分类: Art & Science

Pipeline Management | Avoid the Matrjoschka Effect!

27/4/2020

Timing in Sales is difficult to manage, especially when teams are head down closing their deals today. It´s likely they miss to identify and qualify required opportunities to feed them tomorrow.

Personally, it reminds me of the response we get when calling into a teenager bedroom - good intend but no sense of urgency!

The formal concept to manage this challenge in business is called Sales Pipeline Management. It´s bridging today´s deal-by-deal business execution with the projected business attainment on an opportunity-by-opportunity basis. While, it is the shared formal concept for all stakeholders, it allows for different perspectives:

Sellers want to know if the business volume will ultimately make them hit their target.
Management probes into deal health, velocity and win-rate to understand the solidity of the managed business.
Leaders expect balanced individual- / team-contribution and want to see the pipeline develop towards profitability and along the strategic direction.

While there are plenty of publications on Pipeline Management, I would like to share some perspective, why Quality must beat Quantity!

Ideally, all your opportunities convert to business and contribute to the goal attainment. However, reality is very different. Deals are slipping into future quarters, they close smaller than expected or simply are lost.

Let me introduce some commonly used concepts to address the lack of control on the pipeline:

The more the merrier: Trying to compensate the potential losses through incremental opportunity.
Inspect what you expect: Working on the Information Inefficiency, believing that more information leads to more insight and more control.
Coaching till it hurts: Coaching sellers and teams along the sales process to make better situational decisions and overall benefit deal sizes.

In essence, you can either further mobilize your demand generation engine to put more deals into the pipeline (increase Quantity) or lose less from it (increase WinRate) - either way, you will need to prepare for the unexpected. Important to keep in mind that both approaches are limited by available sales capacity of the organization.

As far as the laws of mathematics refer to reality, they are not certain; and as far as they are certain, they do not refer to reality.
Albert Einstein

The Spreadsheet Acrobats will tell you that the required future Pipeline Threshold to hit your future sales target ("pipeline coverage") will be the future target to go plus an % uplift. The amount of required % uplift is defined by the % amount of historically lost deals. In other words, we set the pipeline coverage goal high enough so, we -hopefully- cater for potential future losses.

The formula is simple and compelling, BUT, it is based on at least three critical assumptions:

1. History Repeating: The pipeline coverage formula uses historic facts to anticipate the need for the future. So, be aware that the rear mirror might give you a wrong impression on the direction of the road ahead - it is very unlikely that moving forward the circumstances for your business will be the same again.
2. Statistic Probability: The pipeline coverage formula uses statistical assumptions in a discrete business. Therefore, it will not work on small number of deals, significantly varying deal sizes or changing likelihood to succeed.
3. Sales Capacity: No matter how many deals you deem appropriate or how much effort you are willing to put into coaching, your cost of sales sets the practical limit.

Pipeline Coverage Expectations - The Matrjoschka Effect

The mathematical approach alone is not getting you on the safe side. You end up in an unhealthy race fighting lost opportunities with more demand generation. However, the more pipeline volume we expect, the more difficult it is to find sufficient deals and the harder it gets to reach a similar success rate again. Fighting the tendency of dropping WinRates through incremental volume requirements we can call the Matryoshka Effect in Pipeline Coverage Requirements - the Pipeline Coverage targets keep going up while WinRates are trending downwards.

In reality, many leaders still prefer to drive the hard fact based, quantitative approach over qualitative coaching. The reason is simple: It´s easier to scale pipeline generation within a sales organization (all hands on deck!"), than coaching sellers, partners and marketing for elevated deal quality.

The only way to escape Matryoshka’s appetite for more is by putting focus on the qualitative approach to deals, both on the Demand Generation and on the Deal Management side. Increasing the number of healthy deals (and the healthy meals for Matryoshka) will get your pipeline into a stable, healthy state.

Give it a serious try, put focus on the organizational capability and you will be surprised, both by the qualitative and the quantitative effects it triggers.

The very practical approach of Coaching for Pipeline Success [Keith Rosen] works well for me but, Training alone doesn't develop champions. Leaders do!

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Old Industry New Tricks | The Intellectual Property Strategy makes the difference

8/2/2019

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Source: Shutterstock

Speaking with manufacturing industry customers is more exciting than ever. The Digital Transformation and Industry 4.0 meanwhile have arrived everywhere. However, the approach and progress vary significantly - especially, when it comes to the Intellectual Property Strategy.

While some companies focus on internal digital end-to-end optimization of their product design- and production processes for shorter time to market, individualized product offerings and cost efficiency, others are taking the digital value directly to market - leveraging their enormous industry process know-how, specialized data insight and their ability to predict or optimize their customer´s value creation.

There is a chicken-egg-interdependency of business- and Intellectual Property strategy. This explains, why IP-strategy discussions without a deep understanding of business makes no sense.
Bowman Heiden – Deputy Director, Center for Intellectual Property, University of Gothenburg

Seeking the core of business transformation in digital technology adoption only is not enough. The Intellectual Property Strategy will likely decide who takes control on the whole value chain and the underlying business model - who sits in the front seat and who must find a place on the backbench.

Even though that patents represent a part of innovation only, they still indicate where the energy is in a respective geography, industry, or even company. The annual reports of patent offices provide some interesting perspectives worth exploring.

The factory of the future will have only two employees, a man, and a dog. The man will be there to feed the dog. The dog will be there to keep the man from touching the equipment.
Warren G. Bennis

Let´s have a short excurse into research intense industries like bio-tech or pharma. The use of new developed seeding material or next generation drug is primarily not limited by the physical reproduction but by rights the patent holders reserved to protect their IP. Even, if you don´t like gene modified crop, patenting- or trademarking nature, separating the intellectual contribution from its physical representation may imply revolutionary effects to the business establishment in your industry as well. E.g. the agricultural-technology and licensing exports from the Netherlands meanwhile surpassed their traditional food production exports in value.

Decades ago, the Software Industry emancipated form Hardware Industry by introducing the commercial concept of selling usage rights for software independently from hardware - usage gets monetized while the IP remains in hands of the software vendor. This revolutionary approach explains the disruptive potential software has to traditional, hardware centric business models. Again, it´s about who takes control in a digitized industry to come.

World Intellectual Property Organization (WIPO)

European Patent Office [EPO 2017] - Annual Report 2017

Infographics - International patent, trademark and design filings under the PCT, Madrid and Hague systems (2016)

With the separation of Software from Hardware arriving in automotive industry, a whole set of new proprietary software with respective End User Licensing Agreements (EULA) will be coming down the road. It seems we soon have to familiarize ourselves with the fact that we can´t own a car entirely anymore - primarily not because we all move into the share economy model but driven by the fact that the car manufacturer will no longer own or control the required software IP. Automotive Industry for years pushed towards external innovation and external labor to reduce capital lockup - Software IP will be a game changer for car vendors who want to keep control on their core business.

This idea is intriguing us because manufacturers need to go beyond selling physical car assets and must discover us drivers as customers - welcome to next generation Customer Relationship Management and the essence of customer intimacy for an old economy!

However, transformation in software industry is going deep as well. What has worked in a traditional productized Sell-To model needs to get complemented by Sell-With and Sell-Through approaches to meet the new customer expectations. Software IP gets embedded in products, cloud-based services become essential part of other products or your current customer may want to join forces with you on innovation. Either way, it´s time to revise value propositions, to reskill the salesforce and to tune the commercial backbone towards new ways of monetization. Digital Transformation, Industry 4.0 and a solid IP Strategy belong together and form the common ground for your business in near future, so let´s prepare for it now.

Good news, the cheese may already have moved on but the opportunity maybe bigger than ever and the driver seat is not decided yet!

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Renewing Contracts | The Missing Bullet Holes

19/10/2018

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Source: Shutterstock

Imagine, sellers would be rational individuals like Mr. Spock, the fictional character in the Star Trek media franchise - the commander of Starship Enterprise who always followed the rules of logic, never distracted by emotions.

I agree, this is neither realistic nor desirable to move mixed human-vulcans into sales roles. Some sales leaders would not want to lose their financial controllers either.

Experience tells, winning a new customer means 6 times more investment than maintaining an already loyal customer. Isn´t this a really good reason for you as a commander to go deep on what is driving the Enterprise towards customer loyalty?

I don't know anything, but I do know that everything is interesting if you go into it deeply enough.
Richard Feynman, Nobel Prize in Physics 1965

This usually is the point where measuring the world starts and big data is put into action. It begins with identifying statistically significant parameters. Try to understand what sets a successful contract renewal apart from those which did not renew. If you want to go beyond anecdotal evidence, a lot of data points are involved, but the effort is worth it. Aberdeen Group research states that Analytically Grounded Sales Teams average a 2.7 times greater annual increase in customer renewal rates. Meanwhile, such data analysis is well supported by BI tools or even Artificial Intelligence engines and it is backed by external business consultant experience.

Business Acumen remains key to success in increasing the likelihood to renew a contract. Even though you may find significant correlations, it´s the causation which makes it relevant. The correlation between growth on ice-cream sales and the outbreak of bushfires in southern California maybe a strong correlation but it´s not the cause. Mind the difference between correlation and causation.

Turning good analytical work into concrete action is what makes the difference in business. Overhasty conclusions and bias on this last but most important step may put your whole endeavor at risk. Following historical anecdote shows why.

The United States Statistical Research Group (SRG) once used to be on mission to help win world war II. Sales is not war and trying to find a way to minimize the loss of airplanes through better armor is not business optimization. Surprisingly enough, we still can learn from their work.

Source: Aberdeen Group, Sept. 2016 | "YoY Advantages of Analytical Grounded Sales Teams"

When American planes came back from engagements over Europe, they were covered in bullet holes like a Swiss cheese. But the damage wasn’t uniformly distributed across the aircraft. There were more bullet holes in the fuselage, not so many in the engines. So, how can the armor be optimized on the weakest parts without negatively impacting the overall performance of the aircraft?

Columbia University professor Abraham Wald came up with a surprising answer: The armor, said Wald, doesn’t go where most of the bullet holes are. It goes where the bullet holes aren’t - on the engines!

You’d have planes coming back with bullet holes all over the wings, the fuselage, the nose — but none at all on the engine. Simply because those severely damaged engines did not return from their mission and therefore don´t show up in your analysis. Protecting engines and pilots better, increased the likelihood to return from the battlefield.

By McGeddon - Own work, CC BY-SA 4.0, Link

Taking the recurring business scientifically to the next level implies a lot of work but it is the right choice in the digital era. Even if you decide to start small, next time you assess the feedback of your customer satisfaction survey with your teams, make sure you especially understand where the bullet holes are missing - it might well be your blind spot hiding the lethal risk to your business mission.

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The Balance in Sales Management | Art & Science?

23/2/2017

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Source: Shutterstock

We have arrived in “post-truth world”, so let´s start with a quote respectively: “So much of what we call management consists of making it difficult for people to work”. Out of context and without supporting facts, it could well be a comment from a subversive employee, but it is an old statement from Peter Drucker.

Whether we like it or not, pluralism is a great achievement of modern civilization and along we carry the obligation to adhere to valid facts [WP: “The Pinocchio Test”]: “Comment is free, but facts are sacred.” — C.P. Scott, editor of the Manchester Guardian, 1921.

In sales business this is true as well, it comes down to the everlasting question of Art & Science. The fine arts of dealing with people, emotions, expectations and the fact based, systematic, scientific approach. Provocatively speaking, neither wine & dine nor bean counting is the answer. The journey towards the right blend is the master discipline in sales leadership, since it is closely connected to both, organizational culture and customer intimacy.

Diversity needs room in every healthy organization but it must reside with the people and perspectives. It is not defined by the variety of proprietary spreadsheets in a room. We all have attended far too many meetings which did not follow the courses of action.

Actually, it´s great to rely on intuition and discuss different standpoints but let´s calibrate it with insight, driven by relentless curiosity – trying to avoid justifying ones own personal bias. In memory of Hans Rosling, the founder of gapminder.org, who recently passed away: “I want to talk about mindset; Does your mindset correspond to my data set? – if not, one or the other needs an upgrade!” [TED 2009].

Keep it simple for all parties: What can you do in your next business meeting to stimulate the customer mindset and concrete plan of action through valid and compelling facts? – Think about it!

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BUSINESS LEADERSHIP BLOG

Pipeline Management | Avoid the Matrjoschka Effect!

Old Industry New Tricks | The Intellectual Property Strategy makes the difference

Renewing Contracts | The Missing Bullet Holes

The Balance in Sales Management | Art & Science?

Andreas Engel

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