WHITE PAPER Measuring and Mitigating Sales Risk.

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1 WHITE PAPER Measuring and Mitigating Sales Risk. Pareto Law: The authority on sales, no less, since 1995.

2 A RISKY BUSINESS In a turbulent and highly competitive business environment in which every decision-maker remains acutely aware of the limitations of a still-recovering economy, there is no disputing the fact: sales remains a risky business. Lessons learnt from the financial crisis are forcing shareholders to approach growth strategy with reservation, demanding greater assurance of ability to deliver; likewise, forecasting and projections are no longer speculative objectives for management, but an essential safety net and corner piece of planning for any business. At every turn, business decision-makers are looking to de-risk the sales process. By nature, the more cards there are making up the tower, the greater the potential for just one small piece to cause a structural downfall at a moments notice. However, through identification and successful management of the building blocks that make up the sales process, it may be possible to mitigate if not eradicate risks associated with successful selling in today s turbulent market. So what are the key risk factors that underline the sales environment? The process begins with exploration and qualification of the three elements of the golden triangle of sales risk: sales pipeline, sales people, and sales managers. PIPELINE AND COMMITMENTS: THE SALES PERSON S PROJECT PLAN The core process ruling the life and role of every salesperson (and their superiors above them) is that of pipeline and commitments: what deals have come into the business, and which have yet to convert. Though it may take a variety of forms, from a simple spreadsheet to the more sophisticated efforts of a complex CRM system, common features of the pipeline and commitments process can be seen across multiple organisations: regardless of size or industry sector. A commitment will be well qualified against pre-determined criteria, representing a strong degree of certainty that the deal will equate to incoming revenue for the business. Sales professionals will be expected to interrogate each aspect of any prospective deal in order to determine its likelihood of coming in before committing it to the business, allowing for management decisions to be securely made and any necessary long-term strategic planning implemented. By contrast, pipeline opportunities will typically tick off some of the qualification criteria, but will lack one or more of the significant security points required to confidently assert that it is a commitment to a deal for the business. It may be that the initial pitch was strong and feedback positive, but there are still competitors in the running to secure the deal. Perhaps a key decision maker has agreed in principle, but the salesperson has failed to meet with or gain commitment from the budget holder or other key stakeholders who can influence the decision to commit. Once digging begins into the finer details, there are a potentially infinite number of factors liable to disrupt the apple cart.

3 JUMPING THE GUN: THE RISK OF PUSHING THROUGH PIPELINE Ruled by a commission-based environment, it is the nature of sales professionals to attach optimism and hope onto the pipeline process, focusing on the immediate picture as opposed to considering the potentially disruptive factors within the micro business environment that may stand in the way of a deal concluding successfully. The lower down the sales chain the deal occurs, the greater the risk of a sales professional qualifying their own opportunities against a less stringent set of criteria than their own managers might like. Despite technological developments in the growth of CRM systems that strive to remove the potential for uncertainty, no process can fully remove margin for human error or lack of judgement. Consider the scenario in which a commitment is escalated through a business. A salesperson feels a pipeline opportunity has been sufficiently qualified to confirm it as a completed sale and adds this internally or highlights this to their line manager. This is then taken up to management or director level; at which point, long-term decisions are undertaken in order to meet demand or deliver on that commitment. Perhaps this involves the purchasing of new equipment; perhaps it means adding more heads to the business in order to increase resource. However, further down the line, the deal crumbles due to a lack of sufficient qualification. At this point, alternative internal commitments have already been made at a cost to the business, resulting potentially in a considerable loss. CONTROLLING COMMITMENTS Specific criteria or checkpoints will vary according to organisation and industry, taking into consideration the degree of risk associated with that particular business: therefore it is vital that each individual organisation tailors its commitments criteria accordingly. However, how stringent is the process in reality? How frequently is it reviewed? Resolution of sales pipeline risk requires salespeople to qualify more effectively. In the first instance, this calls for a comprehensive audit of the existing process, challenging existing criteria and assessing its historical resilience against previous sales that have come into the business.

4 CONTINUED... Salespeople, likewise, should be held to account by management and equipped with a comprehensive toolkit of questions, criteria and practices to gain full control over their prospective deals, empowering them with an understanding of the bigger picture: and the consequences of failing to qualify effectively. Over-reliance upon technology as a means for removing margin for error must be considered, with a safety net of checks both on- and off-line in order to provide an additional layer of interrogation. However, the process calls for a question of balance. In an information-driven society in which a health and safety culture inevitably introduces unnecessary red tape, there is a fine line to be trodden between mitigating risk, and overcomplicating the process to such an extent that productivity or ability to close is impacted, reducing revenue generation in the long-term. SALESPEOPLE: SUCCESSION AND RETENTION With economic recovery gathering momentum and a subsequent decrease in unemployment across the country, the UK is now engaged in an increasingly fluid and competitive marketplace. Salary and progression now outrank loyalty and security for an evermore demanding generation of school leavers and experienced personnel alike, who are moving jobs or even career sectors on average far more than ever before. With the cost of replacing lost staff members averaging anywhere between % of annual salary, depending on experience and industry, the longterm implications of low staff retention are considerable. Add into this the probable impact in terms of lost productivity, decreased sales and reduced staff morale and business organisations will find themselves facing a considerable strain on existing resources, while all along bleeding potential profit. When the only thing that is certain in business is change, pessimism pays: and a long-term approach to growth and development strategy is paramount in order to provide a safety net and protect against future risk of staff turnover. Risk can present itself in a number of forms. A continual demand for personnel is commonplace within the majority of UK industries, as new markets or the development of fresh technologies in a fast-moving environment all call for an adaptive approach in order to remain competitive. Promotion and progression or even underperformance amongst existing employees will all present talent gaps which must be addressed. High flyers may be lured away by more attractive packages from competitors, previous top performances may tally up 3 consecutive quarters of poor performance or life can simply present hurdles such as illness, moves or career changes. All will see people leave business organisations. Without effective planning and preparation, any business may find itself liable to the threat of an empty C-suite or, worse still, management positions being filled by those who lack the sufficient skills or experience to deliver. Holding onto top talent and investing in progression and development have risen as some of the top ranking issues on the management agenda for 2014/15, with 74% of organisations stating that retention of top staff featured as one of the primary concerns for the coming year* (*based on internal research figures, compiled by Pareto, August 2014).

5 CONTINUED... Ability to impact staff retention begins with an understanding of the motivational factors governing employee stickability : and many may contrast to what top-end managers expect, or have historically considered a priority. Benefits packages have shifted within the UK business culture from prioritising commission, incentives, a mobile or a car to include the likes of flexible working opportunities, investment into learning and development, progression opportunities and merit benefits such as healthcare. A simple internal survey can quickly identify those factors considered a priority, while regular reviews provide a means of auditing staff job satisfaction and morale: identifying potential risk factors before they manifest in the guise of expensive staff turnover rates. FRESH BLOOD In some instances, even the ability to retain top talent comes with a price. For those organisations pioneering internal talent management or succession strategies, there is a real danger of recycling the same ideas and cultural mind-set, resulting in a potential state of stasis or inhibiting that organisation s ability to innovate and progress. Fresh talent brings with it a fresh outlook: with supporters of some of the UK s leading graduate development programmes testifying that those who are brought in at an entry-level are pioneers in driving change and growth. In order to de-risk the sales process long-term, succession planning must consider the role of new entrants into the business, planning for a continual influx of talent who will step into the shoes of those predecessors that either move up or on from an organisation. Grown in the image of the company that nurtures them, these entry-level professionals offer a uniquely valuable source of talent to contribute towards the long-term objectives of the business. What s more, home-grown sales personnel will help limit the risks associated with lack of resource when there is a need to respond rapidly to increased demand, and reduce the need to bring in external senior talent whose abilities, experience or sales habits may not necessarily match the industry sector, product or culture of the organisation. PEOPLE DON T LEAVE COMPANIES, THEY LEAVE LEADERS As the daily touch-point for the majority of sales professionals, sales managers provide a valuable source of coaching, motivation and accountability, serving a central role in the achievement of overall company objectives by driving activity levels and monitoring performance. It therefore comes as no surprise that when questioned around the reasons why they would consider leaving any given role, a study of sales professionals identified a poor working relationship with management as one of the top factors that would result in giving notice: regardless of job satisfaction levels with the role overall. Given their central position in not only contributing to staff retention but also sales activity overall, sales managers present perhaps one of the greatest risk factors in the sales process. Traditional progression routes within the sales industry tend to be built on a reward-basis, with high-flyers or top sales achievers who consistently deliver on targets earning recognition through promotion. Many will stumble into management positions in which they are expected to pass on expertise to more junior members, bringing to the table a wealth of sales experience: but limited, if any, management experience. The process can be hugely beneficial when it goes well; but equally devastating

6 CONTINUED... to sales success when it goes wrong. Sales managers who fail to deliver will not only increase the risk of lower-level sales people leaving as a result of potentially sour relationships, but may also have a wider-spread impact on overall company performance due to poor strategic and tactical management of the sales process. What s more, sales-orientated managers will typically focus on continuing to achieve their personal targets over and above the achievement of company-wide objectives: it stands to reason, therefore, that it may not necessarily be the best sales people who make the best managers. The answer lies in not only progressing the right individuals to management, but also equipping those members of the team with the vital skills they require to drive results through their teams. Specialised training and accreditation programmes will ensure sales managers are empowered to recognise the different expectations of a management position, and balance the needs of their own sales roles with the responsibilities that contribute towards overall company success. IDENTIFY, ANALYSE, ASSESS, ADDRESS. Risk is a foundational part of any area of life, business included. Those who are afraid to take risks will fall behind those willing to think outside the box, losing out on future business and growth opportunities due to a lack of innovation. Without risk, the world would be without the delights of Facebook, antibiotics or the aeroplane. However, there are different levels of risk and successful identification and management of their potential impact is a cornerstone for long-term successful business practice. While no-one can account for every eventuality, identification of those factors most likely to implicate business is the first stage in mitigating its potential impact. Business leaders must analyse the extent of its reach and assess whether those risks are worth, on a cost-benefit basis, the potential outcomes. Reckless risks that can result in long-term implications for business performance, such as headcount, management or poorly qualified pipeline, have no place in the world of sales: and present an opportunity to accelerate growth and drive performance, if only managed successfully.

7 Reckless risks that can result in long-term implications for business performance, such as headcount, management or poorly qualified pipeline, have no place in the world of sales: and present an opportunity to accelerate growth and drive performance, if only managed successfully. Call Pareto today for more information on or HEAD OFFICE ADDRESS Pareto House, Church Street, Wilmslow SK9 1AX T W E info@pareto.co.uk