The Machine: A Radical Approach to the Design of the Sales Function

by Justin Roff-Marsh

This chapter completes your understanding of what we call the inside-out model. This model is a blend of customer service, inside sales (supported by the campaign coordinator and field specialists), and business development (supported by project leaders).

TOC is a process-engineering methodology, developed by Eliyahu Goldratt and popularized in his 1984 best seller The Goal.

The solution, then, is to sell the backpacker a standby ticket that can only be redeemed on an undersold flight (and only minutes before takeoff). Now, this scenario is familiar because we all fly on planes, but we don’t necessarily apply this decision-making approach to our own businesses. My point is that we probably should!

Units of gross profit must be processed by both sales and production before they can be banked. Specifically, sales must win an order, and then production must fulfill it. We will use the term throughput to refer to units of gross profit. Technically, throughput is equal to the revenue generated by a transaction minus the totally variable costs associated with that transaction (e.g., raw material costs, sales commissions, shipping).

we need to know how much throughput the business can process in a given period.

The capacity of the business as a whole is determined by the capacity of its lowest-capacity function—what we’ll call the constraint.

We can now generalize from these conclusions and arrive at two simple rules applicable to every business: 1. The constraint should operate at full capacity, at all times. 2. Nonconstraints should subordinate to the constraint. In this context, in which sales is the constraint, sales should always operate at full capacity (i.e., it should sell as much as possible), and production should subordinate to sales, meaning that production should match the ordered volume.

If sales were to attempt to provide production with $T10,000 worth of orders a day, production would find that it is regularly starved of work—meaning that the actual output of the organization would be less than the capacity of production. ($T = throughput or contribution margin.) The solution to this problem requires that sales maintain a buffer of orders upstream from production, large enough to absorb the sales function’s inherent variability—but no larger.

With this small but critical modification to our simple business, we can now finalize our directives to each function: Sales should maintain the constraint buffer at its optimal size, and production should operate at full capacity at all times.

makes more sense for management to determine which function should be the constraint and then build enough protective capacity in nonconstraint resources to ensure that the system is stable.

In the long run, however, a business needs one more function in order to thrive: new product development (or engineering).

The primary responsibility of new product development (NPD) is to conceptualize and design the products (or services) that sales sells and that production delivers. In addition, NPD will often innovate internally, creating better production or distribution processes.

It’s important that everyone in your organization understand that sales are being made by your resellers, and that your job is to facilitate those transactions—not to drive them directly.

This is one of the reasons that inside salespeople can easily have thirty meaningful selling conversations a day and field salespeople will top-out at four.

What’s critical, however, is that the salespeople have nothing to do with the scheduling or management of field trips. It’s the responsibility of the field-activity coordinator to organize each trip, to ensure that the salespeople’s calendars are booked solid for the duration of each trip (four meetings a day), and to perform all CRM data-entry and support activities while the salesperson is in the field.

Although the salespeople do work harder, their work is less stressful, because they no longer feel like they are multitasking.

When sales is actually performed by autonomous agents, it does make sense to pay these agents on a commission basis, a percentage of the revenue they generate.

We now arrive at the critical question. We should not begin this discussion by asking whether commissions make sense; rather, we should ask whether we should sell via autonomous agents or via a centrally coordinated team.

Commissions (or any kind of performance pay) are inappropriate in the reengineered sales environments described in this book for exactly the same reason that piece-rate pay is now inappropriate in manufacturing environments.

Your salespeople can be capable team members and operate autonomously if (and only if) the rest of the organization has the capacity to subordinate to individual salespeople.

Remember, we’re considering true sales here, not repeat transactions.

Management encourages salespeople to operate autonomously. Salespeople proceed from the assumption that more sales is always better (they figure the rest of the organization will keep up somehow). On average, the sales team as a whole may well sell less than the organization has the capacity to produce. However, because new accounts are won infrequently, the load on the rest of the organization is irregular. On the occasions that customer service, engineering, or production does not have the capacity to honor the (often optimistic) commitments made by salespeople, on-time performance is compromised and salespeople attempt to placate upset customers with even more optimistic promises. The resulting chaos reduces the organization’s effective production capacity.

The bottom line is that contradictions cannot persist indefinitely. Your salespeople cannot be both autonomous agents and team members. They cannot be responsible only for sales outcomes and simultaneously be expected to attend sales meetings and maintain the organization’s customer relationship management application (CRM). And customers cannot belong to both salespeople and to your organization.

salespeople don’t have the opportunity to earn a commission, why would they sell? I wish I had a dollar for every time that I’ve been asked this question by an incredulous executive. You would think the onus should be on the defender of performance pay to present an argument. After all, receptionists answer the phone when it rings, in spite of the fact that they receive no incremental pay. Your financial controller does a good job of paying bills on time, in spite of the fact that they receive no rebate on each check signed. And even senior executives perform important tasks, absent special incentives (I’m assuming that no one is paying you to read this book!). Why should salespeople differ from almost every other worker on the planet? The answer is simple: They shouldn’t.

In Drive, his excellent best seller, Daniel Pink presents a powerful case against performance pay. His conclusion—backed up by many experiments from the social sciences—is that external rewards retard the performance of knowledge workers and have positive effects only in situations in which the workers are performing mindless, repetitive tasks.

Performance pay makes this contradiction explicit. In other words, when a significant component of a salesperson’s pay is performance-based, management has formally abdicated its responsibility for sales. In so doing, management has telegraphed to salespeople that selling is optional! It is now up to individual salespeople whether they generate sales—and in what quantity.

If a salesperson is not capable of selling, the real cost of their nonperformance is still not their salary; it’s the sales opportunities that are lost but that could have been won if they were attended to by a more capable individual.

Selection: If organizations reduce the size of their sales teams, they obviously retain their more capable salespeople.

Practice: When salespeople do nothing other than sell, they get good at it,

Feedback: With control over salespeople—and with accurate and current data—sales management can provide salespeople with a faster and more accurate performance feedback.

We pay people what they are worth (and perhaps a little more). That’s it!

In practice, you should pay salespeople enough to ensure that compensation is no longer a regular topic of conversation, and then insist that they perform the activities required for the organization to achieve its objectives.

Replacement cost (how much would you have to pay for another person with a comparable set of capabilities?) and asking price (how much will you have to pay the current candidate to ensure that the compensation plan is no longer a regular topic of conversation?).

Most of our silent revolutionaries shift their salespeople to a salary that is equal to or slightly greater than their average total earnings (typically judged over a three-year period).

Accordingly, bonuses tend to disempower managers.

This means that if you’re not sure you need project leaders, you probably don’t. If you have only an occasional deal that needs project leadership, you can probably blend this role with that of the field specialist.

If you don’t have a factory, the principle is the same: Start as close to production as possible.

You need a lot of additional capacity in customer service to cope with an increase in sales activity and to enable salespeople to offload the customer service tasks they are currently performing; and in most cases, you can generate immediate but small increases in sales just by reducing your customer service lead times (i.e., faster quotes, order processing, and issue resolution).

If you start elsewhere, pretty much anything you do will increase the load on customer service, and if your customer service team is underresourced and underskilled, as most are, this team will quickly become your bottleneck. Once this happens, customer service lead times will explode, customer satisfaction will drop, tempers around the organization will become frayed, and your improvement initiative will get itself a bad reputation right out of the gate!

Where you finish your transition is also important. Specifically, you should postpone making changes to your field salespeople until you absolutely have to, and when you do make changes, you should ensure that these changes are driven b...

You should make it clear that people’s jobs are secure and that their feedback will be listened to—and that the model will be fine-tuned as data is collected. But you should also make it clear that the general direction is not negotiable and that the transition will not be derailed by the personal preferences of individuals.

First, you must insist that your existing salespeople start using your group calendar application to record all meaningful selling interactions.

Finally, you must insist that your sales manager chart these numbers and communicate its contents to the leadership team on a weekly basis.

Inevitably, this will require that you add both people and capabilities to your customer service team. In addition to adding and training customer service representatives, you need to • ensure that all work (order processing, quoting, and issue management) is performed in your enterprise resource planning (ERP) software (if you can’t manage issues in ERP, you might have to use the CRM for this purpose);

ensure that every activity (e.g., calls, emails, instant messaging sessions) is tracked in the same system in which the work is performed; and • institute a daily stand-up WIP meeting, where open jobs are discussed and expediting decisions are made.

What Is a Sales Opportunity? The definition of sales opportunity would appear to be self-evident: It’s an opportunity to sell something. This definition, however, is a little imprecise. In practice, the term sales opportunity can mean two things, depending on the context: a potential deal that a salesperson is working on or a potential customer that’s worthy of a salesperson’s attention.

For this reason, salespeople frequently use the term qualified opportunity to distinguish between the opportunities that marketing thinks they should be working on and those that they believe are worthy of their limited attention. Predictably, this results in endless—and not particularly productive—debates about whether opportunities are, in fact, opportunities!

So, an opportunity is a potential deal that a salesperson is working on or a potential deal that has been queued for a salesperson to work on within the current period. Now, if you think about it, the potential deal bit is redundant. In the inside-out model, salespeople don’t work on anything else. Practically, then, sales opportunities are the raw material that salespeople work on.

Qualification is not selling; it’s actually the opposite—the avoidance of selling. Of course, the core problem here is the design of the traditional sales environment. However, when we reengineer that environment, we cannot simply assume that all the practices that made sense in the old environment will simply disappear in the new one. Some won’t, which means that they need to be actively eliminated.

Qualification is a particularly insidious—and remarkably persistent—practice. You will need to hunt it down and drive a stake through its ugly heart whenever it makes an appearance. If a salesperson has an unutilized unit of capacity and there’s a potential deal in the queue, that salesperson should be selling, not qualifying.