Category Archives: Revenue Risk Management

The Difference Between Loyalty and Habit – and Why It Matters!

If you ask me to define a word, I usually start by describing what it is, or what it means. “A screwdriver is a hand tool used for turning screws and bolts. Also good for opening paint cans. Also, a cocktail made from vodka and orange juice.”

Loyalty and comfort are different. These words are better understood by grasping what they are not. The way William Gass described comfort in a 1986 New York Times book review of Home, by Witold Rybczynski:

“. . . . comfort means . . . the absence of awareness. The air is perfect when it isn’t noticed; in tepid water my finger cannot distinguish the water from itself; in a comfortable chair, without being numb, I enjoy the lack of feelings in my back and rump. Each performance, like virtue, is an unconscious habit. In the zone of the mind, an idea I can serenely take for granted, which seems certain and remains unchallenged, is like a custom recliner where the mind may snooze. My spirit, likewise, prefers familiar surroundings; it is at home and without anxiety in its own neighborhood and country. I go out of doors there as calmly as I go to bed. In addition, comfort, ideally, has no consequence but continued comfort; the padded chair is not supposed to postpone our back pains until tomorrow. Finally, if I become self-conscious about my comfortable condition, the snug swiftly becomes the smug while mind and spirit turn arrogant, dogmatic and parochial.”

In other words, concentrating on comfort makes us less comfortable. Loyalty, a form of mental comfort, has similar properties. Loyalty is a reflexive choice, absent insight. Loyalty enables consumers to bypass circumspection, reach for their wallets, or to strait away click on the Buy Now button. When we dig into reasons for loyalty, we become less loyal. For example, when we understand that we buy Product X because it’s bigger, faster, stronger and cheaper, we start to wonder, which alternatives have superior attributes to Product X? That sets off a deluge of comparison shopping, which makes marketers tear their hair out and scream for help.

Consultants to the rescue!
Experts sell executives on a panacea for the problem:  keep fixing, improving, tweaking, and changing their products. And when those tactics sputter or stall, they hawk the merits of implementing the mother of all projects: transformational change. This assures another few years of steady, billable work.

Unfortunately for companies, these investments can be self-defeating. Anything that causes habituated customers to stop and think imperils the probability of repeat purchases. “Without a value proposition superior to those of other companies that are attempting to appeal to the same customers, a company has nothing to build on,” A. G. Lafley and Roger Martin wrote in a Harvard Business Review article, Customer Loyalty is Overrated (January, 2017). “But if it is to extend that initial competitive advantage, the company must invest in turning its proposition into a habit rather than a choice.”

If you’re a habit, then someone stopping to think becomes your arch enemy. “We don’t claim that consumer choice is never conscious, or that the quality of a value proposition is irrelevant. To the contrary: People must have a reason to buy a product in the first place,” Lafley and Martin say. The problem is, once consumers have made a choice, vendors don’t usually nudge them to a marketer’s holy grail: ingrained, reflexive action. What Lafley and Martin describe as “an ever more instinctively comfortable choice for the customer.”

Oddly, vendors seem resolute on forcing their customers to stop, and think. An example: Don’t Market to your Customers; Educate Them Instead. Or, “we’re excited to announce some major changes to our product line.” Why do marketers give customers such easy chances to reappraise their preferences? I’m not sure. Maybe they don’t know when it’s a mistake. Maybe they don’t believe in the competitive power of sameness. Or, maybe they don’t expect that in their zeal to change things up, a measurable amount of revenue will sail out the window.

Buying into Lafley and Martin’s ideas requires recognizing that ultimately, driving customer habit, rather than loyalty, is key to sustainable revenue. “If consumers are slaves of habit, it’s hard to argue that they are ‘loyal’ customers in the sense that they consciously attach themselves to a brand on the assumption that it meets rational or emotional needs.” That pithy sentence upended a ton of why-you-must-build-customer-loyalty hype that I’ve read online in the past 12 months.

Innovate, and die! MySpace versus Facebook illustrates this contrast. To grow its social network platform, MySpace tinkered with what Bloomberg Businessweek called “a dizzying number of features: communication tools such as instant messaging, a classifieds program, a video player, a music player, a virtual karaoke machine, a self-serve advertising platform, profile-editing tools, security systems, privacy filters, Myspace book lists, and on and on.” I never used Myspace, but I gather that if I logged on four times each day, I would have needed to re-learn the website’s navigation each time. Facebook, on the other hand, studiously avoided building habit breakers into the user experience. The rest is history. “The real advantage is that to switch from Facebook also entails breaking a powerful addiction,” Lafley and Martin said.

“The essence of brand loyalty is, customers have to remember you and what you stand for,” Sampson Lee wrote in a blog, Stop Trying to Eliminate Customer Effort . When it comes to brands, he might be right. But for product purchases, I don’t care that people remember what I stand for as much as I care that people just remember my product.

Still, I find loyalty and habit hard to tease apart. In formulating a working definition of loyalty, I made two categories.

Category I – Sincere, genuine customer loyalty. The kind of loyalty that’s unencumbered by noodling numbers on a spreadsheet, less bothered by “justifying the business case” and “Show me the ROI!” The kind of loyalty that just oozes, “Don’t think – buy!” Call it haboyalty or loyit – whichever you prefer. It contains these essential elements:

Memory. Whether through a capability, design, packaging, acquisition experience, or something else, repeat purchases only happen when customers remember a unique attribute associated with the product or service.

Habit. Growing and deepening buying habits will improve the probability of follow-on revenue.

Inelasticity. Loyalty is not loyalty if bonds are easy to rip apart. In the words of an actual consumer: “I drive a 2016 Lincoln MKX. I only look at Fords [Lincoln is a Ford Division]. My dad worked at Ford, and I have deep loyalty to the Ford Motor Company. I look for a car that’s a little nicer and has got enough room for my golf clubs but isn’t sloppy big. The MKX is sort of a mini-SUV, though it’s not an SUV.”

If you know which famous person said this, give yourself a pat on the back. It was Microsoft’s Steve Ballmer. Not exactly your consumer every-man, but he could be. I sense that his loyalty involves commitment. Love, maybe? Regardless, Ford can reliably forecast selling at least one unit of this ugly car next year. Ballmer’s not a candidate to jump from Ford to buy a Cadillac Escalade  – or any other brand.

Category II – Contrived loyalty. I use this term in deference to marketers who still like to think of their practices as loyalty-inducing, even when they are not. Some examples:

Switching costs. The blog, Switching Costs: 6 Strategies to Lock Customers into Your Ecosystem offers a helpful list for developers tasked with building shackles connecting them to their customers. “If you look closely at companies like Adobe, Salesforce, Google, or Rolls Royce, you’ll see that their dominance is no mere coincidence. Customers stay because they are locked into their ecosystems through high switching costs.” Check out the article if you want to learn more about “Base product and consumable trap,” “Data trap,” “Learning Curve trap,” Servitization trap, and Exit trap.” Trap was possibly coined by a clever content marketer, now jobless.

Loyalty clubs.
Frequent buyer points. Rewards. Discounts. Exclusive events. Lapel pins and fan gear. Nothing wrong with offering any of these to customers. But they’re marketing expenses – perks designed to mitigate the risk of customer churn. To test whether customers are true loyalists, claw back these benefits, or squish them down. Then, see what happens.

Contracts. “Terms of service are two years. Early termination subject to penalties and fees.” It’s a stretch to regard adherence to contract terms as loyalty. But the customer-retention metrics look great on the marketing dashboard!

In another swipe at a sacred marketing platitude, Lafley and Martin wrote, “The death of sustainable competitive advantage has been greatly exaggerated. Competitive advantage is as sustainable as it has always been. What is different today is that in a world of infinite communication and innovation, many strategists seem convinced that sustainability can be delivered only by constantly making a company’s value proposition the conscious consumer’s rational or emotional first choice. They have forgotten, or they never understood, the dominance of the subconscious mind in decision making. For fast thinkers, products and services that are easy to access and that reinforce comfortable buying habits will over time trump innovative but unfamiliar alternatives that may be harder to find and require forming new habits.”

Habit versus conscious choice. The boundary between Category I Loyalty and Category II Loyalty is not as crisp and clean as it sounds. There’s fuzziness and overlap. But marketers should not allow themselves to become confused. The former involves de-emphasizing rational choice. The latter means repeatedly reminding customers to stop, think, and decide.

Longues habitudes de vie! ¡Viva los hábitos! Long live habits!

Should Companies Stop Worshiping Sales Rock Stars?

“Can you find us a sales rep? And not just any rep. We want a rock star!” An ordinary request for something truly extraordinary. I hear it often. Lately, I began to wonder, what does this honorific mean?

I searched online for sales rock star, and received a deluge of results. 23,800 of them, if you’re into numbers.

How to Find Your Next Sales Rockstar

Be an Inside Sales Rockstar

How to Be a Sales Call Rockstar

And, From Sales Rookie to Enterprise Sales Rockstar.

I found a YouTube video, How to be a phone sales Rockstar. It’s over 90 minutes long, with 1,276 views. Oddly, just one Like.

I dove further into the results by clicking on random links. Many were for job opportunities like this:

“Business Development Sales Rockstar Jobs in Connecticut.” The position stipulates “Other Must Have’s: Ability to sit for extended periods of time at a desk, in meetings, etc. . .” Oh, baby! How many candidates applied?

There’s a definitive book on the topic, Sales ROCKSTAR: How Top Producers Perform by Jeff Krantz. You can find it on Amazon, which offers an expectedly salesy blurb:

“This book was written for those who want to become ultra Top Producers in the profession of selling. It has been developed for those who desire the lifestyle that only a successful sales career can afford.”

Questions for the copywriter: Is it necessary to modify top producers with ultra? And which lifestyle are you referring to? The retirement you’re planning while burning out as a micro-managed, bag-carrying road warrior, shackled by a thin thread of job security?

I even discovered yet another usurpation of the Keep Calm mantra: Keep Calm and be a Sales Rockstar.

This was getting weird. The last straw was an article, The Seven Absolute Must Have’s to Become a B2B Sales Rockstar. The title leaves no room for dissent. Had the writer been interested, I would have questioned why honesty, ethical integrity, humility, and empathy don’t appear on his list of essentials.

About 45 minutes into my rock star investigation, my head hit the keyboard. I was appalled by what I read, and felt no closer to an answer. The most consistent idea I gleaned about sales rock stars was that they achieve high ratios of revenue compared to goal. Lots of unanswered questions remained. How difficult were the goals? Were they impossibly high, or ridiculously low? Are rock stars better at exploiting serendipity? Are they more immune to black swan calamities? How long do rock stars remain rock stars? Forever? Or like many professionals, is their performance subject to ups and downs?

For rock stars, there’s lots of admiration for their revenue outcomes, but what about their customer outcomes? Do rock stars have happier, more loyal customers than non-rock stars? Do rock stars nurture more profitable customers than others? No answers.

Finally, there’s the question of fairness. For sales reps, does a rock star label mean landing a peachier territory than reps whose abilities have not been similarly anointed? Does it gain them more opportunities for professional development? More autonomy and independence? A speaker slot at Achiever’s Club? Does being considered a rock star become a self-fulfilling prophesy – or an unwieldy career burden, causing the bearer failure and disappointment? Hard to say.

“It’s tough to juggle the mountain of details about everyone we meet, and we need an easy way to think about them, wrote Peter Cappelli, professor at the University of Pennsylvania’s Wharton School, in a Wall Street Journal article, Why Managers Should Stop Thinking of A, B and C Players (February 21, 2017). “Managers routinely put employees into one of three boxes: people who perform well (A Players), those who perform poorly (C players), and those who are stuck in the middle (B players). Rock Star persists in sales parlance, reflecting our adoration for all things ostentatious. Rock stars belong in Sales! A-Player banality belongs in Accounting.

“The problem is that there is precious little evidence to support the A-Player model and the basic idea beneath it. The evidence from objective measures of actual job performance for individuals shows that it varies a great deal over time, even within the same year,” Cappelli writes. Could his research explain why I have witnessed so many high-flying sales achievers who tanked at their next gig, or suffered revenue craters when territories realigned, products changed, or competition stiffened?

Before rock stars produce even one dollar of revenue, hiring managers proclaim their stratospheric hopes. “We just hired Stefan away from [competitor X]. He crushed his goal in their East region last year, and he’s a fantastic closer. Welcome aboard, Stefan. We know you’re going to just kill it!” Bro hugs from proud management follow as Stefan joins the team.

Cappelli writes that more than half of US corporations routinely segregate individuals based on such expectations. “In this system, people are singled out as A players, often after only two years’ performance, and groomed to rise higher and higher in the company. Yet the evidence shows that people are kept in those programs no matter what their actual performance is – and only 12% of companies report that their employees see the process as impartial.”

That creates a morale problem, though some sales managers argue that it shouldn’t because all reps are evaluated the same way – on revenue achievement. That sounds egalitarian, but it doesn’t guarantee a level playing field. Could rock stars, by dint of their near-deity status, be granted better opportunities? Or are they allowed slack if their performances don’t match expectations? After all, what manager wants to admit a hiring mistake? “It is easier to play along with the A-player model and assume that job performance is hard-wired. It has the drawback of being wrong and bad for business,” Cappelli says.

Requests for sales rock stars say more about a company’s position than most senior managers realize. It’s tacit admission of a hornet’s nest of marketing problems. A neon sign on a job post that tells candidates “Our products are weak. We don’t know how to deal with our competitors, and we can’t a produce a quality sales lead to save our life.” Hence, Rock Star as salvation for a smorgasbord of management inadequacies. The problem is, high-achieving sales professionals are attracted to high-potential opportunities. When those opportunities don’t materialize, their appetites for sticking it out are no stronger than an employer’s resolve to keep a struggling rep on the team.

The sales profession needs to look at itself in the mirror. Using crass terms like rock star trivializes the difficult challenges that salespeople encounter every day. It ignores a reality in every profession that performance rarely remains consistently high or consistently low. And it perpetuates a dumbed-down culture. A hypocrisy that sales managers bemoan when sales reps face the cold, cruel world of the C-Suite. “Our reps just don’t know how to talk to senior executives . . .” Ahem . . . you can help them by first expunging sophomoric language like “rock stars” and “crushing it!” from your sales communications.

In his book, The Art of the Sale, Philip Broughton wrote, “A positive view of sales and selling “holds that . . . no matter the condition of your birth, if you can sell, you can slice through any obstacles of class, status, or upbringing in a way inconceivable in more hidebound societies. Great sales[people] need no other prop to succeed. Selling well, in this view, is also a reflection of a healthy character. It means you are the sort of person people are drawn to – hardworking, clean living, and trustworthy – and you are likely to succeed at whatever you choose to do.”

I’m under no delusions that sales success means possessing saintly virtues. But characteristics that distinguish outstanding sales professionals defy assigning labels. It’s time for companies to quit worshiping meaningless, flamboyant nicknames like rock star, and instead, seek the combinations of skills, behaviors and actions that produce the right outcomes for their companies and customers.

Six Strategies for Managing Revenue Risk

When you boil off the ancillary stuff that business developers do, four distinct objects remain:

1. Capture: Acquire new customers
2. Maintain: Keep current customers happy
3. Grow: Encourage customers to increase spending with your company
4. Reclaim: Win back former customers

No mere coincidence that the word customer appears in each one. This indicates the basic element has been revealed. Time to stop boiling.

The problem is that the slew of activities involved in augmenting the Income Statement’s top line have obscured these fundamental objectives. For revenue generation, organizations now employ specialists for direct selling, indirect selling, measuring, forecasting, dashboarding, best-practicing, comparing, spreadsheeting, analyzing, planning, content developing, press releasing, training, storytelling, elevator pitching, and social-media-ing! How did this happen? Discuss . . .

Driven to distraction.
“The sales models for many large companies have become more complex and less efficient, putting pressure on profit margins,” a Bain & Company survey explained. Using financial data between 2003 and 2011, Bain compared the income statements of about 200 US healthcare, technology, and financial services companies. “More than half of these companies had increasing sales and marketing expenses as a percentage of revenues over the period, or they failed to demonstrate the scale benefits that one would expect from their growing size.”

Sales pundits offer a reason for this by proclaiming that customers have suddenly become “more demanding than ever.” That’s an illusion designed to induce panic, sell services, or both. Customers are not more demanding. They have demands that are new and different, which throws vendors for a loop. Bain attributed the increased cost percentage to four emerging buying trends:

1. Customer needs becoming more sophisticated, evidenced by faster revenue growth in vertical industry solutions over general enterprise systems.

2. Customers defining value as derived from outcomes or results, rather than in simply receiving the lowest price.

3. Customers becoming more experienced conducting disciplined, competitive bid processes.

4. Customers becoming more wary about risks of incurring high switching costs.

These trends complicate almost every activity between trading partners. More intricate, collaborative processes for buyers drive congruent challenges for sellers. And for both, increased transaction costs, and greater risks. For B2B vendors, longer sales cycles and less predictable outcomes have become the new normal. Not everyone is upset. These problems represent red, billable meat for strategy consulting companies, which predictably promise “solutions” by positing new, box-intensive revenue frameworks.

Here’s one from PwC: The Sales, Channels & Distribution Diagnostics Framework. Despite the impenetrable title, multiple layers, lots of arrows pointing left-to-right and top-to-bottom, and odd categories under the Sales Technology Solutions stack (CRM Solutions/ Sales Portals/ Channel Integration Solutions/ MIS/ Sales Dashboards), it’s a useful visualization that takes a spaghetti bowl of cross-departmental projects, and organizes them into a concise, linear arrangement.

It’s easy to believe that adopting a more complex selling framework offers salvation from revenue calamity. But without knowing a company’s current situation, it’s hard to know whether that’s true. Regardless which selling model or framework your company uses or chooses to implement, expect to encounter a unique collection of risks. Some familiar, some brand-spanking new. For mitigation, consider one or more of these risk strategies:

1. Accept. Many executives regard risk as something to get rid of. But every business strategy involves risk acceptance. The challenge is knowing which are appropriate. For example, any company unable to accept the risk that a sales opportunity might fail is not market-ready. So for commercial organizations, the possibility of losing a deal is an appropriate risk to accept. From there, the question becomes how much capacity the company has for failed opportunities.

Examples of risk acceptance:
• “We expect that [X%] of our pipeline leads will not result in a sale.”
• “We’re going to monitor trends X, Y, and Z. But for now, we’re not mitigating their risks.”
• “We have budgeted [X%] of gross sales for Bad Debt Allowance.”

2. Reduce. This is the most common approach to revenue risk. After all, when it comes to risk, shouldn’t less be better? Maybe. Yet, some companies want the very risks that other companies willingly chuck over the fence. In fact, entire companies have been built on this idea. Who can’t think of an entrepreneur or two that has created a business by providing an effective solution for the difficult or hard-to-serve customer?

Examples of risk reduction:

• “We are tightening our lead-scoring requirements before handing opportunities to Sales.”
• “We are increasing our sales pipeline multiplier.”
• “We are conducting background checks on all of our new hires.”

3. Eliminate. Some risks can be so catastrophic – bad ethics, for example – that they exceed a company’s capacity to bear them. But eliminating a risk is rare, because it means crushing it to zero probability. When getting rid of a risk is the objective, often the best that can be achieved is making it a very, very low possibility.

Examples of risk elimination:

• “No orders will be shipped without payments clearing in advance.”
• “Moving forward, we’re discontinuing all channel sales and adopting a direct model.”
• “Our CRM system will not advance an opportunity to the next stage until we know [X.]”

4. Share.
Some risks are too great for a single company to sustain, but they can become feasible when shared between two or more entities. This often occurs with co-development agreements between trading partners, or when projects are underwritten by other investors. Risk sharing occurs on the operational level, too. When a company cannot afford a salaried sales rep in a territory, the arrangement might become possible when base pay is lowered, and commission percentages are increased.

Examples of risk sharing:

• “We are engineering this new energy technology with a consortium of trading partners who will have exclusive rights if we are successful.”
• “Our reseller contract provides protected territories to our exclusive channel partners.”
• “Our suppliers have revenue incentives if we meet our target sales volumes.”

5. Transfer. This strategy is increasing, because companies have discovered rapid growth is possible through operating with few employees and scant physical assets. New business models are emerging where risks have been offloaded, and shifted to different entities in the value chain. Recently, one – AirBnB – has even become profitable!

Examples of risk transfer:

• “We are outsourcing our software development to a third-party company.”
• “Sales quotas are going up.”
• “All of our sales representatives are independent and work on full commission.”

6. Pool. As the name suggests, risk pooling is used for combining a large amount of similar risks into a single group. The rationale for risk pooling is that positive and negative spikes in variability tend to offset one another, thereby diminishing the impact, and lowering costs. Risk pooling is often used in supply chain applications where central warehouses might be used to consolidate inventories from satellite facilities, decreasing the investment in safety stock.

Examples of risk pooling:

• “We’re providing our reps a team incentive bonus if the territory meets its revenue target.”
• “Our strategy is to provide a horizontal software solution.”
• “To make quota, every rep must maintain no fewer than [X] qualified opportunities at any time.”

“The purpose of business is to create a customer,” Peter Drucker said. In a complex world, I find the simplicity refreshing. But all around Drucker’s straightforward idea swirls a constellation of risks. Don’t ignore them. Accept the right ones, and use this arsenal of choices for dealing with those that are consequential.

Is the Voice of Risk Being Heard?

“If only HP knew how much HP knows, we would be three times more productive,” Hewlett-Packard CEO Lew Platt said.

Had Mr. Platt been talking about his sales organization, he would have pumped up the multiple. Sales teams possess a trove of valuable commercial knowledge. It’s not unusual to find reps who are fluent in finance, marketing, strategy, product engineering and customer support. Some have lived or studied abroad. Some are multi-lingual. Add street smarts about customer behavior, and you’ve got formidable brainpower.

Good for customers, but a mixed bag for employers. Knowledge and risk awareness go hand-in-hand. That can threaten mangers, especially when assigning individual quotas and sales targets. A bit less knowledge makes team members more compliant. Naivete makes management’s fuzzy planning numerology and “stretch goals” easier to swallow. “Team! Get out there and nail your quota!” Woe to the salesperson who tells her boss, “I have a 70% chance of making my number.” In sales culture, determinism is revered while probabilistic thinking gets ravaged.

More! Faster! Better! In this make-your-number-no-matter-what environment, the voices of risk get stifled. Problems don’t surface. Issues remain under wraps. Objections aren’t discussed. “We need to keep meetings short and use our time efficiently,” senior sales executives tell me. “Besides, we aren’t interested in dealing with stuff we can’t change.” Yes . . . But . . . There are significant hard costs when management cannot assess vulnerabilities, let alone, even know what they are.

More than ever, organizations need to be intelligent about uncertainty and risk. Something that former Wells Fargo CEO John Stumpf didn’t appreciate before he landed in a hot seat in front of Senator Elizabeth Warren, who eviscerated him with questions about his company’s widespread abuses. Stumpf got so flummoxed, he could hardly speak. Senator Warren provided most of the answers, too.

In fact, Stumpf’s management team brutally crushed the voices of risk as a way to insulate themselves from what was happening in the field. Using a cudgel called U5, management silenced internal dissent, enabling Wells to implement practices that exploited its customers and employees. U5, a federal form, was intended to prevent financial services employees who commit fraud and other violations from hopping from firm to firm and repeating their transgressions. But Wells Fargo’s management warped U5’s beneficial purpose to intimidate sales employees into submitting to their heinous demands.

When slapped onto an employment record, U5 carries serious consequences. To hiring managers, it means “don’t hire this candidate.” To employees, it means “Move to a Caribbean island and open a sunglasses stand because you’re not working in financial services. Not now. Not later. Not ever.” U5 made it possible for Wells Fargo’s Management to deliver an ominous message to its staff: if you have the temerity to speak out, blow the whistle, complain, resist, or express unhappiness or unwillingness, we will ruin you. And they meant every word.

We will never know with certainty which statements got silenced, but here are a few possibilities:

“These goals are impossible.”

“My customers don’t like our policies.”

“I’m uncomfortable doing this. It’s unethical.”

“The stress here is burning me out and making me sick.”

“No. This is wrong.”

The voice of risk, U5’d. A well-known verb in the bank’s HR Department, I am sure. With U5 and the repressive sales culture at Wells Fargo, untold millions of similar comments never reached the vocal chords – and keyboards – of its employees. A tiny few seeped out. Just not enough to awaken regulators and Wells Fargo’s board of directors from their slumber. It took an outsider’s report – an investigative article in the LA Times – to goad anyone into action. If you want to crush the voice of risk, here’s your model!

Voicing risk, pushing back, calling out red flags, blowing the whistle – use any terms you want. Wells Fargo used the threat of severe punishment to systematically turn off every communication management didn’t want to hear. An extreme case, for sure, but far from isolated. Where there’s disdain for knowing the truth, a company’s sales culture will reveal it:

“Sell what we’ve got!”

“I don’t want to hear how you aren’t going to make your number, I want to hear how you are!”

“Don’t give me problems. Give me solutions!”

“Stop making excuses!”

“Quit whining!”

One of the most effective ways to shut down the voice of risk is to brand an employee “not a team player,” or “doesn’t believe in the company’s potential.” It’s not U5, but punitively, it might be the next best thing. Try getting promoted or landing a better sales territory with those tidbits embellishing your personnel record. Management’s message: “if you want to stay here, do as we say, and don’t rock the boat.”

“But . . . nobody wants a department full of Chicken Littles, either!” Fair point. There are clear strategic advantages to being picky about the information one accepts before making a decision. Managers must be granted the flexibility to determine what’s useful and valuable, and what to eschew. After all, in sales and selling, there are no universally recognized standards for framing the truth. Look at any B2B sales organization, and you’ll see different managers using different dashboards, and no two turning the same dials and knobs. Vive la difference!

Yet, there’s a distinction between healthy selectivity and willful ignorance. Sales culture should never be an accomplice to the latter, yet the problem is epidemic. The annals of corporate failures are littered with companies that subdued the voices of risk, and created horribly skewed versions of reality. “Employees are our greatest asset! Amazing that none of them are doubters or naysayers!”

Make sure the voices of risk are not silenced at your company. That begins with the board. In an article, Culture: The One Element Most Critical for the Board’s Management of Risk , Jay Taylor, CEO of EagleNext Advisors, recommends six questions to ask:

• Is the CEO active in creating the culture for the organization? Is he or she modeling the right behaviors?

• Is there appropriate tone at the top, both during and outside of board meetings?

• During strategy, product, and investment discussions, is there transparency around business assumptions, openness to respectful but challenging views, and identification of emerging risks to the business model beyond the immediate planning horizon?

• Is there a willingness to bring forward bad news? Is there an understanding that failure may occur, but the business cannot grow and prosper without taking smart risks?

• Has the board established clear expectations for timely identification and handling of risk, particularly those around business goals and objectives? Is there clear risk ownership?

• Not everything should be filtered through the CEO. Are other executives and risk owners present at board meetings and allowed to take questions directly?

The answers to these questions directly influence the culture within the sales force. They influence the strategy, tactics, compensation, and measurements under which business development teams operate. When salespeople believe that the board views risk management, governance and compliance as a crucial responsibility, an ethical environment can be established within the sales organization. The converse is also true: when it’s evident the board doesn’t want to be bothered with protecting the company’s stakeholders, [stuff] will happen. We saw how that works at Wells Fargo.

In addition,

1. It’s understandable that not every anecdote from the sales force constitutes an “action item,” but make sure it’s clear that salespeople will not be penalized for voicing issues to management.

2. Don’t limit account reviews to “wins.” In meetings and internal communication, allow frank discussion about what impedes selling, and make sure no person or department is held sacrosanct in the conversation.

3. Don’t condemn people for probabilistic thinking. Instead, embrace the approach! That won’t make anyone less determined, resolute, or rabidly goal-focused. In fact, the sales team and its managers will become more risk-aware.

4. Appoint at least one board member to serve as a direct point-of-contact for salespeople who want to elevate concerns about illegal or unethical practices, or any other activity that endangers the company, its employees or its customers.

Uncork the knowledge that exists in your sales organization. Giving risk a voice, and a safe way to express it, provides a measurable financial return. And in the case of Wells Fargo, it could have saved the company from itself.

Risk Committees: An Antidote for Fraud

I have a writing problem that’s giving me fits. I’m knee-deep into fraud – that is, describing how to prevent it. Unfortunately, the subject doesn’t involve using fun, energetic words like transformative change and market domination.

Instead, I must become jazzed about ideas that are antithetical in our caffeinated, exponential growth-obsessed business culture: constancy and stability. I must double down on the Zen we supposedly derive from mom-and-apple pie values like honesty, transparency, and trustworthiness. What – no market disruption? I’d rather watch reruns of regular-season baseball games.

Please don’t take this as whining. I’m game for a new expository challenge. Fraud prevention . . . let’s see . . . I know! What’s the ROI of thwarting a nascent scam before it obliterates a company, its leaders, or both? What’s the value of slaying a scandal before it causes customers injury, death, or financial ruin? Now this gets me going! I can write about corporate managers and auditors as champions, armed with sharp ears and ready eyes. Finely-tuned algorithms able to detect the subtlest transactional anomalies. Deceit – headed off at the pass! Energy, baby!

Lead gen, content creation, and predictive analytics might nudge the revenue needle northward, but they won’t save a company from cataclysmic self-destruction. That’s a primary purpose of fraud prevention. There are cases to prove it. Oh, have I got your attention now?

Expect wretched outcomes when these are present in a company:

1. Ethical hypocrisy: senior managers model poor ethical behavior; e.g. The “Code of Conduct” or “Values Statement” – if they exist – are regularly violated or ignored by staff

2. Lame internal governance, oversight, and audit controls: revenue-generation processes that are disconnected from other departments; prevalent attitude that ‘what happens in Sales, stays in Sales’

3. Weak channels for staff to report unethical or illegal activity: no documentation provided to sales force regarding how to report problems; no formal process for mediation

4. Penalties for whistleblowing: sales personnel describe being harassed or intimidated after reporting issues to supervisors, or being castigated as ‘not a team player’

5. Dissonant strategic and tactical goals: corporate strategy champions growing long-term value of customers, while tactical goals are centered on achieving high monthly revenue targets

6. Sales incentives and compensation substantially skewed toward revenue attainment: low base salary, and commissions based exclusively on percentage of sales

7. Sales culture that glorifies achieving objectives unrelated to customer success: prominent recognition for quantity of new customer accounts opened, or number of appointments held

8. Unrealistic or supremely difficult sales performance goals, accompanied by stringent penalties for non-achievement: termination of employment for underachieving “stretch” targets

9. Arrogance: believing “fraud could never happen here . . .”; accepting the delusion that the company hires only “honest” sales candidates and managers

10. Lackadaisical or perfunctory mediation and redress for customer complaints: unabated customer difficulties with selling tactics and allegations of product misrepresentations

Preventing systemic bad behavior begins with the company’s board, whose members must recognize that executing strategy inevitably carries the possibility of doing harm to customers, employees, suppliers, and shareholders. “. . . the full board is ultimately responsible for taking ownership of risk oversight and making sure strategic risks to the business are regularly discussed,” writes Maureen Bujno, Managing Director for Deloitte’s Center for Board Effectiveness.

Soul-searching questions for boards to answer:

1. How might the activities of this company cause harm to its stakeholders?

2. Could our executive and sales pay plans / incentives create conditions that compromise or damage trust or safety for customers, employees, vendors, or contractors?

3. How confident are we that the senior management of this company will become aware of unethical or illegal activity when it occurs?

4. Does this company have adequate mechanisms to communicate and enforce its legal and ethical standards?

5. Has this company taken sufficient steps to reduce the possibility that its stakeholders will be harmed?

When it comes to preventing fraud and ethical abuses, boards should avoid becoming enmeshed in tactical details and operating minutia. One prominent exception: board members must be open to holding direct conversations with employees who want to report fraud. The risks to a company are simply too great for board members not to know when risky behavior or activity takes place. And as the Wells Fargo case has demonstrated, there is no certainty that the established channels for reporting problems will work, or that employees will feel safe using them.

Board-sanctioned risk committees as an elixir. Day-to-day operating risks can be addressed by a cross-departmental risk committee. Openness and transparency are useful antidotes for fraud risk, and companies can develop these capabilities in-house through a team dedicated to monitoring, identifying, and reporting conditions that might be unethical and illegal. The good news: establishing a risk committee doesn’t demand staffing it with specialized talent. And now the bad: risk committees succeed only when boards care about risk prevention, and management responses to the issues the committee exposes are both timely and adequately considered.

Some recommendations for getting started:

Step 1: If the name Risk Committee doesn’t sound catchy, or fails to entice people to join, give the committee a different name.

Step 2: Decide how to recruit and appoint members. Sales and Marketing must be represented, but make sure other departments are, too.

Step 3: Select a capable leader – or ensure that one can be chosen.

Step 4: Write a committee charter to establish the purpose, objectives, goals, and authority. For example, “The purpose of the Committee is to provide oversight to ensure that marketing and sales strategies, tactics, policies, and procedures do not conflict with laws and regulations, and that they comply with the ethical guidelines of the company. The committee is entrusted with identifying and communicating all matters of concern to senior management, and when necessary, to members of the corporate board.”

Step 5: Establish the scope of what the committee will be able to do, examine, review, and report, along with expectations and guidelines for preserving confidentiality.

Step 6: Determine how often the committee will meet, the role and obligations for committee members, and the duration they will be asked to serve.

Step 7: Create a template for how the Committee’s findings will be communicated. At a minimum, that includes how to document or record incidents, determining who should be told, describing how they should be told, and guidelines for assessing and reporting the magnitude of the threat.

Step 8: Plan a kick-off event, and make sure senior managers are involved.

Step 9: Document the Committee’s activities and the actions taken in response to situations it has identified and shared with senior management.

What signals should Risk Committee members listen for? What conditions should trigger concern? For starters, any artifacts of the ten fraud-risk elements I described. In addition, whenever opacity, process silos, limited access to customer-facing personnel, reluctance to answer questions or provide information about customer complaints or regulatory compliance occur, risk indicator lights glow red. These situations should be considered for committee oversight.

Boards must recognize that companies face new risks when executives assume fraud and abuse problems can’t be controlled, when they claim that mitigation is too expensive, or when they dismiss oversight as a distraction for the business.

Foiled business scams rarely make it into news feeds. The activities that lead to their demise hardly seem remarkable. Often, an employee – or employees – shares information with a manager or board member who cares enough to act. Then, established prevention mechanisms kick in, and perform as designed. Routine – as it should be. No matter the size, industry, or leadership, an organization is never immune from causing harm through unethical behavior, misguided strategy, and sketchy tactics. Risk committees perform a vital role that no company can afford to overlook: oversight that reduces the probability a company will cause financial and physical harm through systemic bad behavior.