15 Nov 2010  Executive Education

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:
    1. First, and foremost, your people: who they are, what they know, how you hire, and how you develop their skills and attitudes over time.
    2. 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).
    3. 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.

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Comments

    • Bernhard H. Hilmarsen
    • Owner, TonMar

    This article indirectly points out a theme that I find is becoming more and more relevant: companies must be able to handle increasingly more complex organisational issues in order to be able to execute their strategy. This requires an expanded set of leadership and management skills. It will be necessary to understand business, organisational design and people development to grasp the width of the strategy execution. It seems like few companies have incorporated this in their leadership programmes so far.

     
     
     
    • Anonymous

    Its always important to have a good sales team for success of a product in market.But strategy chosen by high level management is what matters most.The stress on synchronising strategies and field sales activities is justifiable but most failure of products to capture market is because of wrong judgement by people who formulate strategy.

     
     
     
    • George
    • HRD, Hyva

    This is a very good reference for EXECUTION of the corporate strategy and I would like to recomend our sales and marketing team to read it.

     
     
     
    • Weng F. John
    • Senior Manager, PYO Travel S/B

    A long overdue article which has been able to articulate the need for execution from Board Room to ground level. The emphasis on the importance of developing a result-oriented 'performance culture' in my opinion, is the key to implementation for any successful strategy. In addition, the need for periodic 'performance reviews' cannot be understated in narrowing the gaps between specific agreed targets vs. actual results.

     
     
     
    • Wendy Phillips
    • VP Sales & Marketing, Gather Digital

    I enjoyed reading this article. I had Professor Cespedes for Industrial Sales when I was at HBS, and I graduated convinced that his class was the most useful class that I had taken while there. As a founder in charge of the sales initiative for my company, Gather Digital, a provider of iPhone and mobile web apps for conferences, I completely concur that pricing is one of the most critical components to align with sales strategy and corporate goals. In a new and growing area it can be quite challenging to deduce the value of your product to customers! I'm not sure that we have gotten it right yet, but keeping our long-term goals in mind definitely helps. We've also spent a lot of time trying to determine the cost of alternatives from our customer's perspective. I'd be curious about Professor's Cespedes advice regarding how structured to make a pricing model in a new market where field data is happening in real time. In other words, how much wiggle room do you give your salesforce in negotiating a price?

     
     
     
    • David Wisland
    • President, Wisland Marketing LLC

    Excellent article. In rapidly-changing markets, a greater overlap or closely aligned strategic and executional functions / responsibilities facilitates feedback in near real time. This empowers a strategic salesforce with market pricing power, and removes the excuse of "our prices were too high." Dependent on the elasticity of your product, lower pricing should increase volume. Your marketing strategy needs to be articulated and embraced by the salesforce. (ie: our long-term goals best served by generating what value proposition? At this point in time, do we need to drive traction and volume or profit-per-unit?)

     
     
     
    • Stephen Basikoti FCCA
    • Accountant

    Translating strategy into strategy goals, tasks and processes is cardinal to proper implementation. Otherwise, how can anyone properly implement what they do not fully understand? Such translation is akin to getting instructions from a language executors know little of into their mother tongue. The language of field operatives include strategic goals, tasks and processes. Besides it makes the performance management process easier to handle by both the manager and the operative. Strategy and business models may be too cloudy for operatives to fathom.

     
     
     
    • Amitabha
    • Manager - Exports, Jumbo Electronics

    Good articke - But more focus required on a key " external" - Customer - Know your customer (KYC) - not on the basis of some report that was generated 2 years back but on the current requirements. This is an important input that needs to be factored in strategy - this will drive your sales, pricing & marketing strategy. Question is how often we factor changed customer requirements / preferences in our strategy - once a year is not enough - and based on it, how often do we change our offerings (and our market expectations)

     
     
     
    • Kapil Sopory
    • Company Secretary, SMEC(India) Private Limited

    Planning v/s Operations - Which is more important? This is often a big question particularly where different sets of functionaries confine their role to planning only or to going whole hog for field activities many times not keeping the planners' concerns in view. A mismatch leads to lopsided performance and although quantitative goals might have been achieved, lack of qualitative performance is sure to result in later hiccups. Hence, need for a well thought of strategy and achievable goals and not making sky the limit. If we are able to empathise and synchronise, optimization of results would be the outcome.

     
     
     
    • Paul Vinogradov
    • Vice President, Alexander Group

    Terrific article. The title of your program - Aligning Strategy and Sales - addresses an important leadership imperative that too frequently falls through the "cracks" of many Executive teams. The CEO, CFO, COO, and CMO and CSO (Chief Sales Officer) must collaborate to ensure this alignment occurs. Alignment first, then execution. And a strong sales force needs the proper support from marketing, operations, and HR. Go-to-market models are more complex today than ever before, particularly for large companies that sell direct. For smaller companies the Owner/President needs to balance investments in product with investments in go-to-market channels and sales.

     
     
     
    • Martin Thunman
    • Managing Partner, Zellmore

    Unfortunately Frank V. Cespedes is right that most companies fail in developing a target account list that is well thought through and that maximize the success rate.

    Most client we work with have in the past adopted the principles of "Shoot first and call whatever you hit the Target". It takes hard work on our part to change this behavior, partly because it can expose people to failures. Instead the company takes the hit. Not good.

     
     
     
    • Wouter In 't Velt
    • Partner, VODW Strategy and Marketing

    This is an excellent article. From our own practice consulting corporations with their go-to-market strategy and implementation, I can confirm that getting the first lever (people) right is conditio sine qua non for success. Markets are people, and people buy from people (yes, even online), which is an emotional process. It is remarkable that the Q&A that follows in this article primarily deals in abstract concepts related to the runner-up levers, rather than personal and behavorial issues. It would have been interesting to learn more about the key challenges related to the people lever and how to address them. Hopefully the author will elaborate on that topic in forthcoming publications.

     
     
     
    • Asif Nazir
    • Product Manager, Shaigan Pharmaceutical

    Simply wonderful..because it's very important for marketer to know the ground realities,does matter how wel strategy one constructs,if implementation part is compromised due to any reason that is not going to produce good result.

     
     
     
    • Gary le' Kay
    • Project Manager

    Often strategy is literally "lost in translation". From sales through to operational support, leadership needs to be visible and actively communicate the why's and how's of execution. Great article.