Week ending 26th July 2013

Bound to end in tears

China provides a news item most weeks but last week was a little different.  Instead of the focus being on the economy the big headline was about the accusations from the Chinese authorities that GSK executives in China had been bribing doctors and other medical professionals to prescribe GSK drugs.  This caused me to think about the nature of selling and sales people.

For many years there has been a school of thought amongst many business leaders and especially sales managements that sales people are primarily motivated by money and status.  The money being both the means of acquiring and of demonstrating status.  So generous sales commission schemes are devised often including other “perks” such as top of the range company vehicles and access to exclusive events in the name of corporate entertaining.  In many sales driven businesses such as the drug companies, computer systems and banks in recent years, sales people are seen as the king and queen pins and their reward packages and status in the company reflect this.

This has bred a culture where as long as you got the sale any questionable practices around how you got the sale would be overlooked or even encouraged.  If you incentivise people to earn a lot of money in a short time don’t be surprised if that is exactly what they go and do.  And, don’t be surprised about HOW they go about doing it!  Because it is all about money, moral and ethical considerations just get lost.

I believe GSK’s Chief Exec Andrew Witty is genuinely disappointed and shocked by what some of his people in China have been up to.  However when he looks closer he should not be surprised.  The cause and effect from the incentives for his sales people in an environment where medical professionals cannot make a decent living unless they accept kickbacks meant it was bound to happen.  What is more this is a classic example of how unethical practices will eventually turn round and bite you.  When appointed earlier this year President Xi Jinping announced that cracking down on corruption would be a priority for his administration.  So a crackdown involving a high profile foreign owned global business is just what the Chinese authorities would have wished for and will use to maximum effect.

Is there another way?

This leaves us with a question, just how do you motivate sales people?  If financial reward carries the risk of encouraging bad practices with expensive consequences just how do you get your sales force out of bed in the morning?

In my career I have come across a number of very successful sales people who do not seem to be motivated primarily by money.  Because they are successful they earn plenty of it, but it does not seem to have been their primary motivation for working hard and winning business.

What they seem to have in common is the conscious or unconscious understanding that selling is about understanding the customer’s problem first and then offering a solution.  They seem to be particularly skilled in “needs identification”, really getting to understand the customer’s needs and in many cases helping the customer to understand what their needs really are, as opposed to what they think they are.  These kinds of sales people seem to get a real buzz out of how this builds relationships with their customers and how this in turn drives sales success.

This switches the focus away from me and my needs on to the customer and their needs and this is what changes the moral and ethical dimensions in the relationship.  The process changes from “selling to” to “getting bought by”.  Ah, I hear you say what if the customer’s need includes a free holiday in the Bahamas?  However sales people who “get bought” seem to have the ability to differentiate between the needs of the customer as opposed to the personal needs of the individual buyers involved.  They seem to be able to spot when these cross the line when a buyer’s personal needs and motivations may be detrimental to the customer’s needs.  They become skilled in handling these situations, including being prepared to walk away from “bad business”.

Sales people who “get bought” invariably in my experience are amongst the top performers in most sales forces. However when they are successful a strange thing can happen.  Far from encouraging them to keep on doing whatever it is they are doing, their employers start making life harder for them.  Because they are earning lots of money from a commission structure designed to motivate the average performer to work a bit harder, they find their targets are increased whilst others are left alone.  They are required to report to managers who are far less experienced and competent than they are.  Often this involves them being subjected to sales performance management systems that have little to do with sales or performance management.

Inevitably this leads to these top performers leaving, either to retire early, join a competitor or set up their own business in competition with their previous employer.  Often this means they take the business with them because they have the relationship with the customers, their employer doesn’t.  They also know what their customers did not like about their previous employer’s offer, giving them an immediate competitive edge if they set up their own business.

Why does this happen?  Well I believe this is a demonstration of what happens when opposing moral and ethical outlooks collide.  The people who understand that doing the right thing and doing it really well delivers the best results vs. those who believe that doing whatever it takes to deliver results for them and now is the way to do things.  The lessons only get learnt when the consequences of the latter approach become apparent, possibly in the shape of a Chinese anti-corruption official.  By which time of course it is too late!

So that was some of the week before this week. We hope you found some of the above thought provoking and useful for you and your business. We trust you had a good weekend and hope you have a great week this week.

That was week ending 11th January 2013

Best wishes for the New Year everyone from me and this first article of 2013.  Usually a first article in a new year starts with predictions for the coming year. I am not going to do that for three reasons. First everyone else has already done this. Second I haven’t a clue (at least not a useful clue) about what is going to happen in 2013. Third TWb4TW is about looking back and drawing lessons from the recent past to use in the future. There were plenty of these from last week’s news and here’s a few that caught my attention.

Super not so super anymore?

Last week the big and not so big retail names reported on Christmas trading. In the supermarket sector winners appeared to be Tesco (+2.5pc), albeit having thrown £1bn at the problem, Waitrose (+4.3pc) and Sainsburys (+0.9pc, so only just). A significant loser appeared to be Morrisons where like for like sales fell 2.5%. Interestingly Booths, a privately owned supermarket group with just 28 stores all in the Northwest managed +3.5%.

Those of us who have thought “do we really need another supermarket” every time we saw yet another planning application for one can begin to feel a little smug as overall in the UK it now appears we don’t. The market is not just “mature” it’s becoming pretty much dormant as far as overall growth prospects are concerned. However much of the financial media and comment from financial analysts is still focused on like for like sales. But is this what is really going to matter?

In an insightful article in the Telegraph on Thursday Damien Reece pointed out that what really matters and always has is return on investment. i.e. profitability. Sales growth can drive profitability but when this is hard to come by then maybe other factors matter more. He contrasts Sainsburys profitability prospects with Morrisons.  On £23bn of sales Sainsburys is expected make around £752m. Whereas Morrisons, the apparent loser over the Christmas period is expected make £888m on around £18bn sales.

Justin King at Sainsburys has done an admirable job in growing market share, including moving into online and convenience stores. However this has been primarily a sales led strategy and is maybe running out of steam. Morrisons CEO Dalton Philips has been criticised for not moving fast enough into online retailing and convenience stores but this does not seem to have done significant damage to profits. He has started the move into convenience with his “M” Stores and is working on the online offer. Coming at these later than his competition may prove to be no bad thing in the long run.

However the lesson from all this is neatly summed up by Damien Reece in his article. “The conclusion is that neither company has got things quite right and both need to change. The reality is that only one of them admits it”. The world has and is changing, are we admitting that we and our businesses need to change as well?

Highs and lows on the high street

Contrasting fortunes on the high street over the Christmas period as well. An example of how you can be both a winner and a loser was Debenhams who reported their highest ever Christmas sales. However this was achieved largely through heavy discounting and a big increase in online sales. The discounting and extra costs incurred combined to produce only a tiny 0.1pc increase in margin. So all Debenhams got for its record sales was a reduction in its share price of 6.5pc.

The real low however was the collapse of Jessops the specialist camera and photography chain.  All its stores will close with the loss of up to 2,000 jobs. I am both frustrated and angry about this because it really did not have to happen.

The demise actually started back in 1996 when Alan Jessop retired and sold the business to a venture capital backed MBO. The business had grown from one shop to become a nationwide chain of over 200 stores and was consistently a “first mover” in its market. The buyers thought all they had to do was to buy the market leader, add more stores and then float the company to make a juicy profit. Unfortunately along with Alan Jessop a number of his senior team also left clutching nice cheques for their shareholdings. What walked out the door with them was the understanding of what it was that had made Jessops so successful.

The MBO did not get it and neither did the venture capital arm of ABN Amro when they bought the business in 2002. The company floated in 2004 with a deeply discounted IPO but the investors did not get it and were wiped out in 2009 when HSBC rescued the business with a debt for equity swap. HSBC didn’t get it either and is likely to lose £30m.

The collapse of Jessops is nothing to do with recession on the high street. It steadily declined even during the retail boom. Nor was it to do with camera phones or any of the other trite conclusions being trotted out. I am in no doubt that if the ethos that had driven the success of the business up to 1996 had been allowed to continue to flourish then the company would have as well. Instead the collapse became inevitable but it did not have to be this way.

Time to pay

One of the key business principles of the Jessops business under Alan Jessop was that suppliers were always paid on time, every time. Suppliers were expected to perform but if they did they knew they would get their money when they expected it. Consequently Jessops got the best prices, the best products and service from their suppliers and were always offered new technology first. This practice faded under succeeding managements. So much so that the reason there was no chance of selling any of the business as a going concern is that the suppliers were not prepared to support the business any longer.

This brings me to something I don’t do often, saying “well done” to a politician. This goes to Michael Fallon, Business and Enterprise Minister who has written to 350 FTSE companies asking them to sign up to the prompt payment code (PPC). What’s more he is threatening to “name and shame” any business that refuses to comply.

This is a good start but he has a big challenge on his hands and just how big is illustrated by the response from some big companies. Sainsburys' response was “We already abide by the spirit of the code and will be responding in the coming weeks”. Morrison’s claimed that it already paid suppliers within a “mutually agreed time frame”. GSK has just changed its payment terms to “within the first five calendar days of the month following the expiry of 60 calendar days from the date of receipt of the relevant invoice”. This is gobbledegook for “we have just pushed our payment terms out to 90 days plus”.

Pushing out payment terms to suppliers is not clever at all and in fact is bad business practice and verging on the dishonest. It pushes up costs as the customer employs people to spend time delaying and disputing payments and the supplier employs people to try to counter this. However the biggest disruption is to the business process down the supply chain as the end customer hoards a pile of cash that should be put to work through the system. In effect this causes blockages and interruptions to the “blood supply” which at the very least weakens the effective operation of the process and sometimes kills it off altogether. If the majority of businesses paid their suppliers within 30 to 45 days maximum this would release a huge lump of working capital into the business sector and is consequently in the national interest to do so. So good luck Mr. Fallon but you will need to be uncompromising and tenacious to push this one home.

So that was some of the week before this week. We hope you found some of the above thought provoking and useful for you and your business. We trust you had a good weekend and hope you have a great week this week.