Category Archives: Revenue Risk Management

The Hidden Risks of Social Networks

Originally published 02/04/08

Not to throw cold water on anyone’s exuberance, but social networks could destroy your sales strategy, and your company along with it.

Why? Because technology and the Internet propel unplanned situations and events at unprecedented speed. So it’s important to recognize that the same social forces that create significant value also have the power to annihilate it. How you manage the risks will determine whether history will judge you to be a New Media Ninja or another unprepared victim. While new media and social networking present boundless opportunities, no discussion is complete without asking what could go wrong, and what actions should be taken.

Risk Silos

Consider the catastrophic outcome that Bob Furniss shared in which a disgruntled 15-year-old started a FaceBook group called “ACME Tied to Kill Me.”

As he described it, “She outlined her dissatisfaction. Suddenly, there were others who joined the group. Soon there were hundreds of links to personal and business blogs and complaint sites.” Twenty years ago, an unhappy teenager would have limited capacity to disseminate a product grievance, and would not have posed a measurable threat. That was then. This is now. The CRM breakdown likely led to a significant financial problem for the company. How many times do you think Acme’s Director of Customer Support said “Woulda . . . Coulda . .. . Shoulda” when he met with the company’s board?

How did ACME blow it? By failing to manage risks across the organization. CRM risks ARE financial risks. Unfortunately, many organizations like ACME silo risk management in the same way as they do business processes and information. Could this problem have happened if ACME’s VP of Customer Experience warned their CFO that through the Internet, an unhappy customer could singlehandedly undermine her best cash flow projections? Or, if the CFO had considered how events outside of market cycles and interest-rate fluctuations might put her imperil her financial planning? What preemptive actions could ACME have taken? In the absence of such strategic planning, the unprepared ACME managers must have appeared like deer in the headlights to this media-savvy kid.

For companies that value brand identity, social networks create unique risks as well. For example, a vexing trend is for consumers—not marketers—to use social networks to define product and brand attributes. While social media create the opportunity for products to better match required consumer outcomes, this shift in information power underscores the importance of asking the right risk-related questions:

• If we lose control of product designs and life cycles, what strategic risks would we face?
• What if the resulting product design or image is one we don’t want, can’t support, or both?
• What operational challenges could occur if we can’t manufacture the desired products in the right quantity at the right time?

While the operational questions highlight risks that companies have faced and managed for many years, social networks have rendered past mitigation strategies obsolete, so new strategies must be developed.

Strategy risk

In his article, Like On-Demand, the Social Web May Have Unintended Consequences for Businesses, Denis Pombriant highlighted another set of risks. He writes, “My bet is that social computing will provide us with an avalanche of new data from customers that must be analyzed, and that’s where I think we can look for unintended consequences.”

Those unintended consequences are the associated risks of implementing the wrong strategy, or implementing the right strategy the wrong way. According to Denis, one risk is “that we take the new information we collect too seriously and that we fail to perform analysis and challenge the results. If that happens, look for companies running off in strange directions chasing what amounts to unicorns. The odds are that some companies will fall into this self-baited trap…”

Reputation Risk

If you’ve worked in sales for few years, you’ve probably heard a manager in your company say “If we can just get meetings with the right people, our product sells itself.” Clearly, the best products in the world can’t be widely sold if influential people don’t know about them.

Based on that imperative, it’s easy to understand why social networking tools are vital for reducing sales risk.

John Todor explained why in his CustomerThink article, Social Networks and Online Communities Create Elastic Ties and Surprisingly Powerful Pay-Offs: “The power of online social networks comes, not from whom you know directly, but from the people the people you know know. People who actively pursue weak-tie relationships stand to gain substantial benefits. They can quickly take advantage of emerging opportunities, find collaborators, find jobs, find employees and build a pool of advocates.”

Barry Trailer’s blog provides empirical proof:

“For a test, 30 sales executives were selected to interview. Using LinkedIn members of our network were asked to facilitate an introduction to these people we had never met. Surprisingly, 29 of these individuals accepted the request and passed it on to their contacts with a personal note of introduction. More surprising, 23 of those targeted executives (including people in Europe and the Far East) accepted our request, and offered to consider helping our research effort.
In follow up, 18 of the 23 participated – a 60% hit rate! A much more favorable result compared to cold calling.”

But these discussions don’t tell the risk part of the story. As I’ve learned the hard way, prospects hold very high expectations from social connections, and underperformance in the sales process causes backfires that can remain ugly. For example, one company I worked with believed its account executive was so well connected in a prospect’s organization that they didn’t apply customary rigor to navigating the steps to the sale. “No need for account qualification, value propositions, or financial justification because we know Joe through Steve,” they said. They were wrong. Not only was Joe disappointed, but he called Steve and asked “How did you ever get involved with these guys?” Beyond the introductory social connection chit-chat, somebody still needs to sell something. Complacency gets in the way.

Further, I was struck by a certain irony as I read Barry’s findings. Although we admonish our school-age children to be wary of social networking tools on the web, the high ratio of invitation acceptance he describes suggests that executives don’t exercise similar caution (albeit they need to do so for different reasons). Does the risk of a damaged reputation seem so remote that executives readily accept requests from cyber-strangers to endorse them? Will the current success ratio Barry discovered diminish as social networking becomes more mature, and executives learn how carefully-built reputations can become damaged? Will we see a similar wave of caution as we did with chat rooms, FaceBook, and MySpace?

Stay tuned.

(Apologies to Rob Cross for corrupting the title of his excellent book, The Hidden Power of Social Networks.)

Is There “White Space” In Your Customer Relationships?

When managing sales relationships with major accounts, is it better to have more points of contact between vendor and customer—or fewer?

The answer depends on whether those interactions add value to or subtract value from the customer relationship, according to Rob Cross, an author and expert in social networking, who led a symposium I attended, Leading in a Connected World.

More than fuzzwords, social network value added and value subtracted are measurable and meaningful in financial terms. Yet C-Level executives don’t think that way when creating CRM processes, account teams, and collaborative sales models. Oddly, the same companies that nitpick the cost of airline tickets don’t track efficiency of collaborative activities—a potentially far greater expense. That irony was underscored when the majority of the symposium attendees shared that well over half of their time was undocumented, and spent in internal meetings, on the phone, or answering email.

Ever since the words social and networking were conjoined to mean informal channels of communication, CRM practitioners have offered conflicting ideas about how to make collaboration more effective. One Symposium insight: sometimes, less is more. This is because not every interaction produces value. Which interactions are the most valuable? According to Professor Cross, the best opportunities for value-producing collaboration are best-practice knowledge transfers, innovation, and revenue generation activities. The absence of those value-producing activities might be considered “white space” in the customer relationship. In Professor Cross’s words, effective collaboration doesn’t mean “everyone in the woods singing Cum By Ya to each other.” By uncovering where value is added or subtracted in collaboration, companies can garner the right resources, manage staffing, and organize teams.

So where is collaborative value added and where is it subtracted? Value is added when tacit knowledge for best practices, innovation, and revenue generation is exchanged between individuals. As for subtraction, there are two major sources. If the outcome of collaborative activities provides neither productivity improvements nor cost reductions, then those activities are value-subtracting to an organization. Second, consistent negativity from even one employee can have a measurable, cascading impact on the value an organization produces. And the impact is magnified in organizations that depend on collaboration for executing strategy.

In a PowerPoint slide, Professor Cross illustrated a basic social network. When individuals in a large, multinational company were asked “who do you receive information from and provide information to,” the network’s visual similarity to a giant hairball was stunning. It’s easy to get the impression that everybody talks to everybody. I would be challenged to explain to a CFO how that picture portends to drive value for his or her company.

But underneath that picture, communication silos exist. These silos are losing favor, particularly for business development operations. One symposium panelist, Tracy Cox, Director of Performance Consulting for Raytheon Corporation, debunked the idea that selling activities should be the exclusive domain of the sales department. He recommended that companies consider different collaborative routes to engage with high-potential prospects, noting that it’s important to “understand the key influencers and reputation holders in the customer community and how to leverage those connections for new business.” It’s myopic to think of the Account Executive as the focal point for facilitating those connections.

When more specific relationship questions are asked to produce the social network model, the lines in the amorphous hairball social network strip away, yielding valuable insight. Who energizes you in your business activities? Who do you go to in order to generate revenue? Who gives you a sense of purpose? When these connections are mapped, patterns emerge that are highly predictive in how real value is transferred within and between companies. Not surprisingly, for these questions, the best performing account teams not only had strong client connections, but also better networks into their own organizations.

In addition to the Raytheon panelist, two other panelists, Lisa Vertucci, Managing Director, Global Head of Talent Development of Lehman Brothers; and John Helferich, former Vice President of Masterfoods USA shared how their organizations have used social network modeling to create value through collaboration. The operational decisions they made began with asking these questions:

How can we make invisible value visible to our customers?
How can we create the most effective cross-boundary relationships?
How can we identify key new business opportunities?
How do we uncover which people provide greater than average value in cross-selling products and services?
What is the most expedient way to “grow the conversation” about an important topic?

As with forensic sleuthing for suspicious financial transactions, following the money path in a social network context provides a good starting point for figuring out what’s valuable—and what’s white space—in your customer relationships.

Loyalty Derided: Look Before You Leap!

Originally published 10/21/08

“No thanks. We are completely happy with our current provider.”

It’s a loyal sentiment that stops many sales conversations cold.

If my customers always swatted down every competitor’s sales overture that way, it would make me very happy. But the ties that connect customers to vendors are under stress from every direction, and it’s a Herculean task to preserve customer loyalty status quo. So, every day we strategize about how to undermine customer loyalty from our rivals, and our rivals focus on doing the same to us.

Today, ephemeral customer loyalty is reality for most firms, creating a contradiction of terms that should make perfect sense to those who sell for a living. In order to minimize the revenue valleys that occur when loyalty wanes, organizations commonly engineer a pseudo-loyalty, through switching costs—business-speak for the technological and financial handcuffs a vendor embeds into products. But such techniques make it impossible to discern where resistance to switching costs ends and loyalty begins. More than once, a prospective customer has told me “I’d throw every bit of this hardware out of here if it wouldn’t cost me so much to do it.” Based on that, does low customer churn equal high customer loyalty? Talk to Joe the Corporate Decision Maker, and you’ll know you can’t get to the answer by looking at churn rate alone.

But what makes a customer loyal, exactly? Whatever terms you use to describe loyal attachments, there’s one consistency: the more loyal the customer, the more close-minded he or she is. Clearly, for customers to willingly shut off new ideas from competitors while remaining open to hearing new ideas from us requires an extraordinary combination of trust, commitment, great customer experiences, and more that marketers and academics continue to study and debate. In fact, this week on, my search on customer loyalty returned 8,993 results.

But are we deluding ourselves about what makes loyalty valuable—or whether it’s valuable? Do we really understand what our customers are loyal to? Does investing in customer loyalty programs always align with corporate objectives? Can high customer loyalty be counterproductive for sales? We make many assumptions about loyalty, and we should know whether we’re chasing a loyalty mirage. After all, do we really know if what we’re investing in customer loyalty is worth it?

Do we really understand what customers are loyal to? Is it our products or services? Our sales or support team? Our unique customer experience? Our brand? All of these? None of these? Rob Walker, author of Buying In explains by citing a study in which consumers were asked “What are the things in your home which are special to you?. . . Part of what the authors found was that—not surprisingly—the most meaningful objects were rarely chosen on the basis of some intrinsic, rational property, like marketplace value, cutting-edge quality, simple aesthetic pleasure, or anything else that an economist might describe as ‘utility.’ They were chosen instead for connections to something else: family or social ties, a particular episode in the narrative of the subject’s life, perhaps religious faith or some other belief system affiliation. That is to say, their meaning tended to be a function of what the thing represented.”

This finding suggests that one object of customer loyalty might be as intangible as a meaning or idea, and that discovering what customers are actually loyal to will identify different pathways for creating and selling products to those customers. The book describes many modern examples in which companies have appealed to customers by “not . . . simply infusing some company’s material objects with fresh meaning, but creating meaning by creating objects—branded objects.”

Does investing in customer loyalty programs always align with corporate objectives? Not necessarily. David Corkindale debunks the loyalty yields value idea in his article Mistakes Marketers Make (The Wall Street Journal, October 20, 2008). “Studies have found that the individuals who are totally loyal buyers of a brand tend to make up only 10% of all buyers, and they buy it less frequently than others, too . . . A company that focuses on gaining and retaining such customers isn’t doing the smartest thing commercially.”

Can high customer loyalty be counterproductive for sales? Yes, when that loyalty is placed only on a physical product—as many salespeople responsible for upgrading products at installed accounts will attest. At one company I worked for, many customers maintained my company’s machines well beyond their useful, fully-depreciated life. Why? Because they were loyal to the equipment—so much so that they were close-minded to the economic benefits and other advantages of replacing it.

When it comes to customer loyalty—whether preserving your own, or undermining someone else’s—what’s the best strategy? First, understand how customer loyalty fits in the context of your company’s overall business strategy. Moving customers up the loyalty continuum might not be the best use of resources if there’s little or no strategic value. Although few will argue that having customer loyalty isn’t a useful or valuable outcome, Mr. Corkindale stresses that “there is really only one way for a company to achieve lasting growth in sales, and that is to increase its customer base, by either reaching new customers in existing markets or entering new markets. That doesn’t stop some marketers from trying to do the impossible.”

Who Wants a Sales Hot Potato? Anyone?

Originally published 12/05/08

Sales risk has always been a business hot potato. It’s more comfortable when someone else is holding it. In this economy, the risk potato has become scalding hot.

Salespeople can monitor thousands of conversations simultaneously and identify highly qualified opportunities.

As a sign of the times, one software client told me, “We’re looking for a salesperson who will work on full commission.” In other words, “We can’t afford to invest anything in case he or she doesn’t produce.” My response: “If you find that person, don’t forecast the revenue. Moving all of the risk to someone else’s shoulders won’t make your sales strategy successful.” The problem is, in an uncertain economy, few companies want to absorb any more risk, and the trembling has become palpable.

My client’s effort to avoid risk is not altogether wrong. Sane businesspeople don’t seek risk; they manage it! But eliminating risk altogether is a zero-sum game. Without risk, there’s no return. What are my client’s options?

  • Disaggregate. Follow Henry Ford’s lead. One hundred years ago, he recognized that production efficiencies were enabled by specialization of tasks. Some selling tasks, such as prospecting, are so inefficient that it’s better for outside organizations to manage those processes. Many sales organizations cope by creating hybrid selling models that embed third-party prospecting and lead management resources. Can such a hybrid sales process appear seamless to customers?

    Beth Schrager of Schrager and Associates, a Massachusetts-based outsourced sales provider, believes so. Her firm provides full-service outsourced sales solutions, and her record of long-term client retention corroborates her success. According to Schrager, “We bring to the table proven, tactical sales experience that enables companies to generate more revenue without increasing sales costs.”

    Not every outsourced provider works the same way. Further, keeping costs flat while increasing revenue reduces financial risks but creates new ones. Past assumptions are no longer certain. The salesperson we talk to might not be an employee of the company we buy from. Some outsourced firms impart that information with a subtle semantic hint, scripting salespeople to say “I’m calling on behalf of . . . ” While some prospects might ignore the distinction, others find the disclaimer unsettling. Outsourced selling models require particular attention to how to disclose information because trust and rapport can be damaged when communications are not handled properly.

  • Listen first—then shout! Many organizations begin the selling process by spending mightily on broadcasting messages to prospects. That strategy means shouting first, then waiting for prospects to communicate interest. But there’s great financial risk in that approach. Why? Because customers and prospects can block perceived noise using widely-available tools that are becoming increasingly sophisticated.

    But thanks to social media and a fabulous online tool called alerts, a method has emerged that inverts the old model—lowering risk in the process. Through services such as Google Alerts, and, salespeople can monitor thousands of conversations simultaneously and identify highly qualified opportunities. My Aug. 19, 2008 CustomerThink blog post, Don’t Bother Me With Social Media, described how one company converted its dominant sales tactic from shouting to online listening. Instead of producing mass-market e-newsletters and other lead-generation campaigns, the company’s small sales staff looked for online conversations that mentioned competitors and identified a large universe of highly qualified prospects in the process. From there, a salesperson-initiated phone call began the direct communication.

  • Create sales intermediaries. Sales intermediaries, such as independent channel sales partners, enable producers to share selling risks and to extend market reach. But channel sales models don’t fit every organization. Are you comfortable riding in the business-development passenger seat while someone else drives? If not, channel sales will bring you uncomfortable new risks. Selling your company’s product might be your priority, but it’s one that your channel partner might not share. On the other hand, recruiting, hiring, training, developing, managing and retaining a dedicated in-house sales force require financial resources that not every company can afford. Adopting a channel sales model offers a viable solution because the financial risks can be more easily absorbed if they are spread between multiple organizations.

    Larry Bossidy and Ram Charan describe channel sales risk trade-offs this way in their book, Confronting Reality—Doing What Matters to Get Things Right (Crown Business, 2004):

    Learning about end users is harder for companies that sell through intermediaries, and whose ultimate buyer may be several steps down a distribution chain. They generally don’t have mechanisms designed to capture information about the customer and end user.” But selling through intermediaries has benefits. “There may be steps that can be eliminated, cost reductions, or insights into how value is added (or subtracted) along the way. The result can be to make the entire chain not only more cost-competitive, but also more effective in delivering value.

In an uncertain economy, executives who look through a risk-reduction lens when creating sales strategies will make better decisions than those who look through a cost-reduction lens alone. Why? Because cost reduction skews decisions by failing to consider the financial impact of the concomitant risks. I’m talking about market risks, communication risks, hiring risks, sales cycle risks, ethical risks, brand-image risks—and yes, financial risks. You must fully consider each one.

What will my client do to achieve his sales objective? It’s unclear. Given the economy, there are few guideposts and many forks in the road ahead. One thing is certain: When it comes to selling, to get the right results, you must provide effort. That requires the ability to catch the risk hot potato—not just the ability to throw it.

Will This Year’s Sales Assumptions Work Next Year?

Originally published 12/13/08

In the last two weeks, has anyone swaggered up to you and said “Yeah, 2008 played out the way I thought it would.”? I certainly can’t brag! So, how well did your sales assumptions work in 2008?

The good news: compared to this time last year, you have 365 more days of hard-won experience to guide your upcoming decisions. The bad news? The future appears ever more uncertain. Just one year ago, it was hard to imagine that the words “credit crunch,” “financial bailout,” “GM bankruptcy,” and “President-elect Obama” would become woven into popular discourse—a reflection of a changed country in a changed world.

Considering that there are constant forces that affect business, the calendar point 1/1/09 seems an arbitrary moment to focus thought on the relationships between assumptions, past events, and future strategies. But beginning a new year presents an opportunity for all of us to pause and think about how old assumptions will work in the near future.

The question isn’t whether assumptions are bad—they’re a decision-making fact of life. The problem is that people who assume things (all of us) are judged harshly when decisions don’t produce the required results, or when things don’t proceed according to plan. If you’re like me and have made a few poor assumptions recently, you’re in good company. Just look at 2008’s Bad Assumption rogue’s gallery:

Alan Greenspan, who said “I made a mistake in presuming that the self-interests of organizations, specifically banks and others, were such that they were best capable of protecting their own shareholders and their equity in the firms, ” He added “. . . I have been going for 40 years or more with very considerable evidence that it was working exceptionally well.”

Yahoo’s management, for assuming that an even better opportunity awaited the company’s shareholders following their rejection of Microsoft’s offer to purchase the company in February.

Big-3 CEO’s Wagoner, Lally, and Nardelli, for assuming that boundless arrogance didn’t matter when making a sales pitch before Congress to secure $25 billion in taxpayer-funded financial aid.

In an unstable world buffeted by unpredictable economic, social, political, environmental, and technological forces, which sales assumptions merit scrutiny? Here are my picks:

“Assuming our prospects and channel business partners are trustworthy . . . ” An editorial in The Wall Street Journal, (December 15, 2008) said it best: “Capitalism runs on trust . . .” If we learned anything from this year’s financial market debacle, it’s that trust can’t be assumed, and that if trust is broken in financial markets, we’re all affected.

“Assuming that the economics of our industry follow the trend of . . . ” Radical reductions in credit availability debunk many assumptions, including how to forecast sales, how to segment markets, how to price products and services, and how to interpret financial calculations for deciding on capital goods purchases.

“Assuming our business model will work . . . ” Technology convergence and other forces call this idea into question, even in the most well-established industries. Just ask any newspaper publisher or domestic car manufacturer.

“Assuming we can communicate our message. . . ” Emerging web applications and Social media have irreversibly changed the communication balance of power. Product consumers now produce the most valuable product and brand information. That change alone invalidates many long-held assumptions about how to reach prospects and how to create and manage marketing and sales campaigns.

“Assuming our sales process is efficient . . .” Do legacy interpretations of sales efficiency matter when technology and other forces call into question the very definitions of buying and selling? And how important is sales efficiency anyway if there’s incongruence between selling and buying processes?

“Assuming that our CRM tools will help our employees perform their jobs . . . ” According to Rob Preston of InformationWeek (November 17, 2008) citing a 2008 survey, “only 30% (of companies in the InformationWeek 500 ranking) say their companies encourage employees to use consumer (applications) they find useful, down from 33% last year. So it appears companies are becoming more stringent . . . not a positive trend . . . If those issues always ruled the day, instant messaging, a staple of today’s knowledge professional, never would have made it into the enterprise.”

“Assuming that our Key Performance Indicators predict the results we require . . . ” Correlation doesn’t mean causation, and many selling organizations measure (and reward) behaviors that don’t produce value for the company, as Michael Webb of points out: “The senior executive of a large software company observed that most prospects who went through the expensive ‘proof of concept’ stage of their sales process became customers. So, he ordered a sales contest where salespeople were rewarded for getting more prospects to conduct a proof of concept. Salespeople complied, and the results were disastrous: costs went way up, and revenues didn’t. (The manager’s) assumptions about what caused customers to buy created enormous waste . . .”

Challenging previously-held assumptions will rock the corporate boat, but survival in 2009 and beyond requires a fresh approach. Start asking at the top: “Which assumptions are we making that must be true for our strategy to work?” The answer might uncover 2009’s greatest risks and opportunities.

© Contrary Domino 2013-2016.
Website development by Crisp Point.