Tag Archives: Revenue_risk

Feeling Morally Queasy at Work? Tips for Voicing Your Values

Tuesday, 05 February 2019 18:24
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I’d like to encircle the workplace with yellow safety tape. Long ribbons of it. “Caution! Do not enter!” That would give others an inkling of the dangers lurking within. I’m not talking about back pain, eyestrain, and paper cuts. I’m talking exploitation, harassment, and passive aggression.

I’d use safety tape to protect people from the risks that threaten their personal values. Since 1943, Norman Rockwell’s Rosie the Riveter has inspired workers with her power, ebullience, and obvious self-reliance. Today she’d be tweeting #metoo.

In an uncertain world, we can count on one thing: our personal values will be challenged in the workplace. They will be challenged by what we witness, experience, and are asked to do. Mine have, many times.

Concern over this problem was revealed in a 2001-2002 Aspen Institute  survey conducted on a group of MBA students. “When asked whether they expected they would have to make business decisions that conflicted with their personal values during their careers, half the respondents in 2002 (and more than half in 2001) believed they would. The vast majority of respondents both years reported it would be ‘very likely’ or ‘somewhat likely’ that they would experience this as stressful,” according to Professor Mary Gentile, author of a book, Giving Voice to Values: How to Speak Your Mind When You Know What’s Right.

Predictably, that issue spreads risks across the organization like foul air propelled by the wind. “In 2001, over half of respondents said their response to such a conflict would be to look for another job; in 2002 that number declined to 35 percent, still a significant number.”

Nearly two decades on, the Aspen Institute findings corroborate what I see today: employees are under-prepared for responding when their values are challenged at work. Most business schools don’t teach techniques or approaches, and the few that do present choices through a moral lens that defines or prescribes right and wrong. That turns people off.

Professional development in sales and marketing is no better. Aside from the ambiguous demand, “put customers at the center of everything you do,” practitioners ignore the issue altogether. “Don’t lie. Ever.” Huzzzzahh! Easy to say at the sales kickoff. Looks nifty on PowerPoint. But Job #1 for business developers is customer persuasion. Such admonishments are flimsy, and don’t penetrate the thorny dilemmas employees routinely encounter, like choosing between pressuring customers to buy and keeping their jobs another quarter.

During my career, I have repeatedly contrived rationalizations and reasons for not speaking up when my values have been confronted. I’ve learned I’m far from alone. As we endeavor to preserve a self-image of high integrity, we have cultivated a parallel talent for sweeping concerns and better judgement under the carpet.

Not that business development culture would have it any other way. Put aside that creative mantra for a moment. In my experience, marketing and sales organizations are hives for conformity and group think: “Quit giving excuses!” “I want to know how you are going to sell, not why you can’t!” “We’re not a problems focused group, we’re a solutions oriented group.” “You’re either on the team, or you’re not.” There’s a theme to these edicts: check your personal values at the door before you begin work. Little wonder so many marketing and sales professionals find it nauseating to rock the organizational boat.

Instead of thinking, “well, I’ve already slipped on that ethical slope, so I guess I’ll just continue the slide,” recognizing past imperfections in ethical decision making frees us to move in better directions. There’s nothing to be gained beating ourselves up over workplace decisions that we’d rather re-do. Wearing egg has never been fashionable, but as a practical matter, you can’t hold a conversation about ethical choices if the person leading the discussion cops an attitude of finger-wagging judgment. And I’ve yet to meet a colleague, client, or direct report who doesn’t wear symbolic egg.

Which values challenges do business developers experience?

Pressure from management:

  • “You must not share information with [Customer X] about this defect, because it will delay their purchase.”
  • “We won’t offer [Customer X] the lower market price because it will cause us to miss our revenue target. They’ll never know.”
  • “We can give our customers verbal commitments not to raise their prices, but that information must not be explicit in our contracts.”
  • “When you prospect a C-Level executive for the first time, always make it seem that you’ve had an earlier conversation with them.”
  • “This product has high potential for misuse, but it’s too important to our profits not to aggressively promote it.”

Pressure from prospects:

  • “We haven’t made a purchase decision yet, but if you can promise a better price, I will share [Competitor X’s] proprietary proposal.”
  • “I’m willing to award your company the order, but I need a personal favor . . .”
  • “We need your developers to modify the quality algorithm so the defect rate we report to the government appears lower.”

Since 2014, dozens of companies have been inducted into the Annual Sales Ethics Hall of Shame. Theranos, Wells Fargo, VW, Takada, and Purdue Pharmaceutical became notorious because their business strategies became deeply infected with nefarious intent.

In September, 2018, Theranos announced it was formally “dissolving”, which suggests its downfall was less ugly than it was. Its two senior executives, founder Elizabeth Holmes and Sunny Balwani, were indicted the same year, charged with engaging in schemes to defraud investors, doctors and patients. Takata filed for bankruptcy. Wells Fargo got spanked with onerous restrictions on its asset growth. And VW, well, I’ll never buy a car from a company that gleefully sacrificed my respiratory system to pad their profits.

For all these companies, the proximate cause for their bad fortune wasn’t a cliché risk like rabid competition. It wasn’t warp-speed market disruption. It wasn’t onerous government regulation or economic chaos. Instead, it was unchecked greed.

Opining greed in the C-Suite won’t make it go away. Nor will moaning about high pressure sales tactics. After all, sales forces are predominantly paid on revenue production, and as we know with incentive compensation, the goal is to get what you pay for.

Instead, risk mitigation for corporate malfeasance begins at the grass roots. Employees who are prepared and equipped to voice their values provide the most effective way to stem corporate misbehavior. Put another way, we have met the responsible party, and it is each of us. Time to take the bull by the horns and wrestle it to the ground.

Some tips for voicing your values:

  1. Know what your values are. Write them down – it doesn’t need to be a long or complicated list. Own them. This is essential, because they are yours, and that makes them unassailable.
  2. Believe that your values deserve to be taken seriously. It doesn’t matter whether you’re an intern or board chair.
  3. Prepare yourself for situations where you know you will need to draw the line. This means anticipating challenges such as the ones described earlier and developing a response ahead of time.
  4. Don’t judge the action of others or presume to understand them. If you assume a manager or colleague has malintent, you will come across that way, and will be less likely to change his or her mind.
  5. Invite conversation about the issue. For example, “This doesn’t work for me. I don’t think it’s right. Do you see it differently? Help me understand.” (reference Giving Voice to Values, page 157).
  6. “Frame choices in ways that align them with broad, widely-shared purpose.” (Giving Voice to Values page 159). It’s easier to redirect a problematic request when you can gain consensus on a larger goal.
  7. Craft a description that focuses on the advantages of your recommendation or role, rather than the disadvantages.
  8. Practice, practice, practice your responses to values challenges. Reflect on your experience and that of others, figure out what you’ve learned, hone your tactics, and practice some more.

“Once we identify the common challenges in our particular line of work, it is especially useful to look for and note any examples of individuals who have effectively voiced and acted on their values in this type of situation,” Professor Gentile writes. Examples are abundant online. It’s also important to familiarize ourselves with common rationales for not resisting. The top four, according to Giving Voice to Values,

 

Expected or standard practice: “Everyone does this, so it’s really standard practice. It’s even expected.”

 Antidote question: “If the practice is accepted, why are there often rules, laws, and policies proscribing it?”

 

Materiality: “the impact of this action is not material. It doesn’t really hurt anyone.”

 Antidote question: “Does the apparent small size of this infraction make it any less fraudulent?”

 

Locus of responsibility: “This is not my responsibility; I’m just following orders here.”

 Antidote question: “Is the issue likely to cause significant harm, and are there few (or no) others able to act to prevent it?”

 

Locus of loyalty: “I know this isn’t quite fair to the customer but I don’t want to hurt my reports/team/boss/company.”

 Antidote question: “Am I being truly loyal to the company if I perform this task/operation/process and it undermines trust and credibility?”

Paraphrasing the immortal words of Glenda, the Good Witch from The Wizard of Oz, “You’ve always had the power to act on your values, my dear. You just had to learn it for yourself.”

“We are beginning from the position that we want to act.” Professor Gentile writes. “Therefore we are trying to answer the question: “How can we do so most effectively?”

Five Elements that Create Service Stress for Customers

Friday, 18 January 2019 18:28
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Despite rigorous measurements and sentiment analysis, the number of bad customer experiences that occur every second isn’t known. How many living trees currently populate our planet? We should know these things. For now, I’ll speculate that they are both large numbers, and one is escalating while the other is declining. You know which is which.

Instead, I’ll explore more scrutable questions. Poor customer experiences occur in every industry. Why do some create nary a ruffled feather, while others cause everyone to go bat-poop crazy? Dr. Dao knows what I’m talking about. Is there a “perfect storm” of conditions where a weak spark of customer letdown will ignite an inferno of pain and outrage? Finally, how much repeat vendor ineptitude, crassness, inefficiency and apathy will consumers accept before saying “enough!”

The answers impact the profits for every organization across every industry. Customer service delivery carries uncertainty and risk. Some issues are cheap to mitigate. Clear directional signage for airport car rental return areas are inexpensive but avert headaches for harried travelers arriving late to catch a flight. Others are costly. Rapid product delivery involves capital investment for sophisticated logistics and IT infrastructure.

“Customers expect perfection every time.”  That admonishment has been beaten into our heads for so long, we’ve forgotten to question whether satisfying this alleged truth really matters. We need balance. How about, “don’t waste the company’s money on projects that don’t bring meaningful improvements.”

Not every business can address every CX risk. Fortunately, not every business needs to. Some CX outcomes can be plain-old good, and that’s good enough. I offered to send this article to my trash hauler, but the service manager politely declined. Seems he was busy planning the company’s annual golf outing coming up in May. That was fine with me. I just told him to just make sure he continues to collect my refuse around once a week.

Does this mean that some companies get a pass for providing impeccable customer service, while others are firmly on the hook?

Yes.

There are situations when underserved customers are especially prone to getting wigged out. Companies that understand what they are can avoid squandering resources fixing things that don’t need fixing, and they’re more likely to improve what’s consequential. According to a 2015 Harvard Business Review Article, When the Customer is Stressed by Leonard Berry, Scott Davis, and Jody Wilmet, there are five conditions that portend high levels of customer stress.

Customer stress is elevated when customers face

  • lack of familiarity with the service being delivered
  • lack of control over the performance of the service
  • major consequences if things go wrong
  • complexity that makes the service a black box and gives its provider the upper hand
  • long duration across a series of events

After the authors gleaned these findings, they applied them in the most difficult and demanding context: service delivery for cancer treatment centers. I’ll survive my missed trash pickup. Safety pins can replace dress shirt buttons that my dry cleaner ruins. I’m not offended if the grocery cashier fails to make eye contact, or to thank me for my business. But every cancer patient faces life-changing consequences. Every interaction matters. Adopting a strong customer service ethos and CX risk mitigation is crucial for these organizations.

“The [Bellin] cancer center, which opened in 2008, surpassed its five-year growth and revenue targets in just two years, and nearly 100% of patients (who are regularly surveyed) say they are ‘highly likely’ to recommend its medical and radiation oncology services. Bellin achieved these results in large part by following the four guidelines for succeeding in highly emotional contexts,” according to the article.

The guidelines extend to any service operation that meet the stress conditions:

  1. Identify emotional triggers. The authors suggest using surveys, interviews, focus groups, controlled experiments, and experience mapping. “Open-ended prompts about common frustrations can be particularly revealing: “Describe the worst experience that you or a family member ever had when using this type of service.” “If you were the CEO of this organization for a day and could make just one improvement for customers, what would it be?”
  2. Respond Early to Intense Emotions. That includes preparing customers for what to expect in the sequence of events, and communicating with care. “A valuable exercise is to convene top providers and ask them to identify phrases that needlessly undermine customers’ self-esteem, confidence, or hope. These ‘never phrases’ can be incorporated into training sessions for the purpose of eliminating them.”
  3. Enhance Customer Control. Many companies overlook this important tactic. Post-service call, many customers feel abandoned (except for the instantaneous How did we do? survey). The authors suggest mitigating the problem by offering a mobile application to consolidate content for ancillary service and support needs.
  4. Hire the Right People and Prepare Them for the Role. My most memorable support calls were with agents who were also users of the same product or service. “People who deliver high-emotion services must be able to effectively cope with stress, respectfully communicate with customers, and strengthen customers’ confidence. Thus excellent service organizations view the process of hiring and training employees as crucial to serving customers well.”

Pursuing excellence in service delivery is a potentially worthy goal. But delivering it matters more for some companies than for others.

Three Reasons Sales Forecasts Don’t Match Results

Tuesday, 08 May 2018 17:14
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“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.

Is the Voice of Risk Being Heard?

Tuesday, 31 January 2017 18:47
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“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.

Are Salespeople Making Good Bets for Your Revenue Pipeline?

Monday, 16 May 2016 13:39
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Many years ago, New England Life Insurance, now part of MetLife, developed a series of cartoon ads that was witty and terrifying.

Each ad had a formulaic depiction of a person saying the caption, “My life insurance company? New England Life, of course. Why?” The situations varied, but the brilliance was that the reader could see always see an inevitable calamity about to befall the utterly oblivious central character. “Scare the living [bleep] out of people,” someone must have advised the creative director at the agency, “but in a jovial way.” Ha ha.

The vignette I remember best portrays a well-dressed executive in a sleek, all-glass corner office near the top of a skyscraper. He’s seated in a swivel chair chatting on the phone, his feet propped on his desk. Meanwhile, in plain view behind him, an errant half-ton wrecking ball attached to a crane is about to crash through his window. “My life insurance company? New England Life, of course. Why?” Somebody, please! Warn this man!

That visage represents the planning perils that CFO’s and other senior executives face. CFO’s feel confident when projected revenue aligns with targets. But too often, the risks are opaque. Watch out for that wrecking ball! Revenue projections are cleansed of the many uncertainties that lurk throughout the sales funnel. When I recently asked on several LinkedIn forums about whether anyone worked with a CFO who had influence over sales lead qualification practices, a reader question ricocheted back immediately: “Why would a CFO need to be involved in this?” His was the only response.

But it corroborated an observation: In most organizations, CFO’s do not guide the routine revenue bets that salespeople make. How confident can CFO’s be about the efficacy of sales force decisions? How do they know that the risks salespeople accept are ones the company can absorb? For example, one salesperson might have few scruples when accepting new leads: “Hey, if this deal closes, I make a boatload of commission. If not – adios! I was on my way out the door, anyway.” Her colleague might hew to a different risk viewpoint, unwilling to prospect new opportunities in favor of tending his cash cows. The moment those cows cease being reliably productive, he too will probably move on. Other reps, browbeaten by management’s obsession with hitting pipeline targets, might doggedly seek large, but highly uncertain, long-term deals. The pay bonus the company provides them for fattening the revenue pipeline cements the behavior.

Such risks seep covertly into cash planning worksheets, and CFO’s, feet propped on their desks, are sitting on all of it. “Projected Q4 Revenue, Northeast Region.” All the CFO sees is a single-integer aggregation, combining oodles of sales judgements. Smatterings of learned experience and buckets of wild hope – it’s all in the number.

Too much risk in the sales pipeline can create cash planning disasters. So can too little. How do companies manage this yin-yang? How should the most revenue-focused parts of the organization – Finance and Sales – collaborate on managing uncertainty and risk? I asked CFO-novelist Patrick Kelly, an experienced tech executive who has managed several IPO’s, for his thoughts. “Cash flow projections are the CFO’s responsibility,” he told me. In general, “a CFO needs to be involved in the mechanics of a sales funnel, but not in the details of qualification.” In other words, CFO’s need to understand how sales cycles work, how long it takes to close deals, and the percentages of leads that progress through each stage of the sales process, but they don’t need to be involved in the minutia of scoring leads and developing qualifying questions.

Kelly explained why knowledge about sales funnel mechanics is so crucial. “When Sales reports revenue projections to Finance,” he said, “Sales is going to say ‘everything looks great,’ but it’s the CFO’s job to have his own point-of-view,” and to use that perspective for making adjustments. “It’s not uncommon for a CFO to reduce the revenue forecast he or she reports to the board,” he told me. For example, Sales might forecast revenue to a Nigerian subsidiary of a multi-national corporation for the current quarter, but Finance might not include the opportunity for cash planning because the effect of low oil prices on the Nigerian economy could likely cause a purchase delay, or could scuttle the sale altogether. In essence, a CFO can translate what might have been an unanticipated wrecking ball to a cash flow plan into a recognized force against revenue. A force that he or she can possibly manage, especially when it’s anticipated early enough.

But what happens when Finance and Sales work in thick, impenetrable silos, and don’t regularly exchange meaningful information about revenue uncertainty? For example, when I mentioned the disparate criteria that reps within the same company use for accepting sales leads, Kelly acknowledged that a lack of risk standards could be problematic for cash flow planning. But he said that at smaller companies, silos are flimsier, and CFO’s tend to know useful details about individual revenue opportunities. At large companies, however, CFO’s cannot easily monitor the risk profiles for hundreds, or thousands, of pipeline opportunities. While low- and high-risk conditions among a large set of deals generally offset, that doesn’t mean the “average” risk among that group falls within an acceptable range for a CFO planning her company’s revenue flows.

This condition damaged a software company I worked for. The sales pipeline was fat, but customer buying cycles were painfully long, and opportunities did not convert quickly enough to satisfy the company’s ravenous hunger for cash. Finance was starving for money, but the CFO was oblivious to the pipeline risks. All she saw was a plump number on a spreadsheet representing next quarter’s revenue. Based on its cash position, the company had low risk capacity, and it would have been better off motivating the sales force to close lower-revenue deals with shorter cycles.

Sales never got the message. Instead, managers urged reps to hunt for revenue opportunities in the tangled thicket of big, bureaucratic Fortune 500 customers. A perilous high-risk, high-reward strategy for many companies, but disastrous for ones that can’t sustain the investment. In the end, the company laid off most of its sales force, canned its president, and reorganized the remaining management team. The terse press release did not mention anything about pipeline risks, just “Revenue did not meet expectations.” There’s always a back story.

Some companies commit to slogging through long buyer journeys and procurement cycles through maintaining the right capitalization and cost structures. Federal contractors, for example, regularly invest millions of dollars pursuing government sales opportunities that can require many months – even years – to close. If they close. When the stakes are that high, opportunities must undergo a thorough internal risk review before managers can decide whether to compete. One criteria: can the company afford to lose? Without a shared view of risk between Finance and Sales, more CXO’s would unwittingly bet the company. Many do.

Spreadhseet-facing Finance, and Customer-facing Sales – an odd organizational coupling, prone to bickering and personality conflicts. Yet, they must cooperate, because Finance and Sales grapple with the same uncertainties. Notably, how much will customers spend? When will they spend? and how likely are the answers to these two questions? The shared challenge of managing the risks should bring these two entities closer together. But that’s not always easy.

“Companies that embrace enterprise-wide risk management face the daunting task of instilling a risk awareness in a corporate culture focused on other objectives,” Barton, Shenkir, and Walker wrote in their book, Making Enterprise Risk Management Pay Off: How Leading Companies Implement Risk Management. An idea that some executives have put into practice. “To me, running a business is all about managing risk and managing returns, whether on the financial side or the balance sheet side, or running a field operation,” said Unocal CFO Tim Ling. Others agree. “Managers have to make a lot of day-to-day decisions without consulting the higher-ups. If they understand the financial parameters they’re working under, those decisions can be made more quickly and effectively. The company’s performance will be that much stronger,” Karen Berman and Joe Knight wrote in their book, Financial Intelligence.

Risk harmony between Finance and Sales means

1. Communicating the organization’s capacity (appetite) for risk. The CFO establishes this, and he or she is responsible for communicating to Sales which risks are acceptable, and which ones are not. Sales needs this information for its strategic and tactical planning.

2. Identifying and ranking revenue uncertainties based on frequency, probability, and consequence – a collaborative knowledge-sharing effort.

3. Developing strategies and tactics to support cash-flow requirements. Finance and sales must share knowledge about pipeline processes and velocity, sales compensation and incentives, lead qualification practices, and ethical sales governance.

4. Correcting inconsistencies. Companies get into trouble when Sales accepts more risk than the company can absorb, or avoids risks that the company requires to achieve its strategic goals. Similarly, Finance must develop risk mitigation strategies suited for the markets in which the company competes. Put another way, if you can’t run with the big dogs, stay on the porch.

Revenue volatility, the arch-enemy of cash flow planning, comes from risks that have come home to roost. CFO’s see the evidence in actual sales lines spiking and plummeting violently around their more graceful counterparts, planned revenue curves. Closer collaboration between Finance and Sales won’t eliminate the gaps, but it can reduce the area between planned and actual.

Most important, risk collaboration between Finance and Sales will help CFO’s better understand how close wrecking balls are to the cash flow plan, and which direction they are heading.

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