Category Archives: Sales

For the Money

“One for the money, two for the show, three to get ready, and four—-to—-go—-!”

In case you are wondering, the earliest attribution for this phrase that I could find is in the children’s book, “Striking for the Right” By Julia Arabella Eastman, in 1872.

Some of you however may be more familiar with the 1955 variation that Carl Perkins included in his song “Blue Suede Shoes’:

“Well, it’s one for the money,
Two for the show,
Three to get ready,
Now go, cat, go.”

I think Elvis did it better than Carl, but that really isn’t relevant to today’s discussion.

In either case, as you might guess, my focus here is going to be on “for the money” as I think we may have lost track of this part of the phrase, particularly as it relates to sales.

A phrase that is generally thought of as a countdown to the start of a children’s race or contest, is becoming more and more germane to the increasingly high-pressure contest of business to business sales. However, in many instances it appears that organizations are skipping the first line of the phrase and focusing on the second, third and fourth lines. Now usually to some form of hardship.

As we go through what might be described as tectonic shifts in the business, capital and sales markets and processes, brought on by the evolution of the cloud, the Internet of Things (IoT), and the multiplicity of other technological discontinuities they have engendered, “for the money” is probably going to take on an increasingly important role, particularly in the sales process. It is probably time to start steering away from the age old, tired sales phrases associated with focusing on quality, or value, or any other direction from a past time.

We have all been aware of “Moore’s Law”, which in its simplest iteration generally states that new products arrive with essentially double the previous product’s capacities every eighteen to twenty-four months. What this postulate also infers is that products can be expected to become obsolete every two years as well. This is now an important concept since previous views of product life expectancies were once much longer.

The difference now is that as new capabilities and applications are developed, they are more and more dependent on the latest generation of technology for their functionalities.

As an example: What would you pay for a car today, if you expected that in two years it would not be able to efficiently run on, or possibly even be able to access the new highways that are being built? What would you pay for that car if in two years it would not be capable of allowing you to drive to all the new destinations that would be available then?

Would it change your car buying patterns? Probably.
Would it change how much you would be willing to spend on a car, knowing that your time horizon for needing to purchase the next new car – which would then allow to run on the new highways and go to the new destinations – was going to be so short? I think so as well.

Such is the situation for just about every company and organization when it comes to their information technology needs.

Eureka. This sounds like every vendor’s paradise. Knowing that your customer is going to have to buy a new product every two years. What could be better?

I guess the first thing would be to make sure that all capabilities and applications that are developed are equally applicable across all customers.

Uh oh. That doesn’t seem to be the case since different companies need and demand different capabilities. And since vendors do not have infinite resources to develop all possible applications and capabilities in parallel, we cannot expect a continued alignment of applications, capabilities and the platforms required to run them.

And since customers do not have infinite capital to be able to afford each and every application, capability and platform as they come out, we return the new catch phrase, “for the money”.

Customers do not want the best solution.

I know this sounds like heresy but this has been proven time and time again. They want the best solution – for the money. They do not want the best service. They want the best service – for the money. Value and quality are good, but they are table stakes, not differentiators. And make no mistake about it, since the product life cycles and associated obsolescence are now so short, there is corresponding less money for each customer to spend on each purchase iteration. With the reduction in customer capital available to purchase each new product iteration the question is no longer how much functionality can a customer afford, but what is good enough to serve their purposes for now.

Whether it is said or not, it should be implied that every sentence used in communications between the vendor and customer, should end with the phrase “for the money”.

With this concept in mind it becomes a little easier to understand the changing landscapes for sales in the business to business world. Buying new higher capacity platforms in anticipation of being prepared for future applications or capabilities probably will no longer occur. The fear of platform obsolescence before the capabilities are available, along with new constrictions on purchase funds will probably preclude that.

Future capabilities will be purchased in the future, when they have been developed and can demonstrate immediate (not future) value to the customer.

Because of the direct relationship between purchase capital and product capability, reliability, capacity, speed, etc., all those factors have become negotiable as “for the money” comes into play. Communications networks that had essentially one hundred percent reliability and twenty-year life expectancies are being superseded by far less reliable but faster terrestrial and more convenient but equally less reliable wireless networks. They are good enough, at a far lower cost.

Personal computers and laptops that used to cost thousands of dollars are now costing a couple hundred dollars and are expected to be outdated, and disposable within two years. They are not repaired, they are replaced, at a far lower cost.

I have said that if customers are not buying it is probably because the sales team has not generated the appropriate business case for that customer’s business to justify the purchase. Immediate expenditures will require immediate value generation to offset them.

For the money is emerging as the prime parameter associated with this same customer business case sales process. Customers are recognizing that the lowest common denominator functionalities are what are required for their business. By way of example, Sprint seems to have fully embraced this approach to wireless services in that they are openly touting that they are “within one percent of the coverage / reliability” of their competitors, but only half the cost.

Their catch phrase is: “Why would you pay twice as much for only one percent more?”

We had all better take note of this approach to the market. In case you are wondering, Sprint grew more than any of its competitors in the last quarter. (https://www.cnet.com/news/even-sprint-topped-at-t-verizon-in-customer-growth/). And this is after several previous poor quarter performances.

In the article, it is noted:
“…Sprint with a campaign that essentially boils down to this: We’re good enough for your business. The company’s commercials play up its half-off plans versus the competition (the rates go up after two years) and a mere 1 percent difference between the quality of its network and that of Verizon.”

The key comment for me is “…good enough for your business.” I think this approach is becoming the new norm. Being the best is great, but being good enough, for half the price, is probably going to be better. It seems to be resonating with the market as they continue to attract new customers.

There will always be exceptions to every norm. There will be those customers that truly want the elevated capabilities, and will be willing to pay for them. There are those that want luxury cars as their form of transportation, when there are almost any number of less expensive models that will deliver the same functionality at a far lower cost. Most companies, like most of us, do not have the luxury of preferring luxury.

They are moving more and more toward the Sprint model that good enough, at half the price, is better than the best at double the cost. As budgets continue to constrict, for both consumers and companies, the comparison of what is wanted versus what is good enough for the money, will continue to change the landscape for sales. It is probably time for many businesses to change their sales model to focus on what is good enough for the money.

Why They Aren’t Buying

There are all sorts of allegories for sales. Hunting, farming, fishing, and a large list of others. They all seem somewhat out-doorsy and active (as opposed to passive – waiting for something to happen), but I think you get the point I’m making. Sales also seems to run in streaks. Some days it seems you can’t miss and all you need to say is “sign here, press hard for three copies”. And other days it doesn’t seem to matter what you do. You don’t seem to be able to close a door, let alone a deal.

We all like to think that it is superior salesmanship, or possibly a break-through product or technology advantage, when sales are good. We also like to point to inferior marketing and support, or a weak product offering when sales are not up to expectations.

When sales are not up to desired levels, it is usually left to management to blame poor salesmanship for the results, since both product technology and support are not readily changeable items in any short-term drive to improve sales.

I think the reality of sales booms and sales busts are more associated with those factors that either occur or evolve on a market wide basis. The deregulation of the mortgage industry led to an explosive growth in housing sales as people could then buy more house than they could normally afford, via balloon payment type and other exotic mortgages. This worked well until payments came due and real money was not available. The well documented housing bust and broader economic recession ensued.

Going a little further back into the end of the last century, was the telecom boom associated with deregulation. Companies suddenly found themselves with the opportunity to enter communications markets that they had previously been restricted from. This market attractiveness was further exacerbated by all equipment supplier’s willingness to lend these new companies the funds that they would need to by their equipment to enable access into these new markets.

This too worked well until the then new market was flooded with new competitors. The result was that there was not enough business to go around and no one had the real money needed to make their loan payments on their equipment. The well documented telecom bust then ensued as well.

In both of these examples, as well as many others across many other industries (banking, oil, etc), there were some very good times to be in sales, which were then followed by some very trying times to be in sales. It didn’t really matter what your individual effect on the sales process was.

I bring up these kind of market wide events not because I want to examine them, but because I want to exclude them from any discussion regarding why customers may, or more importantly may not be buying now. When various markets are thrown out of equilibrium by any number of market affecting legislative changes or other events, it seems that standard sales logic just doesn’t apply – usually to the eventual detriment of all involved.

I want to briefly look at why in a stable market, sales may not be achieving your desired goals.

I think that when you look at sales there are basically three aspects that need to be in place to be successful. Some may point to a multiplicity of other factors, but I think when you net them all out, you get back to these three basic ones.

The first is relationship. I know. This is trite. Relationship blah, blah, relationship. There is a reason everyone says it is important. That’s because it is. Do you trust the guy that sells you a car? No? That’s partly because you know that once he sells you a car, you are no longer his problem. You are the service department’s problem. He is probably not going to talk to you or try to sell you anything else for a while, unless you decide you need another car.

In the business to business sales world, most sales people cannot achieve their targets by simply selling something to a customer every three or four years. They have to face their customer continually. What they do after the sale is probably more important than what they do before the contract is signed. That is if they hope to get another sale.

That is how a relationship is built.

The second is the ability to solve a customer’s problem. It might be a problem they didn’t know they had. Faster, better, cheaper are always items that come to mind. Understanding what a customer wants to do as well as why they want to do it are keys here. It is in essence providing an answer to their question.

The third is providing the customer with the proper reason to buy your solution. This is usually known as a business case. If you are ten percent faster, but twice as expensive, is this acceptable? It’s hard to say at this point without more information. However, it’s a much easier decision if you are ten percent faster and the same price as a competitor.

Having a great relationship with your customer, and a great product are no longer enough. There must be a strong enough financial reason for a customer to buy. The customer must expect a sufficient return on the monies that they invest in a product in order to get them to spend those monies.

This customer return can take several forms. Does it reduce their costs of operations? Does it allow them to gain more customers? Does it allow them to get more revenue from their existing customers? And just as importantly, when does it allow them to recognize these returns. These are all very definable and quantifiable numbers.

If they are not, then in today’s business climate and environment, you may have an issue closing a sale. Quantification of customer value is rapidly becoming the key to sales success.

It should be noted that saving a dollar this year is far more preferable than potentially saving ten dollars, five years from now.

It seems that suppliers can get seduced by the elegance of their own technical solutions to their customer’s problems. They have a tendency to forget that just because what they are offering may be technically better than what the customers may currently have, that no longer means that a sale is assured. If the customer cannot identify the quantifiable benefit and returns associated with the proposed purchase, and when these returns can be expected, then the expectation should be of a difficult or delayed sales process.

Just because they trust you and what you are offering is better doesn’t mean they will buy it.

It appears that it is more and more about money, and more specifically today’s money when it comes to sales. Preparing for future opportunities, or addressing potential opportunities, or enabling future applications may no longer be a good enough reason for a customer to part with their limited amount of funds set aside for such expenditures. Customers are recognizing that if the sales discussion involves future benefits to them, then it also means that the actual purchase decision can probably be delayed to that future time when it coincides with those future benefits.

In today’s business environment, if companies are going to spend their money, they need to know what they are going to get in return. Not just the product or service that they are purchasing, but the quantification regarding what the purchased items will mean to their bottom line. How much of a reduction in costs. How many more customers. How much more will they be able to charge.

If today’s product will enable an as yet undefined application or future capability, then it is probably wise to assume that today’s customer may in fact wait to purchase that product until that future application or capability is defined and the market for and value of it can be quantified. Being bigger, better and faster for the sake of being prepared for the next big thing and the potential associated end user demands that go along with it, is probably no longer going to be a good enough reason to purchase.

If your customers aren’t buying, and there is no discernible, market wide issue causing a broader customer industry slowdown, then it is probably a good guess that the appropriate customer spend business case has not been made or met. As markets evolve to this technical solution – appropriate business case model, the solution price will remain a key aspect of every opportunity, but not so much from the aspect of how much a customer has to spend, but more from the point of view of how much the proposed solution must recoup in value for the customer, and as previously noted and just as importantly, how long it takes the customer to recoup it.

It is also possible that this lack of an appropriate specific return customer business case can turn out to be the broader customer industry slowdown, since all customers seem to be heading this direction. It can also depend on the relative competitive starting point for each customer in their respective markets.

It doesn’t seem that being bigger, better, faster or prepared for the next new thing will remain as good enough reasons for customers to buy. It appears that it will not be what the proposed customer solution operationally or technically does, but more what it financially does for the immediate benefit of the customer’s bottom line that will be the purchase decision criteria.

Future Jobs

This is a tough topic to tackle without sounding too trite or stale. But I now have children entering the job market and I have been continuing to do some networking with several people who are in a job search mode so it is on my mind. As usual I got to thinking about where to go and how to position for the jobs of the future. With the continual drive for cost reductions and all the talk about bringing certain jobs back on shore (as others continue to go off-shore), is there truly a way to future proof what you do for a living? I don’t know for sure, but as usual I do have a few thoughts on the topic.

It must be acknowledged and accepted that the rules of the game are changing. We must adapt or it probably will not end well. There will be those who will stubbornly hold out the hope for a return to the days when this country could manufacture and build its own products, and people could earn a living doing it. This was an ideal and golden time, but as we have all seen, there may be scattered exceptions, but by and large that economic structure has gone.

I think this was only the start. Almost every role that can be defined within an organization, can be subject to the same risk of off-shoring, out-sourcing, or whatever description you may choose to use for being moved to a cheaper labor oriented area. Production was moved off-shore because the labor was cheaper. The quality may not have been as good initially, but that can be and for the most part has been rectified. We all wanted the cheapest products possible, because they were good for the bottom line.

We have already seen instances where financial and accounting functions are being out-sourced and off-shored in the name of reducing costs. These are largely looked at as internal functions. They are usually associated with the overhead costs and functions, and as we know, everyone wants to reduce overhead. There are many people across the globe who are trained in the financial and accounting disciplines that perform these functions cheaper than they can be performed here.

We have already seen many instances where Research and Development, what was once a cornerstone of our growth engine, have been moved off-shore to lower cost countries. It seems that there are also many places with smart people who can write code and create products, with many of them working for significantly lower costs than here.

We have also seen the relocation and / or reduction of some of the Human Resource functions to other locations. Many of the repetitive steps associated with the simple recruiting and support functions can be and have been moved to lower cost countries. There has also been an explosive growth in the utilization of self-help and web portals as replacements for actual people.

Service and support is also similarly questionable. It is possible that this trend specifically associated with service may be reversing, but it is still highly probable that when you call for help or support on many products, your call is directed to an off-shore, low cost call center somewhere else in the world. People who predominantly talk on the phone as a function of their job, can have a phone to talk on in just about any low-cost country.

So, against this type of cost cutting and low cost country focus, what do we do for a living going forward?

I think for starters focus on one word: Customers.

The majority of business functions and disciplines that are at risk in being moved to low cost countries do not interface with customers.

Yes, I know that call centers and service have moved off shore and they deal with customers. And again, by and large customers don’t like it. It has been surveyed and noted as a major customer dissatisfier when it comes to support from vendors. And if given a choice almost every customer would prefer to deal with someone in their own time zone and their own country when it comes to support.

As I said, companies are recognizing what their customers want and this trend may be slowing, if not reversing as some of these service related positions return on-shore.

One of the inviolate axioms of business to business commerce is that “People buy from People”. It used to be the same for business to consumer commerce, but the internet seems to be changing that for commodity type transactions. I’ll get to that part a little bit later.

Selling will always be a function that requires direct customer interface. It will also invariably require face to face exchanges between the seller and the customer. In short, it cannot be off-shored easily, if at all.

As we continue to evolve to a service oriented economy, and as products continue to become more and more complex as well as more commoditized and interchangeable, having people who have the ability communicate specific value propositions, and more importantly be able to sell those value propositions in the new economy will be at a premium.

On the reverse side of the selling to customers, will be the implementation of the complex products and services that have been sold. It doesn’t matter if it is a good or service that has been sold. This brings us to the operations team. The reality is that most customers will not accept a “Do It Yourself” approach to the implementation of the good or service that they have purchased. They are usually going to want the company that sells it, to also be the one that puts it in.

Again, the direct customer interface from the operations team on the implementation of the customer’s purchase will be a key to that customer’s satisfaction, and potential future purchases. It can’t be off-shored and it can’t be minimized in its importance. The best product in the world can be sold, but if it is not implemented well, the customer will not be satisfied. This will be the case with both product and service implementations. Having good customer interfacing operations teams will also be a non-negotiable requirement for the future.

I have looked at specific individual customer interfacing roles up to this point, but what about broader multiple customer roles, such as Marketing?

For the most part in the past I have considered marketing an overhead function with a two-drink minimum. This is said with just a little tongue in cheek. However, if we note that individual customer interfaces are important then it is not too far a leap to expect that individual markets are important as well. Even though there is much written about the “global” economy, I don’t think that goods and services can be positioned and marketed the same way in Canada as they are in Brazil.

No one in Brazil will know what a Tuque is, and I have met very few in Canada who understand the importance of a good Caipirinha. Expecting one marketing approach to work in both regions will probably not be a good recipe for success. I do not think there will be a good or reasonable substitute for local market knowledge, cultural awareness, presence and positioning.

I suppose that the same could be said about lawyers and the specific legal requirements of each market. However, the less said about lawyers, the happier I find myself to be.

So where does that leave the organizational and business jobs of the future?

I think that it will be those outward facing, and customer interfacing roles that will be the jobs of the future. I don’t believe that customers will stand for the out-sourcing and off-shoring of them. It is the personal relationships and the trust that is built by direct customer interface that is the basis of a successful business relationship. There may come a time where that changes, but that may be in the “next” generation of business.

That means that the internal facing business and organizational roles are at risk as a function the eternal drive for lower costs. Accounting, Finance, HR (some of the functions), Research and Development and Production / Manufacturing, all to one level of success or another can be and have been sent to lower cost countries.

What is also interesting to me is that historically a little more than forty percent of CEOs that are hired come out of the finance discipline. In good times this number percentage goes down as growth is a focus and in tougher times it goes up as the bottom line takes on even greater importance. Many others come from the accounting and engineering functions as well. My point is, as many of these internal accounting, finance and engineering functions get out-sourced, where will the future leaders come from?

If these entry level (and other) types of roles and positions are sent elsewhere, where will the future leaders get their starts. It is in these roles that we learn and gain experience. If the roles aren’t there to provide the experience and jumping off points, are companies also off-shoring the development structures that the future leaders have used to get started?

This could mean that in due time, future leaders would predominantly come from those countries that the jobs were off-shored to.

The Short Horizon

As the pace of business continues to accelerate, there seems to be one aspect of the business process model that is struggling to keep up: The Business Case. There was a time where capital expenditures were looked upon as long term investments by the business. The life-cycle and pay-back processes, as well as the accounting amortization of these investments, were expected to last years, and in some instances, even decades. The average business case became attuned to these norms.

But those days are long gone. As the speed with which technology has changed has continued, by necessity the business case used to justify the new or incremental investment has needed to become shorter. If Moore’s law of eighteen-month capability doubling (it was actually Intel executive David House, who predicted that chip performance would double every 18 months. Gordon Moore, for whom the law is named, was the co-founder of Fairchild Semiconductor and Intel, and whose 1965 paper described a doubling every two years in the number of transistors per integrated circuit was the basis for the coining of the “law”) is to be believed, then the asymptote for the length of an acceptable business case should approach that eighteen month to two year limit as well.

That doesn’t mean that a product’s useful life is only limited to eighteen months. I think quite the contrary. There are aspects of the Public Switched Telephone Network (PSTN) that have been in place for more than fifty years, and are still providing beneficial service to the communications carriers and their subscribers alike.

On the other hand, people are known to line up and over-night camp out every eighteen to twenty-four months in order to be the first to get the next generation of the Apple iPhone.

It appears that customers who are being asked for either capital or operational expenditures associated with technology oriented products, are driving their partners and their vendors to ever more rigorous and aggressive value propositions and rates of return. This is the genesis of the short horizon business case.

The simplest definition of value is how much money is made or saved over what period of time. The more you make, or the more you save over a given period, the better the value. In the past it was acceptable for a business case to extend out over a long enough time period as to show an acceptable return. If the initial business case for the sale didn’t make sense for one period of time, it was easy just to lengthen out the time frame until it did.

What appears to be happening is that as the rate of technological based product change has continued at the speed of Moore’s Law, the period that a customer is willing to measure value has shrunk. Business cases still need to show the customer value, they now must do it in far less time. The tried and true form of extending the business case period to make the value and pay back equations work is now gone. Customers will no longer accept it, and are driving for shorter and shorter review periods.

I think there are several factors in addition to technical obsolescence that are helping to drive a short horizon on the business case:

As each new generation of technology arrives it almost exponentially drives down the (residual) value of previous generations. I think it is no secret that one generation old technology is viewed as old and disadvantaged, and that two-generation old technology is probably approaching the zero value state. We have all seen this in our consumer based technology purchases as well. Products get old so quickly that we have developed a disposable attitude toward them. With Personal computers now going for a few hundred dollars, what is the value of a two-generation old computer? What was once repaired and retained is now simply expected to be replaced.

How would consumers (and manufacturers) react if the same logic was applied to say, automobiles and two to three model year old car was considered almost valueless?

We also see (comparatively) decreasing operational returns as each new technology generation is introduced. This means that as each new product gets smaller and more efficient the value of generating operational savings associated with the previous generation of product also tends to get devalued.

The idea of saving something with what you have is not as attractive as the possibility of saving more with something new. I guess this is what they call “Marketing”.

I think one of the final evolution’s of the short horizon business case is the “Cloud”. I am sure everyone has heard of this thing. It’s in all the magazines.

One of the many ways that manufacturers and vendors have adapted to the evolving business case rules is to try and remove both the obsolescence associated with technology and to more closely align the delivered solution with the customer’s need. The idea being that if a customer only needs a four-unit solution but the technology only comes in six or eight unit increments, there is a delivered solution miss-match.

By delivering a function from the cloud as opposed to a product based solution, the vendor has effectively removed technology obsolescence from the customer’s decision process, as well as matched the required amount of solution with the required amount of need.

The net result is a much shorter period needed to achieve the required business case. Customer purchases can be made in smaller increments, which in turn only require smaller pay-backs. Future product purchases and existing product obsolescence are removed from the customer’s decision criteria as the customer is now only purchasing the product’s function, not the product itself. The obsolescence issue, and all the other costs associated with operation of the product are now retained by the vendor (and should be built into their business case).

The continued drive for more value has driven customers and business cases to the short horizon. Capital for technology can no longer be viewed as a long-term investment. It must be judged and justified by how quickly it can pay back on its cost and the relative business value it generates. It is this drive for better business returns that continues to reduce the time scale associated with the business case.

This trend would appear to potentially be a seed cause for future changes to the way business is conducted. On one hand it will continue to make the sale of capital based technology products more difficult. By demanding shorter pay-back and business case periods, customers are in essence expecting lower prices for products, and higher value delivered. That is a demanding and difficult environment for any supplier.

It should also continue to drive product virtualization and the Cloud as ways for suppliers to retain costs and risks, and hence remove them from the customer’s business case. This will continue to be an interesting market, but not all technologies and products may be potential candidates for the cloud.

It could also be argued that a potentially unexpected result of the drive to align business cases with product life cycles could be the reversal of Moore’s Law. It has long been expected that there is some sort of limit to the capacity doubling process. It has been going on for over fifty years. There are recent articles in no less than the MIT Technology Review, Ars Technica, and The Economist (to name just a few) that are now stating that Moore’s Law have in fact run its course.

And this may also be of benefit to business. If customers want to align their capital business case length with the product’s life cycle, and the current eighteen to twenty-four month life cycle of the product makes this increasingly difficult, then one of the solutions may be to lengthen the product life cycle to more than twenty-four months. If there truly is a link between business case length and product life cycle, then this could be a possible solution.

This will be an interesting cause and effect discussion. Is the potential slowing of Moore’s Law going to cause the reversing of the short horizon trend associated with customer’s business cases, or is the demand for short horizon business cases going to accelerate the slowing of Moore’s Law due to business necessities? Either way, customers are requiring businesses to change the way they put together the business case for capital technology sales, and that is having a significant effect on how business can successfully get done.

Products and Markets

Good sales people only need a couple of things to be very successful: the right products and the right markets. The corollary here is that even with these things, bad sales people will not be successful. That’s why they are referred to as bad sales people. The question then arises: How can you tell if you have bad sales people, or the wrong products, or are in the wrong market? This is a set of questions that senior management must always answer every time a sales target is missed.

I’ll deal with the sales person discussion first.

Sales people are invariably success and compensation driven. They are also usually in a leveraged compensation type of role. That means that the level of their total compensation is directly associated with the amount of sales that they generate. Sales people are essentially risking part of their compensation, and betting on themselves in that they will be able to not only achieve their sales goals but also exceed them in order to maximize their compensation. Think about that for a minute.

People in marketing don’t take this risk and have their total compensation directly linked to the number or the success of the parking programs and campaigns that they create. People in research and development don’t take this risk and have their compensation directly linked to the number of products, the time it takes to develop products or the customer or market applicability of the products they develop. Accountants don’t take this risk and have their compensation directly linked to the quantity of numbers they crunch or the time it takes them to crunch them.

They may be indirectly linked in the form of management reviews, ratings, and bonuses, but for the most there is not the quid pro quo defined “if you do this, we will pay you that” sort of compensation relationship that you find in sales.

What this usually means is that when viewed over reasonable time frames, sales people are either successful (achieving or exceeding their sales targets and getting paid lots of money, receiving both recognition and rewards as compensation) or they don’t get to be sales people for very long. They can’t afford to be bad sales people because they won’t make enough to survive. They usually either thrive, or don’t survive.

So despite what every investment prospectus may say to the contrary (past performance is no indication or guarantee of future success), if the sales people have been successful in the past, and they are still sales people, it is a pretty good indication that they can be expected to continue to be good sales people.

What is interesting is that despite this knowledge, most management will immediately examine and possibly blame the sales team should each new sales objective not be met. I think that this is because it is the easiest approach. After all, we all know that sales can’t really be that difficult, and that sales also comes with a two drink minimum for the cover charge.

What I’m going to briefly look at here, is what do you do when you have a proven sales force, but you aren’t achieving the market success that you are looking for. That means that you need to be looking at your products and your markets.

Let’s look at the next easiest factor to review, the market.

For this analysis I am going to pick something that we can all probably agree is a good product, that being energy efficiency. It can be an actual product that reduces energy consumption. It can be a service that results in reduced energy consumption. In this analysis it is a hypothetical product that has a definable value in the amount of energy consumption that it reduces.

So in what market would this energy efficiency product do well?

That market would not be, as one might erroneously think, the market where the most energy is consumed, and hence the greatest savings could be generated. If that were the case all products of this type would be very successful in North America and the US specifically since it is one of the biggest consumers of energy in the world. While there continues to be a growing interest in energy conservation, the success of energy conservation products in the US has not been commensurate with the energy consumption market opportunity. In fact, energy consumption has increased over the period of time, not decreased. This is due to the relatively low cost per unit of energy in the US.

The greatest market opportunity would more correctly be identified as the market where there is the highest cost per unit of energy consumption.

Going a little further with the market size versus unit cost example, the average cost of a kilowatt hour (kWh) of electricity in the US is approximately $0.10. The cost of the same kWh of electricity in Brazil is approximately $0.165, or almost 65% more expensive. That means the value of the energy savings per dollar spent on the energy conservation product will be 65% greater in Brazil than it will be in the US.

There are approximately five times as many kWh per capita consumed in the US as there are in Brazil, making the US by far the bigger market opportunity, but the value per unit savings in Brazil make it the more attractive market (at least initially) for energy savings products. When it comes time to create a business case where money is being spent in order to reduce future expenditures (save money in the future), greater savings will always equate to a better business case.

In short, it will be more difficult (currently, from a financial business case point of view) to sell energy conservation products in the US than it will be to do so in Brazil. From this point of view, the better market would be Brazil.

At a very coarse and high level this is the type of market analysis that needs to occur for all types of products when preparing to enter markets, as well as when going back and analyzing why a market objective may not have been met. It answers the question is the market the right fit for the product. It also clearly points out that one size will not actually fit all.

In looking at the final scenario, we will assume that the again we have a competent sales force and in this case have identified a market that we wish to address. Again there will need to be almost the same product versus market analysis done in order to identify if there is a proper fit.

If we use the same energy conservation product example from above, we see that while the US is a massive energy consumer the relatively low cost per unit of energy versus the rest of the world makes it a relatively poor market for energy conservation products. In other words, energy conservation products do not do as well in the US because US energy consumers (both corporations and individuals) can afford to not conserve (as much) due to the low costs per unit of energy used.

This would mean that for a global energy conservation product to be successful in the US market it would have to attack the market from some direction other that specifically based on the value of the energy saved. It would have to take the more difficult road of trying to quantify the value other “soft” benefits associated with the product.

These types of soft benefits could include but not be limited to: Attractive designs (Apple is a master at this), incremental functionalities (can the energy conservation product do other things besides save energy – a smart phone analogy), social responsibility (casting the product in the “greater good” social category versus solely in a corporate fiduciary role), and corporate leadership (the business case may not be great now, but in the future when energy costs are expected to increase it will be, and then you will be ahead of the curve). I am sure there are many others.

As noted these are soft benefits in that it is difficult if not impossible to define their value. That is not to say they don’t have value. They do. It is just difficult to quantify. However, price is always readily definable. And it is always difficult to sell a product with a definable price, but not a commensurately definable value.

If you find sales people capable of selling a product with a definable price, but not a commensurately definable value, you should do all you can to keep them.

Management will invariably first look at the sales teams when sales objectives are not met. A significant reason for this is the difficulty in looking at, or worse, trying to change markets or products. I do think in most instances it is the specifics associated with the markets and the products that will need to be addressed when sales targets are missed, as opposed to replacing sales people.

I have found that most of the time issues arise with obtaining sales goals because of the desire to sell a specific product into the wrong market, or the desire to sell the wrong product into the desired market. If the product is not readily modifiable, other more receptive markets need to be identified. If the market is the target, then the product needs to be modifiable to meet the specific needs of that market.

The sales force is indeed important, but it has always been about products and markets.

Arguing With Customers

If you have dealt with customers for any length of time you have probably run into a situation that is similar to this: You have a perfect solution to a customer’s problem. It can involve a product or a service. It can be minimally disruptive or invasive to their organization. It has a good business case and a quick pay-back for the customer. There is only one problem: The customer doesn’t see it your way and wants to do something else that is far less effective, and wants you as the vendor to foot the bill for their solution’s lost efficiency.

And now the argument starts.

The phrase “The customer is always right” was originally coined in 1909 by Harry Gordon Selfridge, the founder of Selfridge’s Department Store in London. It is a mantra that we in business have all had drummed into our collective heads since we left school and started working. So what do we do when we know in our heart of hearts that in this particular instance the customer is most assuredly wrong, or at the very least not as right as they could be?

I think the above quote might be an edited version of Selfridge’s original idea. There is absolutely no proof of the following, but I still feel the original quote probably went along the lines of something like the following:

“Depending on who has last spoken to the customer, and what they personally believe, what time of day it is, what they ate for dinner last night and the recent incidence of sun spot activity, the customer may be misguided, misinformed, misunderstood to the point of being potentially ignorant of all relevant information associated with the topic, but they are always the customer, and therefore that makes them right”.

In case you are wondering, I added the “sun spot” part myself, just for extra impact.

I think you can see why Mr. Selfridge condensed down the original concept into his now famous quote. The original was a bit of a mouth full and probably wasn’t as customer friendly an idea as he was trying to convey. I’m only guessing here as 1909 was a long time ago and Mr. Selfridge is no longer around to confirm or correct my position.

The point still remains however. Since the precept is that the customer is always right, we probably ought to rephrase the question to: What do we do when the customer has not arrived at the correct right answer?

One thing you can be certain of is that there will be no shortage of people trying to tell a customer what to think. Between you, your competitors, the customer’s internal peers and management, family members and pets, just about everyone will be expressing a view as to what the customer’s proper direction should be. Against this type of backdrop, it is easy to see why a direct confrontation or argument with a customer will not be the most beneficial course of action.

The simplest step in this situation is to check and see if that despite the fact that the customer wants something that is different from your most efficient, effective and elegant of solutions, are they correct? As rare as it may seem there are recorded incidences of customers actually knowing what they want and being correct. It does happen more than one might suspect.

If you can prove to your own and your management’s satisfaction that what the customer wants is indeed a wrong solution, then the next step is to determine who the solution is wrong for. Is it wrong for the customer in that it does not adequately solve their problem, or is it wrong for you the vendor in that it for whatever reason it cannot be defined as good business.

Good business is usually defined as a solution that can be provided (as opposed to one that cannot be provided or does not exist), can be provided profitably and within the time-frames desired by the customer. If the vendor cannot provide the solution or cannot provide the customers desired solution profitably, it is probably not good business.

Unfortunately, there are many recorded instances where despite knowing better, vendors have agreed to and accepted business that does not meet the “good business” hurdle as defined above. These not good business decisions are normally defined as “strategic business” opportunities. A good company can normally stand only so many of these types of “strategic” deals.

If the desired solution is in fact the wrong solution for the customer a logical argument can occur. If it can be empirically proven to the customer that the solution does not solve their problem, then a direct approach can be taken. Empirical proof usually involves numbers and financial comparisons, and not so much on the assumptions and estimates. When it comes to assumptions and estimates, unless there is some very good backing data, who is to say that yours are better than anyone else’s, especially the customer’s?

If you can show a customer numbers, and prove that something else might be a better solution, or save them more money, or (more difficultly) provide them increased value, then the pending argument rapidly just becomes a discussion.

If it turns out that the customer desired solution is wrong for the vendor, then the argument gets a little more involved. While much has been written about solution quality and functionality and such things, it seems that in these days of rapid product and solution turnover, price is the primary driving customer decision factor. If there is a vendor profitability issue associated with a customer desired solution, modifying or increasing the solution price is rarely an acceptable approach to resolution.

When I have encountered this situation, and after ascertaining that no amount of logical discussion is going to change the customer’s mind, I have found it best to at least partially change sides in the argument. By that I mean that instead of pitting one solution against another in some sort of winner take all sweepstakes, I have tried to decompose the customer’s preferred solution into its component parts to see which parts may be congruent with my solution, and focus on those as the opportunity to discuss.

Everyone likes to feel that they are right, and by focusing on the points where there is agreement instead of the overall solution where there is not, a vendor can focus on the aspects of the opportunity that can provide them “good business” while accepting that the customer wants a different solution. This approach is essentially the de-scoping of the aspects of the overall solution that cannot be profitably provided. It highlights where there is complete agreement between the customer and the vendor and where there is not. It also clearly, but not in a confrontational manner quantifies what the cost and value of the disagreement is.

I learned some time ago that all mutually healthy dealings between customers and vendors occasionally requires either party to tell the other “no”. Customers can very easily do this by simply selecting another vendor to fulfill their needs. This approach can be a little drastic but it is definitely guaranteed to get a vendor’s attention very quickly. Vendors on the other hand can only afford to act in a similar manner, i.e. firing a customer, if they have the entire market for the desired good or service cornered where they are the only supplier, or they risk such behavior at their own peril.

By breaking down the customer’s desired solution into its component parts it is possible to tell the customer both “yes” and “no” at the same time. A vendor can say yes to what makes sense, and no to what doesn’t.

When there is contention between a customer and a vendor over a solution, look at the subsets of the total solution where there is agreement, instead of the total offered solution where there is not. This approach serves the twin functions of communicating to the customer where the issues are with their desired solution as well keeping focused on the primarily profitable business that is beneficial to the company.

Just be prepared for the phrase “You have to take the bad with the good”, but that will be another discussion. At least at that point you are negotiating.

A Race to the Bottom

I had a phone call drop the other day. It wasn’t a big deal. In this wireless world I think we have all had phone calls drop. We also get static, interference and garbled messages, but hey, we’ve gotten used to it. The difference was that this call wasn’t a wireless call. It was a call using a land line desk phone. Come to think of it, having a land line call drop isn’t such an uncommon event these days either. I have commented in the past that not quite good enough is now good enough. I think this is just a symptom of what I call a race to the bottom.

Benjamin Franklin once said:

“The bitter taste of poor quality remains long after the sweetness of low price is forgotten”

I think for a very long time this was the case. It was accepted that there was a trade-off between quality and price. However it seems that times have changed. What was once true in a handmade, almost artisanal world does not seem to apply quite so steadfastly in the modern, mass production, readily interchangeable, short life span high technology world of today.

It used to be that you could get things cheaper but they invariably didn’t last as long as the more expensive better made items. This was a period when it took a while to make just about anything, and it was a requirement that it last based on what it cost to acquire. Back then when you bought something you expected to have it for a while. You expected quality almost directly in proportion to the price that was paid. You paid less, you expected less. If it wasn’t high quality you were going to have to live with that mistake for a while. As a manufacturer your reputation rested on every product you made.

I think the new approach today is to ask what is the best “relative” quality available at the absolute lowest price. Now it seems that the search is for as much quality as is obtainable at the lowest price. It is a somewhat subtle change in the relationship between price and quality, but I think it is an important one. I think in today’s world Ben Franklin would be asking what the minimum quality level is that can be endured at the target price point.

We are no longer buying quality. We are buying price and hoping for quality.

I guess that there still is a relationship of sorts between quality and price, it’s just that now it seems almost impossible to up-sell a customer (raise the price) based on quality. If you are not the cheapest, your chances of gaining the sale are probably going to be severely hindered by the other product that is the lowest price. Customers for the most part seem to view products as readily substitutable with each being able to perform essentially the same functions as the next, hence the “why pay more” approach.

I think it can also be traced somewhat to the public perception in the change of relative life expectancy the products. The shorter the life expectancy of a product, the quicker the next generation or replacement product hits the market, the more it seems that there is a tolerance for lower quality. It came out quick so a few bugs are always expected initially. As we have moved into the disposable high technology world, it seems the more tolerant the market is of lower quality, as long as the product is available for cheap.

Just over fifty years ago Gordon Moore noticed that technological capabilities doubled roughly every eighteen months. It seemed everything got either twice as fast or half as small on a very regular basis. This observation strangely enough became known as Moore’s Law. It basically ushered in the era of short product life cycles and rapid product replacement.

I have mentioned several times that I am probably a dinosaur. I remember (vaguely) my parents color television. All twenty three inches of that then massive cathode rate tube screen. Wow, what a monster. I also remember the repairman actually coming out to the house once or twice to repair it. Of course this was across the approximately fourteen years of its operational life in their living room.

Now televisions are huge with many larger than sixty or seventy inches. Unfortunately they are only expected to last a few years. Then they either break and must be replaced since the cost of repair is now so prohibitively high as compared to a new one, or are just replaced by the newer level of product technological advancement.

My point here is that while the absolute cost of the product may have come down in both real and time adjusted costs, I don’t think the total costs across the sample period have actually been reduced. In other words, the total cost of ownership across fourteen years and two repair visits is probably far less than the three to four televisions that might be expected to be purchased across the same time period today. However, it is only fair to note that who can say what the capabilities of a television will be in fourteen years at its current rate of evolution.

It seems again if you have a short technology cycle, short life expectancy, readily substitutable, mass production product, such as televisions, or smart phones, or personal computers, or just about every other electronic platform in the market today, quality is not the concern. Price is. And when that happens it looks like the race to the bottom is on.

The reason that I have gone into such belabored detail on what is obviously a consumer goods example is that it has been the bellwether for the business world as well. Let’s get back to my dropped call scenario.

For the longest time the communications infrastructure was a source of pride. I seem to recall when “five nines” of reliability, no down time, and always being able to place a call were proudly pointed to aspects of both the public and private communications systems. You could not get a higher quality infrastructure.

So you didn’t. You got a cheaper infrastructure. It now experiences issues and outages that in the past were unthinkable. And over time people have accepted it. Quality was sacrificed for price. You don’t hear anybody asking “Can you hear me now?” We all seem to be okay with it. We seem to have lost the drive and desire for “better” and have just settled for “cheaper”.

I don’t know if it is the consumerist behavior driving the business world in this direction or the business world drive for newer and cheaper technology that is stoking the consumerist behavior. As the apparent acceptance by customers for low quality continues, even though there seems to be an inordinate amount of business focus on creating the “relative” quality levels in technology products, price becomes an ever greater decision criterion. This trend can only benefit the low cost producers and providers in the market.

When quality is addressed as a cost as in the “cost of low quality” as it is measured today in business, instead of a generated value to the customer, then I think the bottom may be in sight. Feature, form, fit, function and quality no longer seem to be viable differentiators in the eyes of customers. Price and its financial partner, cost, now seem to be all that matters.

Maybe Ben Franklin was right in his time. I think Kurt Vonnegut may be right in this time. He was the one that said:

“In this world, you get what you pay for.”

The only issue now, is that we don’t seem to be willing to pay for it.

Trophy Hunting

I was having a discussion with a friend the other day, and he made an interesting comment. He said that we were now in the day and age where a man could go and do what he likes to do, and what so many others had done before him, but now could wake up the following morning and have ten million people worldwide, hate him for doing it. He was referring to the hunter who killed the lion a few weeks ago in Zimbabwe, Africa. I think his name was Cecil. The lion, not the hunter.

Here is a man that has lived his life in relative anonymity, at least with respect to the ten million people worldwide that now hate him. He had gone about his business (as a dentist I think), and probably conducted and acquitted himself well. He must have, otherwise he wouldn’t have been able to afford the relatively astronomical costs of flying half way around the world to pursue his desire to hunt big game.

He had been doing it for years (Big Game hunting that is). By several accounts he was very successful at it. Others have also been doing it for years. There are a lot of people around the world that do this. It is also a significant source of income for Zimbabwe in the form licenses from the state and fees for guides, and the costs associated with outfitting the trip. It is the commerce of big game hunting. There is a lot of money involved, and remember that Zimbabwe got paid all their fees well before Cecil got shot.

I also remembered (and through the wonders of Google went back and verified) seeing pictures of the famed author Ernest Hemingway on the cover of various magazines posing with various dead lions, leopards and water buffaloes that he had shot while big game hunting in Africa. He was also a big game hunter. Nobody thought Hemingway was a schmuck for shooting them. On the contrary, he had an image as a man’s man.

I suspect that none of the animals that Hemingway shot had a name though. It was probably a time where people didn’t name wild lions.

This is what happens when you shoot the wrong lion.

People also didn’t seem to mind nearly as much when Ahab went after the white whale that they named “Moby Dick”. That could possibly have been because that was an instance where the big game trophy fought back and actually won. I suspect that Moby was also probably not some country’s national pet.

Now back to the topic. Here was a man from Wisconsin, who flew half way around the world. He complied with all the legal requirements of Zimbabwe, hired a supposedly knowledgeable guide, and achieved his goal of shooting a lion. He didn’t break any laws. It appears that he was in an area where it was legal for him to shoot a lion. He had paid for all his licenses and permits. As I said, he just shot what turned out to be the wrong lion.

Now ten million people hate him. He is in hiding and can’t go back to work, which he obviously must do if he ever expects to be able to afford the now increased prices that Zimbabwe is charging for big game trophy hunts. It seems that everyone else who wants to hunt big game in Zimbabwe will also have to pay these higher fees, not just dentists from Wisconsin.

So, what does all this have to with anything?

I draw several parallels to business from all this. The hunters in business are usually called sales people. They are the ones that go out into the field, search out the opportunities and try and bag the mythical big game creature known as an “Order”. This is what they are paid to do.

As we all know, orders are the life-blood of any business. But not just any orders. It is orders for products and services that the business can actually supply that are desirable. It is also desirable that these bagged orders come with requirement of profitability. That means that by getting these orders the business can sustain itself and hopefully grow.

The guy who shot Cecil wasn’t doing anything like this. Shooting Cecil wasn’t going to enable the dentist to sustain himself or grow in any appreciable way. I don’t think that you can actually eat lion meat. At least I have never heard of it. He was shooting Cecil because for whatever reason, he wanted to be able to say he had shot a lion (in general, I think Cecil was just the unlucky individual).

What this brings up, is what should be the first law of hunting: If you don’t want someone to do something, don’t make it legal, or allow them to do it. If you don’t want the hunters to bring you undeliverable or unprofitable orders, make a rule or law that indicates this is not acceptable behavior.
If you don’t want Cecil specifically to be shot, make a law that says you cannot shoot lions. Cecil was a wild lion. He was in the wrong place at the wrong time and a dentist from Wisconsin shot him. It could have easily been prevented if Zimbabwe had just said:

“We no longer allow anyone to shoot any of our lions, regardless of the foolish amount of money they are willing to spend or offer us to do so.”

The second law of hunting should then follow on or corollary and be: If something is allowed, or not specifically disallowed, don’t get mad at people when they do it. Hunters are focused on the goal. Bag the order. Bring down the target. If you are not specific about the type of orders to get and the requisite behaviors to be demonstrated during the hunt, you cannot be unhappy when improper, or undeliverable, or unprofitable orders are presented.

Zimbabwe had said in effect:

“You can hunt our lions.”

They didn’t say you could hunt every lion but Cecil. They did say you couldn’t hunt lions in certain areas, and to my understanding those areas were actually avoided by the hunters in question. I guess nobody ever thought that a wild lion in his right mind would ever leave a protected area where he couldn’t be hunted and wander into an unprotected area where Wisconsin dentists were hunting lions.

I think what we have learned from the adventures of Cecil and the dentist can probably best be described as the third law of hunting: In sales, like big game hunting, trophy hunting is probably not a good avocation.

In sales there are those that hunt orders to sustain and nourish the business. As I said, these orders are the life blood of the business. There are very few if any of these orders that are mounted and put up on the wall where people can come in and see what a ferocious order was bagged.

And like sales in this instance there are hunters who actually utilize hunting as a way to provide sustenance to their family or group. I don’t think anyone can have an issue with this type of hunter. However in the instance we are discussing, I don’t think this was the final disposition of Cecil. I believe he was destined to end up as either a rug or in a semi-ferocious mounting on the wall of some dentist’s office.

One of the best ways to tell if a sales person is trophy hunting or not is if they use the phrase “Strategic Business”. If they use this phrase, chances are that they are either looking for a lower price or trying to mount some sort of big game trophy on the wall, as opposed to actually doing the business that the business needs or may want. In that way trophy hunting doesn’t really serve a purpose in business. It may provide a nice visual for a wall but it doesn’t provide any value to the business. If it doesn’t provide a value, why do it?

If the dentist in Wisconsin knew this earlier, he probably wouldn’t have shot Cecil, and definitely wouldn’t be hated by ten million people, worldwide now.

The Customer Pendulum

Customers are interesting things. They are the source of all business’ survival. They are hard to find and easy to lose. Many times they don’t know what they want and are almost always not willing to pay for what they need. They are fickle with their allegiance and occasionally are not entirely forthcoming about their preferences. They are part of and are sometimes caught up in a changing environment that most of the time they may not be prepared for. It would probably be possible for a vendor to solve the customer’s problems, if only those problems would remain unchanged for any sort of measurable time.

But they don’t.

Customer’s problems change. The very act of solving one problem invariably creates, or at the very least reprioritizes another problem.

Please don’t get me wrong. This is the way of business very much in the same way of Darwin’s Theory of natural selection. I’ll use the evolutionary speed race between cheetahs and gazelles here.

Faster gazelles mean that only the fastest cheetahs are selected to survive as they are the only ones that can catch the gazelles. This means that the next generations of cheetahs are based only on the faster bloodlines.

Now, the next generations of faster cheetahs mean that only the fastest gazelles will be selected to survive as the slower ones will fall victim to the cheetahs. This means that the next generations of gazelles will be based only on the faster bloodlines.

Now only the fastest of the faster generation of cheetahs will survive.

And the pendulum continues to swing from one side to the other.

I am going to focus on business services here because I think it best illustrates the changing focus, and the swinging pendulum of customer desires. In the business world of services there are no gazelles and cheetahs, but rather there are prices and service levels. There may be those that may try to interject other variables into the service customer equation, but the reality remains primarily associated with these two variables. The interesting part of this price and service level relationship is that only one of them seems to vary at any given specific time.

In the initial stages of the vendor to customer relationship the primary variable will be price. (There may be times where this relationship may be referred to as a “partnership”. This would be inaccurate. Partnerships of the sort implied here take time to evolve. Particularly when there is an ongoing service based relationship.) When a customer is looking to enter into a business services relationship, they are initially looking for a vendor.

This is due in no small part to how most customers go about entering into a services relationship. They will invariably set a minimum required performance level for the services they want, and then look to the vendor that agrees to provide them the greatest cost reduction from their current spend level at the selected service level. That means they are looking for the vendor that bids / quotes them the lowest price.

Of the two variables previously noted, price and service level, they have fixed the service level and are trying to vary the price to the lowest level possible. If the price for the desired services is low enough (as opposed to the total attracted cost that they are currently paying) they will select the vendor and sign a contract. If it does not return sufficient savings the customer will usually stay with the service arrangement that they currently have and avoid any service provision change event issues.

Once the service contract is signed, the price for those services is now fixed. The customer focus will now shift to the service levels associated with the service. Requests for incremental service or services and faster solutions to issues and problems will become the focus.

It is at this point that a relationship can begin to become a partnership.

Businesses want to help with and solve their customers’ problems. That is the value they bring and why customers buy their services. One of the things to remember is that customers associate value with that which they pay for. That means if you give them something for free one of two things will happen. They will either associate no value with what you have given them (since it was free) or you will have established a new service baseline where what you have given them will be incorporated into what they expect going forward. You will in effect raise the service baseline performance expectation going forward.

And once the new increased service level baselines are set the next generation of discussions (or contracts) will once again be focused on the price of the new service level.

And the customer pendulum will continue to swing, price, service, price, etc.

The point here is that despite their best intentions, vendors need to resist the urge to provide quick and cost free solutions in an effort to engender customer gratitude. There will always be times where quick support decisions will need to be made to support the customer, but it is always in everyone’s best interest to go back and revisit them after the issue has passed. Providing “freebies” provides some credence to the customer perception that once the price is set, they can continue to push for a greater scope of work to be provided.

A partnership has to have more of a connotation of a peer to peer relationship instead of a customer to vendor relationship. That means that there is a give and take instead of just an ask and take oriented relationship. If something is provided, then something should be asked for in return. It does not need to be strictly quid pro quo, but there needs to be some sort of cost or consequence associated with each request and action in a business services relationship.

Contrary to what we might feel, without some sort of cost consequence for their requests, many customers will only more deeply ingrain their vendor type perception of the relationship. The customer asks, the customer gets and it is up to the vendor to figure out how to provide it and continue to survive in the relationship. Businesses need to remember that making a customer happy by giving them things does not create a partnership. It usually just creates an expectation that more can and will be given in the future.

One of the best ways to stop the customer pendulum from swinging and creating a business partnership is to focus on the customer’s business service needs while remembering your own business needs. Being responsive as well as empathic regarding the customer’s issues will go a very long way in this regard. It is also necessary to educate the customer on the supply side issues in the service equation and the requirements that are required for a viable business relationship going forward.

I don’t know that you can ever get a customer to be fully empathic about the issues and costs associated with solving their service problems, but educating them about what it takes to provide them service can probably go a long way toward getting them to acknowledge and accept the bill that should be presented to them after the issues have been solved.

Forecasting: Gaps and Plugs

It has been raining here in Dallas. It has actually been raining a lot here in Dallas. It is week twenty of a fifty two week year and we have now officially had more rain in the last twenty weeks than we had ALL of last year. The drought that has plagued us for the last four years is now officially over. The lakes are full. It can now stop raining. Please.

The reason I bring all this up is because it points out that at least for the last little while the weather forecasters in this area have had it pretty easy. All they had to do was mention the word “rain” in their forecasts somewhere and they were golden. They were going to be right. It was probably going to rain.

But even that didn’t seem to be good enough. It now became a forecasting contest to see who could be the most accurate in predicting the amount of rain we were going to get each week with each ensuing storm. Even this doesn’t seem too difficult. It’s week twenty and we have had almost twenty two inches of rain. I’m usually a pretty good numbers person, but this one should be pretty easy for everyone. We are getting a little more than an inch of rain a week here.

Forecasting. Go figure.

If only forecasting orders in business could be so easy.

For the most part it should be. We know how much rain (or how many orders) we already have. These amounts are called “actuals”. As an example, in Dallas we have actually had twenty two inches of rain so far this year, or “year to date” as we like to say. Management likes to work with trends. If we are trending at a little more than an inch of rain a week, they will more than likely expect at least another thirty three inches of rain over the next thirty two weeks. (Did you catch that? I told you I was good at math).

Knowing that everyone expects their fourth quarter to be their best quarter (for orders) they could conceivably expect even more rain, but we won’t get into that at this point.

Extending this example a little further, we could now say that we have a “gap” between the twenty two inches of rain that we “actually” have year to date and managements desired target amount of fifty five inches of rain for the year. This “gap” is obviously the target amount less the current actual amount. This is a pretty straight forward system and process. Take what you have and subtract it from what you want and there is your gap.

It works the same way for orders. Take the amount of orders you have (actual) and subtract it from what you want (plan) and there is your gap.

As time passes and more rain (hopefully) falls, the amount you have, your “actual” amount of rain, should grow and through the wonders of mathematics your “gap” to your desired annual rainfall target or plan should reduce.

But we have a slight problem. Despite what we have seen for the first twenty weeks of the year here in Dallas, we know that rain will not continue to fall at the rate of slightly more than an inch per week. We have a time here in Dallas that is known as “summer”. This is the time when you can replace the word “rain” in the forecast with the words “hot” or “heat”, and again be referred to as a brilliant and accurate forecaster. The only problem is that when it is “hot” in Dallas, it usually doesn’t “rain” much. It is usually dry.

Despite management’s belief and demand that twenty consistent weeks of rain performance does constitute an unbreakable trend, nature does not usually pay attention to these management expectations. There will inevitably be weeks where it does not rain.

Here is where weather forecasters and order forecasters begin to diverge. Weather forecasters would continue to look at the “actual” amounts of rain, compare it to the desired or “plan” amount of rain and calculate the “gap” or amount of rain needs to reach the plan. Order forecasters have developed this concept called a “plug”. A “plug” is something that is inserted into your forecast so that management can feel better about the team’s ability to reach the goal.

Dropping back to our weather and rain example, it can be expected to be both hot and dry in Dallas through most of June, July and August. It might rain occasionally, but it won’t rain at the afore mentioned rate of a little over one inch a week. It will be nowhere near that amount. Somewhere in late July or early August you can reliably expect the ground to dry out and start cracking due to the lack of rain. It would be fair to estimate that instead of the twelve or more inches of rain that the trend would show you to get, and that management would want, we might more realistically expect about two inches of rain in this period.

If this is truly the case, we would then expect to miss the annual rainfall plan of fifty five inches by as much as ten inches. From a weather and rainfall point of view this miss will probably elicit a collective “so what” from those of us who live here and see that the lakes are already full anyway.

If we are talking about orders however, this is unacceptable, unless you really want to invite a significant amount of management attention and assistance in your efforts to get more orders. So what happens here is that the orders forecasters understand that more orders are usually generated in the fourth quarter of the year than in the other times of the year, so what they will do is forecast ten weeks with more than two inches of rain in the fourth quarter.

Do they know if it will in fact rain this much? No. Is the plug amount twice as much as the rate for what is already one of the wettest years in a very long time? Yes. Do they have any idea as to if this increased performance rate is attainable?

In short a plug is something that is inserted into a forecast in order to make sure that the forecast ends up balancing with the desired annual target or plan. It is an as yet unidentified event or opportunity that is going to hopefully bring more rain after a dry period. In this example the forecasters do not know where they are actually going to find that extra / desired ten inches of rain that was missed in the summer, they are just committing to do it, somehow. It may not have any real substantiation, but it is now in the forecast so everyone now feels more comfortable about meeting the rainfall target.

The problem with putting plugs in a forecast is that they have a tendency to hide or mask an issue. As the actual performance diverges from the desired trend line, plugs have a tendency to be inserted. This may reassure some people that the target is still the target, but it does not solve the issue. Plugs are very good a defining what the problem is. The issue to be solved is how the lack of desired incremental rain is going to be obtained. Where is the incremental rain that is needed to reach the goal going to come from?

A “plug” in a forecast should be an alarm to anyone that sees it. A plug usually appears when there is a gap between actual performance and the desired goal. It is usually put in place to acknowledge that there is a gap and that there is every intention to try and close it. What it does is obscure whether the gap can in reality be closed and the goal attained. It provides the illusion of goal attainment when the reality may call for other actions to be planned or implemented.

There is a reason that weather forecasters don’t insert plugs into their weather forecasts. The lakes here in Texas for the last three to four years were well under their capacities. Water conservation measures were enacted to limit use so that things didn’t get any worse. Every year that the drought went on, the conservation efforts increasingly limited water use. Can you imagine what would have happened if rainfall “plugs” were inserted into the weather forecast in order to let everyone think that it was acceptable to continue to use water at the accelerated rate? When the shortage was finally acknowledged, it would have probably been too late and even more draconian measures would have been required.

Such is the case with orders plugs too. It is always best to acknowledge orders gaps and try to close them than it is to obscure them with plugs and have to deal with any potential shortfall consequences.