Why Hasn’t Enterprise Resource Planning Been Successful in Sales and Marketing?

In the past 30 years a powerful business model has emerged for managing production operations. Called “Enterprise Resource Planning (ERP),” it defines a closed-loop feedback system from the shop floor to the highest levels of business planning.

ERP integrates financial and operational perspectives because everything is based on measuring the same elements of production through the various stages of raw material, work in process, and finished goods.

Companies using ERP have a better ability to know what levers will cause the business to perform in the ways they want it to. For example, if a vendor’s shipment of material is delayed, they can swiftly calculate the impact on ship dates, machine loads, and cash flow. This enables managers to adjust their priorities to make the best of the circumstances.

Does the Logic of ERP Apply to Sales and Marketing?

Unfortunately, the logic of ERP has crashed and burned when it has been tried in sales and marketing. The reason for these failures has more to do with people’s inability to understand sales and marketing in terms of a system than it does with the capabilities of any particular software system.

Today’s sales and marketing world is reaction oriented rather than planning oriented.

For example, sales forecasts generally do not help a company know what the sales department will sell. The mystery runs so deep in many companies that sales managers who make their numbers regularly may be suspected of sandbagging.

It doesn’t have to be that way, but changing this state of affairs requires substantial rethinking.

The Primary Culprit: The Functional Mindset

The primary mistake people make is this: they do not understand what the production result (ie, the value produced) from sales and marketing work really is. They think marketing is about “the four “Ps” or some such other nonsense and that sales is accountable for revenue. This functional view of these activities prevents people from making progress understanding their world.

The fact that people do not realize this is: the production result of sales and marketing (jointly) is not orders, revenue, or any of the things it is typically measured for, although they are part of it. The production result (ie, value created) is in actions on the part of prospects and customers. You first have to get their attention, then their time, and then their money. They are on a journey to solve their own problems, and unless you help them along the way, your efforts will be wasted.

This principle should be the foundation of everything you do to find, win, and keep customers. Usually it means a short trip back to the drawing board to redesign your company’s approach to sales and marketing. Only once this is accomplished can a company have the ability to build a predictable, closed-loop feedback system in its sales and marketing operations.

What Would Sales and Marketing Resource Planning Look Like?

If such a closed-loop feedback system could be created for sales and marketing, what would it look like? To begin with, let’s examine the parallels.

• Inventory

  The raw material of sales and marketing is leads–people in the market who have a need your products and services can address. The work in process of sales and marketing is qualified opportunities your salespeople are attempting to close. The finished goods of sales and marketing are the customers who have purchased and are benefiting from your offers. If you have defined your process properly, you will distinguish these classes of prospects by the actions they take, not by the actions your company takes.

• Work orders and routings

  In a sense, each opportunity salespeople pursue is much like a work order in a factory–their job is to spend time and money to convert it into something better. Further, they should have the equivalent of routings–defined work steps for identifying the specific circumstances of a prospect and using that information to move them toward a beneficial result. Likewise, relationships with prospects who are not ready to buy right now should be nurtured according to a specific sequence of communications designed to match their characteristics.

• Quantity and quality

  Just as information about the quantity and quality of production is the lifeblood of an ERP system, so it is for sales and marketing production. Huge gains are created when the majority of people in your organization use consistent operating definitions for terms such as leads, opportunities, and deals. Dramatic improvements in forecast accuracy are possible when everyone scores their opportunities against the same qualification criteria. (We typically see these qualification instruments account for 85% or more of the outcomes of deals.)

Plenty of drama happens once this environment is established. Finally, executives can begin gathering hard evidence of the financial and operational impact of their decisions. For example:

• What is the realistic production capacity of our marketing and selling organization? (Does it really make sense to keep throwing more products on their backs?)
• How much does it cost to find a qualified opportunity and then convert it into an order? (Is our problem finding the right deals, or converting the ones we have?)
• How much variation exists across various campaigns, salespeople, and product lines? (Where should we “stick the knife” to create improvements?)

This kind of information is what “closes the loop”: Marketers and salespeople can trace the causes-and-effects of their work all the way from grass roots activities to where they fit in the big picture of the business. Likewise, the impact of high-level decisions to change things such as marketing campaigns, sales training practices, or channel strategies can be traced to financial and operational results.

What we are talking about here is really not difficult intellectually. It is simply a commitment to a process approach and the precise use of language. It takes time for people to learn and transition to the new headset, but the effort is definitely worth it.

Michael J. Webb
August 21, 2007