The Machine > Part 1 > Chapter 5: Three variations on the standard model

Executives who encounter SPE for the first time will often ask if it is applicable in all situations.

The answer to this question, not surprisingly, is no. Few theories – if any – can legitimately claim to be valid in all circumstances.

However, before we offer-up our organization’s uniqueness as a get-out-of-jail-free card, it’s worth recognizing that, when we speak of SPE, we should be referring to the four key principles (Chapter 2) and not just to the standard model described in Chapters 1 and 3.

This is because the standard model is just one application of the four key principles. There are others. This chapter will describe three alternate applications and – I hope – inspire you to create others.

When SPE doesn’t make sense

Because the essence of SPE is division of labor, SPE doesn’t make sense in those environments where division of labor delivers no benefit.

This may occur because no organization-wide benefit is derived from increasing the productivity of the sales function, or because the efficiency gains from specialization are offset by a significant escalation of costs. Consider these three fictitious scenarios.

1. Alpha Corp’s new-product-development team has scored a home-run with its latest data projector. The projector’s combination of small size, low cost and super-high-intensity beam have resulted in the device becoming a must-have item for executives and salespeople. Since this new projector hit the market, orders have eclipsed Alpha’s manufacturing capacity – meaning that crowd-control has, for the indefinite future, become the sole responsibility of the Alpha sales team.
2. When Beta International inked its deal with the US military, it committed to provide representatives in eight European countries. These representatives’ primary responsibility is customer service and, for this reason, Beta was careful to employ locals (who speak the local languages). In each country there is a small number of additional sales opportunities that Beta is keen to exploit, however, the potential is not significant enough to justify the addition of sales coordinators (let alone specialist salespeople), especially when you consider that multiple individuals would be required in order to cover the range of languages spoken on this continent.
3. Charlie Inc. has a neat product, but no sales function. The product is internet security – delivered as a web service, rather than as an application. The problem is that Charlie Inc. has no idea how it should distribute this product. Should it sell direct to small businesses or through resellers (electronics retailers and telcos, perhaps)? Charlie Inc. is not even sure if the small-business or residential market is likely to be more responsive. At this point, Charlie Inc. is less interested in efficiency and more interested in agility. It makes no sense to build sales infrastructure until it has a distribution strategy.

It’s clear that there is no case for division-of-labor in these three scenarios. But it should also be clear that each of these situations is more the exception than the rule.

It’s time, then, to consider more common situations – where the case for division-of-labor is strong but where our standard model doesn’t make sense.

Technical product: simple transaction

Nexus sells replacement parts to heavy industry.

The average value of a sale is $50,000 but, each transaction is relatively simple – clients are purchasing replacement parts, after all.

Nexus has a team of account managers servicing territories that span North America. These account managers spend most of their time delivering technical support to clients. Management expects account managers to find time to sell but, inevitably, not a lot of selling gets done. Account managers seem always to be occupied with post-sale activities.

Management has tried – on a number of occasions – to resolve this problem by adding account managers. They’ve discovered, however, that technical support and business development appear to be mutually exclusive. Once account managers become involved in technical tasks, they lose either the ability or the will to sell.

There are many situations where field representation is required – but field sales isn’t.

Inevitably, in these situations, we find that sales is the responsibility of field representatives (who are typically called account managers).

It’s likely that the rationale is that:

1. A salesperson is more persuasive face-to-face than they are on the phone
2. Because there’s a requirement for field representation, it makes sense for the field rep to sell

There are two problems with this rationale:

1. If transactions are simple, it’s unlikely that persuasion is critical – what’s more likely is that the key to selling more is simply to ask for the order more often
2. Because field representatives have the capacity to perform only four to five appointments a day – and because technical tasks are likely to consume most of this capacity – a typical account manager will spend very little time asking for orders

In situations where transactions are simple – where persuasion is not a critical ingredient in the sale – it’s important that we stop to consider if selling should be performed in the field in the first place.

In Nexus’s case (another of our silent revolutionaries), their answer to this question was no.

This conclusion wasn’t an obvious one. Account managers argued that face-to-face representation was critical – that the existing deal flow was a consequence of their strong customer relationships.

However, a simple study revealed the following:

While account managers visited some customers quite frequently, the average contact frequency (across all accounts) was scarily low

Most face-to-face visits were stimulated by technical issues and, in actuality, account managers were taking the greater majority of orders from their home offices: on the phone!

If it is not critical that sales are made in the field, it makes a lot of sense to centralize salesmanship and to make inside sales the sales front line.

In this case, division of labor still makes sense; it’s just that the ideal model looks a little different from our standard model.

Technical products: simple transactions (TPST model)

In this model, sales is the responsibility of the inside-sales team, not the field representative. In fact, the field rep – and all other resources, for that matter – will subordinate to the inside sales team.

Specifically:

1. Promotions ensures that there are sufficient sales opportunities to enable inside sales to operate at full utilization
2. On the occasions that inside sales cannot close a sales opportunity without a field meeting, they will pass a meeting request to the sales coordinator who plans it into the field rep’s calendar (a field visit may be required to survey a site or to perform a live demonstration, for example)
3. Customer service performs the non-telephone tasks associated with the prosecution of sales opportunities (quoting and other paperwork), as well as providing technical support, post-sale
4. On the occasions that a field visit is required to resolve a customer support case, customer service will also pass a meeting request to the sales coordinator
5. The sales coordinator’s job is to manage the field-reps schedule – to ensure that both sales and support tasks are performed as efficiently as possible

This new model was surprisingly easy to sell to Nexus’s account managers. They quickly realized that it would result in them performing the type of activities with which they had become most comfortable, without the pressure to win new accounts.

Today, Nexus has a team of eight inside salespeople who each perform an average of 40 outbound contacts a day. This is at least ten-times the volume of sales activity that occurred previously. The inside-sales team is supported by eight customer-support people, who are responsible for the generation of quotes and order processing.

The necessary field visits are comfortably handled by two field representatives – one for the Eastern half of the continent and another for the West. Each field representative is scheduled by a dedicated sales coordinator.

The new model has enabled Nexus to reduce sales-related payroll costs (although headcount has increased). But, more importantly, the new model has resulted in a dramatic increase in sales activity (as well as sales, of course) and a notable improvement in customer service quality.

Indirect sales

Specialist Workwear is a US manufacturer (and importer) of specialty work-wear.

Many years ago, Specialist’s salespeople sold direct to end users – their clients are manufacturers, distributors, mining companies and similar.

In recent times, however, it has made sense for their clients to rationalize their procurement – buying clothing, along with other safety products, from intermediaries.

Specialist Workwear had to choose between remaining work-wear specialists (and distributing through intermediaries) and becoming general distributers of safety products. They chose the former – and continue to embrace this direction by maintaining a healthy pipeline of innovative new products.

Predictably, the switch to indirect distribution resulted in a dramatic increase in volume, along with a reduction in margin. But the change also created a complex environment for Specialist’s sales team.

Specialist’s salespeople were used to selling direct – and derived greater satisfaction from direct sales because of the higher margins those sales generated. However, they understood the importance of maintaining sound relationships with resellers – who were responsible for large sales volumes – and who were, understandably, a little touchy about direct sales!

Specialist Workwear recognized that a change was required when sales plateaued and when numerous attempts to scale their existing model failed.

If you sell via intermediaries (resellers, manufacturers’ representatives, agents or distributors) it’s important to recognize that our standard model is not appropriate for your situation.

The standard model involves the conversion of salespeople from autonomous agents into team members. By definition, intermediaries are not part of your team (in the strict sense of the word), and are unlikely to relish the thought of having their calendars planned from your head office!

If you distribute through intermediaries, then, you have two considerations:

1. Continue with intermediaries or sell direct
2. Identify a way to improve sales that doesn’t challenge intermediaries’ autonomy

Should you sell direct?

As you’ve no doubt realized, the standard model tends to weaken the argument for intermediaries.

Because this model multiplies the efficiency of salespeople, it becomes possible – actually, it becomes necessary – for them to cover absolutely huge territories. Of course, this does result in an increase in travel costs but, this increase will, in most cases, be more than offset by an overall reduction in payroll cost and by the elimination of intermediaries’ commissions.

However, as Specialist’s case suggests, there are situations where it still makes good sense to distribute via intermediaries. The two most common reasons are that:

1. Existing intermediaries already possess relationships with potential customers which will be very costly to displace
2. Intermediaries represent a range of complementary products which means that, either:
   1. It is more economical for the customer to deal with the intermediary than it is to deal with you direct
   2. They can justify a presence in their particular region which could not be justified with your smaller offering

How to engage productively with intermediaries (reps)

Because the word intermediary is a little cumbersome, let’s substitute the word rep for the balance of this discussion, bearing in mind that a rep might be a reseller, distributor, retailer, agent or similar.

If it does make sense to distribute through reps, it’s import to take stock of the areas in which they add value (and those where they don’t).

In most cases the obvious advantage reps bring to the table is their physical proximity to (existing and potential) clients. They can jump in their cars and visit clients’ sites at the drop of a hat. Reps are less likely to have a structural advantage when it comes to other activities (e.g. telephone contact with accounts, order processing, etc).

The trick, then, is to structure your relationship with reps so that they spend almost 100% of their time performing those activities that add the greatest value (in the context of the value-chain as a whole).

A possible division of responsibilities might look something like this:

Obviously, in this situation, we’d like our reps (or their salespeople) to spend the greater majority of their time in the field with existing and potential customers.

However, because our reps are not employees, we do not have the right to demand this division of responsibilities. And even if we could, how would we go about ensuring that the additional time we made available in our reps’ calendars is dedicated to:

1. The specific tasks we have nominated as their responsibility?
2. Representing our products – as opposed to those of other principals?

These two concerns are exactly the reason why we need a sound channel-management approach.

Channel management

The objective of channel management is to:

1. Maintain a positive working relationship between the rep and your organization
2. Ensure that reps dedicate a favorable percentage of their time to your lines (as opposed to those of other principals)
3. Ensure that reps engage in a sufficient volume of (field-based) business-development activity

A positive working relationship (all or nothing)

Obviously a positive working relationship is a precondition for the transition to the division of responsibilities we have in mind. But this step will also enable us to find the resources (people) we need to do channel management properly.

If you are going to distribute via reps – and if you have taken the time to confirm that this genuinely makes sense – then you should make an all-or-nothing commitment to your channel.

Specifically, you should promise your reps that:

1. They will receive full commission on all transactions that are processed by your customer-service team (from their accounts, of course)
2. All new-account enquiries in their territory will be routed to them

It should go without saying that, except in isolated cases*, it is impossible to develop the close working relationship you need with your reps if you are simultaneously competing with them for accounts and transactions.

Now, there’s another sense in which channel management should be an all-or-nothing proposition. If you lack representation in a particular region, you should find representation, either by adding a rep or convincing an existing rep to expand their territory.

The fact is, channel management and direct sales are two different cultures that tend not to comfortably coexist. If you attempt to maintain both, direct sales will likely triumph in the short-run, at the expense of your channel relationships. Of course, any drop in channel performance will be interpreted as validation of the direct sales school of thought. If you are genuinely committed to indirect distribution, you need to bite the bullet and purge that direct sales culture.

The decision to put all the wood behind the channel-management arrow was not an easy one for Specialist Workwear. It was difficult to resist the siren song of direct transactions.

But the commitment had to be made. The primary concern was not the impact that these transactions would have on distributors – rather it was the impact that it would have on Specialist internally. Their new strategy was a delicate thing. Any signal that it was not being executed consistently would have relegated it to graveyard of clever ideas.

Yesterday salesperson; today, channel manager

If you turn your back on direct sales, you no longer need salespeople.

However, you desperately need channel managers. Indirect distribution is a risky strategy: you must be prepared to invest significant energy to ensure that both parties remain indispensible to one another. If you allow your reps to become truly independent, there is a very real likelihood that you will find yourself working for them at some point in the future!

So, you convert your salespeople to channel managers. And, you are clear on the objective of the channel-management function. What exactly should your channel managers do?

The answer is surprisingly simple: you want your channel managers to spend 100% of their time in the field, with reps (or their salespeople), engaged only in those activities that you would like your reps to be performing.

If you were to close your eyes, right now, and image what your reps are doing – you would visualize them calling on potential (and existing) clients, selling. The idea, then, is to deploy your channel managers to sell, in the field, side-by-side with reps.

In practice, this can be achieved by planning field trips for channel managers. In a field trip, your channel manager visits a rep and spends a number of days in the rep’s car visiting that rep’s existing and potential customers.

For the same reasons it makes sense for salespeople to spend all their time in the field selling, it also makes sense for your channel managers to spend 100% of their time performing field trips.

In place of a sales coordinator, we now have a channel coordinator.

The channel coordinator’s job is to:

1. Organize these field trips (ensuring that each day is filled with at least 4 customer visits)
2. Maintain an ongoing dialogue with the rep and track the status of opportunities initiated in each field trip through to closure (it’s true that the opportunities belong to the rep – but it’s quite reasonable for the principal to take an interest in opportunities to which they have applied resources)

The channel-management model

Priming the pump

Of course, the critical question is: how do we gain the leverage required to compel reps to work closely with us like this?

In an ideal world, your product itself would be appealing (and differentiated) enough to provide this leverage. However, in practice, this may not be the case.

The solution is to give before you take. You can (and should) give in three areas:

1. Provide reps with sales opportunities (either by routing enquiries to them — rather than processing them internally — or by running the promotional campaigns and originating opportunities from scratch)
2. Provide reps with greater access to your channel managers — and a direct line to a channel coordinator
3. Provide reps and their clients with access to customer service resources (transaction processing, technical support, etc)

Transitioning existing reps to this new working relationship is rarely easy. It’s part art, part science; and it will really test the sales skills of your channel managers (and your senior executives). However, if you are committed to indirect distribution, this is a battle that you really need to win.

Where promotion (the origination of sales opportunities) is concerned, you may have spotted an apparent contradiction. I mentioned that it may make sense to use reps when it is uneconomical to acquire customer relationships via other means. Then, above, I suggest that you should, in fact, be running promotional campaigns.

This is not a contraction. In such a situation, you will expect reps to be your primary source of accounts. However you can still justify limited promotional expenditure on the following grounds:

1. The sales opportunities you originate provide you with additional leverage to plan field trips — and to gradually gain (noncompetitive) access to reps’ opportunities and clients
2. These opportunities prime reps’ business-development pumps. In other words, a handful of sales opportunities can be used to get reps out of their offices and into the field — where, of course, they are likely to uncover additional sales opportunities
3. Similarly, a handful of opportunities will shift reps’ focus to your product lines — causing your products to become (and hopefully remain) top-of-mind

While it is beneficial to generate some opportunities, you do need to be careful here. It needs to remain clear to your reps (and your channel managers) that the origination of sales opportunities is the primary responsibility of the rep – not the principal. It’s beneficial for your sales coordinator to volunteer one or two sales opportunities each time they schedule a field trip but the rest of the visit should be populated with opportunities originated by the rep.

When Specialist Workwear started to schedule field trips, these were a foreign concept for both channel managers and distributors.

Channel managers suspected that distributors would be unwilling to commit their time to field trips – let alone to the phone work required to line-up days’ worth of client meetings. And many distributors were a little uncomfortable with the proposition – even though its merits were pretty obvious.

The proof, as they say, is in the tasting. The first round of field trips was sufficient to turn both channel managers and their distributors into believers. Channel managers felt empowered by the pure focus on business development and distributors acknowledged that this initiative was set to multiply their volume of true sales activity – and grow their businesses as a consequence.

This new approach has enabled Specialist Workwear to vastly increase their geographical coverage – without increasing payroll costs. In newer territories, field trips caused an immediate (and significant) increase in sales volumes. And the centralization of customer service has reduced errors and issue-resolution time.

Small business

Influx had just dismissed its third salesperson in as many years.

The story, in each case, had been the same. Matthew, the founder and CEO, had recognized that competing priorities made it impossible for him to continue to drive the growth of the firm single-handed. After combing through resumes, Matthew chose the best (or least-worst) candidate and permitted himself to get inspired by that candidate’s enthusiasm (and their promise of new accounts).

In each case, the new recruit would busy themselves with critical sales preparations: creating a new set of sales aids, online market research, list building and direct mail campaigns and so on.

Days would turn into months, field visits would be occasional and the only new accounts to come on board would be the ones that Matthew stumbled across (when he wasn’t busy solving production problems)!

Influx is an online marketing firm. In exchange for a monthly retainer, it manages its clients’ online activities (websites, pay-per-click advertising, search-engine optimization, lead management, etc).

After three years of false starts at the development of a sales function, Matthew was open to new ideas.

I’m always saddened to hear that small business owners have concluded that SPE doesn’t make sense for them because they can’t afford to employ a handful of additional sales-support personnel.

It’s true that our standard model often does not make sense for a small business. However, there is frequently a tremendous opportunity to apply our four key principles to the business as a whole.

In most cases, if a business has 20 or fewer employees, it neither needs, nor can it afford, a full-time salesperson.

Here’s the line of reasoning:

1. It doesn’t make sense to have a salesperson, unless that person is fully utilized (it’s hard to argue – with a straight face – that you can afford a salesperson but that you can’t afford to keep them busy selling!)
2. As should be apparent from our standard model, a significant commitment of head-office resources is required to keep a salesperson busy in the field
3. Even if a small business was to build the necessary head-office infrastructure, it’s unlikely that it could grow at the rate necessary to keep up with a single (productively-deployed) salesperson

The fundamental dilemma faced by every small business is that, on the one hand, division of labor is required to exploit efficiencies and drive growth; but on the other hand, a lack of funds makes it impossible to recruit enough team members to allow each to specialize.

The only way to navigate a path out of this Catch-22 is to be ruthless when it comes to rationing the limited resources at the organization’s disposal.

On contemplation, Matthew recognized that rationing was his unofficial job description. As Influx had grown, it had become increasingly chaotic.

The lack of consistent sales activity had led to a boom-and-bust demand cycle. When production was quiet, Matthew would find a way to drag in some work. But then as soon as production became busy again, sales activity would stop (ignoring, of course, salespeople’s online research activities!).

This boom-and-bust cycle ensured that Influx was always under-resourced when production was busy. After all, Matthew could only afford to resource for average – not peak – sales.

As you’d expect, this environment had resulted in some sub-optimal production behaviors. There was a production schedule but no one paid any attention to it. Instead, each team member attempted to work simultaneously on a long list of tasks, re-sorting them daily, according to who screamed the loudest.

And, on many occasions, it was Matthew doing the screaming!

If you reflect on our discussion of the standard model in Chapter 3, we acknowledged that, as we push towards division of labor, the very first specialist must be the scheduler.

The same rule applies here but, because of the size of the organization, we must apply it to the environment as a whole – not just to sales.

When Matthew recruited Influx’s first salesperson he had attempted to leapfrog this critical step.

When Matthew’s epiphany came, it came in two parts.

He realized he needed a consistent volume of sales activity (to eliminate the boom-and-bust problem). And he realized that discipline was needed in both production and sales (the schedule had to be sacrosanct, multitasking had to be eliminated and commitments could only be made if they could be honored without all-night vigils).

Matthew’s first step was to resign his rationing responsibilities and employ a dedicated master scheduler. In exchange, Matthew agreed to volunteer just 30% of his capacity to be used for business-development meetings.

In recognition of the fact that his business didn’t have – and couldn’t afford – discrete sales and production functions, Matthew resolved to maintain one schedule for the business as a whole.

Influx’s new master scheduler (a smart, young graduate) was responsible for planning both sales and production activities onto an enormous whiteboard, occupying pride-of-place in Influx’s foyer!

From day-one, the master scheduler was schooled in one critical condition: regardless of production demands – come hell or high water – Matthew must be scheduled to perform six business-development meetings a week. And, if the opportunities from which to schedule those activities were not in existence, the scheduler must schedule the necessary activities required to manifest those opportunities.

Additionally, every person (including Matthew) at Influx was schooled in one other critical condition: the schedule was final. Each person performed only the tasks assigned to them and only in the assigned sequence. And only the scheduler had the authority to change the schedule. (All team members reserved the right to question the scheduling logic but only the scheduler could touch the schedule.)

Influx’s situation is all too common for small business.

The chaotic situation described above is the rule, not the exception; and this counter-productive environment cannibalizes resources that could otherwise be used to sell more and to deliver stuff on time.

When money is tight, it can be tough to concede that what’s required is not a sales or production person, but a scheduler – a person who neither sells, nor produces!

But, in situations like these, a master scheduler truly is the critical requirement. The addition of a master scheduler enables a small business to solve its two most pressing problems by:

1. Ensuring a consistent volume of sales activity – which, in time, will lead to a steady order flow
2. Applying some discipline to production scheduling (which also includes the promises that are made to clients) – which will eliminate chaos and effectively increase the organization’s production capacity

The small-business model

An obvious benefit of this model is that it puts the chief executive in the field selling – rather than a salesperson. Aside from saving money, this is a good idea because the chief executive is likely to be a better salesperson than an employee and because it will be relatively easy for the master scheduler to book appointments for the chief executive.

Once this model is in place, it is quite easy to transition to the standard model as the organization grows. A typical growth path looks like this:

1. As sales increase, add production capacity to cope with the growing order queue
2. Split the master scheduler into two roles (sales coordinator and production scheduler)
3. Develop a set of promotional campaigns and add a promotions coordinator to execute them
4. Add a dedicated salesperson (when – and only when – the organization is convinced that this person will be fully utilized)

When the time is right, the addition of a dedicated salesperson is easy (and low-risk) because this person is being slotted-into an existing machine. Opportunities are already being originated and appointments generated. A standard opportunity-management workflow is already in place – along with procedures for the conduct of each activity. And the organization already has baseline numbers against which the performance of the new salesperson can be compared.

Matthew cannot see Influx adding a dedicated salesperson anytime in the foreseeable future.

The changes he made had little immediate effect. After a little grumbling, the production team members got used to working on discrete tasks as they were allocated to them. Matthew certainly appreciated the six sales appointments that appeared in his calendar each week – although he did notice that the increase in volume was offset, somewhat, by a reduction in quality.

The benefits of these changes became apparent in two waves. First, the team noticed that the chaos had disappeared. Team members began to work normal hours. And conflict was eliminated, along with rework – previously, the bane of everyone’s existence! With on-time-delivery performance improving, Matthew found himself in a position to make more aggressive promises to potential clients – with greater conviction.

Matthew didn’t really appreciate the increase in sales (the second wave) until, one day; his bank balance caught his eye! Historically, even a slight sales increase had been accompanied by increasing chaos and conflict. But, in the last few months, production had been calm and issue-free. In fact, Matthew’s only involvement with production had been sitting-in on daily (20-minute) work-in-progress meetings and briefing the team on new jobs he had won. The impressive number at the bottom of Matthew’s bank statement was a consequence of the steady trickle of new accounts that Matthew had won, in conjunction with a slight uplift in existing accounts’ repeat purchasing activity.

It’s now clear to Matthew that Influx will have to grow significantly before the addition of a dedicated salesperson can be justified. In fact, Matthew has pushed that date further into the future by fine-tuning Influx’s engagement model and substituting web conferences for appointments that don’t absolutely need to occur in the field.

* * * *

It should be clear that each of these models is a derivation of our four key principles.

In Nexus’s case, when the sales front-line moved from the field to the phone, scheduling was performed on two levels. The inside-sales team assumed responsibility for the over-all schedule and then sales coordinators handled the complexity associated with dispatching field reps to perform sales and customer service tasks.

The shift in focus from direct sales to channel management caused Specialist Workwear to adopt a resourcing model that is very similar to our standard model but, the changes to the workflow were significant.

Influx had no choice but to take only cautious steps towards division of labor. However, the implications of making a scheduler – as opposed to a salesperson – the first specialist have been profound.

In all cases, these organizations have applied incredible discipline to the standardization of workflows and to the formalization of management. In each case, a tightly-choreographed, daily work-in-progress meeting is now an institution.

We’re almost ready to launch into part two of this book, where we’ll explore the practical implications of SPE.

However, before we do, we have one more sacred cow to confront. It’s time to declare war on sales commissions, targets and other artificial management stimulants!