Welcome back!
We want to make the Corner Office Gazette E-Notes your go-to source for topical information regarding sales-force effectiveness, the productivity of your organization & staff, the rapidly changing world of executive compensation and those every-day decisions a senior executive must make. If I do not address issues of immediate importance to you feel free to call or write. My webmaster Christopher (comfortably residing on the east side of San Francisco Bay) also wants me to remind you that copies of our E-Notes from prior months are available at our website.
www.wilkeningco.com
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Our 20th anniversary is in the offing.
On September 5, 1989 Wilkening & Company was created to provide personal and high-quality advice to Chief Executives, Boards of Directors and top sales executives. We have helped over 80 clients hit a lot of home runs over the last 20 years and we come to the office daily ready to provide more of the same to our current clients and clients of the future. If you are not already a member, inquire about joining our team.
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Over the next few months, I plan to comment on some of the changes and trends we have seen in the areas of corporate governance, executive reward and sales-force effectiveness over the last 20-years. Come back in future months and see if you agree.
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NEXT TIME
—Sharing "ownership" with your executive team and others.
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THE POWER OF EMPLOYEE RETENTION—Impact on your Bottom Line
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| In July we told the story about the Chief Financial Officer who thought he could save a bunch of money by firing all of his costly experienced sales reps and replacing them with rookies. As the result of his prescription for "success," Wilkening & Company developed its Sales-Experience Curve that describes the quantitative benefits to all stakeholders of experience and tenure in the sales force—or in other like-skilled employee groups. (See our July E-Notes) |
| As I noted in July, the Sales-Experience Curve is a powerful way to analyze and look at intuitive day-to-day business decisions regarding your sales force. To help put relative numbers on this decision-making process, Wilkening & Company built a comprehensive financial model for sales-force value creation. It captures the effectiveness, profit contribution and costs associated with five years in the life of field sales representatives—from the time of hiring until their fifth anniversary on the job. Think of the sales rep starting at the bottom of the curve (at date of hire) and progressing upward along the curve until year five. |
| Our analysis indicates that the value to the company of a sales rep who progresses up the experience curve for 5 years will be roughly $159,000 on the date of hire. The company will break even on its investment in that sales rep in 16 months. This represents 5-years of sales activity and an average rate of progression. Clearly, their value increases as time goes on. |
| While that is an interesting conclusion in itself, comparing those findings to alternative rates of sales-rep progression over time is really compelling. For example— |
- A sales rep who progresses more rapidly up the experience curve and reaches premium levels quicker (120% of average) is worth $228,000 on the date of hire and the company breaks even in 12 months.
- A sales rep that progresses less rapidly up the experience curve and reaches premium levels more slowly (80% of average) is worth $116,000 on the date of hire and the company breaks even in 21 months.
- A sales rep who progresses much less rapidly up the experience curve and never reaches premium levels (60% of average) is worth $60,000 on the date of hire and the company breaks even in 32 months.
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| What does this say to the sales-force decision maker? |
- It pays to invest in tools to assure that a sales rep will improve their sales effectiveness as quickly and completely as possible. These tools can be sales-skills training, CRM technology and the like.
- A bad-hiring decision is the gift that keeps on "taking."
- The company has the ability (and available cash) to pay good performers much more than their poor-performing cousins.
- It pays to keep an eye on new reps to assure that they are not wandering around in the field and consequently not moving up their experience curve—as expected. This could be worth six figures over 5 years!
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| What else do you read in the data? |
| Lesson: Make the Sales-Experience Curve part of your sales manager's lexicon. Teach the concept, reinforce its value and run the numbers. |
| Wilkening & Company would be glad to adapt its sales-effectiveness value-creation model to your company. Please call or write if you would like to chat about it. |
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WHAT WE HEAR ON THE STREET
—A bit of evergreen advice from the past
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 Early in my business career (1975-82) I worked as an operating and financial executive for Gould, Inc. of Rolling Meadows, Illinois. It was a great place to work—there were few limits on what you could do or achieve.
I was recently paging through Gould's 1973 annual report (not on my regular bedtime reading list) and I found a copy of an article from the October 25, 1973 edition of Iron Age magazine. It was entitled: "When Business Booms It's Time to Cut Costs" by Bill Ylvisaker and Dan Carroll. I knew both Bill and Dan who were respectively the CEO and COO of Gould, Inc. during my tenure. They jointly were responsible for building an organization that tripled the size of the company by the early 1980's. Sadly, we have recently lost Dan Carroll.
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| The Iron Age article was a "how-to" piece on making cost control part of a company's culture. It discussed the tools that Gould used to measure success, set goals and drive responsibility for cost-management down to first-line managers or lower. Gould was really great at doing this while I was there. Let me summarize some of the keys to their success— |
- Forget relying upon the annual budget, there is always more cost reduction to be found; if you look for it;
- Everyone must have a stake in the end results—everyone (down to machine operators or clerks) should be committed to take action and their successes should be broadly advertised and celebrated;
- Every-day cost reduction must be part of the Company culture to be successful;
- Top executives (like Division presidents) must be on the line for results, and their success (or failure) should impact their annual bonus. At Gould, executive bonuses were generally quite large by 1973 standards and, you could bet, a bunch of your bonus was tied to cost reduction; and
- No function or activity can be immune from examination—this is not just an exercise for the factory floor.
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| Today they call this approach six sigma. Bill & Dan called it The Big Two (2%) cost reduction plan. A little less discipline, science and process change was applied in 1973, but pretty much the same objectives and outcomes. |
| I suppose many of you have vigorously addressed cost reduction during the last 18 months. But take a lead from Bill & Dan as your business begins to strengthen, make cost control part of your culture—not just something we do grudgingly when a recession is at hand. Gould believed that it could add as much as 2%+ to its ongoing profit. Can you say that about your bottom line? |
| If you would like a copy of the 1973 Iron Age article for your reading, please contact me. |
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