Case assignment - summary of a marketing article
summer220
match-your-sales-force-structure-to-your-business-life-cycle.pdf
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SPECIAL DOUBLE ISSUE: SALES
S mart bicycle-racing teams match their strategies to the stages
of a race in order to win. In the flat stretches, team members
take turns riding in front because it’s easier for the team leader
to pedal when someone ahead is cutting the wind. In the moun-
tains, some riders make the task easier for the leader by setting
the pace and by choosing the best line of ascent. In the time trials, a few
team members maintain steady speeds over long distances to lower the
team’s average finishing time. Talent always matters, but in most races,
the way teams deploy talent over time, in different formations in dif-
ferent contexts, makes the difference between winning and losing.
by Andris A. Zoltners, Prabhakant Sinha, and Sally E. Lorimer
Match Your Sales Force Structure
The organization and goals of a sales force have to change as businesses start up, grow, mature, and decline.
to Your Business Life Cycle
That’s a lesson sales leaders must learn. Although com-
panies devote considerable time and money to managing
their sales forces, few focus much thought on how the
sales force needs to change over the life cycle of a prod-
uct or a business. However, shifts in the sales force’s struc-
ture are essential if a company wants to keep winning the
race for customers. Specifically, companies must alter four
factors over time: the roles that the sales force and selling
partners play; the size of the sales force; the sales force’s
degree of specialization; and how salespeople apportion
their efforts among different customers, products, and
activities. These variables are critical because they deter-
mine how quickly sales forces respond to market oppor-
tunities; they influence sales forces’ performance; and
they affect companies’ revenues, costs, and profitability.
Admittedly, it isn’t easy for a company to change the
composition and activities of its sales force. Salespeople
and customers resist change, often quite fiercely. If a com-
pany starts hiring specialists instead of general-purpose
salespeople, for example, or reassigns accounts from sales
reps in the field to telesales staff, existing salespeople will
have to learn how to sell different products and will have
to terminate some customer relationships. If they earn
commissions or bonuses, their income may fall in the
short run. Customers, too, will have to adjust to new pro-
cesses and establish relationships with new salespeople.
As a result, businesses tend to change their sales structures
only when major events – such as the failure to meet tar-
gets, a change in rivals’ strategies, or mergers – force them
to do so.
This conservatism doesn’t serve companies well. The
sales force structure that works during start-up is different
from what works when the business is growing, during its
maturity, and through its decline. The four life-cycle
phases aren’t mutually exclusive; some companies display
characteristics of more than one stage at the same time.
Many businesses go through the four stages in turn, but
when new technologies or markets emerge, companies
can also move nonsequentially through the life cycle
stages. These days, businesses tend to go through the four
phases more quickly than they used to, which makes it
even more important to have a flexible sales force.
Over the past 25 years, we and our colleagues at ZS
Associates have studied the sales force structures of ap-
proximately 2,500 businesses in 68 countries. Our re-
search shows that companies that change their sales force
structures in ways that correspond loosely to the stages
a product or business goes through in its life cycle are
more successful than those that don’t.
During start-up, smart companies focus on whether
they should depend on selling partners or create their
own sales forces. If they decide to set up sales organiza-
tions, they pay a lot of attention to sizing them correctly.
As companies grow, sizing issues become even more im-
portant. In addition, executives must decide when to in-
vest in specialist sales forces. When businesses hit matu-
rity, the emphasis shifts to making sales forces more
effective by appointing account managers and better al-
locating salespeople’s resources, and making them more
cost-efficient by using less expensive people such as tele-
sales staff and sales assistants. Finally, as organizations go
into decline, sales leaders’ attention shifts to reducing the
size of sales forces and using even more cost-efficient ways
to cover markets. In the following pages, we’ll explore in
depth how companies can develop the best sales force
structures for each of the four stages of the business life
cycle. (See the exhibit “The Four Factors for a Successful
Sales Force.”)
Start-Up: Making the Right Moves Early
S ales leaders of new companies and new divisions of
existing companies are eager to exploit opportuni-
ties in the marketplace and are under pressure to
demonstrate success quickly. While a start-up has
to worry constantly about selling costs, a new division can
draw on some of the parent company’s financial and human
resources. Still, since both their sales forces must create
awareness about new products and generate quick sales,
the organizations face the same structural dilemmas.
Do it yourself, or outsource? The central decision that a new business must make is whether it should sell its
products directly to customers or sell them through part-
ners. Although many entrepreneurs outsource the sales
function, that may not always be the right decision.
To be sure, by tying up with other companies, new ven-
tures save the costs of building and maintaining sales
forces. Partnerships can also help executives manage risk
better since start-ups often pay only commissions on sales;
if products don’t sell, their costs are minimal. Moreover,
new businesses can enter markets rapidly by working
alongside companies that have sales expertise, influence
over sales channels, and relationships with potential cus-
tomers. For example, in the 1990s, Siebel Systems used
systems integration consultants, such as Accenture, to
build its enterprise software business quickly.
Companies that decide to outsource the sales function
should segment the market and develop sales processes
82 harvard business review | hbr.org
SPECIAL DOUBLE ISSUE: SALES
Andris A. Zoltners ([email protected]) is a
professor of marketing at Northwestern University’s Kellogg
School of Management in Evanston, Illinois. He is also a
cochairman of ZS Associates, a global business-consulting
firm headquartered in Evanston. Prabhakant Sinha
([email protected]) is a cochairman of ZS
Associates. Sally E. Lorimer ([email protected]) is a
marketing and sales consultant and a business writer based
in Northville, Michigan. Zoltners, Sinha, and Lorimer are
the authors of three books on sales force management.
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that meet each segment’s needs. Then they should select
a partner, or partners, that will implement those selling
processes effectively. To succeed, a company needs its
selling partners’ attention. Start-ups must develop partner
management systems that include marketing programs
and incentive schemes and appoint partner managers
who provide selling partners with encouragement, pro-
cess assistance, sales analytics, and end-user data. All too
frequently, companies rely on money to motivate part-
ners, not realizing that incentives aren’t a substitute for
systems and supervision. Companies should track perfor-
mance closely, quickly terminate agreements with part-
ners that don’t perform well, and shift to selling directly
when it’s in their long-term interest to do so.
In our experience, many businesses depend on their
selling partners for too long. When companies outsource
the sales function, they don’t control the selling activity,
have little power over salespeople, gain no channel power,
and don’t own customer relationships. As time goes by, it
becomes more, not less, difficult to reduce dependence on
selling partners. Many firms become stuck in partnerships
that inhibit growth. Take the case of SonoSite. When it
launched the world’s first handheld ultrasound machine
in 1999, the company decided to use a well-known distrib-
utor to sell the product in the United States. Since the
ultrasound device was technologically complex, the dis-
tributor needed to educate potential customers. That re-
quired a multistep selling process, which the distributor
didn’t use for the other products it sold. After two years of
disappointing sales, SonoSite dropped the distributor and
started selling the device itself. A year after it had staffed
its sales force fully, its revenues rose by 79%.
Although outsourcing is popular today, we’re con-
vinced that companies should use selling partners only if
they stand to gain strategic advantages as well as cost
benefits. Those advantages come in several flavors. Many
partners turn products into solutions, which can greatly
increase sales. For example, value-added resellers create
systems that combine their own software with computer
hardware from different manufacturers. Start-ups also
gain access to customers when their products become
part of an assortment that a partner offers. For instance,
a computer accessories manufacturer could benefit by
tying up with distributor CDW, which delivers a range of
computer-related equipment to companies in the United
States. Only when partners provide strategic advantages
are selling relationships likely to endure.
How big should the sales staff be? During the start-up phase, sales forces have to educate potential customers
about products and change customers’ buying processes
before they can generate sales. Salespeople also must
chase down and make every possible sale in order to drive
business. That’s a lot of work, but new ventures have lim-
ited capital to invest in attracting and developing good
salespeople. As a result, many new businesses adopt an
“earn your way” approach to sizing their sales forces –
they start small and add more feet on the street after they
have generated the money to pay for them.
july–august 2006 83
M a t ch Yo u r S a l e s Fo r c e S t r u c t u r e t o Yo u r B u s i n e s s L i fe C y c l e
The Four Factors for a Successful Sales Force A company must focus on different aspects of its sales force structure over the life cycle of the business,
just as it matches customer strategy to the life cycle of a product.
Start-Up Growth Maturity Decline
ROLE OF SALES FORCE AND SELLING PARTNERS
SIZE OF SALES FORCE
DEGREE OF SPECIALIZATION
SALES FORCE RESOURCE ALLOCATION
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Create awareness and generate quick product uptake
Penetrate deeper into existing segments and develop new ones
Focus on efficiently serving and retaining existing customers
Emphasize efficiency, protect critical customer relationships, exit unprofitable segments
EMPHASIS
UNDERLYING CUSTOMER STRATEGY
BUSINESS LIFE CYCLE STAGE
This approach sounds eminently logical but often re-
sults in companies leaving money on the table (see the ex-
hibit “How Sales Sizing Strategies Stack Up”). Between
1998 and 2004, we forecast the sales and profit implica-
tions of different sales force sizes for 11 start-ups in the
health care industry. In ten of the companies, sales lead-
ers chose to create teams that were smaller than the op-
timal size. In fact, the average size was just 64% of the
optimal. By not hiring enough salespeople, each of those
companies missed the opportunity to earn tens of mil-
lions of dollars in additional sales and profits in their
first three years. Tellingly, only one business sized its
sales force optimally during the start-up stage – and it
went on to become the leader in an overcrowded market
segment.
We don’t fault sales leaders for investing cautiously
when they are short of cash or if the future is uncertain.
The trouble is, most companies don’t increase their invest-
ments in sales forces even when the future becomes clear.
The moment signs of success emerge, businesses should
increase the size of their sales forces quickly and aggres-
sively. Otherwise, they will forfeit sales and profits – and,
perhaps, even their futures.
On the flip side, start-up divisions of existing companies
often overinvest in salespeople. Their desire to be compet-
itive results in sales forces that, given the nature of the
business opportunity, are too big to be profitable.
Growth: Building on Success
D uring the start-up stage, many companies’ product
lines are narrow, and they operate in a small num-
ber of markets. As businesses grow, their product
portfolios expand, and their sales forces have to call
on prospects in a broader set of markets. This presents sales
managers with two challenges: specialization and size.
The need to specialize. In the growth phase, it’s not sufficient for many companies to maintain a sales force of
generalists who sell the entire product line to all markets.
Salespeople need to master multiple products, markets,
and selling tasks at this stage. As repeat sales become a
larger proportion of sales, customers will require service
and support, adding to salespeople’s workloads. As tasks
grow beyond the salespeople’s capacity to perform their
jobs, they are likely to drop the customers, products, and
selling activities that are most difficult to manage. Unfor-
tunately, what they drop may be lucrative or strategic op-
portunities for the business. At this point, companies need
to set up specialist sales forces.
Some specialist sales teams focus on products, others
on markets, and still others on customer segments. Sales
forces can also specialize in certain activities: Some
salespeople concentrate on acquiring customers and oth-
ers on servicing existing customers. Every kind of special-
ization has benefits and costs. For instance, specialization
by markets reduces salespeople’s focus on products, while
product or activity specialization forces customers to deal
with multiple salespeople. Many companies therefore cre-
ate hybrid structures that include a mix of generalists as
well as market, product, and activity specialists. One well-
known software company has hired account managers
to focus on all the needs of its major customers. The com-
pany’s product specialists call on midsize clients that
don’t generate enough business to warrant account man-
agers, and its generalist salespeople cover small compa-
nies whose needs don’t justify visits by several product
specialists.
The transition from a multipurpose sales force to a spe-
cialized one is always tough. The work changes consider-
ably, and customer relationships are disrupted. Sales
forces may need to adopt team-based selling techniques,
making coordination and collaboration vital. The people
who succeed in a team-based setting are likely to be dif-
ferent from the lone wolves who do well in a traditional
sales force. Consequently, companies may have to recast
parts of their sales forces.
Rejuvenated businesses face a slightly different predic-
ament. When a company goes back into growth gear after
a period of maturity or decline, its new offerings will have
different value propositions and will open up new mar-
kets. Salespeople will need to sell differently, and they’ll
need retraining to do so. Companies may consider split-
ting their sales forces into groups that specialize in selling
old and new products. If neither education nor restructur-
ing delivers results, the company may have to replace the
sales force.
Companies must revisit sizing issues when they move
from generalist sales forces to specialist ones. On the one
hand, specialists will have to cover larger distances than
generalists did in order to call on the same number of cus-
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SPECIAL DOUBLE ISSUE: SALES
The moment signs of success emerge, businesses should increase
the size of their sales forces quickly and aggressively.
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tomers; this means they’ll lose time in travel. The com-
pany will therefore need more of them to cover its cus-
tomer base. On the other hand, specialists are more effec-
tive than generalists are, so each sales call will be more
profitable.
Getting the size right. Growth is usually a happy time in the evolution of a sales force. Sales come in relatively
easily, and salespeople are full of optimism. Even so, com-
panies often make critical errors in sizing their sales
forces. They continue to understaff, and as a result, they’re
unable to capitalize on all the opportunities that exist.
Most companies invest conservatively in salespeople
because they don’t realize that increasing the size of the
sales force has short-term and long-term consequences.
When new salespeople come on board, they initially gen-
erate small revenue increases. As time goes by, their im-
pact gets bigger. That happens for several reasons. First,
new salespeople are not as effective as they will be when
they become veterans. Second, in markets with long sell-
ing cycles, it takes months of effort before salespeople
clinch sales. Third, many purchases, especially in business
markets, are not onetime orders but multiyear contracts.
Finally, carryover sales–sales that accrue in the future but
are the result of sales efforts in the present – vary across
products and markets, but they represent a significant
portion of every company’s long-term revenues.
When a company increases the size of its sales force, it
doesn’t maximize sales or profits at first. Over time, how-
ever, the company will make more profits than if it had
started with a smaller sales force. We analyzed data from
sizing studies that ZS Associates conducted between 1998
and 2001 for 50 companies. We found that the sales force
size that maximizes companies’ three-year profits is 18%
larger, on average, than the size that maximizes one-year
profits. Such findings create competing priorities for sales
leaders, who want long-term success but feel pressure to
meet annual profit targets. Besides, they rightly believe
that three-year projections are less accurate than one-year
forecasts. A cautious approach is justified if there is con-
siderable uncertainty over the future, but most sales lead-
ers favor cost-minimizing tactics over profit-maximizing
ones, even when the likelihood of success is high. Conse-
quently, they don’t hire enough salespeople to exploit the
market fully.
Behavioral influences, too, exert pressure on executives
to keep sales forces small. Most salespeople resist giving
up accounts. They argue that new sales territories aren’t
justified; some threaten to join competitors if manage-
july–august 2006 85
M a t ch Yo u r S a l e s Fo r c e S t r u c t u r e t o Yo u r B u s i n e s s L i fe C y c l e
Year 1 Year 2 Year 3
$84M
$321M
Year 1 Year 2 Year 3
$83M
$351M
QUICK BUILDPLAY IT SAFEEARN YOUR WAY
380 380 380
sales force size
year 1 contribution
3-year total contribution
Year 1 Year 2 Year 3
350 380 380
320 350
380
$87M
$301M
In their infancy, companies often undersize sales forces. The charts show the impact of three different siz-
ing scenarios on one pharmaceutical company’s profits. The figures are projections based on mathemati-
cal models. The pharmaceutical company, which started with 300 salespeople, found that an “earn your
way” approach to staffing (increasing the sales force only as fast as revenues increase) resulted in the high-
est first-year contribution, but it yielded the lowest three-year contribution. The longer-term contribution
was highest with a “quick build” strategy (quickly ramping up the size of the sales force to the long-term
optimal level).
How Sales Sizing Strategies Stack Up
ment reduces their accounts bases. For instance, in 2005,
when an American medical devices company set out to
add 25 sales territories, salespeople and sales managers re-
sisted. They exerted so much pressure that the company
eventually created only 12 new territories, which resulted
in lower sales and profits than the business could have
generated by hiring more salespeople.
Sales leaders can reduce this kind of resistance by fos-
tering a culture of change. They must set expectations
early, so that salespeople realize from the outset that, as
the business grows, there will be changes in territories
and compensation. Some companies periodically re-
assign accounts between territories to maintain the right
balance. Others set lower commission rates on repeat
sales, or pay commissions, after the first year, only after
a salesperson’s revenues exceed a certain level. These tac-
tics give companies the flexibility to expand territories
and sales forces in the future.
A company should determine the most appropriate
size for its sales force by evaluating the probable size of the
opportunity and assessing the potential risks of pursuing
an aggressive or conservative approach. An aggressive
strategy is appropriate when the business has a high like-
lihood of success and management has confidence in the
sales projections. A more conservative strategy works
when greater uncertainty surrounds the business’s success.
Two types of sizing errors are common. First, if sales
force growth is aggressive, but the market opportunity is
moderate, the company will end up having to reduce its
sales force. Second, if sales force growth is conservative,
but the market opportunity is large, a business may forfeit
its best chance to become a market leader. To make bet-
ter decisions about sales force sizing, companies must in-
vest in market research and in developing forecasting
methods and sales response analytics. (See the exhibit
“Sizing the Sales Force by the Numbers.”)
Maturity: The Quest for Effectiveness and Efficiency
E ventually, products and services start to lose their
advantage, competition intensifies, and margins
erode. At this stage, sales leaders must rely more on
resourcefulness than on increasing the scale of the
sales effort. Their strategy should emphasize retaining
customers, serving existing segments, and increasing the
efficiency and effectiveness of the sales force.
Optimizing resources. In the maturity phase, compa- nies must focus on optimizing the sales force’s effective-
ness. A study we conducted in 2001 shows that mature
companies boosted their gross margins by 4.5% when they
resized their sales forces and allocated resources better.
While 29% of those gains came because the companies
corrected the size of their sales forces, 71% of the gains
were the result of changes in resource utilization.
Companies often don’t optimize the allocation of their
sales resources for several reasons. First, they use the wrong
rules. For instance, executives often target customers with
the highest potential even though these customers pre-
fer to buy from competitors. Smart companies allocate
more resources to products and markets that respond
well to salespeople. Second, businesses frequently don’t
have data on the sales potential of accounts and territo-
ries or the responsiveness of potential customers to sales
efforts.
There are no shortcuts on the road to effectiveness,
though. Organizations can allocate resources best if they
measure how responsive different products and markets
are to sales efforts. Executives can do that by comparing
sales results among similar-sized customers to whom they
allotted different levels of effort. That analysis allows a
company to evaluate the financial implications of differ-
ent allocation scenarios. The company can then manage
its sales force, even offering incentives on occasion, so that
salespeople expend effort in the most productive ways.
(See the exhibit “Optimizing the Maturity Phase.”)
Businesses often find sales effort wasted. Some sales-
people try to sell everything in the bag; others spend too
much time with familiar or easy-to-sell products. Product
managers may dangle the wrong incentives, distracting
salespeople from spending time with more profitable of-
ferings. In mathematical terms, a company maximizes
long-term profits from its sales force when the incremen-
tal return on sales force effort is equal across products.
But according to a study ZS Associates conducted in 2001,
the ratio of the largest incremental return to the smallest
return often runs as high as 8:1. That suggests a serious
misallocation of selling effort among products. For in-
stance, one business we studied wanted 100 salespeople to
sell 37 products. Each item would have received, on aver-
age, just 2.7% of the sales force’s time. An analysis revealed
that the company’s profits would soar if the sales force
concentrated on just eight products. In fact, our studies
show that focused strategies usually deliver better results
than across-the-board ones. Thus, a company makes the
greatest profits when its sales force spends its time with
the most valuable subset of customers or with the most
valuable products in its basket.
Good territorial alignment – the assignment of accounts,
prospects, or geographies to salespeople – is a frequently
overlooked productivity tool. When businesses adopt un-
systematic approaches to carving up territories, sales force
effort will not match customer needs. To measure the ex-
tent of the problem, in 2000, we analyzed data from 36
territorial alignment studies that we had conducted in
eight industries in the United States and Canada. Our
analysis showed that 55% of sales territories were either
too large or too small. Because of the mismatches, busi-
nesses were passing up between 2% and 7% of revenues
every year. Companies can create and maintain territorial
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SPECIAL DOUBLE ISSUE: SALES
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Break-even =
0.25
0.50
0.75
1.00
1.25
1.50
1.75
2.00
2.25
2.50
2.75
3.00
3.25
3.50
3.75
4.00
0%
−75%
−50%
−25%
0%
25%
50%
75%
100%
125%
150%
175%
200%
225%
250%
275%
300%
10%
−72%
−45%
−17%
11%
39%
67%
94%
122%
150%
178%
205%
233%
261%
289%
316%
344%
20%
−69%
−38%
−7%
24%
55%
86%
117%
148%
179%
210%
241%
272%
303%
334%
365%
396%
30%
−65%
−31%
4%
39%
74%
109%
143%
178%
213%
248%
282%
317%
352%
387%
421%
456%
40%
−61%
−22%
17%
56%
95%
134%
173%
212%
251%
290%
329%
368%
407%
446%
485%
524%
50%
−56%
−13%
31%
75%
119%
163%
206%
250%
294%
338%
381%
425%
469%
513%
556%
600%
60%
−51%
−2%
47%
96%
145%
194%
243%
292%
341%
390%
439%
488%
537%
586%
635%
684%
70%
−45%
10%
64%
119%
174%
229%
283%
338%
393%
448%
502%
557%
612%
667%
721%
776%
80%
−39%
22%
83%
144%
205%
266%
327%
388%
449%
510%
571%
632%
693%
754%
815%
876%
90%
−32%
36%
103%
171%
239%
307%
374%
442%
510%
578%
645%
713%
781%
849%
916%
984%
NEW SALES- PERSON SALES /
BREAK-EVEN SALES
CARRYOVER
Sizing the Sales Force by the Numbers Every company in growth mode should conduct a break-even analysis to check if its sales force is the right size. That involves com-
puting the break-even ratio (the ratio of the incremental sales revenue per additional salesperson to the break-even sales), estimat-
ing the carryover sales rates, and using those estimates to determine the three-year return on investment in sales staff.
To determine the break-even ratio:
1. Estimate the annual cost of a salesperson (C), the gross margin (M), which is the amount of sales revenue that the business keeps as profit after deducting variable costs, and the gross margin rate (MR) which is gross margin expressed as a percentage of sales revenue.
2. Calculate break-even sales by dividing the cost of a salesperson by the gross margin rate. (C ÷ MR = B). That’s the amount a salesperson must sell in a year to cover his or her costs.
3. Estimate the incremental sales revenue that an additional salesperson could generate in a year. (I) 4. Divide the incremental sales revenue per additional salesperson by the break-even sales to compute
the break-even ratio (I ÷ B). A ratio of 2.00, for instance, implies that a new salesperson will generate gross margin equal to twice his or her cost in a year.
To determine the carryover sales percentage:
5. Estimate the percentage, based on past trends, of this year’s sales that the company will retain in future years without any sales force effort. Those are the carryover sales percentages (K2 for next year and K3 for the year after).
To determine the three-year ROI on sales staff:
6. Take the sum of the gross margin on the incremental sales revenue that an additional salesperson can generate in year 1, the incremental gross margin on carryover sales in year 2, and the incremental
gross margin on carryover sales in year 3.
7. Subtract from that sum the annual cost of an additional salesperson. 8. Divide the total by the additional salesperson’s annual cost. The result is expressed as a percentage.
The formula looks like this: [(MR × I) + (MR × I × K2) + (MR × I × K3) − C] ÷ C
The break-even ratio and the first-year carryover rate can tell you how to size your sales force. In the table below, the numbers in
each cell represent three-year returns on sales force investment. Businesses can set their own criteria, but in our experience, com-
panies have sized their sales forces optimally when the ROI is between 50% and 150%. If the ROI is below 50%, the sales force is too
large, and if it is over 150%, the force is too small.
july–august 2006 87
Carryover =
ROI =
Oversized Right size Undersized
K2 K3
alignment by measuring the time and effort necessary to
service customers every year. They should take accounts
away from salespeople who can’t give them sufficient at-
tention and transfer the accounts to those who don’t have
enough work.
The account manager’s emergence. Many a business discovers in the maturity stage that the use of product
specialists is posing coordination problems and confusing
customers that must deal with several salespeople. Smart
companies appoint managers for the largest accounts.
These account managers coordinate the sales effort and
bring in product specialists when customers need exper-
tise. In addition to increasing revenues, the appointment
of account managers boosts customer satisfaction and
often reduces selling costs. During an American medical-
products company’s growth phase in the 1990s, it added
a specialist sales force for almost every new product it
launched. Eventually, some large hospitals had more than
30 salespeople from the company visiting them every
week, many of whom called on the same contacts. Travel
costs soared, and, worse, customers became confused by
the large number of salespeople visiting them. Realiz-
ing the problem, the company reduced the number of
specialist salespeople and added managers to coordinate
selling activities at large accounts. That helped the com-
pany save costs and strengthen customer relationships.
Companies must also find the most inexpensive ways to
get work done. They can use sales assistants and part-time
salespeople to woo small or geographically dispersed cus-
tomers and to sell easy-to-understand products. Busi-
nesses can also use telesales staff to perform activities
that don’t require face-to-face contact with customers. For
example, one newspaper company we consulted with
hired sales assistants in 2005 to take over several non-
selling and administrative tasks. Before the assistants ar-
rived, salespeople spent only 35% of their time with pros-
pects and customers. The assistants’ arrival freed them to
spend more time on sales-related tasks. In addition, since
the assistants received lower salaries than the salespeople
did, the sales force’s efficiency rose sharply.
Decline: Living to Fight Another Day
C ompanies go into decline when products lose their
edge and customers shift to rivals. As CEOs search
for breakout strategies, sales forces must do every-
thing they can to help businesses remain viable.
The most vital decisions relate, as they did during the
start-up stage, to the sales force’s size and the role of sell-
ing partners, but executives’ choices depend on whether
or not they foresee a turnaround.
When a turnaround is likely. Some businesses know their decline is temporary. They plan to boost revenues
and profits in the not-too-distant future by launching new
products or by merging with other companies. However,
turnarounds often demand different sales force structures
than the ones companies have. A smart company there-
fore determines what kind of structure it will need for the
sales force to achieve its new goals. Then it identifies and
preserves elements of the current structure that are con-
sistent with the one it will need. That’s critical; executives
shouldn’t tear down the parts of the sales organization
that will be valuable in the future. For instance, compa-
nies often downsize sales forces to save costs in the short
run, although they may need more, not fewer, salespeople
to implement new strategies.
Many sales leaders take advantage of temporary de-
clines to eliminate mediocrity in their sales forces. Once
the turnaround starts, they hire salespeople who are more
qualified than the ones they let go. Sometimes what looks
like a misallocation of resources is really mediocre perfor-
mance. Take the case of a Chicago-based software com-
pany that was in decline in the 1990s. The company’s sales
process evolved appropriately, with salespeople becoming
skilled at protecting current business. When the firm
launched some new products, it realized that few of its
salespeople had the skills and appetite to pursue new
customers and markets aggressively. Instead of sacking
salespeople, the software firm created two roles: current
account managers, or “farmers,” and new business devel-
opers, or “hunters.” The veterans continued to manage ex-
isting customers, which suited their capabilities, while
sales leaders hired most of the new business developers
from outside the organization. That helped the software
company move quickly from decline to growth.
When a turnaround isn’t likely. When further decline is inevitable, sales organizations can only ensure that com-
panies remain profitable for as long as possible. Busi-
nesses should use their salespeople to service the most
profitable, loyal, and strategically important customers,
and service other accounts through low-cost selling re-
sources such as telesales staff or external partners.
Protecting the most loyal customers and the best sales-
people are top priorities. Companies need to focus loving
attention on key customers that, fearing the salespeople
managing their accounts will soon be gone, will entertain
competitive offerings. They must reassure these critical
accounts about the immediate future, particularly by re-
taining star salespeople. When the sales force starts to
worry about downsizing, the best salespeople will be the
first to leave. Even as companies prepare to let other peo-
ple go, they must pay stars handsomely to keep them. In
addition, strong leadership is essential during downsizing,
and only timely and straightforward communication
from sales leaders can maintain a reasonable level of
morale and motivation.
To decide how quickly it should reduce head count,
a company must assess the market opportunity that re-
mains and the risks of different downsizing strategies.
A gradual sales force reduction works well when the op-
88 harvard business review | hbr.org
SPECIAL DOUBLE ISSUE: SALES
portunity is declining at a modest rate, but it is a poor
strategy when the market is disappearing quickly. Errors
are common. Many businesses downsize the sales force
slowly, remaining hopeful between each wave of layoffs
that the trend will reverse. When it doesn’t, the high cost
of the sales force will render the company unprofitable
faster. One common tactic for gradual downsizing is a hir-
ing freeze. That isn’t an effective way to downsize sales
forces, particularly when the opportunity decline is signif-
icant. Sales force attrition usually doesn’t occur quickly,
and if salespeople who cover important accounts leave,
a hiring freeze will result in suboptimal market coverage.
Rapid sales force reduction is the best course when the
market is in a steep decline. Survivors will know they have
some kind of job security, customers will have greater con-
fidence about what the future holds, and sales leaders
can start building a smaller, more focused sales organiza-
tion. The risk with rapid sales force reduction, though,
is that if the decline turns out to be less severe than ex-
pected, more people will lose their jobs than necessary.
Although the business will remain profitable for a while,
the rate of decline will be greater than if head count re-
ductions had been modest. If there’s a lot of uncertainty
about the rate at which the market is shrinking, compa-
nies should consider downsizing the sales force in small
but discrete steps.
Improving the efficiency of sales forces and searching
for lower-cost selling channels are critical when compa-
nies are in decline. By using less-expensive selling re-
sources, companies can continue selling to some seg- YY EE
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july–august 2006 89
M a t ch Yo u r S a l e s Fo r c e S t r u c t u r e t o Yo u r B u s i n e s s L i fe C y c l e
Optimizing the Maturity Phase Mature companies optimize their resources when sales forces focus on the customers,
products, and selling activities that generate the highest response to their sales efforts.
To do that, sales leaders must ask themselves the following questions:
What market segments should we focus on: - High volume or low volume? - Highly profitable or less profitable? - National accounts or smaller accounts? - New or old accounts? What industries do we call on? What geographic areas do we focus on: local, regional, national, or international? Which accounts should headquarters staff call on, and which should field sales call on?
What products should we focus on: - Existing or new? - High volume or relatively low volume? - Easy to sell or hard to sell? - Familiar or unfamiliar? - Differentiated or nondifferentiated? - Products with long selling cycles
or short selling cycles? - Products with high short-term impact
and low carryover or with low short- term impact and high carryover?
What activities should we focus on: - Hunting for new customers or
retaining old customers? - Selling or servicing? How do we allocate relationship experts, product experts, and industry experts?
Customer Product Activity
R E S O U R C E A L L O C A T I O N D E C I S I O N S
ments. That entails moving the coverage of some custom-
ers from specialty salespeople to generalists, and shifting
the coverage of other customers from field salespeople to
telesales staff. As in the maturity stage, companies can
shift the selling of easy-to-understand products and the
execution of administrative tasks to less expensive re-
sources, such as sales assistants, telesales staff, part-time
salespeople, and the Internet.
It’s not easy, but a systematic cost-reduction program
can help companies live to fight another day. Take the
case of an American lubricant manufacturer that in early
2005 needed to cut costs radically to preserve profitabil-
ity. The company revised its channel strategy, moving the
coverage of thousands of customers to selling partners.
Those partners had less expensive overheads, such as of-
fice space and employee benefits, so their costs were lower
than those of the manufacturer. The company shrank its
sales force and got the remaining salespeople to focus on
selling only to large customers. By the end of the year, the
lubricant company had turned the corner.
• • •
Sales leaders who try to match sales force structures with
the business life cycle face different challenges at every
stage. The common thread, though, is that they must
overcome organizational resistance at each step and sac-
rifice short-term profits to secure their companies’ success
over time.
Reprint R0607F
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