Selling High End Services Through Customer Dilemmas

Having to sell intangible services is bad enough. But having to sell a complex and high end service like consulting or advertising is a nightmare. If you provide outplacement service, what do you tell and what do you sell ? How do you position yourself ?

The technique of  differentiation based on some elements of "marketing mix" - product, price, place, people, process, or physical evidence, does not work well in high end services. 

That is where the technique of selling based customer's dilemma comes in. A dilemma is defined as a choice among options that seem equally unfavorable or equally favorable. Dilemmas are not problems - because problems have solutions but dilemmdeas do not.  Dilemmas are not solved but resolved - by properly weighing competing options.   

If you sell your service as a solution to a problem, the client may say “I can do it better myself" or "I know someone who can do it as well as you". But say the same thing as an answer to his dilemma and he may get interested. For example, take the outplacement service mentioned above. Don't say "we are in the business of outplacement". Say "We help management fire one of their friends.”

Similarly, don't say "We are business lawyers" - so what is so great? Say;  “We are retained by corporate clients who are caught in a dilemma - if they move too quickly, the company may not be acting in shareholders' best interests but if they don't they may fail in their fiduciary responsibility.”

Positioning based on dilemma captures several messages at once. It conveys what you do and also the special way in which you do it.  

Dont say "we are PR consultants". Saying "We help align the company's message with its strategy" is better. But saying “we help companies develop communications in situations where communicating facts is a risk but not telling them is also a risk". 

Dont say "I am a financial planner". Say “I work with senior executives who don't trust experts but are simultaneously afraid that the world is complex and if they don't take an expert advice they may forego  opportunities.  

An HR consulting firm may say "we help clients who do not know whether to take a rigid approach to treating talent and see their best people leave or whether to treat people on a case by case basis"

"Vital Few" Profit Improvement Techniques ..

Most CEOs unleash too many profit-improvement initiatives. I recommend a simple exercise to gain perspective and create a sharper focus. Look at your current P&L and classify costs into the following four costs.

1. Costs embedded in the materials - Material cost as % of sales ( Techniques : waste reduction, vendor development, negotiations, value engineering and segmentation ) ( Segmentation is probably the best technique as it enables you to incur only those costs that are valued by the target customer and hence possible to become compensated by better prices ).
2. Time costs - Fixed Costs of facilities (1) rents and running costs of  offices /spaces (2) depreciation and running of the cost of the equipment for facilities ( Techniques : productivity improvement, scheduling, more throughput, peak-weak demand adjustment )
3. Fixed Costs of people : salaries, perks and travel ( Techniques : Motivation, Aligning, Competency development, organization roles and structure planning, selection, recruitment and on-boarding, career path planning, compensation, incentives, PMS, continuous education etc)
4. Interest costs on your working capital (inventories and debtors)( Techniques : Supply chain management, range planning, channel management)

Are you crawling, walking, running, flying ? 4 Stages of change implementation

Most CEOs are impatient to see their ideas "fly" and their decisions fructifying into business results. They must understand that any significant and cross-functional change goes through the following 4 steps : Crawl > Walk > Run > Fly

Crawling: Preparing Minds of People and Processes : The first stage of evolution is publicly admitting within the company that you have a problem and acknowledging it cannot be solved by "allocating" it one person or to the marketing function. Preparing for organizational changes to match the new strategy you need to educate internal teams and listen to them actively and seek their opinion on processes you need. 

Walking:  Marinating : Defining your engagement strategy across multiple departments and platforms. What needs to be done by whom, for whom and how. Such meaningful content "marinated" for some time is better than over-engaging too quickly.

Running: Everything is in place and functioning but yet to become a habit. By now you will have external and internal organization ( structure, systems, skills, mindset) in place and in a connected fashion. 

Flying: Becomes a second nature. By now the change you want is integrated in everything the organization does and becomes a second nature: It is reflected in all touchpoints and business functions.

3 Talent Management Tasks in front of the CEO / CPO

Recruting at entry level & also laterally

Identifying where can you find sufficient number – and right kind - of employees you need to meet your needs of organic and inorganic growth. 

• Linking business plans with manpower needs
• Entry level specifications to match available pools
• Creating a value proposition for potential recruits
• Unusual sources : temporaries, interns, people in “second careers”
• Identifying where to find “Target Employees”
• Accessing them and communicating the value proposition
• Testing,  Selecting and appointing them

Readiness for the intended role

Identifying capability gaps - knowledge, behavior, competencies – and planning to round off  these gaps and create the necessary bandwidth. 

• Inputs for determining gaps 
• Performance Management System : individual / collective
• Business Heads to identify ext shifts : Industry / competition
• Internal assessment : where are we weak ? 
• What should be our future organization
• Internal data : on competencies, 360 degree feedback system
• Trigger / Occasions
• Induction : "topping up" exercise
• Correction of performance / person
• Before / After Promotion : new role, new outlook, new skills
• Refresher and Update : rejuvenate established executives
• Preparing for Job Rotation - going into a new function
• Preparation for being a "lister" : in the "Leadership Pipeline"
• Preparing for EOL (End of Life) : Retirement, unwanted roles
• Major changes external to the organization 
• System : Design and execute OD action plan

Maintaining Organizational Readiness

Estimating attrition and taking proactive and corrective action so that sufficient number – and right kind - of employees are available to meet the needs of organic / inorganic growth. 

• Creating the right value propositions - for various employee groups - through a combination of tangible factors like compensation and facilities and intangibles like climate, motivation, collaboration, vision etc.
• Succession Planning for key positions
• Retaining Tacit knowledge / relationships from outgoing employees
• Stemming mid-career departure of future leaders 
• Creating organizational paradigm shift from “Let HR hire from outside” to “Let us build from within” 

Can Training Really Improve Business Performance ?

Is training a “necessity” or a good-to-have “commodity”? 

The answer is difficult. In their hearts, Business and HR Heads think that the training is of the former kind but if you see the way training is planned by them training seems to be more of the latter. In the board room and in the budget books – where the resources get allocated – the training is treated as being discretionary - nice to have - but only if you can afford it.  This is evident in the way the targets are set for training.

The targets are set mostly in terms of the effort : like number of days spent in training. Less frequently they are linked to evaluations - like the number of people passing the test - or the evaluation of the usefulness of the material or of the faculty.  Only in a few exceptional cases, people set training targets in terms of  measurable business results. 

This was borne out by a recent McKinsey survey which showed that 90% executives were undertaking training because of their belief  that capacity building is their priority. 25%  executives felt that  “our training has produced measurable results”. Only 8% actually tracked business results from training.

The following is an interesting case of a social sector organization called BGCA (Boys & Girls Clubs Of America) which was compelled to measure the effect of their training expenditure because, otherwise, the donors would not fund it ! 

BGCA’s Problems

Its objective was  to impart athletic and life skills to local youth through (1) Local organizations ( 1000 ) who are self-managed – they manage their own resource development, strategic planning, programming, and fund-raising (2) Clubs (4000) where BGCA runs all these activities for them. The “business” obviously depended on availability of  local and  capable leadership and, on this crucial aspect, they were facing a problems in 2008 : on the one hand they wanted to expand the number of club locations but on the other hand a lot of their existing leaders would retire soon.

Discovering correlation   

BGCA used “50 aspects of leadership” model to map the capabilities of local leaders and plotted it against the performance of the respective club and discovered correlation between which capabilities of the leaders were correlated with which aspect of performance (KRAs like member mobilization, funds raised..). They found that it was mainly 4 (out of 50 aspects) that were primarily responsible for the local performance (1) Leader’s ability to build an effective board from the local community (2)   Find and pursue effective fund raising strategies (3) Use an investor’s mind-set toward programs and resource development (4) Lead with personal tenacity and persistence.

Strategy Formulation   

These 4 objectives – with demonstrated correlation with performance – was used to build training  programs around them - and incorporated into classroom work as well as projects chosen by each local team. By  2009, over 650 leaders from approximately 250 local organizations had been trained. Since the outcome of the training was linked to improve business outcomes,  the  impact assessment was straightforward :  BGCA compared pre-post results and they also compared post-training business results with the places where the leaders were not yet trained.  It was seen that the leaders bettered their own  “pre” scores and also were better than the control group where there was no training. 

It was thus possible to make a business forecast that - if all 1,100 organizations had matched the level of success achieved by the program participants – they would see more than 350,000 new members and more than $100 million in annual incremental revenue! They also found that the gains from training in the highest quartile were 3-5  times the average  The high performers focused on aspirational projects and set clear and quantifiable goals  and took the extra step of teaching what they’d learned to the rest of their organizations.

How can this be used by you ?  

1. Pick the right business metrics in your setting. Assess your current performance against industry benchmarks or against your own  preset goals. Decide what kinds of skills are tied to different areas of performance and which performance-enhancing skills the employees lack. This is continuous process : link between skills, performance, and training programs.
2. Make appropriate comparisons within peer groups defined by preexisting performance bands or market types. It is not so easy – because it is crucial to control for the influence of external factors (for instance, the opening of new retail competitors in local markets) and of extraordinary internal factors (such as a scheduled plant shutdown for preventative maintenance) – but it can be done.

Example 1 :  A retailer – instead of just measuring the managers’ time allocation or employee-engagement data – began using hard metrics such as category wise department wise sales, basket size, and conversion rates. Managers started giving  real-time coaching and role-modeling customer-engagement techniques.

Example 2 :  A manufacturer – decided to not measure the training given to plant supervisors of lean-manufacturing -  but began tracking downtime,  overall effectiveness of equipment.

The root of most service problems is in the way you treat employees

Recently I came across some research from Cornell School of Hospitality. I suspect it is applicable to all service industries. The research said that most service problems arise from only 5 areas and these are all "employee related" :   

1. Not defining and communicating issues
2. Not focusing on training and educating employees
3. Not defining and improving processes
4. Not evaluating the results and providing feedback
5. Not catching people doing something innovative and right and then celebrate it

Explanation  : Mistakes happen because ...

• what employee should do was never defined.
• communication - original or changed - never reached the employee. 
• employees were untrained : they created service problems or missed opportunities to make a good impression.
• Processes of interaction with customers and colleagues were ill defined or inefficient.
• lack of evaluation - hence not being aware that the same problem is happening again and again
• there is a lack of motivation or / and lack of visibility of seeing the effect of one’s actions on others

Unable to acheive sales or market share targets ?

Nine Symptoms of a poor Value Proposition

Every CEO has to deal with this dilemma very frequently : whom to hold responsible for this situation? Is it marketing or is it sales or is it management ? Theoretically, this is a complex issue. But  practically you may find the following useful. 

S = f ( M, VP, GTM)

Sales is a function of 3 things : the Market you have chosen to serve, the Value Proposition you have chosen to operate in the chosen market, and finally how do you Go To Market with this value proposition. 

As a first cut I would say that 

• Management Team is responsible For choosing the market
• Marketing is responsible for selecting the market
  and the Management Team is responsible for accepting and executing it
• Sales department primarily and marketing secondarily is responsible
  for "go to market" plans : to identify, contact, persuade & transact with customers

The purpose of today's blog is to list symptoms of a poor value proposition. Naturally a CEO should turn first to marketing for an answer. Some other time I will mention the circumstances under which a CEO should turn to the sales department for an answer.

1. Your chosen customers see your product as being “me too”
2. Your customers are not clear why should they choose you
3. Your customers are not clear where they can apply your product
4. You sales force cannot get better price than your competition
5. Your profit margin is less than that of your competition
6. The money you spend on promotions does not work efficiently
7. Your sales force convert less number of calls into sales
8. Your sales force cannot convince your customers
9. Your competitors spend less but sells more

Creating SBUs is not without its side effects

The normal response of companies to increased competition and business complexity  is creation of “verticals”. Verticals are sub-organizations in the form of strategic business units (SBUs) focused on a specific sets of customers headed by Chief Operating Officers (COOs). But are there any side effects ?  

Creation of SBUs helps push decisions closer to the front line where the decision makers have a better visibility of  their customers & competitors. However, the fallout is that the COOs - driven by the metric of “next quarter’s operating profit” tend to focus on short term behaviors like (a) sweating existing competencies and assets (b) doing things that fructify within a short term (c) deferring investments in development and maintenance of enabling   functions. Unless these tendencies are checked, the creation of verticals, in the long run, proves detrimental because it channels budgets towards short term operating outcomes and deprives budgets for programs aimed at building long term corporate level competencies. 

What corporate competencies get weakened under vertical structure? 

(a)    Building really-new businesses using corporate wide resources

(b)    Making long gestation adjustments in response to environmental changes

(c)    Corporate level acquiring & hiving off businesses  

(d)   Creating long term metrics of corporate performance and creating the right culture 

(e)    Managing stakeholder expectations and winning their support

(f)     Setting and adjusting the pace of corporate wide initiatives including support functions

Overcoming the ills of SBU Creation

The remedy is not to give up creating verticals but to overlay the vertical structure with a corporate structure called Corporate Performance Council (CPC) and the recipe is as follows.

 1.   The focus will be to budget all those projects - which are essential for the company to grow its market capitalization - but which normally will not get funded by SBUs because they are guided by quarterly / annual operating profits. Projects selected by CPC  are likely to be at the corporate level with gestation beyond an year.

 2.   CPC must carve out a discrete corporate-performance budget and form a project-management office to direct the process. The people needed to drive the initiatives will be recruited either by tapping internal talent or by spending money to recruit new talent from the outside.

 3.   When an initiative succeeds and goes operational, its ongoing activities and staff are moved out of the discrete corporate-performance budget and put back into the operating budget. Unsuccessful initiatives are terminated..

 4.   CPC needs to  meet once a month for a full day to select, deploy, review and revise 4-5 such initiatives. Selection is based on ideas bubbling up through the company.  The ideas are openly debated and sponsorship is assigned early in the process. Every six months or so, the group might review the entire active portfolio of initiatives and determine which need to accelerated, scaled, tweaked or dropped.

 5.   CPC Membership : consists of major business leaders and key functional staff. There can even be up to 25. The burden should not be only on line managers.  Any member of top management with important knowledge needed to inform, debate and help implement the decisions. Those who are in the best position to see and decide trade off between current and future performance.

 6.   CPC takes collective accountability for communicating and influencing the expectations regarding future results of relevant stakeholders like customers, regulators, media, employees, shareholders and directors.

 7.   CPC should create an atmosphere where managers wouldn’t be deemed to be performing well without sponsoring new initiatives and effectively helping to carry them out.

The idea for this article came from an article in McKinsey Quarterly "Managing for improved corporate performance" by Bryan and Hulme, August 2003