It is well accepted that emerging markets like BRIC countries represent a huge present and future opportunity for growing the business. Thus, many companies are entering into those markets. Unfortunately, not all organizations are able to show off that they are growing as it was planned. So let us review why do firms fail in emerging markets like Brazil:
Our financial goal can be to increase sales, but we must maintain customer focus. We should not assume that because our products fulfill global needs and are selling properly in some developed countries, those are going to work properly in emerging countries. We should ask ourselves: What are customers’ needs? And what is customers’ behavior (in emerging markets)? So, we will likely realize that customers in those countries buy with a different mindset. E.g. In Europe, it is much more likely to find customers that buy products according to “Product Life Time Value” than in Brazil that prefer list price to make purchasing decisions.
There are still companies in B2B markets that pay much attention to sales and much less on marketing. So, some firms wrongly leave product introduction project on the hand of not very experienced marketing people. Having a deep study of how our products and prices fit the market is so important.
We can find that decision-makers have been historically located in Europe or North America headquarters. Some of them have never lived or even been in any of those markets, and they use their own country mindset.
We have listened many times: “be global, act local.” However, there are still many companies that executing their global strategy (for instance reduce complexity,) they kill the necessary “fit to market strategy.” E.g. In the automotive industry in Brazil, customers prefer mechanical engines, so offering just electronic engines in order to have a global product strategy means give up a huge potential customer base.
Important growth in emerging markets comes from that segment. Good enough segment expects reliable enough products at low enough prices. I mean enough quality at affordable prices that still generate profits. Moreover, this segment is important to achieve economies of scale that will allow us to access to competitive price levels. E.g. In the automotive industry environmental regulation for emerging countries have a few years of delays. Trying to reduce product complexity having the same product for Europe and Brazil means increase features and prices that push us out of the “good enough segment.”
In order to grow, firms need to invest. Some companies get in dead-circuit because they want to grow and get short-term profitability, and both strategies used to be incompatible in the short-term. Indeed, growing means investing (facilities, stock, days of sales outstanding, sales force, and so on,) and just a few industries allow firms to materialize profits in the short-term. Many of the successful firms that entry in emerging countries have invested strongly during years before getting the expected return. Other companies think that the important is just to fulfill their global footprint, and they invest shyly (probably one salesman by-product or vertical industry). In this last case because the investment is not enough, it will take very long time to get the return on investment, and firms could lose the patient and enthusiasm for those markets.
The arrogance of some people/companies does not allow them to realize that they have many improvement opportunities inside. Those companies blame to market, customers, and so on. Many times, those people are bad listeners, and therefore people with low customer orientation. Moreover those people with a limited view of the problem cannot take advantage of the “power of AND” when trying to solve problems. So, they think in terms of OR. For instance, rather than improve the firm processes to be more competitive AND solve the market price issues, they think that the solution is lost money OR to increase even more the list price.
Controllers can kill growth initiatives because those initiatives do no reach a percentage of net margin. Indeed, those initiatives can have a positive net margin, an important contribution margin, and support market share growth during the market penetration stage.
There are huge global corporations that are losing market share because they created in the past huge facilities (with several thousands of employees) difficult to manage properly. Those plants have very limited flexibility, diseconomies of scale, and massive overheads. Again, we have the risk of controllers assuming wrongly that current cost structure is correct, and suggesting “rationalizing” products, customers or markets.
Some organizations decide to enter emerging markets and be focused on sales development. So, they use resources to grow quickly, and they take advantage of local partners and outsourcing activities. Other firms decide to invest at the same time in sales and building other capabilities. For instance, there are companies that have a distributor business model, but those firms try to add assembling/manufacturing capabilities to the distributor business model to generate more customer value and be more profitable. Nevertheless, they deviate resources from sales development to assembling/manufacturing, and because at the beginning there are not enough sales, the assembling facilities do not get economies of scale to compete. So, they face two problems at the same time: low sales and lack of economies of scale in production.
It is important to highlight that many of those causes are interrelated. So, companies failing in emerging markets are quite often affected by several of those causes, which increases even more the probability of failure in the emerging markets.
Products, customers and offices unprofitable must be identified and make profitably or we should take the decision to remove them. Many times it is assumed that facilities network are a strategic long-term decision, so it is not reviewed the strategic convenience of those investments approved for top management any time ago. Thus, we are going to review some of the commonest strategic and financial reasons argued to open/maintain subsidiaries opened.
We must be aware that in the last few years many things relating communications have changed a lot. For instance, traveling costs are cheaper because we have low-cost airlines, communication costs are cheaper because there are communications base on Internet, companies have adopted widely conference-calls as a cheap and reliable communication way, virtual offices with sharing meeting rooms and other services are in place, teleworking can avoid investing in an office, and so on. Moreover, dot com firms have showed us that is possible to compete in many industries with a much less footprint those traditional companies.
So let’s go to analyze those often strategic reasons for opening/maintaining facilities:
Nowadays, we have access to motorways, higher fly frequency, service logistics operators that deliver in 24 hours or fewer from central distribution centers, etc. This means that today we could offer a similar service level from a central location than from a local one.
Many times is hard to recognize that managing subsidiaries is a very tough task for our organization. So outsourcing that distribution center or for instance using a dealer could be more profitable at the same time that we could be able to improve service levels. Although that means having the humility to recognize that someone can do a better job than us.
We must analyze the traveling cost avoided versus cost to have a facility:
I am not suggesting that having more than one facility is wrong. What I am trying to suggest is that in turnaround is very important to review the real need of current offices or even the appropriate decision to open a new one. Subsidiaries can affect massively in company profitability.
“Whenever a company produces a service internally that others buy or produce more efficiently or effectively externally, it sacrifices competitive advantage” (Quinn, James Brian, Thomas I. Doorley, Penny C. Paquette “Technology in services: rethinking strategic focus” Sloan Management Review, Winter 1990). Thus, any activity not considered a core competency has the potential to be outsourced, but what are the advantages of outsourcing?
The big disadvantage of outsourcing that used to be mentioned is the “loss of control”. Although with the information systems that today are in place, and managing properly the relationship with the outsourced firm by having regular meeting and conference calls, we should be able to overcome that “disadvantage.” In reality one of the biggest handicaps for outsourcing could be “the loss of power” for some managers. For instance, we could have a Supply Chain Director managing more than 1,000 workers and after outsourcing the distribution centers network he could be managing just 20 people. So that strategic focus could be seen for some managers as “loss of power and control.”
Activities like transportation, warehousing, co-packing, publicity, payrolls, or legal support have been outsourced during many years in order to materialize the outsourcing advantages. However, the outsourcing process continues its evolution and its getting further. In the last years some companies have implemented outsourcing AND offshoring strategies in order to enhance the outsourcing benefits. For example, DHL is outsourcing globally some IT activities in India, or Telefonica is outsourcing call centers in Colombia.
The long tail concept introduced for Chris Anderson in 2004 is supporting the access to outsource for very small firms or low volume activities. For instance, Legalitas in Spain offers outsourcing legal advice for just 15 €/month, or outsourcing the marketing creation of a PC wallpaper can be sold in Internet for just $ 50.
Once that we have identified a potential outsourced activity, the next step would be answering the following question: How can we “guarantee” that we should outsource that particular activity? We should outsource it, if we are able to answer affirmative to the following three questions:
Bain & Company explains that participative styles improves decision quality because takes advantage from collaborative styles that at the same time get employees engagement via participation. Additionally the decision-making process is accelerated because just one person takes responsibility for each decision avoiding bureaucracy. It having one person in charge of every decision brings single-point accountability as well.
We would like to stress that there is another important advantage not mentioned for Bain & Company from having one single-person taking the responsibility for each decision; we get a consistent and coherent decisions direction because the same person is in charge of decisions. We mean we get decisions alignment.
From the turnaround perspective we cannot sacrifice the speed of decision, neither the quality. So we could say that we are almost forced to use the participative decision style.
Finally, we have to mention that it is essential that the CEO decides and communicates the primary decision style for the company. This can avoid internal conflicts. For instance, if the firm decides to use a participative style and there are people who feel most comfortable with other more collaborative decision styles (democratic or consensus) communicating formally the participative style decision will help that staff to embrace the decision style and avoid unnecessary internal conflicts. We must be aware that people from primary activities of the company can feel most comfortable with the participative style, while people from support activities can prefer consensus style. So again we have to highlight the importance of defining and communicate the decision style to avoid conflicts and get people much better aligned.
Business Alignment: When Board Is
Misaligned with
Management
It is pretty obvious that business alignment is a prerequisite for firms to success. This alignment is even more important in the two top layers of the firm, the board of directors and the management team. Thus, we can find companies underperforming which main cause is poor management, and the effect is the misalignment between the board and management.
Peter Drucker defined this alignment very clear and showed us that a clear responsibility definition is one of the main business Key Success Factors: “The board must not act at the level of tactical planning, or it interferes with management’s vital ability to be flexible in how goals are achieved… the board is accountable for mission, goals, and the allocation of resources to results, and appraising progress and achievement. Management is accountable for objectives, for action steps, for the supporting budget, as well as for demonstrating effective performance.”
Most of the time a board member does not understand his role. In this situation that member used to implement what we could call “micro-management.” That is entering in the tactical planning and interfering with management.
The consequences could be disastrous for the following reasons:
There is one case in which could be understandable the practice of micro-management for a board member. It is the case in which the management team is not good enough. Nevertheless, the top management team have been hired for the board. So it is again the responsibility of the board to select a good management team and to replace underperforming managers, but no interfere with managers’ tactics. We should not forget that another Key Success Factor for board members should be their ability to hire the right people for the right position.
Before continuing, we must answer the question is micro-management always a bad practice? The answer is no. I mean micro-management could be needed it for managing young and inexperienced staff, or to manage inexperienced middle management in underdeveloped countries and/or organizations. However, board should not use micro-management under any circumstance with management.
Other way to identify poor management practices in the board is analyzing their tasks. Poor board members do what they do not have to do, and they do not do what is expected from their positions. It is easier to perform micro-management because those tasks used to be easier than board activities but this is not the expected work for board members.
In turnaround projects, we should wonder us:
This misalignment issue probably is quite uncommon on large corporations. But it is quite common in small businesses that have grown fast, and the same people who used to be managers are now low experienced board members.
The Sales Area Is Underperforming: Have
You Promoted Your Best Salesperson to
Sales Manager?
It sounds strange hearing that it could be something wrong promoting the best performer. For instance, do you know any good mechanics or engineers who were promoted to a managerial position, and the company lost a good technician and got a not too good manager? Please, don’t misunderstand me. There are many mechanics or engineers with the right managerial skills but having technical skills, does not guarantee good managerial skills.
From the Kindergarten, we have been taught that people with better score are the best. Therefore, we can find many Small and Medium Business (SMB) that follow the assumption that the best salesperson should be promoted to the position of sales manager. Even in the subsidiaries of global corporations are in place the same assumption because the hiring responsibility of the sales manager position depend on the country manager in order to have full accountability.
We have been taught that all of us we should be leaders and the proof of our success will be achieving a managerial positions. However, this is not exactly true. No everybody is or will be prepared to be an effective leader or manager. However, that does not mean that the person failed. It just means that those people are more suitable for other positions that can be of high value for the firm and very well-paid too. Anyway, I prevent you that this article could be very challenging for the current mindset of many salespeople and sales manager.
First, as Mike Weinberg point out “the successful individual sales producer wins by being as selfish as possible with her time… The seller who best blocks out the rest of the world, who maintains obsessive control of her calendar, who masters focusing solely on her own highest-value revenue-producing activities, who isn’t known for being a team player, and who is not interested in playing good corporate citizen or helping everyone around her, is typically a highly effective seller… The successful sales manager doesn´t win on her own; she wins thorough her people by helping them succeed.” It is relevant to stress the difference between selling on her own and selling thorough her people. An evidence of the misunderstanding of selling through other is that with almost the exception of IT industry, no other industry is using Partner Channel Management as a powerful sales channel that could provide around 60% of total company sales. Anyway, you could find a top salesperson who is suitable to be a sales manager but is quite improbable. I am explaining why in the next paragraph.
Second, the skills and responsibilities of a salesperson and a sales manager are different. Let list some of the skills of a sales manager: building a sales culture; leading a team; team motivation; hiring; retaining top performers; conflict management; coaching; feedback delivery; challenging data, false assumptions, wrong attitude, and self-complacency; create the area budget and forecasts; etc. Are those the skills of sellers? The answer is NO!
Third, as Mark Roberge highlight sales top performers used to base their success in a specific selling skill (relationship building, or consultative selling, etc.) Nevertheless, the sales managers need “a well-rounded grasp of the entire sales methodology. Sales leaders with balanced abilities would be able to diagnose a specific issue and be qualified to customize a coaching plan to address the issue.” So, sales top performers with unbalanced skills are not likely able to coach a team on any skills that they have poorly developed. Now, we must clarify that a sales manager must have a good performance selling in order to know the process of selling well but he is not usually a top sales performer.
Fourth, we should remember that “what distinguishes great leaders from merely good ones? It isn’t IQ or technical skills, says Daniel Goleman. It’s emotional intelligence.” Many people with high technical skills are promoted without some training on management and leadership. Other times, firms think that managers could be built with just a few days of leadership training (for instance the “famous company talent programs.”) The good performance of top sales producers does not guarantee that they will be great leaders for sales teams, and a few days of training on leadership neither. In fact, as Mark Roberge says: “Sometimes really good salespeople are selfish, egotistical, and competitive by nature. Those traits do not translate well into management.”
I would like to say that the rule should be “don’t promote your best salespeople to sales management.” Nevertheless, as any rule there are exceptions but remember that exceptions are very few cases.
This used to be a very seductive approach for small business and even large corporation subsidiaries. Getting two roles for the price of one. I have to say “good try but this shortcut is not working at all.”
As we have mentioned before it is quite improbable that you find the right person for both different positions. However, if you are lucky to find someone who fits with booth positions, you will have some important challenges mixing those responsibilities:
The answer is building a Career Growth Plan with a few sales titles that link performance with the sales compensation model. Thus, higher sales performance means higher position and total salary.
For a new sales organization with no more than a couple of people on sales, hiring a top salesperson could be a good first step. Indeed, I know some success examples of this approach. Although there are three considerations regarding hiring a top salesperson:
1. Industry experience used to be overrated: I remember the best salesperson that I have ever met that told me once: “Today, I am selling logistics but the important thing is that I master the selling technique. So, I could sell to any B2B almost any product or service.” This is true but there are still some fear for hiring people from other industries.
2. Industry connections used to be overrated: We must highlight that “customers belong to companies not to salespeople.” Salespeople could bring small accounts that have very low risk trying a new supplier. However, for large B2B sales account the reality is different:
So, do you really think that a salesperson would be bring her last sales accounts to your firm? I don’t think so. If this is happen, it will take at least 2-3 years to move large complex accounts.
3. Is this person able to success in an unstructured environment? My experience is that top sales performers used to be hired from larger and better organized corporations with more sophisticated sales and ops process, customer based, marketing support and lead generation capabilities. Small firms used to have the temptation to solve their sales problems hiring a top sales performer from one of the largest competitor. This used to be “a big mistake.” First, as we have explained before is quite unlikely that the salespeople are moving their last sales to your firm. Second, small unstructured firms require of “evangelistic sales” in order to communicate their “not well-structured value proposition” and building the company brand. That necessary education skill is quite unusual on top sales performers from large firms because large firms are well-known and customers do not question their capabilities. Salespeople working for large firms no need to educate the customer regarding their company rather than developing a different skill, quickly building customer solutions. So, what is the probability that she replicates her past success selling with your small unstructured firm? Honestly speaking, very low!
If we are thinking not just in one or two salespeople rather than building a sales organization, it should be more suitable to hire a sales manager before thinking about recruiting a top sales producer. Be aware that a sales manager should increase the chance to hire the right top salesperson. Additionally, the sales manager would implement a sales leadership and culture that could be exponentially deployed around salespeople and branches.
For new sales organizations, Mark Roberge suggests hiring a quite uncommon profile rather than a sales manager or a top salesperson, the entrepreneur. He pointed out “the entrepreneur is most likely to accelerate the company toward the right product/market fit…She will dig in with prospective customers to learn about their challenges, opportunities, perspectives, and priorities.” I am personally think that he is right. Recruiting a sales manager for a consolidated and organized firm has sense, but for a new company or sales organization the first thing is to learn about customers in orders to build the “customized sales weapons” (communication plan, firm positioning, etc.) that will guarantee the success foundation for a fast growing sales organization.
If you are a…
Jack Welch is a leader with followers and detractors. So we are going to analyze the 20-70-10 Rule that some people could say that is a worthy management tool that creates high performance teams, and others say that is a cruel tool because it fosters to fire 10% approximately of the less performer.
The 20-70-10 Rule can be categorized inside the concept of creative destruction (Joseph Schumpeter work). We mean the idea is not firing 10% of the staff to reduce cost rather than change poor performers for other people with the expectation that the new staff could be better. Thus, increasing the number of high performance people and raising the company results.
We should ask ourselves a few key questions in order to know if the tool is adding value or not to our organization:
In turnaround projects where poor management is an issue, one of the most important causes of the company decline is because we do not have the right people. It is not unusual to find in those firms 10% of poor performance staff. So in those cases “getting out the bus” that staff allow us to increase firm results, and accelerate the change management process bringing new people with new mindset and abilities to the organization.
We have to highlight that organizations have the responsibility preventing poor performers, and we can suggest to prevent poor performers: First, having good performers in key positions, because good performers do not use to tolerate the poor performance. Second, selection process should be excellent. Third, making a periodic follow up of the team and specially the new staff, because two or three months is enough to realize if new employees should continue or not. It is better to “get out the bus” people in the second or third month that allow continuing in the company.
Finally, while poor performers by definition are people who damage the organization, and “getting out the bus” those people would not be an issue for the company. What it is not clear for me is the following: as Jack Welch suggests continually changing 10% of the staff that worst performs (being categorized like poor performers although they are not necessary underperforming, just they are on the bottom of the list) is getting any return. I mean there is low risk changing the staff that underperforms, despite changing people that are not “really” underperforming is increasing the risk to get the worse staff. Additionally we are losing the investment done in our current staff, and we have to invest in finding and training new workers. Moreover, we are creating an unhealthy stress in the organization. So I would not personally recommend continually changing 10% of the staff just because they are the worst performers.
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