The Financial Wisdom of Applying the Principles of Continuous Process Improvement to Selling
A physicist, Eli Goldratt, famously transformed the way business leaders thought about the economics of production in the 1980s by pointing out the financial contribution of manufacturing to a business.
His point was simple. The goal of a manufacturing system was to make money by reducing operating expenses and inventory while increasing throughput – as defined by sales – all at the same time.
In doing so, he created a financially viable scorecard for improving the production process that accelerated a wave of continuous process improvement across industry. This simple equation for making money underpinned the success of firms like Toyota, Nike, John Deere, and GE – which created billions of dollars of value in the 20th Century by adopting Lean Manufacturing, Total Quality Management (TQM), Six Sigma and Kaizen in their operations and supply chains.
Continuous process improvement is centered on eliminating variances in individual process steps, stripping excess capacity and waste from the system, and allocating resources and capability to their most profitable use in creating throughput (sales).
This notion of continuous process improvement is not isolated to production and the supply chain. It can be applied to almost any business process, from the design of computer chips – to optimizing the performance of computers – to managing cash flow and the return on capital.
It can also be applied to demand chain processes – meaning marketing, sales and customer success. But it rarely is. Why?
Sales and marketing leaders have historically regarded themselves as so unique that the notions of consistent and continuous process improvement cannot be applied to them. They have long argued that the constant change of customers and markets and the lack of data and feedback loops make it impracticable. They contend that the “intangibles” of branding, relationship building, and buyer psychology make growing a business more art than science. They believe their investments in rock star sales reps, magical marketing and ad campaigns, and brand building activities defy financial accountability and conventional management systems. This is a big reason why most CEOs don’t understand how their marketing budgets create financial returns and it is so difficult to fund smart long term growth investments.
These arguments may have held water in the 20th century. Not so in a digital age where selling has become more capital intensive, data-driven, and digital.
Sales enablement, advanced analytics and digital selling technologies have taken away most of these excuses. Sales enablement technologies give managers unprecedented ability to enforce process discipline at every step of the revenue cycle, propagate best practices, and apply the best resource to the biggest opportunity. Digital selling technologies produce a treasure trove of customer interaction and seller activity data that provide visibility into every step and action in the customer lifecycle. And advanced analytics provide them the ability to analyze that data to accurately assess customer sentiment, prioritize opportunities, predict customer response, and forecast pipelines, and allocate resources.
So why don’t more executives use these technologies to generate more scalable and consistent growth?
According to Chris Hummel, the co-author of the upcoming book Revenue Operations, the answer is they don’t have the management and operating systems to do so. And they lack the financial basis for prioritizing the investments and management bandwidth necessary to put these systems in motion. As a consequence, the commercial technology and data assets that are supposed to accelerate growth remain very under-utilized relative to their enormous potential.
That’s surprising. The ability to generate consistent organic revenue growth has created more firm value than all the efforts to reduce expenses, expand multiples and improve cash flow combined, according to Hummel. “Consistency may be boring, but it represents a manageable path to value creation,” Hummel asserts. “If businesses like Toyota, GE and countless others can create hundreds of billions of dollars of firm value by applying continuous process improvement to their operations and supply chains – why not take a similar approach to the customer-facing part of the business? Consistent, repeatable revenue growth would be the reward.” To Hummel, consistency means a higher percentage of sellers make their assigned quotas or come very close to doing so. Consistency means programs generate predictable returns and outcomes. It means sellers perform the selling plays and motions they have been trained to execute. Being more consistent means the models that predict which accounts to call and which actions to take are accurate and effective most of the time.
Scalability is even more attractive to investors. Digital technology – especially advanced analytics and AI – offers enormous potential to improve the productivity, engagement, speed, and visibility of sales teams. At their best, data, infrastructure and processes should interact within a technology ecosystem to accelerate sales growth, multiply the return on selling assets, and increase firm value. That said, while sales and marketing technology investments can often generate expected returns in narrow or isolated situations, these technologies have rarely fulfilled anything close to their immense promise of igniting consistent and scalable growth.
The financial gain of pursuing a more consistent selling system more than justifies the pain involved. In fact, the entire notion of continuous process improvement means greater consistency can be achieved without major pain or management change. Rather, this value can be realized through a series of individual actions that incrementally improve revenues or costs or the customer experience. The process of pursuing small changes that incrementally improve selling performance can add up to big gains in revenues and profits over time.
The next generation of growth leaders understands the power of consistent and scalable growth. The most successful of the CEOs, CMOs and Chief Revenue Officers we interviewed in writing our book on Revenue Operations described their commercial models as a system for generating more sustainable and scalable business growth. They were all taking steps to reconfigure their revenue teams and the systems, operations, and assets that support them in ways that maximize customer lifetime value, lower cost to sell, and improve financial returns. Chris Downie, the CEO of Flexential, is focused on actions that improve the return on selling assets. “I think of our sales machine as a growth asset, and we view our investments in developing and training our sales and channel resources as central to our go-to-market approach and delivering our value proposition to customers,” says Downie. Scott Kelly was given an expanded leadership role over Sales, Customer Success and Revenue Operations at GHX in order to instill a culture of continuous improvement, collaboration, and ongoing learning to better enable the commercial process and help revenue teams better adapt to a dynamic marketplace. Likewise, Fortive, an industrial technology conglomerate, is driving growth by applying the principles of lean manufacturing and continuous improvement to front-office processes – including sales and marketing, new product development, innovation, and market development. “If you look at our history, the foundation of our business system was in the productivity toolset from lean manufacturing,” shares Kirsten Paust, the Vice President of the Business Systems Office at Fortive. “We believe that a process mindset and orientation can be applied to unlock more growth and innovative capacity in our teams and businesses.”
In short, these growth leaders are applying Goldratt’s formula to their demand chain processes. They understand they need to generate more throughput (profitable sales and net recurring revenues) with less resources (selling assets and capital investment) and operating expenses ( sales and marketing budgets). They have realized there are several ways the principles use to improve back end business processes can be applied to go-to-market process.
First they recognize that the modern revenue cycle is a series of dependent events that span marketing, sales, and service. These include development activities, education activities, value selling activities and relationship expansion activities. Like a factory making different models of products – the modern selling team is made up of a set of interdependent market development, sales development, sales engineering, customer success, customer relationship management, expansion and retention actions. All of these activities can be broken down scientifically and optimized.
They also understand that selling in the 21st Century is resource and capital intensive. As such, they value, measure, and manage their commercial data, channel infrastructure, and digital selling systems like the commercial assets they are. These leaders know there is tremendous “slack” in the selling system in terms of people, assets, calling capacity and effort being applied to the wrong customers, actions, activities, and market opportunities. They are finding significant ways to improve the output, allocation, and return on these commercial assets. Specifically, they see opportunities to streamline, reallocate and optimize their scarce resources and selling capacity by:
- Improving the output of individual sellers. For example, approximately half of sales reps fail to achieve their quota assignments according to research by the Sales Management Association. When predictions about their performance are rolled up through territories, regions, geographics and business units – managers add “padding” to these numbers the revenue forecasts to ensure they hit their target. That is effectively trading hard dollar capacity for the predictability investors demand and reward. In the production world, that’s akin to a supplier keeping two to three times the needed inventory as “buffer stock” against the risk of delivery failure.
- Allocating these selling resources and effort to markets, accounts and activities. Over 90% of the leaders we spoke with believed their sellers are chasing too many customers and chasing the wrong customers, or stakeholders within customer accounts. This means they are not maximizing penetration of target markets, coverage of opportunities, and customer lifetime value. Every business has intelligence about the best accounts, actions, and sales plays to pursue on a day-to-day basis. Any business can improve their performance by using sales enablement tools to systematically communicate this intelligence to help sellers optimize their day-to-day selling actions and measure when they don’t.
- . The discipline of maximizing the return on selling assets has become important because modern selling has become so capital intensive, content heavy, and data driven. These data, technology and content assets have become critical cogs in the modern growth engine. They include both capital investments (like CRM, digital selling infrastructure, sales enablement and training systems) and operating expenses (selling content, coaching time, third party data, owned media, and the operations teams that manage and curate them). Executives that are able to measure and improve the return on their marketing content, playbooks and thought leadership assets will grow faster. Likewise, managers who can monetize the leads, buying signals and intelligence generated by their massive investments in digital media and “owned marketing channels” like email, social, mobile and web marketing programs will realize faster growth.
A third lesson is that every resource and action along the revenue cycle is subject to statistical fluctuations. This means every step in the chain of activity along the revenue cycle can be measured, managed, and streamlined. The capacity, output, and performance of individual sellers, and the effectiveness of different sales actions all vary greatly around a known “mean” or proven best practice. So does the impact of different selling methods, the performance of different selling content, and the conversion of different demand creation campaigns. If half of your sellers miss their quota by over 20 percent, fail to adopt sales enablement, and fail to adhere to the sales playbook – the compounding effects can lead to large financial consequences. Conversely, small gains in quota attainment, pricing discipline can lead to vastly improved profitability. Managing consistency across all aspects and actions of selling pays off handsomely.
To Chris Hummel, this drive to apply a more scientific approach to generating more consistent results from the demand chain processes is a big driver behind the move to adopt Revenue Operations. “Revenue Operations represents a bold new commercial model for the 21st Century,” says Hummel. “It’s gives leaders a management system and operating system for harnessing the people, process and technology in their commercial model is to grow revenues, profits, and firm value.”
You can get more research on ways to apply the principles of continuous process improvement to your demand chain and ways to use sales enablement technology to improve the consistency and scalability of your selling system by accessing our Revenue Operations research.