03 Oct 2014
The Revival of a Salesman: The Importance of Sales and Strategy to Business
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Professor Frank Cespedes sits down to talk to Brian Kenny about his new book Aligning Strategy and Sales: The Choices, Systems, and Behaviors that Drive Effective Selling about why it's imperative that a company's sales force inform its strategy.



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Transcript

Brian Kenny: In the eyes of Frank Cespedes, the death of the salesman has been greatly exaggerated. And any business that believes a sales force is a vestige of a bygone era, is deluding itself.

I'm Brian Kenny- and this is "The Business"- the official podcast of Harvard Business School.

Frank Cespedes

Frank Cespedes is a Senior Lecturer of Business Administration at HBS. But before he came here to teach strategy, he ran a business for twelve years—where he had to meet payroll and SELL. Frank is a firm believer that a company's big picture strategy should be linked with the nitty gritty of its sales. No matter how hard he looked, he couldn't find a good book that gave a framework for how to accomplish this, so he went ahead and wrote one. It's called: "Aligning Strategy and Sales."

The book opens with the professor's appreciation of one Cincinnati-born entrepreneur whose name- and product-- you may recognize:

FC: Thank you very much it was my pleasure and my honor to be here.

(Radio Ad)

“Remember when American beer lovers had to choose between mass-produces domestic beers and imports? Then, Samuel Adams Boston Lager began a micro-brewery revolution.

I’m Jim Koch- You may think I’m just a golden-throated pitch man, but I’m not.

What I am, is the brewer of Samuel Adams Boston Lager. I first brewed Samuel Adams nine years ago to prove that I could make a world class American lager.

Today, microbrewers like Samuel Adams are making great beer. Sure, we’re small, compared to the giant mass-produced American breweries.

They spill more beer than I make all year.

That’s the nature of a microbrewery like Samuel Adams.

Quality, not quantity.

BK: A little self-deprecation goes a long way. Jim Koch presides over Boston Beer Company, where he cooked up the first Sam Adams beer. In the beginning, the thought of walking into a bar to convince the manager to buy his craft beer scared him to death. You know, I think I may have seen some of that fear first-hand—because I can recall being a bartender in Harvard Square back in the late 1980s, and in the door in this college bar walked this earnest-looking young guy, a little old for that bar, wearing a suit and tie, and he’s carrying this case in his hand- one of those travelling sales cases- plopped it up on the bar, opened it up, and inside were jars of barley and hops and different colored beers. And, it turned out it was Jim Koch. And he said “I’m here to show you why I make the best beer you’re ever going to taste.” And darned if he wasn’t right, and, again, he may not have come there to sell, but within about ten minutes, he had all the bartenders in the restaurant lined up and he was teaching us about craft beer.

Believe it or not, Jim Koch says he spends more time today selling than doing anything else. And Frank Cespedes has high praise for that kind of thinking:

FC: Jim is a good example for a couple of reasons. One is his background is quite interesting. He has three degrees from Harvard, but to his credit he overcame handicaps. A law degree, undergraduate degree, business school degree. After graduating from HBS, went to work for the Boston Consulting Group for seven years, so he has his analytical bona fides, but as Jim says in the book he has found selling to be among the most intellectually challenging activities there is in business and to quote him, “certainly more challenging than anything I ever did at BCG.” Jim deserves the accolades first for recognizing that, but more importantly for executing on it consistently over 30 years.

BK: Actually, (he) didn’t like sales at first when he started out. He found that distasteful.

FC: He certainly learned in a hurry didn’t he?

BK: Yes, he sure did.

FC: You don’t become a billionaire simply by staying away from what doesn’t taste that good.

BK: Exactly right. So you’re saying that smart CEOs like Jim understand the fact that sales and strategy absolutely need to be linked and you would even go further and say that the person in charge of sales at the firm needs to be sitting at the leadership table and driving strategy. So can you ground this in an example? You’ve consulted with a lot of firms; you’ve seen this play out in different ways, in different industries. Give us an example of a situation where these two things weren’t synced up and things didn’t go well.

FC: Well, it’s a start-up example. In the book I call it ‘Business Processing Incorporated’ (BPI) and it’s a start up that grows to a certain level of sales, but then as the data will tell you happens to most start-ups it starts to flatten out.

BK: Yeah.

FC: But what BPI did do as they were growing is essentially conducting an ad-hoc sales process as many companies do not just start-ups. And as a result what happened is that they really couldn’t identify who is and who is not their customer. And that is a core decision in any coherent strategy worthy of the name.

BK: Now is BPI, this is a real company?

FC: Real company.

BK: What is that stand for?

FC: Well in my book it stands for ‘Business Processing Incorporated’ …

BK: Ok.

FC: The real company was doing online payroll services.

BK: Got it. Ok.

FC: But the point is that figuring out where we play, where we don’t play is core to any strategy. That is what we teach. But how do you operationalize that? You ultimately operationalize that through what your folks who deal with customers do. Where they call, where they don’t call, who they consider an important customer, who they don’t. And the result is that BPI like many companies pursuing that ad hoc process is essentially also fragmenting their resources. They’re doing product development in many myriad ways that are fragmenting R&D. They’re allocating resources internally for delivery in many myriad ways that fragment logistics and so forth. But when they finally do figure this out, and this is a leadership responsibility not simply a VP of Sales responsibility. What turns out to be the case is that they sell more faster with fewer people. That’s good.

BK: That’s very good. So lets assume the VP of Sales has found their way to that C-suite table. What are the kinds, what’s the exchange like? What’s the CEO gonna ask that VP of Sales? What kind of information should they be looking for?

FC: Well, I think you’re using the right word. It needs to be an exchange. It needs to be a dialog. The issue is dialog about what? The goal of any strategy is profitable growth. And profitable growth means a positive return on capital. And basically there are 4 ways that any company can grow profitably. You have to invest in projects that earn more than your cost of capital; you want to increase profits from existing capital investments; you want to reduce the assets devoted to projects that earn less than their cost of capital, and ultimately you want to reduce the cost of capital itself. Now my experience is that most C-suite executives understand what I just said. And if they don’t understand it, they usually learn in a hurry after they get beat up in one or two investor presentations. What most of them do not understand however is how sales effects materially and arguably more than any other function in the company all four of those levers. Again in most firms projects and investments are driven by revenue seeking activities with customers.

BK: I want to go back to that third point that you mentioned too because I interpret that as meaning to some extent, there are customers that you don’t want. There are customers that you have to get rid of.

FC: Yeah. Strategy is fundamentally about choice. It’s about saying no as well as saying yes. The central fact in business is customers. Without customers you don’t have a business, you have a museum. So to operationalize that fundamental strategic truth, has to be operationalized through the people that are dealing with customers in selecting. And that’s what sales people ultimately do they select who we’re gonna invest in and who we’re not.

BK: So if this is so fundamental and so important I would imagine that it’s core to the curriculum at business schools around the world. Is that true?

FC: Sales is a notoriously under represented stepchild in the curricula of business schools and I think we know the reasons for that. One is if you want to get promoted and get tenure in a business school, you’re gonna have to publish in “the right journals” and there are very few if any sales journals that qualify as the right journals. I also personally think there are historical reasons for this that thankfully are out of date. But business schools in my opinion for years had an intellectual inferiority complex. And the last thing they wanted to do in the 80s and 90s was be perceived as trade schools and somehow sales is thought of as a trade school topic. I think those days are gone. The cultural status of MBA programs is obviously way, way beyond that. It’s taught but it’s not core.

BK: Let me take a minute- we’ve actually invited some of our listeners to tweet in questions to us so I want to read this question that came to us from a listener. Comes from Tyler Hogge, so his handle is @thogge and his question to you is “Sales people are inherently biased in their strategy and product recommendations. In other words ‘build this for MY customer,’ etc. How do you balance the strategy of the company with this inherent drive towards personalization and customization?”

FC: Well, I mean a couple of things. First I think the listener is exactly right about the bias. There are a couple of things I think that are important there. One is what drives the bias? The bias is being driven by a couple of things. One is how they’re paid. The sales compensation plan. But notice the difference. Let’s just take marketing and sales. The categories that people often put together synonymously but they’re not, they’re very, very different. Marketing people get paid to look at aggregates of customers. They get paid to segment. They get paid to think about how we do things across customers, across geographic areas, etc. That is not the world of most sales people. Sales people have specific accounts. A market has never bought a thing in the entire history of capitalism, a market or a market segment has never bought anything. Only accounts specific customers buy, that’s where sales people live. So from the sales person’s point of view, this customer, this order is the most important thing. From the marketing point of view they quite rightly as the listener says have to balance these issues. Again that’s why aligning sales with the company is a leadership issue, not only a sales issue.

BK: Talk about the Internet if we can shift to that a little bit. You wrote in an HBR blog recently and I’ll paraphrase this a little bit and put my own take on it, that the all too common perception is that corporate boards are sort of stacked with stodgy old guys who just don’t get the internet and boy if they only did they would realize that you don’t need face to face sales anymore it’s all happening on the internet. We’ve dis-intermediated and now the power is all in the hands of the consumer. You would say that that’s not entirely the case. Is that right?

FC: I would say that the point of view you articulated, that’s not my point of view…

BK: Right.

FC: I think that’s the conventional wisdom.

BK: Sort of conventional wisdom.

FC: …in the media. Yeah. Know that just doesn’t hold up to the facts. The number of people classified in sales positions in 2012 is about 14 million people in the U.S. That is the same number as 20 years earlier in 1992 before either you or I could spell “internet” so at one level it’s simply not true that sales jobs are going away. Number 2 is, here, another figure; in 2014 the number of e–commerce sales is estimated to finally be about $300 billion.

BK: Wow.

FC: Now you say wow…

BK: That’s a big number.

FC: ..and that sounds like a big number. That’s about 6% of total retail sales. One retailer, Wal-mart as an example, one retailer sells significantly more in their stores than all e-commerce sales put together. And just to put that $300 billion figure in context, half of those e-commerce sales are made by the online adjuncts of brick and mortar retailers. So the talk about sales people being “dis-intermediated” is vastly overblown and by the way it’s part of an historical talk. If you go back to the 1930s, you will see articles written in Fortune magazine for example titled “The Death of The Salesman,” that’s where Arthur Miller got his title from and the theory at the time was that there was this big social network diffusing throughout American society, it’s called the telephone. And the theory is that once you got a phone and I got a phone, why do we need a sales person? Why don’t we just call each other up and make a deal? It didn’t happen. If you fast forward to the 60s you’ll see the same series of articles. And the theory then was we have the national highway system disseminating throughout society and once we have these highways all people will do is people will drive around shopping for the best price or what today we would call ‘surfing’. Didn’t happen. Now we have the so-called Information Superhighway. What is true is that sales tasks are changing. That’s the difference.

BK: Talk about that a little bit. Because so customers, the Internet does do one thing, it empowers customers to have more voice. Everybody’s got a megaphone now.

FC: Well the customer has always had a voice. The customer has always been in the driver’s seat. There’s nothing new there. What the internet does however is very clearly allow anyone who wants to take the time to gather more comparable information a lot sooner. The best example of this I think is what goes on in car dealerships. Relatively few cars, I think it’s less than 4% of total sales, relatively few cars are actually bought online. But in excess of 90+% of people when they go to buy a car first go to Edmonds.com and all these other sites…

BK: Sure.

FC: …that will tell you what the retailer of the car dealer’s cost are, what is their cost of every option package? But then they go to the dealer now that dramatically changes the sales task. What that does is not eliminate the car sales person. What that does is put more pressure on that sales person to make that customer engagement a value-added experience as opposed to ‘let me tell you what our price is,’ and then it is, getting back to our main theme, then it depends on the strategy of that dealership whether that sales person is you know the typical zoot-suited sales person we associate with car dealers or whether it’s a different experience. But the internet is not eliminating sales tasks, it is changing them and that’s a big distinction. That’s a difference that makes a difference.

BK: So if I’m listening to this podcast and I’m a journeyman sales person out there and I want to know what I can do to add value, what are the kinds of skills that I should be looking to cultivate in this sort of new era?

FC: Selling has much more to do with the buyer than it has to do with the seller.

BK: Interesting.

FC: And that’s always been true and is still true. So what are the skills? Listening as they say. The ability to analyze what the buying process is for those customers. In B to B sales where sales is even more important than it is in consumer, the ability to do what we do, still teach in business schools. How to analyze decision making units. Those fundamentals remain and that is where you start. You don’t start with the computer. You start there. But then clearly what’s going on in many, many industries is that sales is much more a data driven analytical task, the (inaudible)’s point when he says ‘selling was among the most intellectually challenging tasks in business, more challenging than working for a superb consulting company was,’ and that is changing hiring in sales. That is changing the importance of the ability of the people we have in sales to do the data analysis as well as the fundamentals. And there’s a very interesting study that’s part of the Competitiveness Project here at HBS, they look at middle skills jobs…

BK: Let me just clarify this is a U.S. Competitiveness Project that we launched a couple of years ago here to just assess how the U.S. can get back on its competitive footing in the world economy.

FC: That’s exactly right. And by middle skills jobs they mean those that require a high school degree but not necessarily a full college degree. And what they found is that among the jobs that these business are finding hardest to fill, just below what you would expect, programmers you know it’s a sellers market there, are sales jobs. Selling’s not going away. It’s changing but it’s always been changing. It’s been changing since Phoenician traders sold rugs 3,000 years ago. That shouldn’t surprise us.

BK: So let me escalate it now if I’m a VP of Sales in a large firm and I’m not sitting at the table, how can I get myself there? What’s the argument that I would make to the leadership of the firm?

FC: Spending time in sales is a pretty good route to a general management position. But then there are other companies where sales is fundamentally a well-paid ghetto. You’ve got to make that choice. But let me give the sales VP different advice to clarify the company strategy with the C-Suite, one of the problems is that most companies do not have a strategy. They may have a mission statement, they may have a purpose statement, they may have some aspiration that you know lets pick a big number and go for it statement, but they don’t have a strategy. It’s tough to do productive things in business without a strategy.

BK: Great. Great advice from Frank Cespedes. Thank you so much for joining us today.

End Transcript

 

We've got a link to Frank Cespedes's book called Aligning Strategy and Sales on the website. Check it out--

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