What Gets Paid Gets Done

The following is a question that a Sales Leader may pose while in the Learning Stage of a Sales Transformation, as outlined in the soon to be published book Leading a Sales Transformation.

 

Are non-quota measurements in place to facilitate coaching, training, and hiring?

“The foundation of changing behavior is linking rewards to performance and making the linkages transparent.” – Larry Bossidy, Execution: The Discipline of Getting Things Done stick_figure_on_bullseye_text_11288Richard (VP of Sales at a large corporation) hosted a session with fellow sales leaders on culture, sales process/CRM adoption and driving behavior changes in a sales team.

Opening the session, he shared how at the beginning of his team’s Sales Transformation, they had added process improvement goals to the sales rep’s variable pay (commissions). The payment was based on the MBO philosophy, which he displayed on a slide:

Management by objectives was first popularized by Peter Drucker in his 1954 book The Practice of Management.

Management by objectives is the process of defining specific objectives within an organization that management can convey to organization members, then deciding on how to achieve each objective in sequence. An important part of MBO is the measurement and comparison of the employee’s actual performance with the standards set. Ideally, when employees themselves have been involved with the goal setting and choosing the course of action to be followed by them, they are more likely to fulfill their responsibilities.  (Source: Wikipedia)

He followed with an explanation of how they had structured the quarterly MBO:

  • It represented 5% of a sales rep’s quarterly commission target.
  • At the beginning of each quarter, the team would announce the objective for the MBO, individual targets and how it would be measured.
  • The MBO was used to reinforce internal CRM deployment and process changes, such as forecast consistency, updating contacts, competitive profiling and customer participation in the satisfaction survey.
  • The MBO had only one focus per quarter.

George, a sales leader from a technology manufacturer, cut Richard off asking why he would approve such a program when sales reps are paid a salary? He emphasized the point with another question, asking why Richard would not use performance management to address non-compliant sales people?

Richard answered George’s question with a question;

How well is that working for you today?

The room got quiet quickly as they had all lamented the challenges with getting sales people to adhere to the processes they deemed necessary. George was no different, his efforts to drive process compliance with “the stick” had failed every time.

At an earlier point in Richard’s management career, he had shared George’s point of view; a salary was paid to the salespeople to compensate for doing the things that are important to the company, with commissions paid for closing deals.

The problem was that it had not worked well. He had always struggled to get salespeople to execute processes that did not retire quota. It seemed a perpetual battle between management and the reps.

Drawing on his 15 years as a sales rep, he had analyzed the problem from the rep’s perspectives. Richard came to understand what drove him as a rep and how that should influence his sales management style, a philosophy he shared with the group:

Great salespeople are motivated by two things: commissions and recognition.

Great salespeople never think about their salary except when there is an opportunity to ask for more (i.e. end of year review), a recruiter is trying to get them to leave or when they figure out that a peer has a higher base.

I look at a reps push for base salary as a potential red flag as I want the rep who is all about risk and reward, the rep who is all about the upside. This was driven home to me by one of my first managers after I bought a boat. When I told him about the boat, his only reaction was that I had not bought a big enough boat. It was a curious response, and I asked him why. He responded: euro_money_falling_1600_clr_5174 (1)

“I want you in a bigger boat. I want you to up-size the house. You should go buy the new BMW. I want you with a bigger mortgage and more debt. Those family and personal motivations are much stronger than anything I say or do. See where you want to be, pay for it with credit and drive hard. We both win.”

The hungry salesperson banks their salary and focuses 100% of their time on driving their commissions. They analyze their quota, commission accelerator rates and whether they can move the deal to scoop up a SPIF (Sales Performance Incentive Fund) or two along the way to beating quota. What gets paid gets done. holding_golden_star_pc_1600_clr_1239

The second motivator is recognition. Reps focus on quota because that is how they get to President’s Club or win Rep of the Quarter. They like a SPIF, but it does not get them the recognition they desire.

They also know that if they want to keep working at the company, they need to hit quota. No one cares about how many SPIFs a rep won if they missed quota.

Richard explained that these two points, what gets paid gets done and helping the rep beat quota, are the reasons why he went the MBO route and not a SPIF. By making it part of the sales rep’s core compensation, it became part of their daily focus.

He shared that the MBO helped the reps understand what he thought was important. To further that understanding, he reinforced each quarter’s MBO with frequent communication. Richard believed that too many changes are made without explaining the WHY and HOW to salespeople:

WHY it is important to the company and HOW the company will train and commit to the process.

WHY it is important to the rep and HOW it will help them get to quota faster.

Richard shared that their first MBO was on forecast consistency. They rolled out automated forecasting within their CRM (Customer Relationship Management) system, and invested in explaining the why and how:

  • Why for a Rep – Less Effort: Automated forecasts meant that spreadsheets would disappear. When a rep entered their opportunity into the CRM system, they would only have to do it once. No more confusing weekly manual entries into a spreadsheet that was always breaking. Just keep the opportunity up to date.
  • Why for the Company and the Rep – Reduced Product Shortages: By automating and improving the consistency of the forecast, the product team could improve their ordering effectiveness. The salespeople were only paid when a product shipped to the customer, and many had complained about missing their quarterly bonus due to random product shortages. Proper product ordering would reduce shortages, helping more reps get paid while improving corporate profitability.
  • How – Training: The team rolled out the new forecasting process by embedding it into the ongoing sales training and the new coaching training for the managers. As they up-skilled the teams, the trainers taught selling skills while reinforcing how sales processes would drive success.
  • How – Management Consistency: Richard made it clear to the management team that he expected spreadsheets to disappear and that this was a condition of employment. A deal that was not in the system did not exist and would be last in line for product fulfillment at month end. Richard explained that great managers lead from the front, and he expected all of the Sales Managers and Directors (and himself) to use the forecasting dashboard and automated process. If there were process problems, he expected the leadership team to help drive improvement and if a rep was struggling, to dig in and coach.

They held the forecast MBO in place for two quarters until leadership felt confident that the managers were comfortable coaching and the sales reps had committed to the process. Over those two quarters, they eliminated all spreadsheets and it became their natural sales rhythm. The next quarter they dedicated the MBO to improving competitive profiling within accounts.

Linda, a sales leader from the chemicals industry, spoke up. She understood the logic and benefits of the MBO approach but believed that working with the compensation team was too daunting. She pushed Richard on using a SPIF instead.

This was an objection that Richard had to overcome with his boss to get the MBO implemented. His boss had said the same thing, pushing for short-term SPIFs that could be eliminated quickly. Richard had disagreed for two reasons.

  • First, he believed that this program would not stop. His plan was to continue innovating on their CRM platform, always pushing for process improvements that would help field sales stay ahead of the competition.
  • Second, he pointed out that a SPIF is optional, not mandatory. A rep can make their quota and get to President’s Club without a single SPIF. Richard did not see these goals as optional; they had to be part of core compensation to reinforce their importance.

He finished the sharing session explaining that the initial implementation of the MBO process had not gone smoothly. Even though they triple checked that they could measure the forecasting process and pay correctly, it had not worked. They had to pay everyone at 100% for the first quarter due to measurement issues. It was a tough lesson to learn, and a mistake they did not make again.

 

Compensating to drive behavioral changes is a useful training tool, driving focus and rewarding those who embrace change. Through the experience, the team will learn the value of the activities, and hopefully, it will become part of your standard operating rhythm and culture.

What rules will you break this year?

Every New Year people make commitments to new goals; fitness, family, faith. But how about a commitment to disobey – to break the rules?

“Know the rules well, so you can break them effectively”      Dalai Lama XIV

A great quote, one that I have spent my life inadvertently (and sometimes painfully) living by. After all, what are rules other than societal norms of the moment? Consider the Webster definition:

“a statement that tells you what is allowed or what will happen within a particular system”

That system can be a country, culture or organization and what is allowed is always evolving. This is the reason why women can drive cars and vote and why the color of your skin cannot be used against you in most modern countries. In our society, new precedents arise, new theories are created and views change.

Which leads to the questions: Which rules will you break?   What new precedents will you set in this new year?

If you need inspiration, look to the innovators who have taken on decades old thinking to challenge the old rules and build new systems. The entrepreneurs look at the opportunity, not decades of rules that constrain them, to create – to challenge – to drive change. It is the reason why those of us who have stood on the side of the road waiting and waiting for a cab in San Francisco finally have an alternative (Thanks Uber), why there are more choices than terrible service from your local cable and telecommunications provider (Thanks Skype, Netflix, Apple to name a few), and why I never have to read a paper magazine again (Thanks Zinio).

If you are someone in charge of a sales team and like most, looking to transform or improve that team, then take this quote to heart. Your job is to break the rules and create new ones because the old rules, the old way of doing things often does not work. If it did, you would not be challenged with the task of driving change and improving.

I can not count the number of times that I have been told that I was breaking the rules and could not do what needed to be done. A few examples:

  • You cannot change the compensation plan to include an MBO because that is why you pay them a salary. We did, and it was an incredibly effective way to focus the sales team on goals outside of quota attainment. The MBO became our new compensation norm and core to driving process adoption.
  • You cannot give out less quota to your sales team than you carry as the leader. In that case, the numbers did not add up – the number of reps multiplied by the average revenue per rep did not hit my leadership quota. The top down, dysfunctional, totally random quota methodology meant that 30% of reps were hitting quota, the good ones were leaving, those who could survive on a salary were staying (a bad thing) and morale was in the tank. I handed out the lower quota because it was more important to ensure that the reps were given a number they could attain; one that was not hopeless right from the start. The result? They over-achieved, we grew double digits and through the process we created the new rule – leadership target was calculated by multiplying the number of reps by target revenue per rep. Target revenue per rep always grew, every quarter and we went from 30% hitting quota to 75% while driving double digit growth as we changed our team.
  • You cannot publish the reps attainment weekly (not my story – a close friends). It was a unionized sales environment and that was clearly against the rules. After much pushing and debate the rules were altered. The names were not allowed on the weekly public, posted list, only the employee numbers with their sales results. It did not matter, everyone knew who was at the top – and who was at the bottom. Sales went up double digits.

If you want to beat the pack, know the rules so you can figure out which you will alter, which need to be broken and HOPE that your competition is following the rules – it makes them easier to beat.

And remember …

“the airplane takes off against the wind, not with it”    Henry Ford.

 

Update: The post was picked up by Selling Power here.

The rise of the Digital VP of Sales

Business is changing.

Business is evolving to leverage the massively scalable cloud, mobile is leaving the desktop behind and the internet is driving business to an always on, socially driven marketplace. With that change comes a challenge in leadership; who will lead the company through these tumultuous times, into new waters as customer demands and market requirements shift?

In popular business media, the consensus seems to be the Chief Marketing Officer. As McKinsey states “Because changing customer needs and behavior underlie many of these shifts, CMOs are a natural choice to spearhead the response.” (The evolving role of the CMO, McKinsey Quarterly)

Which leaves me asking, where is the Vice President of Sales in this conversation?

It is no secret that academia and business literature have historically turned their back on sales as an important element of business leadership, but that doesn’t mean that sales leaders should stand by the sidelines versus taking their rightful place leading this business transformation.

After all, who is closer to the customer and the change in the market place than the sales organization?

For too long sales leaders have been treated like the youngest sibling in a family of 12. With a patronizing pat on the head we are told that we must wait 18 months for the deployment of a substandard CRM system that does little to improve sales or told how marketing will be spending this years budget to reach our customers with no clear ROI or data around the impact on sales. Until now, we had no other options but to make the best of it.

Cloud technology changes all of that.

The cloud dramatically reduces the complexity of a implementation. Instead of requiring armies of technology consultants and long conversations on server installs, the “effort” of an implementation is being transitioned to business process improvements.

In other words, the business leader has the opportunity to become more engaged, shape the outcome and use an implementation to quickly improve the business. That is why it is so common to see Salesforce.com administrator teams embedded in the business, not IT – because it is all about business process and partnering on integration. The cloud is changing how companies go to market.

So why are business pundits centering on the CMO as the leader in the new era instead of the CSO?

Because most sales leaders are not comfortable with or trained to step up.

Historically the VP of Sales has been a ‘get it done’ role, the “grunt” on the executive team and not strategic in nature. Companies build complex marketing and product strategies, give the VP of Sales cursory insight into that strategy and then expect that leader to get it done. As a VP of sales, how often has your team been told to take what we give you and make it happen?

Our profession, forged out of the fire of cold calling, constant rejection and the philosophies of ABC (Always Be Closing), has accepted the position in the company as the do-er. Our profession has accepted that we will not be given credit for qualitative measures or contribution to strategy during the year end review; we have accepted that our profession’s measure of success is making the number, every week, every month, every quarter.

That mindset must change. We must be the leaders who deliver the number and step up and contribute to or even drive corporate strategy. Sales is closest to the customer, and in a customer centric company with a market that is evolving rapidly, there is no better role to provide that leadership insight.

In a practical sense, this means that sales leaders need to cross train in other functions (operations, technology, distribution, marketing), have a well articulated plan that encompasses all elements of how the business wins and retains the customer (sales, service, marketing and product) and the high level knowledge of how technology can be leveraged to achieve success. As Harvard points out in the article The New Path to the C-Suite;

.. the lines between marketing and sales are continuing to blur. Trends like crowdsourcing are accelerating the innovation process, and social technologies, interactivity, and mobility have become integral to consumer media.     Because marketing and sales must respond seamlessly to new opportunities, combined roles are increasingly prevalent.

Technology—in particular, digital channels as touch points—will continue to dominate marketing and sales strategy in the future. The demand for segmentation capabilities will grow as firms address a more diverse population of customers who expect tailored products and solutions as well as higher levels of service. Marketing and sales executives will be managing a workforce that has grown up in the digital age and catering to a customer base that has an ever-increasing desire for speed and easy interaction.

No one is closer to the customer than sales and the diverse, strategy centric sales leader is best positioned to lead the company into the new digital era and be a great partner to IT, marketing, customer service and product.

The VP of sales must step into the C-suite and become the Chief Customer Officer. To do that, make sure you have a plan.