it happens.

Now, the dogma about hiring for experience first of all, you are empirically correct; there's a lot of data about this and you'll see it again sited in the book. When sales managers are asked what are the most important criteria you use for hiring, consistently at the top of the list is experience, right? Now, two things to be said about that, first, notice what goes on in an industry in hiring. What that means is that both you and your competitors are looking at each other's stars, not the laggers, in trying to hire. It's a little bit - to use a timely reference to a Chicago Cubs fan - it's a little bit like the free agent market.

The second thing is that experience in sales is an inherently multi-dimensional variable. This is important and again, HR people know this, many sales managers either don't know or don't care. What does it mean to say I hire for experience in sales? What does that experience mean? Is it simply selling experience? So it doesn't matter whether this person has been selling real estate and I'm now selling software as a service? Is it experience with a given customer group? They weren't selling my product but they were selling into my market. This is very common in healthcare, and it very often makes sense in healthcare because firms across various sectors many of them still have to sell to hospitals and doctors. Is it experience with a particular product?

Now, the important thing I think if you're going to hire that way is to force the people doing the hiring to clarify what they mean by experience, because sometimes these managers know it when they see it and very often they don't. The HR literature about interviews and hiring is very definitive. This literature has been replicated for 40 years. There's a less than 20% correlation between the scores people get in their interviews and their actual job performance. So that rationale and you're exactly right, that rationale is not irrelevant but it needs to be operationalized and again, HR can and very often does help tremendously with this.

David: There's so much more we could talk about but we need to leave something for people to read the book. So the book is Aligning Strategy and Sales: The Choices, Systems, and Behaviors that Drive Effective Selling by our good friends over at Harvard Business Review Press.

Frank, thank you so much for joining us.

Frank: Peter, David, I thank you sincerely for the opportunity. Thank you.

Peter: Thank you very much.

This is Peter Clayton. Thanks for tuning in to TotalPicture Radio. See you next time.

Questions we ask Frank Cespedes in this podcast:

In reading your book, I was thinking, wouldn't it be interesting for a HR or recruiting leader to shadow a sales manager for a day - out in the field during customer-facing sales meetings. I bet they would come away with a fresh approach to hiring sales managers for their organizations, agree?

Before I turn this over to David, I would like you to share some insights regarding Chapter 11 of Aligning Strategy and Sales, titled: Company Environment - Building Human and Organizational Capabilities - it seems to me, if your HR director and recruiters are not part of this conversation - how can you possibly succeed?

Your thoughts on the lack of focus on the potential to alter and indentify external forces to sales to alter caught my attention. Could you please expand on your thoughts on this observation?

You mention over $900 Billion is spent by US companies annually on sales which is over 20 times more than online advertising. Based on your experiences in both marketing and sales, which has more opportunity for improvement?

You suggest that an effective salesforce would migrate to be strategic, organizationally-focused, long-term and cross-functional. What are the barriers both inside and outside of sales to creating that reality?

Would a strategically managed salesforce require new and different employee skill sets? What needs to change in terms of perception of a good salesperson and the hiring and talent management process?

The book focuses on mostly US-based companies, what are your thoughts on how this book translates to international differences?

So what is the best way for a company to start to migrate away from over-management of sales tactics?

Peter Clayton

About Peter Clayton

Peter Clayton, Producer/Host, is an award-winning producer/director of radio, television, documentary, video, interactive and Web-based media who has created breakthrough media for a wide array of Fortune 100 clients.

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