One of my favorite business quotes is “culture eats strategy for breakfast,” meaning that a company’s internal culture will circumvent any attempt to create and sustain a strategy that was not in line with this internal culture. Last week, while sitting on a plane waiting for clearance to takeoff, I overheard a boisterous conversation from the person sitting next to me. In other words, he was yelling at someone on his mobile phone. The conversation, minus the expletives, shows how sales quotas eat business strategy for dinner. The conversation went like this:
“John, we are heading into March and we are way behind the individual and team quotas… {silence}. We missed quota last quarter and I will not miss it again. What are these people doing!?”
{silence and nodding}
“Yes, yes. I understand that we have a number of potential deals, but I can’t take the risk that they may get delayed again and have them close after the quarter. We have to pull out all stops and do whatever is takes to make them happen now. I don’t want to be running around in March trying to close all of these deals at the last minute!”
{silence frustrated look}
“I know. I know. Procurement is killing us. They have to two roles in this world; terrorize vendors and terrorize vendors. {pause} So, here is want I want to do: Effective immediately, we are going to implement a 7 percent discount across the board on all existing deals to get them in. Let’s also add a kicker to light a fire under the sales team and give another three-point SPIF [Read: sales performance incentive fund] to all of the account managers. This should help make sure this team brings these deals in. If not, the meaning of March Madness will be something totally different.”
What a fascinating conversation; especially, when I saw the logo on his briefcase. His company had traditionally deployed a strategy of “customer intimacy” and is known to position their prices at the high end of a market. When the pressure was on, out went “strategy execution,” out went company alignment, and out went a potential of millions of dollars of extra margin.
Not an Isolated Event
We read a great deal about the importance of maintaining a sales process and establishing a good consultative methodology during that process. It is often discussed that for sales professionals to be effective in markets with changing buyers, they need to provide insights and value to differentiate from the competition. But, in reality, when it comes down to crunch time, sales professionals are being evaluated on (and compensated for) driving revenue—all things to win the deal are fair game and that sales process evaporates.
While I would like to say that the story above may be an isolated example, we all know it is not. Despite what CEOs and CFO’s share with the analysts, too often the reality is that sales quotas and compensation do not align with the corporate strategy, and are solely focused on revenue generation without long-term concern for margins or the profitability of deals. In addition, sales managers and leaders who have been successful in the field, do not have the business acumen skills to fully understand the financial impacts of their decision making. During this 10-minute call, the sales manager may have been improving his chances of achieving the quarterly revenue target, but significantly reduced the chances of achieving the annual margin and profit goals.
As I mentioned earlier, this is a scenario that happens hundreds of thousands of times a day, including during business acumen training workshops! Interestingly, we actually see the exact same behaviors from participants running a simulated business in a workshop. The new executive leadership team (participants in the workshop) spend a significant amount of time developing a strategy, creating a brand, investing in infrastructure, and setting pricing programs that support the strategy, only to start discounting or over incentivizing sales when revenue is flat or trying to beat an aggressive competitor. When this happens, participants quickly realize that their market and shareholder value are diminished even if they achieved their revenue targets.
Learn From Their Experience
The key takeaway from the experience is that organizations must present a value proposition that customers understand, want, and will pay for. The mistake companies make is believing their differentiated value proposition is what the customer wants. If they have to cut the price to make up the difference between themselves and the competitor, then they have chosen the wrong combination of value drivers as part of the value equation.
Effective strategy execution starts at the top and works its way down through the organization. To be effective, a company must develop the systems, structure, compensation and incentives—not to mention, the right skill development programs that align and support that strategy. Strong business leadership and business acumen skills provide the knowledge, tools, and capabilities to make the right decisions and position the right value to the right customers.
