Connecting Goals and Go-To-Market Initiatives
In some respects, developing strategy is the easy part. Executing that strategy in alignment with strategic priorities is where real mastery of management takes place. Harvard Business School senior lecturer Frank V. Cespedes shows how it is done. Key concepts include:
- Strategy implementation is essential for marketplace success and often essential for longer-term valuations and growth options.
- When companies get serious about developing and executing an integrated strategy in the field, three front-and-center issues are pricing, market segmentation and opportunity selection, and performance management.
- Aligning strategy and sales is ultimately a leadership issue, requiring leadership team dialogue and coordination across functions.
In some respects, developing strategy is the easy part. Executing that strategy in alignment with strategic priorities is where real mastery of management takes place. We asked Harvard Business School senior lecturer Frank V. Cespedes, who is faculty chair of a new HBS Executive Education program, Aligning Strategy and Sales, to give us a glimpse into how it's done.
Working Knowledge: Why is it so important for companies to create a stronger connection between their strategic priorities and their go-to-market initiatives? How critical is it to their long-term revenue growth?
Frank V. Cespedes: For most firms, the largest, most difficult, and increasingly expensive part of strategy implementation is aligning field behaviors and go-to-market systems with espoused strategic goals.
It's the largest because doing this well is essential for marketplace success and often essential for company valuations and growth options. A key to meeting growth potential is eliminating the gulf between big-picture strategy and day-to-day field execution.
It's often the most difficult part of implementation because you're dealing with a combination of core factors in business: market analysis, strategy development, incentives, people management, developing a performance culture, and sustaining that culture in the face of inevitable market changes that are often outside the control of the selling company.
And it's increasingly a bigger portion of expenses for firms. For example, a recent study indicates that while production efficiencies have enabled an average S&P 500 company to reduce the cost of goods sold by about 250 basis points over the past decade, SG&A (selling, general and administrative costs) as a percentage of revenue has not declined.
Aligning strategy and sales is therefore critical to long-term revenue growth for most firms, and poor alignment means both direct and opportunity costs for companies. But it's especially critical for owner-president, privately held, and entrepreneurial firms. They are often competing with bigger and better-resourced companies in their markets. They need to move faster and more coherently than big companies, and that means they must be better than big companies at aligning their strategic priorities and their go-to-market initiatives.
That may be unfair, but it's not a level playing field out there. Doing this well is, or should be, an important component of competitive advantage for these firms.
Q: How can companies translate this into sales strategies, tasks, and processes understood by their sales teams and the rest of the organization?
A: This is the essence of the Aligning Strategy and Sales program and the focus of the case materials, lectures, guest speakers, and application workshops:
- First, you must understand the externals in your business and their impact on required sales tasks. Value is created or destroyed in the external marketplace, not in conference rooms or at off-site meetings. Key externals are the industry you compete in, the market segments where you do (and do not) choose to play, and the nature of the customers that you sell and service.
- These factors help to determine required sales tasks—that is, what your go-to-market system must accomplish to deliver and extract value, and therefore what your salespeople (and other customer-facing personnel, such as service personnel) must be good at.
- Then, the issue is aligning field behaviors with those required tasks and utilizing the appropriate internal levers for doing so. The core levers are:
- First, and foremost, your people: who they are, what they know, how you hire, and how you develop their skills and attitudes over time.
- Performance management practices, including compensation, incentives, values, control systems, and performance reviews (probably the most powerful but, in my experience, still the most underutilized lever for aligning behavior in an organization).
- The company environment in which go-to-market initiatives are developed and executed: how communication does or doesn't work across internal organizational boundaries; how salespeople are managed; whether they work as a team when coordination is important; and the wider company culture that always affects what a firm is and is not capable of [achieving] in the marketplace.
We will look at these issues in some detail in the program, with very practical takeaways for participants.
Q: Discuss the challenges companies face as they develop an integrated sales plan within their organization.
A: There are many issues inherent in this question. But I would point to three issues that typically are front and center when companies get serious about developing and executing an integrated strategy in the field: pricing, market segmentation and opportunity selection, and performance management.
Pricing. Pricing is the moment of truth in most businesses. A lot of business strategy is, arguably, just talk until you do or do not extract a price with customers. Pricing is where you demonstrate and test the coherence of your strategy. And a key element of effective strategy implementation is aligning price and value. Surprisingly few firms do this well; most set price based on their costs, not the value of their products and services to their target customers. There are reasons why companies do this, but it's not how you maximize profits and growth. So in the program, we'll spend time on the allied issues of pricing, profitability, customer value, and what this means for account management.
Market segmentation and account selection. Essential for aligning price and value is segmentation—decisions about where you do and do not compete. The great HBS marketing professor Ted Levitt once said that in business, "If you're not segmenting, you're not thinking." That's true. But I would also point out that, in the history of buying and selling since ancient times, a market has never bought a thing. Only accounts, individual customers, buy.
So it's important that firms have clear criteria for choosing customers. But most firms don't. When you look at their business plans and sales incentives, they are essentially saying to their salespeople, "Go forth and multiply!" And that's indeed what their sales force does, fragmenting the company's resources and making alignment of strategy and sales difficult.
Performance management practices. Performance management is not just performance measurement or compensation, although both are important. Performance management is a systemic process for moving from strategy to metrics to performance reviews and development initiatives aimed at aligning selling behaviors with market realities.
Q: How can companies deal with these issues and overcome obstacles to set a strategic foundation for sales success?
A: First, as the performance management cycle implies, you must have a coherent strategy and be able to communicate that strategy in ways that people in your organization understand.
Second, you need a systemic way of analyzing what your customer-contact personnel are (or, are not) doing with accounts and why. That encompasses many of the traditional areas of sales management, but it is ultimately a cross-functional issue that involves how other functions in the firm interact with sales.
Third, and I want to emphasize this, aligning strategy and sales is ultimately a leadership issue, not just a sales or strategy issue. It requires leadership team alignment and (in a changing market) dialogue. That is why this program involves faculty from across disciplines at HBS, including David Collis and John Wells from Strategy, John Gourville from Marketing, Linda Hill from Organizational Behavior, Bob Simons from Accounting & Management, and me from Entrepreneurial Management. As we emerge from a global recession and financial shock, it would be naive to assume a return to business as usual. All companies need to reexamine the fundamental links between their espoused strategic goals and the nitty-gritty of field implementation.
Q: Can you give examples of successful companies that have synchronized their strategies and field sales activities? What are they doing right?
A: An important thing to understand about companies that are successful in aligning strategy and sales, and driving long-term profitable growth, is that you find them across industries: in fast-growing high-tech areas (for example, Oracle and Intuit) but also in mature and seemingly commodity-like businesses.
One example is PACCAR, a producer of heavy-duty trucks that has been consistently profitable for over 70 years. It commanded a 10 to 15 percent price premium versus its competitors throughout this period. And over the past 10 years it realized an average total ROE of nearly 20 percent, versus negative 1 percent for the S&P 500.
Others are Cemex (historically, good returns in the cement business!) and Ryanair (good returns in the airline business—traditionally an example of a poor industry structure). And there are many examples among smaller and lesser-known firms run by private equity companies and capable entrepreneurs.
Too often leaders of firms use their industry as an excuse for not doing the things that can, in fact, improve strategy execution and profits. It's very important to understand your industry and its market dynamics. But industry is not destiny. As usual in business, the important levers in aligning strategy and sales are committed leadership and management behaviors. Our program is intended to help participants use these levers as productively as possible.