23 February 2009

Intuition and the Senior Executive

In an age where management data has grown exponentially, executives are drowning in too much data. While the average manager still in the 1980´s had a limited amount of data, today´s managers are deluged by masses of data from multiple information sources.

In practice, however, most managers survive on pretty little information. Most of it is not even formalized data, but based on observations, random encounters, and informal exchange of experiences. Therefore, executives gauge their understanding of strategic and choice situations by checking with co-managers and with their own intuition.

The information from such non-formal data sources act as an important anchor for decision making. Whereas, formal data only supports the decision, or - with clever, disciplined managers - serves as a counter-test or check, in case the decision turns out wrong in the end anyway.

Realistically, managers are by far not the impartial information processors that compute the "objective" data and then spit out the right decision. Still, it is troubling to see managers blindly following the trend to just decide on their mood or feelings only. The best managers exercise a kind of disciplined intuition that contains both data and a feeling for the right direction.

What is required for the success of such "disciplined intuition" as a basis for decision making?
  1. First of all, the executive needs to have enough experience (10 or more years) to develop such a gut feeling for the right "patterns" of how things work, i.e. expertise
  2. Also, executives need to have the freedom to fail; more exactly, they need to be able to make mistakes and learn through trial and error; see here
  3. Executives then need to be part of networks, where they can sound off their ideas and feelings with congenial colleagues; free, open discussion is critical, whereas singular decision making easily leads to disaster; see here
  4. Intuition needs to be disciplined with rigorous thinking and testing, otherwise the executive manages the business to the ground, see Drucker´s warning: “I believe in intuition only if you discipline it. The ´hunch´ artists, the ones who make a diagnosis but don´t check it out with the facts, with what they observe, are the ones, who, in medicine, kill people and, in management, kill businesses.”

Hopefully, then, managers are leading with both experience and data. One alone would lead to disaster and crisis, only together they show the path to performance and success.

11 February 2009

Leadership for Generations

When a stock trader was asked what his planning horizon was, he answered, "Mostly short-term, but in some cases I am trading long-term." Then he was asked "How much time is long-term for you?" His answer: "With long-term I mean 5 minutes."

Compare this thinking to Felix Montecuccoli´s. He recently presented his views at the Hayek Institute in Vienna. Mr. Montecuccoli is leading the Agriculture & Forest Association, German site. These farm & forest owners are thinking long-term as well, meaning in generations. Not surprisingly, their profit motive is of somewhat lower priority. But on top of their list are values, with which they are managing quite successfully their properties; these values, such as industriousness, creativity, private property, sustainability, long-term profitability, or family traditions have served them well so far.

Family managed enterprises do experience a renaissance, not only for farmers or traditional aristocrats (of which heritage many big land owners still are in Europe). Examples of successful family-led businesses are not only found in the German "Mittelstand", but also in many Asian family companies, see as a famous example Toyota. Even in the US, familiy businesses have survived since 1776 and before, and are a force in the USA today, article (in German).

The keys to success and here in family business are founded on seemingly simple principles. Interestingly, these principles often help the businesses to prosper and survive over the long term. And they seem to have achieved alignment between the interests of the owners and managers better than stock-owned companies.

And this mis-alignment of owners and their agents, like managers and workers (see: agency theory), is one of the core challenges of big, publicly listed companies today. Not only in cases were outright fraud is perpetuated, but also where the managers are paid big bonuses, while the owners need to take losses, see here.

Also, it seems frivolous, when experienced top executives are scolded by twenty-something analysts to not follow any long-term strategy, but to sacrifice it for short-term shareholder value. Even great minds like Peter Drucker have struggled with that problem. It is a genuine leadership issue and needs to be resolved.

Another strong value of family businesses is sustainability, not only of the firm itself, but also for society and ecology; because family leadership thinks of future(s) not only in terms of stock options, but, even more so, of the future of their children and grand-children. That means then leadership for generations.

Updated 12.02.2009

02 February 2009

7 Quick Tips for Sales Cost Reduction

There is considerable pressure to reduce cost in sales and marketing. But how to cut sales costs without shooting oneself into the foot?

Usually, the budgets for sales and marketing are derived not top-down strategically, i.e. the planned revenue drives the amount of resources to invest into sales. But, more often the budget is derived by top-down "That´s all the money we have for sales." (see percentage-of-sales)

Therefore, many sales departments are chronically underfunded and will not deliver the amount of leads, contracts, orders and revenue that would be possible and profitable. CEOs and CFOs need to be also aware that the higher the achieved revenue, the lower the relative cost of sales & marketing. Therefore, the task is not to minimize cost but to maximize sales productivity: more sales at lower cost.

In reality, reasons for less than optimal productivity in sales & marketing are manifold. However, in my experience there are a few actions that drive higher sales at lower cost quickly:

1. Work Intensity: Ensure that sales people are actually visiting clients selling to them, instead of sitting in the office doing administration, powerpoint, brochures, calculations or a myriad other things that holds them away from the prospects.
Result: Increased selling time from (average) 11% to 30% of sales rep working time

2. Outsource Lead Generation: Salespeople hunting for leads is often very inefficient and yield low results. Better to use outsourced lead generation marketing, e.g. mailings, e-mail, phone, events, etc. that delivers more and better opportunities for sales; the key here is testing and accountability for delivering high quality leads.
Result: More and higher-quality leads for less cost

3. Split Defense & Offense: Like in football, make a division between routine & new/special sales work. Focus all in-bound, routine selling & customer service work in an internal sales team working on the phone. On the offensive side build and train a strong field sales team that is out and about, winning new accounts and negotiating tough problems and contracts.
Result: Routine work done faster at lower cost and more high value conversations with prospects for new business

4. Speed Up the Sales Cycle: Many default visits are not needed and even not wished by the client. Ensure every call and presentation delivers on the closing of the contract. Cut the "nice to meet" events and deliver real value each time your client is talking with your people.
Result: Faster sales with fewer work hours

5. Set Customer Priorities: An intuitive, gut-driven segmentation of customers often lies at the core of waste in sales and marketing; seemingly attractive segments, "heavy users", "volume buyers," "18-35 year olds," "high-margin targets," "loyal customers," etc. turn out to destroy profit. In some cases, 30% of customers sap 50% off the profit. In order to seriously save cost, sales & marketing need to look at the data for real profitability of segments and set their priorities accordingly.
Result: Cut the profit-eating targets and build business on truly profitable customers

6. Specific Sales Training: Often sales persons are not trained to really master their job tasks. Yes, they can do much of it at some level of proficiency, but not well enough for breakthrough success. Here specific training and coaching can effectively double or triple the sales person´s effectiveness. Although this requires individual analysis and hard work on part of the sales rep and his coach and manager, it does pay off. For a list of skills, see here.
Result: Doing the right sales work consistently delivers the right sales results: leads, orders, revenue.

7. Get Started Today: Often I observe managers agree on all the cost cutting measures, and then do ... nothing. People wait for the holidays to be over, Jack to be back, or for Godot.... It is like starting with a fitness work-out, if we wait to long, we´ll gain a few more pounds again. The best is to start right away and to improve the results a bit every day.
Result: Small wins every day motivate the team to deliver ever better results. Because, there is no end to improvement.

For comments contact me at asattlberger@fortee.com or write below.