Category Archives: Revenue Risk Management

Ethical Selling: American Express Offers a Teachable Moment

“Every ethics question a business person could face comes down to a question you face on your very first sale: what are you willing to do for a buck?”, Philip Broughton wrote in his book, Mastering the Art of the Sale.

The question needs to be asked at every company. From the mom-and-pop Custom Cupcakes by Diane, to this week’s ethical letdown, financial behemoth American Express. The Wall Street Journal reported ongoing sales chicanery at the company, and traced its roots back to 2004 (American Express Gave Small Business Customers One Rate, Then Secretly Raised It), July 31, 2018).

Perhaps it began even earlier. AmEx reaped the benefits through 2018 – around the time Wells Fargo was accused of the same distortion. When it was publicly called out, an AmEx manager got nervous, and “told salespeople they would need his approval before offering prospective clients a margin of less than 0.70 of a percentage point, according to an email reviewed by the Journal. Current and former employees said the price changes were common knowledge within the forex business . . . Amex’s foreign-exchange international payments department routinely increased conversion rates without notifying customers in a bid to boost revenue and employee commissions,”  Journal reporter AnnaMaria Andriotis wrote in the article.

AmEx spokeswoman Marina Norville, responded, saying, “We constantly reinforce the importance of acting in the best interest of our customers.”

Current and former AmEx employees voiced a different take. They “describe an environment focused on bringing in as many new clients as possible and squeezing revenue out of them before they depart. Employees were told that the average forex [foreign exchange] customer did business with AmEx for around three years. ‘Who cares if they come or go? Let’s make money while we have them,’ one current employee said, referring to the attitude within the division,” according to the Journal.

Well, Amex, which is it? – because it’s not both.

The article describes AmEx’s tactics: “The salespeople didn’t inform customers that the margin, a markup that AmEx tacks on to the base currency exchange rate, was subject to increase without notice,” current and former employees were quoted as saying in the article. “Some time later, salespeople would increase the margin without informing the customers . . . Managers directed salespeople to keep the details of the payment arrangements hazy when speaking with potential customers and to avoid putting pricing terms in emails,” according to current and former employees.

This reveal got me wondering: how does this American Express division recruit salespeople? How do their online solicitations represent their selling culture and expectations?

This June, 2018 post for FXIP Manager popped up first in my search:

“FX International Payments (FXIP) is a cross-border payments solution developed to meet the foreign currency payment needs of small to mid-size corporate and financial institution clients.

The FXIP Manager reports to the Director FXIP Americas and is responsible for managing a portfolio of existing corporate clients. He/she will develop and maintain relationships, drive expansion sales of new product solutions, and make outbound calls to encourage transaction activity. The incumbent is responsible for achieving client revenue targets and overseeing the effective management across the end-to-end client life cycle, including, early engagement, loyalty and retention. He or She will work closely with colleagues in sales, marketing and operations to deliver superior service to our clients. This role includes a broad range of responsibilities, including: business development, relationship management, portfolio analysis, and requires interaction with both internal and external partners. This position will own and drive work streams and strategic initiatives to increase overall portfolio performance.

The candidate will have demonstrated success in proactively driving organic growth, client retention, revenue obtainment and related metrics in a foreign exchange environment focused on profitable expansion in a time-sensitive, well defined compliance and risk conscious environment.

Following this description, AmEx lists desired qualifications – eleven of them. Usual stuff: demonstrated experience in . . . strong knowledge . . . high proficiency . . .

Then, this one, halfway down the list:

“Must understand the individual and group responsibilities impact to department profit and revenue targets,”

And this,

“Demonstrated strong negotiation and influencing skills in order to handle objections [to] convert and activate prospects.”

Except for “deliver superior service to our clients” in the job description, this is a Revenue Focused job with a capital R, and a capital F, not unlike most sales positions. But this posting hints at the AmEx sales culture:

Drive organic growth . . . profitable expansion . . . revenue obtainment [sic] . . . Impact to department profit and revenue targets . . . Strong negotiation . . . influencing . . . handle objections . . . convert and activate . . .

Make no mistake: this is a high-pressure selling environment. If you like serving customers and relish a pat on the back for doing so, AmEx might not be the place for you. Unless, of course, you’re making goal.

What are you willing to do for a buck? And, what aren’t you willing to do? Two straightforward questions with complex answers that might vary, depending on a company’s momentary situation. Or, the sale rep’s.

This case offers a teachable moment for sales managers and salespeople to engage in conversations, and to answer further questions:

  1. Which conflicts of interest exist between AmEx and its customers? Do the same conflicts occur in our sales engagements?
  2. How might the conflicts be mitigated?
  3. Is intentional omission of facts during the sales process equivalent to lying?
  4. In the AmEx scenario, who is responsible for misleading customers? Management? Salespeople?
  5. Is it justifiable for salespeople to execute management requests, even if they perceive those requests are morally or ethically wrong?
  6. How would you resolve a conflict of interest if it happened with one of your customers?
  7. How should companies balance achieving revenue targets, and preserving the best interests of customers?

“This ought to be a moment when people stop and remember how dangerous the system is when you don’t have the proper protections in place . . . This is a wake-up call. It should remind all of us and firms that culture and compensation make a difference . . . How you reward people, how you motivate people and what values you hold people to matter,” former US Treasury Secretary Jack Lew said. He was talking about Wells Fargo.

No company is immune to the corrosive impact of dishonest and unethical sales practices. If you’re not already discussing the issues, the time to start is now.

Long-term Revenue Success Depends on Moral Leadership and Sound Ethical Conduct

Elizabeth Holmes, CEO of Theranos, and John Zimmer, CEO of Lyft, have much in common. They are the same age – born less than two months apart in 1984. Both were accepted into prestigious universities. Holmes attended Stanford, and Zimmer went to Cornell. As undergraduate students, they were recognized with high academic honors. Holmes was a Stanford President’s Scholar, and Zimmer graduated first in his class at Cornell. (Holmes did not graduate.) Both hatched promising startups in Silicon Valley. Both became well known for their entrepreneurial talents, and for a time, both were well regarded by their peers.

But the difference in their results couldn’t be starker. Fortune named Holmes one of the World’s Most Disappointing Leaders. In 2016, US regulators banned her from owning, operating, or directing a diagnostic lab for two years.  And in June, 2018, a federal grand jury indicted her on nine counts of wire fraud and two counts of conspiracy to commit wire fraud. You can find her bio under Leadership for Theranos, minus the stink. After all, there are only so many words you can fit onto a web page.

Zimmer, on the other hand, received the Cornell Hospitality Innovator Award in 2017, and his company’s market valuation reached $15.1 billion in June, 2018. Not bad for a company that began operating in 2012.

You can say that scruples in the C-Suite isn’t a prerequisite for generating profit and solid financial returns in a given year. And you can tell me that to be revered in business, a person doesn’t have to be a good human being. I’m inclined to agree. My argument is that the cataclysmic event that foreshadows business failure is the moment the CEO embeds deceit into corporate strategy. And when complicity becomes a condition for employment, the company’s fate is sealed. In this regard, you cannot find two more contrasting leaders than Holmes and Zimmer.

There’s a lot of digital ink devoted to “killer startup strategies,” and “must have’s” for revenue success. But too many articles concentrate on right now tactics. It’s fluffy marketing cotton candy engineered to induce a revenue sugar high, or simply to provide an adrenaline rush for the reader. A rarer find online is insight intended to benefit those with a planning horizon longer than Bryce Harper’s remaining time as a Washington National.

CXO’s can’t credibly plan beyond next quarter if moral and ethical conduct isn’t woven into their company’s cultural fabric. Yet, there’s a dearth of recognition regarding the business value of good ethics. I don’t understand why, given the hard landings we’ve seen. Wells Fargo, HealthSouth, Enron, Premier Cru, Pilot Flying J, Takata. Since I authored my first Sales Ethics Hall of Shame in 2013, over forty different companies have been inducted. Among those, many are defunct.

I see no end to the wreckage. Absent moral integrity, the revenue-now mania that infects the blogosphere, B-School curricula, leadership development courses, and popular culture compares to the Titanic crew getting finicky about how to position their deck chairs, and worrying about whether red wine will be available past April 15th. If business leaders intentionally incubate – or don’t avoid – ethical catastrophes, their strategic cleverness will plummet from on high, forming a deep crater on the revenue chart. Except unlike the Titanic, there’s no value in its recovery.

For long-term revenue success, integrate sound ethical conduct into the business. Here are eight characteristics of an ethical organization:

  1. An ongoing ethical premise for the enterprise. For what not to do, see Swanluv, or the Fyre Festival.
  2. Leadership that models ethical behavior.
  3. Audit controls that are rigorous, consistent, visible, and independent.
  4. Risk identification and mitigation, inside and outside the organization. A red flag: an executive who cops immunity by saying, “that type of thing could never happen here . . .” or, “we don’t hire those types of people . . .”
  5. Communications with staff about ethics that are clear, credible, bilateral, and ongoing.
  6. Safety for employees to report fraud, abuse, and ethical concerns.
  7. Processes for resolving problems exposed through evidence of ethical violations.
  8. Timely and effective action.

Holmes and Zimmer are both bright, ambitious business leaders, who hew to different moral interpretations. Holmes drove her company into the ground. Zimmer continues to create value for his employees, customers, and investors. The outcomes speak for themselves. A culture of sound ethical conduct is crucial for long-term success.

For Sales Forecasting, Quality Is the New Accuracy

“The sales team forecasts $100 million in revenue for the quarter.”

Many companies motivate employees with incentives for matching sales results to predictions. Some punish them for being wrong. Some do both. A constant lament:  “Why, oh why, can’t I get an accurate sales forecast?” .

“Businesses often use forecasts to project what they are going to sell. This allows them to prepare themselves for the future sales in terms of raw material, labor, and other requirements they might have. When done right, this allows a business to keep the customer happy while keeping the costs in check,” according to Arkieva, a company that specializes in supply chain management. Seems reasonable.

Insisting on forecast accuracy is the easy part. Measuring accuracy is a different matter.

One popular metric is MAPE, or Mean Absolute Percentage ErrorAccording to the table below, APE, or Absolute Percentage Error, looks relatively tight at 4% after five periods. But at 26%, MAPE suggests a different story. Based on MAPE, it’s hard to describe this example as representative of stellar forecasting.


The table also reveals a subtle risk in measuring forecast accuracy. Notice that periods 1 and 2 have the same actual-forecast variance (10), but sandbagging in Period 1 produces a lower APE (10%) than overstating in Period 2 (11.1%). If you’re rated on forecast accuracy, there’s a clear message: ‘tis better to be under than over. That’s warped. You can hear the rancor in customer service call center: “Half my conversations are with customers asking why it’s taking so long to get items the sales rep said were in stock.”

I hate the notion of accurate sales forecasting. It’s naïve and wrongheaded. It’s contrived failure, a la Lucy from Peanuts: “Hey Charlie Brown! You kick the football while I hold it!” Year after year, CXO’s and sales managers unwaveringly insist on forecast accuracy, as they hold knives to the necks of functionaries tasked with ensuring it. Einstein would be pleased to know that his definition of insanity continues to thrive.

If I said, “a pretty good forecast is good enough,” people would malign my squishy tolerance. “Oh, you must eat vegan granola and wear Birkenstocks to sales calls.” Au contraire! My acceptance of sales forecast inexactitude comes from a passion for pragmatism – a reaction fueled by both anger and love. Author Edward Abbey wrote, “a writer without passion is like a body without a soul.” I make no apology for my astringent pronouncements.

Forecast accuracy simply doesn’t align with customer fickleness, cold feet, biases, budget revisions, caveats, strategic flip-flops, tactical changes, reprioritization, intervening events, committees, sub-committees, ad hoc project teams, internal bickering, competing interests, leadership attrition, new hires, new agendas and directives, politics (both national and intra-company), informal decision hierarchies, second-guessing, scuttled venture funding, maxed-out lines of credit, indecision, trigger events, buyouts, divestitures, mergers, competitive Hail Mary’s, and external forces. All, ingrained in corporate decision making. And I haven’t yet introduced buyer ignorance, stupidity, and confusion. “Sales forecast accuracy!” Whoever coined this oxymoron should be taken to the woodshed.

In forecasting, there’s more alchemy than reason. “The manufacturing people divide it by two after I give it to them, so I multiplied it by three before I gave it to them! Then they divided by four, so I multiplied by five. The credibility gap became ridiculous. Nobody uses my forecast anymore. They make their own!” writes  Dave Garwood , an internationally recognized expert in supply chain management. If you’re on the forecast accuracy horse, it’s dead. Get off!”

Happy to dismount, sir, because I ran out of liniment a long time ago. Following decades of complaining and handwringing ad nauseum over forecast accuracy, after countless hours in sales meetings dedicated to telling reps that forecast inaccuracy is tantamount to failure, it’s time to take a step back to ask a different question. Instead of asking for forecast accuracy, ask for forecast quality.

Pause for a moment, close your eyes, and take five powerful Ujjayi breaths. Think about what you gain when quality, rather than accuracy, becomes the goal. Namely, the liberty to think probabilistically instead of deterministically. The freedom to be wrong, and the opportunity to learn. That’s far from Easy Street. Forecast quality demands keen situational awareness, iterative learning, and continuous improvement. Compared to the don’t-be-wrong-or-you’ll-get-your-tail-kicked ethos surrounding sales forecast accuracy, that’s a valuable upgrade for sales organizations.

Forecast quality concentrates on reducing outcome volatility – not eliminating it. Forecast quality accepts the inevitability of variances. The goal is to tighten the deviation between predicted and actual.

I understand why managers insist on accuracy. Who wants to deal with variances, and all their overhead, including staffing buffers, contingent resources, safety stock, and Plans B, C, and D? CXO’s find life is easier when not bogged down with what-if scenarios. Considering worst-case, most-likely, and best-cases for revenue, unit demand, material purchases, plant capacity, transportation logistics, and labor is tough. Yet, we soldier on. As one former boss liked to tell me, “that’s why we pay you the big bucks.”

Eight attributes of quality sales forecasts:

  1. Intelligent. Quality forecasts result from careful situational analysis and interpretation. They are supported by clean data and appropriate statistics, and not strictly on instinct or intuition.
  2. Account for intrinsic uncertainty and complexity. Resolute as a sales team might be on making goal, revenue achievement is not deterministic. Quality forecasts involve ranges like worst case, most likely, and best case.
  3. Include relevant variables and dependencies, and exclude those that are not. Quality forecasts identify which elements predict an outcome – and the relationships between them – so that probabilities can be assigned.
  4. Future-oriented. Future events can’t be predicted or modeled from historical data alone. Quality forecasts embed emerging or nascent forces into the model.
  5. Collaborative. Inputs reflect multiple points of view, including forces that the company doesn’t control (e.g. economic, competitive, technological, social).
  6. Documented. Quality forecasts clearly explain the methodology, inputs, and interpretation of results.
  7. Transparent. Quality forecasts allow other departments to learn and understand how they are developed.
  8. Iterative. Quality forecasts are continuously improved, and must be adjusted as conditions change.

Tips for achieving high forecast quality:

  1. Use forecast variance as a planning tool. Garwood advises that forecasts “should not be punitive as their primary purpose. When forecasts fall outside an acceptable tolerance, root cause analysis must be performed.”
  2. Involve the company – not just Sales. A quality forecast must include inputs from product engineering, marketing, and supply chain operations.
  3. Meet regularly to discuss forecast quality and accountability. “The #1 cause of forecasting problems is lack of accountability,” Garwood says. “A company might meet its overall revenue target, while a particular region or channel might be significantly under- or over-forecast. No region wants to be called out as ‘worst’ in forecast quality.”
  4. Pursue buy-in. Garwood suggests to “start by describing the forecast accuracy problem and how it impacts the manager, not by saying ‘here’s why this change is good for you.’ With forecast accuracy myopia, everyone spends too much time apologizing for not hitting ‘the number’ bang on. Who wouldn’t want to fix that?”

Above all, recognize the difference between good forecast quality and poor quality. That’s more nuanced than forecast accuracy. According to Garwood, “a good quality forecast means the business operates profitably within the planning variance that management has established. If the variance creates significant strategic or tactical risks, either 1) the forecast is poor quality, 2) the business lacks adequate risk capacity or 3) both.”

Three Reasons Sales Forecasts Don’t Match Results

“Our sales results never match what’s forecast!” As the saying goes, “if I received a dollar every time I heard this complaint, I’d be contentedly fly fishing in a remote river right now, untethered from the grid.”

Inflated expectations? First, we need to understand what match means in the context of forecasting. If match means equals – as some people believe – we only need one reason: because it’s a forecast. Trying to get sales forecasts to hit actual revenue bang-on is a fool’s errand.

And accuracy might not be as valuable as you think. If I have a customer who reliably places an order for 100 units every month, I can forecast that amount, and – assuming the order is received – my forecast will be 100% accurate. Strange as it sounds, a lot of purchasing is just that way: steady, predictable, consistent.  What is the value of that forecast to my company? Minimal, because they already know it’s coming and they have planned production, personnel, and materials accordingly.

Accurate as it is, there’s little value in my forecast because there’s no intelligence behind it, and little possibility of variability. If you and I are standing in the middle of a nascent hurricane, would there be value to you if I said, “over the next 24 hours, we’re going to experience heavy rain.”? I’d be accurate as all get out, but my statement wouldn’t be particularly valuable. Yet, companies encourage salespeople and their managers to indulge in similar forecast gaming by penalizing them for “inaccurate” forecasts, and rewarding them for playing things safe, and predicting revenue only when it’s solidly assured. This discourages probabilistic thinking and situational awareness – two essential competencies for salespeople today. And vital for planners.

On the other hand, if match means in the ballpark, then companies need to specify what that means in terms of variance, because an acceptable variance for one company might not be acceptable for another. And acceptable variance might change for a given company, depending on market conditions and other forces.

In sales, there are three reasons for forecast variances (defined as the delta between expected results and actual, usually in terms of revenue or unit volume):

  1. Sales forecasts are projections dependent on human decisions, which are exceedingly difficult to predict. That’s true with just one decision maker. And when there are multiple decision makers – for example, with buyer committees or additional levels of approval – forecast complexity skyrockets, often defying intuition and mathematical prediction.
  2. [Stuff] happens – though most sales managers are loathe to admit it. Across a broad spectrum of situations, unanticipated events occur with such frequency that there is vernacular for them: Black Swans. In forecasting, salespeople and their managers seldom allow for them, and they include such things as supply chain interruptions, buyouts, executive defections, sudden strategy changes, and reallocation of project funding.  These are frequently catastrophic deal-killing events, and they are out of the salesperson’s control. Every forecast must consider these possibilities and more, and account for them.
  3. Senior management injects biases. Sales managers commonly demand that their reps carry “healthy” revenue pipelines, and they stigmatize their reps as “low performers” if they don’t project revenue that’s congruent with quota. The result: forecast candor is systemically discouraged, while forecast inflation gets rewarded with a pat on the back.

Sales VP’s often tell me that forecast variances result from sales reps who are “overly-optimistic.” That’s often partly to blame. Optimism can cloud situational awareness, which creates volatility – the bane of CFO’s and production planners. But there are many other risks that come into play, and it’s incumbent on managers to know what they are.

My next article will cover what makes a sales forecast high quality.
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