Sales, Marketing, & Entrepreneurship

Mark Hurd’s 5 Sales-Force Design Principles

November 2012 Selling

As Mark Hurd, co-president of Oracle (ORCL) re-emerges on the public stage, we see him once again focusing on the sales force.  Within Oracle’s sales force, he has changed job descriptions, reporting structures, compensation plans, staff size, and corporate routines in a stated effort to improve revenue and profits.  But what principles guide his sales-force design?  Is he a sales-force master architect or a tinkerer that will destroy Oracle’s revenue?

From examining his current efforts at Oracle, as well as past efforts at Hewlett-Packard, we can identify five sales-force design principles Hurd adheres to:

  1. Coordinate all interactions with individual customers through a single key account manager.
  2. Communicate the relationship between an offer’s features, functions, and benefits through technical sales specialists and marketing support.
  3. Focus incentives on the results you desire.
  4. Support coordination with IT and direct communication, not meetings and bureaucracy.
  5. Right-size the sales force.

1. Coordinate all interactions with individual customers through a single key account manager

At H-P, Hurd assigned just one salesperson to act as the single point of contact to 2,000 of the top corporate accounts.  Key account managers were limited to managing only three or fewer accounts. Why?

Prior to the change, several salespeople would interact with the same large-account business customer.  Some sold printers, others sold PCs, and still others sold corporate technology.  Some would sell in the States, others would sell in Europe, and still others would sell in the Asian, Pacific, and African states.  As a result, sales people would quote different prices for the same product depending on the region, would compete for the same budget with contradictory offers depending upon their own personal interest, and make overlapping offers which again competed for the same budget.  In some instances, the lack of coordination led to the neglect of a client under the assumption that another agent had them under their umbrella.  This is clearly unproductive. (See exhibit below.)

After the change, all sales to a single large-account business customer were to be coordinated through a single key account manager.  To ensure that single point of contact could properly manage the needs of a global large-account customer, account managers were limited to at most three client accounts.  This ensures that all sales activities for a major client were coordinated though one person, and that one person was held responsible for the development of that key account. Consequentially, due to that streamlined focus and individual attention, that one person is positioned to make tradeoffs between promoting alternative offerings, thus enabling Hurd’s firms to push for offers which best serve customers and meet Hurd’s firms strategic goals.  This is clearly more productive. (See exhibit below.)

Beyond productivity enhancements, this shift also has major strategic implications. In having a single point of contact for large global customers, Hurd’s account managers are in a better position to move customer relationships from the position of “pimping products” to the position of “developing relationships”.

Consider what the uncoordinated account management approach implies.  Under this structure, several salespeople are attacking the same budget across departments and across the globe in an effort to maximize their individual sales performance.  Individually, they are not able to generate the breadth of insight necessary to understand the entirety of the customer’s needs as they relate to Hurd’s companies, nor are they encouraged to do so.  Instead, each salesperson is limited to and incented to maximizing his own sales performance.  That is, moving his products, with disregard for the greater good of either his firm or his customer.  This implies that front-line salespeople who may want to improve an account relationship from “selling good products” to “making a financial or strategic impact” are blocked from doing so because they are not in the position to see the full relationship (Read here for Large Account Management).  It furthermore implies some customer needs are unmet, other customer needs are unknowingly “double teamed”, and some are left competing with alternative needs against self-generated internal competition.  What a waste.

Now, consider what the coordinated account management approach implies.  The key account manager is held responsible for the entirety of the account relationship.  She is held responsible for understanding her clients’ immediate needs and identifying their strategic needs, and has the breadth of oversight to identify the financial and strategic impact of her firm’s contribution to each client’s performance.  This implies she is positioned to move account relationships up the account hierarchy (Again, see Large Account Management), and it implies she is able to meet the entirety of her client’s needs without internal competition.  What clarity.

2. Communicate the relationship between an offer’s features, functions, and benefits through technical sales specialists.

Given the breadth of offers Hurd manages at Oracle and managed at H-P, it is impossible to suspect that a single key account manager can fully understand the features, functions, and benefits of every product.  They need help.  This is where technical sales specialists and marketing support are useful and probably why Mark Hurd required salespeople to specialize in a particular kind of product at Oracle and increased the control of individual business units over their sales force at H-P.

Technical sales specialists are charged with knowing how a product works.  Not all products, just the products within their portfolio.  They are positioned to know a printer’s duty cycle, a PC’s performance capabilities, and a server’s speed and capacity.  They are charged with translating this deep product knowledge into meaningful statements on how a product would work for individual clients, given their individual working environments, and their individual needs.  They connect features and functions to business benefits.

Marketing support of sales is charged with many issues, but one key issue they should manage is translating a product’s stated benefits into financial benefits.  That is, if a server is stated to have a 99.9% up-time and its competition is stated to have a 99.00% up-time, the financial benefit of the 0.9% differential benefit should be communicated in terms of the cost of down-time.  Marketing support, through providing business impact models, can communicate that impact in dollars and cents.

Combined, the technical sales specialist and marketing support free up the key account manager to focus on the relationship.  Keeping with the example of a server, the key account manager can communicate the fact that a low server down-time makes the CIO look better to the board, and therefore enables him to improve his career trajectory.

In this manner, the combined sales force can cover the entire customer value map (See exhibit below). Technical sales specialists connect features and functions to benefits, marketing support connect benefits to business impact, and key account managers connect business impact to strategic and professional impact.

3. Focus incentives on the results you desire.

At Oracle, Hurd recently increased the sales incentives for selling cloud-computing solutions.  At H-P, Hurd altered the sales to focus on account profitability.  In both cases, he focused incentives on the strategic results he desired.

Salespeople are people, just like everyone else.  If you pay them to do X, they will do X.  If you pay them to do Y, they will do Y.  It constantly astounds me when salespeople are paid to do X and then denigrated because they didn’t do Y.

Frequently, sales compensation is tied to revenue.  This is terrific if the goal is simply to maximize market share and salespeople’s ability to manipulate transactional pricing is highly constrained.  In these cases, salespeople will focus on moving product and increasing revenue while “staying within the guidelines”.  At times however, market share does not align with profit and strategic goals.  And, at times, salespeople enjoy wide latitude with respect to discounting and transactional pricing.  When the firm doesn’t simply want market share at any cost, and when salespeople have latitude over discounting, simple revenue-based incentives are a strategic error.  In these cases, the firm must change its incentive plans.

Profit-based incentives for salespeople align the salesperson’s motivations with the firm’s profit goals.  Similarly, SPIFs, or sales-performance incentive funds, are useful for aligning  the salesperson’s motivations with a strategic goal.  Mark Hurd is clearly willing and able to use both.

4. Support coordination with IT and direct communication, not meetings and bureaucracy.

At H-P, Hurd cut 11 layers of sales management to 8, directed 30 different CRM solutions into 1, restricted internal meetings to Mondays only leaving Tuesday through Friday for selling, and killed a SOAR (Solution, Opportunity, Approval, Review) process which slowed a sale’s progress by bureaucratic inertia.  Combined, these measures have increased salespersons’ time with their clients from near 30% up to 40%.

The sales team is the customer-facing part of the organization.  Salespeople are charged with managing customer relations, not office relations.  The work they do is often unseen by internal mangers, and as such, managers are often unclear as to the details of the work they are doing.  This lack of transparency often leads management to hold a glut of intra-company meetings in the interest of keeping the entire team on the same page, or to keep a tight leash on the sales force.  To reduce management uncertainty, bloating managerial and bureaucratic oversight is an easy trigger to pull, and once pulled, hard to put back in the cartridge.  But when overdone, they prevent salespeople from doing what they were hired to do.

Rather than managing through meetings and bureaucracy—meetings that are often unrelated to a salesperson’s responsibility and communicate information that could be more quickly communicated through an email, and bureaucracy which is more concerned with dotting ‘i’s and crossing ‘t’s than delivering results—Hurd’s instinct is to leverage IT and direct communication for collecting field data and coordinating field activities.

5. Right-size the sales force.

At Oracle, Hurd added 3,000 salespeople to an existing force of 60,000.  At H-P, Hurd cut a 17,000 sales force by 10%.  Just because you have a team in place doesn’t mean that team is ideal for your needs.  Don’t be afraid to spend when it makes sense nor cut when it is time.

There are many means of determining the right size of a sales force.  These include the expected revenue per salesperson, geographic boundaries, number of people to contact, size of the potential market, segmentation approach, industry benchmarks, communication goals, proposal development requirements, and many more.  Activity models, pipeline models, and return models are all used in defining the right number of salespeople, depending on the nature of the business goals.

The issue Hurd appears to understand that the right size of a sales force isn’t totally determined by “how many people did we have last year and what is our projected growth?”, but rather strongly influenced by “what do we need to accomplish and what does it take to accomplish it?”

Mark Hurd:  Master Sales-Force Architect or Tinkerer?

A key requirement of senior executives, be they CEOs, Presidents, co-Presidents, or other senior executives is determining the right thing to do.  Too often, executives get stuck in the rut of maximizing the efficiency of the things they are currently doing at the expense of identifying what should be done.  The alternative approach is to systematically and thoughtfully identify the things a firm should be doing but isn’t, and then changing the firm to do those things.  Hurd takes the better of these two approaches.

The above five principles for sales force design are well-aligned with modern sales theory for organizational sales and management theory.  They enable the fullness of the supplier-customer relationship to be realized, bring the right people to the right task at the right time, and remove obstacles to enabling people to focus on the results that matter.   Hurd’s actions embody strong managerial thinking.

Thus, in these respects, Mark Hurd is a master sales-force architect, not a tinkerer.

References

  • Ben Woirthen, “Hurd  Re-Emerges at Oracle”, Wall Street Journal, (3 October 2012).
  • Pul-Wing Tam, “System Reboot – Hurd’s Big Challenge at H-P:  Overhauling Corporate Sales; Years of Acquisitions Led To a Bloated Bureaucracy; Improving Client Relations; Mr. Ditucci Gets the Contract”, Wall Street Journal, (3 April 2006), A1.
  • Robert B. Miller, Stephen E. Heiman, and Tad Taluja, (2005) The New Successful Large Account Management:  Maintaining and Growing Your Most Important Assets – Your Customers, (New York, NY: Warner Business Books).
  • Tim J. Smith, (2006), Hawks Seagulls and Mice:  Paradigms for Systematically Growing Revenue in Business Markets, (Lincoln, NE: iUniverse).

Note of holdings:  At the time of writing, the author is not a direct consultant to nor investor in any of the firms listed in this article.



About the author

Tim J. Smith, PhD is the Managing Principal of Wiglaf Pricing, and an Adjunct Professor at DePaul University of Marketing and Economics. His most recent book is Pricing Strategy: Setting Price Levels, Managing Price Discounts, & Establishing Price Structures.

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