B-SchoolResearch and Ideas
Breaking through a growth stall: The right focus
Many companies get stuck on a plateau, unable to grow and burning through cash at a frightening rate. Frank V. Cespedes discusses with Harvard Business School Working Knowledge’s Sean Silverthorne how focusing on the right customers can generate growth again. Coordinated by: Steven Philip Warner, Editor, B&E
Question: What are the most important lessons you hope readers will take away from the article?
FC: First, while we focus on scaling for start-ups, established firms have a similar issue. In fact, the global recession has made that issue more visible: production efficiencies have reduced the cost of goods sold at S&P 500 companies, while SG&A as a percentage of sales has not decreased. If you were running a big company, where would you—and should you—look next for a source of competitive advantage? Second, for entrepreneurs and investors, the article has governance implications. Telling the board that the sales pipeline grew by $X should not qualify as a good answer if the board and founders are serious about good governance and profitable growth. How did the pipeline grow? Did we add lower- or higher-profit and lifetime value customers? Are we targeting shorter or longer selling-cycle prospects? What are the implications for the “center of gravity” in the venture’s business model? An ICP process increases transparency about these issues. Investors should require it, and entrepreneurs should welcome it. Third, even the best ICP process cannot substitute for a flawed business model or a team unwilling or unable to make required changes. But it can do two important things: identify key links in business development activities, and help entrepreneurs better understand the implications of change.
Question: What are you working on now?
FC: I’m finishing a book on aligning strategy and sales. I am faculty chair of an executive program on this topic at HBS and have worked with many firms on the issue, and there’s a yawning gap here in both theory and practice. In the United States, for example, the amount invested in sales forces exceeds an estimated $800 billion a year. That’s more than three times the money US firms spend annually on all media and advertising, at least eight times the amount spent on strategy consultants, and more than 25 times the amount spent on “hot” topics like online this or that. Yet, while there are now many books and ideas about strategy formulation, there is very little research about how to link strategy with the nitty-gritty of sales execution. In fact, a lofty combination of “reorganizing” and “incentives” is usually the primary prescription if and when strategists even discuss sales. On the other side, there is a vast amount of anecdotal advice, mainly from consultants and trainers who believe in the universal efficacy of a particular selling approach. But it is typically context-specific and severed from strategic goals. One result is that, like clockwork every few years, someone publishes a study finding that relatively few—some research indicates less than 10 percent—of even effectively formulated strategies carry through to successful execution and reach their espoused financial goals. And you can see why: strategic direction is essential for sales effectiveness, and sales knowledge of actual customer behavior is essential for ongoing strategic relevance. But the current situation between strategy and sales at many companies brings to mind Gandhi’s quip when asked his opinion about Western civilization: “I think it would be a good idea.” So do I. The book provides a framework, examples, and what research does and doesn’t tell us about this link, and I hope to discuss it with Working Knowledge when it’s published.
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