Executives and Salespeople Are Misaligned and the Effects Are Costly

When you have a Board role, remember this post and keep your focus straight on the shareholders’ interest … MALTAWAY BOARD GOVERNANCE AND NON-EXECUTIVE DIRECTOR (NED)

U.S. companies spend over $900 billion on their sales forces, which is three times more than they spend on all ad media. Sales is, by far, the most expensive part of strategy execution for most firms. Yet, on average, companies deliver only 50% to 60% of the financial performance that their strategies and sales forecasts have promised. And more than half of executives (56%) say that their biggest challenge is ensuring that their daily decisions about strategy and resource allocation are in alignment with their companies’ strategies. That’s a lot of wasted money and effort.

So what’s the problem?

According to an assessment of over 700 sales professionals and senior executives conducted by GrowthPlay — a sales-focused consulting firm where one of us is Managing Director — the problem stems from gaps between the perceptions, attitudes, and information flows between executives and sales reps.

The assessment asked respondents — executives, middle managers, and sale reps from companies of all sizes in a variety of industries such as consumer goods, telecommunications, manufacturing, wholesaling, and travel/hospitality — to answer a series of questions about how well their companies’ strategic directions inform six critical elements of their sales approaches: their target customers, the sales tasks generated by those customers’ buying journeys, the type of sales people best suited to perform those tasks, how the firm organizes its sales and other go-to-market efforts, and the cross-functional interactions required to sell and deliver value to customers.

The results show that executives feel that they have a high level of understanding of their companies’ strategic priorities, while sales reps — who aren’t typically in the planning meetings, on the conference calls, or roaming the halls with the people crafting strategy — said they did not.

There are other gaps, too. For example, leaders sees deficiencies in most categories related to core sales tasks and sales personnel. The only category in which executives rate more positively than salespeople is compensation, which isn’t surprising since executives determines pay policies!

 

From these results, a broad story emerges: Senior leaders have a better relative understanding of the company’s direction than sale reps, but are concerned that they don’t have the right sales processes and people.

For their part, salespeople are confident in their abilities to execute, but admit they have little understanding of the strategic direction, and its implications for their behavior, at their respective companies.

To add to that, the groups are far apart on basic elements such as recruiting, hiring, training, and role alignment. You can see why a simple statement —“I’m from Corporate and I’m here to help you”— is one of the oldest jokes in many firms.

If and when leaders want to make changes, misalignment sets up a costly and frustrating cycle.

The sales force gets better and better at things that leaders and customers value less and less while remaining unclear about performance expectations.

Companies fail to get the most out of the $12 billion a year they spend on sales enablement tools and the billions more on CRM technology.

And hiring the right candidates also becomes a problem, especially as new buying processes, driven by online technologies, reshape selling tasks. If information isn’t flowing between senior execs and front-line customer-contact people, leaderswon’t be able to keep up with the new skills and sales tasks they should be hiring for.

If any or all of these steps are taken without improving the sales team’s understanding of the company’s business objectives, the result is a “competency trap”: the salesforce gets better at their routines, but these same routines keep the firm, and its top team, from gaining experience with procedures more relevant to changing market conditions.

In order to achieve alignment, companies need to break these routines and treat causes, not symptoms. This is often difficult because multiple stakeholders across functions must invest in a new approach while still meeting their own obligations to keep the current business running. But good planning and proper leadership support can help.

Consider a large home energy provider in a mature, commoditized market where deregulation is driving down revenue and profit. To spur growth, the company committed to a strategy of diversifying their product offering. This meant transforming a salesforce, which had been conditioned to sell on price, to sell value-added services.

Here is what the leadership team did:

They linked strategy to behaviors. Beginning with conversations with frontline salespeople and managers, they asked, “Are the salespeople having a conversation that helps customers see the value of these services?” In the cases where reps weren’t, the team identified the selling behaviors that needed to be abandoned and then established a new sales process and set of sales tasks that needed to be clarified and executed.

They changed their approach to training. They also committed to an intensive effort that spread the learning out over a series of weeks, allowing the incumbent salespeople to apply behaviors gradually rather than trying to learn the entire process at once.  The process was tweaked for the new hires and incorporated into their on-boarding. This is aligned with what research tells us about the importance of deliberate practice in training for results. Acquiring new behavioral skills (versus concepts) requires repetition; people must try a new behavior multiple times before it becomes practiced enough to be comfortable and effective.

Simultaneously, sales managers went through a series of development sessions to develop their coaching skills. The goal was to focus performance conversations on how sales people were serving their customers and the value-selling process inherent in the strategy.

They revamped their compensation and performance evaluations. Commissions were adjusted to reflect the importance of the value-added services, and additional incentives were added to reward those sales reps that exhibited the behaviors required to execute the strategy, not only the revenue outcomes. Further, adherence to the sales process was added to the salesperson’s evaluation scorecard and, perhaps most important, reviews were now taken seriously — by managers and individual reps — as a strategy execution and development tool, not only a compensation discussion.

They changed their hiring/recruiting efforts. The biggest personnel shift related to front-line sales managers.  The company began evaluating potential managers based on their ability to coach and reinforce the process, not simply on their performance as a salesperson.

Sales performance and competitive positioning have improved significantly for this company. Its leadership articulated the firm’s strategy in a clear and consistent manner and analyzed the gap between the current sales tasks and those required to meet the new strategic objectives. And while their approach involved elements of training, compensation, performance reviews, and hiring practices, it was the sequence in which they addressed those areas that drove alignment.

https://hbr.org/2017/01/executives-and-salespeople-are-misaligned-and-the-effects-are-costly

Firms Give More Stock Options When They’re Committing Fraud

Firms Give More Stock Options When They’re Committing Fraud

board-compensation-committee

When you have a Board role, remember this study and keep your focus straight on the shareholders interest …MALTAWAY BOARD GOVERNANCE AND NON EXECUTIVE DIRECTOR (NED)

 

Whistleblowers can play in a big role in uncovering financial misconduct. For example, look at Sherron Watkins, formerly of Enron, and Cynthia Cooper, formerly of WorldCom. Both women helped uncover massive frauds inside their organizations that ultimately cost investors billions of dollars.

Research suggests that employees are often in a position to discover and expose wrongdoing in organizations. This may be why the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act encourages employee whistleblowing: Section 922 of the Act promises to protect whistleblowers from retaliation and offers monetary awards for disclosure, which range from 10% to 30% of monetary damages collected from the company. Since this program was established, the Securities and Exchange Commission (SEC) has granted more than $111 million in awards to 34 whistleblowers, with the largest award of $30 million granted in September 2014.

While protection and rewards may encourage more employees to come forward, firms may be able to counter these incentives by making it beneficial for employees to keep quiet. In a study recently published in The Journal of Accounting and Economics, we examined whether firms use financial incentives to discourage whistleblowing. Although there are many kinds of financial incentives, we focused on stock option grants to rank-and-file employees, as this data are more readily available. Further, since the value of stock options is directly tied to the value of the firm’s stock, and because whistleblowing allegations result in an immediate decline in the firm’s stock price, employees stand to lose financially when they blow the whistle. In addition, employee stock options typically have vesting terms that require employees to wait a few years before they can exercise their options, which may act as a disincentive to blowing the whistle before they’re able to exercise their options.

Using a Stanford Law School database, we identified a sample of 663 firms that were alleged to have engaged in financial misreporting and were subject to class action shareholder litigation in U.S. federal court from 1996–2011. We examined the number of stock options granted to rank-and-file employees during the period of alleged misreporting, and we found that these firms granted more stock options during the misreporting period than did a benchmark sample of 663 similar firms that were not being investigated for financial misreporting. Option grants by these misreporting firms varied over time. Specifically, misreporting firms granted 14% more stock options to rank-and-file employees when they were allegedly misreporting their financials, but the number of options they granted decreased by 32% after they appeared to stop misreporting. These findings suggest that these firms granted additional stock options strategically during periods of alleged misreporting.

We also found that these efforts are effective. Misreporting firms that granted more stock options to rank-and-file employees were less likely to be exposed by a whistleblower. Approximately 10% of the firms in our sample were subject to a whistleblowing allegation. Firms that avoided a whistleblower granted 78% more stock options than these firms did not.

Because our sample consists only of misconduct that was discovered, our findings can’t speak to firms that engaged in financial misconduct without getting caught. In addition, our evidence is circumstantial, in that we cannot directly observe the underlying motivation for employers’ stock option grants or employees’ whistleblowing decisions. Nevertheless, while Dodd-Frank encourages employee whistleblowing by offering financial incentives of up to 30% of recovered damages and penalties, our findings suggest that firms may offer their own financial incentives to discourage whistleblowing.

Although we examine stock options grants as the primary mechanism for employers to discourage whistleblowing, there are others tactics firms can use as well. In fact, recent media reports indicate that the SEC is investigating other ways in which firms subvert whistleblowing, including having employees sign confidentiality agreements and creating severance contracts that prevent employees from contacting regulators or benefiting from government investigations. As legislators evaluate the efficacy of whistleblowing regulations, they should remember that the firms they are trying to regulate are not silent bystanders — companies can take action to discourage employees from speaking up.

https://hbr.org/2017/01/research-firms-give-more-stock-options-when-theyre-committing-fraud