At my last W-2 job (before joining B2B CFO), I ran a health care firm. We had a sales force of 25 people, helping us acquire patients. Building and managing successful sales teams is a challenging task. That’s what interested me about a recent article in the HBS Working Knowledge blog.
“The equivalent of an entire sales force is replaced at many firms every four years, so it’s critical that go-to-market initiatives remain tied to strategic goals. Frank Cespedes explains how in his book, Aligning Strategy and Sales. Too often, there’s a huge gap between a company’s overall business strategy and the way its salesforce operates in the field. In fact, says Cespedes, articles and books about strategy rarely take sales into consideration at all.
“Everybody talks about the importance of talent management,” says Cespedes, a senior lecturer in the Entrepreneurial Management unit at Harvard Business School. “But far fewer confront a basic fact: Companies typically spend much more money and hire many more people, annually, in their sales function than they do anywhere else in the firm. At Google and Groupon, for instance, a higher percentage of employees work in sales than engineering or data mining. And at Facebook the salesforce’s ability to translate ‘likes’ into advertisers will make or break that company’s valuation and fortunes going forward.”
In his new book, Aligning Strategy and Sales, Cespedes discusses why the gap is so common—and outlines effective steps to bridge it. This excerpt is drawn from the chapter “People,” in which Cespedes explains a strategic process for hiring and managing an effective salesforce:
BUILD YOUR TEAM: RECRUITMENT AND SELECTION
Putting the right team on the field is crucial. As the saying goes, “You hire your problems.” Recruitment and selection are now more important for various reasons. Due to the data and analytical tasks facing many sales forces, productivity ramp-up times have increased. Each hire then represents a bigger sunk cost for a longer time. As baby boomers retire, they must be replaced. In addition, there were layoffs in sales (and other functions) throughout the recession starting in 2008. As firms seek to grow, putting more “feet on the street” (or in inside sales positions) increases hiring. And the math, as Jim Dickie and Barry Trailer document, is daunting. In surveys, their data has been consistent for years: involuntary turnover in sales organizations has remained at 13 percent, since peaking at 14.6 percent in 2009, and total turnover (involuntary and voluntary—i.e., retirements, moves, etc.) in both good and bad times runs between 25 and 30 percent.9 This means that the equivalent of the entire sales force must be replaced at many firms every four years or so. And the time frame shrinks if and when companies increase revenue targets.
So while strategy should drive search and selection, the exigencies of time and labor markets make this, as Roberge discovered, an ad hoc process at many firms. Most adopt a simple decision rule: look at the best reps, and try to hire more like them. But you’ll never have enough stars for all sales positions and, in fact, don’t want stars in all jobs. In any organization, some activities exhibit high performance variability but have little strategic impact.10 Think, in many selling situations, about the design of PowerPoint presentations: some folks are much better than others in doing this, but how much impact do the slides have versus other sales tasks? Other activities may be important strategically but exhibit relatively little performance variability—because the tasks are standard, because the firm or industry has reduced variability, or because the business model limits the bandwidth of performance variance. Think about the difference between sales personnel at Nordstrom, where personalized service and advice are integral to strategy execution, and Costco, where low price and product availability make selling activities less complex and variable. Or, more generally, think again about transaction versus solution customers in your pipeline, discussed in chapter 6, and how those sales activities vary.
You want your stars in activities that exhibit both high impact and high variability. That may be prospecting or account management; it may be transaction selling or solution selling; it may be call frequency or managing key channel partners. In activities with low impact or little variability, you don’t need stars and should not overpay, either in money or in time. In other words, effective hiring and selection in sales is about building the right portfolio of talent. This has actionable implications.
Focus on how the salesperson makes a difference. Continually ask, “Where are we spending too much—and too little—time, money, and talent across our sales tasks?” The strategic choices discussed in chapter 5 cascade to selection criteria. Also, the key activities will be affected by sales structure (see following) and the necessity—or not—of team selling (see chapter 10) and will change as your markets change. In subscription-based businesses like software and many consumer web services, sales activities with high variance and impact early on are about customer acquisition. But as the market matures, key activities tend to shift toward account management, reducing churn, working with engineering on custom applications, and up-selling or cross-selling additional services. Allocation of sales talent should change.
Focus on behaviors in selection. In many firms, this means upgrading assessment skills. Managers are excessively confident about their ability to evaluate candidates via one or two interviews. But studies across job categories indicate there is only about a 14 percent correlation between interview predictions and job success. This is especially true in sales. A job where individual performance can make a big difference inevitably leads to a cloning bias—many sales managers hire in their own image because how each manager achieved that performance is what got him or her promoted and in a position to hire. But the best results, by far, occur when recruiters can observe the relevant job behaviors.
There are many ways to observe potential hires’ behaviors, including simulations, the kinds of tests used at HubSpot, or interviewing techniques. Many sales organizations could emulate the practice used by investment banks and consulting firms when hiring MBAs: the summer job is, in effect, an extended observation—by multiple people at the firm—of the candidate’s task behaviors before a full-time offer is extended. After immersion in the job’s requirements, the firm and candidate are in a better position to select. Procter & Gamble and Met-Life provide sales candidates, days before an interview, with a case study of fifteen to thirty pages. It describes a selling situation, and the assignment is to plan a day, select target customers, and develop a sales pitch. The required work helps to check for motivation and preparation skills. At the interview, the candidate must explain his or her plan and then role-play the situation with a sales manager or trainer. Technology is increasing these possibilities via game-like simulations, virtual video environments, and online media that allow more behavioral assessments by more people with less travel and time. The real constraint in many firms, however, is the lack of assessment skills by sales managers. This underscores a point discussed in chapter 10: the importance of links between sales and HR. Sales managers know (or should know) the key sales tasks. But HR managers typically know a lot more about the tools, techniques, and options for assessing behaviors relevant to those tasks.