Parameters of Operational Excellence (or How to Manage Sales and Marketing)

A business must be able to measure things before “operational excellence” means anything. Therefore, before we examine what “operational excellence” consists of, let’s spend a few minutes examining what is meant by “being able to measure things.”

Measurement is identification of the facts of reality. Since we were little children, we’ve done this at a common sense level. Heck, even animals must do it to survive.

However, organizations are very complex systems. Managers depend on information provided by other people, so managers need to establish processes that enable those people to identify the facts they need.

The best model I know for this process in organizations is PDCA, part of Deming’s system of Profound Knowledge (a great explanation of this can be found here). In case you are not familiar with it, PDCA works like this:

• Plan
  Get a clear idea of what you want to achieve (your process) and make a plan to try to achieve it.
• Do
  Carry out the plan, preferably on a small scale, measuring as you go along.
• Check (Deming called this “Study.”)
  Determine if the process has achieved what you had hoped for. Learn everything you can from the information you have gathered.
• Act
  Decide how the process needs to be improved (policy changes? experiments needed?) and which ideas to adopt or abandon.

Most organizations (and the people within them) don’t apply any systematic approach to validate what they think they know. They suffer mightily as a result.

Much more can be said about this, but for now let’s assume your business has a reasonable measurement system and that you can get reasonably good information about activities and results in sales and marketing.

Then the question becomes: What information do you need to manage sales and marketing really well?

How to Manage Sales and Marketing Production
Manufacturing produces value in the form of physical products and services customers have agreed to buy. Sales and marketing produces value in the form of prospects taking actions that lead to and include their decision to buy.

If prospects are already “in the market (ie, ready to buy now),” they must be found and engaged. If they are not yet in the market, they must be educated and motivated to do so. These are the values created by selling, marketing, and servicing.

To manage the sales and marketing production system, you need a set of measurements that are similar to those in manufacturing. Here are some common operational metrics:

• Price: the value the market places on the company’s offer
• Costs of conversion: operating expense: costs of leads, opportunities, and deals
• Speed: lead time from inquiry to cash and lead time for adjusting to changes in the market (eg, frequency and success of new product launches)
• Invested capital: money tied up in the system

The “inventory” (what you are adding value to) in sales and marketing is certain kinds of people in the market. Obviously, value is in the eye of the beholder. Successful companies understand this well enough to offer their prospects only things most of them want badly enough to act on.

Let’s consider what steps a company can take to improve each of these metrics in turn.

The price a customer pays is dependent on the customer’s need/pain and their perception of the value of your offer compared with that of your competitors. A company can affect the price customers pay in a variety of ways (relative to competitors), for example:

• Eliminating or minimizing competitors by making the offer unique
• Clarifying their awareness of the pain/cost of the status quo, such as through whitepapers or articles
• Making it easier for them to build consensus, such as through consultative selling approaches
• Helping them overcome inertia and decide to act, such as through enticements and time-limited offers
• Reducing the risk of taking actions, such as through warranties and guarantees

The cost of conversion in sales and marketing is fairly easy to know if you have a process model and operating definitions of leads, qualified opportunities, and deals. Amazingly, most companies have only the vaguest idea regarding what it costs them to generate a lead or a qualified opportunity. As a result, they have no idea which changes to their process will produce the greatest financial returns. (I have seen mighty corporations paralyzed for years, unable to take actions they knew had high financial returns because their measurement system could not measure it. I bet you have too.)

The speed of conversion in sales and marketing is a huge source of potential improvement. To understand what I mean, consider the problems you face when you need to buy something: What information do you need to make that decision? How can you find a reliable source for the information you need? How can you make sure you are getting the best deal?

We often spend hundreds of hours in our personal lives, and far more in our professional lives, trying to buy things. We don’t want it to be this way, but buying the right things the right way is often very hard.

Now, look at the problem from the other side: In most complex B2B environments, a small number of prospects slide through quickly and easily, while a large number hang around for months (or even years) on the forecast, not ready to buy now. Salespeople hope to convert them soon, but it doesn’t happen. Some even end up “moving backward” in the sales process.

All those companies who fail to help you buy are failing to sell effectively as well. The key to speeding up the flow of business is to understand what the ones who move fast want and to set up a way for them to get it. The best example of this is the Cancer Treatment Centers of America website: http://www.cancercenter.com. Most people visit that site because they or someone they know has been struck by this disease. Some are just looking for information, while others want to take action ASAP. For them, a pop-up appears; “If you’re looking for a fight, you’ve come to the right place. Call 800-615-3055.” If you can find a similar device in your industry, you’ll reap the rewards.

Invested capital is the sum total of what you have spent to generate and maintain the relationships in your sales funnel, and the infrastructure helps them buy when they are ready to do so. Companies who spend millions on distribution channels and sales forces without testing alternate methods of helping customers buy open themselves up to potentially dangerous competitive threats. To state an obvious example, for the past 10 years, the Internet, and especially search engines, has been inexorably changing the way buying and selling is done.

Operational Excellence in Your Company

The point of operational excellence is not to win some award. The point is to survive and thrive in business. No one can tell you what specific operational metrics your company needs to achieve.

Here is a case example from one of my client files that illustrates how operational metrics can be used to improve the profitability and growth of a sales and marketing operation:

A small software company confidently laid out its sales process. Knowing they had a fairly stable conversion rate, they decided to grow by increasing expenditures on Google ads to increase the amount of leads flowing into their sales funnel.

Unfortunately, hundreds of thousands of dollars later, revenues did not increase proportionally. The president of the company was frustrated and felt that his salespeople seemed resistant to the company’s sales process. He invited my team on the scene to improve that process and salespeople’s compliance as well.

Our work revealed that his team needed clarity around the specific characteristics of leads and qualified sales opportunities and ways to help these prospective customers advance along their customer journey (instead of being pushed).

The process we designed together provided a much clearer picture of which leads and opportunities were most likely to close. When appropriate offers were made to the right prospects, they were much more likely to act. In fact, not only did we measure a 20% improvement in revenue performance, but salespeople followed the process more readily because it worked better. Finally, the sales manager was amazed by how well he could now predict which prospects would buy.

Now the sales manager could measure the quality and quantity of leads coming to his department. He could also demonstrate an improved conversion to closed deals. He could show that his problem was not having enough of the higher quality leads to apply his improved sales process to.

The president’s instincts were basically right in the beginning. However, now there was better precision in his focus. The last I heard from him, he was absorbed in product development and marketing process issues. The conversion metrics helped him know which problems he should be working on. Best of all, he had now established a track record of historical performance for use in improving his operational metrics.

Conclusion
Your company may be in a market in which the production bottleneck is in existing customer relationships. Or, it may be in penetrating new customer accounts, in which large expenditures on advertising or up-front sales savvy are critical. Whatever the case in your business, a gradually improving grasp of your business’ operating metrics is critical to your ability to make money now and in the future.

Thanks to Bob Ferguson for his contribution to this article.

Michael J. Webb
May 16, 2008