The company strategy is the road-map or should be. So if your adapting your strategy for the current downturn your probably doing the wrong thing.
There are five criteria for a good strategy according to Michael Porter:
- A unique value proposition. “If you don’t have one, you’re competing on operational excellence but unlikely to achieve superiority.”
- A different, tailored value chain. “If not, you are competing on operational excellence — who can do the same thing better?”
- Clear trade-offs, and choosing what not to do. “If you choose what to do, you have to also choose what not to do because they are incompatible. It’s very hard because trade-offs limit opportunity.”
- Activities that fit together and reinforce each other. Porter said to harness the synergies across the value chain instead of discrete advantages.
- Strategic continuity with continual improvement in realization. “Strategy takes about three years to kick in. If you shift strategy every year, year and a half, you’ll never get there.”
The key takeouts are that your objectives and strategy in the long term should not change - but your short term objectives, your tactics, mission statement may well adapt to circumstances. As an example, do you think that Ikea will move away from its flat-pak furniture, with Allen key and inexpensive but funky design as a result of the downturn?
The question is “What is a typical close rate?” and do you measure it? ( answer below)
According to US research recently presented at a seminar by EY all the key metrics are falling:
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Initial Contact to Meetings ( about 1:3)
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Meetings to proposals ( about 1:2.5)
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Proposals to sales ( less than 1:5)
Couple that with more than 40% of sales reps not making quota and you have a big problem. Current trends of cutting underperforming sales staff will not fix the problem as the staff who do make quota are only peddling quicker – not changing their behaviour. At the same time the marketing budget is being cut and the quality of leads is not improving.
So if you work for a major vendor, you will certainly be attending lots of forecasting meetings and if its not revenue generating in the this quarter then don’t think about it. If you are a channel partner for an intergalactic company - then you may get a few calls a day checking on the status of a deal - and asking you to commit to the number.
So what can you do?
Let’s be honest, its too late for this quarter. But the focus should be:
- Target Sales & Marketing activities to the most creditworthy customers and industries ( e.g. Government, Health)*
- Use creative terms of sale as a competitive weapon ( move from Capex to Opex)
- Upgrade Value-added services ( differentiate so you can hold the price up)
- Be really truthful in your pipeline management ( if the deal has not progressed in 3 months then its probably gone )
- Look at deals you lost or that went away and ensure you re-engage - now, not in 12 months.
- Invest in sales and marketing systems and processes that build the top of your pipeline down through to the sales process.
- Get marketing to focus on developing real leads ( after all there’s no budget for advertising) and sales focussed on following them up ( and ensure that the definition is 100% watertight - so every marketing lead is accepted by sales.)
Answer
According to the research, for every 100 ‘leads’ at the top of the pipe the close rate will be 2.6% - put another way the failure rate is 97%! And that was data from 2007 and the 08 data is certain to be worse.
I hope that you are performing better than these companies?
I attended a seminar with Saul Eslake the chief econmist at ANZ recently. In response to a question on why the Reserve Bank reduced interest rates last month by 100 basis points - his answer was twofold - firstly because it needed to show it was serious and secondly because it could.
It was able to because of the relatively low debt it is carrying and secondly because interest rates were quite high( and so there was room to move downwards - unlike some countries like the US).
Lesson is that this is a market that will be a great target in these tough times
Every cloud has a silver lining. Many companies will be pulling back at this time and many US based companies have already instigated a hiring freeze and many have severely limited travel. The silver lining is for those companies who wish to grow during these times and will invest in marketing and sales to do it.
I think that “marketing-oriented” companies will hold the line and keep marketing spend rather than radically cut it. In the early 90’s Microsoft invested while everyone cut and grew market share - I happened to be an employee at the time and there was budget for great ideas that grew revenue - flaky ideas were cut.
Its just harder work and the mix of where you put effort and money is more critical. At the end of the day you need to generate qualified leads, build the value in your offer and get the pricing right through innovative packaging and offers.
If you think about the AIDA - awareness, interest, desire and action - different companies will have a different focus. Key will be to focus on building sales pipeline and awareness will likely be the one to be cut.
